The Office of Management and Budget (OMB) establishes federal grant management policies and cost principles through OMB circulars and common rules. These policies and cost principles are then incorporated into each relevant agency's applicable Federal regulations. The Office of Management and Budget's website can be accessed by clicking here.
Federal cost principles are intended to establish a uniform approach for determining costs and promoting effective program delivery, efficiency, and better relationships between grant recipients, subrecipients, and the Federal government. The principles are promulgated to determine allowable costs, enforce compliance with Federal grant requirements, and ensure that the Federal Government bear its fair share of costs except where restricted or otherwise prohibited by law.
Additionally, Federal cost principles are applied by all Federal agencies in determining costs incurred by state governmental units under performance of a federal award. These principles are likewise applicable to all subawards and affiliated subrecipient organizations.
Federal Cost Principles applicable to the Workforce Investment Act are listed below. Click on the appropriate link to access the individual cost principle related to your particular organization.
OMB Circular A-21: Cost Principles for Educational Institutions (2 CFR Parts 215 and 220), click here
OMB Circular A-87: Cost Principles for State and Local Governments (2 CFR Part 225), click here
OMB Circular A-122: Cost Principles for Non-Profit Organizations (2 CFR Part 230), click here
48 CFR Chapter 1, Part 31: Contract Cost Principles and Procedures, click here
All four cost principles contain similar allocability, reasonableness, consistency, and documentation requirements. Each OMB circular contains allowability determinations for individual cost items, most of which remain uniform across all three circulars. The following outline summarizes general cost requirements applicable to each circular and identifies, defines, and summarizes individual cost items and discusses their allowability and any accompanying conditions or restrictions. The outline first summarizes general requirements applicable to all costs and then lists individual cost items under "Allowed," "Disallowed," and "Allowability Determinations" headings.
Please reference each individual cost item for a complete discussion of allowability conditions and possible exceptions. Some cost items listed under the "Allowed" and "Disallowed" headings contain conditions and/or exceptions that alter an allowability determination relative to a specific expenditure. For instance, "taxes" are generally allowed costs and consequently are classified under the "Allowable" category, however taxes for which exemptions are available are not allowable. Finally, the outline is non-exhaustive and is intended to function as reference material. The individual circular applicable to your organization should be consulted when confronting major cost allowability questions.
Page Index
I. General Allowability Requirements
II. Specific Allowed Costs
III. Specific Disallowed Costs
IV. Costs requiring Allowability determination
I. General Allowability Requirements
A. Total Cost Composition: The total cost of an award is the sum of the allowable direct and allocable indirect costs less any applicable credits.
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B. Allowability requirements: To be allowable costs must: be reasonable for performance of the award, be allocable to the identified cost objective, be consistent with policies and procedures applying uniformly to both federally financed and other organizational activities, conform to cost principles and award limitations or exclusions, and be afforded consistent treatment, adequately documented, and in conformance with Generally Accepted Accounting Principles.
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C. Cost reasonableness criteria: A cost is reasonable if it does not exceed the amount that a reasonably prudent person would incur under prevailing circumstances at the time the decision was made. In determining reasonableness the following factors considered: (1) whether the cost is recognized as ordinary and necessary for the organization's operation and performance of the award, (2) the restrains or requirements imposed by such factors as generally accepted sound business practices, Federal and State laws and regulations, and terms and conditions of the award, (3) whether the individuals concerned acted with prudence under the circumstances considering their responsibilities to the organization, its members, employees, clients, and the Federal Government, and (4) significant deviations from established organizational practices.
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D. Cost Consistency criteria: A cost may not be charged to the ETA grant as a direct cost if any other cost incurred for the same purpose in like circumstances has been charged to another grant as an indirect cost.
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E. Cost Documentation criteria: A grantee must document all costs in a manner consistent with GAAP. Examples include retaining evidence of competitive bidding for services or supplies and adequate time records for those employees who charge time against an ETA grant.
