Allowability of Costs: Allowable and Unallowable Costs

Expenditures must be aligned with approved budgeted items. Any changes or variations from the SPO approved budget and grant application need prior approval from the College.

When determining how grant funds may be used, SPO and the Office for Finance will review the proposed cost to decide whether or not it is an allowable use of federal grant funds. All costs supported by federal education funds must meet the standards outlined in EDGAR.2 C.F.R. Part 3474 and 2 C.F.R. Part 200, which are provided in the bulleted list below. SPO and the Office of Finance will consider these factors when making an allowability determination. The test of allowability of costs under federal regulations may be found at 2 C.F.R. §200.403.

Factors affecting allowability of costs 2 C.F.R. §200.403

(f) Not be included as a cost or used to meet cost sharing or matching requirements of any other federally financed program in either the current or a prior period. See also § 200.306(b).   (g) Be adequately documented. See also §§ 200.300 through 200.309 of this part.   (h) Cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to § 200.308(e)(3).

Reasonable costs 2 C.F.R. § 200.404

A cost is 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. The question of reasonableness is particularly important when the non-Federal entity is predominantly federally-funded. In determining reasonableness of a given cost, consideration must be given to: (a) Whether the cost is of a type generally recognized as ordinary and necessary for the operation of the non-Federal entity or the proper and efficient performance of the Federal award. (b) The restraints or requirements imposed by such factors as: sound business practices; arm’s-length bargaining; Federal, state, local, tribal, and other laws and regulations; and terms and conditions of the Federal award. (c) Market prices for comparable goods or services for the geographic area. (d) Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the non-Federal entity, its employees, where applicable its students or membership, the public at large, and the Federal Government. (e) Whether the non-Federal entity significantly deviates from its established practices and policies regarding the incurrence of costs, which may unjustifiably increase the Federal award’s cost.

Factors affecting the allowability of costs include:

Costs must be necessary and reasonable for the performance of the federal award. A cost is reasonable if, in its nature and amount, it does not exceed that which a prudent person would incur under the circumstances prevailing at the time the decision to incur the cost was made. For example, reasonable means that sound business practices were followed, and purchases were comparable to market prices.

When determining the reasonableness of a cost, consideration must be given to:

• Whether the cost is a type generally recognized as ordinary and necessary for the operation of the College or the proper and efficient performance of the federal award;
• The restraints or requirements imposed by factors, such as sound business practices; arm’s- length bargaining; federal, state, and other laws and regulations; and terms and conditions of the federal award;
• Market prices for comparable goods or services for the geographic area;
• Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the College, its employees, its students, the public at large, and the federal government; and
• Whether the College significantly deviates from its established practices and policies regarding the incurrence of costs, which may unjustifiably increase the Federal award’s cost. 2 C.F.R. §200.404.

While 2C.F.R. §200.404 does not provide specific descriptions of what satisfies the “necessary” element beyond its inclusion in the reasonableness analysis above, necessary is determined based on the program’s needs. Specifically, the expenditure must be essential to achieve a vital program objective.

Part 200’s cost guidelines must be considered when federal grant funds are expended. As provided above, federal rules require that state- and College-level requirements and policies regarding expenditures to be followed, as well. For example, State and/or College policies relating to travel or equipment may be narrower than the federal rules, and stricter State and/or College policies must be followed. For more information, please see the Santa Fe College Travel Manual: https://www.sfcollege.edu/finance/travel/travel-manual. Further, certain types are allowable under federal law but are not allowable under State law. For more on the Code of Federal Regulations (C.F.R.) and Part 200, refer to https://www.gpo.gov/help/about code of federal regulations.htm.

Unallowable Costs

The following expenditures are typically considered unallowable to a grant unless expressly allowed under the grant budget. This list is not all-inclusive. Please see Appendix B for a comprehensive list and detailed explanations of unallowable costs.

Advertising or Public Relations 2 C.F.R. §200.421

(e) Unallowable advertising and public relations costs include the following:   (1) All advertising and public relations costs other than as specified in paragraphs (b) and (d) of this section; (2) Costs of meetings, conventions, convocations, or other events related to other activities of the entity (see also § 200.432), including:   (i) Costs of displays, demonstrations, and exhibits; (ii) Costs of meeting rooms, hospitality suites, and other special facilities used in conjunction with shows and other special events; and (iii) Salaries and wages of employees engaged in setting up and displaying exhibits, making demonstrations, and providing briefings;   (3) Costs of promotional items and memorabilia, including models, gifts, and souvenirs; (4) Costs of advertising and public relations designed solely to promote the non-Federal entity.

