OMB Guidance
cost reduction, or efficient perform-
ance, suggestion awards, safety awards,
etc., is allowable to the extent that the
overall compensation is determined to
be reasonable and such costs are paid
or accrued pursuant to an agreement
entered into in good faith between the
non -Federal entity and the employees
before the services were rendered, or
pursuant to an established plan fol-
lowed by the non -Federal entity so
consistently as to imply, in effect, an
agreement to make such payment.
(g) Nonprofit organizations. For com-
pensation to members of nonprofit or-
ganizations, trustees, directors, associ-
ates, officers, or the immediate fami-
lies thereof, determination must be
made that such compensation is rea-
sonable for the actual personal services
rendered rather than a distribution of
earnings in excess of costs. This may
include director's and executive com-
mittee member's fees, incentive
awards, allowances for off -site pay, in-
centive pay, location allowances, hard-
ship pay, and cost -of -living differen-
tials.
(h) Institutions of Higher Education
(IHEs). (1) Certain conditions require
special consideration and possible limi-
tations in determining allowable per-
sonnel compensation costs under Fed-
eral awards. Among such conditions
are the following:
(i) Allowable activities. Charges to
Federal awards may include reasonable
amounts for activities contributing
and directly related to work under an
agreement, such as delivering special
lectures about specific aspects of the
ongoing activity, writing reports and
articles, developing and maintaining
protocols (human, animals, etc.), man-
aging substances/chemicals, managing
and securing project -specific data, co-
ordinating research subjects, partici-
pating in appropriate seminars, con-
sulting with colleagues and graduate
students, and attending meetings and
conferences.
(ii) Incidental activities. Incidental
activities for which supplemental com-
pensation is allowable under written
institutional policy (at a rate not to
exceed institutional base salary) need
not be included in the records described
in paragraph (i) of this section to di-
rectly charge payments of incidental
§ 200.430
activities, such activities must either
be specifically provided for in the Fed-
eral award budget or receive prior writ-
ten approval by the Federal awarding
agency.
(2) Salary basis. Charges for work per-
formed on Federal awards by faculty
members during the academic year are
allowable at the IBS rate. Except as
noted in paragraph (h)(1)(ii) of this sec-
tion, in no event will charges to Fed-
eral awards, irrespective of the basis of
computation, exceed the proportionate
share of the IBS for that period. This
principle applies to all members of fac-
ulty at an institution. IBS is defined as
the annual compensation paid by an
IHE for an individual's appointment,
whether that individual's time is spent
on research, instruction, administra-
tion, or other activities. IBS excludes
any income that an individual earns
outside of duties performed for the
IHE. Unless there is prior approval by
the Federal awarding agency, charges
of a faculty member's salary to a Fed-
eral award must not exceed the propor-
tionate share of the IBS for the period
during which the faculty member
worked on the award.
(3) Intra-Institution of Higher Edu-
cation (IHE) consulting. Intra-IHE con-
sulting by faculty should be under-
taken as an IHE responsibility requir-
ing no compensation in addition to
IBS. However, in unusual cases where
consultation is across departmental
lines or involves a separate or remote
operation, and the work performed by
the faculty member is in addition to
his or her regular responsibilities, any
charges for such work representing ad-
ditional compensation above IBS are
allowable provided that such con-
sulting arrangements are specifically
provided for in the Federal award or
approved in writing by the Federal
awarding agency.
(4) Extra Service Pay normally rep-
resents overload compensation, subject
to institutional compensation policies
for services above and beyond IBS.
Where extra service pay is a result of
Intra-IHE consulting, it is subject to
the same requirements of paragraph (b)
above. It is allowable if all of the fol-
lowing conditions are met:
(i) The non -Federal entity estab-
lishes consistent written policies which
167
§ 200.430
apply uniformly to all faculty mem-
bers, not just those working on Federal
awards.
(ii) The non -Federal entity estab-
lishes a consistent written definition of
work covered by IBS which is specific
enough to determine conclusively when
work beyond that level has occurred.
This may be described in appointment
letters or other documentations.
(iii) The supplementation amount
paid is commensurate with the IBS
rate of pay and the amount of addi-
tional work performed. See paragraph
(h)(2) of this section.
(iv) The salaries, as supplemented,
fall within the salary structure and
pay ranges established by and docu-
mented in writing or otherwise applica-
ble to the non -Federal entity.
(v) The total salaries charged to Fed-
eral awards including extra service pay
are subject to the Standards of Docu-
mentation as described in paragraph (i)
of this section.
(5) Periods outside the academic year.
(i) Except as specified for teaching ac-
tivity in paragraph (h)(5)(ii) of this sec-
tion, charges for work performed by
faculty members on Federal awards
during periods not included in the base
salary period will be at a rate not in
excess of the IBS.
(ii) Charges for teaching activities
performed by faculty members on Fed-
eral awards during periods not included
in IBS period will be based on the nor-
mal written policy of the IHE gov-
erning compensation to faculty mem-
bers for teaching assignments during
such periods.
(6) Part-time faculty. Charges for work
performed on Federal awards by fac-
ulty members having only part-time
appointments will be determined at a
rate not in excess of that regularly
paid for part-time assignments.
(7) Sabbatical leave costs. Rules for
sabbatical leave are as follow:
(i) Costs of leaves of absence by em-
ployees for performance of graduate
work or sabbatical study, travel, or re-
search are allowable provided the IHE
has a uniform written policy on sab-
batical leave for persons engaged in in-
struction and persons engaged in re-
search. Such costs will be allocated on
an equitable basis among all related
activities of the IHE.
2 CFR Ch. 11 (1-1-21 Edition)
(ii) Where sabbatical leave is in-
cluded in fringe benefits for which a
cost is determined for assessment as a
direct charge, the aggregate amount of
such assessments applicable to all
work of the institution during the base
period must be reasonable in relation
to the IHE's actual experience under
its sabbatical leave policy.
(8) Salary rates for non -faculty mem-
bers. Non -faculty full-time professional
personnel may also earn "extra service
pay" in accordance with the non -Fed-
eral entity's written policy and con-
sistent with paragraph (h)(1)(i) of this
section.
(i) Standards for Documentation of Per-
sonnel Expenses (1) Charges to Federal
awards for salaries and wages must be
based on records that accurately re-
flect the work performed. These
records must:
(i) Be supported by a system of inter-
nal control which provides reasonable
assurance that the charges are accu-
rate, allowable, and properly allocated;
(ii) Be incorporated into the official
records of the non -Federal entity;
(iii) Reasonably reflect the total ac-
tivity for which the employee is com-
pensated by the non -Federal entity,
not exceeding 100% of compensated ac-
tivities (for IHE, this per the IHE's def-
inition of IBS);
(iv) Encompass federally -assisted and
all other activities compensated by the
non -Federal entity on an integrated
basis, but may include the use of sub-
sidiary records as defined in the non -
Federal entity's written policy;
(v) Comply with the established ac-
counting policies and practices of the
non -Federal entity (See paragraph
(h)(1)(ii) above for treatment of inci-
dental work for IHEs.); and
(vi) [Reserved]
(vii) Support the distribution of the
employee's salary or wages among spe-
cific activities or cost objectives if the
employee works on more than one Fed-
eral award; a Federal award and non -
Federal award; an indirect cost activ-
ity and a direct cost activity; two or
more indirect activities which are allo-
cated using different allocation bases;
or an unallowable activity and a direct
or indirect cost activity.
(viii) Budget estimates (i.e., esti-
mates determined before the services
168
OMB Guidance
are performed) alone do not qualify as
support for charges to Federal awards,
but may be used for interim accounting
purposes, provided that:
(A) The system for establishing the
estimates produces reasonable approxi-
mations of the activity actually per-
formed;
(B) Significant changes in the cor-
responding work activity (as defined by
the non -Federal entity's written poli-
cies) are identified and entered into the
records in a timely manner. Short term
(such as one or two months) fluctua-
tion between workload categories need
not be considered as long as the dis-
tribution of salaries and wages is rea-
sonable over the longer term; and
(C) The non -Federal entity's system
of internal controls includes processes
to review after -the -fact interim
charges made to a Federal award based
on budget estimates. All necessary ad-
justment must be made such that the
final amount charged to the Federal
award is accurate, allowable, and prop-
erly allocated.
(ix) Because practices vary as to the
activity constituting a full workload
(for IHEs, IBS), records may reflect
categories of activities expressed as a
percentage distribution of total activi-
ties.
(x) It is recognized that teaching, re-
search, service, and administration are
often inextricably intermingled in an
academic setting. When recording sala-
ries and wages charged to Federal
awards for IHEs, a precise assessment
of factors that contribute to costs is
therefore not always feasible, nor is it
expected.
(2) For records which meet the stand-
ards required in paragraph (i)(1) of this
section, the non -Federal entity will not
be required to provide additional sup-
port or documentation for the work
performed, other than that referenced
in paragraph (i)(3) of this section.
(3) In accordance with Department of
Labor regulations implementing the
Fair Labor Standards Act (FLSA) (29
CFR part 516), charges for the salaries
and wages of nonexempt employees, in
addition to the supporting documenta-
tion described in this section, must
also be supported by records indicating
the total number of hours worked each
day.
§ 200.430
(4) Salaries and wages of employees
used in meeting cost sharing or match-
ing requirements on Federal awards
must be supported in the same manner
as salaries and wages claimed for reim-
bursement from Federal awards.
(5) For states, local governments and
Indian tribes, substitute processes or
systems for allocating salaries and
wages to Federal awards may be used
in place of or in addition to the records
described in paragraph (1) if approved
by the cognizant agency for indirect
cost. Such systems may include, but
are not limited to, random moment
sampling, "rolling" time studies, case
counts, or other quantifiable measures
of work performed.
(i) Substitute systems which use
sampling methods (primarily for Tem-
porary Assistance for Needy Families
(TANF), the Supplemental Nutrition
Assistance Program (SNAP), Medicaid,
and other public assistance programs)
must meet acceptable statistical sam-
pling standards including:
(A) The sampling universe must in-
clude all of the employees whose sala-
ries and wages are to be allocated
based on sample results except as pro-
vided in paragraph (i)(5)(iii) of this sec-
tion;
(B) The entire time period involved
must be covered by the sample; and
(C) The results must be statistically
valid and applied to the period being
sampled.
(ii) Allocating charges for the sam-
pled employees' supervisors, clerical
and support staffs, based on the results
of the sampled employees, will be ac-
ceptable.
(iii) Less than full compliance with
the statistical sampling standards
noted in subsection (5)(i) may be ac-
cepted by the cognizant agency for in-
direct costs if it concludes that the
amounts to be allocated to Federal
awards will be minimal, or if it con-
cludes that the system proposed by the
non -Federal entity will result in lower
costs to Federal awards than a system
which complies with the standards.
(6) Cognizant agencies for indirect
costs are encouraged to approve alter-
native proposals based on outcomes
and milestones for program perform-
ance where these are clearly docu-
mented. Where approved by the Federal
169
§ 200.431
cognizant agency for indirect costs,
these plans are acceptable as an alter-
native to the requirements of para-
graph (i)(1) of this section.
(7) For Federal awards of similar pur-
pose activity or instances of approved
blended funding, a non -Federal entity
may submit performance plans that in-
corporate funds from multiple Federal
awards and account for their combined
use based on performance -oriented
metrics, provided that such plans are
approved in advance by all involved
Federal awarding agencies. In these in-
stances, the non -Federal entity must
submit a request for waiver of the re-
quirements based on documentation
that describes the method of charging
costs, relates the charging of costs to
the specific activity that is applicable
to all fund sources, and is based on
quantifiable measures of the activity
in relation to time charged.
(8) For a non -Federal entity where
the records do not meet the standards
described in this section, the Federal
Government may require personnel ac-
tivity reports, including prescribed cer-
tifications, or equivalent documenta-
tion that support the records as re-
quired in this section.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75886, Dec. 19, 2014; 85 FR 49565, Aug. 13,
2020]
§ 200.431 Compensation —fringe bene-
fits.
(a) General. Fringe benefits are allow-
ances and services provided by employ-
ers to their employees as compensation
in addition to regular salaries and
wages. Fringe benefits include, but are
not limited to, the costs of leave (vaca-
tion, family -related, sick or military),
employee insurance, pensions, and un-
employment benefit plans. Except as
provided elsewhere in these principles,
the costs of fringe benefits are allow-
able provided that the benefits are rea-
sonable and are required by law, non -
Federal entity -employee agreement, or
an established policy of the non -Fed-
eral entity.
(b) Leave. The cost of fringe benefits
in the form of regular compensation
paid to employees during periods of au-
thorized absences from the job, such as
for annual leave, family -related leave,
sick leave, holidays, court leave, mili-
2 CFR Ch. 11 (1-1-21 Edition)
tary leave, administrative leave, and
other similar benefits, are allowable if
all of the following criteria are met:
(1) They are provided under estab-
lished written leave policies;
(2) The costs are equitably allocated
to all related activities, including Fed-
eral awards; and,
(3) The accounting basis (cash or ac-
crual) selected for costing each type of
leave is consistently followed by the
non -Federal entity or specified group-
ing of employees.
(i) When a non -Federal entity uses
the cash basis of accounting, the cost
of leave is recognized in the period that
the leave is taken and paid for. Pay-
ments for unused leave when an em-
ployee retires or terminates employ-
ment are allowable in the year of pay-
ment.
(ii) The accrual basis may be only
used for those types of leave for which
a liability as defined by GAAP exists
when the leave is earned. When a non -
Federal entity uses the accrual basis of
accounting, allowable leave costs are
the lesser of the amount accrued or
funded.
(c) Fringe benefits. The cost of fringe
benefits in the form of employer con-
tributions or expenses for social secu-
rity; employee life, health, unemploy-
ment, and worker's compensation in-
surance (except as indicated in
§200.447); pension plan costs (see para-
graph (i) of this section); and other
similar benefits are allowable, provided
such benefits are granted under estab-
lished written policies. Such benefits,
must be allocated to Federal awards
and all other activities in a manner
consistent with the pattern of benefits
attributable to the individuals or
group(s) of employees whose salaries
and wages are chargeable to such Fed-
eral awards and other activities, and
charged as direct or indirect costs in
accordance with the non -Federal enti-
ty's accounting practices.
(d) Cost objectives. Fringe benefits
may be assigned to cost objectives by
identifying specific benefits to specific
individual employees or by allocating
on the basis of entity -wide salaries and
wages of the employees receiving the
benefits. When the allocation method
is used, separate allocations must be
170
OMB Guidance
made to selective groupings of employ-
ees, unless the non -Federal entity dem-
onstrates that costs in relationship to
salaries and wages do not differ signifi-
cantly for different groups of employ-
ees.
(e) Insurance. See also § 200.447(d)(1)
and (2).
(1) Provisions for a reserve under a
self-insurance program for unemploy-
ment compensation or workers' com-
pensation are allowable to the extent
that the provisions represent reason-
able estimates of the liabilities for
such compensation, and the types of
coverage, extent of coverage, and rates
and premiums would have been allow-
able had insurance been purchased to
cover the risks. However, provisions for
self -insured liabilities which do not be-
come payable for more than one year
after the provision is made must not
exceed the present value of the liabil-
ity.
(2) Costs of insurance on the lives of
trustees, officers, or other employees
holding positions of similar responsi-
bility are allowable only to the extent
that the insurance represents addi-
tional compensation. The costs of such
insurance when the non -Federal entity
is named as beneficiary are unallow-
able.
(3) Actual claims paid to or on behalf
of employees or former employees for
workers' compensation, unemployment
compensation, severance pay, and simi-
lar employee benefits (e.g., post -retire-
ment health benefits), are allowable in
the year of payment provided that the
non -Federal entity follows a consistent
costing policy.
(f) Automobiles. That portion of auto-
mobile costs furnished by the non -Fed-
eral entity that relates to personal use
by employees (including transportation
to and from work) is unallowable as
fringe benefit or indirect (F&A) costs
regardless of whether the cost is re-
ported as taxable income to the em-
ployees.
(g) Pension plan costs. Pension plan
costs which are incurred in accordance
with the established policies of the
non -Federal entity are allowable, pro-
vided that:
(1) Such policies meet the test of rea-
sonableness.
§ 200.431
(2) The methods of cost allocation are
not discriminatory.
(3) Except for State and Local Gov-
ernments, the cost assigned to each fis-
cal year should be determined in ac-
cordance with GAAP.
(4) The costs assigned to a given fis-
cal year are funded for all plan partici-
pants within six months after the end
of that year. However, increases to nor-
mal and past service pension costs
caused by a delay in funding the actu-
arial liability beyond 30 calendar days
after each quarter of the year to which
such costs are assignable are unallow-
able. Non -Federal entity may elect to
follow the "Cost Accounting Standard
for Composition and Measurement of
Pension Costs" (48 CFR 9904.412).
(5) Pension plan termination insur-
ance premiums paid pursuant to the
Employee Retirement Income Security
Act (ERISA) of 1974 (29 U.S.C. 1301-1461)
are allowable. Late payment charges
on such premiums are unallowable. Ex-
cise taxes on accumulated funding defi-
ciencies and other penalties imposed
under ERISA are unallowable.
(6) Pension plan costs may be com-
puted using a pay-as-you-go method or
an acceptable actuarial cost method in
accordance with established written
policies of the non -Federal entity.
(i) For pension plans financed on a
pay-as-you-go method, allowable costs
will be limited to those representing
actual payments to retirees or their
beneficiaries.
(ii) Pension costs calculated using an
actuarial cost -based method recognized
by GAAP are allowable for a given fis-
cal year if they are funded for that
year within six months after the end of
that year. Costs funded after the six-
month period (or a later period agreed
to by the cognizant agency for indirect
costs) are allowable in the year funded.
The cognizant agency for indirect costs
may agree to an extension of the six-
month period if an appropriate adjust-
ment is made to compensate for the
timing of the charges to the Federal
Government and related Federal reim-
bursement and the non -Federal enti-
ty's contribution to the pension fund.
Adjustments may be made by cash re-
fund or other equitable procedures to
compensate the Federal Government
171
§ 200.431
for the time value of Federal reim-
bursements in excess of contributions
to the pension fund.
(iii) Amounts funded by the non -Fed-
eral entity in excess of the actuarially
determined amount for a fiscal year
may be used as the non -Federal enti-
ty's contribution in future periods.
(iv) When a non -Federal entity con-
verts to an acceptable actuarial cost
method, as defined by GAAP, and funds
pension costs in accordance with this
method, the unfunded liability at the
time of conversion is allowable if am-
ortized over a period of years in accord-
ance with GAAP.
(v) The Federal Government must re-
ceive an equitable share of any pre-
viously allowed pension costs (includ-
ing earnings thereon) which revert or
inure to the non -Federal entity in the
form of a refund, withdrawal, or other
credit.
(h) Post -retirement health. Post -retire-
ment health plans (PRHP) refers to
costs of health insurance or health
services not included in a pension plan
covered by paragraph (g) of this section
for retirees and their spouses, depend-
ents, and survivors. PRHP costs may
be computed using a pay-as-you-go
method or an acceptable actuarial cost
method in accordance with established
written policies of the non -Federal en-
tity.
(1) For PRHP financed on a pay-as-
you-go method, allowable costs will be
limited to those representing actual
payments to retirees or their bene-
ficiaries.
(2) PRHP costs calculated using an
actuarial cost method recognized by
GAAP are allowable if they are funded
for that year within six months after
the end of that year. Costs funded after
the six-month period (or a later period
agreed to by the cognizant agency) are
allowable in the year funded. The Fed-
eral cognizant agency for indirect costs
may agree to an extension of the six-
month period if an appropriate adjust-
ment is made to compensate for the
timing of the charges to the Federal
Government and related Federal reim-
bursements and the non -Federal enti-
ty's contributions to the PRHP fund.
Adjustments may be made by cash re-
fund, reduction in current year's PRHP
costs, or other equitable procedures to
2 CFR Ch. 11 (1-1-21 Edition)
compensate the Federal Government
for the time value of Federal reim-
bursements in excess of contributions
to the PRHP fund.
(3) Amounts funded in excess of the
actuarially determined amount for a
fiscal year may be used as the non -Fed-
eral entity contribution in a future pe-
riod.
(4) When a non -Federal entity con-
verts to an acceptable actuarial cost
method and funds PRHP costs in ac-
cordance with this method, the initial
unfunded liability attributable to prior
years is allowable if amortized over a
period of years in accordance with
GAAP, or, if no such GAAP period ex-
ists, over a period negotiated with the
cognizant agency for indirect costs.
(5) To be allowable in the current
year, the PRHP costs must be paid ei-
ther to:
(i) An insurer or other benefit pro-
vider as current year costs or pre-
miums, or
(ii) An insurer or trustee to maintain
a trust fund or reserve for the sole pur-
pose of providing post -retirement bene-
fits to retirees and other beneficiaries.
(6) The Federal Government must re-
ceive an equitable share of any
amounts of previously allowed post -re-
tirement benefit costs (including earn-
ings thereon) which revert or inure to
the non -Federal entity in the form of a
refund, withdrawal, or other credit.
(i) Severance pay. (1) Severance pay,
also commonly referred to as dismissal
wages, is a payment in addition to reg-
ular salaries and wages, by non -Federal
entities to workers whose employment
is being terminated. Costs of severance
pay are allowable only to the extent
that in each case, it is required by
(i) Law;
(ii) Employer -employee agreement;
(iii) Established policy that con-
stitutes, in effect, an implied agree-
ment on the non -Federal entity's part;
or
(iv) Circumstances of the particular
employment.
(2) Costs of severance payments are
divided into two categories as follows:
(i) Actual normal turnover severance
payments must be allocated to all ac-
tivities; or, where the non -Federal en-
tity provides for a reserve for normal
172
OMB Guidance
severances, such method will be ac-
ceptable if the charge to current oper-
ations is reasonable in light of pay-
ments actually made for normal
severances over a representative past
period, and if amounts charged are al-
located to all activities of the non -Fed-
eral entity.
(ii) Measurement of costs of abnor-
mal or mass severance pay by means of
an accrual will not achieve equity to
both parties. Thus, accruals for this
purpose are not allowable. However,
the Federal Government recognizes its
responsibility to participate, to the ex-
tent of its fair share, in any specific
payment. Prior approval by the Fed-
eral awarding agency or cognizant
agency for indirect cost, as appro-
priate, is required.
(3) Costs incurred in certain sever-
ance pay packages which are in an
amount in excess of the normal sever-
ance pay paid by the non -Federal enti-
ty to an employee upon termination of
employment and are paid to the em-
ployee contingent upon a change in
management control over, or owner-
ship of, the non -Federal entity's assets,
are unallowable.
(4) Severance payments to foreign na-
tionals employed by the non -Federal
entity outside the United States, to
the extent that the amount exceeds the
customary or prevailing practices for
the non -Federal entity in the United
States, are unallowable, unless they
are necessary for the performance of
Federal programs and approved by the
Federal awarding agency.
(5) Severance payments to foreign na-
tionals employed by the non -Federal
entity outside the United States due to
the termination of the foreign national
as a result of the closing of, or curtail-
ment of activities by, the non -Federal
entity in that country, are unallow-
able, unless they are necessary for the
performance of Federal programs and
approved by the Federal awarding
agency.
(j) For IHEs only. (1) Fringe benefits
in the form of undergraduate and grad-
uate tuition or remission of tuition for
individual employees are allowable,
provided such benefits are granted in
accordance with established non -Fed-
eral entity policies, and are distributed
to all non -Federal entity activities on
§ 200.432
an equitable basis. Tuition benefits for
family members other than the em-
ployee are unallowable.
(2) Fringe benefits in the form of tui-
tion or remission of tuition for indi-
vidual employees not employed by
IHEs are limited to the tax-free
amount allowed per section 127 of the
Internal Revenue Code as amended.
(3) IHEs may offer employees tuition
waivers or tuition reductions, provided
that the benefit does not discriminate
in favor of highly compensated employ-
ees. Employees can exercise these ben-
efits at other institutions according to
institutional policy. See § 200.466, for
treatment of tuition remission pro-
vided to students.
(k) Fringe benefit programs and other
benefit costs. For IHEs whose costs are
paid by state or local governments,
fringe benefit programs (such as pen-
sion costs and FICA) and any other
benefits costs specifically incurred on
behalf of, and in direct benefit to, the
non -Federal entity, are allowable costs
of such non -Federal entities whether or
not these costs are recorded in the ac-
counting records of the non -Federal en-
tities, subject to the following:
(1) The costs meet the requirements
of Basic Considerations in §§200.402
through 200.411;
(2) The costs are properly supported
by approved cost allocation plans in ac-
cordance with applicable Federal cost
accounting principles; and
(3) The costs are not otherwise borne
directly or indirectly by the Federal
Government.
[85 FR 49565, Aug. 13, 2020]
§ 200.432 Conferences.
A conference is defined as a meeting,
retreat, seminar, symposium, work-
shop or event whose primary purpose is
the dissemination of technical infor-
mation beyond the non -Federal entity
and is necessary and reasonable for
successful performance under the Fed-
eral award. Allowable conference costs
paid by the non -Federal entity as a
sponsor or host of the conference may
include rental of facilities, speakers'
fees, costs of meals and refreshments,
local transportation, and other items
incidental to such conferences unless
further restricted by the terms and
conditions of the Federal award. As
173
§ 200.433
needed, the costs of identifying, but
not providing, locally available depend-
ent -care resources are allowable. Con-
ference hosts/sponsors must exercise
discretion and judgment in ensuring
that conference costs are appropriate,
necessary and managed in a manner
that minimizes costs to the Federal
award. The Federal awarding agency
may authorize exceptions where appro-
priate for programs including Indian
tribes, children, and the elderly. See
also §§ 200.438, 200.456, and 200.475.
[85 FR 49567, Aug. 13, 2020]
§ 200.433 Contingency provisions.
(a) Contingency is that part of a
budget estimate of future costs (typi-
cally of large construction projects, IT
systems, or other items as approved by
the Federal awarding agency) which is
associated with possible events or con-
ditions arising from causes the precise
outcome of which is indeterminable at
the time of estimate, and that experi-
ence shows will likely result, in aggre-
gate, in additional costs for the ap-
proved activity or project. Amounts for
major project scope changes, unfore-
seen risks, or extraordinary events
may not be included.
(b) It is permissible for contingency
amounts other than those excluded in
paragraph (a) of this section to be ex-
plicitly included in budget estimates,
to the extent they are necessary to im-
prove the precision of those estimates.
Amounts must be estimated using
broadly -accepted cost estimating
methodologies, specified in the budget
documentation of the Federal award,
and accepted by the Federal awarding
agency. As such, contingency amounts
are to be included in the Federal
award. In order for actual costs in-
curred to be allowable, they must com-
ply with the cost principles and other
requirements in this part (see also
H200.300 and 200.403 of this part); be
necessary and reasonable for proper
and efficient accomplishment of
project or program objectives, and be
verifiable from the non -Federal enti-
ty's records.
(c) Payments made by the Federal
awarding agency to the non -Federal
entity's "contingency reserve" or any
similar payment made for events the
occurrence of which cannot be foretold
2 CFR Ch. 11 (1-1-21 Edition)
with certainty as to the time or inten-
sity, or with an assurance of their hap-
pening, are unallowable, except as
noted in §§200.431 and 200.447.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75886, Dec. 19, 2014; 85 FR 49567, Aug. 13,
2020]
§ 200.434 Contributions and donations.
(a) Costs of contributions and dona-
tions, including cash, property, and
services, from the non -Federal entity
to other entities, are unallowable.
(b) It is permissible for contingency
amounts other than those excluded in
paragraph (a) of this section to be ex-
plicitly included in budget estimates,
to the extent they are necessary to im-
prove the precision of those estimates.
Amounts must be estimated using
broadly -accepted cost estimating
methodologies, specified in the budget
documentation of the Federal award,
and accepted by the Federal awarding
agency. As such, contingency amounts
are to be included in the Federal
award. In order for actual costs in-
curred to be allowable, they must com-
ply with the cost principles and other
requirements in this part (see also
H200.300 and 200.403 of this part); be
necessary and reasonable for proper
and efficient accomplishment of
project or program objectives, and be
verifiable from the non -Federal enti-
ty's records.
(c) Payments made by the Federal
awarding agency to the non -Federal
entity's "contingency reserve" or any
similar payment made for events the
occurrence of which cannot be foretold
with certainty as to the time or inten-
sity, or with an assurance of their hap-
pening, are unallowable, except as
noted in §§200.431 and 200.447.
