Allocability of Cost

Included in this document

• Overview

• Allowability of Costs
• Reasonable Costs
• Allocable Costs
• Title I Implementation Procedures

Overview

The concepts of allowability, allocability, and reasonableness of costs address directly the legitimacy of a cost charged against a specific federal award. Determination of allowability, allocability, and reasonableness of a given expense is based on specific guidelines of the sponsor and according to federal cost principles.

Allowability, allocability, and reasonableness are defined and determined by the Office of Management and Budget (OMB), the sponsor's requirements (e.g., MDE) and/or District policy. Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Programs, states that "The recipient institution is responsible for ensuring that costs charged to a federal award are allowable, allocable, and reasonable ..." Each financial transaction charged against a federal award is evaluated against these three concepts.

A primary responsibility of the Office of Title I Federal Programs in collaboration with the Business Office  is to insure that all costs charged to the federal award are allowable and allocable. A determination of allowability and allocability for a given cost is based on the specific guidelines of the sponsoring agency and according to federal cost principles.

Allowability of Costs

200.403 FACTORS AFFECTING ALLOWABILITY OF COSTS.

Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards:

(a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles.

(b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items.

(c) Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non-Federal entity (District).

(d) Be accorded consistent treatment. A cost may not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost.

(e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for state and local governments and Indian tribes only, as otherwise provided for in this part.

(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 Cost sharing or matching paragraph (b).

(g) Be adequately documented. See also §§200.300 Statutory and national policy requirements through 200.309 Period of performance of this part.

Reasonable Costs

200.404 REASONABLE COSTS.

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.

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

• Whether the cost is generally recognized as ordinary and necessary for the operation of the school, district or program and proper or efficient performance of the federal award.
• 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.
• 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 district, school or program, its employees, where applicable its students or membership, the public at large, and the Federal Government.
• Whether the district, school or program significantly deviates from its established practices and policies regarding the incurrence of costs, which may unjustifiably increase the Federal award's cost.

Allocable Costs

200.405 ALLOCABLE COSTS.

A cost is allocable to a particular Federal award or if the goods or services involved are chargeable or assignable to that Federal award in accordance with relative benefits received. This standard is met if the cost:

• Is incurred specifically for the Federal award;
• Benefits both the Federal award and other work of the district, school or program and can be distributed in proportions that may be approximated using reasonable methods; and
• Is necessary to the overall operation of the non-Federal entity and is assignable in part to the Federal award in accordance with the principles in this section.
• All activities which benefit from the non-Federal entity's indirect (F&A) cost, including unallowable activities and donated services by the non-Federal entity or third parties, will receive an appropriate allocation of indirect costs.
• Any cost allocable to a particular Federal award under may not be charged to other Federal awards to overcome fund deficiencies, to avoid restrictions imposed by Federal statutes, regulations, or terms and conditions of the Federal awards, or for other reasons. However, this prohibition would not preclude the non-Federal entity from shifting costs that are allowable under two or more Federal awards in accordance with existing Federal statutes, regulations, or the terms and conditions of the Federal awards.
• Direct cost allocation principles. If a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost, the cost must be allocated to the projects based on the proportional benefit. If a cost benefits two or more projects or activities in proportions that cannot be determined because of the interrelationship of the work involved, then, notwithstanding paragraph (c) of this section, the costs may be allocated or transferred to benefitted projects on any reasonable documented basis.
  • Where the purchase of equipment or other capital asset is specifically authorized under a Federal award, the costs are assignable to the Federal award regardless of the use that may be made of the equipment or other capital asset involved when no longer needed for the purpose for which it was originally required. See also §§200.310 Insurance coverage through 200.316 Property trust relationship and 200.439 Equipment and other capital expenditures.

Title I Implementation Process

ALLOWABLE, REASONABLE, ALLOCABLE – To ensure Title I funds are used to provide the necessary supports for the federal award, all Title I funded programs, schools and district activities are reviewed and preapproved by the Director, Title I  Accountant or assigned Title I staff designee.

• All orders for supplies, personnel, or services are approved prior to purchase through the Title I Order Form or eProcurment system.
• Title I budgets for schools and programs are reviewed prior to being finalized by the Title I Director,  Title I Accountant or assigned Title I staff designee.
• Use of fund deemed to inappropriate are declined. If funds are used without preapproval, funds are transferred to the school or program’s general funds accounts.
• If proper documentation is not maintained, funds may also be shifted back to a general fund account (e.g. Title I Taxi Cab Log, Receipts, Time and Effort Reports, etc.)
• To determine if a cost is “reasonable” in terms of market value, purchases under $3500 for schools or $5000 for programs require 2 price comparisons. Purchasing requirements for goods and services are contained in the Goods and Services Matrix.