Allowable and Unallowable Costs 2 CFR Part 230

Allowable and Unallowable Costs 2 CFR Part 230 Appendix A – General Principles Appendix B – Selected Items of Cost Chief, Operational Oversight Division Joseph E. Baldwin (512) 460 -5292 Project Review: February 2014

Topics • “Super Circular” Information • Introduction to OMB Circular A-122 (2 CFR 230) • Categories of Allowable Costs • Categories of Unallowable Costs

Super Circular 2 CFR Chapter I, and Chapter II, Parts 200, 215, 220, and 230 The Office and Management and Budget (OMB) has produced its long-awaited “super circular” and has published the final notice on December 26, 2013 in the Federal Register. http: //www. gpo. gov/fdsys/pkg/FR-2013 -12 -26/pdf/2013 -30465. pdf This final guidance supersedes and streamlines requirements from OMB Circulars A 21, A-87, A-110, and A-122 (which have been placed in OMB guidance's); Circulars A 89, A-102, and A-133; and the guidance in Circular A-50 on Single Audit Act follow-up. Federal agencies have one year to implement the policies and procedures applicable to Federal awards by promulgating a regulation by December 26, 2014. " While the Super Circular took effect on December 26, 2013, Federal agencies have six months to submit draft implementing regulations to OMB, and non-Federal entities have until December 26, 2014, to comply and conform fully to the Super Circular.

OMB Circular A-122 • Why do you have to follow it • Attachment A: General Principles • Attachment B: Selected Items of Cost

Segregation of Costs • • Costs for each particular cost objective must be segregated A cost is allocable to a particular cost objective, such as a grant, contract, project, service, or other activity, in accordance with the relative benefits received. A cost is allocable to a Federal award if it is treated consistently with other costs incurred for the same purpose in like circumstances and if it: (1) Is incurred specifically for the award. (2) Benefits both the award and other work and can be distributed in reasonable proportion to the benefits received, or (3) Is necessary to the overall operation of the organization, although a direct relationship to any particular cost objective cannot be shown. • Any cost allocable to a particular award or other cost objective under these principles may not be shifted to other Federal awards to overcome funding deficiencies, or to avoid restrictions imposed by law or by the terms of the award.

Allowable Costs • Be necessary and reasonable, and allocable, • Conform to any limitations or exclusions set forth in the cost principles or the award, • Be consistent with policies and procedures afforded all activities of the organization, • Be accorded consistent treatment, • Be determined in accordance with GAAP, • Not be against the law, • Not already be included in a cost sharing or matching requirement, • Be net of applicable credits, • Be adequately documented.

Unallowable Costs • Specifically identified in the grant/contract as being unallowable. • Specifically identified in Circular A-122, as being unallowable. • Does not meet the criteria listed in Circular A-122 to be allowable.

Sample Unallowable Costs • • • Alcoholic Beverages, Bad Debts, Contingency Provisions, Contributions and Donations Entertainment, Fines and Penalties, Fund Raising Costs, Gift Cards, Interest on Borrowed Capital, Lobbying Costs, Social Memberships.

Advertising Allowable • Recruitment of personnel required for performance of Federal award. • Procurement of goods & services for the performance of the award. • Disposal of scrap or surplus acquired in the performance of award.

Advertising Unallowable • Costs of promotional items, memorabilia, gifts and souvenirs. • Costs of advertising and public relations designed solely to promote the organization. • SWAG – Stuff We All Get.

Alcoholic Beverages Unallowable regardless of circumstance.

Audit Costs • Audits required by, and performed in accordance with, the Single Audit Act, as implemented Circular A-133 are allowable. • Other audit costs are allowable if included in an indirect cost rate proposal, or if specifically approved by the awarding agency as a direct cost. • The cost of agreed-upon procedures engagements to monitor sub-recipients who are exempted from A-133 are allowable.

Bad Debts Bad debts, including losses (whether actual or estimated) arising from uncollectible accounts and other claims, related collection costs, and related legal costs, are unallowable.