Advisory Councils 2 C.F.R. §200.422

Costs incurred by advisory councils or committees are unallowable unless authorized by statute, the Federal awarding agency or as an indirect cost where allocable to Federal awards. See § 200.444, applicable to States, local governments, and Indian tribes.

Transportation Costs 2 C.F.R. § 200.474

Airfare costs in excess of commercial airfare (coach or equivalent) 2 C.F.R. §200.474(e) Costs incurred for freight, express, cartage, postage, and other transportation services relating either to goods purchased, in process, or delivered, are allowable. When such costs can readily be identified with the items involved, they may be charged directly as transportation costs or added to the cost of such items. Where identification with the materials received cannot readily be made, inbound transportation cost may be charged to the appropriate indirect (F&A) cost accounts if the non-Federal entity follows a consistent, equitable procedure in this respect. Outbound freight, if reimbursable under the terms and conditions of the Federal award, should be treated as a direct cost.

Alcoholic Beverages 2 C.F.R. §200.423

Costs of alcoholic beverages are unallowable.

Alumni Activities 2 C.F.R. §200.424

Costs incurred by IHEs for, or in support of, alumni/ae activities are unallowable.

Commencement and Convocation Costs 2 C.F.R. §200.429

For IHEs, costs incurred for commencements and convocations are unallowable, except as provided for in (B)(9) Student Administration and Services, in appendix III to this part, as activity costs.

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Communication costs, such as telephone services, when they are not necessary to accomplish grant objectives;

Entertainment Costs 2 C.F.R. § 200.438

Entertainment costs, including amusement, diversion, and social activities (unless they have a programmatic purpose and are authorized in the budget. Costs of entertainment, including amusement, diversion, and social activities and any associated costs are unallowable, except where specific costs that might otherwise be considered entertainment have a programmatic purpose and are authorized either in the approved budget for the Federal award or with prior written approval of the Federal awarding agency.

Fundraising and Investment Costs 2 C.F.R. §200.442

(a) Costs of organized fund raising, including financial campaigns, endowment drives, solicitation of gifts and bequests, and similar expenses incurred to raise capital or obtain contributions are unallowable. Fund raising costs for the purposes of meeting the Federal program objectives are allowable with prior written approval from the Federal awarding agency. Proposal costs are covered in § 200.460. (b) Costs of investment counsel and staff and similar expenses incurred to enhance income from investments are unallowable except when associated with investments covering pension, self-insurance, or other funds which include Federal participation allowed by this part. (c) Costs related to the physical custody and control of monies and securities are allowable. (d) Both allowable and unallowable fund-raising and investment activities must be allocated as an appropriate share of indirect costs under the conditions described in § 200.413.

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General-purpose equipment; not for the benefit of a specific grant project

Goods or Services for Personal Use 2 C.F.R.§200.445

Goods or services for personal use (including gifts, t-shirts, mugs, cell phones, etc.) (a) Costs of goods or services for personal use of the non-Federal entity’s employees are unallowable regardless of whether the cost is reported as taxable income to the employees. (b) Costs of housing (e.g., depreciation, maintenance, utilities, furnishings, rent), housing allowances and personal living expenses are only allowable as direct costs regardless of whether reported as taxable income to the employees. In addition, to be allowable direct costs must be approved in advance by a Federal awarding agency.

