Beaumont City Council
May 7, 2024

OMB Guidance
for construction. The Federal awarding
agency may require additional per-
formance reports only when considered
necessary.
(e) Significant developments. Events
may occur between the scheduled per-
formance reporting dates that have sig-
nificant impact upon the supported ac-
tivity. In such cases, the non -Federal
entity must inform the Federal award-
ing agency or pass -through entity as
soon as the following types of condi-
tions become known:
(1) Problems, delays, or adverse con-
ditions which will materially impair
the ability to meet the objective of the
Federal award. This disclosure must in-
clude a statement of the action taken,
or contemplated, and any assistance
needed to resolve the situation.
(2) Favorable developments which en-
able meeting time schedules and objec-
tives sooner or at less cost than antici-
pated or producing more or different
beneficial results than originally
planned.
(f) Site visits. The Federal awarding
agency may make site visits as war-
ranted by program needs.
(g) Performance report requirement
waiver. The Federal awarding agency
may waive any performance report re-
quired by this part if not needed.
§ 200.330 Reporting on real property.

The Federal awarding agency or pass -
through entity must require a non -Fed-
eral entity to submit reports at least
annually on the status of real property
in which the Federal Government re-
tains an interest, unless the Federal in-
terest in the real property extends 15
years or longer. In those instances
where the Federal interest attached is
for a period of 15 years or more, the
Federal awarding agency or pass -
through entity, at its option, may re-
quire the non -Federal entity to report
at various multi -year frequencies (e.g.,
every two years or every three years,
not to exceed a five-year reporting pe-
riod; or a Federal awarding agency or
pass -through entity may require an-
nual reporting for the first three years
of a Federal award and thereafter re-
quire reporting every five years).
§ 200.331

SUBRECIPIENT MONITORING AND

MANAGEMENT
§ 200.331 Subrecipient and contractor
determinations.

The non -Federal entity may concur-
rently receive Federal awards as a re-
cipient, a subrecipient, and a con-
tractor, depending on the substance of
its agreements with Federal awarding
agencies and pass -through entities.

Therefore, a pass -through entity must
make case -by -case determinations
whether each agreement it makes for
the disbursement of Federal program
funds casts the party receiving the
funds in the role of a subrecipient or a
contractor. The Federal awarding
agency may supply and require recipi-
ents to comply with additional guid-
ance to support these determinations
provided such guidance does not con-
flict with this section.
(a) Subrecipients. A subaward is for
the purpose of carrying out a portion of
a Federal award and creates a Federal
assistance relationship with the sub -
recipient. See definition for Subaward
in §200.1 of this part. Characteristics
which support the classification of the
non -Federal entity as a subrecipient
include when the non -Federal entity:
(1) Determines who is eligible to re-
ceive what Federal assistance;
(2) Has its performance measured in
relation to whether objectives of a Fed-
eral program were met;
(3) Has responsibility for pro-
grammatic decision -making;
(4) Is responsible for adherence to ap-
plicable Federal program requirements
specified in the Federal award; and
(5) In accordance with its agreement,
uses the Federal funds to carry out a
program for a public purpose specified
in authorizing statute, as opposed to
providing goods or services for the ben-
efit of the pass -through entity.
(b) Contractors. A contract is for the
purpose of obtaining goods and services
for the non -Federal entity's own use
and creates a procurement relationship
with the contractor. See the definition
of contract in § 200.1 of this part. Char-
acteristics indicative of a procurement
relationship between the non -Federal
entity and a contractor are when the
contractor:
145

§ 200.332
(1) Provides the goods and services
within normal business operations;
(2) Provides similar goods or services
to many different purchasers;
(3) Normally operates in a competi-
tive environment;
(4) Provides goods or services that
are ancillary to the operation of the
Federal program; and
(5) Is not subject to compliance re-
quirements of the Federal program as a
result of the agreement, though similar
requirements may apply for other rea-
sons.
(c) Use of judgment in making deter-
mination. In determining whether an
agreement between a pass -through en-
tity and another non -Federal entity
casts the latter as a subrecipient or a
contractor, the substance of the rela-
tionship is more important than the
form of the agreement. All of the char-
acteristics listed above may not be
present in all cases, and the pass -
through entity must use judgment in
classifying each agreement as a
subaward or a procurement contract.
§ 200.332 Requirements for pass -
through entities.

All pass -through entities must:
(a) Ensure that every subaward is
clearly identified to the subrecipient as
a subaward and includes the following
information at the time of the
subaward and if any of these data ele-
ments change, include the changes in
subsequent subaward modification.

When some of this information is not
available, the pass -through entity
must provide the best information
available to describe the Federal award
and subaward. Required information
includes:
(1) Federal award identification.
(i) Subrecipient name (which must
match the name associated with its
unique entity identifier);
(ii) Subrecipient's unique entity
identifier;
(iii) Federal Award Identification
Number (FAIN);
(iv) Federal Award Date (see the defi-
nition of Federal award date in § 200.1 of
this part) of award to the recipient by
the Federal agency;
(v) Subaward Period of Performance
Start and End Date;
2 CFR Ch. 11 (1-1-21 Edition)
(vi) Subaward Budget Period Start
and End Date;
(vii) Amount of Federal Funds Obli-
gated by this action by the pass -
through entity to the subrecipient;
(viii) Total Amount of Federal Funds
Obligated to the subrecipient by the
pass -through entity including the cur-
rent financial obligation;
(ix) Total Amount of the Federal
Award committed to the subrecipient
by the pass -through entity;
(x) Federal award project description,
as required to be responsive to the Fed-
eral Funding Accountability and
Transparency Act (FFATA);
(xi) Name of Federal awarding agen-
cy, pass -through entity, and contact
information for awarding official of the
Pass -through entity;
(xii) Assistance Listings number and
Title; the pass -through entity must
identify the dollar amount made avail-
able under each Federal award and the
Assistance Listings Number at time of
disbursement;
(xiii) Identification of whether the
award is R&D; and
(xiv) Indirect cost rate for the Fed-
eral award (including if the de minimis
rate is charged) per § 200.414.
(2) All requirements imposed by the
pass -through entity on the sub -
recipient so that the Federal award is
used in accordance with Federal stat-
utes, regulations and the terms and
conditions of the Federal award;
(3) Any additional requirements that
the pass -through entity imposes on the
subrecipient in order for the pass -
through entity to meet its own respon-
sibility to the Federal awarding agency
including identification of any required
financial and performance reports;
(4)(i) An approved federally recog-
nized indirect cost rate negotiated be-
tween the subrecipient and the Federal
Government. If no approved rate exists,
the pass -through entity must deter-
mine the appropriate rate in collabora-
tion with the subrecipient, which is ei-
ther:
(A) The negotiated indirect cost rate
between the pass -through entity and
the subrecipient; which can be based on
a prior negotiated rate between a dif-
ferent PTE and the same subrecipient.

If basing the rate on a previously nego-
tiated rate, the pass -through entity is
146

OMB Guidance
not required to collect information jus-
tifying this rate, but may elect to do
so;
(B) The de minimis indirect cost
rate.
(ii) The pass -through entity must not
require use of a de minimis indirect
cost rate if the subrecipient has a Fed-
erally approved rate. Subrecipients can
elect to use the cost allocation method
to account for indirect costs in accord-
ance with §200.405(d).
(5) A requirement that the sub -
recipient permit the pass -through enti-
ty and auditors to have access to the
subrecipient's records and financial
statements as necessary for the pass -
through entity to meet the require-
ments of this part; and
(6) Appropriate terms and conditions
concerning closeout of the subaward.
(b) Evaluate each subrecipient's risk
of noncompliance with Federal stat-
utes, regulations, and the terms and
conditions of the subaward for purposes
of determining the appropriate sub -
recipient monitoring described in para-
graphs (d) and (e) of this section, which
may include consideration of such fac-
tors as:
(1) The subrecipient's prior experi-
ence with the same or similar sub -
awards;
(2) The results of previous audits in-
cluding whether or not the sub -
recipient receives a Single Audit in ac-
cordance with Subpart F of this part,
and the extent to which the same or
similar subaward has been audited as a
major program;
(3) Whether the subrecipient has new
personnel or new or substantially
changed systems; and
(4) The extent and results of Federal
awarding agency monitoring (e.g., if
the subrecipient also receives Federal
awards directly from a Federal award-
ing agency).
(c) Consider imposing specific
subaward conditions upon a sub -
recipient if appropriate as described in
§200.208.
(d) Monitor the activities of the sub -
recipient as necessary to ensure that
the subaward is used for authorized
purposes, in compliance with Federal
statutes, regulations, and the terms
and conditions of the subaward; and
that subaward performance goals are
§ 200.332
achieved. Pass -through entity moni-
toring of the subrecipient must in-
clude:
(1) Reviewing financial and perform-
ance reports required by the pass -
through entity.
(2) Following -up and ensuring that
the subrecipient takes timely and ap-
propriate action on all deficiencies per-
taining to the Federal award provided
to the subrecipient from the pass -
through entity detected through au-
dits, on -site reviews, and written con-
firmation from the subrecipient, high-
lighting the status of actions planned
or taken to address Single Audit find-
ings related to the particular
subaward.
(3) Issuing a management decision for
applicable audit findings pertaining
only to the Federal award provided to
the subrecipient from the pass -through
entity as required by § 200.521.
(4) The pass -through entity is respon-
sible for resolving audit findings spe-
cifically related to the subaward and
not responsible for resolving cross -cut-
ting findings. If a subrecipient has a
current Single Audit report posted in
the Federal Audit Clearinghouse and
has not otherwise been excluded from
receipt of Federal funding (e.g., has
been debarred or suspended), the pass -
through entity may rely on the sub -
recipient's cognizant audit agency or
cognizant oversight agency to perform
audit follow-up and make management
decisions related to cross -cutting find-
ings in accordance with section
§300.513(a)(3)(vii). Such reliance does
not eliminate the responsibility of the
pass -through entity to issue subawards
that conform to agency and award -spe-
cific requirements, to manage risk
through ongoing subaward monitoring,
and to monitor the status of the find-
ings that are specifically related to the
subaward.
(e) Depending upon the pass -through
entity's assessment of risk posed by
the subrecipient (as described in para-
graph (b) of this section), the following
monitoring tools may be useful for the
pass -through entity to ensure proper
accountability and compliance with
program requirements and achieve-
ment of performance goals:
147

