To understand the new fiscal rules for FY 2026, it is helpful to look at how the “whichever is less” rule works in practice. This rule applies to the cumulative variance across all budgeted cells in a project, meaning it tracks the total amount you have spent compared to your total budget plan across the entire grant.

Here are two specific examples showing how this limit is calculated based on different grant sizes:

Example 1: Small Grant ($100,000)

For a smaller grant, the 10% limit is usually the “lesser” amount that you must follow.

  • Total Budget: $100,000
  • The Two Possible Limits:
    • 10% of the budget = $10,000
    • Standard dollar limit = $50,000
  • The “Whichever is Less” Rule: Since $10,000 is less than $50,000, your total variance limit is $10,000.
  • Result: If you spend $11,000 more than planned (even if you stay under the $100,000 total), you must file a budget amendment because you exceeded the $10,000 limit.

Example 2: Large Grant ($1,000,000)

For a larger grant, the $50,000 limit becomes the stricter rule.

  • Total Budget: $1,000,000
  • The Two Possible Limits:
    • 10% of the budget = $100,000
    • Standard dollar limit = $50,000
  • The “Whichever is Less” Rule: In this case, $50,000 is less than $100,000. Therefore, your total variance limit is capped at $50,000.
  • Result: Even though 10% of your budget is $100,000, you cannot change your spending by that much. If your cumulative variance reaches $51,000, you are required to submit a budget amendment.

Key Takeaways for FY 2026

  • Cumulative Tracking: Variance is no longer calculated just for one specific item (object total); it is the aggregate (total) of all changes across all cells in your budget.
  • Budget Amendments: You must receive approval for an amendment 30 calendar days before your project ends if you expect to exceed these new limits.
  • Consequences: Any expenditure reported in a cell that is not budgeted or falls outside these acceptable variance limits will not be accepted, which can delay your payments.

To explain the FY 2026 fiscal procedure changes to a large group, it is helpful to use a structured approach that compares the old rules with the new ones, provides clear examples of the “whichever is less” logic, and identifies where people might struggle.

Presentation Outline: Navigating the FY 2026 Variance Restrictions

  1. The “Why” Behind the Change
  • Purpose: To ensure sound accounting practices and maintain consistency in grant administration across the Illinois State Board of Education (ISBE).
  • Effective Date: These more restrictive rules take effect for all FY 2026 projects.
  1. Old Rules vs. New Rules
  • Previous (FY 2025 and earlier): Grantees had a “greater of” flexibility. You could exceed a specific object total by 10% or $1,000, whichever gave you more room, without a budget amendment.
  • New (FY 2026): Grantees now have a “lesser of” restriction. You are limited to reporting expenditures in excess of 10% or $50,000 cumulatively across all budgeted cells, whichever is less.
  1. Understanding “Cumulative” Variance
  • Definition: Variance is no longer just about one item; it is the aggregate amount of grant funds expended across all cells from the project’s start date.
  • The Rule: You cannot exceed the total project budget, and any variance within that budget must stay under the new 10% or $50,000 “lesser of” cap.
  1. When a Budget Amendment is Required
  • Requirement: An amendment is necessary if expected expenditures exceed the new 10% or $50,000 (lesser of) limit.
  • Deadline: Final budget amendments must be received at ISBE 30 calendar days before the project’s end date.

Scenarios for Discussion

Scenario Grant Size 10% Limit Flat Limit Actual Allowable Variance
Small Grant $250,000 $25,000 $50,000 $25,000 (10% is less)
Large Grant $2,000,000 $200,000 $50,000 $50,000 ($50k is less)
  • Discussion Point for Small Grants: Note how the “lesser of” rule hits harder here. In the past, if 10% was $25,000, you could use that. Now, if your grant was very small (e.g., $5,000), 10% would only be $500, which is much more restrictive than the old $1,000 minimum.
  • Discussion Point for Large Grants: Even for multi-million dollar grants, your “wiggle room” is now capped at exactly $50,000 across the entire project.

