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Allowability of Costs – Federal Programs

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

Delegation of Responsibility

When determining how the school district will spend its grant funds, the Federal Programs Coordinator will review the proposed cost to determine whether it is an allowable use of federal grant funds before obligating and spending those funds on the proposed good or service.

Allowability Determinations

All costs supported by federal education funds must meet the standards outlined in EDGAR, 2 CFR Part 3474 and 2 CFR Part 200, Subpart E, which are listed below. The Federal Programs Coordinator must consider these factors when making an allowability determination. A section entitled, Helpful Questions for Determining Whether Costs are Allowable, is located at the end of this document.

Part 200 sets forth general cost guidelines that must be considered, as well as rules for specific types of items, both of which must be considered when determining whether a cost is an allowable expenditure of federal funds. The expenditure must also be allowable under the applicable program statute (e.g., Title I of the Elementary and Secondary Education Act (ESEA), or the Carl D. Perkins Career and Technical Education Act (Perkins)), along with accompanying program regulations, non-regulatory guidance and grant award notifications.

Restrictions in state and local rules or policy also must be considered. For example, travel and other job-related expenses incurred by employees are not allowable unless they also are in compliance with Board Policy 331 (Job Related Expenses) and related administrative regulations.

Whichever allowability requirements are stricter will govern whether a cost is allowable.

General allowability determination factors include the following:

  1. 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 would be incurred by a prudent person 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 reasonableness of a cost, consideration must be given to:

Whether a cost is necessary will be determined based on the needs of the program. Specifically, the expenditure must be necessary to achieve an important program objective. A key aspect in determining whether a cost is necessary is whether the district can demonstrate that the cost addresses an existing need, and can prove it. For example, the school entity may deem a language skills software program necessary for a limited English proficiency program. 

When determining whether a cost is necessary, consideration may be given to:

  1. Allocable to the federal award. A cost is allocable to the federal award if the goods or services involved are chargeable or assignable to the federal award in accordance with the relative benefit received. This means that the federal grant program derived a benefit in proportion to the funds charged to the program. (2 CFR Sec. 200.405)

For example, if fifty percent (50%) of a teacher’s salary is paid with grant funds, then that teacher must spend at least fifty percent (50%) of his/her time on the grant program.

  1. Consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the school entity.
  2. Conform to any limitations or exclusions set forth as cost principles in Part 200 or in the terms and conditions of the federal award.
  3. Consistent treatment. A cost cannot be assigned to a federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been assigned as an indirect cost under another award.
  4. Adequately documented. All expenditures must be properly documented.
  5. Be calculated in accordance with generally accepted accounting principles (GAAP), unless provided otherwise in Part 200.
  6. Not included as a match or cost-share, unless the specific federal program authorizes federal costs to be treated as such. Some federal program statutes require the nonfederal entity to contribute a certain amount of nonfederal resources to be eligible for the federal program.
  7. Be the net of all applicable credits. The term “applicable credits” refers to those receipts or reduction of expenditures that operate to offset or reduce expense items allocable to the federal award. Typical examples of such transactions are: purchase discounts; rebates or allowances; recoveries or indemnities on losses; and adjustments of overpayments or erroneous charges. To the extent that such credits accruing to or received by the state relate to the federal award, they shall be credited to the federal award, either as a cost reduction or a cash refund, as appropriate. (2 CFR Sec. 200.406)

Selected Items of Cost

Subpart E of Part 200 sets forth principles to be applied in establishing the allowability of fifty-five (55) specific cost items (commonly referred to as Selected Items of Cost), at 2 CFR Sec. 200.420-200.475. These specific cost items are listed in the chart below along with the citation to the section of Subpart E addressing the allowability of that item. These principles are in addition to the other general allowability standards, and apply whether or not a particular item of cost is properly treated as direct cost or indirect (F&A) cost.

Meeting the specific criteria for a listed item does not by itself mean the cost is allowable, as it may be unallowable under other standards or for other reasons, such as restrictions contained in the terms and conditions of a particular grant or restrictions established by the state or in Board policy. If an item is unallowable for any of these reasons, federal funds cannot be used to purchase it.

School district personnel responsible for spending federal grant funds and for determining allowability must be familiar with and refer to the Part 200 selected items of cost section. These rules must be followed when charging these specific expenditures to a federal grant. When applicable, employees must check costs against the selected items of cost requirements to ensure the cost is allowable, and also check state, district and program-specific rules.

