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MyFedTrainer.com Blog

The Busy Person’s Guide to Allowable Costs

This is the first section in our thirteen part series on “The Busy Person’s Guide to Grant Management.”

HERE’S A METHOD TO HELP YOU REMEMBER THE CRITERIA FOR ALLOWABLE COSTS. DON’T RISK COSTS BEING DISALLOWED.

OK, you’ve worked hard to get your Federal Grant. You believe you are only spending money on Grant related items. But, do you know what the criteria for Allowable costs are for your type of Organization? Our quick method will help you remember the basics without having to pore over the Federal Regulations.

The Busy Person’s Guide to Allowable Costs

Allowable Costs are governed by a set of regulations called the Cost Principles regulations. The type of regulations is determined by your type of Organization.

  • For example: State, Local and federally recognized Tribal Governments are subject to OMB Circular A-87.
  • Non-profit organizations are subject to regulations contains in 2 CFR Part 230. This regulation replaced OMB Circular A-122.
  • For Institutions of Higher Education, Cost Principles are spelled out in regulation 2 CFR Part 220. Like Non-profit Organizations this is a relatively new regulation number. Higher Education Cost Principles used to be contained in OMB Circular A-21.

Our easy-peasy way to remember the five basic criteria for costs to be allowable to charge a Federal Award is (drum roll) R-A-L-A-U.

R-A-L-A-U rhymes with Palau, the beautiful tropical island that you probably are wishing you were visiting instead of brushing up on Federal regulations.

Got a minute to see the island, not the Federal regulations. Check out:

http://www.visit-palau.com/

If you want to check out the Federal regulations, here you go. Trust me; it’s not quite the same.

http://www.whitehouse.gov/omb/circulars_default

Here we go…

#1 R is for Reasonable

First of all, for costs to be Allowable, they must pass the hurdle of being “reasonable.”

Reasonable costs are necessary for the appropriate and efficient performance and administration of the Federal Award.

Reasonable costs are typically judged by what a “prudent person” would do given the circumstances when the decision was made. I like to think of this as the “Granny” rule. If I can’t explain the purchase to my Granny without getting one of those “looks” and a stern talking to, it probably isn’t reasonable.

#2 A is for Allocable

Secondly, the costs must be allocable to the Award. Allocable means the costs are consistent with the relative benefit received by the Federal program. Say what? Think of it this way:

When you charge costs to an Award, they must be a realistic amount compared to what the federally sponsored Award is getting. For example, if the Award needs the support of the indirect cost departments to cover some part-time accounting help, it wouldn’t be allowable to allocate the cost of three buildings, and six indirect staff people to the Award.

#3 L is for Limitations

If the regulations and laws say you can’t charge that type of cost to a Federal Award, then you can’t charge that type of costs to a Federal Award.

The Cost Principles have big long lists of types of costs that are limited to charge Awards. (No keggers on the Federal dime.) Lots of these are in the Appendix at the back of the Cost Principles regulations.

For Governmental units such as State and Local Governments, the spending must be authorized, or at a minimum, not prohibited by State, or Local laws and regulations. The authorization issue has to do with Governmental units not doing things that they aren’t authorized by the State and Local laws to do.

#4 A is for Adequate Documentation

Here’s the part where trees must die, or scanners must scan. Costs must be adequately documented to be allowable.

The Federal Government wants to be able to look back at the documentation and ensure the Grant funds were spent as they were supposed to be spent. Yes, they really do go back and look at this stuff.

Without adequate documentation, the spending could be disallowed and the Grant recipient may have to pay back the money; not what you want to hear several years after you’ve spent the money. This criterion gets many Grant recipients in trouble, so don’t forget the paperwork.

#5 U is for Uniformly Applied

It’s not fair! Remember crying this theme to your parents? Just like kids, the Federal Government wants to be charged “fairly.” To that end, the Federal Government requires the Grant recipient to demonstrate that policies are applied uniformly to all activities, not just Federal Awards.

Costs can’t be unfairly weighted to the Federal Award, nor can the classification of costs between direct and indirect categories be arbitrary.

No gaming the system to load up your Federal Awards with lots and lots of costs that no one else has to pay.

So Allowable costs must be R-A-L-A-U

  • 1) Reasonable
  • 2) Allocable
  • 3) Not limited by Cost Principles, and other laws and regulations
  • 4) Adequately documented.
  • 5) Policies applied uniformly to Feds and other activities

P.S. Here’s even more free information.

Check out the Allowable Costs Video Lesson.

Length: Approx. 3 minutes

Don’t miss your own very cool, one page “Quick Reference Guide: Allowable Costs.”

(Just click on the link to download the .pdf file.)

This is the first section in our thirteen part series on “The Busy Person’s Guide to Grant Management.”

Want to find out even more?

You can find out more about the various Cost Principles Requirements in our ½ day Cost Principles “Boot Camp.”

For State, Local and Tribal Governments:
http://www.myfedtrainer.com/2011/2200-cost-principles-bundle/
For Non-profit Organizations:
http://www.myfedtrainer.com/2011/2000-cost-principles-bundle/
For Institutions of Higher Learning:
http://www.myfedtrainer.com/2011/2100-cost-principles-bundle/

These 4 “Boot Camp” courses cover the main areas related to Cost Principles requirements for Recipients of Federal Awards:

  • Course #1: Direct Cost Principles
  • Course #2: Indirect Cost Principles
  • Course #3: Allowable Cost Principles
  • Course #4: Unallowable Cost Principles

P.S.S. When you take the “Boot Camp” bundle you save over 25% off the individual course price.

Act now to get the best training value.

For State, Local and Tribal Governments:
http://www.myfedtrainer.com/2011/2200-cost-principles-bundle/
For Non-profit Organizations:
http://www.myfedtrainer.com/2011/2000-cost-principles-bundle/
For Institutions of Higher Learning:
http://www.myfedtrainer.com/2011/2100-cost-principles-bundle/

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