(d) To the extent feasible, services
donated to the non -Federal entity will
be supported by the same methods used
to support the allocability of regular
personnel services.
(e) The following provisions apply to
nonprofit organizations. The value of
services donated to the nonprofit orga-
nization utilized in the performance of
a direct cost activity must be consid-
ered in the determination of the non -
Federal entity's indirect cost rate(s)
and, accordingly, must be allocated a
174
OMB Guidance
proportionate share of applicable indi-
rect costs when the following cir-
cumstances exist:
(1) The aggregate value of the serv-
ices is material;
(2) The services are supported by a
significant amount of the indirect
costs incurred by the non -Federal enti-
ty;
(i) In those instances where there is
no basis for determining the fair mar-
ket value of the services rendered, the
non -Federal entity and the cognizant
agency for indirect costs must nego-
tiate an appropriate allocation of indi-
rect cost to the services.
(ii) Where donated services directly
benefit a project supported by the Fed-
eral award, the indirect costs allocated
to the services will be considered as a
part of the total costs of the project.
Such indirect costs may be reimbursed
under the Federal award or used to
meet cost sharing or matching require-
ments.
(f) Fair market value of donated
services must be computed as described
in §200.306.
(g) Personal Property and Use of
Space.
(1) Donated personal property and
use of space may be furnished to a non -
Federal entity. The value of the per-
sonal property and space may not be
charged to the Federal award either as
a direct or indirect cost.
(2) The value of the donations may be
used to meet cost sharing or matching
share requirements under the condi-
tions described in § 200.300 of this part.
The value of the donations must be de-
termined in accordance with § 200.300.
Where donations are treated as indirect
costs, indirect cost rates will separate
the value of the donations so that re-
imbursement will not be made.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75886, Dec. 19, 2014; 85 FR 49567, Aug. 13,
20201
§ 200.435 Defense and prosecution of
criminal and civil proceedings,
claims, appeals and patent infringe-
ments.
(a) Definitions for the purposes of this
section. (1) Conviction means a judgment
or conviction of a criminal offense by
any court of competent jurisdiction,
whether entered upon verdict or a plea,
§ 200.435
including a conviction due to a plea of
nolo contendere.
(2) Costs include the services of in-
house or private counsel, accountants,
consultants, or others engaged to as-
sist the non -Federal entity before, dur-
ing, and after commencement of a judi-
cial or administrative proceeding, that
bear a direct relationship to the pro-
ceeding.
(3) Fraud means:
(i) Acts of fraud or corruption or at-
tempts to defraud the Federal Govern-
ment or to corrupt its agents,
(ii) Acts that constitute a cause for
debarment or suspension (as specified
in agency regulations), and
(iii) Acts which violate the False
Claims Act (31 U.S.C. 3729-3732) or the
Anti -kickback Act (41 U.S.C. 1320a-
7b(b)).
(4) Penalty does not include restitu-
tion, reimbursement, or compensatory
damages.
(5) Proceeding includes an investiga-
tion.
(b) Costs. (1) Except as otherwise de-
scribed herein, costs incurred in con-
nection with any criminal, civil or ad-
ministrative proceeding (including fil-
ing of a false certification) commenced
by the Federal Government, a state,
local government, or foreign govern-
ment, or joined by the Federal Govern-
ment (including a proceeding under the
False Claims Act), against the non -
Federal entity, (or commenced by third
parties or a current or former em-
ployee of the non -Federal entity who
submits a whistleblower complaint of
reprisal in accordance with 10 U.S.C.
2409 or 41 U.S.C. 4712), are not allowable
if the proceeding:
(i) Relates to a violation of, or failure
to comply with, a Federal, state, local
or foreign statute, regulation or the
terms and conditions of the Federal
award, by the non -Federal entity (in-
cluding its agents and employees); and
(ii) Results in any of the following
dispositions:
(A) In a criminal proceeding, a con-
viction.
(B) In a civil or administrative pro-
ceeding involving an allegation of
fraud or similar misconduct, a deter-
mination of non -Federal entity liabil-
ity.
175
§ 200.435
(C) In the case of any civil or admin-
istrative proceeding, the disallowance
of costs or the imposition of a mone-
tary penalty, or an order issued by the
Federal awarding agency head or dele-
gate to the non -Federal entity to take
corrective action under 10 U.S.C. 2409
or 41 U.S.C. 4712.
(D) A final decision by an appropriate
Federal official to debar or suspend the
non -Federal entity, to rescind or void a
Federal award, or to terminate a Fed-
eral award by reason of a violation or
failure to comply with a statute, regu-
lation, or the terms and conditions of
the Federal award.
(E) A disposition by consent or com-
promise, if the action could have re-
sulted in any of the dispositions de-
scribed in paragraphs (b)(1)(ii)(A)
through (D) of this section.
(2) If more than one proceeding in-
volves the same alleged misconduct,
the costs of all such proceedings are
unallowable if any results in one of the
dispositions shown in paragraph (b) of
this section.
(c) If a proceeding referred to in para-
graph (b) of this section is commenced
by the Federal Government and is re-
solved by consent or compromise pur-
suant to an agreement by the non -Fed-
eral entity and the Federal Govern-
ment, then the costs incurred may be
allowed to the extent specifically pro-
vided in such agreement.
(d) If a proceeding referred to in para-
graph (b) of this section is commenced
by a state, local or foreign government,
the authorized Federal official may
allow the costs incurred if such author-
ized official determines that the costs
were incurred as a result of:
(1) A specific term or condition of the
Federal award, or
(2) Specific written direction of an
authorized official of the Federal
awarding agency.
(e) Costs incurred in connection with
proceedings described in paragraph (b)
of this section, which are not made un-
allowable by that subsection, may be
allowed but only to the extent that:
(1) The costs are reasonable and nec-
essary in relation to the administra-
tion of the Federal award and activi-
ties required to deal with the pro-
ceeding and the underlying cause of ac-
tion;
2 CFR Ch. 11 (1-1-21 Edition)
(2) Payment of the reasonable, nec-
essary, allocable and otherwise allow-
able costs incurred is not prohibited by
any other provision(s) of the Federal
award;
(3) The costs are not recovered from
the Federal Government or a third
party, either directly as a result of the
proceeding or otherwise; and,
(4) An authorized Federal official
must determine the percentage of costs
allowed considering the complexity of
litigation, generally accepted prin-
ciples governing the award of legal fees
in civil actions involving the United
States, and such other factors as may
be appropriate. Such percentage must
not exceed 80 percent. However, if an
agreement reached under paragraph (c)
of this section has explicitly consid-
ered this 80 percent limitation and per-
mitted a higher percentage, then the
full amount of costs resulting from
that agreement are allowable.
(f) Costs incurred by the non -Federal
entity in connection with the defense
of suits brought by its employees or ex -
employees under section 2 of the Major
Fraud Act of 1988 (18 U.S.C. 1031), in-
cluding the cost of all relief necessary
to make such employee whole, where
the non -Federal entity was found liable
or settled, are unallowable.
(g) Costs of prosecution of claims
against the Federal Government, in-
cluding appeals of final Federal agency
decisions, are unallowable.
(h) Costs of legal, accounting, and
consultant services, and related costs,
incurred in connection with patent in-
fringement litigation, are unallowable
unless otherwise provided for in the
Federal award.
(i) Costs which may be unallowable
under this section, including directly
associated costs, must be segregated
and accounted for separately. During
the pendency of any proceeding covered
by paragraphs (b) and (f) of this sec-
tion, the Federal Government must
generally withhold payment of such
costs. However, if in its best interests,
the Federal Government may provide
for conditional payment upon provision
of adequate security, or other adequate
assurance, and agreement to repay all
unallowable costs, plus interest, if the
176
OMB Guidance
costs are subsequently determined to
be unallowable.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75886, Dec. 19, 2014]
§ 200.436 Depreciation.
(a) Depreciation is the method for al-
locating the cost of fixed assets to peri-
ods benefitting from asset use. The
non -Federal entity may be com-
pensated for the use of its buildings,
capital improvements, equipment, and
software projects capitalized in accord-
ance with GAAP, provided that they
are used, needed in the non -Federal en-
tity's activities, and properly allocated
to Federal awards. Such compensation
must be made by computing deprecia-
tion.
(b) The allocation for depreciation
must be made in accordance with Ap-
pendices III through IX.
(c) Depreciation is computed apply-
ing the following rules. The computa-
tion of depreciation must be based on
the acquisition cost of the assets in-
volved. For an asset donated to the
non -Federal entity by a third party, its
fair market value at the time of the do-
nation must be considered as the acqui-
sition cost. Such assets may be depre-
ciated or claimed as matching but not
both. For the computation of deprecia-
tion, the acquisition cost will exclude:
(1) The cost of land;
(2) Any portion of the cost of build-
ings and equipment borne by or do-
nated by the Federal Government, irre-
spective of where title was originally
vested or where it is presently located;
(3) Any portion of the cost of build-
ings and equipment contributed by or
for the non -Federal entity that are al-
ready claimed as matching or where
law or agreement prohibits recovery;
(4) Any asset acquired solely for the
performance of a non -Federal award;
and
(d) When computing depreciation
charges, the following must be ob-
served:
(1) The period of useful service or
useful life established in each case for
usable capital assets must take into
consideration such factors as type of
construction, nature of the equipment,
technological developments in the par-
ticular area, historical data, and the
renewal and replacement policies fol-
§ 200.436
lowed for the individual items or class-
es of assets involved.
(2) The depreciation method used to
charge the cost of an asset (or group of
assets) to accounting periods must re-
flect the pattern of consumption of the
asset during its useful life. In the ab-
sence of clear evidence indicating that
the expected consumption of the asset
will be significantly greater in the
early portions than in the later por-
tions of its useful life, the straight-line
method must be presumed to be the ap-
propriate method. Depreciation meth-
ods once used may not be changed un-
less approved in advance by the cog-
nizant agency. The depreciation meth-
ods used to calculate the depreciation
amounts for indirect (F&A) rate pur-
poses must be the same methods used
by the non -Federal entity for its finan-
cial statements.
(3) The entire building, including the
shell and all components, may be treat-
ed as a single asset and depreciated
over a single useful life. A building
may also be divided into multiple com-
ponents. Each component item may
then be depreciated over its estimated
useful life. The building components
must be grouped into three general
components of a building: building
shell (including construction and de-
sign costs), building services systems
(e.g., elevators, HVAC, plumbing sys-
tem and heating and air-conditioning
system) and fixed equipment (e.g.,
sterilizers, casework, fume hoods, cold
rooms and glassware/washers). In ex-
ceptional cases, a cognizant agency
may authorize a non -Federal entity to
use more than these three groupings.
When a non -Federal entity elects to de-
preciate its buildings by its compo-
nents, the same depreciation methods
must be used for indirect (F&A) pur-
poses and financial statements pur-
poses, as described in paragraphs (d)(1)
and (2) of this section.
(4) No depreciation may be allowed
on any assets that have outlived their
depreciable lives.
(5) Where the depreciation method is
introduced to replace the use allow-
ance method, depreciation must be
computed as if the asset had been de-
preciated over its entire life (i.e., from
the date the asset was acquired and
ready for use to the date of disposal or
177
§ 200.437
withdrawal from service). The total
amount of use allowance and deprecia-
tion for an asset (including imputed de-
preciation applicable to periods prior
to the conversion from the use allow-
ance method as well as depreciation
after the conversion) may not exceed
the total acquisition cost of the asset.
(e) Charges for depreciation must be
supported by adequate property
records, and physical inventories must
be taken at least once every two years
to ensure that the assets exist and are
usable, used, and needed. Statistical
sampling techniques may be used in
taking these inventories. In addition,
adequate depreciation records showing
the amount of depreciation must be
maintained.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75886, Dec. 19, 2014; 85 FR 49568, Aug. 13,
2020]
§ 200.437 Employee health and welfare
costs.
(a) Costs incurred in accordance with
the non -Federal entity's documented
policies for the improvement of work-
ing conditions, employer -employee re-
lations, employee health, and employee
performance are allowable.
(b) Such costs will be equitably ap-
portioned to all activities of the non -
Federal entity. Income generated from
any of these activities will be credited
to the cost thereof unless such income
has been irrevocably sent to employee
welfare organizations.
(c) Losses resulting from operating
food services are allowable only if the
non -Federal entity's objective is to op-
erate such services on a break-even
basis. Losses sustained because of oper-
ating objectives other than the above
are allowable only:
(1) Where the non -Federal entity can
demonstrate unusual circumstances;
and
(2) With the approval of the cog-
nizant agency for indirect costs.
§ 200.438 Entertainment costs.
Costs of entertainment, including
amusement, diversion, and social ac-
tivities and any associated costs are
unallowable, except where specific
costs that might otherwise be consid-
ered entertainment have a pro-
grammatic purpose and are authorized
2 CFR Ch. 11 (1-1-21 Edition)
either in the approved budget for the
Federal award or with prior written ap-
proval of the Federal awarding agency.
§ 200.439 Equipment and other capital
expenditures.
(a) See §200.1 for the definitions of
capital expenditures, equipment, special
purpose equipment, general purpose
equipment, acquisition cost, and capital
assets.
(b) The following rules of allow -
ability must apply to equipment and
other capital expenditures:
(1) Capital expenditures for general
purpose equipment, buildings, and land
are unallowable as direct charges, ex-
cept with the prior written approval of
the Federal awarding agency or pass -
through entity.
(2) Capital expenditures for special
purpose equipment are allowable as di-
rect costs, provided that items with a
unit cost of $5,000 or more have the
prior written approval of the Federal
awarding agency or pass -through enti-
ty.
(3) Capital expenditures for improve-
ments to land, buildings, or equipment
which materially increase their value
or useful life are unallowable as a di-
rect cost except with the prior written
approval of the Federal awarding agen-
cy, or pass -through entity. See § 200.436,
for rules on the allowability of depre-
ciation on buildings, capital improve-
ments, and equipment. See also
§200.465.
(4) When approved as a direct charge
pursuant to paragraphs (b)(1) through
(3) of this section, capital expenditures
will be charged in the period in which
the expenditure is incurred, or as oth-
erwise determined appropriate and ne-
gotiated with the Federal awarding
agency.
(5) The unamortized portion of any
equipment written off as a result of a
change in capitalization levels may be
recovered by continuing to claim the
otherwise allowable depreciation on
the equipment, or by amortizing the
amount to be written off over a period
of years negotiated with the Federal
cognizant agency for indirect cost.
(6) Cost of equipment disposal. If the
non -Federal entity is instructed by the
Federal awarding agency to otherwise
dispose of or transfer the equipment
178
OMB Guidance
the costs of such disposal or
are allowable.
(7) Equipment and other
penditures are unallowable
costs. See § 200.436.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75886, Dec. 19, 2014; 85 FR 49568, Aug. 13,
2020]
transfer
capital ex -
as indirect
§ 200.440 Exchange rates.
(a) Cost increases for fluctuations in
exchange rates are allowable costs sub-
ject to the availability of funding.
Prior approval of exchange rate fluc-
tuations is required only when the
change results in the need for addi-
tional Federal funding, or the in-
creased costs result in the need to sig-
nificantly reduce the scope of the
project. The Federal awarding agency
must however ensure that adequate
funds are available to cover currency
fluctuations in order to avoid a viola-
tion of the Anti -Deficiency Act.
(b) The non -Federal entity is re-
quired to make reviews of local cur-
rency gains to determine the need for
additional federal funding before the
expiration date of the Federal award.
Subsequent adjustments for currency
increases may be allowable only when
the non -Federal entity provides the
Federal awarding agency with ade-
quate source documentation from a
commonly used source in effect at the
time the expense was made, and to the
extent that sufficient Federal funds are
available.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75886, Dec. 19, 2014]
§ 200.441 Fines, penalties, damages
and other settlements.
Costs resulting from non -Federal en-
tity violations of, alleged violations of,
or failure to comply with, Federal,
state, tribal, local or foreign laws and
regulations are unallowable, except
when incurred as a result of compli-
ance with specific provisions of the
Federal award, or with prior written
approval of the Federal awarding agen-
cy. See also § 200.435.
[85 FR 49568, Aug. 13, 2020]
§ 200.443
§ 200.442 Fund raising and investment
management costs.
(a) Costs of organized fund raising,
including financial campaigns, endow-
ment 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 Fed-
eral 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 in-
clude Federal participation allowed by
this part.
(c) Costs related to the physical cus-
tody and control of monies and securi-
ties are allowable.
(d) Both allowable and unallowable
fund-raising and investment activities
must be allocated as an appropriate
share of indirect costs under the condi-
tions described in § 200.413.
[85 FR 49568, Aug. 13, 2020]
§ 200.443 Gains and losses on disposi-
tion of depreciable assets.
(a) Gains and losses on the sale, re-
tirement, or other disposition of depre-
ciable property must be included in the
year in which they occur as credits or
charges to the asset cost grouping(s) in
which the property was included. The
amount of the gain or loss to be in-
cluded as a credit or charge to the ap-
propriate asset cost grouping(s) is the
difference between the amount realized
on the property and the undepreciated
basis of the property.
(b) Gains and losses from the disposi-
tion of depreciable property must not
be recognized as a separate credit or
charge under the following conditions:
(1) The gain or loss is processed
through a depreciation account and is
reflected in the depreciation allowable
under §§200.436 and 200.439.
(2) The property is given in exchange
as part of the purchase price of a simi-
lar item and the gain or loss is taken
into account in determining the depre-
ciation cost basis of the new item.
179
§ 200.444
(3) A loss results from the failure to
maintain permissible insurance, except
as otherwise provided in § 200.447.
(4) Compensation for the use of the
property was provided through use al-
lowances in lieu of depreciation.
(5) Gains and losses arising from
mass or extraordinary sales, retire-
ments, or other dispositions must be
considered on a case -by -case basis.
(c) Gains or losses of any nature aris-
ing from the sale or exchange of prop-
erty other than the property covered in
paragraph (a) of this section, e.g., land,
must be excluded in computing Federal
award costs.
(d) When assets acquired with Fed-
eral funds, in part or wholly, are dis-
posed of, the distribution of the pro-
ceeds must be made in accordance with
§§ 200.310 through 200.316 of this part.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75886, Dec. 19, 2014; 85 FR 49568, Aug. 13,
2020]
§ 200.444 General costs of government.
(a) For states, local governments,
and Indian Tribes, the general costs of
government are unallowable (except as
provided in §200.475). Unallowable costs
include:
(1) Salaries and expenses of the Office
of the Governor of a state or the chief
executive of a local government or the
chief executive of an Indian tribe;
(2) Salaries and other expenses of a
state legislature, tribal council, or
similar local governmental body, such
as a county supervisor, city council,
school board, etc., whether incurred for
purposes of legislation or executive di-
rection;
(3) Costs of the judicial branch of a
government;
(4) Costs of prosecutorial activities
unless treated as a direct cost to a spe-
cific program if authorized by statute
or regulation (however, this does not
preclude the allowability of other legal
activities of the Attorney General as
described in § 200.435); and
(5) Costs of other general types of
government services normally provided
to the general public, such as fire and
police, unless provided for as a direct
cost under a program statute or regula-
tion.
(b) For Indian tribes and Councils of
Governments (COGs) (see definition for
2 CFR Ch. 11 (1-1-21 Edition)
Local government in § 200.1 of this part),
up to 50% of salaries and expenses di-
rectly attributable to managing and
operating Federal programs by the
chief executive and his or her staff can
be included in the indirect cost cal-
culation without documentation.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75886, Dec. 19, 2014; 85 FR 49568, Aug. 13,
2020]
§ 200.445 Goods or services for per-
sonal use.
(a) Costs of goods or services for per-
sonal use of the non -Federal entity's
employees are unallowable regardless
of whether the cost is reported as tax-
able income to the employees.
(b) Costs of housing (e.g., deprecia-
tion, maintenance, utilities, fur-
nishings, rent), housing allowances and
personal living expenses are only al-
lowable as direct costs regardless of
whether reported as taxable income to
the employees. In addition, to be allow-
able direct costs must be approved in
advance by a Federal awarding agency.
§ 200.446 Idle facilities and idle capac-
ity.
(a) As used in this section the fol-
lowing terms have the meanings set
forth in this section:
(1) Facilities means land and build-
ings or any portion thereof, equipment
individually or collectively, or any
other tangible capital asset, wherever
located, and whether owned or leased
by the non -Federal entity.
(2) Idle facilities means completely
unused facilities that are excess to the
non -Federal entity's current needs.
(3) Idle capacity means the unused
capacity of partially used facilities. It
is the difference between:
(i) That which a facility could
achieve under 100 percent operating
time on a one -shift basis less operating
interruptions resulting from time lost
for repairs, setups, unsatisfactory ma-
terials, and other normal delays and;
(ii) The extent to which the facility
was actually used to meet demands
during the accounting period. A multi -
shift basis should be used if it can be
shown that this amount of usage would
normally be expected for the type of fa-
cility involved.
180
OMB Guidance
(4) Cost of idle facilities or idle ca-
pacity means costs such as mainte-
nance, repair, housing, rent, and other
related costs, e.g., insurance, interest,
and depreciation. These costs could in-
clude the costs of idle public safety
emergency facilities, telecommuni-
cations, or information technology sys-
tem capacity that is built to withstand
major fluctuations in load, e.g., con-
solidated data centers.
(b) The costs of idle facilities are un-
allowable except to the extent that:
(1) They are necessary to meet work-
load requirements which may fluctuate
and are allocated appropriately to all
benefiting programs; or
(2) Although not necessary to meet
fluctuations in workload, they were
necessary when acquired and are now
idle because of changes in program re-
quirements, efforts to achieve more ec-
onomical operations, reorganization,
termination, or other causes which
could not have been reasonably fore-
seen. Under the exception stated in
this subsection, costs of idle facilities
are allowable for a reasonable period of
time, ordinarily not to exceed one
year, depending on the initiative taken
to use, lease, or dispose of such facili-
ties.
(c) The costs of idle capacity are nor-
mal costs of doing business and are a
factor in the normal fluctuations of
usage or indirect cost rates from period
to period. Such costs are allowable,
provided that the capacity is reason-
ably anticipated to be necessary to
carry out the purpose of the Federal
award or was originally reasonable and
is not subject to reduction or elimi-
nation by use on other Federal awards,
subletting, renting, or sale, in accord-
ance with sound business, economic, or
security practices. Widespread idle ca-
pacity throughout an entire facility or
among a group of assets having sub-
stantially the same function may be
considered idle facilities.
§ 200.447 Insurance and indemnifica-
tion.
(a) Costs of insurance required or ap-
proved and maintained, pursuant to
the Federal award, are allowable.
(b) Costs of other insurance in con-
nection with the general conduct of ac-
§ 200.447
tivities are allowable subject to the
following limitations:
(1) Types and extent and cost of cov-
erage are in accordance with the non -
Federal entity's policy and sound busi-
ness practice.
(2) Costs of insurance or of contribu-
tions to any reserve covering the risk
of loss of, or damage to, Federal Gov-
ernment property are unallowable ex-
cept to the extent that the Federal
awarding agency has specifically re-
quired or approved such costs.
(3) Costs allowed for business inter-
ruption or other similar insurance
must exclude coverage of management
fees.
(4) Costs of insurance on the lives of
trustees, officers, or other employees
holding positions of similar respon-
sibilities are allowable only to the ex-
tent that the insurance represents ad-
ditional compensation (see § 200.431).
The cost of such insurance when the
non -Federal entity is identified as the
beneficiary is unallowable.
(5) Insurance against defects. Costs of
insurance with respect to any costs in-
curred to correct defects in the non -
Federal entity's materials or work-
manship are unallowable.
(6) Medical liability (malpractice) in-
surance. Medical liability insurance is
an allowable cost of Federal research
programs only to the extent that the
Federal research programs involve
human subjects or training of partici-
pants in research techniques. Medical
liability insurance costs must be treat-
ed as a direct cost and must be as-
signed to individual projects based on
the manner in which the insurer allo-
cates the risk to the population cov-
ered by the insurance.
(c) Actual losses which could have
been covered by permissible insurance
(through a self-insurance program or
otherwise) are unallowable, unless ex-
pressly provided for in the Federal
award. However, costs incurred because
of losses not covered under nominal de-
ductible insurance coverage provided
in keeping with sound management
practice, and minor losses not covered
by insurance, such as spoilage, break-
age, and disappearance of small hand
tools, which occur in the ordinary
course of operations, are allowable.
181
§ 200.448
(d) Contributions to a reserve for cer-
tain self-insurance programs including
workers' compensation, unemployment
compensation, and severance pay are
allowable subject to the following pro-
visions:
(1) The type of coverage and the ex-
tent of coverage and the rates and pre-
miums would have been allowed had in-
surance (including reinsurance) been
purchased to cover the risks. However,
provision for known or reasonably esti-
mated self -insured liabilities, which do
not become payable for more than one
year after the provision is made, must
not exceed the discounted present
value of the liability. The rate used for
discounting the liability must be deter-
mined by giving consideration to such
factors as the non -Federal entity's set-
tlement rate for those liabilities and
its investment rate of return.
(2) Earnings or investment income on
reserves must be credited to those re-
serves.
(3)(i) Contributions to reserves must
be based on sound actuarial principles
using historical experience and reason-
able assumptions. Reserve levels must
be analyzed and updated at least bien-
nially for each major risk being in-
sured and take into account any rein-
surance, coinsurance, etc. Reserve lev-
els related to employee -related cov-
erages will normally be limited to the
value of claims:
(A) Submitted and adjudicated but
not paid;
(B) Submitted but not adjudicated;
and
(C) Incurred but not submitted.
(ii) Reserve levels in excess of the
amounts based on the above must be
identified and justified in the cost allo-
cation plan or indirect cost rate pro-
posal.
(4) Accounting records, actuarial
studies, and cost allocations (or bil-
lings) must recognize any significant
differences due to types of insured risk
and losses generated by the various in-
sured activities or agencies of the non -
Federal entity. If individual depart-
ments or agencies of the non -Federal
entity experience significantly dif-
ferent levels of claims for a particular
risk, those differences are to be recog-
nized by the use of separate allocations
2 CFR Ch. 11 (1-1-21 Edition)
or other techniques resulting in an eq-
uitable allocation.
(5) Whenever funds are transferred
from a self-insurance reserve to other
accounts (e.g., general fund or unre-
stricted account), refunds must be
made to the Federal Government for
its share of funds transferred, including
earned or imputed interest from the
date of transfer and debt interest, if ap-
plicable, chargeable in accordance with
applicable Federal cognizant agency
for indirect cost, claims collection reg-
ulations.
(e) Insurance refunds must be cred-
ited against insurance costs in the year
the refund is received.
(f) Indemnification includes securing
the non -Federal entity against liabil-
ities to third persons and other losses
not compensated by insurance or oth-
erwise. The Federal Government is ob-
ligated to indemnify the non -Federal
entity only to the extent expressly pro-
vided for in the Federal award, except
as provided in paragraph (c) of this sec-
tion.
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49568, Aug. 13, 2020]
§ 200.448 Intellectual property.
(a) Patent costs. (1) The following
costs related to securing patents and
copyrights are allowable:
(i) Costs of preparing disclosures, re-
ports, and other documents required by
the Federal award, and of searching the
art to the extent necessary to make
such disclosures;
(ii) Costs of preparing documents and
any other patent costs in connection
with the filing and prosecution of a
United States patent application where
title or royalty -free license is required
by the Federal Government to be con-
veyed to the Federal Government; and
(iii) General counseling services re-
lating to patent and copyright matters,
such as advice on patent and copyright
laws, regulations, clauses, and em-
ployee intellectual property agree-
ments (See also §200.459).
(2) The following costs related to se-
curing patents and copyrights are unal-
lowable:
(i) Costs of preparing disclosures, re-
ports, and other documents, and of
searching the art to make disclosures
not required by the Federal award;
182
OMB Guidance
(ii) Costs in connection with filing
and prosecuting any foreign patent ap-
plication, or any United States patent
application, where the Federal award
does not require conveying title or a
royalty -free license to the Federal
Government.
(b) Royalties and other costs for use of
patents and copyrights. (1) Royalties on
a patent or copyright or amortization
of the cost of acquiring by purchase a
copyright, patent, or rights thereto,
necessary for the proper performance
of the Federal award are allowable un-
less:
(i) The Federal Government already
has a license or the right to free use of
the patent or copyright.