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II. Specific Allowed Costs
A. Advisory councils – allowable as a direct cost where authorized by the Federal awarding agency or as an indirect cost where allocable to Federal awards
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B. Audit costs and related services – Costs of audits required by and performed in accordance with the Single Audit Act as implemented by OMB - Circular A-133, and audits specifically approved by the awarding agency are allowable.
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C. Bonding costs –
1. Definition and examples: includes costs associated with requiring assurance against financial loss. Examples include bonds such as bid, performance, payment, advance payment, infringement, and fidelity bonds.
2. Allowable costs: Bonding costs required pursuant to the terms of the award are allowable. Additionally, bonding costs by the non-profit organization in the general conduct of its operations are allowable to the extent that such bonding is in accordance with sound business practice and the rates and premiums are reasonable under the circumstances.
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D. Communications Costs – Costs incurred for telephone services, local and long distance telephone calls, telegrams, postage, messenger, electronic or computer transmittal services, etc. are allowable.
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E. Depreciation and Use allowances -
1. General Authorization – Compensation for the use of buildings, capital improvements, and equipment may be made through use allowance or depreciation. However, a combination of the two methods may not be used in connection with a single class of fixed assets
2. Depreciation
a. Depreciation Basis – The calculation of depreciation or use allowances should be based on the asset’s acquisition cost. Assets donated by a third party are valued at their FMV at the time of the donation.
b. Depreciation Method – The straight line method shall be used in absence of clear evidence indicating that the asset’s expected consumption will be significantly greater or lesser in the early portions of the asset’s useful life.
c. Approval for changes – Depreciation methods once used shall not be changed unless approved in advance by the cognizant Federal agency.
d. Treatment of building components – A building’s shell may be segregated from each building component (i.e. plumbing system, heating, air conditioning, etc) and each item depreciated separately over its estimated useful life; or the entire building (including its components) may be treated as a single asset and depreciated over a single useful life.
3. Use allowances
a. Buildings and improvements - The use allowance for buildings and improvement (i.e. land improvements such as paved parking areas, fences, sidewalks, etc) will be computed at an annual rate not exceeding two percent of the acquisition cost.
b. Equipment – The use allowance for equipment will be computed at an annual rate not exceeding six and two-thirds percent of the acquisition cost. The entire building must be treated as a single asset and the building’s components cannot be segregated from its shell.
c. Non-fixtures – Equipment not permanently fixed to the building (i.e. entity chairs, counters, lab benches bolted to the floor, furniture, carpeting, etc), but merely attached or fastened to it is not subject to the two percent building limitation, but is subject to the six and two thirds percent equipment use allowance limitation.
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F. Employee morale, health, and welfare costs – The costs of employee information publications, health or first aid clinics, recreational activities, employee counseling services, and other activities associated with improvement of working conditions, employer-employee relations, employee morale, and employee performance are allowable.
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G. Gains and losses on depreciable assets – on sale, retirement, or other disposition of depreciable property shall be included in the year in which they occur as credits or charges to cost groupings in which the depreciation applicable to such property was included. The amount of gain or loss to be included as a credit or charge shall be the difference between the amount realized on the property and the undepreciated basis of the property.
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H. Insurance and indemnification –
1. Insurance
a. All costs of insurance maintained pursuant to the award are allowable. Additionally, the costs of other insurance maintained by an organization in connection with its general conduct of operations are allowable subject to the following limitations:
(1) The type and extent of coverage is in accordance with sound business practice and the rates and premiums are reasonable under the circumstances.
(2) Costs allowed for business interruption or similar insurance shall be limited to exclude coverage of management fees.
(3) Costs of insurance or any provisions for a reserve covering risk of loss or damage to federal property are allowable only to the extent that the organization is liable for such loss or damage.
