Title: Cost Principles for Federal Grants
Based on Policy:
4.22 - Grants Administration
Office of Primary Responsibility: Vice President for Administrative Services/ Controller
To protect the government’s financial interests from the impact of estimating and accounting inconsistencies and the effects of other undesirable accounting practices
- All colleges receiving federal funds must comply with cost accounting standards for educational institutions as they are incorporated into Appendix A of 2 CFR 220. The cost accounting standards applicable to educational institutions are as follows:
- Consistency in estimating, accounting, and reporting costs by educational institutions;
- Consistency in allocating costs incurred for the same purpose by educational institutions;
- Accounting for unallowable costs; and
- The cost accounting period for educational institutions.
- Grant costs should be reviewed to determine that they are allowable, allocable, reasonable, and necessary.
- An allowable cost is one that meets the criteria for authorized expenditures specified in the cost principles. To meet federal standards for allowability, a cost charged to an award must be:
- Allocable to the award under the provision of the applicable cost principles;
- Necessary and reasonable for proper and efficient performance and administration of the grant or cooperative agreement;
- Treated consistently as a direct or indirect cost;
- Determined in accordance with generally accepted accounting principles (GAAP), except as otherwise stipulated in the applicable cost principles;
- Net of all applicable credits;
- Not included as cost or used to meet the cost-sharing or matching requirements of another federal award, unless specifically permitted by federal law or regulation;
- Adequately documented;
- Authorized or not prohibited under state or local laws and regulations;
- 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; and
- Consistent with the recipient’s policies, procedures, and regulations that apply to both federal awards and other activities of the recipient.
- The Allowability of Selected Costs at SFSC chart is a quick reference for determining allow-ability of selected items of cost under the various cost principles.
- To accumulate unallowable costs in funds other than grant funds, SFSC has established the following organizations and general ledger codes that track typical unallowable costs that the college expects. This information is needed to prepare an indirect cost proposal when a college needs to negotiate a federally approved indirect cost rate
- The following organizations are ones that generally accumulate unallowable activity costs that should be adjusted out of the base when calculating the college’s indirect cost rate:
- 672000- Community relations (general marketing)
- 673000- Development (fund raising)
- 480105- AFC (lobbying)
- The following organizations and general ledger codes (GLCs) are one’s that typically track unallowable costs that need to be adjusted out of the pool of costs to be recovered when preparing the college’s indirect cost plan:
- 634100- Business hospitality
- 634110- Promotion and public relations
- 634400- Graduation
- 64510- Non-required advertising (general marketing)
- 69501- Bad debt expense
- Costs that are paid to a college for costs that will not be paid until after a grant terminates but were accrued to the college as a direct result of grant activity may be charged to a grant prior to termination. Grant funds held to pay future liabilities should be kept in a fund restricted for that purpose until the accrued liability is paid.
- 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 in reasonable 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.
- 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.
- Generally, if a cost can be identified specifically with a particular cost objective, such as a grant or cooperative agreement, project service or other activity of a college, it is a direct cost. If a cost has been incurred for common or joint objectives of an organization and cannot be readily identified with a particular cost objective, it is an indirect cost. Given these definitions, a few exceptions exist stemming from the principle that items of cost should be consistently treated.
- A cost may not be assigned to a federal award as a direct cost if another cost incurred for the same purpose, in similar circumstances, has been allocated to the award as an indirect cost. Likewise, a cost may not be assigned to a federal award as an indirect cost if another cost incurred for the same purpose, in similar circumstances, has been allocated to the award as a direct cost.
- If treated consistently for all cost objectives, a direct cost of a minor amount may be treated as an indirect cost for reasons of practicality.
History: Adopted: 3/4/2014