(ii) The patent or copyright has been
adjudicated to be invalid, or has been
administratively determined to be in-
valid.
(iii) The patent or copyright is con-
sidered to be unenforceable.
(iv) The patent or copyright is ex-
pired.
(2) Special care should be exercised in
determining reasonableness where the
royalties may have been arrived at as a
result of less -than -arm's -length bar-
gaining, such as:
(i) Royalties paid to persons, includ-
ing corporations, affiliated with the
non -Federal entity.
(ii) Royalties paid to unaffiliated
parties, including corporations, under
an agreement entered into in con-
templation that a Federal award would
be made.
(iii) Royalties paid under an agree-
ment entered into after a Federal
award is made to a non -Federal entity.
(3) In any case involving a patent or
copyright formerly owned by the non -
Federal entity, the amount of royalty
allowed must not exceed the cost which
would have been allowed had the non -
Federal entity retained title thereto.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75886, Dec. 19, 2014; 85 FR 49569, Aug. 13,
2020]
§200.449 Interest.
(a) General. Costs incurred for inter-
est on borrowed capital, temporary use
of endowment funds, or the use of the
non -Federal entity's own funds, how-
ever represented, are unallowable. Fi-
nancing costs (including interest) to
§ 200.449
acquire, construct, or replace capital
assets are allowable, subject to the
conditions in this section.
(b) Capital assets. (1) Capital assets is
defined as noted in §200.1 of this part.
An asset cost includes (as applicable)
acquisition costs, construction costs,
and other costs capitalized in accord-
ance with GAAP.
(2) For non -Federal entity fiscal
years beginning on or after January 1,
2016, intangible assets include patents
and computer software. For software
development projects, only interest at-
tributable to the portion of the project
costs capitalized in accordance with
GAAP is allowable.
(c) Conditions for all non -Federal enti-
ties. (1) The non -Federal entity uses the
capital assets in support of Federal
awards;
(2) The allowable asset costs to ac-
quire facilities and equipment are lim-
ited to a fair market value available to
the non -Federal entity from an unre-
lated (arm's length) third party.
(3) The non -Federal entity obtains
the financing via an arm's -length
transaction (that is, a transaction with
an unrelated third party); or claims re-
imbursement of actual interest cost at
a rate available via such a transaction.
(4) The non -Federal entity limits
claims for Federal reimbursement of
interest costs to the least expensive al-
ternative. For example, a lease con-
tract that transfers ownership by the
end of the contract may be determined
less costly than purchasing through
other types of debt financing, in which
case reimbursement must be limited to
the amount of interest determined if
leasing had been used.
(5) The non -Federal entity expenses
or capitalizes allowable interest cost in
accordance with GAAP.
(6) Earnings generated by the invest-
ment of borrowed funds pending their
disbursement for the asset costs are
used to offset the current period's al-
lowable interest cost, whether that
cost is expensed or capitalized. Earn-
ings subject to being reported to the
Federal Internal Revenue Service
under arbitrage requirements are ex-
cludable.
(7) The following conditions must
apply to debt arrangements over $1
183
§ 200.450
million to purchase or construct facili-
ties, unless the non -Federal entity
makes an initial equity contribution to
the purchase of 25 percent or more. For
this purpose, "initial equity contribu-
tion" means the amount or value of
contributions made by the non -Federal
entity for the acquisition of facilities
prior to occupancy.
(i) The non -Federal entity must re-
duce claims for reimbursement of in-
terest cost by an amount equal to im-
puted interest earnings on excess cash
flow attributable to the portion of the
facility used for Federal awards.
(ii) The non -Federal entity must im-
pute interest on excess cash flow as fol-
lows:
(A) Annually, the non -Federal entity
must prepare a cumulative (from the
inception of the project) report of
monthly cash inflows and outflows, re-
gardless of the funding source. For this
purpose, inflows consist of Federal re-
imbursement for depreciation, amorti-
zation of capitalized construction in-
terest, and annual interest cost. Out-
flows consist of initial equity contribu-
tions, debt principal payments (less the
pro -rata share attributable to the cost
of land), and interest payments.
(B) To compute monthly cash inflows
and outflows, the non -Federal entity
must divide the annual amounts deter-
mined in step (i) by the number of
months in the year (usually 12) that
the building is in service.
(C) For any month in which cumu-
lative cash inflows exceed cumulative
outflows, interest must be calculated
on the excess inflows for that month
and be treated as a reduction to allow-
able interest cost. The rate of interest
to be used must be the three-month
Treasury bill closing rate as of the last
business day of that month.
(8) Interest attributable to a fully de-
preciated asset is unallowable.
(d) Additional conditions for states,
local governments and Indian tribes.
For costs to be allowable, the non -Fed-
eral entity must have incurred the in-
terest costs for buildings after October
1, 1980, or for land and equipment after
September 1, 1995.
(1) The requirement to offset interest
earned on borrowed funds against cur-
rent allowable interest cost (paragraph
2 CFR Ch. 11 (1-1-21 Edition)
(c)(5), above) also applies to earnings
on debt service reserve funds.
(2) The non -Federal entity will nego-
tiate the amount of allowable interest
cost related to the acquisition of facili-
ties with asset costs of $1 million or
more, as outlined in paragraph (c)(7) of
this section. For this purpose, a non -
Federal entity must consider only cash
inflows and outflows attributable to
that portion of the real property used
for Federal awards.
(e) Additional conditions for IHEs.
For costs to be allowable, the IHE
must have incurred the interest costs
after July 1, 1982, in connection with
acquisitions of capital assets that oc-
curred after that date.
(f) Additional condition for nonprofit
organizations. For costs to be allow-
able, the nonprofit organization in-
curred the interest costs after Sep-
tember 29, 1995, in connection with ac-
quisitions of capital assets that oc-
curred after that date.
(g) The interest allowability provi-
sions of this section do not apply to a
nonprofit organization subject to "full
coverage" under the Cost Accounting
Standards (CAS), as defined at 48 CFR
9903.201-2(a). The non -Federal entity's
Federal awards are instead subject to
CAS 414 (48 CFR 9904.414), "Cost of
Money as an Element of the Cost of Fa-
cilities Capital", and CAS 417 (48 CFR
9904.417), "Cost of Money as an Element
of the Cost of Capital Assets Under
Construction".
[78 FR 78608, Dec. 26, 2013, as amended at 80
FR 54409, Sept. 10, 2015; 85 FR 49569, Aug. 13,
2020]
§ 200.450 Lobbying.
(a) The cost of certain influencing ac-
tivities associated with obtaining
grants, contracts, or cooperative agree-
ments, or loans is an unallowable cost.
Lobbying with respect to certain
grants, contracts, cooperative agree-
ments, and loans is governed by rel-
evant statutes, including among oth-
ers, the provisions of 31 U.S.C. 1352, as
well as the common rule, "New Re-
strictions on Lobbying" published on
February 26, 1990, including definitions,
and the Office of Management and
Budget "Governmentwide Guidance for
New Restrictions on Lobbying" and no-
tices published on December 20, 1989,
184
OMB Guidance
June 15, 1990, January 15, 1992, and Jan-
uary 19, 1996.
(b) Executive lobbying costs. Costs in-
curred in attempting to improperly in-
fluence 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 regu-
latory matter on any basis other than
the merits of the matter.
(c) In addition to the above, the fol-
lowing restrictions are applicable to
nonprofit organizations and IHEs:
(1) Costs associated with the fol-
lowing activities are unallowable:
(i) Attempts to influence the out-
comes of any Federal, state, or local
election, referendum, initiative, or
similar procedure, through in -kind or
cash contributions, endorsements, pub-
licity, or similar activity;
(ii) Establishing, administering, con-
tributing to, or paying the expenses of
a political party, campaign, political
action committee, or other organiza-
tion established for the purpose of in-
fluencing 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 legisla-
tion through communication with any
member or employee of the Congress or
state legislature (including efforts to
influence state or local officials to en-
gage in similar lobbying activity);
(C) The enactment or modification of
any pending Federal or state legisla-
tion 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 dem-
onstration, march, rally, fund raising
drive, lobbying campaign or letter
writing or telephone campaign; or
(D) Any government official or em-
ployee in connection with a decision to
sign or veto enrolled legislation;
(iv) Legislative liaison activities, in-
cluding attendance at legislative ses-
§ 200.450
sions 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 ex-
cepted from the coverage of paragraph
(c)(1) of this section:
(i) Technical and factual presen-
tations 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 docu-
mented request (including a Congres-
sional Record notice requesting testi-
mony or statements for the record at a
regularly scheduled hearing) made by
the non -Federal entity's member of
congress, legislative body or a subdivi-
sion, 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 unal-
lowable unless incurred to offer testi-
mony at a regularly scheduled Congres-
sional hearing pursuant to a written
request for such presentation made by
the Chairman or Ranking Minority
Member of the Committee or Sub-
committee 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 -Fed-
eral entity's authority to perform the
grant, contract, or other agreement; or
(iii) Any activity specifically author-
ized by statute to be undertaken with
funds from the Federal award.
(iv) Any activity excepted from the
definitions of "lobbying" or "influ-
encing 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 sta-
tus and avoid punitive excise taxes,
I.R.C. §§501(c)(3), 501(h), 4911(a), includ-
ing:
185
§ 200.451
(A) Nonpartisan analysis, study, or
research reports;
(B) Examinations and discussions of
broad social, economic, and similar
problems; and
(C) Information provided upon re-
quest by a legislator for technical ad-
vice 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 sep-
arately identified in the indirect (F&A)
cost rate proposal, and thereafter
treated as other unallowable activity
costs in accordance with the proce-
dures of §200.413.
(vi) The non -Federal entity must sub-
mit 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 simi-
lar records are not required to be cre-
ated 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 pe-
riod, the non -Federal entity has not
materially misstated allowable or un-
allowable costs of any nature, includ-
ing 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 ad-
dition 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 lob-
bying time spent by employees during
a calendar month.
(viii) The Federal awarding agency
must establish procedures for resolving
in advance, in consultation with OMB,
2 CFR Ch. 11 (1-1-21 Edition)
any significant questions or disagree-
ments 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 inter-
pretation of this part, provided, how-
ever, that this must not be construed
to prevent a contractor or non -Federal
entity from contesting the lawfulness
of such a determination.
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49569, Aug. 13, 2020]
§ 200.451 Losses on other awards or
contracts.
Any excess of costs over income
under any other award or contract of
any nature is unallowable. This in-
cludes, but is not limited to, the non -
Federal entity's contributed portion by
reason of cost -sharing agreements or
any under -recoveries through negotia-
tion of flat amounts for indirect (F&A)
costs. Also, any excess of costs over au-
thorized funding levels transferred
from any award or contract to another
award or contract is unallowable. All
losses are not allowable indirect (F&A)
costs and are required to be included in
the appropriate indirect cost rate base
for allocation of indirect costs.
§ 200.452 Maintenance and repair
costs.
Costs incurred for utilities, insur-
ance, security, necessary maintenance,
janitorial services, repair, or upkeep of
buildings and equipment (including
Federal property unless otherwise pro-
vided for) which neither add to the per-
manent value of the property nor ap-
preciably prolong its intended life, but
keep it in an efficient operating condi-
tion, are allowable. Costs incurred for
improvements which add to the perma-
nent value of the buildings and equip-
ment or appreciably prolong their in-
tended life must be treated as capital
expenditures (see § 200.439). These costs
are only allowable to the extent not
paid through rental or other agree-
ments.
[85 FR 49569, Aug. 13, 2020]
186
OMB Guidance
§ 200.453 Materials and supplies costs,
including costs of computing de-
vices.
(a) Costs incurred for materials, sup-
plies, and fabricated parts necessary to
carry out a Federal award are allow-
able.
(b) Purchased materials and supplies
must be charged at their actual prices,
net of applicable credits. Withdrawals
from general stores or stockrooms
must be charged at their actual net
cost under any recognized method of
pricing inventory withdrawals, consist-
ently applied. Incoming transportation
charges are a proper part of materials
and supplies costs.
(c) Materials and supplies used for
the performance of a Federal award
may be charged as direct costs. In the
specific case of computing devices,
charging as direct costs is allowable for
devices that are essential and allo-
cable, but not solely dedicated, to the
performance of a Federal award.
(d) Where federally -donated or fur-
nished materials are used in per-
forming the Federal award, such mate-
rials will be used without charge.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75887, Dec. 19, 2014]
§ 200.454 Memberships, subscriptions,
and professional activity costs.
(a) Costs of the non -Federal entity's
membership in business, technical, and
professional organizations are allow-
able.
(b) Costs of the non -Federal entity's
subscriptions to business, professional,
and technical periodicals are allowable.
(c) Costs of membership in any civic
or community organization are allow-
able with prior approval by the Federal
awarding agency or pass -through enti-
ty.
(d) Costs of membership in any coun-
try club or social or dining club or or-
ganization are unallowable.
(e) Costs of membership in organiza-
tions whose primary purpose is lob-
bying are unallowable. See also
§200.450.
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49569, Aug. 13, 2020]
§ 200.458
§ 200.455 Organization costs.
Costs such as incorporation fees, bro-
kers' fees, fees to promoters, organizers
or management consultants, attorneys,
accountants, or investment counselor,
whether or not employees of the non -
Federal entity in connection with es-
tablishment or reorganization of an or-
ganization, are unallowable except
with prior approval of the Federal
awarding agency.
§ 200.456 Participant support costs.
Participant support costs as defined
in § 200.1 are allowable with the prior
approval of the Federal awarding agen-
cy.
[85 FR 49569, Aug. 13, 2020]
§ 200.457 Plant and security costs.
Necessary and reasonable expenses
incurred for protection and security of
facilities, personnel, and work products
are allowable. Such costs include, but
are not limited to, wages and uniforms
of personnel engaged in security activi-
ties; equipment; barriers; protective
(non-military) gear, devices, and equip-
ment; contractual security services;
and consultants. Capital expenditures
for plant security purposes are subject
to §200.439.
[85 FR 49569, Aug. 13, 2020]
§ 200.458 Pre -award costs.
Pre -award costs are those incurred
prior to the effective date of the Fed-
eral award or subaward directly pursu-
ant to the negotiation and in anticipa-
tion 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 award-
ing agency. If charged to the award,
these costs must be charged to the ini-
tial budget period of the award, unless
otherwise specified by the Federal
awarding agency or pass -through enti-
ty.
[85 FR 49569, Aug. 13, 2020]
187
§ 200.459
§ 200.459 Professional service costs.
(a) Costs of professional and consult-
ant 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 -
Federal entity, are allowable, subject
to paragraphs (b) and (c) of this section
when reasonable in relation to the
services rendered and when not contin-
gent upon recovery of the costs from
the Federal Government. In addition,
legal and related services are limited
under § 200.435.
(b) In determining the allowability of
costs in a particular case, no single fac-
tor or any special combination of fac-
tors is necessarily determinative. How-
ever, the following factors are relevant:
(1) The nature and scope of the serv-
ice rendered in relation to the service
required.
(2) The necessity of contracting for
the service, considering the non -Fed-
eral entity's capability in the par-
ticular area.
(3) The past pattern of such costs,
particularly in the years prior to Fed-
eral awards.
(4) The impact of Federal awards on
the non -Federal entity's business (i.e.,
what new problems have arisen).
(5) Whether the proportion of Federal
work to the non -Federal entity's total
business is such as to influence the
non -Federal entity in favor of incur-
ring the cost, particularly where the
services rendered are not of a con-
tinuing nature and have little relation-
ship to work under Federal awards.
(6) Whether the service can be per-
formed more economically by direct
employment rather than contracting.
(7) The qualifications of the indi-
vidual or concern rendering the service
and the customary fees charged, espe-
cially on non -federally funded activi-
ties.
(8) Adequacy of the contractual
agreement for the service (e.g., descrip-
tion of the service, estimate of time re-
quired, rate of compensation, and ter-
mination provisions).
(c) In addition to the factors in para-
graph (b) of this section, to be allow-
able, retainer fees must be supported
2 CFR Ch. 11 (1-1-21 Edition)
by evidence of bona fide services avail-
able or rendered.
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49569, Aug. 13, 2020]
§ 200.460 Proposal costs.
Proposal costs are the costs of pre-
paring bids, proposals, or applications
on potential Federal and non -Federal
awards or projects, including the devel-
opment of data necessary to support
the non -Federal entity's bids or pro-
posals. Proposal costs of the current
accounting period of both successful
and unsuccessful bids and proposals
normally should be treated as indirect
(F&A) costs and allocated currently to
all activities of the non -Federal entity.
No proposal costs of past accounting
periods will be allocable to the current
period.
§ 200.461 Publication and printing
costs.
(a) Publication costs for electronic
and print media, including distribu-
tion, promotion, and general handling
are allowable. If these costs are not
identifiable with a particular cost ob-
jective, they should be allocated as in-
direct costs to all benefiting activities
of the non -Federal entity.
(b) Page charges for professional
journal publications are allowable
where:
(1) The publications report work sup-
ported by the Federal Government; and
(2) The charges are levied impartially
on all items published by the journal,
whether or not under a Federal award.
(3) The non -Federal entity may
charge the Federal award during close-
out for the costs of publication or shar-
ing of research results if the costs are
not incurred during the period of per-
formance of the Federal award. If
charged to the award, these costs must
be charged to the final budget period of
the award, unless otherwise specified
by the Federal awarding agency.
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49569, Aug. 13, 2020]
§ 200.462 Rearrangement and recon-
version costs.
(a) Costs incurred for ordinary and
normal rearrangement and alteration
of facilities are allowable as indirect
188
OMB Guidance
costs. Special arrangements and alter-
ations costs incurred specifically for a
Federal award are allowable as a direct
cost with the prior approval of the Fed-
eral awarding agency or pass -through
entity.
(b) Costs incurred in the restoration
or rehabilitation of the non -Federal en-
tity's facilities to approximately the
same condition existing immediately
prior to commencement of Federal
awards, less costs related to normal
wear and tear, are allowable.
§ 200.463 Recruiting costs.
(a) Subject to paragraphs (b) and (c)
of this section, and provided that the
size of the staff recruited and main-
tained is in keeping with workload re-
quirements, costs of "help wanted" ad-
vertising, operating costs of an em-
ployment office necessary to secure
and maintain an adequate staff, costs
of operating an aptitude and edu-
cational testing program, travel costs
of employees while engaged in recruit-
ing personnel, travel costs of appli-
cants for interviews for prospective
employment, and relocation costs in-
curred incident to recruitment of new
employees, are allowable to the extent
that such costs are incurred pursuant
to the non -Federal entity's standard
recruitment program. Where the non -
Federal entity uses employment agen-
cies, costs not in excess of standard
commercial rates for such services are
allowable.
(b) Special emoluments, fringe bene-
fits, and salary allowances incurred to
attract professional personnel that do
not meet the test of reasonableness or
do not conform with the established
practices of the non -Federal entity, are
unallowable.
(c) Where relocation costs incurred
incident to recruitment of a new em-
ployee have been funded in whole or in
part to a Federal award, and the newly
hired employee resigns for reasons
within the employee's control within 12
months after hire, the non -Federal en-
tity will be required to refund or credit
the Federal share of such relocation
costs to the Federal Government. See
also §200.464.
(d) Short-term, travel visa costs (as
opposed to longer -term, immigration
visas) are generally allowable expenses
§ 200.464
that may be proposed as a direct cost.
Since short-term visas are issued for a
specific period and purpose, they can be
clearly identified as directly connected
to work performed on a Federal award.
For these costs to be directly charged
to a Federal award, they must:
(1) Be critical and necessary for the
conduct of the project;
(2) Be allowable under the applicable
cost principles;
(3) Be consistent with the non -Fed-
eral entity's cost accounting practices
and non -Federal entity policy; and
(4) Meet the definition of "direct
cost" as described in the applicable
cost principles.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75887, Dec. 19, 2014; 85 FR 49569, Aug. 13,
2020]
§ 200.464 Relocation costs of employ-
ees.
(a) Relocation costs are costs inci-
dent to the permanent change of duty
assignment (for an indefinite period or
for a stated period of not less than 12
months) of an existing employee or
upon recruitment of a new employee.
Relocation costs are allowable, subject
to the limitations described in para-
graphs (b), (c), and (d) of this section,
provided that:
(1) The move is for the benefit of the
employer.
(2) Reimbursement to the employee
is in accordance with an established
written policy consistently followed by
the employer.
(3) The reimbursement does not ex-
ceed the employee's actual (or reason-
ably estimated) expenses.
(b) Allowable relocation costs for
current employees are limited to the
following:
(1) The costs of transportation of the
employee, members of his or her imme-
diate family and his household, and
personal effects to the new location.
(2) The costs of finding a new home,
such as advance trips by employees and
spouses to locate living quarters and
temporary lodging during the transi-
tion period, up to maximum period of
30 calendar days.
(3) Closing costs, such as brokerage,
legal, and appraisal fees, incident to
the disposition of the employee's
former home. These costs, together
189
§ 200.465
with those described in (4), are limited
to 8 per cent of the sales price of the
employee's former home.
(4) The continuing costs of ownership
(for up to six months) of the vacant
former home after the settlement or
lease date of the employee's new per-
manent home, such as maintenance of
buildings and grounds (exclusive of fix-
ing -up expenses), utilities, taxes, and
property insurance.
(5) Other necessary and reasonable
expenses normally incident to reloca-
tion, such as the costs of canceling an
unexpired lease, transportation of per-
sonal property, and purchasing insur-
ance against loss of or damages to per-
sonal property. The cost of canceling
an unexpired lease is limited to three
times the monthly rental.
(c) Allowable relocation costs for new
employees are limited to those de-
scribed in paragraphs (b)(1) and (2) of
this section. When relocation costs in-
curred incident to the recruitment of
new employees have been charged to a
Federal award and the employee re-
signs for reasons within the employee's
control within 12 months after hire,
the non -Federal entity must refund or
credit the Federal Government for its
share of the cost. If dependents are not
permitted at the location for any rea-
son and the costs do not include costs
of transporting household goods, the
costs of travel to an overseas location
must be considered travel costs in ac-
cordance with §200.474 Travel costs,
and not this relocations costs of em-
ployees (See also §200.464).
(d) The following costs related to re-
location are unallowable:
(1) Fees and other costs associated
with acquiring a new home.
(2) A loss on the sale of a former
home.
(3) Continuing mortgage principal
and interest payments on a home being
sold.
(4) Income taxes paid by an employee
related to reimbursed relocation costs.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75887, Dec. 19, 2014; 85 FR 49570, Aug. 13,
2020]
§ 200.465 Rental costs of real property
and equipment.
(a) Subject to the limitations de-
scribed in paragraphs (b) through (d) of
2 CFR Ch. 11 (1-1-21 Edition)
this section, rental costs are allowable
to the extent that the rates are reason-
able in light of such factors as: rental
costs of comparable property, if any;
market conditions in the area; alter-
natives available; and the type, life ex-
pectancy, condition, and value of the
property leased. Rental arrangements
should be reviewed periodically to de-
termine if circumstances have changed
and other options are available.
(b) Rental costs under "sale and lease
back" arrangements are allowable only
up to the amount that would be al-
lowed had the non -Federal entity con-
tinued to own the property. This
amount would include expenses such as
depreciation, maintenance, taxes, and
insurance.
(c) Rental costs under "less -than -
arm's -length" leases are allowable only
up to the amount (as explained in para-
graph (b) of this section). For this pur-
pose, a less -than -arm's -length lease is
one under which one party to the lease
agreement is able to control or sub-
stantially influence the actions of the
other. Such leases include, but are not
limited to those between:
(1) Divisions of the non -Federal enti-
ty;
(2) The non -Federal entity under
common control through common offi-
cers, directors, or members; and
(3) The non -Federal entity and a di-
rector, trustee, officer, or key em-
ployee of the non -Federal entity or an
immediate family member, either di-
rectly or through corporations, trusts,
or similar arrangements in which they
hold a controlling interest. For exam-
ple, the non -Federal entity may estab-
lish a separate corporation for the sole
purpose of owning property and leasing
it back to the non -Federal entity.
(4) Family members include one
party with any of the following rela-
tionships to another party:
(i) Spouse, and parents thereof;
(ii) Children, and spouses thereof;
(iii) Parents, and spouses thereof;
(iv) Siblings, and spouses thereof;
(v) Grandparents and grandchildren,
and spouses thereof;
(vi) Domestic partner and parents
thereof, including domestic partners of
any individual in 2 through 5 of this
definition; and
190
OMB Guidance
(vii) Any individual related by blood
or affinity whose close association with
the employee is the equivalent of a
family relationship.
(5) Rental costs under leases which
are required to be treated as capital
leases under GAAP are allowable only
up to the amount (as explained in para-
graph (b) of this section) that would be
allowed had the non -Federal entity
purchased the property on the date the
lease agreement was executed. The pro-
visions of GAAP must be used to deter-
mine whether a lease is a capital lease.
Interest costs related to capital leases
are allowable to the extent they meet
the criteria in § 200.449 Interest. Unal-
lowable costs include amounts paid for
profit, management fees, and taxes
that would not have been incurred had
the non -Federal entity purchased the
property.
(6) The rental of any property owned
by any individuals or entities affiliated
with the non -Federal entity, to include
commercial or residential real estate,
for purposes such as the home office
workspace is unallowable.
(d) Rental costs under leases which
are required to be accounted for as a fi-
nanced purchase under GASB stand-
ards or a finance lease under FASB
standards under GAAP are allowable
only up to the amount (as explained in
paragraph (b) of this section) that
would be allowed had the non -Federal
entity purchased the property on the
date the lease agreement was executed.
Interest costs related to these leases
are allowable to the extent they meet
the criteria in § 200.449. Unallowable
costs include amounts paid for profit,
management fees, and taxes that would
not have been incurred had the non -
Federal entity purchased the property.
(e) Rental or lease payments are al-
lowable under lease contracts where
the non -Federal entity is required to
recognize an intangible right -to -use
lease asset (per GASB) or right of use
operating lease asset (per FASB) for
purposes of financial reporting in ac-
cordance with GAAP.
(f) The rental of any property owned
by any individuals or entities affiliated
with the non -Federal entity, to include
commercial or residential real estate,
§ 200.466
for purposes such as the home office
workspace is unallowable.
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49569, Aug. 13, 2020]
§ 200.466 Scholarships and student aid
costs.
(a) Costs of scholarships, fellowships,
and other programs of student aid at
IHEs are allowable only when the pur-
pose of the Federal award is to provide
training to selected participants and
the charge is approved by the Federal
awarding agency. However, tuition re-
mission and other forms of compensa-
tion paid as, or in lieu of, wages to stu-
dents performing necessary work are
allowable provided that:
(1) The individual is conducting ac-
tivities necessary to the Federal
award;
(2) Tuition remission and other sup-
port are provided in accordance with
established policy of the IHE and con-
sistently provided in a like manner to
students in return for similar activities
conducted under Federal awards as
well as other activities; and
(3) During the academic period, the
student is enrolled in an advanced de-
gree program at a non -Federal entity
or affiliated institution and the activi-
ties of the student in relation to the
Federal award are related to the degree
program;
(4) The tuition or other payments are
reasonable compensation for the work
performed and are conditioned explic-
itly upon the performance of necessary
work; and
(5) It is the IHE's practice to simi-
larly compensate students under Fed-
eral awards as well as other activities.
(b) Charges for tuition remission and
other forms of compensation paid to
students as, or in lieu of, salaries and
wages must be subject to the reporting
requirements in § 200.430, and must be
treated as direct or indirect cost in ac-
cordance with the actual work being
performed. Tuition remission may be
charged on an average rate basis. See
also §200.431.
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49569, Aug. 13, 2020]
191
§ 200.467
§ 200.467 Selling and marketing costs.
Costs of selling and marketing any
products or services of the non -Federal
entity (unless allowed under § 200.421)
are unallowable, except as direct costs,
with prior approval by the Federal
awarding agency when necessary for
the performance of the Federal award.
[85 FR 49570, Aug. 13, 2020]
§ 200.468 Specialized service facilities.
(a) The costs of services provided by
highly complex or specialized facilities
operated by the non -Federal entity,
such as computing facilities, wind tun-
nels, and reactors are allowable, pro-
vided the charges for the services meet
the conditions of either paragraph (b)
or (c) of this section, and, in addition,
take into account any items of income
or Federal financing that qualify as ap-
plicable credits under § 200.406.
