10 Criteria of Cost Allowability 2013.04.17

7/27/2019 10 Criteria of Cost Allowability 2013.04.17

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Cost Allowability

An allowable cost is one that meets the criteria

for authorized expenditures specified in the

Cost Principles. To meet federal standards forallowability, a cost charged to a federal grant

must meet 10 criteria.

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Cost Allowability

1. Allocable to the award under the provisions of the applicable

cost principles;

2. Necessary and reasonable for proper and efficient

performance and administration of the grant;

3. Treated consistently as a direct or indirect cost

4. Determined in accordance with GAAP, except as otherwise

stipulated in the applicable cost principles;

5. Net of all applicable credits (ex: discounts, program income,rebates)

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Cost Allowability

6. Not included as a cost or used to meet cost-sharing ormatching requirements ofanother federal award, unlessspecifically permitted by federal law or regulation;

7. Adequately documented

8. Authorized or not prohibited under state or local laws andregulations

9. In conformance with limits or exclusions on types or amountsof cost, as set forth in the applicable cost principles, federal laws,award terms and conditions, or other governing regulations; and

10. Consistentwith recipients policies, regulations and proceduresthat apply to both federal awards and other activities of therecipient.

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1. Allocable

A cost is allocable to an award if it is treated consistently with other

costs incurred for the same purpose in like circumstances and if it

meets one of the following criteria:

It is incurred specifically for the award;

It benefits both the award and other work and can be distributed inreasonable proportion to the benefits received; or

It is necessary to the overall operation of the organization, although

a direct relationship to a particular cost objective cannot be shown.

Costs are allocated to a particular cost objective (ex. project or

grant) according to the relative benefits received by that costobjective.

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1. Allocable to the award under the provisions

of the applicable cost principles

DO: Have a well-thought out Cost Allocation Plan (CAP) that takes the

following into account: The CAP should be a statement of methodology for allocating items of cost, as

opposed to containing specific percentages or amounts.

The CAP should include the ability to update numbers related to cost drivers as they

change, so that costs may always be allocated appropriately. The CAP should provide for allocation of both direct and indirect costs, and should

keep the two separate.

Update your CAP as activities change or methods would no longer

yield an accurate determination of benefits received by a program,

project or activity.

DONT:

Allocate costs inconsistently; rather, follow your CAP.

Report costs that are not allocable to the period of time or the work

proposed in the grant application.

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2. Reasonable for proper and efficient

performance and administration of the grant

A cost is considered reasonable if, in its nature and amount, it

does not exceed that which would be incurred by a prudent person

under the circumstances prevailing at the time the decision was

made to incur the cost. Consider:

Is the cost of a type generally recognized as ordinary and necessary for the

organizations operation or award performance?

How does the cost compare to market prices for similar goods and

services?

Did the individuals concerned act with prudence in the circumstances,

considering their responsibilities to the organization; its members,

employees, and clients; the public; and the government?

Did the cost involve significant deviations from established practices of the

organization which might unjustifiably increase costs charged to the award?

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2. Reasonable for proper and efficient

performance and administration of the grant

DO:

Consider how the perception of this decision would affect your

organization if it were in the newspaper.

Ask questions when something seems off.

DONT:

Fail to consider common sense and ethical use of funds.

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3. Treated consistently as a direct or indirect

cost

If a cost is direct or indirect on one award or funding source, itshould be the same for others.

DO:

Charge as direct costs all things that can be tracked as such.

DONT:

Double charge as both direct and indirect.

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3. Treated consistently as a direct or indirect

cost

Does the costresult in a

direct benefitto a federal

program?

Can it beeasily andaccurately

traced to thefederal

program?

Does it benefit

more than onefederal

program

Is it normallycharged as

indirect?

Have youcalculated

proportionalbenefit?

Direct

(and allocatedaccording to the

CAP)

Calculateproportional

benefit then itbecomes

DirectIndirect

Direct

Indirect

Is it necessaryto the overalloperation of

theorganization?

Indirect

Rethinkwhether the

cost isallowable

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Y

Y

Y

Y

N

Y

Y

N

N

N

N

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4. Determined in accordance with generally accepted

accounting principles (GAAP), except as otherwise stipulated

in the applicable cost principles

Generally Accepted Accounting Principles (GAAP) includes thestandards, conventions, and rules accountants follow in recording

and summarizing transactions, and in the preparation of financial

statements.

DO: Have staff who are familiar with GAAP.

DONT:

Just assume you are doing it correctly.

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5. Net of all applicable credits

If a refund or discount is received on a purchase, this refund ordiscount is not an allowable cost on a grant.

DO:

Adjust reporting when an item is returned to the vendor.

Be aware of discounts applied by vendors and ensure that reporting takesthem into account.

Ensure that program income is spent during the grant period and that you

do not request reimbursement for things reported as program income. If you have program income you need to talk with your Grants Officers about how it should be

treated specific to your program.

DONT:

Report the percentage rate for Workers Compensation, before any

adjustments, experience ratings, or other modifications are taken into

account.

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6. Not Included as cost or used to meet the cost-sharing

requirements of another federal award, unless specifically

permitted by law or regulation

Dont report federal funds as match on a federal grant unless youhave permission from the grantor of the funds you wish to use as

match or the funds have lost their federal identity.

DO:

Get permission letters from the appropriate authority if you wish to usefunds as match.

DONT:

Assume funds are not federal if you did not directly receive them from

the federal government.

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7. Adequately Documented

Documentation should leave no question as to whether or not theother criteria were met. If it isnt appropriately documented, then itdidnt happen.

DO:

Ensure that documents demonstrate purpose, funding source, allocability,

and appropriate approval of the cost. Ask yourself if the document would substantiate the other criteria ofallowable costs.

Document the actual benefit received rather than charge based onbudget.

Ensure that in-kind matching is documented in accordance with OMB

Circular requirements.

DONT:

Document expenditures in a manner that leaves questions about any othercriteria for cost allowability. (ex. Credit card vs. itemized receipt)

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8. Authorized or not prohibited under

state or local laws or regulations

This rarely comes up, but it is important to be aware. Examples

could be local or state taxes.

DO:

Be aware of state and local requirements.

DONT:

Incur costs that violate state and local requirements.

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9. In conformance with limits or exclusions on types or amounts of

costs, as set forth in the applicable cost principles, federal laws, award

terms and conditions, or other governing regulations

As set forth in the applicable cost principles, federal laws, award

terms and conditions, or other governing regulations. Be aware of

exclusions from all funders.

DO:

Build procedures to ensure limits and exclusions are not violated.

DONT:

Leave this to a persons memory or to chance; rather, create systems

to ensure your success

Incur types of costs not in your approved budget

Incur significantly more cost than is budgeted for a cost that is in your

approved budget.

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10. Consistent with the recipients policies, regulations, and

procedures that apply to both federal awards and other

activities of the recipient

Federal and non-federal funds must be treated consistently.

DO:

Follow your policies and procedures in all situations.

Have policies in place at the time that you accept the award.

DONT:

Make exceptions in how you allocate federal costs.

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10 Criteria of Cost Allowability 2013.04.17