Cost Principles – 2 CFR Part 200 Subpart E

U.S. Department of Education

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This presentation introduces grantees to changes in cost principles required by the Uniform Guidance.  It includes information on 2 CFR 200 Subpart E, except time and effort reporting and indirect costs.  

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Purpose and Use of this Presentation

The Department of Education is providing this presentation to help its grantees understand the contents of the Uniform Guidance and should be viewed after or alongside of the regulations.  It is not a substitute for reading the regulations. 

To get the most out of this presentation, view this as a notes page.  The notes section of each slide provides information to supplement the points on the slide.  To change to notes page: Go to View and click on Notes Page. 

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The Uniform Guidance, which is title 2 of the Code of Federal Regulations (CFR) Part 200, has also been called the omni-circular and the supercircular.  The full name is the Uniform Administrative Requirements, Cost Principles, and Audit Requirements.  We refer to it as either the Uniform Guidance or 2 CFR Part 200, throughout this presentation. 

The Uniform Guidance is found at: http://www.ecfr.gov/cgi-bin/text-idx?SID=6214841a79953f26c5c230d72d6b70a1&tpl=/ecfrbrowse/Title02/2cfr200_main_02.tpl

Additional resources for grantees are found at: http://www2.ed.gov/policy/fund/guid/uniform-guidance/index.html

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Learning Outcomes

Understand the basic concepts of Cost Principles; 

Understand changes required by 2 CFR Part 200; 

Know where to locate differences depending on entity type; and

Be able to find and cite the relevant regulations in 2 CFR Part 200 Subpart E.

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Uniform Guidance	

Title 2 of the Code of Federal Regulations, Part 200 (2 CFR Part 200)

Accepted by the Department of Education in 2 CFR Part 3474

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2 CFR Part 200 was adopted by Department of Education (the Department) on December 19, 2014 at 2 CFR Part 3474, as its regulations for administering all grants, with one exception and one clarification.  The clarification is that we will continue to use high risk designations when awarding grants.  The exception concerns the process the Department will follow in granting exceptions from the requirements of the Uniform Guidance.  

Exceptions is an important point because it explains why there seem to be so many differences in implementation when this guidance was supposed to bring consistency across the Federal government. The Department has only one exception; while some Departments have a large number of exceptions.  

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“This guidance does not change or modify any existing statute or guidance otherwise based on any existing statute.”

Authorities to consider when using 2 CFR Part 200

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The quote comes from the UG summary statement on the Federal Register site https://www.federalregister.gov/articles/2013/12/26/2013-30465/uniform-administrative-requirements-cost-principles-and-audit-requirements-for-federal-awards:  

The Uniform Guidance does not supersede:

Program laws and regulations.

Other Federal statutes (ADA, for example) 

It does replace EDGAR parts 74 and 80 and six OMB Circulars.  EDGAR part 77 has been updated to reflect the new definitions. 

See the Webcast for Grantees (May 27, 2015) at http://www2.ed.gov/policy/fund/guid/uniform-guidance/index.html for more information.

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When does 2 CFR Part 200 start? 

Uniform Guidance (2 CFR Part 200) applies to:

New and Continuation grants awarded on or after December 26, 2014

Former regulations (EDGAR Part 74 or 80 and OMB circulars) apply to:

Grants awarded prior to December 26, 2014 

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See the Webcast for Grantees (May 27, 2015) and the Department’s Frequently Asked Questions (FAQs) at http://www2.ed.gov/policy/fund/guid/uniform-guidance/index.html for more information.

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Where are the cost principles requirements?
| Grants made prior to 12/26/2014                               | Grants made on or after 12/26/2014          |
|---------------------------------------------------------------|---------------------------------------------|
| OMB  Circulars A-21, A-87, A-1222 CFR Parts 220, 225, and 230 | Uniform Guidance (2 CFR Part 200 Subpart E) |

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Awards (new and continuations) made on or after 12/26/2014 MUST use the Uniform Guidance.  For previously awarded grants, the OMB requirements, found in OMB circulars, still apply.  However, there is no penalty for implementing the Uniform Guidance early.  Note that 2 CFR Parts 220, 225, and 230 can no longer be found on www.ecfr.gov.  However, the circulars are still posted on the OMB website. 

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Cost Principles 

Background, Key Concepts and Changes

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In accordance with 2 CFR 200.302, all grant recipients must have, as part of their internal controls, financial management systems in place that include written procedures for ensuring all expenditures conform to the terms and conditions of the grant as well as the Uniform Guidance Cost Principles.  

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Cost Principles:  Fundamental Principles

Fundamental requirements for grantees (2 CFR 200.400):

responsibility for the efficient and effective administration through the application of sound management practices;

responsibility for administering an award in a manner consistent with underlying agreements, program objectives, and the terms and conditions;

having accounting practices consistent with principles in Subpart E and documenting all costs; 

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Paraphrased from 2 CFR 200.400 Policy Guide, without the reference to indirect costs.  