(b) The costs of such services, when
material, must be charged directly to
applicable awards based on actual
usage of the services on the basis of a
schedule of rates or established meth-
odology that:
(1) Does not discriminate between ac-
tivities under Federal awards and other
activities of the non -Federal entity, in-
cluding usage by the non -Federal enti-
ty for internal purposes, and
(2) Is designed to recover only the ag-
gregate costs of the services. The costs
of each service must consist normally
of both its direct costs and its allocable
share of all indirect (F&A) costs. Rates
must be adjusted at least biennially,
and must take into consideration over/
under -applied costs of the previous pe-
riod(s).
(c) Where the costs incurred for a
service are not material, they may be
allocated as indirect (F&A) costs.
(d) Under some extraordinary cir-
cumstances, where it is in the best in-
terest of the Federal Government and
the non -Federal entity to establish al-
ternative costing arrangements, such
arrangements may be worked out with
the Federal cognizant agency for indi-
rect costs.
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49569, Aug. 13, 2020]
2 CFR Ch. 11 (1-1-21 Edition)
§ 200.469 Student activity costs.
Costs incurred for intramural activi-
ties, student publications, student
clubs, and other student activities, are
unallowable, unless specifically pro-
vided for in the Federal award.
§ 200.470 Taxes (including Value
Added Tax).
(a) For states, local governments and
Indian tribes:
(1) Taxes that a governmental unit is
legally required to pay are allowable,
except for self -assessed taxes that dis-
proportionately affect Federal pro-
grams or changes in tax policies that
disproportionately affect Federal pro-
grams.
(2) Gasoline taxes, motor vehicle
fees, and other taxes that are in effect
user fees for benefits provided to the
Federal Government are allowable.
(3) This provision does not restrict
the authority of the Federal awarding
agency to identify taxes where Federal
participation is inappropriate. Where
the identification of the amount of un-
allowable taxes would require an inor-
dinate amount of effort, the cognizant
agency for indirect costs may accept a
reasonable approximation thereof.
(b) For nonprofit organizations and
IHEs:
(1) In general, taxes which the non -
Federal entity is required to pay and
which are paid or accrued in accord-
ance with GAAP, and payments made
to local governments in lieu of taxes
which are commensurate with the local
government services received are al-
lowable, except for:
(i) Taxes from which exemptions are
available to the non -Federal entity di-
rectly or which are available to the
non -Federal entity based on an exemp-
tion afforded the Federal Government
and, in the latter case, when the Fed-
eral awarding agency makes available
the necessary exemption certificates,
(ii) Special assessments on land
which represent capital improvements,
and
(iii) Federal income taxes.
(2) Any refund of taxes, and any pay-
ment to the non -Federal entity of in-
terest thereon, which were allowed as
Federal award costs, will be credited
either as a cost reduction or cash re-
fund, as appropriate, to the Federal
192
OMB Guidance
Government. However, any interest ac-
tually paid or credited to an non -Fed-
eral entity incident to a refund of tax,
interest, and penalty will be paid or
credited to the Federal Government
only to the extent that such interest
accrued over the period during which
the non -Federal entity has been reim-
bursed by the Federal Government for
the taxes, interest, and penalties.
(c) Value Added Tax (VAT) Foreign
taxes charged for the purchase of goods
or services that a non -Federal entity is
legally required to pay in country is an
allowable expense under Federal
awards. Foreign tax refunds or applica-
ble credits under Federal awards refer
to receipts, or reduction of expendi-
tures, which operate to offset or reduce
expense items that are allocable to
Federal awards as direct or indirect
costs. To the extent that such credits
accrued or received by the non -Federal
entity relate to allowable cost, these
costs must be credited to the Federal
awarding agency either as costs or cash
refunds. If the costs are credited back
to the Federal award, the non -Federal
entity may reduce the Federal share of
costs by the amount of the foreign tax
reimbursement, or where Federal
award has not expired, use the foreign
government tax refund for approved ac-
tivities under the Federal award with
prior approval of the Federal awarding
agency.
§ 200.471 Telecommunication costs and
video surveillance costs.
(a) Costs incurred for telecommuni-
cations and video surveillance services
or equipment such as phones, internet,
video surveillance, cloud servers are al-
lowable except for the following cir-
cumstances:
(b) Obligating or expending covered
telecommunications and video surveil-
lance 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.
[85 FR 49570, Aug. 13, 2020]
§ 200.472
§ 200.472 Termination costs.
Termination of a Federal award gen-
erally gives rise to the incurrence of
costs, or the need for special treatment
of costs, which would not have arisen
had the Federal award not been termi-
nated. Cost principles covering these
items are set forth in this section.
They are to be used in conjunction
with the other provisions of this part
in termination situations.
(a) The cost of items reasonably usa-
ble on the non -Federal entity's other
work must not be allowable unless the
non -Federal entity submits evidence
that it would not retain such items at
cost without sustaining a loss. In de-
ciding whether such items are reason-
ably usable on other work of the non -
Federal entity, the Federal awarding
agency should consider the non -Federal
entity's plans and orders for current
and scheduled activity. Contempora-
neous purchases of common items by
the non -Federal entity must be re-
garded as evidence that such items are
reasonably usable on the non -Federal
entity's other work. Any acceptance of
common items as allocable to the ter-
minated portion of the Federal award
must be limited to the extent that the
quantities of such items on hand, in
transit, and on order are in excess of
the reasonable quantitative require-
ments of other work.
(b) If in a particular case, despite all
reasonable efforts by the non -Federal
entity, certain costs cannot be discon-
tinued immediately after the effective
date of termination, such costs are
generally allowable within the limita-
tions set forth in this part, except that
any such costs continuing after termi-
nation due to the negligent or willful
failure of the non -Federal entity to dis-
continue such costs must be unallow-
able.
(c) Loss of useful value of special
tooling, machinery, and equipment is
generally allowable if:
(1) Such special tooling, special ma-
chinery, or equipment is not reason-
ably capable of use in the other work of
the non -Federal entity,
(2) The interest of the Federal Gov-
ernment is protected by transfer of
title or by other means deemed appro-
priate by the Federal awarding agency
(see also § 200.313 (d)), and
193
§ 200.473
(3) The loss of useful value for any
one terminated Federal award is lim-
ited to that portion of the acquisition
cost which bears the same ratio to the
total acquisition cost as the termi-
nated portion of the Federal award
bears to the entire terminated Federal
award and other Federal awards for
which the special tooling, machinery,
or equipment was acquired.
(d) Rental costs under unexpired
leases are generally allowable where
clearly shown to have been reasonably
necessary for the performance of the
terminated Federal award less the re-
sidual value of such leases, if:
(1) The amount of such rental
claimed does not exceed the reasonable
use value of the property leased for the
period of the Federal award and such
further period as may be reasonable,
and
(2) The non -Federal entity makes all
reasonable efforts to terminate, assign,
settle, or otherwise reduce the cost of
such lease. There also may be included
the cost of alterations of such leased
property, provided such alterations
were necessary for the performance of
the Federal award, and of reasonable
restoration required by the provisions
of the lease.
(e) Settlement expenses including the
following are generally allowable:
(1) Accounting, legal, clerical, and
similar costs reasonably necessary for:
(i) The preparation and presentation
to the Federal awarding agency of set-
tlement claims and supporting data
with respect to the terminated portion
of the Federal award, unless the termi-
nation is for cause (see subpart D, in-
cluding §§200.339-200.343); and
(ii) The termination and settlement
of subawards.
(2) Reasonable costs for the storage,
transportation, protection, and disposi-
tion of property provided by the Fed-
eral Government or acquired or pro-
duced for the Federal award.
(f) Claims under subawards, including
the allocable portion of claims which
are common to the Federal award and
to other work of the non -Federal enti-
ty, are generally allowable. An appro-
priate share of the non -Federal entity's
indirect costs may be allocated to the
amount of settlements with contrac-
tors and/or subrecipients, provided that
2 CFR Ch. 11 (1-1-21 Edition)
the amount allocated is otherwise con-
sistent with the basic guidelines con-
tained in § 200.414. The indirect costs so
allocated must exclude the same and
similar costs claimed directly or indi-
rectly as settlement expenses.
[78 FR 78608, Dec. 26, 2013. Redesignated and
amended at 85 FR 49570, Aug. 13, 2020]
§ 200.473 Training and education costs.
The cost of training and education
provided for employee development is
allowable.
[78 FR 78608, Dec. 26, 2013. Redesignated at 85
FR 49570, Aug. 13, 2020]
§ 200.474 Transportation costs.
Costs incurred for freight, express,
cartage, postage, and other transpor-
tation 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 trans-
portation 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 in-
direct (F&A) cost accounts if the non -
Federal entity follows a consistent, eq-
uitable procedure in this respect. Out-
bound freight, if reimbursable under
the terms and conditions of the Federal
award, should be treated as a direct
cost.
[78 FR 78608, Dec. 26, 2013. Redesignated at 85
FR 49570, Aug. 13, 2020]
§ 200.475 Travel costs.
(a) General. Travel costs are the ex-
penses for transportation, lodging, sub-
sistence, and related items incurred by
employees who are in travel status on
official business of the non -Federal en-
tity. Such costs may be charged on an
actual cost basis, on a per diem or
mileage basis in lieu of actual costs in-
curred, or on a combination of the two,
provided the method used is applied to
an entire trip and not to selected days
of the trip, and results in charges con-
sistent with those normally allowed in
like circumstances in the non -Federal
entity's non -federally -funded activities
and in accordance with non -Federal en-
tity's written travel reimbursement
194
OMB Guidance
policies. Notwithstanding the provi-
sions of § 200.444, travel costs of offi-
cials covered by that section are allow-
able with the prior written approval of
the Federal awarding agency or pass -
through entity when they are specifi-
cally related to the Federal award.
(b) Lodging and subsistence. Costs in-
curred by employees and officers for
travel, including costs of lodging, other
subsistence, and incidental expenses,
must be considered reasonable and oth-
erwise allowable only to the extent
such costs do not exceed charges nor-
mally allowed by the non -Federal enti-
ty in its regular operations as the re-
sult of the non -Federal entity's written
travel policy. In addition, if these costs
are charged directly to the Federal
award documentation must justify
that:
(1) Participation of the individual is
necessary to the Federal award; and
(2) The costs are reasonable and con-
sistent with non -Federal entity's es-
tablished travel policy.
(c)(1) Temporary dependent care
costs (as dependent is defined in 26
U.S.C. 152) above and beyond regular
dependent care that directly results
from travel to conferences is allowable
provided that:
(i) The costs are a direct result of the
individual's travel for the Federal
award;
(ii) The costs are consistent with the
non -Federal entity's documented trav-
el policy for all entity travel; and
(iii) Are only temporary during the
travel period.
(2) Travel costs for dependents are
unallowable, except for travel of dura-
tion of six months or more with prior
approval of the Federal awarding agen-
cy. See also § 200.432.
(d) In the absence of an acceptable,
written non -Federal entity policy re-
garding travel costs, the rates and
amounts established under 5 U.S.C.
5701-11, ("Travel and Subsistence Ex-
penses; Mileage Allowances"), or by
the Administrator of General Services,
or by the President (or his or her des-
ignee) pursuant to any provisions of
such subchapter must apply to travel
under Federal awards (48 CFR 31.205-
46(a)).
(e) Commercial air travel. (1) Airfare
costs in excess of the basic least expen-
§ 200.500
sive unrestricted accommodations
class offered by commercial airlines
are unallowable except when such ac-
commodations would:
(i) Require circuitous routing;
(ii) Require travel during unreason-
able hours;
(iii) Excessively prolong travel;
(iv) Result in additional costs that
would offset the transportation sav-
ings; or
(v) Offer accommodations not reason-
ably adequate for the traveler's med-
ical needs. The non -Federal entity
must justify and document these condi-
tions on a case -by -case basis in order
for the use of first-class or business -
class airfare to be allowable in such
cases.
(2) Unless a pattern of avoidance is
detected, the Federal Government will
generally not question a non -Federal
entity's determinations that cus-
tomary standard airfare or other dis-
count airfare is unavailable for specific
trips if the non -Federal entity can
demonstrate that such airfare was not
available in the specific case.
(f) Air travel by other than commercial
carrier. Costs of travel by non -Federal
entity -owned, -leased, or -chartered
aircraft include the cost of lease, char-
ter, operation (including personnel
costs), maintenance, depreciation, in-
surance, and other related costs. The
portion of such costs that exceeds the
cost of airfare as provided for in para-
graph (d) of this section, is unallow-
able.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75887, Dec. 19, 2014. Redesignated and
amended at 85 FR 49570, Aug. 13, 2020]
§ 200.476 Trustees.
Travel and subsistence costs of trust-
ees (or directors) at IHEs and nonprofit
organizations are allowable. See also
§200.475.
[85 FR 49571, Aug. 13, 2020]
Subpart F —Audit Requirements
GENERAL
§ 200.500 Purpose.
This part sets forth standards for ob-
taining consistency and uniformity
among Federal agencies for the audit
195
§ 200.501
of non -Federal entities expending Fed-
eral awards.
AUDITS
§ 200.501 Audit requirements.
(a) Audit required. A non -Federal enti-
ty that expends $750,000 or more during
the non -Federal entity's fiscal year in
Federal awards must have a single or
program -specific audit conducted for
that year in accordance with the provi-
sions of this part.
(b) Single audit. A non -Federal entity
that expends $750,000 or more during
the non -Federal entity's fiscal year in
Federal awards must have a single
audit conducted in accordance with
§ 200.514 except when it elects to have a
program -specific audit conducted in ac-
cordance with paragraph (c) of this sec-
tion.
(c) Program -specific audit election.
When an auditee expends Federal
awards under only one Federal pro-
gram (excluding R&D) and the Federal
program's statutes, regulations, or the
terms and conditions of the Federal
award do not require a financial state-
ment audit of the auditee, the auditee
may elect to have a program -specific
audit conducted in accordance with
§ 200.507. A program -specific audit may
not be elected for R&D unless all of the
Federal awards expended were received
from the same Federal agency, or the
same Federal agency and the same
pass -through entity, and that Federal
agency, or pass -through entity in the
case of a subrecipient, approves in ad-
vance a program -specific audit.
(d) Exemption when Federal awards ex-
pended are less than $750,000. A non -Fed-
eral entity that expends less than
$750,000 during the non -Federal entity's
fiscal year in Federal awards is exempt
from Federal audit requirements for
that year, except as noted in § 200.503,
but records must be available for re-
view or audit by appropriate officials
of the Federal agency, pass -through en-
tity, and Government Accountability
Office (GAO).
(e) Federally Funded Research and De-
velopment Centers (FFRDC). Manage-
ment of an auditee that owns or oper-
ates a FFRDC may elect to treat the
FFRDC as a separate entity for pur-
poses of this part.
2 CFR Ch. 11 (1-1-21 Edition)
(f) Subrecipients and contractors. An
auditee may simultaneously be a re-
cipient, a subrecipient, and a con-
tractor. Federal awards expended as a
recipient or a subrecipient are subject
to audit under this part. The payments
received for goods or services provided
as a contractor are not Federal awards.
Section § 200.331 sets forth the consider-
ations in determining whether pay-
ments constitute a Federal award or a
payment for goods or services provided
as a contractor.
(g) Compliance responsibility for con-
tractors. In most cases, the auditee's
compliance responsibility for contrac-
tors is only to ensure that the procure-
ment, receipt, and payment for goods
and services comply with Federal stat-
utes, regulations, and the terms and
conditions of Federal awards. Federal
award compliance requirements nor-
mally do not pass through to contrac-
tors. However, the auditee is respon-
sible for ensuring compliance for pro-
curement transactions which are struc-
tured such that the contractor is re-
sponsible for program compliance or
the contractor's records must be re-
viewed to determine program compli-
ance. Also, when these procurement
transactions relate to a major pro-
gram, the scope of the audit must in-
clude determining whether these trans-
actions are in compliance with Federal
statutes, regulations, and the terms
and conditions of Federal awards.
(h) For-profit subrecipient. Since this
part does not apply to for-profit sub -
recipients, the pass -through entity is
responsible for establishing require-
ments, as necessary, to ensure compli-
ance by for-profit subrecipients. The
agreement with the for-profit sub -
recipient must describe applicable
compliance requirements and the for-
profit subrecipient's compliance re-
sponsibility. Methods to ensure compli-
ance for Federal awards made to for-
profit subrecipients may include pre -
award audits, monitoring during the
agreement, and post -award audits. See
also §200.332.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75887, Dec. 19, 2014; 85 FR 49571, Aug. 13,
2020]
196
OMB Guidance
§ 200.502 Basis for determining Fed-
eral awards expended.
(a) Determining Federal awards ex-
pended. The determination of when a
Federal award is expended must be
based on when the activity related to
the Federal award occurs. Generally,
the activity pertains to events that re-
quire the non -Federal entity to comply
with Federal statutes, regulations, and
the terms and conditions of Federal
awards, such as: expenditure/expense
transactions associated with awards in-
cluding grants, cost -reimbursement
contracts under the FAR, compacts
with Indian Tribes, cooperative agree-
ments, and direct appropriations; the
disbursement of funds to subrecipients;
the use of loan proceeds under loan and
loan guarantee programs; the receipt of
property; the receipt of surplus prop-
erty; the receipt or use of program in-
come; the distribution or use of food
commodities; the disbursement of
amounts entitling the non -Federal en-
tity to an interest subsidy; and the pe-
riod when insurance is in force.
(b) Loan and loan guarantees (loans).
Since the Federal Government is at
risk for loans until the debt is repaid,
the following guidelines must be used
to calculate the value of Federal
awards expended under loan programs,
except as noted in paragraphs (c) and
(d) of this section:
(1) Value of new loans made or re-
ceived during the audit period; plus
(2) Beginning of the audit period bal-
ance of loans from previous years for
which the Federal Government imposes
continuing compliance requirements;
plus
(3) Any interest subsidy, cash, or ad-
ministrative cost allowance received.
(c) Loan and loan guarantees (loans) at
IHEs. When loans are made to students
of an IHE but the IHE does not make
the loans, then only the value of loans
made during the audit period must be
considered Federal awards expended in
that audit period. The balance of loans
for previous audit periods is not in-
cluded as Federal awards expended be-
cause the lender accounts for the prior
balances.
(d) Prior loan and loan guarantees
(loans). Loans, the proceeds of which
were received and expended in prior
years, are not considered Federal
§ 200.503
awards expended under this part when
the Federal statutes, regulations, and
the terms and conditions of Federal
awards pertaining to such loans impose
no continuing compliance require-
ments other than to repay the loans.
(e) Endowment funds. The cumulative
balance of Federal awards for endow-
ment funds that are federally re-
stricted are considered Federal awards
expended in each audit period in which
the funds are still restricted.
(f) Free rent. Free rent received by
itself is not considered a Federal award
expended under this part. However, free
rent received as part of a Federal
award to carry out a Federal program
must be included in determining Fed-
eral awards expended and subject to
audit under this part.
(g) Valuing non -cash assistance. Fed-
eral non -cash assistance, such as free
rent, food commodities, donated prop-
erty, or donated surplus property, must
be valued at fair market value at the
time of receipt or the assessed value
provided by the Federal agency.
(h) Medicare. Medicare payments to a
non -Federal entity for providing pa-
tient care services to Medicare -eligible
individuals are not considered Federal
awards expended under this part.
(i) Medicaid. Medicaid payments to a
subrecipient for providing patient care
services to Medicaid -eligible individ-
uals are not considered Federal awards
expended under this part unless a state
requires the funds to be treated as Fed-
eral awards expended because reim-
bursement is on a cost -reimbursement
basis.
(j) Certain loans provided by the Na-
tional Credit Union Administration. For
purposes of this part, loans made from
the National Credit Union Share Insur-
ance Fund and the Central Liquidity
Facility that are funded by contribu-
tions from insured non -Federal entities
are not considered Federal awards ex-
pended.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75887, Dec. 19, 2014]
§ 200.503 Relation to other audit re-
quirements.
(a) An audit conducted in accordance
with this part must be in lieu of any fi-
nancial audit of Federal awards which
197
§ 200.504
a non -Federal entity is required to un-
dergo under any other Federal statute
or regulation. To the extent that such
audit provides a Federal agency with
the information it requires to carry
out its responsibilities under Federal
statute or regulation, a Federal agency
must rely upon and use that informa-
tion.
(b) Notwithstanding subsection (a), a
Federal agency, Inspectors General, or
GAO may conduct or arrange for addi-
tional audits which are necessary to
carry out its responsibilities under
Federal statute or regulation. The pro-
visions of this part do not authorize
any non -Federal entity to constrain, in
any manner, such Federal agency from
carrying out or arranging for such ad-
ditional audits, except that the Federal
agency must plan such audits to not be
duplicative of other audits of Federal
awards. Prior to commencing such an
audit, the Federal agency or pass -
through entity must review the FAC
for recent audits submitted by the non -
Federal entity, and to the extent such
audits meet a Federal agency or pass -
through entity's needs, the Federal
agency or pass -through entity must
rely upon and use such audits. Any ad-
ditional audits must be planned and
performed in such a way as to build
upon work performed, including the
audit documentation, sampling, and
testing already performed, by other
auditors.
(c) The provisions of this part do not
limit the authority of Federal agencies
to conduct, or arrange for the conduct
of, audits and evaluations of Federal
awards, nor limit the authority of any
Federal agency Inspector General or
other Federal official. For example, re-
quirements that may be applicable
under the FAR or CAS and the terms
and conditions of a cost -reimbursement
contract may include additional appli-
cable audits to be conducted or ar-
ranged for by Federal agencies.
(d) Federal agency to pay for additional
audits. A Federal agency that conducts
or arranges for additional audits must,
consistent with other applicable Fed-
eral statutes and regulations, arrange
for funding the full cost of such addi-
tional audits.
(e) Request for a program to be audited
as a major program. A Federal awarding
2 CFR Ch. 11 (1-1-21 Edition)
agency may request that an auditee
have a particular Federal program au-
dited as a major program in lieu of the
Federal awarding agency conducting or
arranging for the additional audits. To
allow for planning, such requests
should be made at least 180 calendar
days prior to the end of the fiscal year
to be audited. The auditee, after con-
sultation with its auditor, should
promptly respond to such a request by
informing the Federal awarding agency
whether the program would otherwise
be audited as a major program using
the risk -based audit approach de-
scribed in § 200.518 and, if not, the esti-
mated incremental cost. The Federal
awarding agency must then promptly
confirm to the auditee whether it
wants the program audited as a major
program. If the program is to be au-
dited as a major program based upon
this Federal awarding agency request,
and the Federal awarding agency
agrees to pay the full incremental
costs, then the auditee must have the
program audited as a major program. A
pass -through entity may use the provi-
sions of this paragraph for a sub -
recipient.
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49570, Aug. 13, 2020]
§ 200.504 Frequency of audits.
Except for the provisions for biennial
audits provided in paragraphs (a) and
(b) of this section, audits required by
this part must be performed annually.
Any biennial audit must cover both
years within the biennial period.
(a) A state, local government, or In-
dian tribe that is required by constitu-
tion or statute, in effect on January 1,
1987, to undergo its audits less fre-
quently than annually, is permitted to
undergo its audits pursuant to this
part biennially. This requirement must
still be in effect for the biennial period.
(b) Any nonprofit organization that
had biennial audits for all biennial pe-
riods ending between July 1, 1992, and
January 1, 1995, is permitted to under-
go its audits pursuant to this part bi-
ennially.
§ 200.505 Sanctions.
In cases of continued inability or un-
willingness to have an audit conducted
in accordance with this part, Federal
198
OMB Guidance § 200.507
agencies and pass -through entities
must take appropriate action as pro-
vided in § 200.339.
[85 FR 49571, Aug. 13, 2020]
§ 200.506 Audit costs.
See § 200.425.
[85 FR 49571, Aug. 13, 2020]
§ 200.507 Program -specific audits.
(a) Program -specific audit guide avail-
able. In some cases, a program -specific
audit guide will be available to provide
specific guidance to the auditor with
respect to internal controls, compli-
ance requirements, suggested audit
procedures, and audit reporting re-
quirements. A listing of current pro-
gram -specific audit guides can be found
in the compliance supplement, Part 8,
Appendix VI, Program -Specific Audit
Guides, which includes a website where
a copy of the guide can be obtained.
When a current program -specific audit
guide is available, the auditor must
follow GAGAS and the guide when per-
forming a program -specific audit.
(b) Program -specific audit guide not
available. (1) When a current program -
specific audit guide is not available,
the auditee and auditor must have ba-
sically the same responsibilities for the
Federal program as they would have
for an audit of a major program in a
single audit.
(2) The auditee must prepare the fi-
nancial statement(s) for the Federal
program that includes, at a minimum,
a schedule of expenditures of Federal
awards for the program and notes that
describe the significant accounting
policies used in preparing the schedule,
a summary schedule of prior audit find-
ings consistent with the requirements
of §200.511(b), and a corrective action
plan consistent with the requirements
of §200.511(c).
(3) The auditor must:
(i) Perform an audit of the financial
statement(s) for the Federal program
in accordance with GAGAS;
(ii) Obtain an understanding of inter-
nal controls and perform tests of inter-
nal controls over the Federal program
consistent with the requirements of
§200.514(c) for a major program;
(iii) Perform procedures to determine
whether the auditee has complied with
Federal statutes, regulations, and the
terms and conditions of Federal awards
that could have a direct and material
effect on the Federal program con-
sistent with the requirements of
§200.514(d) for a major program;
(iv) Follow up on prior audit findings,
perform procedures to assess the rea-
sonableness of the summary schedule
of prior audit findings prepared by the
auditee in accordance with the require-
ments of § 200.511, and report, as a cur-
rent year audit finding, when the audi-
tor concludes that the summary sched-
ule of prior audit findings materially
misrepresents the status of any prior
audit finding; and
(v) Report any audit findings con-
sistent with the requirements of
§200.516.
(4) The auditor's report(s) may be in
the form of either combined or sepa-
rate reports and may be organized dif-
ferently from the manner presented in
this section. The auditor's report(s)
must state that the audit was con-
ducted in accordance with this part
and include the following:
(i) An opinion (or disclaimer of opin-
ion) as to whether the financial state-
ment(s) of the Federal program is pre-
sented fairly in all material respects in
accordance with the stated accounting
policies;
(ii) A report on internal control re-
lated to the Federal program, which
must describe the scope of testing of
internal control and the results of the
tests;
(iii) A report on compliance which in-
cludes an opinion (or disclaimer of
opinion) as to whether the auditee
complied with laws, regulations, and
the terms and conditions of Federal
awards which could have a direct and
material effect on the Federal pro-
gram; and
(iv) A schedule of findings and ques-
tioned costs for the Federal program
that includes a summary of the audi-
tor's results relative to the Federal
program in a format consistent with
§200.515(d)(1) and findings and ques-
tioned costs consistent with the re-
quirements of § 200.515(d)(3).
(c) Report submission for program -spe-
cific audits. (1) The audit must be com-
pleted and the reporting required by
paragraph (c)(2) or (c)(3) of this section
199
§ 200.508
submitted within the earlier of 30 cal-
endar days after receipt of the audi-
tor's report(s), or nine months after
the end of the audit period, unless a
different period is specified in a pro-
gram -specific audit guide. Unless re-
stricted by Federal law or regulation,
the auditee must make report copies
available for public inspection.
Auditees and auditors must ensure
that their respective parts of the re-
porting package do not include pro-
tected personally identifiable informa-
tion.
(2) When a program -specific audit
guide is available, the auditee must
electronically submit to the FAC the
data collection form prepared in ac-
cordance with § 200.512(b), as applicable
to a program -specific audit, and the re-
porting required by the program -spe-
cific audit guide.
(3) When a program -specific audit
guide is not available, the reporting
package for a program -specific audit
must consist of the financial state-
ment(s) of the Federal program, a sum-
mary schedule of prior audit findings,
and a corrective action plan as de-
scribed in paragraph (b)(2) of this sec-
tion, and the auditor's report(s) de-
scribed in paragraph (b)(4) of this sec-
tion. The data collection form prepared
in accordance with §200.512(b), as appli-
cable to a program -specific audit, and
one copy of this reporting package
must be electronically submitted to
the FAC.