2. Indemnification – includes securing the organization against liabilities to third persons and any other loss or damage, not compensated by insurance or otherwise. The federal government is obligated to indemnify the organization only to the extent expressly provided in the award.
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I. Labor relations costs – Costs incurred in maintaining satisfactory relations between the organization and its employees, including costs of labor management committees, employee publications, and other related activities are allowable.
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J. Maintenance and repair costs – Costs incurred for necessary maintenance, repair, or upkeep of buildings and equipment which neither add to the property’s permanent value or appreciably prolong its intended life, but merely keep it in an efficient operating condition, are allowable. Costs incurred for improvements which add to the buildings and equipment’s permanent value or appreciably prolong their intended life shall be treated as capital expenditures.
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K. Materials and supplies – allowable.
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L. Meetings and conferences – The costs of meetings and conferences, the primary purpose of which is the dissemination of technical information, are allowable. This includes the costs of meals, transportation, rental of facilities, speakers’ fees, and other items incidental to such meetings or conferences.
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M. Memberships, subscriptions, and professional activities – Costs associated with a non- profit organization’s membership in and business, technical, and professional associations, and subscriptions to business, professional, and technical periodicals are allowable. Note that costs of membership in any country, social, or dining club or organization are unallowable.
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N. Publication and printing costs – include the costs of printing (composition, press work, binding, etc), distribution, promotion, mailing, and general handling. These costs are allowable. Note that if these costs are not identifiable with a particular cost objective, they should be allocated as indirect costs to all benefiting activities of the non-profit organization.
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O. Rearrangement and alteration costs – allowable.
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P. Reconversion costs – include costs incurred in the restoration or rehabilitation of the non-profit organization’s facilities to approximately the same condition existing immediately prior to commencement of federal awards, less costs related to normal wear and tear. These costs are allowable.
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Q. Recruiting costs
1. Def’n and allowability: Recruiting costs include “help wanted” advertising, operating costs of an employment office necessary to secure and maintain adequate staff, aptitude and educational testing program operating costs, applicants’ interview travel costs, travel costs of employees engaged in recruiting personnel, and relocation costs incurred incident to recruitment of new employees. Such costs are allowable.
2. Disallowed recruiting costs: Regarding publications, costs of help wanted advertising that includes: color advertisements, excessively large ads, or advertising material other than for recruitment purposes, are disallowed. Additionally, costs of help wanted advertising, special emoluments, fringe benefits, and salary allowances incurred to attract professional personnel that do not meet the reasonableness tests are disallowed.
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R. Relocation costs –
1. General allowability requirements:
a. The move must be for the employer’s benefit.
b. Reimbursement must be in accordance with an established written policy consistently followed by the employer.
c. The reimbursement must not exceed the employee’s actual (or reasonably estimated) expenses.
2. Specific allowable types of relocation costs include:
a. Transportation costs of the employee, members of his immediate family/household, and personal effects
b. The costs of finding a new home, such as advance trips by the employees and spouses to locate living quarters and temporary lodging during the transition period, up to a 30 day maximum period
c. Closing costs, such as brokerage, legal, and appraisal fees. These costs are limited to 8 percent of the sales price of the employee’s former home.
d. Continuing ownership costs of the vacant former home after the settlement or lease date of the employee’s new permanent home. These costs include building and ground maintenance, utilities, taxes, and property insurance.
3. Specific disallowed relocation costs include:
a. Fees and other costs associated with acquiring a new home
b. A loss on the sale of a former home
c. Continuing mortgage principal and interest payments on a home being sold
d. Income taxes paid by an employee related to reimbursed relocation costs
4. Refund Requirement – The organization shall refund or credit the federal government for its share of the cost when relocation costs incurred are allowed as either a direct or indirect cost and the employee resigns for reasons within his control within 12 months after hire.
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S. Rental costs of buildings and equipment -
1. General allowability requirement – Rental costs are allowable to the extent that the rates are reasonable in light of such factors as: rental costs of comparable property (if any), area market conditions, available alternatives, and the type, life expectancy, condition, and value of the property leased.