These are the fundamental premises for the cost principles.

As a grantee, you must 

- have solid management practices for administering the award, 

- know the underlying agreements (e.g., subawards), program objectives, and terms and conditions of the grant in order to administer the grant properly, 

- have accounting practices that align with the cost principles,

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Cost Principles:  Fundamental Principles

responsibility for employing sound organization and management techniques to assure proper and efficient administration; 

not earn or keep profit, unless authorized by the terms and conditions of the award; and  

(Institutes of Higher Education) recognize dual role of students as trainees and employees, as appropriate.

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- have sound organizational and management techniques, which are part of having strong internal controls in place, for sound organizational and managerial techniques, 

- follow terms and conditions of the award with regard to profit, and

- (IHEs only) recognize dual role of students as trainees and employees, as appropriate. 

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Cost Principles:  Overview

Allowable

Reasonable and Necessary

Allocable

Direct v. Indirect

Special Considerations by Entity Type

Selected Items of Cost

Expanded Authorities

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The concepts covered in Subpart E includes those shown above, and in that order.  

Allowable, Reasonable, and Allocable are the basic considerations for whether a cost can be included in a budget for a Federal award.  

As stated before, we will not cover the direct versus indirect costs.  In short, indirect costs are those costs that are incurred for common or joint purposes, that benefit more than one organizational cost objective.  These costs are covered in a separate briefing. 

We will briefly identify where to find information about considerations by entity type.  

Then, we will talk about selected items of cost, which are specific costs that are always allowed (supplies required to carry out the project), never allowed (alcohol), or allowed within certain parameters (dependent care costs).  See also the document titled, “Noteworthy Additions or Changes for Select Items of Cost,” at http://www2.ed.gov/policy/fund/guid/uniform-guidance/index.html.  

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Cost Principles: Allowability (§200.403)

General Considerations in Determining Allowability:

Is the cost reasonable and necessary for the program?

Is the expense in compliance with laws, regulations and grant terms? 

To what extent is the expense allocable to the grant?

Is the cost adequately documented? 

Is it consistent with grantee rules that apply to both Federally funded and non-Federally funded activities?

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Consider these questions when deciding if a cost is allowable and consult the specific items of cost found in §§200.420 through 200.475.

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Cost Principles: Reasonable (§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.” 

Consideration: Do sound business practices support the expenditure?

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More questions to consider:

What is reasonable? 

Is the cost ordinary and necessary? 

Has proper consideration been given to factors such as arm’s-length bargaining, sound business practices, other Federal requirements? 

Are the costs comparable to market prices for comparable goods or services in the geographic area? [This concept is important for areas with a higher cost of living, including those grantees in which geographical remoteness may affect availability and price...  Example rural areas, territories, outlying areas, and freely associated states.]

Have all concerned acted with prudence, considering their responsibilities to the organization, community, and others? 

Does it adhere to established practices and policies? 

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Cost Principles:  Allocable Costs (§200.405)

Allocable means the good or service can be assigned to an award or cost objective in accordance with the relative benefit achieved.  

(d) If a cost benefits two or more projects, activities, or programs in proportions that can be determined without undue effort or cost, the cost should be allocated to the projects based on the proportional benefit.

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The concept of allocability is an important one for awarding agencies in providing fiscal oversight.  You may frequently work in collaboration with other Federal or State-funded agencies, or non-profit organizations.  As such, you may share resources with those other agencies, programs, and organizations, and it is important that the portion of shared resources supported with our grants is consistent with the amount of benefit that you receive.  In other words, the costs should be charged in proportion to the benefits received. 

Allocating employee time among multiple cost objectives is another example of allocability.

The note in “d” - 

In some instances, you may seek to use grant funds to pay for goods or services that are less readily assignable to the your objectives under the grant, and for which the benefit to the program is more difficult to establish. These costs would be included in the indirect costs, rather than direct. 

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Blended Funds (§200.430(i)(7)) 

Qualifications:

Funds are from more than one program or agency

Activities are the same or closely related

Single or multiple grants

Requirements:

Single Cost Accounting Code to account for blended funds

Prior approval from all agencies providing funding to blend funds 

See the Department’s FAQs and contact your program officer at the 

Department for more information on blending. 

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See the Department’s FAQs at http://www2.ed.gov/policy/fund/guid/uniform-guidance/index.html and contact your program officer at the Department for more information on blending. 

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Cost Principles:  Prior Approvals

Prior approval requirements (§200.407)  

When grantees must consult with the Department and receive approval BEFORE making a change to the grant

Expanded Authorities (§200.308)

When the requirement for prior approval before making a change is waived

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The Uniform Guidance consolidates most prior approval requirements at 2 CFR 200.407.