The selected item of cost addressed in Part 200 includes the following (in alphabetical order):

Item of Cost

Citation of Allowability Rule

Advertising and public relations costs

2 CFR § 200.421

Advisory councils

2 CFR § 200.422

Alcoholic beverages

2 CFR § 200.423

Alumni/ae activities

2 CFR § 200.424

Audit services

2 CFR § 200.425

Bad debts

2 CFR § 200.426

Bonding costs

2 CFR § 200.427

Collection of improper payments

2 CFR § 200.428

Commencement and convocation costs

2 CFR § 200.429

Compensation – personal services

2 CFR § 200.430

Compensation – fringe benefits

2 CFR § 200.431


2 CFR § 200.432

Contingency provisions

2 CFR § 200.433

Contributions and donations

2 CFR § 200.434

Defense and prosecution of criminal and civil proceedings, claims, appeals and patent infringements

2 CFR § 200.435


2 CFR § 200.436

Employee health and welfare costs

2 CFR § 200.437

Entertainment costs

2 CFR § 200.438

Equipment and other capital expenditures

2 CFR § 200.439

Exchange rates

2 CFR § 200.440

Fines, penalties, damages and other settlements

2 CFR § 200.441

Fund raising and investment management costs

2 CFR § 200.442

Gains and losses on disposition of depreciable assets

2 CFR § 200.443

General costs of government

2 CFR § 200.444

Goods and services for personal use

2 CFR § 200.445

Idle facilities and idle capacity

2 CFR § 200.446

Insurance and indemnification

2 CFR § 200.447

Intellectual property

2 CFR § 200.448


2 CFR § 200.449


2 CFR § 200.450

Losses on other awards or contracts

2 CFR § 200.451

Maintenance and repair costs

2 CFR § 200.452

Materials and supplies costs, including costs of computing devices

2 CFR § 200.453

Memberships, subscriptions, and professional activity costs

2 CFR § 200.454

Organization costs

2 CFR § 200.455

Participant support costs

2 CFR § 200.456

Plant and security costs

2 CFR § 200.457

Pre-award costs

2 CFR § 200.458

Professional services costs

2 CFR § 200.459

Proposal costs

2 CFR § 200.460

Publication and printing costs

2 CFR § 200.461

Rearrangement and reconversion costs

2 CFR § 200.462

Recruiting costs

2 CFR § 200.463

Relocation costs of employees

2 CFR § 200.464

Rental costs of real property and equipment

2 CFR § 200.465

Scholarships and student aid costs

2 CFR § 200.466

Selling and marketing costs

2 CFR § 200.467

Specialized service facilities

2 CFR § 200.468

Student activity costs

2 CFR § 200.469

Taxes (including Value Added Tax)

2 CFR § 200.470

Termination costs

2 CFR § 200.471

Training and education costs

2 CFR § 200.472

Transportation costs

2 CFR § 200.473

Travel costs

2 CFR § 200.474


2 CFR § 200.475

Helpful Questions for Determining Whether Costs are Allowable -

In addition to applying the cost principles and standards described above, district staff involved in expending federal funds should ask the following questions when assessing the allowability of a particular cost:

  1. Is the proposed cost allowable under the relevant program?
  2. Is the proposed cost consistent with an approved program plan and budget?
  3. Is the proposed cost consistent with program specific fiscal rules? For example, the school entity may be required to use federal funds only to supplement the amount of funds available from nonfederal (and possibly other federal) sources, or only as a match for funds from nonfederal sources.
  4. Is the proposed cost consistent with EDGAR?
  5. Is the proposed cost consistent with specific conditions imposed on the grant (if applicable)?
  6. Is the proposed cost consistent with the underlying needs of the program? For example, program funds must benefit the appropriate population of students for which they are allocated. This means that, for instance, funds allocated under Title III of the Elementary and Secondary Education Act (ESEA) governing language instruction programs for Limited English Proficient (LEP) students must only be spent on LEP students and cannot be used to benefit non-LEP students.
  7. Will the cost be targeted at addressing specific areas of weakness that are the focus of the program, as indicated by available data?

Any questions related to specific costs should be forwarded to the Business Manager, who shall consult with the school solicitor for clarification as appropriate.