2. “ Sale and lease back” arrangements – are allowable only up to the amount that would be allowed had the nonprofit organization continued to own the property. This amount includes expenses such as depreciation or use allowances, maintenance, taxes, and insurance.
3. “Less than arms length leases”
a. Def’n: A lease under which one party is able to control or substantially influence the actions of the other. Such leases include, but are not limited to those between divisions of a non-profit organization, non-profit organizations under common control through common officers, directors, or members, etc. For example, a non-profit organization may establish a separate corporation for the sole purpose of owning property and leasing it back to the non-profit organization.
b. Allowability: These types of leases are allowable only up to the amount that would be allowed had title to the property vested in the non-profit organization (as explained above).
4. Rental costs associated with capital leases
a. Allowable costs: only up to the amount that would be allowed had the non-profit organization purchased the property on the date the lease agreement was executed.
b. Disallowed costs: include amounts paid for profit, management fees, and taxes that would not have been incurred had the non-profit organization purchased the facility.
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T. Taxes –
1. Allowability: Taxes which the organization is required to pay that are accrued in accordance with GAAP are allowable, except those taxes for which exemptions are available either directly, or indirectly to the organization based on an exemption afforded to the Federal Government and in the latter case when the awarding agency makes available the necessary exemption certificates.
2. Treatment of Refunds – Any tax refund and associated interest payment which was allowed as an award cost will be credited to the federal government as either a cost reduction or case refund.
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U. Transportation costs – include freight, express, cartage, and postage charges relating to goods purchased, in process, or delivered. These costs are allowable.
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III. Specific Disallowed Costs
A. “20 C.F.R. Part 667 Prohibitions”
1. Legal Expenses for prosecution of claims against the Federal Government
2. Construction or purchase of facilities or buildings except:
a. to fulfill recipient’s obligation to provide physical and programmatic accessibility and reasonable accommodation as required by the Rehabilitation and Americans with Disabilities Act
b. to fund repairs, renovations, alterations, and capital improvements of property, including:
(1) real property acquired with funds provided under the Social Security Act or the Wagner-Peyser Act (State Employment Service Agency (SESA) property)
(2) JTPA owned property transferred to WIA title I programs
c. Job Corps facilities
d. to fund disaster relief employment on projects for demolition, cleaning, repair, renovation, and reconstruction of damaged and destroyed structures, facilities, and lands located within a disaster area
3. Employment generating and economic development activities not directly related to training for eligible individuals
a. Exceptions: qualifying employer outreach and job development activities:
(1) Potential employer contact for participant placement purposes
(2) Business association, labor association, and resource center participation
(3) WIA staff participant economic development board/commission participation to further provide information about WIA programs
(4) Active participation in local business resource centers
(5) Subscriptions to relevant publications
(6) General dissemination of WIA program information
(7) Conducting labor market surveys
(8) On-the-Job training opportunity development
(9) Other allowable WIA activities in the private sector
4. Incumbent employee wages during their participation in economic development activities provided through a Statewide workforce investment system
5. Public service employment, except to provide disaster relief employment, as specifically authorized in WIA section 173(d)
6. Sectarian Activities
a. Participant employment or training in sectarian activities
b. Participant employment under WIA title I to carry out construction, operation, or maintenance of any part of any facility used or to be used for sectarian instruction or as a place of religious worship (financial assistance may be given for maintenance of a facility that is not primarily or inherently devoted to sectarian instruction or religious worship if the organization operating the facility is part of a program or activity providing services to WIA participants)
7. Business relocation resulting in employee job loss at the original location
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B. Alcoholic beverages – Disallowed
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C. Bad debts – Costs associated with losses arising from uncollectable accounts, related collection costs, and legal costs are disallowed.