Compensation for Personal Services Support of salaries and wages must include a Personnel Activity Reports (PARs or Time Distribution Reports) PARs must adhere to the following requirements: • Must reflect after-the-fact determination of activity (not budget estimates). • Must account for total activity for which employee is compensated. • Must be signed by the employee or responsible supervisor. • Must be prepared at least monthly and coincide with one or more pay periods.

Contributions and Donations • Costs of contributions and donations, including cash, property, and services, from the non – Federal entity to other entities, are unallowable. • The value of services and property donated to the non. Federal entity may not be charged to the Federal award either as a direct or indirect (F&A) cost. • The value of donated services and property may be used to meet cost sharing or matching requirements (see § 200. 306 Cost sharing or matching). • Depreciation on donated assets is permitted in accordance with § 200. 436 Depreciation, as long as the donated property is not counted towards cost sharing or matching requirements.

Depreciation • Depreciation on buildings or equipment furnished by the federal government or purchased through federal grants are not an allowable expense. This pertains to capital items that are purchased with federal dollars. • Compensation for the use of buildings, other capital improvements, and equipment on hand may be made through use allowance or depreciation. This pertains to capital items that were previously purchased with non federal funds. Depreciation is not allowable on cost sharing. (Assets purchased with Capital Grant 35% Matching Requirement)

Entertainment Costs of entertainment, including amusement, diversion and social activities and costs relating to these activities such as tickets, meals, lodging, rentals, transportation and gratuities are unallowable, unless…. .

Entertainment • Those cost have a programmatic purpose and are authorized in the approved budget , or • Those cost have prior written approval from the federal awarding agency. VA GPD will allow these cost when involving a Veteran population with a program specific purpose. Limits are set to no more than twice a year and no more than $20 person.

Fines and Penalties • Costs of failures to comply with Federal, state, or local laws are unallowable. • Allowable if incurred as a result of compliance with specific provisions of an award or instructions in writing from the awarding agency.

Fund Raising • Fund raising and similar expenses incurred solely to raise capital or obtain contributions are unallowable. • Fund raising activities shall be allocated an appropriate share of indirect costs.

Gift Cards Unallowable regardless of the circumstance.

Insurance • Insurance required or approved pursuant to an award is allowable. • Insurance carried by the organization in general conduct of business is allowable subject to the following limitations: – Reasonable coverage, – Cost of insurance on officers must represent additional compensation and the organization may not be identified as the beneficiary.

Lobbying • Unallowable: – Attempts to influence election outcomes, – Contributing to political causes, – Attempts to influence Federal or State legislation through virtually any communicative device, – Legislative liaison activities when performed in support of unallowable lobbying.

Maintenance and Repairs • Costs necessary to keep buildings and equipment in efficient operating condition are allowable. • Costs which add to the permanent value or appreciably prolong the life of the asset shall be treated as capital expenditures.

Meetings and Conferences • Costs of meetings and conferences, the primary purpose of which is the dissemination of technical information, are allowable. • Costs include meals, transportation, rental of facilities, speakers’ fees, and other items incidental to the meeting or conference.

Professional Service Costs • Costs of professional and consultant services rendered by persons who are members of a particular profession or possess a special skill, and who are not officers or employees of the non-profit organization, are generally allowable if reasonable and not contingent on recovery of costs from the Federal government.

Recruiting • Generally, advertising and associated costs incurred for recruitment of staff are allowable but – They must meet the test of reasonableness and, – They must conform with established practices of the organization.

Supplies to Support Veterans • Costs incurred for materials and supplies necessary to carry out a Federal award and are tied to a Veteran’s service / treatment plan are allowable. – Bus Tokens – Work / school related materials These costs should be adequately documented and tracked.

Training Costs • Generally, training and education costs related to employee development, such as, workshops, textbooks, classes, etc. are allowable.

Transportation • Allowable as direct if provided for in the award. • Allowable as indirect for equitable distribution to all benefiting activities.

Travel • Expenses for transportation, lodging, subsistence, and related items incurred by employees on official business are allowable. • Costs may be charged on an actual basis, per diem or mileage basis or a combination, but must be consistent with those normally allowed by the organization.

Questions?