§ 200.333
(1) Providing subrecipients with
training and technical assistance on
program -related matters; and
(2) Performing on -site reviews of the
subrecipient's program operations;
(3) Arranging for agreed -upon -proce-
dures engagements as described in
§200.425.
(f) Verify that every subrecipient is
audited as required by Subpart F of
this part when it is expected that the
subrecipient's Federal awards expended
during the respective fiscal year
equaled or exceeded the threshold set
forth in §200.501.
(g) Consider whether the results of
the subrecipient's audits, on -site re-
views, or other monitoring indicate
conditions that necessitate adjust-
ments to the pass -through entity's own
records.
(h) Consider taking enforcement ac-
tion against noncompliant subrecipi-
ents as described in § 200.339 of this part
and in program regulations.
§ 200.333 Fixed amount subawards.

With prior written approval from the
Federal awarding agency, a pass -
through entity may provide subawards
based on fixed amounts up to the Sim-
plified Acquisition Threshold, provided
that the subawards meet the require-
ments for fixed amount awards in
§200.201.

RECORD RETENTION AND ACCESS
§ 200.334 Retention requirements for
records.

Financial records, supporting docu-
ments, statistical records, and all
other non -Federal entity records perti-
nent to a Federal award must be re-
tained for a period of three years from
the date of submission of the final ex-
penditure report or, for Federal awards
that are renewed quarterly or annu-
ally, from the date of the submission of
the quarterly or annual financial re-
port, respectively, as reported to the
Federal awarding agency or pass -
through entity in the case of a sub -
recipient. Federal awarding agencies
and pass -through entities must not im-
pose any other record retention re-
quirements upon non -Federal entities.

The only exceptions are the following:
2 CFR Ch. 11 (1-1-21 Edition)
(a) If any litigation, claim, or audit
is started before the expiration of the
3 -year period, the records must be re-
tained until all litigation, claims, or
audit findings involving the records
have been resolved and final action
taken.
(b) When the non -Federal entity is
notified in writing by the Federal
awarding agency, cognizant agency for
audit, oversight agency for audit, cog-
nizant agency for indirect costs, or
pass -through entity to extend the re-
tention period.
(c) Records for real property and
equipment acquired with Federal funds
must be retained for 3 years after final
disposition.
(d) When records are transferred to or
maintained by the Federal awarding
agency or pass -through entity, the 3 -
year retention requirement is not ap-
plicable to the non -Federal entity.
(e) Records for program income
transactions after the period of per-
formance. In some cases recipients
must report program income after the
period of performance. Where there is
such a requirement, the retention pe-
riod for the records pertaining to the
earning of the program income starts
from the end of the non -Federal enti-
ty's fiscal year in which the program
income is earned.
(f) Indirect cost rate proposals and
cost allocations plans. This paragraph
applies to the following types of docu-
ments and their supporting records: In-
direct cost rate computations or pro-
posals, cost allocation plans, and any
similar accounting computations of
the rate at which a particular group of
costs is chargeable (such as computer
usage chargeback rates or composite
fringe benefit rates).
(1) If submitted for negotiation. If the
proposal, plan, or other computation is
required to be submitted to the Federal
Government (or to the pass -through
entity) to form the basis for negotia-
tion of the rate, then the 3 -year reten-
tion period for its supporting records
starts from the date of such submis-
sion.
(2) If not submitted for negotiation. If
the proposal, plan, or other computa-
tion is not required to be submitted to
the Federal Government (or to the
pass -through entity) for negotiation
148

OMB Guidance
purposes, then the 3 -year retention pe-
riod for the proposal, plan, or computa-
tion and its supporting records starts
from the end of the fiscal year (or
other accounting period) covered by
the proposal, plan, or other computa-
tion.
§ 200.335 Requests for transfer of
records.

The Federal awarding agency must
request transfer of certain records to
its custody from the non -Federal enti-
ty when it determines that the records
possess long-term retention value.

However, in order to avoid duplicate
recordkeeping, the Federal awarding
agency may make arrangements for
the non -Federal entity to retain any
records that are continuously needed
for joint use.
§ 200.336 Methods for collection, trans-
mission, and storage of information.

The Federal awarding agency and the
non -Federal entity should, whenever
practicable, collect, transmit, and
store Federal award -related informa-
tion in open and machine-readable for-
mats rather than in closed formats or
on paper in accordance with applicable
legislative requirements. A machine-
readable format is a format in a stand-
ard computer language (not English
text) that can be read automatically by
a web browser or computer system. The
Federal awarding agency or pass -
through entity must always provide or
accept paper versions of Federal award -
related information to and from the
non -Federal entity upon request. If
paper copies are submitted, the Federal
awarding agency or pass -through enti-
ty must not require more than an
original and two copies. When original
records are electronic and cannot be al-
tered, there is no need to create and re-
tain paper copies. When original
records are paper, electronic versions
may be substituted through the use of
duplication or other forms of elec-
tronic media provided that they are
subject to periodic quality control re-
views, provide reasonable safeguards
against alteration, and remain read-
able.
§ 200.338
§ 200.337 Access to records.
(a) Records of non -Federal entities. The
Federal awarding agency, Inspectors
General, the Comptroller General of
the United States, and the pass -
through entity, or any of their author-
ized representatives, must have the
right of access to any documents, pa-
pers, or other records of the non -Fed-
eral entity which are pertinent to the
Federal award, in order to make au-
dits, examinations, excerpts, and tran-
scripts. The right also includes timely
and reasonable access to the non -Fed-
eral entity's personnel for the purpose
of interview and discussion related to
such documents.
(b) Extraordinary and rare cir-
cumstances. Only under extraordinary
and rare circumstances would such ac-
cess include review of the true name of
victims of a crime. Routine monitoring
cannot be considered extraordinary and
rare circumstances that would neces-
sitate access to this information. When
access to the true name of victims of a
crime is necessary, appropriate steps to
protect this sensitive information must
be taken by both the non -Federal enti-
ty and the Federal awarding agency.

Any such access, other than under a
court order or subpoena pursuant to a
bona fide confidential investigation,
must be approved by the head of the
Federal awarding agency or delegate.
(c) Expiration of right of access. The
rights of access in this section are not
limited to the required retention pe-
riod but last as long as the records are
retained. Federal awarding agencies
and pass -through entities must not im-
pose any other access requirements
upon non -Federal entities.
§ 200.338 Restrictions on public access
to records.

No Federal awarding agency may
place restrictions on the non -Federal
entity that limit public access to the
records of the non -Federal entity perti-
nent to a Federal award, except for
protected personally identifiable infor-
mation (PII) or when the Federal
awarding agency can demonstrate that
such records will be kept confidential
and would have been exempted from
disclosure pursuant to the Freedom of
149

§ 200.339
Information Act (5 U.S.C. 552) or con-
trolled unclassified information pursu-
ant to Executive Order 13556 if the
records had belonged to the Federal
awarding agency. The Freedom of In-
formation Act (5 U.S.C. 552) (FOIA)
does not apply to those records that re-
main under a non -Federal entity's con-
trol except as required under §200.315.

Unless required by Federal, state,
local, and tribal statute, non -Federal
entities are not required to permit pub-
lic access to their records. The non -
Federal entity's records provided to a
Federal agency generally will be sub-
ject to FOIA and applicable exemp-
tions.

REMEDIES FOR NONCOMPLIANCE
§ 200.339 Remedies for noncompliance.

If a non -Federal entity fails to com-
ply with the U.S. Constitution, Federal
statutes, regulations or the terms and
conditions of a Federal award, the Fed-
eral awarding agency or pass -through
entity may impose additional condi-
tions, as described in § 200.208. If the
Federal awarding agency or pass -
through entity determines that non-
compliance cannot be remedied by im-
posing additional conditions, the Fed-
eral awarding agency or pass -through
entity may take one or more of the fol-
lowing actions, as appropriate in the
circumstances:
(a) Temporarily withhold cash pay-
ments pending correction of the defi-
ciency by the non -Federal entity or
more severe enforcement action by the
Federal awarding agency or pass -
through entity.
(b) Disallow (that is, deny both use of
funds and any applicable matching
credit for) all or part of the cost of the
activity or action not in compliance.
(c) Wholly or partly suspend or ter-
minate the Federal award.
(d) Initiate suspension or debarment
proceedings as authorized under 2 CFR
part 180 and Federal awarding agency
regulations (or in the case of a pass -
through entity, recommend such a pro-
ceeding be initiated by a Federal
awarding agency).
(e) Withhold further Federal awards
for the project or program.
(f) Take other remedies that may be
legally available.
2 CFR Ch. 11 (1-1-21 Edition)
§ 200.340 Termination.
(a) The Federal award may be termi-
nated in whole or in part as follows:
(1) By the Federal awarding agency
or pass -through entity, if a non -Fed-
eral entity fails to comply with the
terms and conditions of a Federal
award;
(2) By the Federal awarding agency
or pass -through entity, to the greatest
extent authorized by law, if an award
no longer effectuates the program
goals or agency priorities;
(3) By the Federal awarding agency
or pass -through entity with the con-
sent of the non -Federal entity, in
which case the two parties must agree
upon the termination conditions, in-
cluding the effective date and, in the
case of partial termination, the portion
to be terminated;
(4) By the non -Federal entity upon
sending to the Federal awarding agen-
cy or pass -through entity written noti-
fication setting forth the reasons for
such termination, the effective date,
and, in the case of partial termination,
the portion to be terminated. However,
if the Federal awarding agency or pass -
through entity determines in the case
of partial termination that the reduced
or modified portion of the Federal
award or subaward will not accomplish
the purposes for which the Federal
award was made, the Federal awarding
agency or pass -through entity may ter-
minate the Federal award in its en-
tirety; or
(5) By the Federal awarding agency
or pass -through entity pursuant to ter-
mination provisions included in the
Federal award.
(b) A Federal awarding agency should
clearly and unambiguously specify ter-
mination provisions applicable to each
Federal award, in applicable regula-
tions or in the award, consistent with
this section.
(c) When a Federal awarding agency
terminates a Federal award prior to
the end of the period of performance
due to the non -Federal entity's mate-
rial failure to comply with the Federal
award terms and conditions, the Fed-
eral awarding agency must report the
termination to the OMB -designated in-
tegrity and performance system acces-
sible through SAM (currently FAPIIS).
150