(d) Other sections of this part may
apply. Program -specific audits are sub-
ject to:
(1) 200.500 Purpose through 200.503 Re-
lation to other audit requirements,
paragraph (d);
(2) 200.504 Frequency of audits
through 200.506 Audit costs;
(3) 200.508 Auditee responsibilities
through 200.509 Auditor selection;
(4) 200.511 Audit findings follow-up;
(5) 200.512 Report submission, para-
graphs (e) through (h);
(6) 200.513 Responsibilities;
(7) 200.516 Audit findings through
200.517 Audit documentation;
(8) 200.521 Management decision; and
(9) Other referenced provisions of this
part unless contrary to the provisions
of this section, a program -specific
2 CFR Ch. 11 (1-1-21 Edition)
audit guide, or program statutes and
regulations.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75887, Dec. 19, 2014; 85 FR 49571, Aug. 13,
2020]
AUDITEES
§200.508 Auditee responsibilities.
The auditee must:
(a) Procure or otherwise arrange for
the audit required by this part in ac-
cordance with § 200.509, and ensure it is
properly performed and submitted
when due in accordance with § 200.512.
(b) Prepare appropriate financial
statements, including the schedule of
expenditures of Federal awards in ac-
cordance with § 200.510.
(c) Promptly follow up and take cor-
rective action on audit findings, in-
cluding preparation of a summary
schedule of prior audit findings and a
corrective action plan in accordance
with §200.511(b) and (c), respectively.
(d) Provide the auditor with access to
personnel, accounts, books, records,
supporting documentation, and other
information as needed for the auditor
to perform the audit required by this
part.
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49572, Aug. 13, 2020]
§ 200.509 Auditor selection.
(a) Auditor procurement. In procuring
audit services, the auditee must follow
the procurement standards prescribed
by the Procurement Standards in
§§ 200.317 through 200.326 of subpart D of
this part or the FAR (48 CFR part 42),
as applicable. When procuring audit
services, the objective is to obtain
high -quality audits. In requesting pro-
posals for audit services, the objectives
and scope of the audit must be made
clear and the non -Federal entity must
request a copy of the audit organiza-
tion's peer review report which the
auditor is required to provide under
GAGAS. Factors to be considered in
evaluating each proposal for audit
services include the responsiveness to
the request for proposal, relevant expe-
rience, availability of staff with profes-
sional qualifications and technical
abilities, the results of peer and exter-
nal quality control reviews, and price.
Whenever possible, the auditee must
200
OMB Guidance
make positive efforts to utilize small
businesses, minority -owned firms, and
women's business enterprises, in pro-
curing audit services as stated in
§200.321, or the FAR (48 CFR part 42),
as applicable.
(b) Restriction on auditor preparing in-
direct cost proposals. An auditor who
prepares the indirect cost proposal or
cost allocation plan may not also be se-
lected to perform the audit required by
this part when the indirect costs recov-
ered by the auditee during the prior
year exceeded $1 million. This restric-
tion applies to the base year used in
the preparation of the indirect cost
proposal or cost allocation plan and
any subsequent years in which the re-
sulting indirect cost agreement or cost
allocation plan is used to recover costs.
(c) Use of Federal auditors. Federal
auditors may perform all or part of the
work required under this part if they
comply fully with the requirements of
this part.
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49572, Aug. 13, 2020]
§ 200.510 Financial statements.
(a) Financial statements. The auditee
must prepare financial statements that
reflect its financial position, results of
operations or changes in net assets,
and, where appropriate, cash flows for
the fiscal year audited. The financial
statements must be for the same orga-
nizational unit and fiscal year that is
chosen to meet the requirements of
this part. However, non -Federal entity -
wide financial statements may also in-
clude departments, agencies, and other
organizational units that have separate
audits in accordance with § 200.514(a)
and prepare separate financial state-
ments.
(b) Schedule of expenditures of Federal
awards. The auditee must also prepare
a schedule of expenditures of Federal
awards for the period covered by the
auditee's financial statements which
must include the total Federal awards
expended as determined in accordance
with § 200.502. While not required, the
auditee may choose to provide infor-
mation requested by Federal awarding
agencies and pass -through entities to
make the schedule easier to use. For
example, when a Federal program has
multiple Federal award years, the
§ 200.511
auditee may list the amount of Federal
awards expended for each Federal
award year separately. At a minimum,
the schedule must:
(1) List individual Federal programs
by Federal agency. For a cluster of pro-
grams, provide the cluster name, list
individual Federal programs within the
cluster of programs, and provide the
applicable Federal agency name. For
R&D, total Federal awards expended
must be shown either by individual
Federal award or by Federal agency
and major subdivision within the Fed-
eral agency. For example, the National
Institutes of Health is a major subdivi-
sion in the Department of Health and
Human Services.
(2) For Federal awards received as a
subrecipient, the name of the pass -
through entity and identifying number
assigned by the pass -through entity
must be included.
(3) Provide total Federal awards ex-
pended for each individual Federal pro-
gram and the Assistance Listings Num-
ber or other identifying number when
the Assistance Listings information is
not available. For a cluster of pro-
grams also provide the total for the
cluster.
(4) Include the total amount provided
to subrecipients from each Federal pro-
gram.
(5) For loan or loan guarantee pro-
grams described in § 200.502(b), identify
in the notes to the schedule the bal-
ances outstanding at the end of the
audit period. This is in addition to in-
cluding the total Federal awards ex-
pended for loan or loan guarantee pro-
grams in the schedule.
(6) Include notes that describe that
significant accounting policies used in
preparing the schedule, and note
whether or not the auditee elected to
use the 10% de minimis cost rate as
covered in § 200.414.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75887, Dec. 19, 2014; 85 FR 49572, Aug. 13,
2020]
§ 200.511 Audit findings follow-up.
(a) General. The auditee is responsible
for follow-up and corrective action on
all audit findings. As part of this re-
sponsibility, the auditee must prepare
a summary schedule of prior audit find-
ings. The auditee must also prepare a
201
§ 200.512
corrective action plan for current year
audit findings. The summary schedule
of prior audit findings and the correc-
tive action plan must include the ref-
erence numbers the auditor assigns to
audit findings under § 200.516(c). Since
the summary schedule may include
audit findings from multiple years, it
must include the fiscal year in which
the finding initially occurred. The cor-
rective action plan and summary
schedule of prior audit findings must
include findings relating to the finan-
cial statements which are required to
be reported in accordance with
GAGAS.
(b) Summary schedule of prior audit
findings. The summary schedule of
prior audit findings must report the
status of all audit findings included in
the prior audit's schedule of findings
and questioned costs. The summary
schedule must also include audit find-
ings reported in the prior audit's sum-
mary schedule of prior audit findings
except audit findings listed as cor-
rected in accordance with paragraph
(b)(1) of this section, or no longer valid
or not warranting further action in ac-
cordance with paragraph (b)(3) of this
section.
(1) When audit findings were fully
corrected, the summary schedule need
only list the audit findings and state
that corrective action was taken.
(2) When audit findings were not cor-
rected or were only partially corrected,
the summary schedule must describe
the reasons for the finding's recurrence
and planned corrective action, and any
partial corrective action taken. When
corrective action taken is significantly
different from corrective action pre-
viously reported in a corrective action
plan or in the Federal agency's or pass -
through entity's management decision,
the summary schedule must provide an
explanation.
(3) When the auditee believes the
audit findings are no longer valid or do
not warrant further action, the reasons
for this position must be described in
the summary schedule. A valid reason
for considering an audit finding as not
warranting further action is that all of
the following have occurred:
(i) Two years have passed since the
audit report in which the finding oc-
curred was submitted to the FAC;
2 CFR Ch. 11 (1-1-21 Edition)
(ii) The Federal agency or pass -
through entity is not currently fol-
lowing up with the auditee on the audit
finding; and
(iii) A management decision was not
issued.
(c) Corrective action plan. At the com-
pletion of the audit, the auditee must
prepare, in a document separate from
the auditor's findings described in
§ 200.516, a corrective action plan to ad-
dress each audit finding included in the
current year auditor's reports. The cor-
rective action plan must provide the
name(s) of the contact person(s) re-
sponsible for corrective action, the cor-
rective action planned, and the antici-
pated completion date. If the auditee
does not agree with the audit findings
or believes corrective action is not re-
quired, then the corrective action plan
must include an explanation and spe-
cific reasons.
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49572, Aug. 13, 2020]
§ 200.512 Report submission.
(a) General. (1) The audit must be
completed and the data collection form
described in paragraph (b) of this sec-
tion and reporting package described in
paragraph (c) of this section must be
submitted within the earlier of 30 cal-
endar days after receipt of the audi-
tor's report(s), or nine months after
the end of the audit period. If the due
date falls on a Saturday, Sunday, or
Federal holiday, the reporting package
is due the next business day.
(2) Unless restricted by Federal stat-
utes or regulations, the auditee must
make copies available for public in-
spection. Auditees and auditors must
ensure that their respective parts of
the reporting package do not include
protected personally identifiable infor-
mation.
(b) Data collection. The FAC is the re-
pository of record for subpart F of this
part reporting packages and the data
collection form. All Federal agencies,
pass -through entities and others inter-
ested in a reporting package and data
collection form must obtain it by ac-
cessing the FAC.
(1) The auditee must submit required
data elements described in Appendix X
to Part 200, which state whether the
audit was completed in accordance
202
OMB Guidance
with this part and provides informa-
tion about the auditee, its Federal pro-
grams, and the results of the audit.
The data must include information
available from the audit required by
this part that is necessary for Federal
agencies to use the audit to ensure in-
tegrity for Federal programs. The data
elements and format must be approved
by OMB, available from the FAC, and
include collections of information from
the reporting package described in
paragraph (c) of this section. A senior
level representative of the auditee (e.g.,
state controller, director of finance,
chief executive officer, or chief finan-
cial officer) must sign a statement to
be included as part of the data collec-
tion that says that the auditee com-
plied with the requirements of this
part, the data were prepared in accord-
ance with this part (and the instruc-
tions accompanying the form), the re-
porting package does not include pro-
tected personally identifiable informa-
tion, the information included in its
entirety is accurate and complete, and
that the FAC is authorized to make the
reporting package and the form pub-
licly available on a website.
(2) Exception for Indian Tribes and
Tribal Organizations. An auditee that is
an Indian tribe or a tribal organization
(as defined in the Indian Self -Deter-
mination, Education and Assistance
Act (ISDEAA), 25 U.S.C. 450b(1)) may
opt not to authorize the FAC to make
the reporting package publicly avail-
able on a Web site, by excluding the au-
thorization for the FAC publication in
the statement described in paragraph
(b)(1) of this section. If this option is
exercised, the auditee becomes respon-
sible for submitting the reporting
package directly to any pass -through
entities through which it has received
a Federal award and to pass -through
entities for which the summary sched-
ule of prior audit findings reported the
status of any findings related to Fed-
eral awards that the pass -through enti-
ty provided. Unless restricted by Fed-
eral statute or regulation, if the
auditee opts not to authorize publica-
tion, it must make copies of the report-
ing package available for public inspec-
tion.
(3) Using the information included in
the reporting package described in
§ 200.512
paragraph (c) of this section, the audi-
tor must complete the applicable data
elements of the data collection form.
The auditor must sign a statement to
be included as part of the data collec-
tion form that indicates, at a min-
imum, the source of the information
included in the form, the auditor's re-
sponsibility for the information, that
the form is not a substitute for the re-
porting package described in paragraph
(c) of this section, and that the content
of the form is limited to the collection
of information prescribed by OMB.
(c) Reporting package. The reporting
package must include the:
(1) Financial statements and sched-
ule of expenditures of Federal awards
discussed in § 200.510(a) and (b), respec-
tively;
(2) Summary schedule of prior audit
findings discussed in §200.511(b);
(3) Auditor's report(s) discussed in
§ 200.515; and
(4) Corrective action plan discussed
in §200.511(c).
(d) Submission to FAC. The auditee
must electronically submit to the FAC
the data collection form described in
paragraph (b) of this section and the
reporting package described in para-
graph (c) of this section.
(e) Requests for management letters
issued by the auditor. In response to re-
quests by a Federal agency or pass -
through entity, auditees must submit a
copy of any management letters issued
by the auditor.
(f) Report retention requirements.
Auditees must keep one copy of the
data collection form described in para-
graph (b) of this section and one copy
of the reporting package described in
paragraph (c) of this section on file for
three years from the date of submis-
sion to the FAC.
(g) FAC responsibilities. The FAC must
make available the reporting packages
received in accordance with paragraph
(c) of this section and § 200.507(c) to the
public, except for Indian tribes exer-
cising the option in (b)(2) of this sec-
tion, and maintain a data base of com-
pleted audits, provide appropriate in-
formation to Federal agencies, and fol-
low up with known auditees that have
not submitted the required data collec-
tion forms and reporting packages.
203
§ 200.513
(h) Electronic filing. Nothing in this
part must preclude electronic submis-
sions to the FAC in such manner as
may be approved by OMB.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75887, Dec. 19, 2014; 85 FR 49573, Aug. 13,
2020]
FEDERAL AGENCIES
§ 200.513 Responsibilities.
(a)(1) Cognizant agency for audit re-
sponsibilities. A non -Federal entity ex-
pending more than $50 million a year in
Federal awards must have a cognizant
agency for audit. The designated cog-
nizant agency for audit must be the
Federal awarding agency that provides
the predominant amount of funding di-
rectly (direct funding) (as listed on the
Schedule of expenditures of Federal
awards, see §200.510(b)) to a non -Fed-
eral entity unless OMB designates a
specific cognizant agency for audit.
When the direct funding represents less
than 25 percent of the total expendi-
tures (as direct and subawards) by the
non -Federal entity, then the Federal
agency with the predominant amount
of total funding is the designated cog-
nizant agency for audit.
(2) To provide for continuity of cog-
nizance, the determination of the pre-
dominant amount of direct funding
must be based upon direct Federal
awards expended in the non -Federal en-
tity's fiscal years ending in 2019, and
every fifth year thereafter.
(3) Notwithstanding the manner in
which audit cognizance is determined,
a Federal awarding agency with cog-
nizance for an auditee may reassign
cognizance to another Federal award-
ing agency that provides substantial
funding and agrees to be the cognizant
agency for audit. Within 30 calendar
days after any reassignment, both the
old and the new cognizant agency for
audit must provide notice of the
change to the FAC, the auditee, and, if
known, the auditor. The cognizant
agency for audit must:
(i) Provide technical audit advice and
liaison assistance to auditees and audi-
tors.
(ii) Obtain or conduct quality control
reviews on selected audits made by
non -Federal auditors, and provide the
results to other interested organiza-
2 CFR Ch. 11 (1-1-21 Edition)
tions. Cooperate and provide support to
the Federal agency designated by OMB
to lead a governmentwide project to
determine the quality of single audits
by providing a reliable estimate of the
extent that single audits conform to
applicable requirements, standards,
and procedures; and to make rec-
ommendations to address noted audit
quality issues, including recommenda-
tions for any changes to applicable re-
quirements, standards and procedures
indicated by the results of the project.
The governmentwide project can rely
on the current and on -going quality
control review work performed by the
agencies, State auditors, and profes-
sional audit associations. This govern-
mentwide audit quality project must
be performed once every 6 years (or at
such other interval as determined by
OMB), and the results must be public.
(iii) Promptly inform other affected
Federal agencies and appropriate Fed-
eral law enforcement officials of any
direct reporting by the auditee or its
auditor required by GAGAS or statutes
and regulations.
(iv) Advise the community of inde-
pendent auditors of any noteworthy or
important factual trends related to the
quality of audits stemming from qual-
ity control reviews. Significant prob-
lems or quality issues consistently
identified through quality control re-
views of audit reports must be referred
to appropriate state licensing agencies
and professional bodies.
(v) Advise the auditor, Federal
awarding agencies, and, where appro-
priate, the auditee of any deficiencies
found in the audits when the defi-
ciencies require corrective action by
the auditor. When advised of defi-
ciencies, the auditee must work with
the auditor to take corrective action.
If corrective action is not taken, the
cognizant agency for audit must notify
the auditor, the auditee, and applicable
Federal awarding agencies and pass -
through entities of the facts and make
recommendations for follow-up action.
Major inadequacies or repetitive sub-
standard performance by auditors must
be referred to appropriate state licens-
ing agencies and professional bodies for
disciplinary action.
(vi) Coordinate, to the extent prac-
tical, audits or reviews made by or for
204
OMB Guidance
Federal agencies that are in addition
to the audits made pursuant to this
part, so that the additional audits or
reviews build upon rather than dupli-
cate audits performed in accordance
with this part.
(vii) Coordinate a management deci-
sion for cross -cutting audit findings
(see in § 200.1 of this part) that affect
the Federal programs of more than one
agency when requested by any Federal
awarding agency whose awards are in-
cluded in the audit finding of the
auditee.
(viii) Coordinate the audit work and
reporting responsibilities among audi-
tors to achieve the most cost-effective
audit.
(ix) Provide advice to auditees as to
how to handle changes in fiscal years.
(b) Oversight agency for audit respon-
sibilities. An auditee who does not have
a designated cognizant agency for
audit will be under the general over-
sight of the Federal agency determined
in accordance with § 200.1 oversight
agency for audit. A Federal agency with
oversight for an auditee may reassign
oversight to another Federal agency
that agrees to be the oversight agency
for audit. Within 30 calendar days after
any reassignment, both the old and the
new oversight agency for audit must
provide notice of the change to the
FAC, the auditee, and, if known, the
auditor. The oversight agency for
audit:
(1) Must provide technical advice to
auditees and auditors as requested.
(2) May assume all or some of the re-
sponsibilities normally performed by a
cognizant agency for audit.
(c) Federal awarding agency respon-
sibilities. The Federal awarding agency
must perform the following for the
Federal awards it makes (See also the
requirements of § 200.211):
(1) Ensure that audits are completed
and reports are received in a timely
manner and in accordance with the re-
quirements of this part.
(2) Provide technical advice and
counsel to auditees and auditors as re-
quested.
(3) Follow-up on audit findings to en-
sure that the recipient takes appro-
priate and timely corrective action. As
part of audit follow-up, the Federal
awarding agency must:
§ 200.513
(i) Issue a management decision as
prescribed in § 200.521;
(ii) Monitor the recipient taking ap-
propriate and timely corrective action;
(iii) Use cooperative audit resolution
mechanisms (see the definition of coop-
erative audit resolution in § 200.1 of this
part) to improve Federal program out-
comes through better audit resolution,
follow-up, and corrective action; and
(iv) Develop a baseline, metrics, and
targets to track, over time, the effec-
tiveness of the Federal agency's proc-
ess to follow-up on audit findings and
on the effectiveness of Single Audits in
improving non -Federal entity account-
ability and their use by Federal award-
ing agencies in making award deci-
sions.
(4) Provide OMB annual updates to
the compliance supplement and work
with OMB to ensure that the compli-
ance supplement focuses the auditor to
test the compliance requirements most
likely to cause improper payments,
fraud, waste, abuse or generate audit
finding for which the Federal awarding
agency will take sanctions.
(5) Provide OMB with the name of a
single audit accountable official from
among the senior policy officials of the
Federal awarding agency who must be:
(i) Responsible for ensuring that the
agency fulfills all the requirements of
paragraph (c) of this section and effec-
tively uses the single audit process to
reduce improper payments and improve
Federal program outcomes.
(ii) Held accountable to improve the
effectiveness of the single audit process
based upon metrics as described in
paragraph (c)(3)(iv) of this section.
(iii) Responsible for designating the
Federal agency's key management sin-
gle audit liaison.
(6) Provide OMB with the name of a
key management single audit liaison
who must:
(i) Serve as the Federal awarding
agency's management point of contact
for the single audit process both within
and outside the Federal Government.
(ii) Promote interagency coordina-
tion, consistency, and sharing in areas
such as coordinating audit follow-up;
identifying higher -risk non -Federal en-
tities; providing input on single audit
and follow-up policy; enhancing the
utility of the FAC; and studying ways
205
§ 200.514
to use single audit results to improve
Federal award accountability and best
practices.
(iii) Oversee training for the Federal
awarding agency's program manage-
ment personnel related to the single
audit process.
(iv) Promote the Federal awarding
agency's use of cooperative audit reso-
lution mechanisms.
(v) Coordinate the Federal awarding
agency's activities to ensure appro-
priate and timely follow-up and correc-
tive action on audit findings.
(vi) Organize the Federal cognizant
agency for audit's follow-up on cross-
cutting audit findings that affect the
Federal programs of more than one
Federal awarding agency.
(vii) Ensure the Federal awarding
agency provides annual updates of the
compliance supplement to OMB.
(viii) Support the Federal awarding
agency's single audit accountable offi-
cial's mission.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75887, Dec. 19, 2014; 85 FR 49573, Aug. 13,
2020]
AUDITORS
§ 200.514 Scope of audit.
(a) General. The audit must be con-
ducted in accordance with GAGAS. The
audit must cover the entire operations
of the auditee, or, at the option of the
auditee, such audit must include a se-
ries of audits that cover departments,
agencies, and other organizational
units that expended or otherwise ad-
ministered Federal awards during such
audit period, provided that each such
audit must encompass the financial
statements and schedule of expendi-
tures of Federal awards for each such
department, agency, and other organi-
zational unit, which must be consid-
ered to be a non -Federal entity. The fi-
nancial statements and schedule of ex-
penditures of Federal awards must be
for the same audit period.
(b) Financial statements. The auditor
must determine whether the financial
statements of the auditee are presented
fairly in all material respects in ac-
cordance with generally accepted ac-
counting principles. The auditor must
also determine whether the schedule of
expenditures of Federal awards is stat-
2 CFR Ch. 11 (1-1-21 Edition)
ed fairly in all material respects in re-
lation to the auditee's financial state-
ments as a whole.
(c) Internal control. (1) The compli-
ance supplement provides guidance on
internal controls over Federal pro-
grams based upon the guidance in
Standards for Internal Control in the
Federal Government issued by the
Comptroller General of the United
States and the Internal Control —Inte-
grated Framework, issued by the Com-
mittee of Sponsoring Organizations of
the Treadway Commission (COSO).
(2) In addition to the requirements of
GAGAS, the auditor must perform pro-
cedures to obtain an understanding of
internal control over Federal programs
sufficient to plan the audit to support
a low assessed level of control risk of
noncompliance for major programs.
(3) Except as provided in paragraph
(c)(4) of this section, the auditor must:
(i) Plan the testing of internal con-
trol over compliance for major pro-
grams to support a low assessed level
of control risk for the assertions rel-
evant to the compliance requirements
for each major program; and
(ii) Perform testing of internal con-
trol as planned in paragraph (c)(3)(i) of
this section.
(4) When internal control over some
or all of the compliance requirements
for a major program are likely to be in-
effective in preventing or detecting
noncompliance, the planning and per-
forming of testing described in para-
graph (c)(3) of this section are not re-
quired for those compliance require-
ments. However, the auditor must re-
port a significant deficiency or mate-
rial weakness in accordance with
§ 200.516 Audit findings, assess the re-
lated control risk at the maximum,
and consider whether additional com-
pliance tests are required because of
ineffective internal control.
(d) Compliance. (1) In addition to the
requirements of GAGAS, the auditor
must determine whether the auditee
has complied with Federal statutes,
regulations, and the terms and condi-
tions of Federal awards that may have
a direct and material effect on each of
its major programs.
206
OMB Guidance
(2) The principal compliance require-
ments applicable to most Federal pro-
grams and the compliance require-
ments of the largest Federal programs
are included in the compliance supple-
ment.
(3) For the compliance requirements
related to Federal programs contained
in the compliance supplement, an audit
of these compliance requirements will
meet the requirements of this part.
Where there have been changes to the
compliance requirements and the
changes are not reflected in the com-
pliance supplement, the auditor must
determine the current compliance re-
quirements and modify the audit proce-
dures accordingly. For those Federal
programs not covered in the compli-
ance supplement, the auditor must fol-
low the compliance supplement's guid-
ance for programs not included in the
supplement.
(4) When internal control over some
or all of the compliance requirements
for a major program are likely to be in-
effective in preventing or detecting
noncompliance, the planning and per-
forming of testing described in para-
graph (c)(3) of this section are not re-
quired for those compliance require-
ments. However, the auditor must re-
port a significant deficiency or mate-
rial weakness in accordance with
§ 200.516, assess the related control risk
at the
(e) Audit follow-up. The auditor must
follow-up on prior audit findings, per-
form procedures to assess the reason-
ableness of the summary schedule of
prior audit findings prepared by the
auditee in accordance with §200.511(b),
and report, as a current year audit
finding, when the auditor concludes
that the summary schedule of prior
audit findings materially misrepre-
sents the status of any prior audit find-
ing. The auditor must perform audit
follow-up procedures regardless of
whether a prior audit finding relates to
a major program in the current year.
(f) Data collection form. As required in
§200.512(b)(3), the auditor must com-
plete and sign specified sections of the
data collection form.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75887, Dec. 19, 2014; 85 FR 49574, Aug. 13,
2020]
§ 200.515
§ 200.515 Audit reporting.
The auditor's report(s) may be in the
form of either combined or separate re-
ports and may be organized differently
from the manner presented in this sec-
tion. The auditor's report(s) must state
that the audit was conducted in ac-
cordance with this part and include the
following:
(a) Financial statements. The auditor
must determine and provide an opinion
(or disclaimer of opinion) whether the
financial statements of the auditee are
presented fairly in all materials re-
spects in accordance with generally ac-
cepted accounting principles (or a spe-
cial purpose framework such as cash,
modified cash, or regulatory as re-
quired by state law). The auditor must
also decide whether the schedule of ex-
penditures of Federal awards is stated
fairly in all material respects in rela-
tion to the auditee's financial state-
ments as a whole.
(b) A report on internal control over
financial reporting and compliance
with provisions of laws, regulations,
contracts, and award agreements, non-
compliance with which could have a
material effect on the financial state-
ments. This report must describe the
scope of testing of internal control and
compliance and the results of the tests,
and, where applicable, it will refer to
the separate schedule of findings and
questioned costs described in para-
graph (d) of this section.
(c) A report on compliance for each
major program and a report on internal
control over compliance. This report
must describe the scope of testing of
internal control over compliance, in-
clude an opinion or disclaimer of opin-
ion as to whether the auditee complied
with Federal statutes, regulations, and
the terms and conditions of Federal
awards which could have a direct and
material effect on each major program
and refer to the separate schedule of
findings and questioned costs described
in paragraph (d) of this section.
(d) A schedule of findings and ques-
tioned costs which must include the
following three components:
(1) A summary of the auditor's re-
sults, which must include:
207
§ 200.516
(i) The type of report the auditor
issued on whether the financial state-
ments audited were prepared in accord-
ance with GAAP (i.e., unmodified opin-
ion, qualified opinion, adverse opinion,
or disclaimer of opinion);
(ii) Where applicable, a statement
about whether significant deficiencies
or material weaknesses in internal con-
trol were disclosed by the audit of the
financial statements;
(iii) A statement as to whether the
audit disclosed any noncompliance
that is material to the financial state-
ments of the auditee;
(iv) Where applicable, a statement
about whether significant deficiencies
or material weaknesses in internal con-
trol over major programs were dis-
closed by the audit;
(v) The type of report the auditor
issued on compliance for major pro-
grams (i.e., unmodified opinion, quali-
fied opinion, adverse opinion, or dis-
claimer of opinion);
(vi) A statement as to whether the
audit disclosed any audit findings that
the auditor is required to report under
§ 200.516(a);
(vii) An identification of major pro-
grams by listing each individual major
program; however, in the case of a clus-
ter of programs, only the cluster name
as shown on the Schedule of Expendi-
tures of Federal Awards is required;
(viii) The dollar threshold used to
distinguish between Type A and Type B
programs, as described in § 200.518(b)(1)
or (3) when a recalculation of the Type
A threshold is required for large loan
or loan guarantees; and
(ix) A statement as to whether the
auditee qualified as a low -risk auditee
under § 200.520.
(2) Findings relating to the financial
statements which are required to be re-
ported in accordance with GAGAS.
(3) Findings and questioned costs for
Federal awards which must include
audit findings as defined in §200.516(a).
(i) Audit findings (e.g., internal con-
trol findings, compliance findings,
questioned costs, or fraud) that relate
to the same issue must be presented as
a single audit finding. Where practical,
audit findings should be organized by
Federal agency or pass -through entity.
(ii) Audit findings that relate to both
the financial statements and Federal
2 CFR Ch. 11 (1-1-21 Edition)
awards, as reported under paragraphs
(d)(2) and (d)(3) of this section, respec-
tively, must be reported in both sec-
tions of the schedule. However, the re-
porting in one section of the schedule
may be in summary form with a ref-
erence to a detailed reporting in the
other section of the schedule.