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D. Contingency provisions – Contributions to a contingency reserve or any similar provision made for events that cannot be foretold with certainty as to time, intensity, or occurrence, are disallowed.
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E. Donations and contributions – Rendered contributions or donations, including cash, property, and services made by the organization are unallowable regardless of the recipient. Donated goods or services received are not reimbursable as either a direct or indirect cost, however the value of the donated goods or services may be used to meet cost sharing or matching requirements in accordance with the Common Rule.
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F. Entertainment – Costs for amusement and diversion such as tickets to shows or sporting events, meals, lodging, rentals, transportation, and gratuities, are disallowed.
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G. Fines and penalties – are unallowable except when incurred as a result of compliance with specific provisions of an award or pursuant to the awarding agency’s written instructions.
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H. Fundraising and investment management costs – Costs of organized fundraising, including financial campaigns, endowment drives, solicitation of gifts and bequests, and similar expenses incurred solely to raise capital or obtain contributions are disallowed. Costs of investment counsel incurred solely to enhance income from investments are disallowed.
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I. Goods and services for personal use – Disallowed.
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J. Lobbying – Costs associated with lobbying activities are disallowed. Such activities include:
1. attempts to influence the outcomes of any Federal State, or local election, referendum, initiative, or similar procedure through in kind or cash contributions, endorsements, publicity, or similar activity
2. establishing, administering, or contributing to a political party, campaign, political action committee, or other organization for the purpose of influencing election outcomes
3. attempts to influence the introduction of federal or state legislation or modification of pending federal or state legislation through communication with any member or employee of the congress or state legislature
4. attempts to influence the introduction or enactment or modification of federal or state legislation by preparing, distributing, or using publicity/propaganda, or urging members of the general public to contribute to or participate in any mass demonstration, march, rally, fundraising drive, etc.
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K. Organization costs – Expenditures such as incorporation fees, brokers’ fees, promoter fees, organizers or management consultants, attorneys, accountants, etc, whether or not employees of the organization, in connection with establishment or reorganization of an organization, are disallowed except with prior approval of the awarding agency.
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L. Selling and marketing – Costs of selling and marketing any products or services of the non-profit organization are generally disallowed.
1. Exceptions:
a. those costs allowed under the narrowly defined allowable public relations costs definition
b. direct costs pursuant to prior approval from the awarding agencies when they are necessary for performance of federal programs
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M. Start-up costs – Business start-up costs are not allowable under the provisions of WIA Section 181(e). This prohibition also applies to start-up costs associated with entrepreneur training and start-up costs of any business to provide services to WIA clients.
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IV. Costs requiring Allowability determination
A. Advertising and public relations costs
1. Definition and Examples: Advertising costs include media such as magazines, newspapers, radio, television, direct mail, exhibits, email, etc. Public relations includes community relations and means those activities dedicated to maintaining the nonprofit organization’s image or maintaining/promoting understanding and favorable relations with the community or public at large.
2. Allowable Costs
a. Advertising
(1) personnel recruitment required for performance of obligations arising under a federal award
(2) procurement of goods and services for performance of a federal award
(3) disposal of scrap or surplus materials acquired in the performance of a federal award except when the organization is reimbursed for disposal costs at a predetermined amount
(4) other specific purposes necessary to meet the requirements of the Federal Award, pursuant to prior approval from the awarding agency (see selling and marketing requirements)
b. Public relations
(1) costs specifically required by the federal award
(2) costs of communicating with the public and press pertaining to specific activities or a accomplishments resulting from performance of the Federal Award and which are deemed necessary as part of the outreach effort for the Federal award
(3) costs of conducting general liaison with news media and government public relations offers to the extent that such activities are limited to communication and liaison necessary to keep the public informed on matters of public concern, such as notices of federal contract/grant awards
3. Disallowed Costs
a. all advertising and public relations costs other than those specified above
b. costs of meetings, conventions, convocations, or other events related to other activities of the non-profit organization, including:
(1) costs associated with displays, demonstrations, and exhibits
(2) costs associated with meeting rooms, hospitality suites, and other special facilities used in conjunction with shows and other events
(3) salaries and wages of employees engaged in setting up and displaying exhibits, making demonstrations, and providing briefings
c. costs of promotional items and memorabilia, including models, gifts, and souvenirs,
d. costs of advertising and public relations designed solely to promote the non-profit organization
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B. Compensation for personal services
1. Def’n: Includes all compensation paid currently or accrued by the organization for services of employees rendered during the award period. It includes, but is not limited to: salaries, wages, directors and executive committee member’s fees, incentive awards, fringe benefits, pension plan costs, allowances for off-site pay, incentive pay, location allowances, etc.