OMB Guidance
(1) The information required under
paragraph (c) of this section is not to
be reported to designated integrity and
performance system until the non -Fed-
eral entity either—
(i) Has exhausted its opportunities to
object or challenge the decision, see
§ 200.342; or
(ii) Has not, within 30 calendar days
after being notified of the termination,
informed the Federal awarding agency
that it intends to appeal the Federal
awarding agency's decision to termi-
nate.
(2) If a Federal awarding agency,
after entering information into the
designated integrity and performance
system about a termination, subse-
quently:
(i) Learns that any of that informa-
tion is erroneous, the Federal awarding
agency must correct the information in
the system within three business days;
(ii) Obtains an update to that infor-
mation that could be helpful to other
Federal awarding agencies, the Federal
awarding agency is strongly encour-
aged to amend the information in the
system to incorporate the update in a
timely way.
(3) Federal awarding agencies, must
not post any information that will be
made publicly available in the non-
public segment of designated integrity
and performance system that is cov-
ered by a disclosure exemption under
the Freedom of Information Act. If the
non -Federal entity asserts within
seven calendar days to the Federal
awarding agency who posted the infor-
mation, that some of the information
made publicly available is covered by a
disclosure exemption under the Free-
dom of Information Act, the Federal
awarding agency who posted the infor-
mation must remove the posting with-
in seven calendar days of receiving the
assertion. Prior to reposting the releas-
able information, the Federal agency
must resolve the issue in accordance
with the agency's Freedom of Informa-
tion Act procedures.
(d) When a Federal award is termi-
nated or partially terminated, both the
Federal awarding agency or pass -
through entity and the non -Federal en-
tity remain responsible for compliance
with the requirements in §§200.344 and
200.345.
§ 200.341
§ 200.341 Notification of termination
requirement.
(a) The Federal agency or pass -
through entity must provide to the
non -Federal entity a notice of termi-
nation.
(b) If the Federal award is terminated
for the non -Federal entity's material
failure to comply with the U.S. Con-
stitution, Federal statutes, regula-
tions, or terms and conditions of the
Federal award, the notification must
state that —
(1) The termination decision will be
reported to the OMB -designated integ-
rity and performance system accessible
through SAM (currently FAPIIS);
(2) The information will be available
in the OMB -designated integrity and
performance system for a period of five
years from the date of the termination,
then archived;
(3) Federal awarding agencies that
consider making a Federal award to
the non -Federal entity during that five
year period must consider that infor-
mation in judging whether the non -
Federal entity is qualified to receive
the Federal award, when the Federal
share of the Federal award is expected
to exceed the simplified acquisition
threshold over the period of perform-
ance;
(4) The non -Federal entity may com-
ment on any information the OMB -des-
ignated integrity and performance sys-
tem contains about the non -Federal en-
tity for future consideration by Fed-
eral awarding agencies. The non -Fed-
eral entity may submit comments to
the awardee integrity and performance
portal accessible through SAM (cur-
rently (CPARS).
(5) Federal awarding agencies will
consider non -Federal entity comments
when determining whether the non -
Federal entity is qualified for a future
Federal award.
(c) Upon termination of a Federal
award, the Federal awarding agency
must provide the information required
under FFATA to the Federal website
established to fulfill the requirements
of FFATA, and update or notify any
other relevant governmentwide sys-
tems or entities of any indications of
poor performance as required by 41
U.S.C. 417b and 31 U.S.C. 3321 and im-
plementing guidance at 2 CFR part 77
151

§ 200.342
(forthcoming at time of publication).

See also the requirements for Suspen-
sion and Debarment at 2 CFR part 180.
§ 200.342 Opportunities to object, hear-
ings, and appeals.

Upon taking any remedy for non-
compliance, the Federal awarding
agency must provide the non -Federal
entity an opportunity to object and
provide information and documenta-
tion challenging the suspension or ter-
mination action, in accordance with
written processes and procedures pub-
lished by the Federal awarding agency.

The Federal awarding agency or pass -
through entity must comply with any
requirements for hearings, appeals or
other administrative proceedings to
which the non -Federal entity is enti-
tled under any statute or regulation
applicable to the action involved.
§ 200.343 Effects of suspension and ter-
mination.

Costs to the non -Federal entity re-
sulting from financial obligations in-
curred by the non -Federal entity dur-
ing a suspension or after termination
of a Federal award or subaward are not
allowable unless the Federal awarding
agency or pass -through entity ex-
pressly authorizes them in the notice
of suspension or termination or subse-
quently. However, costs during suspen-
sion or after termination are allowable
if:
(a) The costs result from financial
obligations which were properly in-
curred by the non -Federal entity before
the effective date of suspension or ter-
mination, are not in anticipation of it;
and
(b) The costs would be allowable if
the Federal award was not suspended
or expired normally at the end of the
period of performance in which the ter-
mination takes effect.

CLOSEOUT
§ 200.344 Closeout.

The Federal awarding agency or pass -
through entity will close out the Fed-
eral award when it determines that all
applicable administrative actions and
all required work of the Federal award
have been completed by the non -Fed-
eral entity. If the non -Federal entity
2 CFR Ch. 11 (1-1-21 Edition)
fails to complete the requirements, the
Federal awarding agency or pass -
through entity will proceed to close
out the Federal award with the infor-
mation available. This section specifies
the actions the non -Federal entity and
Federal awarding agency or pass -
through entity must take to complete
this process at the end of the period of
performance.
(a) The recipient must submit, no
later than 120 calendar days after the
end date of the period of performance,
all financial, performance, and other
reports as required by the terms and
conditions of the Federal award. A sub -
recipient must submit to the pass -
through entity, no later than 90 cal-
endar days (or an earlier date as agreed
upon by the pass -through entity and
subrecipient) after the end date of the
period of performance, all financial,
performance, and other reports as re-
quired by the terms and conditions of
the Federal award. The Federal award-
ing agency or pass -through entity may
approve extensions when requested and
justified by the non -Federal entity, as
applicable.
(b) Unless the Federal awarding agen-
cy or pass -through entity authorizes an
extension, a non -Federal entity must
liquidate all financial obligations in-
curred under the Federal award no
later than 120 calendar days after the
end date of the period of performance
as specified in the terms and conditions
of the Federal award.
(c) The Federal awarding agency or
pass -through entity must make prompt
payments to the non -Federal entity for
costs meeting the requirements in Sub-
part E of this part under the Federal
award being closed out.
(d) The non -Federal entity must
promptly refund any balances of unob-
ligated cash that the Federal awarding
agency or pass -through entity paid in
advance or paid and that are not au-
thorized to be retained by the non -Fed-
eral entity for use in other projects.

See OMB Circular A-129 and see
§ 200.346, for requirements regarding
unreturned amounts that become de-
linquent debts.
(e) Consistent with the terms and
conditions of the Federal award, the
Federal awarding agency or pass -
152

OMB Guidance
through entity must make a settle-
ment for any upward or downward ad-
justments to the Federal share of costs
after closeout reports are received.
(f) The non -Federal entity must ac-
count for any real and personal prop-
erty acquired with Federal funds or re-
ceived from the Federal Government in
accordance with §§200.310 through
200.316 and 200.330.
(g) When a recipient or subrecipient
completes all closeout requirements,
the Federal awarding agency or pass -
through entity must promptly com-
plete all closeout actions for Federal
awards. The Federal awarding agency
must make every effort to complete
closeout actions no later than one year
after the end of the period of perform-
ance unless otherwise directed by au-
thorizing statutes. Closeout actions in-
clude Federal awarding agency actions
in the grants management and pay-
ment systems.
(h) If the non -Federal entity does not
submit all reports in accordance with
this section and the terms and condi-
tions of the Federal Award, the Federal
awarding agency must proceed to close
out with the information available
within one year of the period of per-
formance end date.
(i) If the non -Federal entity does not
submit all reports in accordance with
this section within one year of the pe-
riod of performance end date, the Fed-
eral awarding agency must report the
non -Federal entity's material failure
to comply with the terms and condi-
tions of the award with the OMB -des-
ignated integrity and performance sys-
tem (currently FAPIIS). Federal
awarding agencies may also pursue
other enforcement actions per §200.339.