(e) Nothing in this part precludes
combining of the audit reporting re-
quired by this section with the report-
ing required by §200.512(b) when al-
lowed by GAGAS and appendix X to
this part.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75887, Dec. 19, 2014; 85 FR 49574, Aug. 13,
2020]
§ 200.516 Audit findings.
(a) Audit findings reported. The audi-
tor must report the following as audit
findings in a schedule of findings and
questioned costs:
(1) Significant deficiencies and mate-
rial weaknesses in internal control
over major programs and significant
instances of abuse relating to major
programs. The auditor's determination
of whether a deficiency in internal con-
trol is a significant deficiency or a ma-
terial weakness for the purpose of re-
porting an audit finding is in relation
to a type of compliance requirement
for a major program identified in the
Compliance Supplement.
(2) Material noncompliance with the
provisions of Federal statutes, regula-
tions, or the terms and conditions of
Federal awards related to a major pro-
gram. The auditor's determination of
whether a noncompliance with the pro-
visions of Federal statutes, regula-
tions, or the terms and conditions of
Federal awards is material for the pur-
pose of reporting an audit finding is in
relation to a type of compliance re-
quirement for a major program identi-
fied in the compliance supplement.
(3) Known questioned costs that are
greater than $25,000 for a type of com-
pliance requirement for a major pro-
gram. Known questioned costs are
those specifically identified by the
auditor. In evaluating the effect of
questioned costs on the opinion on
compliance, the auditor considers the
best estimate of total costs questioned
(likely questioned costs), not just the
questioned costs specifically identified
208
OMB Guidance
(known questioned costs). The auditor
must also report known questioned
costs when likely questioned costs are
greater than $25,000 for a type of com-
pliance requirement for a major pro-
gram. In reporting questioned costs,
the auditor must include information
to provide proper perspective for judg-
ing the prevalence and consequences of
the questioned costs.
(4) Known questioned costs that are
greater than $25,000 for a Federal pro-
gram which is not audited as a major
program. Except for audit follow-up,
the auditor is not required under this
part to perform audit procedures for
such a Federal program; therefore, the
auditor will normally not find ques-
tioned costs for a program that is not
audited as a major program. However,
if the auditor does become aware of
questioned costs for a Federal program
that is not audited as a major program
(e.g., as part of audit follow-up or other
audit procedures) and the known ques-
tioned costs are greater than $25,000,
then the auditor must report this as an
audit finding.
(5) The circumstances concerning
why the auditor's report on compliance
for each major program is other than
an unmodified opinion, unless such cir-
cumstances are otherwise reported as
audit findings in the schedule of find-
ings and questioned costs for Federal
awards.
(6) Known or likely fraud affecting a
Federal award, unless such fraud is
otherwise reported as an audit finding
in the schedule of findings and ques-
tioned costs for Federal awards. This
paragraph does not require the auditor
to report publicly information which
could compromise investigative or
legal proceedings or to make an addi-
tional reporting when the auditor con-
firms that the fraud was reported out-
side the auditor's reports under the di-
rect reporting requirements of GAGAS.
(7) Instances where the results of
audit follow-up procedures disclosed
that the summary schedule of prior
audit findings prepared by the auditee
in accordance with §200.511(b) materi-
ally misrepresents the status of any
prior audit finding.
(b) Audit finding detail and clarity.
Audit findings must be presented in
sufficient detail and clarity for the
§ 200.516
auditee to prepare a corrective action
plan and take corrective action, and
for Federal agencies and pass -through
entities to arrive at a management de-
cision. The following specific informa-
tion must be included, as applicable, in
audit findings:
(1) Federal program and specific Fed-
eral award identification including the
Assistance Listings title and number,
Federal award identification number
and year, name of Federal agency, and
name of the applicable pass -through
entity. When information, such as the
Assistance Listings title and number
or Federal award identification num-
ber, is not available, the auditor must
provide the best information available
to describe the Federal award.
(2) The criteria or specific require-
ment upon which the audit finding is
based, including the Federal statutes,
regulations, or the terms and condi-
tions of the Federal awards. Criteria
generally identify the required or de-
sired state or expectation with respect
to the program or operation. Criteria
provide a context for evaluating evi-
dence and understanding findings.
(3) The condition found, including
facts that support the deficiency iden-
tified in the audit finding.
(4) A statement of cause that identi-
fies the reason or explanation for the
condition or the factors responsible for
the difference between the situation
that exists (condition) and the required
or desired state (criteria), which may
also serve as a basis for recommenda-
tions for corrective action.
(5) The possible asserted effect to
provide sufficient information to the
auditee and Federal agency, or pass -
through entity in the case of a sub -
recipient, to permit them to determine
the cause and effect to facilitate
prompt and proper corrective action. A
statement of the effect or potential ef-
fect should provide a clear, logical link
to establish the impact or potential
impact of the difference between the
condition and the criteria.
(6) Identification of questioned costs
and how they were computed. Known
questioned costs must be identified by
applicable Assistance Listings num-
ber(s) and applicable Federal award
identification number(s).
209
§ 200.517
(7) Information to provide proper per-
spective for judging the prevalence and
consequences of the audit findings,
such as whether the audit findings rep-
resent an isolated instance or a sys-
temic problem. Where appropriate, in-
stances identified must be related to
the universe and the number of cases
examined and be quantified in terms of
dollar value. The auditor should report
whether the sampling was a statis-
tically valid sample.
(8) Identification of whether the
audit finding was a repeat of a finding
in the immediately prior audit and if
so any applicable prior year audit find-
ing numbers.
(9) Recommendations to prevent fu-
ture occurrences of the deficiency iden-
tified in the audit finding.
(10) Views of responsible officials of
the auditee.
(c) Reference numbers. Each audit
finding in the schedule of findings and
questioned costs must include a ref-
erence number in the format meeting
the requirements of the data collection
form submission required by §200.512(b)
to allow for easy referencing of the
audit findings during follow-up.
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49574, Aug. 13, 2020]
§ 200.517 Audit documentation.
(a) Retention of audit documentation.
The auditor must retain audit docu-
mentation and reports for a minimum
of three years after the date of
issuance of the auditor's report(s) to
the auditee, unless the auditor is noti-
fied in writing by the cognizant agency
for audit, oversight agency for audit,
cognizant agency for indirect costs, or
pass -through entity to extend the re-
tention period. When the auditor is
aware that the Federal agency, pass -
through entity, or auditee is con-
testing an audit finding, the auditor
must contact the parties contesting
the audit finding for guidance prior to
destruction of the audit documentation
and reports.
(b) Access to audit documentation.
Audit documentation must be made
available upon request to the cognizant
or oversight agency for audit or its des-
ignee, cognizant agency for indirect
cost, a Federal agency, or GAO at the
completion of the audit, as part of a
2 CFR Ch. 11 (1-1-21 Edition)
quality review, to resolve audit find-
ings, or to carry out oversight respon-
sibilities consistent with the purposes
of this part. Access to audit docu-
mentation includes the right of Federal
agencies to obtain copies of audit docu-
mentation, as is reasonable and nec-
essary.
§ 200.518 Major program determina-
tion.
(a) General. The auditor must use a
risk -based approach to determine
which Federal programs are major pro-
grams. This risk -based approach must
include consideration of: current and
prior audit experience, oversight by
Federal agencies and pass -through en-
tities, and the inherent risk of the Fed-
eral program. The process in para-
graphs (b) through (h) of this section
must be followed.
(b) Step one. (1) The auditor must
identify the larger Federal programs,
which must be labeled Type A pro-
grams. Type A programs are defined as
Federal programs with Federal awards
expended during the audit period ex-
ceeding the levels outlined in the table
in this paragraph (b)(1):
Total Federal awards ex-
pended
Type NB threshold
Equal to or exceed $750,000
but less than or equal to
$25 million.
Exceed $25 million but less
than or equal to $100 mil-
lion.
Exceed $100 million but less
than or equal to $1 billion.
Exceed $1 billion but less
than or equal to $10 billion.
Exceed $10 billion but less
than or equal to $20 billion
Exceed $20 billion
$750,000.
Total Federal awards ex-
pended times .03.
$3 million.
Total Federal awards ex-
pended times .003.
$30 million.
Total Federal awards ex-
pended times .0015.
(2) Federal programs not labeled
Type A under paragraph (b)(1) of this
section must be labeled Type B pro-
grams.
(3) The inclusion of large loan and
loan guarantees (loans) must not result
in the exclusion of other programs as
Type A programs. When a Federal pro-
gram providing loans exceeds four
times the largest non -loan program it
is considered a large loan program, and
the auditor must consider this Federal
program as a Type A program and ex-
clude its values in determining other
210
OMB Guidance
Type A programs. This recalculation of
the Type A program is performed after
removing the total of all large loan
programs. For the purposes of this
paragraph a program is only considered
to be a Federal program providing
loans if the value of Federal awards ex-
pended for loans within the program
comprises fifty percent or more of the
total Federal awards expended for the
program. A cluster of programs is
treated as one program and the value
of Federal awards expended under a
loan program is determined as de-
scribed in § 200.502.
(4) For biennial audits permitted
under § 200.504, the determination of
Type A and Type B programs must be
based upon the Federal awards ex-
pended during the two-year period.
(c) Step two. (1) The auditor must
identify Type A programs which are
low -risk. In making this determina-
tion, the auditor must consider wheth-
er the requirements in §200.519(c), the
results of audit follow-up, or any
changes in personnel or systems affect-
ing the program indicate significantly
increased risk and preclude the pro-
gram from being low risk. For a Type
A program to be considered low -risk, it
must have been audited as a major pro-
gram in at least one of the two most
recent audit periods (in the most re-
cent audit period in the case of a bien-
nial audit), and, in the most recent
audit period, the program must have
not had:
(i) Internal control deficiencies
which were identified as material
weaknesses in the auditor's report on
internal control for major programs as
required under §200.515(c);
(ii) A modified opinion on the pro-
gram in the auditor's report on major
programs as required under § 200.515(c);
or
(iii) Known or likely questioned costs
that exceed five percent of the total
Federal awards expended for the pro-
gram.
(2) Notwithstanding paragraph (c)(1)
of this section, OMB may approve a
Federal awarding agency's request that
a Type A program may not be consid-
ered low risk for a certain recipient.
For example, it may be necessary for a
large Type A program to be audited as
a major program each year at a par-
§ 200.518
titular recipient to allow the Federal
awarding agency to comply with 31
U.S.C. 3515. The Federal awarding
agency must notify the recipient and,
if known, the auditor of OMB's ap-
proval at least 180 calendar days prior
to the end of the fiscal year to be au-
dited.
(d) Step three. (1) The auditor must
identify Type B programs which are
high -risk using professional judgment
and the criteria in § 200.519. However,
the auditor is not required to identify
more high -risk Type B programs than
at least one fourth the number of low -
risk Type A programs identified as low -
risk under Step 2 (paragraph (c) of this
section). Except for known material
weakness in internal control or compli-
ance problems as discussed in
§200.519(b)(1) and (2) and (c)(1), a single
criterion in risk would seldom cause a
Type B program to be considered high -
risk. When identifying which Type B
programs to risk assess, the auditor is
encouraged to use an approach which
provides an opportunity for different
high -risk Type B programs to be au-
dited as major over a period of time.
(2) The auditor is not expected to per-
form risk assessments on relatively
small Federal programs. Therefore, the
auditor is only required to perform risk
assessments on Type B programs that
exceed twenty-five percent (0.25) of the
Type A threshold determined in Step 1
(paragraph (b) of this section).
(e) Step four. At a minimum, the
auditor must audit all of the following
as major programs:
(1) All Type A programs not identi-
fied as low risk under step two (para-
graph (c)(1) of this section).
(2) All Type B programs identified as
high -risk under step three (paragraph
(d) of this section).
(3) Such additional programs as may
be necessary to comply with the per-
centage of coverage rule discussed in
paragraph (f) of this section. This may
require the auditor to audit more pro-
grams as major programs than the
number of Type A programs.
(f) Percentage of coverage rule. If the
auditee meets the criteria in § 200.520,
the auditor need only audit the major
programs identified in Step 4 (para-
graphs (e)(1) and (2) of this section) and
such additional Federal programs with
211
§ 200.519
Federal awards expended that, in ag-
gregate, all major programs encompass
at least 20 percent (0.20) of total Fed-
eral awards expended. Otherwise, the
auditor must audit the major programs
identified in Step 4 (paragraphs (e)(1)
and (2) of this section) and such addi-
tional Federal programs with Federal
awards expended that, in aggregate, all
major programs encompass at least 40
percent (0.40) of total Federal awards
expended.
(g) Documentation of risk. The auditor
must include in the audit documenta-
tion the risk analysis process used in
determining major programs.
(h) Auditor's judgment. When the
major program determination was per-
formed and documented in accordance
with this Subpart, the auditor's judg-
ment in applying the risk -based ap-
proach to determine major programs
must be presumed correct. Challenges
by Federal agencies and pass -through
entities must only be for clearly im-
proper use of the requirements in this
part. However, Federal agencies and
pass -through entities may provide
auditors guidance about the risk of a
particular Federal program and the
auditor must consider this guidance in
determining major programs in audits
not yet completed.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75887, Dec. 19, 2014; 85 FR 49574, Aug. 13,
2020]
§ 200.519 Criteria for Federal program
risk.
(a) General. The auditor's determina-
tion should be based on an overall eval-
uation of the risk of noncompliance oc-
curring that could be material to the
Federal program. The auditor must
consider criteria, such as described in
paragraphs (b), (c), and (d) of this sec-
tion, to identify risk in Federal pro-
grams. Also, as part of the risk anal-
ysis, the auditor may wish to discuss a
particular Federal program with
auditee management and the Federal
agency or pass -through entity.
(b) Current and prior audit experience.
(1) Weaknesses in internal control over
Federal programs would indicate high-
er risk. Consideration should be given
to the control environment over Fed-
eral programs and such factors as the
expectation of management's adher-
2 CFR Ch. 11 (1-1-21 Edition)
ence to Federal statutes, regulations,
and the terms and conditions of Fed-
eral awards and the competence and
experience of personnel who administer
the Federal programs.
(i) A Federal program administered
under multiple internal control struc-
tures may have higher risk. When as-
sessing risk in a large single audit, the
auditor must consider whether weak-
nesses are isolated in a single oper-
ating unit (e.g., one college campus) or
pervasive throughout the entity.
(ii) When significant parts of a Fed-
eral program are passed through to
subrecipients, a weak system for moni-
toring subrecipients would indicate
higher risk.
(2) Prior audit findings would indi-
cate higher risk, particularly when the
situations identified in the audit find-
ings could have a significant impact on
a Federal program or have not been
corrected.
(3) Federal programs not recently au-
dited as major programs may be of
higher risk than Federal programs re-
cently audited as major programs with-
out audit findings.
(c) Oversight exercised by Federal agen-
cies and pass -through entities. (1) Over-
sight exercised by Federal agencies or
pass -through entities could be used to
assess risk. For example, recent moni-
toring or other reviews performed by
an oversight entity that disclosed no
significant problems would indicate
lower risk, whereas monitoring that
disclosed significant problems would
indicate higher risk.
(2) Federal agencies, with the concur-
rence of OMB, may identify Federal
programs that are higher risk. OMB
will provide this identification in the
compliance supplement.
(d) Inherent risk of the Federal pro-
gram. (1) The nature of a Federal pro-
gram may indicate risk. Consideration
should be given to the complexity of
the program and the extent to which
the Federal program contracts for
goods and services. For example, Fed-
eral programs that disburse funds
through third -party contracts or have
eligibility criteria may be of higher
risk. Federal programs primarily in-
volving staff payroll costs may have
212
OMB Guidance
high risk for noncompliance with re-
quirements of § 200.430, but otherwise
be at low risk.
(2) The phase of a Federal program in
its life cycle at the Federal agency
may indicate risk. For example, a new
Federal program with new or interim
regulations may have higher risk than
an established program with time -test-
ed regulations. Also, significant
changes in Federal programs, statutes,
regulations, or the terms and condi-
tions of Federal awards may increase
risk.
(3) The phase of a Federal program in
its life cycle at the auditee may indi-
cate risk. For example, during the first
and last years that an auditee partici-
pates in a Federal program, the risk
may be higher due to start-up or close-
out of program activities and staff.
(4) Type B programs with larger Fed-
eral awards expended would be of high-
er risk than programs with substan-
tially smaller Federal awards ex-
pended.
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49575, Aug. 13, 2020]
§ 200.520 Criteria for a low -risk
auditee.
An auditee that meets all of the fol-
lowing conditions for each of the pre-
ceding two audit periods must qualify
as a low -risk auditee and be eligible for
reduced audit coverage in accordance
with § 200.518.
(a) Single audits were performed on
an annual basis in accordance with the
provisions of this Subpart, including
submitting the data collection form
and the reporting package to the FAC
within the timeframe specified in
§ 200.512. A non -Federal entity that has
biennial audits does not qualify as a
low -risk auditee.
(b) The auditor's opinion on whether
the financial statements were prepared
in accordance with GAAP, or a basis of
accounting required by state law, and
the auditor's in relation to opinion on
the schedule of expenditures of Federal
awards were unmodified.
(c) There were no deficiencies in in-
ternal control which were identified as
material weaknesses under the require-
ments of GAGAS.
§ 200.521
(d) The auditor did not report a sub-
stantial doubt about the auditee's abil-
ity to continue as a going concern.
(e) None of the Federal programs had
audit findings from any of the fol-
lowing in either of the preceding two
audit periods in which they were classi-
fied as Type A programs:
(1) Internal control deficiencies that
were identified as material weaknesses
in the auditor's report on internal con-
trol for major programs as required
under § 200.515(c);
(2) A modified opinion on a major
program in the auditor's report on
major programs as required under
§200.515(c); or
(3) Known or likely questioned costs
that exceeded five percent of the total
Federal awards expended for a Type A
program during the audit period.
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49575, Aug. 13, 2020]
MANAGEMENT DECISIONS
§ 200.521 Management decision.
(a) General. The management deci-
sion must clearly state whether or not
the audit finding is sustained, the rea-
sons for the decision, and the expected
auditee action to repay disallowed
costs, make financial adjustments, or
take other action. If the auditee has
not completed corrective action, a
timetable for follow-up should be
given. Prior to issuing the manage-
ment decision, the Federal agency or
pass -through entity may request addi-
tional information or documentation
from the auditee, including a request
for auditor assurance related to the
documentation, as a way of mitigating
disallowed costs. The management de-
cision should describe any appeal proc-
ess available to the auditee. While not
required, the Federal agency or pass -
through entity may also issue a man-
agement decision on findings relating
to the financial statements which are
required to be reported in accordance
with GAGAS.
(b) Federal agency. As provided in
§200.513(a)(3)(vii), the cognizant agency
for audit must be responsible for co-
ordinating a management decision for
audit findings that affect the programs
of more than one Federal agency. As
provided in §200.513(c)(3)(i), a Federal
213
Pt. 200, App. 1
awarding agency is responsible for
issuing a management decision for
findings that relate to Federal awards
it makes to non -Federal entities.
(c) Pass -through entity. As provided in
§200.332(d), the pass -through entity
must be responsible for issuing a man-
agement decision for audit findings
that relate to Federal awards it makes
to subrecipients.
(d) Time requirements. The Federal
awarding agency or pass -through enti-
ty responsible for issuing a manage-
ment decision must do so within six
months of acceptance of the audit re-
port by the FAC. The auditee must ini-
tiate and proceed with corrective ac-
tion as rapidly as possible and correc-
tive action should begin no later than
upon receipt of the audit report.
(e) Reference numbers. Management
decisions must include the reference
numbers the auditor assigned to each
audit finding in accordance with
§ 200.516(c).
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49575, Aug. 13, 2020]
APPENDIX I TO PART 200 —FULL TEXT OF
NOTICE OF FUNDING OPPORTUNITY
The full text of the notice of funding op-
portunity is organized in sections. The re-
quired format outlined in this appendix indi-
cates immediately following the title of each
section whether that section is required in
every announcement or is a Federal award-
ing agency option. The format is designed so
that similar types of information will appear
in the same sections in announcements of
different Federal funding opportunities. To-
ward that end, there is text in each of the
following sections to describe the types of in-
formation that a Federal awarding agency
would include in that section of an actual
announcement.
A Federal awarding agency that wishes to
include information that the format does not
specifically discuss may address that subject
in whatever section(s) is most appropriate.
For example, if a Federal awarding agency
chooses to address performance goals in the
announcement, it might do so in the funding
opportunity description, the application con-
tent, or the reporting requirements.
Similarly, when this format calls for a
type of information to be in a particular sec-
tion, a Federal awarding agency wishing to
address that subject in other sections may
elect to repeat the information in those sec-
tions or use cross references between the sec-
tions (there should be hyperlinks for cross-
references in any electronic versions of the
2 CFR Ch. 11 (1-1-21 Edition)
announcement). For example, a Federal
awarding agency may want to include Sec-
tion A information about the types of non -
Federal entities who are eligible to apply.
The format specifies a standard location for
that information in Section C.1 but does not
preclude repeating the information in Sec-
tion A or creating a cross reference between
Section A and C.1, as long as a potential ap-
plicant can find the information quickly and
easily from the standard location.
The sections of the full text of the an-
nouncement are described in the following
paragraphs.
A. PROGRAM DESCRIPTION —REQUIRED
This section contains the full program de-
scription of the funding opportunity. It may
be as long as needed to adequately commu-
nicate to potential applicants the areas in
which funding may be provided. It describes
the Federal awarding agency's funding prior-
ities or the technical or focus areas in which
the Federal awarding agency intends to pro-
vide assistance. As appropriate, it may in-
clude any program history (e.g., whether this
is a new program or a new or changed area of
program emphasis). This section must in-
clude program goals and objectives, a ref-
erence to the relevant Assistance Listings, a
description of how the award will contribute
to the achievement of the program's goals
and objectives, and the expected perform-
ance goals, indicators, targets, baseline data,
data collection, and other outcomes such
Federal awarding agency expects to achieve,
and may include examples of successful
projects that have been funded previously.
This section also may include other informa-
tion the Federal awarding agency deems nec-
essary, and must at a minimum include cita-
tions for authorizing statutes and regula-
tions for the funding opportunity.
B. FEDERAL AWARD INFORMATION —REQUIRED
This section provides sufficient informa-
tion to help an applicant make an informed
decision about whether to submit a proposal.
Relevant information could include the total
amount of funding that the Federal awarding
agency expects to award through the an-
nouncement; the expected performance indi-
cators, targets, baseline data, and data col-
lection; the anticipated number of Federal
awards; the expected amounts of individual
Federal awards (which may be a range); the
amount of funding per Federal award, on av-
erage, experienced in previous years; and the
anticipated start dates and periods of per-
formance for new Federal awards. This sec-
tion also should address whether applica-
tions for renewal or supplementation of ex-
isting projects are eligible to compete with
applications for new Federal awards.
214
OMB Guidance
This section also must indicate the type(s)
of assistance instrument (e.g., grant, cooper-
ative agreement) that may be awarded if ap-
plications are successful. If cooperative
agreements may be awarded, this section ei-
ther should describe the "substantial in-
volvement" that the Federal awarding agen-
cy expects to have or should reference where
the potential applicant can find that infor-
mation (e.g., in the funding opportunity de-
scription in Section A. or Federal award ad-
ministration information in Section D. If
procurement contracts also may be awarded,
this must be stated.
C. ELIGIBILITY INFORMATION
This section addresses the considerations
or factors that determine applicant or appli-
cation eligibility. This includes the eligi-
bility of particular types of applicant organi-
zations, any factors affecting the eligibility
of the principal investigator or project direc-
tor, and any criteria that make particular
projects ineligible. Federal agencies should
make clear whether an applicant's failure to
meet an eligibility criterion by the time of
an application deadline will result in the
Federal awarding agency returning the ap-
plication without review or, even though an
application may be reviewed, will preclude
the Federal awarding agency from making a
Federal award. Key elements to be addressed
are:
1. Eligible Applicants —Required. Announce-
ments must clearly identify the types of en-
tities that are eligible to apply. If there are
no restrictions on eligibility, this section
may simply indicate that all potential appli-
cants are eligible. If there are restrictions on
eligibility, it is important to be clear about
the specific types of entities that are eligi-
ble, not just the types that are ineligible.
For example, if the program is limited to
nonprofit organizations subject to 26 U.S.C.
501(c)(3) of the tax code (26 U.S.C. 501(c)(3)),
the announcement should say so. Similarly,
it is better to state explicitly that Native
American tribal organizations are eligible
than to assume that they can unambiguously
infer that from a statement that nonprofit
organizations may apply. Eligibility also can
be expressed by exception, (e.g., open to all
types of domestic applicants other than indi-
viduals). This section should refer to any
portion of Section D specifying documenta-
tion that must be submitted to support an
eligibility determination (e.g., proof of
501(c)(3) status as determined by the Internal
Revenue Service or an authorizing tribal res-
olution). To the extent that any funding re-
striction in Section D.6 could affect the eli-
gibility of an applicant or project, the an-
nouncement must either restate that restric-
tion in this section or provide a cross-ref-
erence to its description in Section D.6.
Pt. 200, App. 1
2. Cost Sharing or Matching —Required. An-
nouncements must state whether there is re-
quired cost sharing, matching, or cost par-
ticipation without which an application
would be ineligible (if cost sharing is not re-
quired, the announcement must explicitly
say so). Required cost sharing may be a cer-
tain percentage or amount, or may be in the
form of contributions of specified items or
activities (e.g., provision of equipment). It is
important that the announcement be clear
about any restrictions on the types of cost
(e.g., in -kind contributions) that are accept-
able as cost sharing. Cost sharing as an eligi-
bility criterion includes requirements based
in statute or regulation, as described in
§ 200.306 of this Part. This section should
refer to the appropriate portion(s) of section
D. stating any pre -award requirements for
submission of letters or other documentation
to verify commitments to meet cost -sharing
requirements if a Federal award is made.
3. Other —Required, if applicable. If there are
other eligibility criteria (i.e., criteria that
have the effect of making an application or
project ineligible for Federal awards, wheth-
er referred to as "responsiveness" criteria,
"go -no go" criteria, "threshold" criteria, or
in other ways), must be clearly stated and
must include a reference to the regulation of
requirement that describes the restriction,
as applicable. For example, if entities that
have been found to be in violation of a par-
ticular Federal statute are ineligible, it is
important to say so. This section must also
state any limit on the number of applica-
tions an applicant may submit under the an-
nouncement and make clear whether the
limitation is on the submitting organization,
individual investigator/program director, or
both. This section should also address any
eligibility criteria for beneficiaries or for
program participants other than Federal
award recipients.
D. APPLICATION AND SUBMISSION INFORMATION
1. Address to Request Application Package —
Required. Potential applicants must be told
how to get application forms, kits, or other
materials needed to apply (if this announce-
ment contains everything needed, this sec-
tion need only say so). An Internet address
where the materials can be accessed is ac-
ceptable. However, since high-speed Internet
access is not yet universally available for
downloading documents, and applicants may
have additional accessibility requirements,
there also should be a way for potential ap-
plicants to request paper copies of materials,
such as a U.S. Postal Service mailing ad-
dress, telephone or FAX number, Telephone
Device for the Deaf (TDD), Text Telephone
(TTY) number, and/or Federal Information
Relay Service (FIRS) number.
2. Content and Form of Application Submis-
sion —Required. This section must identify
215
Pt. 200, App. 1
the required content of an application and
the forms or formats that an applicant must
use to submit it. If any requirements are
stated elsewhere because they are general re-
quirements that apply to multiple programs
or funding opportunities, this section should
refer to where those requirements may be
found. This section also should include re-
quired forms or formats as part of the an-
nouncement or state where the applicant
may obtain them.
This section should specifically address
content and form or format requirements
for:
i. Pre -applications, letters of intent, or
white papers required or encouraged (see
Section D.4), including any limitations on
the number of pages or other formatting re-
quirements similar to those for full applica-
tions.
ii. The application as a whole. For all sub-
missions, this would include any limitations
on the number of pages, font size and type-
face, margins, paper size, number of copies,
and sequence or assembly requirements. If
electronic submission is permitted or re-
quired, this could include special require-
ments for formatting or signatures.
iii. Component pieces of the application
(e.g., if all copies of the application must
bear original signatures on the face page or
the program narrative may not exceed 10
pages). This includes any pieces that may be
submitted separately by third parties (e.g.,
references or letters confirming commit-
ments from third parties that will be con-
tributing a portion of any required cost shar-
ing).
iv. Information that successful applicants
must submit after notification of intent to
make a Federal award, but prior to a Federal
award. This could include evidence of com-
pliance with requirements relating to human
subjects or information needed to comply
with the National Environmental Policy Act
(NEPA) (42 U.S.C. 4321-4370h).