2. General allowability requirement: Total compensation to individual employees must be reasonable for the services rendered, conform to the established organizational policy, and be consistently applied to both Federal and non-Federal activities.
3. Allowability determinations for specific compensation types
a. Directors, officers, trustees, associates, etc:
Reasonableness determinations should be made based on actual personal services rendered rather than a distribution of earnings in excess of costs.
b. Overtime, extra-pay shift, and multi-shift premiums:
Allowable only with prior approval of the awarding agency, except:
(1) when necessary to cope with emergencies
(2) when employees are performing indirect functions such as administration, maintenance, or accounting
3) in the performance of tests, laboratory procedures, or other non-interruptible procedures
(4) when costs to the federal government will be lowered
c. Fringe benefits
(1) Sick, Vacation, and Military leave: Allowable provided they are absorbed in proportion to the relative amount of time actually devoted to each.
(2) Employer contributions to social security, employee insurance, worker’s compensation, and pension plan costs: Allowable provided they are granted in accordance with established written organization policies.
(3) Unemployment compensation or workers’ compensation self-insurance programs:
Allowable to the extent that the provisions represent reasonable estimates of the liabilities for such compensation, and the coverage type , extent, and rates/premiums would have been allowable had insurance been purchased to cover the risks.
(4) Life insurance costs for trustees, officers, or similarly positioned employees: Allowable only to the extent that the insurance represents additional compensation. The costs of such insurance when the organization is named as beneficiary are unallowable.
(5) Organization-furnished automobiles: The portion of such costs relating to personal use is unallowable. These costs are allowable only when necessary for the performance of the sponsored award and approved by awarding agencies.
(6) Pension plan costs: Allowable provided:
(a) Such policies meet the reasonableness test.
(b) Cost allocation methods are non-discriminatory.
(c) Costs are determined in accordance with GAAP.
(d) The costs assigned to each fiscal year are funded for all plan participants within six months after the end of that year.
(7) Incentive compensation: Compensation based on cost reduction, efficient performance, suggested awards, etc are allowable to the extent that the overall compensation is determined to be reasonable and such costs are paid pursuant to a good faith agreement between the organization and employee.
(8) Severance pay: Allowable only to the extent that it is required by law, employer-employee agreement, established policy that constitutes an implied agreement on the organization’s part, or circumstances of the particular employment.
4. Documenting/supporting salaries and wages
a. Personnel activity reports: Reports documenting the distribution of employee activity must be maintained and meet the following requirements:
(1) Each report must contain an after-the-fact determination of each employee’s actual activity. Budget estimates do not qualify as supports for charges to awards.
(2) Each report must account for the total activity for which employees are compensated.
(3) Each report must be signed by the employee or a supervisor, attesting that the distribution of activity represents a reasonable estimate of the actual work performed by the employee during periods covered by the report.
(4) The reports must be prepared at least monthly and coincide with one or more pay periods.
5. Nonprofessional Employee time documentation: Charges for the salaries of nonprofessional (non-exempt) employees must be supported by records indicating the total number of hours worked each day.