POST -CLOSEOUT ADJUSTMENTS AND

CONTINUING RESPONSIBILITIES
§ 200.345 Post -closeout adjustments
and continuing responsibilities.
(a) The closeout of a Federal award
does not affect any of the following:
(1) The right of the Federal awarding
agency or pass -through entity to dis-
allow costs and recover funds on the
basis of a later audit or other review.

The Federal awarding agency or pass -
through entity must make any cost
disallowance determination and notify
§ 200.346
the non -Federal entity within the
record retention period.
(2) The requirement for the non -Fed-
eral entity to return any funds due as
a result of later refunds, corrections, or
other transactions including final indi-
rect cost rate adjustments.
(3) The ability of the Federal award-
ing agency to make financial adjust-
ments to a previously closed award
such as resolving indirect cost pay-
ments and making final payments.
(4) Audit requirements in subpart F
of this part.
(5) Property management and dis-
position requirements in §§200.310
through 200.316 of this subpart.
(6) Records retention as required in
§§200.334 through 200.337 of this sub-
part.
(b) After closeout of the Federal
award, a relationship created under the
Federal award may be modified or
ended in whole or in part with the con-
sent of the Federal awarding agency or
pass -through entity and the non -Fed-
eral entity, provided the responsibil-
ities of the non -Federal entity referred
to in paragraph (a) of this section, in-
cluding those for property management
as applicable, are considered and provi-
sions made for continuing responsibil-
ities of the non -Federal entity, as ap-
propriate.

COLLECTION OF AMOUNTS DUE
§ 200.346 Collection of amounts due.
(a) Any funds paid to the non -Federal
entity in excess of the amount to
which the non -Federal entity is finally
determined to be entitled under the
terms of the Federal award constitute
a debt to the Federal Government. If
not paid within 90 calendar days after
demand, the Federal awarding agency
may reduce the debt by:
(1) Making an administrative offset
against other requests for reimburse-
ments;
(2) Withholding advance payments
otherwise due to the non -Federal enti-
ty; or
(3) Other action permitted by Federal
statute.
(b) Except where otherwise provided
by statutes or regulations, the Federal
awarding agency will charge interest
on an overdue debt in accordance with
153

§ 200.400
the Federal Claims Collection Stand-
ards (31 CFR parts 900 through 999). The
date from which interest is computed
is not extended by litigation or the fil-
ing of any form of appeal.

Subpart E —Cost Principles

GENERAL PROVISIONS
§ 200.400 Policy guide.

The application of these cost prin-
ciples is based on the fundamental
premises that:
(a) The non -Federal entity is respon-
sible for the efficient and effective ad-
ministration of the Federal award
through the application of sound man-
agement practices.
(b) The non -Federal entity assumes
responsibility for administering Fed-
eral funds in a manner consistent with
underlying agreements, program objec-
tives, and the terms and conditions of
the Federal award.
(c) The non -Federal entity, in rec-
ognition of its own unique combination
of staff, facilities, and experience, has
the primary responsibility for employ-
ing whatever form of sound organiza-
tion and management techniques may
be necessary in order to assure proper
and efficient administration of the
Federal award.
(d) The application of these cost prin-
ciples should require no significant
changes in the internal accounting
policies and practices of the non -Fed-
eral entity. However, the accounting
practices of the non -Federal entity
must be consistent with these cost
principles and support the accumula-
tion of costs as required by the prin-
ciples, and must provide for adequate
documentation to support costs
charged to the Federal award.
(e) In reviewing, negotiating and ap-
proving cost allocation plans or indi-
rect cost proposals, the cognizant agen-
cy for indirect costs should generally
assure that the non -Federal entity is
applying these cost accounting prin-
ciples on a consistent basis during
their review and negotiation of indirect
cost proposals. Where wide variations
exist in the treatment of a given cost
item by the non -Federal entity, the
reasonableness and equity of such
treatments should be fully considered.
2 CFR Ch. 11 (1-1-21 Edition)
See the definition of indirect (facilities &
administrative (F&A)) costs in § 200.1 of
this part.
(f) For non -Federal entities that edu-
cate and engage students in research,
the dual role of students as both train-
ees and employees (including pre- and
post -doctoral staff) contributing to the
completion of Federal awards for re-
search must be recognized in the appli-
cation of these principles.
(g) The non -Federal entity may not
earn or keep any profit resulting from
Federal financial assistance, unless ex-
plicitly authorized by the terms and
conditions of the Federal award. See
also §200.307.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75885, Dec. 19, 2014; 85 FR 49561, Aug. 13,
2020]
§ 200.401 Application.
(a) General. These principles must be
used in determining the allowable costs
of work performed by the non -Federal
entity under Federal awards. These
principles also must be used by the
non -Federal entity as a guide in the
pricing of fixed -price contracts and
subcontracts where costs are used in
determining the appropriate price. The
principles do not apply to:
(1) Arrangements under which Fed-
eral financing is in the form of loans,
scholarships, fellowships, traineeships,
or other fixed amounts based on such
items as education allowance or pub-
lished tuition rates and fees.
(2) For IHEs, capitation awards,
which are awards based on case counts
or number of beneficiaries according to
the terms and conditions of the Federal
award.
(3) Fixed amount awards. See also
§ 200.1 Definitions and 200.201.
(4) Federal awards to hospitals (see
appendix IX to this part).
(5) Other awards under which the
non -Federal entity is not required to
account to the Federal Government for
actual costs incurred.
(b) Federal contract. Where a Federal
contract awarded to a non -Federal en-
tity is subject to the Cost Accounting
Standards (CAS), it incorporates the
applicable CAS clauses, Standards, and
CAS administration requirements per
the 48 CFR Chapter 99 and 48 CFR part
30 (FAR Part 30). CAS applies directly
154

OMB Guidance
to the CAS -covered contract and the
Cost Accounting Standards at 48 CFR
parts 9904 or 9905 takes precedence over
the cost principles in this subpart E
with respect to the allocation of costs.

When a contract with a non -Federal
entity is subject to full CAS coverage,
the allowability of certain costs under
the cost principles will be affected by
the allocation provisions of the Cost
Accounting Standards (e.g., CAS 414-
48 CFR 9904.414, Cost of Money as an
Element of the Cost of Facilities Cap-
ital, and CAS 417-48 CFR 9904.417, Cost
of Money as an Element of the Cost of
Capital Assets Under Construction),
apply rather the allowability provi-
sions of § 200.449. In complying with
those requirements, the non -Federal
entity's application of cost accounting
practices for estimating, accumu-
lating, and reporting costs for other
Federal awards and other cost objec-
tives under the CAS -covered contract
still must be consistent with its cost
accounting practices for the CAS -cov-
ered contracts. In all cases, only one
set of accounting records needs to be
maintained for the allocation of costs
by the non -Federal entity.
(c) Exemptions. Some nonprofit orga-
nizations, because of their size and na-
ture of operations, can be considered to
be similar to for-profit entities for pur-
pose of applicability of cost principles.

Such nonprofit organizations must op-
erate under Federal cost principles ap-
plicable to for-profit entities located at
48 CFR 31.2. A listing of these organiza-
tions is contained in appendix VIII to
this part. Other organizations, as ap-
proved by the cognizant agency for in-
direct costs, may be added from time
to time.
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49562, Aug. 13, 2020]

BASIC CONSIDERATIONS
§ 200.402 Composition of costs.

Total cost. The total cost of a Federal
award is the sum of the allowable di-
rect and allocable indirect costs less
any applicable credits.
§ 200.403 Factors affecting allowability
of costs.

Except where otherwise authorized
by statute, costs must meet the fol-
§ 200.404
lowing general criteria in order to be
allowable under Federal awards:
(a) Be necessary and reasonable for
the performance of the Federal award
and be allocable thereto under these
principles.
(b) Conform to any limitations or ex-
clusions set forth in these principles or
in the Federal award as to types or
amount of cost items.
(c) Be consistent with policies and
procedures that apply uniformly to
both federally -financed and other ac-
tivities of the non -Federal entity.
(d) Be accorded consistent treatment.

A cost may not be assigned to a Fed-
eral award as a direct cost if any other
cost incurred for the same purpose in
like circumstances has been allocated
to the Federal award as an indirect
cost.
(e) Be determined in accordance with
generally accepted accounting prin-
ciples (GAAP), except, for state and
local governments and Indian tribes
only, as otherwise provided for in this
part.
(f) Not be included as a cost or used
to meet cost sharing or matching re-
quirements of any other federally -fi-
nanced program in either the current
or a prior period. See also §200.306(b).
(g) Be adequately documented. See
also §§200.300 through 200.309 of this
part.
(h) Cost must be incurred during the
approved budget period. The Federal
awarding agency is authorized, at its
discretion, to waive prior written ap-
provals to carry forward unobligated
balances to subsequent budget periods
pursuant to §200.308(e)(3).
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49562, Aug. 13, 2020]
§ 200.404 Reasonable costs.

A cost is reasonable if, in its nature
and amount, it does not exceed that
which would be incurred by a prudent
person under the circumstances pre-
vailing at the time the decision was
made to incur the cost. The question of
reasonableness is particularly impor-
tant when the non -Federal entity is
predominantly federally -funded. In de-
termining reasonableness of a given
cost, consideration must be given to:
155

§ 200.405
(a) Whether the cost is of a type gen-
erally recognized as ordinary and nec-
essary for the operation of the non -
Federal entity or the proper and effi-
cient performance of the Federal
award.
(b) The restraints or requirements
imposed by such factors as: sound busi-
ness practices; arm's -length bar-
gaining; Federal, state, local, tribal,
and other laws and regulations; and
terms and conditions of the Federal
award.
(c) Market prices for comparable
goods or services for the geographic
area.
(d) Whether the individuals con-
cerned acted with prudence in the cir-
cumstances considering their respon-
sibilities to the non -Federal entity, its
employees, where applicable its stu-
dents or membership, the public at
large, and the Federal Government.
(e) Whether the non -Federal entity
significantly deviates from its estab-
lished practices and policies regarding
the incurrence of costs, which may
unjustifiably increase the Federal
award's cost.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75885, Dec. 19, 2014]
§ 200.405 Allocable costs.
(a) A cost is allocable to a particular
Federal award or other cost objective if
the goods or services involved are
chargeable or assignable to that Fed-
eral award or cost objective in accord-
ance with relative benefits received.