Prior approvals are sometimes required to avoid subsequent cost disallowances or disputes based on unreasonableness, unallowability, or nonallocability.  

Costs identified in the approved budget are approved.  Changes made to that budget may require prior approval, as outlined in 2 CFR 200.407 (a) through (y).

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Expanded Authorities (§200.308)

Pre-award Costs

Carryover

Budget Transfers

No-Cost Time Extension

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Expanded Authorities are found in 2 CFR Part 200 Subpart D, Post Award.  Expanded authorities allow some recipients to make changes to their projects without prior approval.  

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Pre-Award Costs (§200.308(d)(1))

Incurred up to 90 days before budget period begins without prior approval

Applies to both new and non-competing continuations

Reasonable expectation of receiving a grant

Incurred at the entity’s own risk

Not for cost over-runs

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No-Cost Time Extension(§200.308(d)(2))

Grantees should send written notice to program officer:

No later than 10 days before project ends.

Stating the reasons for extension.

Providing a revised expiration date.

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No-Cost Time Extension(§200.308(d)(2))

The one-time extension may not be used merely for the purpose of using unobligated funds

No change in scope or objectives are permitted

No additional funds will be made available

Additional extensions  or an extension in excess of 12 months requires prior approval

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Carryover (§200.308(d)(3))

Unexpended funds are carried over from one budget period to the next without prior approval

Funds may be used for any allowable cost within the approved project scope

ED may require a written statement explaining:

How the funds will be spent

ED, set out at 34 CFR 75.253, may reduce new funds in        some cases

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Budget Transfers (§200.308)

Most budget transfers at ED do not require prior approval

ED may restrict a grantee’s ability to transfer funds among direct cost categories or programs

Review the terms and conditions listed in the GAN

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Cost Principles:  By Entity Type

Special Considerations identified for: 

States, Local Governments, and Indian Tribes

2 CFR 200.416 and 200.417

Institutes of Higher Education 

2 CFR 200.418 and 200.419

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These mainly reference differences when negotiating Indirect Cost Rates. 

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Cost Principles:  Certification (§200.415) 

Certification for financial reports and vouchers:

ED Form 524B, revised  

Identify pass-through entities’ requirements for oversight regarding required certification

Grantees should ensure appropriate oversight of subawards, as appropriate, as part of internal controls. 

The certification is required every time funds are drawn down from G5.

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To assure that expenditures are proper and in accordance with the terms and conditions of the Federal award and approved project budgets, the annual and final fiscal reports or vouchers requesting payment under the agreements must include a certification, signed by an official who is authorized to legally bind the non-Federal entity, which reads as follows: (next slide)

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Cost Principles:  Certification (§200.415) 

“By signing this report, I certify to the best of my knowledge and belief that the report is true, complete, and accurate, and the expenditures, disbursements and cash receipts are for the purposes and objectives set forth in the terms and conditions of the Federal award. I am aware that any false, fictitious, or fraudulent information, or the omission of any material fact, may subject me to criminal, civil or administrative penalties for fraud, false statements, false claims or otherwise. (U.S. Code Title 18, Section 1001 and Title 31, Sections 3729-3730 and 3801-3812).”

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The False Claims Act is not new, nor is the grantees’ requirement to comply.  However, the required certification language is new and specific.  

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Cost Principles: Select Items of Cost

These sections (§§200.421 through 200.475) identify the allowability of certain items:

Allowability applies to direct costs, indirect costs, and matching funds. 

Allowability of any costs not included in the select items should based on the treatment provided for similar or related items of cost and the principles of allocability, reasonableness, and necessity (§200.420).  

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See also the document title, “Noteworthy Additions or Changes for Select Items of Cost,” on the Ed.gov technical assistance for grantees: http://www2.ed.gov/policy/fund/guid/uniform-guidance/index.html.  

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Cost Principles 

Responsibilities for Compliance

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Compliance: Grantees

Strong Internal Controls

Communication with ED Staff 

Prior Approvals and Expanded Authorities

Documentation 

Audit Readiness

Audit Follow up on Questioned Costs, Corrective Action Plan 

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You need to have strong internal controls.  In accordance with 2 CFR 200.302, all grant recipients must have financial management systems in place that include written procedures for ensuring all expenditures conform to the terms and conditions of the grant as well as the Uniform Guidance Cost Principles.  Our module on internal controls will provide good information for you on what that means and assessment tools for grantees.  

You must communicate with your program officer at the Department and have a good understanding about what requires prior approvals and what doesn’t.  

You must document your progress, and for cost principles, you must have documentation to back up the financial statements. Documentation is part of strong internal controls and part of audit readiness, which is the next item.  

2 CFR Part 200 Subpart F identifies audit requirements, specifically the responsibility of auditees in regards to audit readiness in 200.508 through 510 and in audit follow-up in 200.511.  Our module on audits provides more background for you on these topics.  

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