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C. Defense and prosecution of criminal and civil proceedings, claims, appeals, and patent infringement
1. General Disallowment – Costs incurred in connection with any criminal, civil, or administrative proceeding commenced by the federal government, or a state, local, or foreign government, are not allowable if the proceeding relates to a violation of, or failure to comply with, a federal, state, local, or foreign statue or regulation and results in any of the following dispositions:
a. conviction in a criminal proceeding
b. organizational liability determination in a civil or administrative proceeding involving an allegation of fraud or similar misconduct
c. imposition of a monetary penalty in the case of any civil or administrative proceeding
d. a final decision by an appropriate federal official to debar or suspend the organization, to rescind or void an award, or terminate an award by reason of failure to comply with a law or regulation
e. a disposition by consent or compromise if the action could have resulted in any of the dispositions described above.
2. Allowability through compromise – If the proceeding is resolved by consent or compromise pursuant to an agreement by the organization and the federal government, then otherwise unallowable costs may be allowed to the extent specifically provided in such agreement.
3. Limitations on allowed costs – Costs not specifically disallowed as described above are allowable, but only to the extent that:
a. The costs are reasonable in relation to the activities required to deal with the proceeding.
b. Payment of the costs incurred is not prohibited by any other provision of the sponsored award.
c. The costs are not otherwise recovered from the Federal Government or a third party, either directly as a result of the proceeding or otherwise.
d. The percentage of allowed costs does not exceed an appropriate percentage as determined by an authorized Federal litigation. Such percentage shall not exceed 80 percent.
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D. Equipment and other Capital Expenditures –
1. Definitions
a. Capital Expenditures – expenditures for the acquisition cost of capital assets, including equipment, buildings, land, or expenditures to make improvements to capital assets that materially increase their value or useful life.
b. Equipment – articles of nonexpendable, tangible personal property having useful lives of more than one year and acquisition costs equal to or exceeding the lesser of $5,000 or the capitalization level established by the non-profit organization.
2. Disallowment provisions
a. Capital Expenditures – disallowed unless approved in advance by the awarding agency
b. Equipment – disallowed unless approved in advance by the awarding agency
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E. Housing and personal living expenses –
Housing costs (i.e. depreciation, maintenance, utilities, furnishings, rent, etc), housing allowances, and personal living expenses for the organization’s officers are unallowable as a fringe benefit or indirect costs. They are allowable as direct costs when necessary for the performance of the sponsored award and approved by the awarding agency.
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F. Idle facilities and idle capacity –
1. Definitions
a. Facilities – means land and buildings or any portion thereof, equipment individually or collectively, or any other tangible capital asset.
b. Idle Facilities – means completely unused facilities exceeding the nonprofit organization’s current needs.
c. Idle Capacity – means the unused capacity of partially used facilities. It is the difference between that which a facility could achieve under a 100% operating time and the extent to which the facility was actually used to meet demands during the accounting period.
2. Allowability Determination – These costs are generally unallowable, except to the extent that:
a. they are necessary to meet fluctuations in workload; or
b. they were necessary when acquired and are now idle b/c of changes in program requirements, efforts to achieve more economical operations, reorganization, termination, or other causes which could not have been reasonably foreseen.
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G. Interest
1. Disallowed Interest: Costs incurred for interest on borrowed capital, temporary use of endowment funds, or use of the non-profit organization’s own funds are unallowable.
2. Allowed Interest: Interest on debt incurred after Sept. 29th, 1995 to replace capital assets acquired after Sept. 29th, 1995 and used in support of Federal awards is allowable.
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H. Pre-agreement costs –
1. Def’n: Pre-award costs are those incurred prior to the effective date of the award directly pursuant to the negotiation and in anticipation of the award where such costs are necessary to comply with the proposed delivery schedule or performance period.
2. Allowability: Such costs are allowable only to the extent that they would have been allowable if incurred after the award date and only with the awarding agency’s written approval.