This standard is met if the cost:
(1) Is incurred specifically for the
Federal award;
(2) Benefits both the Federal award
and other work of the non -Federal en-
tity and can be distributed in propor-
tions that may be approximated using
reasonable methods; and
(3) Is necessary to the overall oper-
ation of the non -Federal entity and is
assignable in part to the Federal award
in accordance with the principles in
this subpart.
(b) All activities which benefit from
the non -Federal entity's indirect (F&A)
cost, including unallowable activities
and donated services by the non -Fed-
eral entity or third parties, will receive
an appropriate allocation of indirect
costs.
2 CFR Ch. 11 (1-1-21 Edition)
(c) Any cost allocable to a particular
Federal award under the principles pro-
vided for in this part may not be
charged to other Federal awards to
overcome fund deficiencies, to avoid re-
strictions imposed by Federal statutes,
regulations, or terms and conditions of
the Federal awards, or for other rea-
sons. However, this prohibition would
not preclude the non -Federal entity
from shifting costs that are allowable
under two or more Federal awards in
accordance with existing Federal stat-
utes, regulations, or the terms and con-
ditions of the Federal awards.
(d) Direct cost allocation principles:

If a cost benefits two or more projects
or activities in proportions that can be
determined without undue effort or
cost, the cost must be allocated to the
projects based on the proportional ben-
efit. If a cost benefits two or more
projects or activities in proportions
that cannot be determined because of
the interrelationship of the work in-
volved, then, notwithstanding para-
graph (c) of this section, the costs may
be allocated or transferred to bene-
fitted projects on any reasonable docu-
mented basis. Where the purchase of
equipment or other capital asset is spe-
cifically authorized under a Federal
award, the costs are assignable to the
Federal award regardless of the use
that may be made of the equipment or
other capital asset involved when no
longer needed for the purpose for which
it was originally required. See also
§§200.310 through 200.316 and 200.439.
(e) If the contract is subject to CAS,
costs must be allocated to the contract
pursuant to the Cost Accounting
Standards. To the extent that CAS is
applicable, the allocation of costs in
accordance with CAS takes precedence
over the allocation provisions in this
part.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75885, Dec. 19, 2014; 85 FR 49562, Aug. 13,
2020]
§ 200.406 Applicable credits.
(a) Applicable credits refer to those
receipts or reduction -of -expenditure -
type transactions that offset or reduce
expense items allocable to the Federal
award as direct or indirect (F&A) costs.

Examples of such transactions are: pur-
chase discounts, rebates or allowances,
156

OMB Guidance
recoveries or indemnities on losses, in-
surance refunds or rebates, and adjust-
ments of overpayments or erroneous
charges. To the extent that such cred-
its accruing to or received by the non -
Federal entity relate to allowable
costs, they must be credited to the
Federal award either as a cost reduc-
tion or cash refund, as appropriate.
(b) In some instances, the amounts
received from the Federal Government
to finance activities or service oper-
ations of the non -Federal entity should
be treated as applicable credits. Spe-
cifically, the concept of netting such
credit items (including any amounts
used to meet cost sharing or matching
requirements) must be recognized in
determining the rates or amounts to be
charged to the Federal award. (See
§§ 200.436 and 200.468, for areas of poten-
tial application in the matter of Fed-
eral financing of activities.)
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75885, Dec. 19, 2014; 85 FR 49562, Aug. 13,
2020]
§ 200.407 Prior written approval (prior
approval).

Under any given Federal award, the
reasonableness and allocability of cer-
tain items of costs may be difficult to
determine. In order to avoid subse-
quent disallowance or dispute based on
unreasonableness or nonallocability,
the non -Federal entity may seek the
prior written approval of the cognizant
agency for indirect costs or the Federal
awarding agency in advance of the in-
currence of special or unusual costs.

Prior written approval should include
the timeframe or scope of the agree-
ment. The absence of prior written ap-
proval on any element of cost will not,
in itself, affect the reasonableness or
allocability of that element, unless
prior approval is specifically required
for allowability as described under cer-
tain circumstances in the following
sections of this part:
(a) § 200.201 Use of grant agreements
(including fixed amount awards), coop-
erative agreements, and contracts,
paragraph (b)(5);
(b) § 200.306 Cost sharing or matching;
(c) § 200.307 Program income;
(d) §200.308 Revision of budget and
program plans;
(e) § 200.311 Real property;
§ 200.409
(f) § 200.313 Equipment;
(g) § 200.333 Fixed amount subawards;
(h) §200.413 Direct costs, paragraph
(c);
(i) § 200.430 Compensation —personal
services, paragraph (h);
(j) §200.431 Compensation —fringe ben-
efits;
(k) § 200.438 Entertainment costs;
(1) § 200.439 Equipment and other cap-
ital expenditures;
(m) § 200.440 Exchange rates;
(n) § 200.441 Fines, penalties, damages
and other settlements;
(o) §200.442 Fund raising and invest-
ment management costs;
(p) § 200.445 Goods or services for per-
sonal use;
(q) § 200.447 Insurance and indem-
nification;
(r) § 200.454 Memberships, subscrip-
tions, and professional activity costs,
paragraph (c);
(s) § 200.455 Organization costs;
(t) § 200.456 Participant support costs;
(u) §200.458 Pre -award costs;
(v) § 200.462 Rearrangement and re-
conversion costs;
(w) § 200.467 Selling and marketing
costs;
(x) §200.470 Taxes (including Value
Added Tax); and
(y) § 200.475 Travel costs.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75885, Dec. 19, 2014; 85 FR 49562, Aug. 13,
2020]
§ 200.408 Limitation on allowance of
costs.

The Federal award may be subject to
statutory requirements that limit the
allowability of costs. When the max-
imum amount allowable under a limi-
tation is less than the total amount de-
termined in accordance with the prin-
ciples in this part, the amount not re-
coverable under the Federal award may
not be charged to the Federal award.
§ 200.409 Special considerations.

In addition to the basic consider-
ations regarding the allowability of
costs highlighted in this subtitle, other
subtitles in this part describe special
considerations and requirements appli-
cable to states, local governments, In-
dian tribes, and IHEs. In addition, cer-
tain provisions among the items of cost
in this subpart are only applicable to
157

§200.410 2 CFR Ch. 11 (1-1-21 Edition)
certain types of non -Federal entities,
as specified in the following sections:
(a) Direct and Indirect (F&A) Costs
(§§200.412-200.415) of this subpart;
(b) Special Considerations for States,
Local Governments and Indian Tribes
(§§200.416 and 200.417) of this subpart;
and
(c) Special Considerations for Insti-
tutions of Higher Education (§§200.418
and 200.419) of this subpart.
[85 FR 49562, Aug. 13, 2020]
§ 200.410 Collection of unallowable
costs.

Payments made for costs determined
to be unallowable by either the Federal
awarding agency, cognizant agency for
indirect costs, or pass -through entity,
either as direct or indirect costs, must
be refunded (including interest) to the
Federal Government in accordance
with instructions from the Federal
agency that determined the costs are
unallowable unless Federal statute or
regulation directs otherwise. See also
§§200.300 through 200.309 in subpart D of
this part.
[85 FR 49562, Aug. 13, 2020]
§ 200.411 Adjustment of previously ne-
gotiated indirect (F&A) cost rates
containing unallowable costs.
(a) Negotiated indirect (F&A) cost
rates based on a proposal later found to
have included costs that:
(1) Are unallowable as specified by
Federal statutes, regulations or the
terms and conditions of a Federal
award; or
(2) Are unallowable because they are
not allocable to the Federal award(s),
must be adjusted, or a refund must be
made, in accordance with the require-
ments of this section. These adjust-
ments or refunds are designed to cor-
rect the proposals used to establish the
rates and do not constitute a reopening
of the rate negotiation. The adjust-
ments or refunds will be made regard-
less of the type of rate negotiated (pre-
determined, final, fixed, or provi-
sional).
(b) For rates covering a future fiscal
year of the non -Federal entity, the un-
allowable costs will be removed from
the indirect (F&A) cost pools and the
rates appropriately adjusted.
(c) For rates covering a past period,
the Federal share of the unallowable
costs will be computed for each year
involved and a cash refund (including
interest chargeable in accordance with
applicable regulations) will be made to
the Federal Government. If cash re-
funds are made for past periods covered
by provisional or fixed rates, appro-
priate adjustments will be made when
the rates are finalized to avoid dupli-
cate recovery of the unallowable costs
by the Federal Government.
(d) For rates covering the current pe-
riod, either a rate adjustment or a re-
fund, as described in paragraphs (b) and
(c) of this section, must be required by
the cognizant agency for indirect costs.

The choice of method must be at the
discretion of the cognizant agency for
indirect costs, based on its judgment as
to which method would be most prac-
tical.
(e) The amount or proportion of unal-
lowable costs included in each year's
rate will be assumed to be the same as
the amount or proportion of unallow-
able costs included in the base year
proposal used to establish the rate.

DIRECT AND INDIRECT (F&A) COSTS
§ 200.412 Classification of costs.