Lobbying 2 C.F.R. §200.450

(a) The cost of certain influencing activities associated with obtaining grants, contracts, or cooperative agreements, or loans is an unallowable cost. Lobbying with respect to certain grants, contracts, cooperative agreements, and loans is governed by relevant statutes, including among others, the provisions of 31 U.S.C. 1352, as well as the common rule, “New Restrictions on Lobbying” published on February 26, 1990, including definitions, and the Office of Management and Budget “Governmentwide Guidance for New Restrictions on Lobbying” and notices published on December 20, 1989, June 15, 1990, January 15, 1992, and January 19, 1996. (b) Executive lobbying costs. Costs incurred in attempting to improperly influence either directly or indirectly, an employee or officer of the executive branch of the Federal Government to give consideration or to act regarding a Federal award or a regulatory matter are unallowable. Improper influence means any influence that induces or tends to induce a Federal employee or officer to give consideration or to act regarding a Federal award or regulatory matter on any basis other than the merits of the matter. (c) In addition to the above, the following restrictions are applicable to nonprofit organizations and IHEs: (1) Costs associated with the following activities are unallowable: (i) 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; (ii) Establishing, administering, contributing to, or paying the expenses of a political party, campaign, political action committee, or other organization established for the purpose of influencing the outcomes of elections in the United States; (iii) Any attempt to influence: (A)The introduction of Federal or state legislation; (B) The enactment or modification of any pending Federal or state legislation through communication with any member or employee of the Congress or state legislature (including efforts to influence state or local officials to engage in similar lobbying activity); (C) The enactment or modification of any pending Federal or state legislation by preparing, distributing, or using publicity or propaganda, or by urging members of the general public, or any segment thereof, to contribute to or participate in any mass demonstration, march, rally, fund raising drive, lobbying campaign or letter writing or telephone campaign; or (D) Any government official or employee in connection with a decision to sign or veto enrolled legislation; (iv) Legislative liaison activities, including attendance at legislative sessions or committee hearings, gathering information regarding legislation, and analyzing the effect of legislation, when such activities are carried on in support of or in knowing preparation for an effort to engage in unallowable lobbying. (2) The following activities are excepted from the coverage of paragraph (c)(1) of this section: (i) Technical and factual presentations on topics directly related to the performance of a grant, contract, or other agreement (through hearing testimony, statements, or letters to the Congress or a state legislature, or subdivision, member, or cognizant staff member thereof), in response to a documented request (including a Congressional Record notice requesting testimony or statements for the record at a regularly scheduled hearing) made by the non-Federal entity’s member of congress, legislative body or a subdivision, or a cognizant staff member thereof, provided such information is readily obtainable and can be readily put in deliverable form, and further provided that costs under this section for travel, lodging or meals are unallowable unless incurred to offer testimony at a regularly scheduled Congressional hearing pursuant to a written request for such presentation made by the Chairman or Ranking Minority Member of the Committee or Subcommittee conducting such hearings; (ii) Any lobbying made unallowable by paragraph (c)(1)(iii) of this section to influence state legislation in order to directly reduce the cost, or to avoid material impairment of the non-Federal entity’s authority to perform the grant, contract, or other agreement; or (iii) Any activity specifically authorized by statute to be undertaken with funds from the Federal award. (iv) Any activity excepted from the definitions of “lobbying” or “influencing legislation” by the Internal Revenue Code provisions that require nonprofit organizations to limit their participation in direct and “grass roots” lobbying activities in order to retain their charitable deduction status and avoid punitive excise taxes, I.R.C. §§ 501(c)(3), 501(h), 4911(a), including: (A) Nonpartisan analysis, study, or research reports; (B) Examinations and discussions of broad social, economic, and similar problems; and (C) Information provided upon request by a legislator for technical advice and assistance, as defined by I.R.C. § 4911(d)(2) and 26 CFR 56.4911-2(c)(1)-(c)(3). (v) When a non-Federal entity seeks reimbursement for indirect (F&A) costs, total lobbying costs must be separately identified in the indirect (F&A) cost rate proposal, and thereafter treated as other unallowable activity costs in accordance with the procedures of § 200.413. (vi) The non-Federal entity must submit as part of its annual indirect (F&A) cost rate proposal a certification that the requirements and standards of this section have been complied with. (See also § 200.415.) (vii) (A) Time logs, calendars, or similar records are not required to be created for purposes of complying with the record keeping requirements in § 200.302 with respect to lobbying costs during any particular calendar month when: (1) The employee engages in lobbying (as defined in paragraphs (c)(1) and (c)(2) of this section) 25 percent or less of the employee’s compensated hours of employment during that calendar month; and (2) Within the preceding five-year period, the non-Federal entity has not materially misstated allowable or unallowable costs of any nature, including legislative lobbying costs. (B) When conditions in paragraph (c)(2)(vii)(A)(1) and (2) of this section are met, non-Federal entities are not required to establish records to support the allowability of claimed costs in addition to records already required or maintained. Also, when conditions in paragraphs (c)(2)(vii)(A)(1) and (2) of this section are met, the absence of time logs, calendars, or similar records will not serve as a basis for disallowing costs by contesting estimates of lobbying time spent by employees during a calendar month. (viii) The Federal awarding agency must establish procedures for resolving in advance, in consultation with OMB, any significant questions or disagreements concerning the interpretation or application of this section. Any such advance resolutions must be binding in any subsequent settlements, audits, or investigations with respect to that grant or contract for purposes of interpretation of this part, provided, however, that this must not be construed to prevent a contractor or non-Federal entity from contesting the lawfulness of such a determination.

