This feature is part of an ongoing series from OHCS' Fiscal Compliance Monitoring staff. Each month, we'll post helpful new tips!
Managing federal and state grants requires more than tracking expenses, it demands compliance with cost principles and proper allocation methods. One of the most common questions grant managers face is:
Can we charge this cost to the grant?Why Cost Principles Matter
The Uniform Guidance (2 CFR Part 200, Subpart E), your grant agreement, and the Program Manual set the standard for determining which costs are
allowable (reimbursable) and which are
unallowable (must be paid with unrestricted funds). Mistakes in this area can lead to paybacks, audit findings, or even loss of funding.
The Basic Test for Allowable Costs
For a cost to be allowable it must be:
- Reasonable: Not excessive for its purpose.
- Necessary: Essential to the project.
- Allocable: Directly tied to the grant’s objectives.
These principles form the foundation of cost allowability and are emphasized in compliance training and webinars.
Examples
Allowable Costs
- Salaries and wages tied to project work
- Travel necessary for the grant
- Supplies and equipment essential to the project
Unallowable Costs
- Alcoholic beverages
- Entertainment
- Lobbying costs
- Fines or penalties
Cost Allocation Basics
Shared costs, such as utilities or administrative support, must be allocated fairly across programs using documented methods like square footage, labor hours, or usage rates. Allocations must be
consistent, reasonable, and supported by data.
Grant Recipient Responsibilities
Recipients must:
- Ensure costs are allowable, reasonable, and allocable.
- Maintain detailed documentation of expenditures and allocation methods.
- Submit timely and accurate financial and performance reports.
- Implement strong internal controls to prevent misuse.
- Be audit ready with organized records.
Training and Documentation Go Hand in Hand
Because cost allowability often involves grey areas,
training is essential. Webinars and courses provide practical case studies and compliance tips, while strong internal policies reduce risk and strengthen accountability.
Bottom Line
Understanding cost principles and allocation rules is critical for compliance. By training your team and reinforcing internal controls, you protect your organization from costly mistakes and ensure continued funding.