There is no universal rule for
classifying certain costs as either di-
rect or indirect (F&A) under every ac-
counting system. A cost may be direct
with respect to some specific service or
function, but indirect with respect to
the Federal award or other final cost
objective. Therefore, it is essential
that each item of cost incurred for the
same purpose be treated consistently
in like circumstances either as a direct
or an indirect (F&A) cost in order to
avoid possible double -charging of Fed-
eral awards. Guidelines for determining
direct and indirect (F&A) costs charged
to Federal awards are provided in this
subpart.
§ 200.413 Direct costs.
(a) General. Direct costs are those
costs that can be identified specifically
with a particular final cost objective,
such as a Federal award, or other inter-
nally or externally funded activity, or
that can be directly assigned to such
activities relatively easily with a high
158

OMB Guidance
degree of accuracy. Costs incurred for
the same purpose in like circumstances
must be treated consistently as either
direct or indirect (F&A) costs. See also
§200.405.
(b) Application to Federal awards.

Identification with the Federal award
rather than the nature of the goods and
services involved is the determining
factor in distinguishing direct from in-
direct (F&A) costs of Federal awards.

Typical costs charged directly to a
Federal award are the compensation of
employees who work on that award,
their related fringe benefit costs, the
costs of materials and other items of
expense incurred for the Federal award.

If directly related to a specific award,
certain costs that otherwise would be
treated as indirect costs may also be
considered direct costs. Examples in-
clude extraordinary utility consump-
tion, the cost of materials supplied
from stock or services rendered by spe-
cialized facilities, program evaluation
costs, or other institutional service op-
erations.
(c) The salaries of administrative and
clerical staff should normally be treat-
ed as indirect (F&A) costs. Direct
charging of these costs may be appro-
priate only if all of the following condi-
tions are met:
(1) Administrative or clerical serv-
ices are integral to a project or activ-
ity;
(2) Individuals involved can be spe-
cifically identified with the project or
activity;
(3) Such costs are explicitly included
in the budget or have the prior written
approval of the Federal awarding agen-
cy; and
(4) The costs are not also recovered
as indirect costs.
(d) Minor items. Any direct cost of
minor amount may be treated as an in-
direct (F&A) cost for reasons of practi-
cality where such accounting treat-
ment for that item of cost is consist-
ently applied to all Federal and non -
Federal cost objectives.
(e) The costs of certain activities are
not allowable as charges to Federal
awards. However, even though these
costs are unallowable for purposes of
computing charges to Federal awards,
they nonetheless must be treated as di-
rect costs for purposes of determining
§ 200.414
indirect (F&A) cost rates and be allo-
cated their equitable share of the non -
Federal entity's indirect costs if they
represent activities which:
(1) Include the salaries of personnel,
(2) Occupy space, and
(3) Benefit from the non -Federal enti-
ty's indirect (F&A) costs.
(f) For nonprofit organizations, the
costs of activities performed by the
non -Federal entity primarily as a serv-
ice to members, clients, or the general
public when significant and necessary
to the non -Federal entity's mission
must be treated as direct costs whether
or not allowable, and be allocated an
equitable share of indirect (F&A) costs.

Some examples of these types of activi-
ties include:
(1) Maintenance of membership rolls,
subscriptions, publications, and related
functions. See also § 200.454.
(2) Providing services and informa-
tion to members, legislative or admin-
istrative bodies, or the public. See also
§§200.454 and 200.450.
(3) Promotion, lobbying, and other
forms of public relations. See also
§§ 200.421 and 200.450.
(4) Conferences except those held to
conduct the general administration of
the non -Federal entity. See also
§200.432.
(5) Maintenance, protection, and in-
vestment of special funds not used in
operation of the non -Federal entity.

See also §200.442.
(6) Administration of group benefits
on behalf of members or clients, in-
cluding life and hospital insurance, an-
nuity or retirement plans, and finan-
cial aid. See also §200.431.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75885, Dec. 19, 2014; 85 FR 49562, Aug. 13,
2020]
§ 200.414 Indirect (F&A) costs.
(a) Facilities and administration classi-
fication. For major Institutions of
Higher Education (IHE) and major non-
profit organizations, indirect (F&A)
costs must be classified within two
broad categories: "Facilities" and
"Administration." "Facilities" is de-
fined as depreciation on buildings,
equipment and capital improvement,
interest on debt associated with cer-
tain buildings, equipment and capital
improvements, and operations and
159

§ 200.414
maintenance expenses. "Administra-
tion" is defined as general administra-
tion and general expenses such as the
director's office, accounting, personnel
and all other types of expenditures not
listed specifically under one of the sub-
categories of "Facilities" (including
cross allocations from other pools,
where applicable). For nonprofit orga-
nizations, library expenses are included
in the "Administration" category; for
IHEs, they are included in the "Facili-
ties" category. Major IHEs are defined
as those required to use the Standard
Format for Submission as noted in ap-
pendix III to this part, and Rate Deter-
mination for Institutions of Higher
Education paragraph C. 11. Major non-
profit organizations are those which re-
ceive more than $10 million dollars in
direct Federal funding.
(b) Diversity of nonprofit organizations.

Because of the diverse characteristics
and accounting practices of nonprofit
organizations, it is not possible to
specify the types of cost which may be
classified as indirect (F&A) cost in all
situations. Identification with a Fed-
eral award rather than the nature of
the goods and services involved is the
determining factor in distinguishing
direct from indirect (F&A) costs of
Federal awards. However, typical ex-
amples of indirect (F&A) cost for many
nonprofit organizations may include
depreciation on buildings and equip-
ment, the costs of operating and main-
taining facilities, and general adminis-
tration and general expenses, such as
the salaries and expenses of executive
officers, personnel administration, and
accounting.
(c) Federal Agency Acceptance of Nego-
tiated Indirect Cost Rates. (See also
§200.306.)
(1) The negotiated rates must be ac-
cepted by all Federal awarding agen-
cies. A Federal awarding agency may
use a rate different from the negotiated
rate for a class of Federal awards or a
single Federal award only when re-
quired by Federal statute or regula-
tion, or when approved by a Federal
awarding agency head or delegate
based on documented justification as
described in paragraph (c)(3) of this
section.
2 CFR Ch. 11 (1-1-21 Edition)
(2) The Federal awarding agency head
or delegate must notify OMB of any ap-
proved deviations.
(3) The Federal awarding agency
must implement, and make publicly
available, the policies, procedures and
general decision -making criteria that
their programs will follow to seek and
justify deviations from negotiated
rates.
(4) As required under § 200.204, the
Federal awarding agency must include
in the notice of funding opportunity
the policies relating to indirect cost
rate reimbursement, matching, or cost
share as approved under paragraph
(e)(1) of this section. As appropriate,
the Federal agency should incorporate
discussion of these policies into Fed-
eral awarding agency outreach activi-
ties with non -Federal entities prior to
the posting of a notice of funding op-
portunity.
(d) Pass -through entities are subject
to the requirements in §200.332(a)(4).
(e) Requirements for development
and submission of indirect (F&A) cost
rate proposals and cost allocation
plans are contained in Appendices III -
VII and Appendix IX as follows:
(1) Appendix III to Part 200 —Indirect
(F&A) Costs Identification and Assign-
ment, and Rate Determination for In-
stitutions of Higher Education (IHEs);
(2) Appendix IV to Part 200 —Indirect
(F&A) Costs Identification and Assign-
ment, and Rate Determination for Non-
profit Organizations;
(3) Appendix V to Part 200 —State/
Local Governmentwide Central Service
Cost Allocation Plans;
(4) Appendix VI to Part 200 —Public
Assistance Cost Allocation Plans;
(5) Appendix VII to Part 200 —States
and Local Government and Indian
Tribe Indirect Cost Proposals; and
(6) Appendix IX to Part 200 —Hospital
Cost Principles.
(f) In addition to the procedures out-
lined in the appendices in paragraph (e)
of this section, any non -Federal entity
that does not have a current nego-
tiated (including provisional) rate, ex-
cept for those non -Federal entities de-
scribed in appendix VII to this part,
paragraph D.1.b, may elect to charge a
de minimis rate of 10% of modified
total direct costs (MTDC) which may
be used indefinitely. No documentation
160

OMB Guidance
is required to justify the 10% de mini-
mis indirect cost rate. As described in
§200.403, costs must be consistently
charged as either indirect or direct
costs, but may not be double charged
or inconsistently charged as both. If
chosen, this methodology once elected
must be used consistently for all Fed-
eral awards until such time as a non -
Federal entity chooses to negotiate for
a rate, which the non -Federal entity
may apply to do at any time.
(g) Any non -Federal entity that has a
current federally -negotiated indirect
cost rate may apply for a one-time ex-
tension of the rates in that agreement
for a period of up to four years. This
extension will be subject to the review
and approval of the cognizant agency
for indirect costs. If an extension is
granted the non -Federal entity may
not request a rate review until the ex-
tension period ends. At the end of the
4 -year extension, the non -Federal enti-
ty must re -apply to negotiate a rate.

Subsequent one-time extensions (up to
four years) are permitted if a renegoti-
ation is completed between each exten-
sion request.
(h) The federally negotiated indirect
rate, distribution base, and rate type
for a non -Federal entity (except for the
Indian tribes or tribal organizations, as
defined in the Indian Self Determina-
tion, Education and Assistance Act, 25
U.S.C. 450b(1)) must be available pub-
licly on an OMB -designated Federal
website.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75886, Dec. 19, 2014; 85 FR 49563, Aug. 13,
2020]
§ 200.415 Required certifications.