Potential Points of Confusion & Solutions

  • Confusion: “Does this mean I can go over my total budget by $50,000?”
    • Clarification: No. You can never exceed the total approved project budget. This rule only applies to moving money between categories or spending differently than planned within that total.
  • Confusion: “Is the $50,000 limit for each item?”
    • Clarification: No. It is cumulative across all budgeted cells. If you move $30,000 in one area and $25,000 in another, your total variance is $55,000, which exceeds the limit and requires an amendment.
  • Confusion: “What happens if I ignore the limit?”
    • Clarification: Any amount reported in an expenditure cell that is not budgeted or exceeds the variance will not be accepted. This will lead to a delay in payments and potentially a payment freeze.
  • Confusion: “What if I need to add a brand new item?”
    • Clarification: If you add a new expenditure item that wasn’t in the original budget, you must file an amendment regardless of the dollar amount.

When applying the new guidance for FY 2026 and beyond, the most critical takeaway is a shift toward much tighter fiscal control and the necessity for proactive budget management.

Here are the key takeaways from the new guidance:

  1. Expect Less “Wiggle Room”

The primary change is that the variance allowed in expenditure reporting is now more restrictive than in previous years.

  • The Old Rule (FY 2025 and prior): You could exceed an item’s budget by 10% or $1,000, whichever gave you more flexibility.
  • The New Rule (FY 2026): You are limited to a variance of 10% or $50,000, whichever is less. This means for large grants, your flexibility is capped at $50,000 regardless of how large the total budget is.
  1. Monitor “Cumulative” Spending

Variance is no longer just calculated for a single item or “object total”. It is now calculated cumulatively across all budgeted cells.

  • What this means: You must track the total amount you have deviated from your original plan across your entire project. Small changes in multiple different categories can add up and push you over the allowable limit.
  1. File Amendments Early

If your spending plan changes and you expect to exceed these new, tighter limits, you must complete a budget amendment.

  • Deadline: Final budget amendments must be received by the Illinois State Board of Education (ISBE) at least 30 calendar days before your project ends.
  • New Items: Remember that adding any brand-new expenditure that was not in the original budget always requires an amendment, regardless of the cost.
  1. Understand the Consequences of Non-Compliance

The system is designed to enforce these limits strictly through the expenditure reporting process:

  • Rejected Reports: Any expenditure amount reported in a “cell” that was not budgeted or falls outside the allowed variance will not be accepted.
  • Payment Delays: Failure to submit an acceptable expenditure report will result in a delay of current payments.
  1. Other Important Financial Updates

Beyond the variance rules, the January 2026 handbook includes other significant changes you should note:

  • Equipment Threshold: The cost for an item to be considered “equipment” has doubled from $5,000 to $10,000.
  • Audit Limits: The threshold for requiring a “Single Audit” has increased to $1,000,000 in federal awards (previously $750,000).
  • Indirect Cost Rate: The “de minimis” indirect cost rate has increased from 10% to 15%.

Additional Examples:

Examples:

If the total budget is less than $500,000:

Budget total $450,000:

The grantee would have to apply the 10% portion of the allowable variance since 10% x $450,000 is $45,000 and is less than $50,000.

That $45,000 can then be used to increase across any budgeted cell in the Electronic Expenditure Report. It is important to note that whichever cell(s) you increase to the maximum allowable variance of $45,000, you must also decrease by a total of $45,000 from other budgeted cells that were not being increased. The grant budget must be balanced before submitting an expenditure or the system will trigger an error.

If the total budget is greater than $500,000:

Budget total $1,000,000:

The grantee would have to apply the $50,000 portion of the allowable variance since 10% x $1,000,000 is $100,000, which is greater than the maximum allowable variance of $50,000 in this example.

The rules are the same as the example above, $50,000 can be used to increase across any budgeted cell in the Electronic Expenditure Report. It is important to note that whichever cell(s) you increase to the maximum allowable variance of $50,000, you must also decrease by a total of $50,000 from other budgeted cells that were not being increased. The grant budget must be balanced before submitting an expenditure or the system will trigger an error.

As always, if you need to increase a budgeted cell higher than the allowable variance, a budget amendment would need to be completed to increase and decrease line items/objects accordingly.