3. Unique entity identifier and System for
Award Management (SAM) —Required. This
paragraph must state clearly that each ap-
plicant (unless the applicant is an individual
or Federal awarding agency that is excepted
from those requirements under 2 CFR
25.110(b) or (c), or has an exception approved
by the Federal awarding agency under 2 CFR
25.110(d)) is required to: (i) Be registered in
SAM before submitting its application; (ii)
Provide a valid unique entity identifier in its
application; and (iii) Continue to maintain
an active SAM registration with current in-
formation at all times during which it has an
active Federal award or an application or
plan under consideration by a Federal award-
ing agency. It also must state that the Fed-
eral awarding agency may not make a Fed-
eral award to an applicant until the appli-
cant has complied with all applicable unique
entity identifier and SAM requirements and,
2 CFR Ch. 11 (1-1-21 Edition)
if an applicant has not fully complied with
the requirements by the time the Federal
awarding agency is ready to make a Federal
award, the Federal awarding agency may de-
termine that the applicant is not qualified to
receive a Federal award and use that deter-
mination as a basis for making a Federal
award to another applicant.
4. Submission Dates and Times —Required.
Announcements must identify due dates and
times for all submissions. This includes not
only the full applications but also any pre-
liminary submissions (e.g., letters of intent,
white papers, or pre -applications). It also in-
cludes any other submissions of information
before Federal award that are separate from
the full application. If the funding oppor-
tunity is a general announcement that is
open for a period of time with no specific due
dates for applications, this section should
say so. Note that the information on dates
that is included in this section also must ap-
pear with other overview information in a lo-
cation preceding the full text of the an-
nouncement (see §200.204 of this part).
5. Intergovernmental Review —Required, if ap-
plicable. If the funding opportunity is subject
to Executive Order 12372, "Intergovern-
mental Review of Federal Programs," the
notice must say so and applicants must con-
tact their state's Single Point of Contact
(SPOC) to find out about and comply with
the state's process under Executive Order
12372, it may be useful to inform potential
applicants that the names and addresses of
the SPOCs are listed in the Office of Manage-
ment and Budget's website.
6. Funding Restrictions —Required. Notices
must include information on funding restric-
tions in order to allow an applicant to de-
velop an application and budget consistent
with program requirements. Examples are
whether construction is an allowable activ-
ity, if there are any limitations on direct
costs such as foreign travel or equipment
purchases, and if there are any limits on in-
direct costs (or facilities and administrative
costs). Applicants must be advised if Federal
awards will not allow reimbursement of pre -
Federal award costs.
7. Other Submission Requirements— Required.
This section must address any other submis-
sion requirements not included in the other
paragraphs of this section. This might in-
clude the format of submission, i.e., paper or
electronic, for each type of required submis-
sion. Applicants should not be required to
submit in more than one format and this sec-
tion should indicate whether they may
choose whether to submit applications in
hard copy or electronically, may submit only
in hard copy, or may submit only electroni-
cally.
This section also must indicate where ap-
plications (and any pre -applications) must be
submitted if sent by postal mail, electronic
means, or hand -delivery. For postal mail
216
OMB Guidance
submission, this must include the name of an
office, official, individual or function (e.g.,
application receipt center) and a complete
mailing address. For electronic submission,
this must include the URL or email address;
whether a password(s) is required; whether
particular software or other electronic capa-
bilities are required; what to do in the event
of system problems and a point of contact
who will be available in the event the appli-
cant experiences technical difficulties.,
E. APPLICATION REVIEW INFORMATION
1. Criteria —Required. This section must ad-
dress the criteria that the Federal awarding
agency will use to evaluate applications.
This includes the merit and other review cri-
teria that evaluators will use to judge appli-
cations, including any statutory, regulatory,
or other preferences (e.g., minority status or
Native American tribal preferences) that
will be applied in the review process. These
criteria are distinct from eligibility criteria
that are addressed before an application is
accepted for review and any program policy
or other factors that are applied during the
selection process, after the review process is
completed. The intent is to make the appli-
cation process transparent so applicants can
make informed decisions when preparing
their applications to maximize fairness of
the process. The announcement should clear-
ly describe all criteria, including any sub -
criteria. If criteria vary in importance, the
announcement should specify the relative
percentages, weights, or other means used to
distinguish among them. For statutory, reg-
ulatory, or other preferences, the announce-
ment should provide a detailed explanation
of those preferences with an explicit indica-
tion of their effect (e.g., whether they result
in additional points being assigned).
If an applicant's proposed cost sharing will
be considered in the review process (as op-
posed to being an eligibility criterion de-
scribed in Section C.2), the announcement
must specifically address how it will be con-
sidered (e.g., to assign a certain number of
additional points to applicants who offer
cost sharing, or to break ties among applica-
tions with equivalent scores after evaluation
against all other factors). If cost sharing will
not be considered in the evaluation, the an-
nouncement should say so, so that there is
no ambiguity for potential applicants. Vague
statements that cost sharing is encouraged,
without clarification as to what that means,
are unhelpful to applicants. It also is impor-
'With respect to electronic methods for
providing information about funding oppor-
tunities or accepting applicants' submissions
of information, each Federal awarding agen-
cy is responsible for compliance with Section
508 of the Rehabilitation Act of 1973 (29
U.S.C. 794d).
Pt. 200, App. 1
tant that the announcement be clear about
any restrictions on the types of cost (e.g., in -
kind contributions) that are acceptable as
cost sharing.
2. Review and Selection Process —Required.
This section may vary in the level of detail
provided. The announcement must list any
program policy or other factors or elements,
other than merit criteria, that the selecting
official may use in selecting applications for
Federal award (e.g., geographical dispersion,
program balance, or diversity). The Federal
awarding agency may also include other ap-
propriate details. For example, this section
may indicate who is responsible for evalua-
tion against the merit criteria (e.g., peers ex-
ternal to the Federal awarding agency or
Federal awarding agency personnel) and/or
who makes the final selections for Federal
awards. If there is a multi -phase review proc-
ess (e.g., an external panel advising internal
Federal awarding agency personnel who
make final recommendations to the deciding
official), the announcement may describe the
phases. It also may include: the number of
people on an evaluation panel and how it op-
erates, the way reviewers are selected, re-
viewer qualifications, and the way that con-
flicts of interest are avoided. With respect to
electronic methods for providing informa-
tion about funding opportunities or accept-
ing applicants' submissions of information,
each Federal awarding agency is responsible
for compliance with Section 508 of the Reha-
bilitation Act of 1973 (29 U.S.C. 794d).
In addition, if the Federal awarding agency
permits applicants to nominate suggested re-
viewers of their applications or suggest those
they feel may be inappropriate due to a con-
flict of interest, that information should be
included in this section.
3. For any Federal award under a notice of
funding opportunity, if the Federal awarding
agency anticipates that the total Federal
share will be greater than the simplified ac-
quisition threshold on any Federal award
under a notice of funding opportunity may
include, over the period of performance, this
section must also inform applicants:
i. That the Federal awarding agency, prior
to making a Federal award with a total
amount of Federal share greater than the
simplified acquisition threshold, is required
to review and consider any information
about the applicant that is in the designated
integrity and performance system accessible
through SAM (currently FAPIIS) (see 41
U.S.C. 2313);
ii. That an applicant, at its option, may re-
view information in the designated integrity
and performance systems accessible through
SAM and comment on any information about
itself that a Federal awarding agency pre-
viously entered and is currently in the des-
ignated integrity and performance system
accessible through SAM;
217
Pt. 200, App. 1
iii. That the Federal awarding agency will
consider any comments by the applicant, in
addition to the other information in the des-
ignated integrity and performance system,
in making a judgment about the applicant's
integrity, business ethics, and record of per-
formance under Federal awards when com-
pleting the review of risk posed by appli-
cants as described in §200.206.
4. Anticipated Announcement and Federal
Award Dates —Optional. This section is in-
tended to provide applicants with informa-
tion they can use for planning purposes. If
there is a single application deadline fol-
lowed by the simultaneous review of all ap-
plications, the Federal awarding agency can
include in this section information about the
anticipated dates for announcing or noti-
fying successful and unsuccessful applicants
and for having Federal awards in place. If ap-
plications are received and evaluated on a
"rolling" basis at different times during an
extended period, it may be appropriate to
give applicants an estimate of the time need-
ed to process an application and notify the
applicant of the Federal awarding agency's
decision.
F. FEDERAL AWARD ADMINISTRATION
INFORMATION
1. Federal Award Notices —Required. This
section must address what a successful appli-
cant can expect to receive following selec-
tion. If the Federal awarding agency's prac-
tice is to provide a separate notice stating
that an application has been selected before
it actually makes the Federal award, this
section would be the place to indicate that
the letter is not an authorization to begin
performance (to the extent that it allows
charging to Federal awards of pre -award
costs at the non -Federal entity's own risk).
This section should indicate that the notice
of Federal award signed by the grants officer
(or equivalent) is the authorizing document,
and whether it is provided through postal
mail or by electronic means and to whom. It
also may address the timing, form, and con-
tent of notifications to unsuccessful appli-
cants. See also §200.211.
2. Administrative and National Policy Re-
quirements —Required. This section must iden-
tify the usual administrative and national
policy requirements the Federal awarding
agency's Federal awards may include. Pro-
viding this information lets a potential ap-
plicant identify any requirements with
which it would have difficulty complying if
its application is successful. In those cases,
early notification about the requirements al-
lows the potential applicant to decide not to
apply or to take needed actions before re-
ceiving the Federal award. The announce-
ment need not include all of the terms and
conditions of the Federal award, but may
refer to a document (with information about
2 CFR Ch. 11 (1-1-21 Edition)
how to obtain it) or Internet site where ap-
plicants can see the terms and conditions. If
this funding opportunity will lead to Federal
awards with some special terms and condi-
tions that differ from the Federal awarding
agency's usual (sometimes called "general")
terms and conditions, this section should
highlight those special terms and conditions.
Doing so will alert applicants that have re-
ceived Federal awards from the Federal
awarding agency previously and might not
otherwise expect different terms and condi-
tions. For the same reason, the announce-
ment should inform potential applicants
about special requirements that could apply
to particular Federal awards after the review
of applications and other information, based
on the particular circumstances of the effort
to be supported (e.g., if human subjects were
to be involved or if some situations may jus-
tify special terms on intellectual property,
data sharing or security requirements).
3. Reporting —Required. This section must
include general information about the type
(e.g., financial or performance), frequency,
and means of submission (paper or elec-
tronic) of post -Federal award reporting re-
quirements. Highlight any special reporting
requirements for Federal awards under this
funding opportunity that differ (e.g., by re-
port type, frequency, form/format, or cir-
cumstances for use) from what the Federal
awarding agency's Federal awards usually
require. Federal awarding agencies must also
describe in this section all relevant require-
ments such as those at 2 CFR 180.335 and
180.350.
If the Federal share of any Federal award
may include more than $500,000 over the pe-
riod of performance, this section must in-
form potential applicants about the post
award reporting requirements reflected in
appendix XII to this part.
G. FEDERAL AWARDING AGENCY CONTACT(S)—
REQUIRED
The announcement must give potential ap-
plicants a point(s) of contact for answering
questions or helping with problems while the
funding opportunity is open. The intent of
this requirement is to be as helpful as pos-
sible to potential applicants, so the Federal
awarding agency should consider approaches
such as giving:
i. Points of contact who may be reached in
multiple ways (e.g., by telephone, FAX, and/
or email, as well as regular mail).
ii. A fax or email address that multiple
people access, so that someone will respond
even if others are unexpectedly absent dur-
ing critical periods.
iii. Different contacts for distinct kinds of
help (e.g., one for questions of programmatic
content and a second for administrative
questions).
218
OMB Guidance
H. OTHER INFORMATION —OPTIONAL
This section may include any additional
information that will assist a potential ap-
plicant. For example, the section might:
i. Indicate whether this is a new program
or a one-time initiative.
ii. Mention related programs or other up-
coming or ongoing Federal awarding agency
funding opportunities for similar activities.
ill. Include current Internet addresses for
Federal awarding agency Web sites that may
be useful to an applicant in understanding
the program.
iv. Alert applicants to the need to identify
proprietary information and inform them
about the way the Federal awarding agency
will handle it.
v. Include certain routine notices to appli-
cants (e.g., that the Federal Government is
not obligated to make any Federal award as
a result of the announcement or that only
grants officers can bind the Federal Govern-
ment to the expenditure of funds).
[78 FR 78608, Dec. 26, 2013, as amended at 80
FR 43310, July 22, 2015; 85 FR 49575, Aug. 13,
2020]
APPENDIX II TO PART 200 —CONTRACT
PROVISIONS FOR NON-FEDERAL ENTI-
TY CONTRACTS UNDER FEDERAL
AWARDS
In addition to other provisions required by
the Federal agency or non -Federal entity, all
contracts made by the non -Federal entity
under the Federal award must contain provi-
sions covering the following, as applicable.
(A) Contracts for more than the simplified
acquisition threshold, which is the inflation
adjusted amount determined by the Civilian
Agency Acquisition Council and the Defense
Acquisition Regulations Council (Councils)
as authorized by 41 U.S.C. 1908, must address
administrative, contractual, or legal rem-
edies in instances where contractors violate
or breach contract terms, and provide for
such sanctions and penalties as appropriate.
(B) All contracts in excess of $10,000 must
address termination for cause and for con-
venience by the non -Federal entity including
the manner by which it will be effected and
the basis for settlement.
(C) Equal Employment Opportunity. Ex-
cept as otherwise provided under 41 CFR
Part 60, all contracts that meet the defini-
tion of "federally assisted construction con-
tract" in 41 CFR Part 60-1.3 must include the
equal opportunity clause provided under 41
CFR 60-1.4(b), in accordance with Executive
Order 11246, "Equal Employment Oppor-
tunity" (30 FR 12319, 12935, 3 CFR Part, 1964-
1965 Comp., p. 339), as amended by Executive
Order 11375, "Amending Executive Order
11246 Relating to Equal Employment Oppor-
tunity," and implementing regulations at 41
CFR part 60, "Office of Federal Contract
Pt. 200, App. 11
Compliance Programs, Equal Employment
Opportunity, Department of Labor."
(D) Davis -Bacon Act, as amended (40 U.S.C.
3141-3148). When required by Federal program
legislation, all prime construction contracts
in excess of $2,000 awarded by non -Federal
entities must include a provision for compli-
ance with the Davis -Bacon Act (40 U.S.C.
3141-3144, and 3146-3148) as supplemented by
Department of Labor regulations (29 CFR
Part 5, "Labor Standards Provisions Appli-
cable to Contracts Covering Federally Fi-
nanced and Assisted Construction"). In ac-
cordance with the statute, contractors must
be required to pay wages to laborers and me-
chanics at a rate not less than the prevailing
wages specified in a wage determination
made by the Secretary of Labor. In addition,
contractors must be required to pay wages
not less than once a week. The non -Federal
entity must place a copy of the current pre-
vailing wage determination issued by the De-
partment of Labor in each solicitation. The
decision to award a contract or subcontract
must be conditioned upon the acceptance of
the wage determination. The non -Federal en-
tity must report all suspected or reported
violations to the Federal awarding agency.
The contracts must also include a provision
for compliance with the Copeland "Anti -
Kickback" Act (40 U.S.C. 3145), as supple-
mented by Department of Labor regulations
(29 CFR Part 3, "Contractors and Sub-
contractors on Public Building or Public
Work Financed in Whole or in Part by Loans
or Grants from the United States"). The Act
provides that each contractor or sub -
recipient must be prohibited from inducing,
by any means, any person employed in the
construction, completion, or repair of public
work, to give up any part of the compensa-
tion to which he or she is otherwise entitled.
The non -Federal entity must report all sus-
pected or reported violations to the Federal
awarding agency.
(E) Contract Work Hours and Safety
Standards Act (40 U.S.C. 3701-3708). Where
applicable, all contracts awarded by the non -
Federal entity in excess of $100,000 that in-
volve the employment of mechanics or labor-
ers must include a provision for compliance
with 40 U.S.C. 3702 and 3704, as supplemented
by Department of Labor regulations (29 CFR
Part 5). Under 40 U.S.C. 3702 of the Act, each
contractor must be required to compute the
wages of every mechanic and laborer on the
basis of a standard work week of 40 hours.
Work in excess of the standard work week is
permissible provided that the worker is com-
pensated at a rate of not less than one and a
half times the basic rate of pay for all hours
worked in excess of 40 hours in the work
week. The requirements of 40 U.S.C. 3704 are
applicable to construction work and provide
that no laborer or mechanic must be re-
quired to work in surroundings or under
working conditions which are unsanitary,
219
Pt. 200, App. 111
hazardous or dangerous. These requirements
do not apply to the purchases of supplies or
materials or articles ordinarily available on
the open market, or contracts for transpor-
tation or transmission of intelligence.
(F) Rights to Inventions Made Under a
Contract or Agreement. If the Federal award
meets the definition of "funding agreement"
under 37 CFR § 401.2 (a) and the recipient or
subrecipient wishes to enter into a contract
with a small business firm or nonprofit orga-
nization regarding the substitution of par-
ties, assignment or performance of experi-
mental, developmental, or research work
under that "funding agreement," the recipi-
ent or subrecipient must comply with the re-
quirements of 37 CFR Part 401, "Rights to In-
ventions Made by Nonprofit Organizations
and Small Business Firms Under Govern-
ment Grants, Contracts and Cooperative
Agreements," and any implementing regula-
tions issued by the awarding agency.
(G) Clean Air Act (42 U.S.C. 7401-7671q.) and
the Federal Water Pollution Control Act (33
U.S.C. 1251-1387), as amended —Contracts and
subgrants of amounts in excess of $150,000
must contain a provision that requires the
non -Federal award to agree to comply with
all applicable standards, orders or regula-
tions issued pursuant to the Clean Air Act
(42 U.S.C. 7401-7671q) and the Federal Water
Pollution Control Act as amended (33 U.S.C.
1251-1387). Violations must be reported to the
Federal awarding agency and the Regional
Office of the Environmental Protection
Agency (EPA).
(II) Debarment and Suspension (Executive
Orders 12549 and 12689)—A contract award
(see 2 CFR 180.220) must not be made to par-
ties listed on the governmentwide exclusions
in the System for Award Management
(SAM), in accordance with the OMB guide-
lines at 2 CFR 180 that implement Executive
Orders 12549 (3 CFR part 1986 Comp., p. 189)
and 12689 (3 CFR part 1989 Comp., p. 235),
"Debarment and Suspension." SAM Exclu-
sions contains the names of parties debarred,
suspended, or otherwise excluded by agen-
cies, as well as parties declared ineligible
under statutory or regulatory authority
other than Executive Order 12549.
(I) Byrd Anti -Lobbying Amendment (31
U.S.C. 1352) —Contractors that apply or bid
for an award exceeding $100,000 must file the
required certification. Each tier certifies to
the tier above that it will not and has not
used Federal appropriated funds to pay any
person or organization for influencing or at-
tempting to influence an officer or employee
of any agency, a member of Congress, officer
or employee of Congress, or an employee of a
member of Congress in connection with ob-
taining any Federal contract, grant or any
other award covered by 31 U.S.C. 1352. Each
tier must also disclose any lobbying with
non -Federal funds that takes place in con-
nection with obtaining any Federal award.
2 CFR Ch. 11 (1-1-21 Edition)
Such disclosures are forwarded from tier to
tier up to the non -Federal award.
(J) See § 200.323.
(K) See § 200.216.
(L) See §200.322.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75888, Dec. 19, 2014; 85 FR 49577, Aug. 13,
2020]
APPENDIX III TO PART 200 —INDIRECT
(F&A) COSTS IDENTIFICATION AND
ASSIGNMENT, AND RATE DETERMINA-
TION FOR INSTITUTIONS OF HIGHER
EDUCATION (IHES)
A. GENERAL
This appendix provides criteria for identi-
fying and computing indirect (or indirect
(F&A)) rates at IHEs (institutions). Indirect
(F&A) costs are those that are incurred for
common or joint objectives and therefore
cannot be identified readily and specifically
with a particular sponsored project, an in-
structional activity, or any other institu-
tional activity. See subsection B.1 for a dis-
cussion of the components of indirect (F&A)
costs.
1. Major Functions of an Institution
Refers to instruction, organized research,
other sponsored activities and other institu-
tional activities as defined in this section:
a. Instruction means the teaching and
training activities of an institution. Except
for research training as provided in sub-
section b, this term includes all teaching and
training activities, whether they are offered
for credits toward a degree or certificate or
on a non-credit basis, and whether they are
offered through regular academic depart-
ments or separate divisions, such as a sum-
mer school division or an extension division.
Also considered part of this major function
are departmental research, and, where
agreed to, university research.
(1) Sponsored instruction and training means
specific instructional or training activity es-
tablished by grant, contract, or cooperative
agreement. For purposes of the cost prin-
ciples, this activity may be considered a
major function even though an institution's
accounting treatment may include it in the
instruction function.
(2) Departmental research means research,
development and scholarly activities that
are not organized research and, con-
sequently, are not separately budgeted and
accounted for. Departmental research, for
purposes of this document, is not considered
as a major function, but as a part of the in-
struction function of the institution.
(3) Only mandatory cost sharing or cost
sharing specifically committed in the project
budget must be included in the organized re-
search base for computing the indirect (F&A)
220
OMB Guidance
cost rate or reflected in any allocation of in-
direct costs. Salary costs above statutory
limits are not considered cost sharing.
b. Organized research means all research
and development activities of an institution
that are separately budgeted and accounted
for. It includes:
(1) Sponsored research means all research
and development activities that are spon-
sored by Federal and non -Federal agencies
and organizations. This term includes activi-
ties involving the training of individuals in
research techniques (commonly called re-
search training) where such activities utilize
the same facilities as other research and de-
velopment activities and where such activi-
ties are not included in the instruction func-
tion.
(2) University research means all research
and development activities that are sepa-
rately budgeted and accounted for by the in-
stitution under an internal application of in-
stitutional funds. University research, for
purposes of this document, must be com-
bined with sponsored research under the
function of organized research.
c. Other sponsored activities means programs
and projects financed by Federal and non -
Federal agencies and organizations which in-
volve the performance of work other than in-
struction and organized research. Examples
of such programs and projects are health
service projects and community service pro-
grams. However, when any of these activities
are undertaken by the institution without
outside support, they may be classified as
other institutional activities.
d. Other institutional activities means all ac-
tivities of an institution except for instruc-
tion, departmental research, organized re-
search, and other sponsored activities, as de-
fined in this section; indirect (F&A) cost ac-
tivities identified in this Appendix para-
graph B, Identification and assignment of in-
direct (F&A) costs; and specialized services
facilities described in §200.468 of this part.
2. Criteria for Distribution
a. Base period. A base period for distribu-
tion of indirect (F&A) costs is the period
during which the costs are incurred. The
base period normally should coincide with
the fiscal year established by the institution,
but in any event the base period should be so
selected as to avoid inequities in the dis-
tribution of costs.
b. Need for cost groupings. The overall ob-
jective of the indirect (F&A) cost allocation
process is to distribute the indirect (F&A)
costs described in Section B, Identification
and assignment of indirect (F&A) costs, to
the major functions of the institution in pro-
portions reasonably consistent with the na-
ture and extent of their use of the institu-
tion's resources. In order to achieve this ob-
jective, it may be necessary to provide for
selective distribution by establishing sepa-
Pt. 200, App. 111
rate groupings of cost within one or more of
the indirect (F&A) cost categories referred
to in subsection B.1. In general, the cost
groupings established within a category
should constitute, in each case, a pool of
those items of expense that are considered to
be of like nature in terms of their relative
contribution to (or degree of remoteness
from) the particular cost objectives to which
distribution is appropriate. Cost groupings
should be established considering the general
guides provided in subsection c of this sec-
tion. Each such pool or cost grouping should
then be distributed individually to the re-
lated cost objectives, using the distribution
base or method most appropriate in light of
the guidelines set forth in subsection d of
this section.
c. General considerations on cost groupings.
The extent to which separate cost groupings
and selective distribution would be appro-
priate at an institution is a matter of judg-
ment to be determined on a case -by -case
basis. Typical situations which may warrant
the establishment of two or more separate
cost groupings (based on account classifica-
tion or analysis) within an indirect (F&A)
cost category include but are not limited to
the following:
(1) If certain items or categories of expense
relate solely to one of the major functions of
the institution or to less than all functions,
such expenses should be set aside as a sepa-
rate cost grouping for direct assignment or
selective allocation in accordance with the
guides provided in subsections b and d.
(2) If any types of expense ordinarily treat-
ed as general administration or depart-
mental administration are charged to Fed-
eral awards as direct costs, expenses applica-
ble to other activities of the institution
when incurred for the same purposes in like
circumstances must, through separate cost
groupings, be excluded from the indirect
(F&A) costs allocable to those Federal
awards and included in the direct cost of
other activities for cost allocation purposes.
(3) If it is determined that certain expenses
are for the support of a service unit or facil-
ity whose output is susceptible of measure-
ment on a workload or other quantitative
basis, such expenses should be set aside as a
separate cost grouping for distribution on
such basis to organized research, instruc-
tional, and other activities at the institution
or within the department.
(4) If activities provide their own pur-
chasing, personnel administration, building
maintenance or similar service, the distribu-
tion of general administration and general
expenses, or operation and maintenance ex-
penses to such activities should be accom-
plished through cost groupings which include
only that portion of central indirect (F&A)
costs (such as for overall management)
which are properly allocable to such activi-
ties.
221
Pt. 200, App. 111
(5) If the institution elects to treat fringe
benefits as indirect (F&A) charges, such
costs should be set aside as a separate cost
grouping for selective distribution to related
cost objectives.
(6) The number of separate cost groupings
within a category should be held within
practical limits, after taking into consider-
ation the materiality of the amounts in-
volved and the degree of precision attainable
through less selective methods of distribu-
tion.
d. Selection of distribution method.
(1) Actual conditions must be taken into
account in selecting the method or base to
be used in distributing individual cost
groupings. The essential consideration in se-
lecting a base is that it be the one best suit-
ed for assigning the pool of costs to cost ob-
jectives in accordance with benefits derived;
with a traceable cause -and -effect relation-
ship; or with logic and reason, where neither
benefit nor a cause -and -effect relationship is
determinable.
(2) If a cost grouping can be identified di-
rectly with the cost objective benefitted, it
should be assigned to that cost objective.
(3) If the expenses in a cost grouping are
more general in nature, the distribution may
be based on a cost analysis study which re-
sults in an equitable distribution of the
costs. Such cost analysis studies may take
into consideration weighting factors, popu-
lation, or space occupied if appropriate. Cost
analysis studies, however, must (a) be appro-
priately documented in sufficient detail for
subsequent review by the cognizant agency
for indirect costs, (b) distribute the costs to
the related cost objectives in accordance
with the relative benefits derived, (c) be sta-
tistically sound, (d) be performed specifically
at the institution at which the results are to
be used, and (e) be reviewed periodically, but
not less frequently than rate negotiations,
updated if necessary, and used consistently.
Any assumptions made in the study must be
stated and explained. The use of cost anal-
ysis studies and periodic changes in the
method of cost distribution must be fully
justified.
(4) If a cost analysis study is not per-
formed, or if the study does not result in an
equitable distribution of the costs, the dis-
tribution must be made in accordance with
the appropriate base cited in Section B, un-
less one of the following conditions is met:
(a) It can be demonstrated that the use of
a different base would result in a more equi-
table allocation of the costs, or that a more
readily available base would not increase the
costs charged to Federal awards, or
(b) The institution qualifies for, and elects
to use, the simplified method for computing
indirect (F&A) cost rates described in Sec-
tion D.
(5) Notwithstanding subsection (3), effec-
tive July 1, 1998, a cost analysis or base other
2 CFR Ch. 11 (1-1-21 Edition)
than that in Section B must not be used to
distribute utility or student services costs.