Required certifications include:
(a) To assure that expenditures are
proper and in accordance with the
terms and conditions of the Federal
award and approved project budgets,
the annual and final fiscal reports or
vouchers requesting payment under the
agreements must include a certifi-
cation, signed by an official who is au-
thorized to legally bind the non -Fed-
eral entity, which reads as follows: "By
signing this report, I certify to the best
of my knowledge and belief that the re-
port is true, complete, and accurate,
and the expenditures, disbursements
and cash receipts are for the purposes
§ 200.415
and objectives set forth in the terms
and conditions of the Federal award. I
am aware that any false, fictitious, or
fraudulent information, or the omis-
sion of any material fact, may subject
me to criminal, civil or administrative
penalties for fraud, false statements,
false claims or otherwise. (U.S. Code
Title 18, Section 1001 and Title 31, Sec-
tions 3729-3730 and 3801-3812)."
(b) Certification of cost allocation
plan or indirect (F&A) cost rate pro-
posal. Each cost allocation plan or in-
direct (F&A) cost rate proposal must
comply with the following:
(1) A proposal to establish a cost allo-
cation plan or an indirect (F&A) cost
rate, whether submitted to a Federal
cognizant agency for indirect costs or
maintained on file by the non -Federal
entity, must be certified by the non -
Federal entity using the Certificate of
Cost Allocation Plan or Certificate of
Indirect Costs as set forth in appen-
dices III through VII, and IX of this
part. The certificate must be signed on
behalf of the non -Federal entity by an
individual at a level no lower than vice
president or chief financial officer of
the non -Federal entity that submits
the proposal.
(2) Unless the non -Federal entity has
elected the option under §200.414(f), the
Federal Government may either dis-
allow all indirect (F&A) costs or uni-
laterally establish such a plan or rate
when the non -Federal entity fails to
submit a certified proposal for estab-
lishing such a plan or rate in accord-
ance with the requirements. Such a
plan or rate may be based upon audited
historical data or such other data that
have been furnished to the cognizant
agency for indirect costs and for which
it can be demonstrated that all unal-
lowable costs have been excluded.

When a cost allocation plan or indirect
cost rate is unilaterally established by
the Federal Government because the
non -Federal entity failed to submit a
certified proposal, the plan or rate es-
tablished will be set to ensure that po-
tentially unallowable costs will not be
reimbursed.
(c) Certifications by nonprofit orga-
nizations as appropriate that they did
not meet the definition of a major non-
profit organization as defined in
§ 200.414(a).
161

§ 200.416
(d) See also § 200.450 for another re-
quired certification.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75886, Dec. 19, 2014; 85 FR 49563, Aug. 13,
2020]

SPECIAL CONSIDERATIONS FOR STATES,

LOCAL GOVERNMENTS AND INDIAN
TRIBES
§ 200.416 Cost allocation plans and in-
direct cost proposals.
(a) For states, local governments and
Indian tribes, certain services, such as
motor pools, computer centers, pur-
chasing, accounting, etc., are provided
to operating agencies on a centralized
basis. Since Federal awards are per-
formed within the individual operating
agencies, there needs to be a process
whereby these central service costs can
be identified and assigned to benefitted
activities on a reasonable and con-
sistent basis. The central service cost
allocation plan provides that process.
(b) Individual operating agencies
(governmental department or agency),
normally charge Federal awards for in-
direct costs through an indirect cost
rate. A separate indirect cost rate(s)
proposal for each operating agency is
usually necessary to claim indirect
costs under Federal awards. Indirect
costs include:
(1) The indirect costs originating in
each department or agency of the gov-
ernmental unit carrying out Federal
awards and
(2) The costs of central governmental
services distributed through the cen-
tral service cost allocation plan and
not otherwise treated as direct costs.
(c) The requirements for development
and submission of cost allocation plans
(for central service costs and public as-
sistance programs) and indirect cost
rate proposals are contained in appen-
dices IV, V and VI to this part.
§ 200.417 Interagency service.

The cost of services provided by one
agency to another within the govern-
mental unit may include allowable di-
rect costs of the service plus a pro-
rated share of indirect costs. A stand-
ard indirect cost allowance equal to
ten percent of the direct salary and
wage cost of providing the service (ex-
cluding overtime, shift premiums, and
2 CFR Ch. 11 (1-1-21 Edition)
fringe benefits) may be used in lieu of
determining the actual indirect costs
of the service. These services do not in-
clude centralized services included in
central service cost allocation plans as
described in Appendix V to Part 200.
[85 FR 49564, Aug. 13, 2020]

SPECIAL CONSIDERATIONS FOR

INSTITUTIONS OF HIGHER EDUCATION
§ 200.418 Costs incurred by states and
local governments.

Costs incurred or paid by a state or
local government on behalf of its IHEs
for fringe benefit programs, such as
pension costs and FICA and any other
costs specifically incurred on behalf of,
and in direct benefit to, the IHEs, are
allowable costs of such IHEs whether
or not these costs are recorded in the
accounting records of the institutions,
subject to the following:
(a) The costs meet the requirements
of § 200.402-411 of this subpart;
(b) The costs are properly supported
by approved cost allocation plans in ac-
cordance with applicable Federal cost
accounting principles in this part; and
(c) The costs are not otherwise borne
directly or indirectly by the Federal
Government.
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49564, Aug. 13, 2020]
§ 200.419 Cost accounting standards
and disclosure statement.
(a) An IHE that receive an aggregate
total $50 million or more in Federal
awards and instruments subject to this
subpart (as specified in § 200.101) in its
most recently completed fiscal year
must comply with the Cost Accounting
Standards Board's cost accounting
standards located at 48 CFR 9905.501,
9905.502, 9905.505, and 9905.506. CAS -cov-
ered contracts and subcontracts award-
ed to the IHEs are subject to the broad-
er range of CAS requirements at 48
CFR 9900 through 9999 and 48 CFR part
30 (FAR Part 30).
(b) Disclosure statement. An IHE that
receives an aggregate total $50 million
or more in Federal awards and instru-
ments subject to this subpart (as speci-
fied in § 200.101) during its most re-
cently completed fiscal year must dis-
close their cost accounting practices
by filing a Disclosure Statement (DS -
162

OMB Guidance
2), which is reproduced in Appendix III
to Part 200. With the approval of the
cognizant agency for indirect costs, an
IHE may meet the DS -2 submission by
submitting the DS -2 for each business
unit that received $50 million or more
in Federal awards and instruments.
(1) The DS -2 must be submitted to
the cognizant agency for indirect costs
with a copy to the IHE's cognizant
agency for audit. The initial DS -2 and
revisions to the DS -2 must be sub-
mitted in coordination with the IHE's
indirect (F&A) rate proposal, unless an
earlier submission is requested by the
cognizant agency for indirect costs.

IHEs with CAS -covered contracts or
subcontracts meeting the dollar
threshold in 48 CFR 9903.202-1(f) must
submit their initial DS -2 or revisions
no later than prior to the award of a
CAS -covered contract or subcontract.
(2) An IHE must maintain an accu-
rate DS -2 and comply with disclosed
cost accounting practices. An IHE
must file amendments to the DS -2 to
the cognizant agency for indirect costs
in advance of a disclosed practice being
changed to comply with a new or modi-
fied standard, or when a practice is
changed for other reasons. An IHE may
proceed with implementing the change
after it has notified the Federal cog-
nizant agency for indirect costs. If the
change represents a variation from 2
CFR part 200, the change may require
approval by the Federal cognizant
agency for indirect costs, in accordance
with §200.102(b). Amendments of a DS -
2 may be submitted at any time. Re-
submission of a complete, updated DS -
2 is discouraged except when there are
extensive changes to disclosed prac-
tices.
(3) Cost and funding adjustments. Cost
adjustments must be made by the cog-
nizant agency for indirect costs if an
IHE fails to comply with the cost poli-
cies in this part or fails to consistently
follow its established or disclosed cost
accounting practices when estimating,
accumulating or reporting the costs of
Federal awards, and the aggregate cost
impact on Federal awards is material.

The cost adjustment must normally be
made on an aggregate basis for all af-
fected Federal awards through an ad-
justment of the IHE's future F&A costs
rates or other means considered appro-
§ 200.419
priate by the cognizant agency for indi-
rect costs. Under the terms of CAS cov-
ered contracts, adjustments in the
amount of funding provided may also
be required when the estimated pro-
posal costs were not determined in ac-
cordance with established cost ac-
counting practices.
(4) Overpayments. Excess amounts
paid in the aggregate by the Federal
Government under Federal awards due
to a noncompliant cost accounting
practice used to estimate, accumulate,
or report costs must be credited or re-
funded, as deemed appropriate by the
cognizant agency for indirect costs. In-
terest applicable to the excess amounts
paid in the aggregate during the period
of noncompliance must also be deter-
mined and collected in accordance with
applicable Federal agency regulations.
(5) Compliant cost accounting practice
changes. Changes from one compliant
cost accounting practice to another
compliant practice that are approved
by the cognizant agency for indirect
costs may require cost adjustments if
the change has a material effect on
Federal awards and the changes are
deemed appropriate by the cognizant
agency for indirect costs.
(6) Responsibilities. The cognizant
agency for indirect cost must:
(i) Determine cost adjustments for
all Federal awards in the aggregate on
behalf of the Federal Government. Ac-
tions of the cognizant agency for indi-
rect cost in making cost adjustment
determinations must be coordinated
with all affected Federal awarding
agencies to the extent necessary.
(ii) Prescribe guidelines and establish
internal procedures to promptly deter-
mine on behalf of the Federal Govern-
ment that a DS -2 adequately discloses
the IHE's cost accounting practices
and that the disclosed practices are
compliant with applicable CAS and the
requirements of this part.
(iii) Distribute to all affected Federal
awarding agencies any DS -2 determina-
tion of adequacy or noncompliance.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75886, Dec. 19, 2014; 85 FR 49564, Aug. 13,
2020]
163

§ 200.420

GENERAL PROVISIONS FOR SELECTED

ITEMS OF COST
§ 200.420 Considerations for selected
items of cost.