Pre-award Costs Without Prior Approval from the Awarding Agency 2 C.F.R. §200.458

(such costs may be allowable to the extent that they would have been allowable if incurred after the date of the award and with the written approval of the federal awarding agency)   Subcontracts without written approval from SPO, if written approval is required from the funding agency, SPO will request it on behalf of SF.   Pre-award costs. Pre-award costs are those incurred prior to the effective date of the Federal award or subaward directly pursuant to the negotiation and in anticipation of the Federal award where such costs are necessary for efficient and timely performance of the scope of work. Such costs are allowable only to the extent that they would have been allowable if incurred after the date of the Federal award and only with the written approval of the Federal awarding agency. If charged to the award, these costs must be charged to the initial budget period of the award, unless otherwise specified by the Federal awarding agency or pass-through entity.

Telecommunication Costs and Video Surveillance Costs 2 C.F.R. § 200.471

(a) Costs incurred for telecommunications and video surveillance services or equipment such as phones, internet, video surveillance, cloud servers are allowable except for the following circumstances: (b) Obligating or expending covered telecommunications and video surveillance services or equipment or services as described in § 200.216 to: (1) Procure or obtain, extend or renew a contract to procure or obtain; (2) Enter into a contract (or extend or renew a contract) to procure; or (3) Obtain the equipment, services, or systems.

Never Contract with the enemy 2 C.F.R. § 200.215

Federal awarding agencies and recipients are subject to the regulations implementing Never Contract with the Enemy in 2 CFR part 183. The regulations in 2 CFR part 183 affect covered contracts, grants and cooperative agreements that are expected to exceed $50,000 within the period of performance, are performed outside the United States and its territories, and are in support of a contingency operation in which members of the Armed Forces are actively engaged in hostilities.

Prohibition on Certain Telecommunications and Video Surveillance Services or Equipment. 2 C.F.R. § 200.216

(a) Recipients and subrecipients are prohibited from obligating or expending loan or grant funds to: (1) Procure or obtain; (2) Extend or renew a contract to procure or obtain; or (3) Enter into a contract (or extend or renew a contract) to procure or obtain equipment, services, or systems that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system. As described in Public Law 115-232, section 889, covered telecommunications equipment is telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation (or any subsidiary or affiliate of such entities). (i) For the purpose of public safety, security of government facilities, physical security surveillance of critical infrastructure, and other national security purposes, video surveillance and telecommunications equipment produced by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company (or any subsidiary or affiliate of such entities). (ii) Telecommunications or video surveillance services provided by such entities or using such equipment. (iii) Telecommunications or video surveillance equipment or services produced or provided by an entity that the Secretary of Defense, in consultation with the Director of the National Intelligence or the Director of the Federal Bureau of Investigation, reasonably believes to be an entity owned or controlled by, or otherwise connected to, the government of a covered foreign country. (b) In implementing the prohibition under Public Law 115-232, section 889, subsection (f), paragraph (1), heads of executive agencies administering loan, grant, or subsidy programs shall prioritize available funding and technical support to assist affected businesses, institutions and organizations as is reasonably necessary for those affected entities to transition from covered communications equipment and services, to procure replacement equipment and services, and to ensure that communications service to users and customers is sustained. (c) See Public Law 115-232, section 889 for additional information. (d) See also § 200.471.

Note: Costs incurred after the end date of the grant are always deemed unallowable

Helpful Questions for Determining Whether a Cost Is Allowable

SPO can refer to this section for a useful framework when performing an allowability analysis. In order to determine whether federal funds may be used to purchase a specific cost, it is helpful to ask the following questions:

• Is the proposed cost allowable under the relevant program?
• Is the proposed cost consistent with an approved program plan and budget?
• Is the proposed cost consistent with program-specific fiscal rules?
  • For example, the College may be required to use federal funds only to supplement the  amount of funds available from nonfederal (and possibly other federal) sources.

• Is the proposed cost consistent with UGG?
• Is the proposed cost consistent with specific conditions imposed on the grant (if applicable)?

As a practical matter, specific program administration or the SPO office should also consider whether the proposed cost is consistent with the underlying needs of the program. Also, funds should be targeted to address areas of weakness, as necessary. To make this determination, specific program administration or the SPO office should review data when making purchases to ensure that federal funds meet these areas of concern.