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I. Professional Services Costs
1. Def’n: Include costs of professional and consultant services rendered by persons who are members of a particular profession or possess a special skill, and who are not officers or employees of the non-profit organization.
2. Allowability: In determining the allowability of such costs, no single factor is dispositive; however the following factors are relevant:
a. the nature and scope of the service rendered in relation to the service required
b. the necessity of contracting for the service, considering the non-profit organization’s capability in the particular area
c. the past pattern of such costs, particularly in the years prior to Federal awards
d. the impact of Federal awards on the non-profit organization’s business (i.e. does the service address a specific problem that has arisen)
e. the relationship of the services solicited to the required performance under the Federal award
f. whether the service can be performed more economically by direct employment rather than contracting
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J. (Award )Termination costs
1. Cost of items reasonably usable on the non-profit organization’s other work – Generally disallowed, unless the organization submits evidence that it would not retain such items at cost without sustaining a loss. Contemporaneous purchases of common items by the non-profit organization shall be regarded as evidence that such items are reasonably usable on the non-profit organization’s other work
2. Certain costs not immediately “discontinuable” – Generally allowed, except those costs continuing after termination due to the organization’s negligent or willful failure to discontinue such costs.
3. Costs associated with special tooling and machinery loss of value – Generally allowable, provided:
a. The special tooling, machinery, or equipment is not reasonably capable of use in the non-profit organization’s other work,
b. The federal government’s interest is protected by transfer of title, and
c. The loss of useful value for any one terminated award is limited to the portion of the acquisition cost which bears the same ratio to the total acquisition cost as the terminated portion of the federal award bears to the entire terminated federal award and other federal awards for which the special tooling, machinery, or equipment was acquired.
4. Rental costs under unexpired leases – Generally allowed, provided the costs are shown to have been reasonably necessary for performance of the terminated federal award, less the original value of each lease, if:
a. the amount of such rental claimed does not exceed the reasonable use value of the property lease for the period of the Federal award, and
b. the organization makes all reasonable efforts to terminate, assign, settle, or otherwise reduce the cost of such lease
5. Allowable Settlement costs
a. accounting, legal, and similar costs necessary for the preparation of settlement claims and supporting data, unless the termination is for default
b. reasonable costs for the storage, transportation, protection, and disposition of Federal Government provided property, or property acquired or produced for the Federal award
c. sub-award claims
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K. Training costs
1. Preparation and maintenance costs associated with program instruction – Allowable. These programs include but not are not limited to: “on-the-job,” classroom, and apprenticeship training. Such costs include training materials, textbooks, trainee salaries (excluding overtime compensation), organizational staff instructor salaries, and training institution tuition and fees.
2. Part-time undergraduate or post-graduate educational costs – Allowable provided that the course or degree pursued is relative to the employee’s employment field. Such costs include:
a. Training materials
b. Textbooks
c. Tuition
d. Educational institution fees
e. Compensation for class attendance during working hours (not to exceed 156 hours per year and only to the extent that circumstances do not permit class attendance after regular working hours)
3. Full-time education costs - Allowable provided that the course or degree pursued is relative to the employee’s employment field and awarding agency prior approval is received. Each employee is limited to one year of training unless special authorization is granted.
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L. Travel Costs
1. Def’n: Travel costs include expenses for transportation, lodging, subsistence, and related items incurred by employees who travel on official business of the non-profit organization.
2. Allowability
a. Lodging and subsistence – allowable only to the extent that such costs do not exceed charges normally allowed by the non-profit organization in its regular operations as the result of the non-profit organization’s written travel policy.
b. Commercial air travel – allowable provided airfare costs do not exceed customary standard commercial airfare, federal government contract airfare, or the lowest commercial discount airfare. Exceptions include cases where such accommodations would require circuitous routing, result in travel during unreasonable hours, excessively prolong travel, result in additional costs that would offset the transportation savings, or would not adequately support the traveler’s medical needs.