Instead, subsection B.4.c, may be used in the
recovery of utility costs.
e. Order of distribution.
(1) Indirect (F&A) costs are the broad cat-
egories of costs discussed in Section B.1.
(2) Depreciation, interest expenses, oper-
ation and maintenance expenses, and general
administrative and general expenses should
be allocated in that order to the remaining
indirect (F&A) cost categories as well as to
the major functions and specialized service
facilities of the institution. Other cost cat-
egories may be allocated in the order deter-
mined to be most appropriate by the institu-
tions. When cross allocation of costs is made
as provided in subsection (3), this order of al-
location does not apply.
(3) Normally an indirect (F&A) cost cat-
egory will be considered closed once it has
been allocated to other cost objectives, and
costs may not be subsequently allocated to
it. However, a cross allocation of costs be-
tween two or more indirect (F&A) cost cat-
egories may be used if such allocation will
result in a more equitable allocation of
costs. If a cross allocation is used, an appro-
priate modification to the composition of
the indirect (F&A) cost categories described
in Section B is required.
B. IDENTIFICATION AND ASSIGNMENT OF
INDIRECT (F&A) COSTS
1. Definition of Facilities and Administration
See §200.414 which provides the basis for
these indirect cost requirements.
2. Depreciation
a. The expenses under this heading are the
portion of the costs of the institution's
buildings, capital improvements to land and
buildings, and equipment which are com-
puted in accordance with § 200.436.
b. In the absence of the alternatives pro-
vided for in Section A.2.d, the expenses in-
cluded in this category must be allocated in
the following manner:
(1) Depreciation on buildings used exclu-
sively in the conduct of a single function,
and on capital improvements and equipment
used in such buildings, must be assigned to
that function.
(2) Depreciation on buildings used for more
than one function, and on capital improve-
ments and equipment used in such buildings,
must be allocated to the individual functions
performed in each building on the basis of
usable square feet of space, excluding com-
mon areas such as hallways, stairwells, and
rest rooms.
(3) Depreciation on buildings, capital im-
provements and equipment related to space
(e.g., individual rooms, laboratories) used
jointly by more than one function (as deter-
mined by the users of the space) must be
222
OMB Guidance
treated as follows. The cost of each jointly
used unit of space must be allocated to bene-
fitting functions on the basis of:
(a) The employee full-time equivalents
(FTEs) or salaries and wages of those indi-
vidual functions benefitting from the use of
that space; or
(b) Institution -wide employee FTEs or sal-
aries and wages applicable to the benefitting
major functions (see Section A.1) of the in-
stitution.
(4) Depreciation on certain capital im-
provements to land, such as paved parking
areas, fences, sidewalks, and the like, not in-
cluded in the cost of buildings, must be allo-
cated to user categories of students and em-
ployees on a full-time equivalent basis. The
amount allocated to the student category
must be assigned to the instruction function
of the institution. The amount allocated to
the employee category must be further allo-
cated to the major functions of the institu-
tion in proportion to the salaries and wages
of all employees applicable to those func-
tions.
3. Interest
Interest on debt associated with certain
buildings, equipment and capital improve-
ments, as defined in § 200.449, must be classi-
fied as an expenditure under the category
Facilities. These costs must be allocated in
the same manner as the depreciation on the
buildings, equipment and capital improve-
ments to which the interest relates.
4. Operation and Maintenance Expenses
a. The expenses under this heading are
those that have been incurred for the admin-
istration, supervision, operation, mainte-
nance, preservation, and protection of the in-
stitution's physical plant. They include ex-
penses normally incurred for such items as
janitorial and utility services; repairs and
ordinary or normal alterations of buildings,
furniture and equipment; care of grounds;
maintenance and operation of buildings and
other plant facilities; security; earthquake
and disaster preparedness; environmental
safety; hazardous waste disposal; property,
liability and all other insurance relating to
property; space and capital leasing; facility
planning and management; and central re-
ceiving. The operation and maintenance ex-
pense category should also include its allo-
cable share of fringe benefit costs, deprecia-
tion, and interest costs.
b. In the absence of the alternatives pro-
vided for in Section A.2.d, the expenses in-
cluded in this category must be allocated in
the same manner as described in subsection
2.b for depreciation.
c. A utility cost adjustment of up to 1.3
percentage points may be included in the ne-
gotiated indirect cost rate of the IHE for or-
ganized research, per the computation alter -
Pt. 200, App. 111
natives in paragraphs (c)(1) and (2) of this
section:
(1) Where space is devoted to a single func-
tion and metering allows unambiguous meas-
urement of usage related to that space, costs
must be assigned to the function located in
that space.
(2) Where space is allocated to different
functions and metering does not allow unam-
biguous measurement of usage by function,
costs must be allocated as follows:
(i) Utilities costs should be apportioned to
functions in the same manner as deprecia-
tion, based on the calculated difference be-
tween the site or building actual square foot-
age for monitored research laboratory space
(site, building, floor, or room), and a sepa-
rate calculation prepared by the IHE using
the "effective square footage" described in
subsection (c)(2)(ii) of this section.
(ii) "Effective square footage" allocated to
research laboratory space must be calculated
as the actual square footage times the rel-
ative energy utilization index (REUI) posted
on the OMB Web site at the time of a rate
determination.
A. This index is the ratio of a laboratory
energy use index (lab EUI) to the cor-
responding index for overall average college
or university space (college EUI).
B. In July 2012, values for these two indices
(taken respectively from the Lawrence
Berkeley Laboratory "Labs for the 21st Cen-
tury" benchmarking tool and the US Depart-
ment of Energy "Buildings Energy
Databook" and were 310 kBtu/sq ft-yr. and
155 kBtu/sq ft-yr., so that the adjustment
ratio is 2.0 by this methodology. To retain
currency, OMB will adjust the EUI numbers
from time to time (no more often than annu-
ally nor less often than every 5 years), using
reliable and publicly disclosed data. Current
values of both the EUIs and the REUI will be
posted on the OMB website.
5. General Administration and General Expenses
a. The expenses under this heading are
those that have been incurred for the general
executive and administrative offices of edu-
cational institutions and other expenses of a
general character which do not relate solely
to any major function of the institution; i.e.,
solely to (1) instruction, (2) organized re-
search, (3) other sponsored activities, or (4)
other institutional activities. The general
administration and general expense category
should also include its allocable share of
fringe benefit costs, operation and mainte-
nance expense, depreciation, and interest
costs. Examples of general administration
and general expenses include: Those expenses
incurred by administrative offices that serve
the entire university system of which the in-
stitution is a part; central offices of the in-
stitution such as the President's or
Chancellor's office, the offices for institu-
tion -wide financial management, business
223
Pt. 200, App. 111
services, budget and planning, personnel
management, and safety and risk manage-
ment; the office of the General Counsel; and
the operations of the central administrative
management information systems. General
administration and general expenses must
not include expenses incurred within non -
university -wide deans' offices, academic de-
partments, organized research units, or simi-
lar organizational units. (See subsection 6.)
b. In the absence of the alternatives pro-
vided for in Section A.2.d, the expenses in-
cluded in this category must be grouped first
according to common major functions of the
institution to which they render services or
provide benefits. The aggregate expenses of
each group must then be allocated to serv-
iced or benefitted functions on the modified
total cost basis. Modified total costs consist
of the same elements as those in Section C.2.
When an activity included in this indirect
(F&A) cost category provides a service or
product to another institution or organiza-
tion, an appropriate adjustment must be
made to either the expenses or the basis of
allocation or both, to assure a proper alloca-
tion of costs.
6. Departmental Administration Expenses
a. The expenses under this heading are
those that have been incurred for adminis-
trative and supporting services that benefit
common or joint departmental activities or
objectives in academic cleans' offices, aca-
demic departments and divisions, and orga-
nized research units. Organized research
units include such units as institutes, study
centers, and research centers. Departmental
administration expenses are subject to the
following limitations.
(1) Academic deans' offices. Salaries and
operating expenses are limited to those at-
tributable to administrative functions.
(2) Academic departments:
(a) Salaries and fringe benefits attrib-
utable to the administrative work (including
bid and proposal preparation) of faculty (in-
cluding department heads) and other profes-
sional personnel conducting research and/or
instruction, must be allowed at a rate of 3.6
percent of modified total direct costs. This
category does not include professional busi-
ness or professional administrative officers.
This allowance must be added to the com-
putation of the indirect (F&A) cost rate for
major functions in Section C; the expenses
covered by the allowance must be excluded
from the departmental administration cost
pool. No documentation is required to sup-
port this allowance.
(b) Other administrative and supporting
expenses incurred within academic depart-
ments are allowable provided they are treat-
ed consistently in like circumstances. This
would include expenses such as the salaries
of secretarial and clerical staffs, the salaries
of administrative officers and assistants,
2 CFR Ch. 11 (1-1-21 Edition)
travel, office supplies, stockrooms, and the
like.
(3) Other fringe benefit costs applicable to
the salaries and wages included in sub-
sections (1) and (2) are allowable, as well as
an appropriate share of general administra-
tion and general expenses, operation and
maintenance expenses, and depreciation.
(4) Federal agencies may authorize reim-
bursement of additional costs for department
heads and faculty only in exceptional cases
where an institution can demonstrate undue
hardship or detriment to project perform-
ance.
b. The following guidelines apply to the de-
termination of departmental administrative
costs as direct or indirect (F&A) costs.
(1) In developing the departmental admin-
istration cost pool, special care should be ex-
ercised to ensure that costs incurred for the
same purpose in like circumstances are
treated consistently as either direct or indi-
rect (F&A) costs. For example, salaries of
technical staff, laboratory supplies (e.g.,
chemicals), telephone toll charges, animals,
animal care costs, computer costs, travel
costs, and specialized shop costs must be
treated as direct costs wherever identifiable
to a particular cost objective. Direct charg-
ing of these costs may be accomplished
through specific identification of individual
costs to benefitting cost objectives, or
through recharge centers or specialized serv-
ice facilities, as appropriate under the cir-
cumstances. See §§200.413(c) and 200.468.
(2) Items such as office supplies, postage,
local telephone costs, and memberships must
normally be treated as indirect (F&A) costs.
c. In the absence of the alternatives pro-
vided for in Section A.2.d, the expenses in-
cluded in this category must be allocated as
follows:
(1) The administrative expenses of the
dean's office of each college and school must
be allocated to the academic departments
within that college or school on the modified
total cost basis.
(2) The administrative expenses of each
academic department, and the department's
share of the expenses allocated in subsection
(1) must be allocated to the appropriate func-
tions of the department on the modified
total cost basis.
7. Sponsored Projects Administration
a. The expenses under this heading are lim-
ited to those incurred by a separate organi-
zation(s) established primarily to administer
sponsored projects, including such functions
as grant and contract administration (Fed-
eral and non -Federal), special security, pur-
chasing, personnel, administration, and edit-
ing and publishing of research and other re-
ports. They include the salaries and expenses
of the head of such organization, assistants,
and immediate staff, together with the sala-
ries and expenses of personnel engaged in
224
OMB Guidance
supporting activities maintained by the or-
ganization, such as stock rooms, print shops,
and the like. This category also includes an
allocable share of fringe benefit costs, gen-
eral administration and general expenses,
operation and maintenance expenses, and de-
preciation. Appropriate adjustments will be
made for services provided to other functions
or organizations.
b. In the absence of the alternatives pro-
vided for in Section A.2.d, the expenses in-
cluded in this category must be allocated to
the major functions of the institution under
which the sponsored projects are conducted
on the basis of the modified total cost of
sponsored projects.
c. An appropriate adjustment must be
made to eliminate any duplicate charges to
Federal awards when this category includes
similar or identical activities as those in-
cluded in the general administration and
general expense category or other indirect
(F&A) cost items, such as accounting, pro-
curement, or personnel administration.
8. Library Expenses
a. The expenses under this heading are
those that have been incurred for the oper-
ation of the library, including the cost of
books and library materials purchased for
the library, less any items of library income
that qualify as applicable credits under
§ 200.406. The library expense category should
also include the fringe benefits applicable to
the salaries and wages included therein, an
appropriate share of general administration
and general expense, operation and mainte-
nance expense, and depreciation. Costs in-
curred in the purchases of rare books (mu-
seum -type books) with no value to Federal
awards should not be allocated to them.
b. In the absence of the alternatives pro-
vided for in Section A.2.d, the expenses in-
cluded in this category must be allocated
first on the basis of primary categories of
users, including students, professional em-
ployees, and other users.
(1) The student category must consist of
full-time equivalent students enrolled at the
institution, regardless of whether they earn
credits toward a degree or certificate.
(2) The professional employee category
must consist of all faculty members and
other professional employees of the institu-
tion, on a full-time equivalent basis. This
category may also include post -doctorate
fellows and graduate students.
(3) The other users category must consist
of a reasonable factor as determined by insti-
tutional records to account for all other
users of library facilities.
c. Amount allocated in paragraph b of this
section must be assigned further as follows:
(1) The amount in the student category
must be assigned to the instruction function
of the institution.
Pt. 200, App. 111
(2) The amount in the professional em-
ployee category must be assigned to the
major functions of the institution in propor-
tion to the salaries and wages of all faculty
members and other professional employees
applicable to those functions.
(3) The amount in the other users category
must be assigned to the other institutional
activities function of the institution.
9. Student Administration and Services
a. The expenses under this heading are
those that have been incurred for the admin-
istration of student affairs and for services
to students, including expenses of such ac-
tivities as deans of students, admissions, reg-
istrar, counseling and placement services,
student advisers, student health and infir-
mary services, catalogs, and commence-
ments and convocations. The salaries of
members of the academic staff whose respon-
sibilities to the institution require adminis-
trative work that benefits sponsored projects
may also be included to the extent that the
portion charged to student administration is
determined in accordance with subpart E of
this Part. This expense category also in-
cludes the fringe benefit costs applicable to
the salaries and wages included therein, an
appropriate share of general administration
and general expenses, operation and mainte-
nance, interest expense, and depreciation.
b. In the absence of the alternatives pro-
vided for in Section A.2.d, the expenses in
this category must be allocated to the in-
struction function, and subsequently to Fed-
eral awards in that function.
10. Offset for Indirect (F&A) Expenses Other-
wise Provided for by the Federal Govern-
ment
a. The items to be accumulated under this
heading are the reimbursements and other
payments from the Federal Government
which are made to the institution to support
solely, specifically, and directly, in whole or
in part, any of the administrative or service
activities described in subsections 2 through
9. b. The items in this group must be treated
as a credit to the affected individual indirect
(F&A) cost category before that category is
allocated to benefitting functions.
C. DETERMINATION AND APPLICATION OF
INDIRECT (F&A) COST RATE OR RATES
1. Indirect (F&A) Cost Pools
a. (1) Subject to subsection b, the separate
categories of indirect (F&A) costs allocated
to each major function of the institution as
prescribed in Section B, must be aggregated
and treated as a common pool for that func-
tion. The amount in each pool must be di-
vided by the distribution base described in
225
Pt. 200, App. 111
subsection 2 to arrive at a single indirect
(F&A) cost rate for each function.
(2) The rate for each function is used to
distribute indirect (F&A) costs to individual
Federal awards of that function. Since a
common pool is established for each major
function of the institution, a separate indi-
rect (F&A) cost rate would be established for
each of the major functions described in Sec-
tion A.1 under which Federal awards are car-
ried out.
(3) Each institution's indirect (F&A) cost
rate process must be appropriately designed
to ensure that Federal sponsors do not in
any way subsidize the indirect (F&A) costs of
other sponsors, specifically activities spon-
sored by industry and foreign governments.
Accordingly, each allocation method used to
identify and allocate the indirect (F&A) cost
pools, as described in Sections A.2 and B.2
through B.9, must contain the full amount of
the institution's modified total costs or
other appropriate units of measurement used
to make the computations. In addition, the
final rate distribution base (as defined in
subsection 2) for each major function (orga-
nized research, instruction, etc., as described
in Section A.1 functions of an institution)
must contain all the programs or activities
which utilize the indirect (F&A) costs allo-
cated to that major function. At the time an
indirect (F&A) cost proposal is submitted to
a cognizant agency for indirect costs, each
institution must describe the process it uses
to ensure that Federal funds are not used to
subsidize industry and foreign government
funded programs.
2. The Distribution Basis
Indirect (F&A) costs must be distributed to
applicable Federal awards and other benefit-
ting activities within each major function
(see section A.1) on the basis of modified
total direct costs (MTDC), consisting of all
salaries and wages, fringe benefits, materials
and supplies, services, travel, and up to the
first $25,000 of each subaward (regardless of
the period covered by the subaward). MTDC
is defined in §200.1. For this purpose, an indi-
rect (F&A) cost rate should be determined
for each of the separate indirect (F&A) cost
pools developed pursuant to subsection 1.
The rate in each case should be stated as the
percentage which the amount of the par-
ticular indirect (F&A) cost pool is of the
modified total direct costs identified with
such pool.
3. Negotiated Lump Sum for Indirect (F&A)
Costs
A negotiated fixed amount in lieu of indi-
rect (F&A) costs may be appropriate for self-
contained, off -campus, or primarily subcon-
tracted activities where the benefits derived
from an institution's indirect (F&A) services
cannot be readily determined. Such nego-
2 CFR Ch. 11 (1-1-21 Edition)
tiated indirect (F&A) costs will be treated as
an offset before allocation to instruction, or-
ganized research, other sponsored activities,
and other institutional activities. The base
on which such remaining expenses are allo-
cated should be appropriately adjusted.
4. Predetermined Rates for Indirect (F&A) Costs
Public Law 87-638 (76 Stat. 437) as amended
(41 U.S.C. 4708) authorizes the use of pre-
determined rates in determining the "indi-
rect costs" (indirect (F&A) costs) applicable
under research agreements with educational
institutions. The stated objectives of the law
are to simplify the administration of cost -
type research and development contracts (in-
cluding grants) with educational institu-
tions, to facilitate the preparation of their
budgets, and to permit more expeditious
closeout of such contracts when the work is
completed. In view of the potential advan-
tages offered by this procedure, negotiation
of predetermined rates for indirect (F&A)
costs for a period of two to four years should
be the norm in those situations where the
cost experience and other pertinent facts
available are deemed sufficient to enable the
parties involved to reach an informed judg-
ment as to the probable level of indirect
(F&A) costs during the ensuing accounting
periods.
5. Negotiated Fixed Rates and Carry -Forward
Provisions
When a fixed rate is negotiated in advance
for a fiscal year (or other time period), the
over- or under -recovery for that year may be
included as an adjustment to the indirect
(F&A) cost for the next rate negotiation.
When the rate is negotiated before the carry -
forward adjustment is determined, the carry -
forward amount may be applied to the next
subsequent rate negotiation. When such ad-
justments are to be made, each fixed rate ne-
gotiated in advance for a given period will be
computed by applying the expected indirect
(F&A) costs allocable to Federal awards for
the forecast period plus or minus the carry -
forward adjustment (over- or under -recovery)
from the prior period, to the forecast dis-
tribution base. Unrecovered amounts under
lump -sum agreements or cost -sharing provi-
sions of prior years must not be carried for-
ward for consideration in the new rate nego-
tiation. There must, however, be an advance
understanding in each case between the in-
stitution and the cognizant agency for indi-
rect costs as to whether these differences
will be considered in the rate negotiation
rather than making the determination after
the differences are known. Further, institu-
tions electing to use this carry -forward pro-
vision may not subsequently change without
prior approval of the cognizant agency for
indirect costs. In the event that an institu-
tion returns to a post -determined rate, any
226
OMB Guidance
over- or under -recovery during the period in
which negotiated fixed rates and carry -for-
ward provisions were followed will be in-
cluded in the subsequent post -determined
rates. Where multiple rates are used, the
same procedure will be applicable for deter-
mining each rate.
6. Provisional and Final Rates for Indirect
(F&A) Costs
Where the cognizant agency for indirect
costs determines that cost experience and
other pertinent facts do not justify the use
of predetermined rates, or a fixed rate with
a carry -forward, or if the parties cannot
agree on an equitable rate, a provisional rate
must be established. To prevent substantial
overpayment or underpayment, the provi-
sional rate may be adjusted by the cognizant
agency for indirect costs during the institu-
tion's fiscal year. Predetermined or fixed
rates may replace provisional rates at any
time prior to the close of the institution's
fiscal year. If a provisional rate is not re-
placed by a predetermined or fixed rate prior
to the end of the institution's fiscal year, a
final rate will be established and upward or
downward adjustments will be made based on
the actual allowable costs incurred for the
period involved.
7. Fixed Rates for the Life of the Sponsored
Agreement
a. Except as provided in paragraph (c)(1) of
§ 200.414, Federal agencies must use the nego-
tiated rates in effect at the time of the ini-
tial award throughout the life of the Federal
award. Award levels for Federal awards may
not be adjusted in future years as a result of
changes in negotiated rates. "Negotiated
rates" per the rate agreement include final,
fixed, and predetermined rates and exclude
provisional rates. "Life" for the purpose of
this subsection means each competitive seg-
ment of a project. A competitive segment is
a period of years approved by the Federal
awarding agency at the time of the Federal
award. If negotiated rate agreements do not
extend through the life of the Federal award
at the time of the initial award, then the ne-
gotiated rate for the last year of the Federal
award must be extended through the end of
the life of the Federal award.
b. Except as provided in § 200.414, when an
educational institution does not have a nego-
tiated rate with the Federal Government at
the time of an award (because the edu-
cational institution is a new recipient or the
parties cannot reach agreement on a rate),
the provisional rate used at the time of the
award must be adjusted once a rate is nego-
tiated and approved by the cognizant agency
for indirect costs.
Pt. 200, App. 111
8. Limitation on Reimbursement of
Administrative Costs
a. Notwithstanding the provisions of sub-
section e.t.a, the administrative costs
charged to Federal awards awarded or
amended (including continuation and re-
newal awards) with effective dates beginning
on or after the start of the institution's first
fiscal year which begins on or after October
1, 1991, must be limited to 26% of modified
total direct costs (as defined in subsection 2)
for the total of General Administration and
General Expenses, Departmental Adminis-
tration, Sponsored Projects Administration,
and Student Administration and Services
(including their allocable share of deprecia-
tion, interest costs, operation and mainte-
nance expenses, and fringe benefits costs, as
provided by Section B, and all other types of
expenditures not listed specifically under
one of the subcategories of facilities in Sec-
tion B.
b. Institutions should not change their ac-
counting or cost allocation methods if the ef-
fect is to change the charging of a particular
type of cost from F&A to direct, or to reclas-
sify costs, or increase allocations from the
administrative pools identified in paragraph
B.1 of this Appendix to the other F&A cost
pools or fringe benefits. Cognizant agencies
for indirect cost are authorized to allow
changes where an institution's charging
practices are at variance with acceptable
practices followed by a substantial majority
of other institutions.
9. Alternative Method for Administrative Costs
a. Notwithstanding the provisions of sub-
section C.1.a, an institution may elect to
claim a fixed allowance for the "Adminis-
tration" portion of indirect (F&A) costs. The
allowance could be either 24% of modified
total direct costs or a percentage equal to
95% of the most recently negotiated fixed or
predetermined rate for the cost pools in-
cluded under "Administration" as defined in
Section B.1, whichever is less. Under this al-
ternative, no cost proposal need be prepared
for the "Administration" portion of the indi-
rect (F&A) cost rate nor is further identifica-
tion or documentation of these costs re-
quired (see subsection c). Where a negotiated
indirect (F&A) cost agreement includes this
alternative, an institution must make no
further charges for the expenditure cat-
egories described in Section B.5, Section B.6,
Section B.7, and Section B.9.
b. In negotiations of rates for subsequent
periods, an institution that has elected the
option of subsection a may continue to exer-
cise it at the same rate without further iden-
tification or documentation of costs.
c. If an institution elects to accept a
threshold rate as defined in subsection a of
this section, it is not required to perform a
detailed analysis of its administrative costs.
227
Pt. 200, App. 111
However, in order to compute the facilities
components of its indirect (F&A) cost rate,
the institution must reconcile its indirect
(F&A) cost proposal to its financial state-
ments and make appropriate adjustments
and reclassifications to identify the costs of
each major function as defined in Section
A.1, as well as to identify and allocate the fa-
cilities components. Administrative costs
that are not identified as such by the insti-
tution's accounting system (such as those in-
curred in academic departments) will be
classified as instructional costs for purposes
of reconciling indirect (F&A) cost proposals
to financial statements and allocating facili-
ties costs.
10. Individual Rate Components
In order to provide mutually agreed -upon
information for management purposes, each
indirect (F&A) cost rate negotiation or de-
termination must include development of a
rate for each indirect (F&A) cost pool as well
as the overall indirect (F&A) cost rate.
11. Negotiation and Approval of Indirect (F&A)
Rate
a. Cognizant agency for indirect costs is
defined in Subpart A.
(1) Cost negotiation cognizance is assigned
to the Department of Health and Human
Services (HHS) or the Department of De-
fense's Office of Naval Research (DOD), nor-
mally depending on which of the two agen-
cies (HHS or DOD) provides more funds di-
rectly to the educational institution for the
most recent three years. Information on
funding must be derived from relevant data
gathered by the National Science Founda-
tion. In cases where neither HHS nor DOD
provides Federal funding directly to an edu-
cational institution, the cognizant agency
for indirect costs assignment must default to
HHS. Notwithstanding the method for cog-
nizance determination described in this sec-
tion, other arrangements for cognizance of a
particular educational institution may also
be based in part on the types of research per-
formed at the educational institution and
must be decided based on mutual agreement
between HHS and DOD. Where a non -Federal
entity only receives funds as a subrecipient,
see § 200.332.
(2) After cognizance is established, it must
continue for a five-year period.
b. Acceptance of rates. See §200.414.
c. Correcting deficiencies. The cognizant
agency for indirect costs must negotiate
changes needed to correct systems defi-
ciencies relating to accountability for Fed-
eral awards. Cognizant agencies for indirect
costs must address the concerns of other af-
fected agencies, as appropriate, and must ne-
gotiate special rates for Federal agencies
that are required to limit recovery of indi-
rect costs by statute.
2 CFR Ch. 11 (1-1-21 Edition)
d. Resolving questioned costs. The cog-
nizant agency for indirect costs must con-
duct any necessary negotiations with an edu-
cational institution regarding amounts ques-
tioned by audit that are due the Federal
Government related to costs covered by a ne-
gotiated agreement.
e. Reimbursement. Reimbursement to cog-
nizant agencies for indirect costs for work
performed under this Part may be made by
reimbursement billing under the Economy
Act, 31 U.S.C. 1535.
f. Procedure for establishing facilities and
administrative rates must be established by
one of the following methods:
(1) Formal negotiation. The cognizant
agency for indirect costs is responsible for
negotiating and approving rates for an edu-
cational institution on behalf of all Federal
agencies. Federal awarding agencies that do
not have cognizance for indirect costs must
notify the cognizant agency for indirect
costs of specific concerns (i.e., a need to es-
tablish special cost rates) which could affect
the negotiation process. The cognizant agen-
cy for indirect costs must address the con-
cerns of all interested agencies, as appro-
priate. A pre -negotiation conference may be
scheduled among all interested agencies, if
necessary. The cognizant agency for indirect
costs must then arrange a negotiation con-
ference with the educational institution.
(2) Other than formal negotiation. The cog-
nizant agency for indirect costs and edu-
cational institution may reach an agreement
on rates without a formal negotiation con-
ference; for example, through correspond-
ence or use of the simplified method de-
scribed in this section D of this Appendix.
g. Formalizing determinations and agree-
ments. The cognizant agency for indirect
costs must formalize all determinations or
agreements reached with an educational in-
stitution and provide copies to other agen-
cies having an interest. Determinations
should include a description of any adjust-
ments, the actual amount, both dollar and
percentage adjusted, and the reason for mak-
ing adjustments.
h. Disputes and disagreements. Where the
cognizant agency for indirect costs is unable
to reach agreement with an educational in-
stitution with regard to rates or audit reso-
lution, the appeal system of the cognizant
agency for indirect costs must be followed
for resolution of the disagreement.
12. Standard Format for Submission
For facilities and administrative (indirect
(F&A)) rate proposals, educational institu-
tions must use the standard format, shown
in section E of this appendix, to submit their
indirect (F&A) rate proposal to the cog-
nizant agency for indirect costs. The cog-
nizant agency for indirect costs may, on an
institution -by -institution basis, grant excep-
tions from all or portions of Part II of the
228