This section provides principles to be
applied in establishing the allowability
of certain items involved in deter-
mining cost, in addition to the require-
ments of Subtitle II of this subpart.

These principles apply whether or not a
particular item of cost is properly
treated as direct cost or indirect (F&A)
cost. Failure to mention a particular
item of cost is not intended to imply
that it is either allowable or unallow-
able; rather, determination as to allow -
ability in each case should be based on
the treatment provided for similar or
related items of cost, and based on the
principles described in §§200.402
through 200.411. In case of a discrep-
ancy between the provisions of a spe-
cific Federal award and the provisions
below, the Federal award governs. Cri-
teria outlined in §200.403 must be ap-
plied in determining allowability. See
also §200.102.
[85 FR 49564, Aug. 13, 2020]
§ 200.421 Advertising and public rela-
tions.
(a) The term advertising costs means
the costs of advertising media and cor-
ollary administrative costs. Adver-
tising media include magazines, news-
papers, radio and television, direct
mail, exhibits, electronic or computer
transmittals, and the like.
(b) The only allowable advertising
costs are those which are solely for:
(1) The recruitment of personnel re-
quired by the non -Federal entity for
performance of a Federal award (See
also § 200.463);
(2) The procurement of goods and
services for the performance of a Fed-
eral award;
(3) The disposal of scrap or surplus
materials acquired in the performance
of a Federal award except when non -
Federal entities are reimbursed for dis-
posal costs at a predetermined amount;
or
(4) Program outreach and other spe-
cific purposes necessary to meet the re-
quirements of the Federal award.
(c) The term "public relations" in-
cludes community relations and means
2 CFR Ch. 11 (1-1-21 Edition)
those activities dedicated to maintain-
ing the image of the non -Federal entity
or maintaining or promoting under-
standing and favorable relations with
the community or public at large or
any segment of the public.
(d) The only allowable public rela-
tions costs are:
(1) Costs specifically required by the
Federal award;
(2) Costs of communicating with the
public and press pertaining to specific
activities or accomplishments which
result from performance of the Federal
award (these costs are considered nec-
essary as part of the outreach effort for
the Federal award); or
(3) Costs of conducting general liai-
son with news media and government
public relations officers, to the extent
that such activities are limited to com-
munication and liaison necessary to
keep the public informed on matters of
public concern, such as notices of fund-
ing opportunities, financial matters,
etc.
(e) Unallowable advertising and pub-
lic relations costs include the fol-
lowing:
(1) All advertising and public rela-
tions costs other than as specified in
paragraphs (b) and (d) of this section;
(2) Costs of meetings, conventions,
convocations, or other events related
to other activities of the entity (see
also § 200.432), including:
(i) Costs of displays, demonstrations,
and exhibits;
(ii) Costs of meeting rooms, hospi-
tality suites, and other special facili-
ties used in conjunction with shows
and other special events; and
(iii) Salaries and wages of employees
engaged in setting up and displaying
exhibits, making demonstrations, and
providing briefings;
(3) Costs of promotional items and
memorabilia, including models, gifts,
and souvenirs;
(4) Costs of advertising and public re-
lations designed solely to promote the
non -Federal entity.
[78 FR 76808, Dec. 26, 2013, as amended at 85
FR 49564, Aug. 13, 2020]
§ 200.422 Advisory councils.

Costs incurred by advisory councils
or committees are unallowable unless
authorized by statute, the Federal
164

OMB Guidance
awarding agency or as an indirect cost
where allocable to Federal awards. See
§ 200.444, applicable to States, local gov-
ernments, and Indian tribes.
[85 FR 49564, Aug. 13, 2020]
§ 200.423 Alcoholic beverages.

Costs of alcoholic beverages are unal-
lowable.
§ 200.424 Alumni/ae activities.

Costs incurred by IHEs for, or in sup-
port of, alumni/ae activities are unal-
lowable.
§ 200.425 Audit services.
(a) A reasonably proportionate share
of the costs of audits required by, and
performed in accordance with, the Sin-
gle Audit Act Amendments of 1996 (31
U.S.C. 7501-7507), as implemented by re-
quirements of this part, are allowable.

However, the following audit costs are
unallowable:
(1) Any costs when audits required by
the Single Audit Act and subpart F of
this part have not been conducted or
have been conducted but not in accord-
ance therewith; and
(2) Any costs of auditing a non -Fed-
eral entity that is exempted from hav-
ing an audit conducted under the Sin-
gle Audit Act and subpart F of this
part because its expenditures under
Federal awards are less than $750,000
during the non -Federal entity's fiscal
year.
(b) The costs of a financial statement
audit of a non -Federal entity that does
not currently have a Federal award
may be included in the indirect cost
pool for a cost allocation plan or indi-
rect cost proposal.
(c) Pass -through entities may charge
Federal awards for the cost of agreed -
upon -procedures engagements to mon-
itor subrecipients (in accordance with
subpart D, H200.331-333) who are ex-
empted from the requirements of the
Single Audit Act and subpart F of this
part. This cost is allowable only if the
agreed -upon -procedures engagements
are:
(1) Conducted in accordance with
GAGAS attestation standards;
(2) Paid for and arranged by the pass -
through entity; and
§ 200.428
(3) Limited in scope to one or more of
the following types of compliance re-
quirements: activities allowed or
unallowed; allowable costs/cost prin-
ciples; eligibility; and reporting.
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49564, Aug. 13, 2020]
§ 200.426 Bad debts.

Bad debts (debts which have been de-
termined to be uncollectable), includ-
ing losses (whether actual or esti-
mated) arising from uncollectable ac-
counts and other claims, are unallow-
able. Related collection costs, and re-
lated legal costs, arising from such
debts after they have been determined
to be uncollectable are also unallow-
able. See also § 200.428.
[85 FR 49565, Aug. 13, 2020]
§ 200.427 Bonding costs.
(a) Bonding costs arise when the Fed-
eral awarding agency requires assur-
ance against financial loss to itself or
others by reason of the act or default
of the non -Federal entity. They arise
also in instances where the non -Fed-
eral entity requires similar assurance,
including: bonds as bid, performance,
payment, advance payment, infringe-
ment, and fidelity bonds for employees
and officials.
(b) Costs of bonding required pursu-
ant to the terms and conditions of the
Federal award are allowable.
(c) Costs of bonding required by the
non -Federal entity in the general con-
duct of its operations are allowable as
an indirect cost to the extent that such
bonding is in accordance with sound
business practice and the rates and pre-
miums are reasonable under the cir-
cumstances.
§ 200.428 Collections of improper pay-
ments.

The costs incurred by a non -Federal
entity to recover improper payments
are allowable as either direct or indi-
rect costs, as appropriate. Amounts
collected may be used by the non -Fed-
eral entity in accordance with cash
management standards set forth in
§200.305.
[85 FR 49565, Aug. 13, 2020]
165

§ 200.429
§ 200.429 Commencement and convoca-
tion costs.

For IHEs, costs incurred for com-
mencements and convocations are un-
allowable, except as provided for in
(B)(9) Student Administration and
Services, in appendix III to this part,
as activity costs.
[85 FR 49565, Aug. 13, 2020]
§ 200.430 Compensation —personal
services.
(a) General. Compensation for per-
sonal services includes all remunera-
tion, paid currently or accrued, for
services of employees rendered during
the period of performance under the
Federal award, including but not nec-
essarily limited to wages and salaries.

Compensation for personal services
may also include fringe benefits which
are addressed in § 200.431. Costs of com-
pensation are allowable to the extent
that they satisfy the specific require-
ments of this part, and that the total
compensation for individual employ-
ees:
(1) Is reasonable for the services ren-
dered and conforms to the established
written policy of the non -Federal enti-
ty consistently applied to both Federal
and non -Federal activities;
(2) Follows an appointment made in
accordance with a non -Federal entity's
laws and/or rules or written policies
and meets the requirements of Federal
statute, where applicable; and
(3) Is determined and supported as
provided in paragraph (i) of this sec-
tion, when applicable.
(b) Reasonableness. Compensation for
employees engaged in work on Federal
awards will be considered reasonable to
the extent that it is consistent with
that paid for similar work in other ac-
tivities of the non -Federal entity. In
cases where the kinds of employees re-
quired for Federal awards are not found
in the other activities of the non -Fed-
eral entity, compensation will be con-
sidered reasonable to the extent that it
is comparable to that paid for similar
work in the labor market in which the
non -Federal entity competes for the
kind of employees involved.
(c) Professional activities outside the
non -Federal entity. Unless an arrange-
ment is specifically authorized by a
2 CFR Ch. 11 (1-1-21 Edition)
Federal awarding agency, a non -Fed-
eral entity must follow its written non -
Federal entity -wide policies and prac-
tices concerning the permissible extent
of professional services that can be pro-
vided outside the non -Federal entity
for non -organizational compensation.

Where such non -Federal entity -wide
written policies do not exist or do not
adequately define the permissible ex-
tent of consulting or other non -organi-
zational activities undertaken for
extra outside pay, the Federal Govern-
ment may require that the effort of
professional staff working on Federal
awards be allocated between:
(1) Non -Federal entity activities, and
(2) Non -organizational professional
activities. If the Federal awarding
agency considers the extent of non -or-
ganizational professional effort exces-
sive or inconsistent with the conflicts -
of -interest terms and conditions of the
Federal award, appropriate arrange-
ments governing compensation will be
negotiated on a case -by -case basis.
(d) Unallowable costs. (1) Costs which
are unallowable under other sections of
these principles must not be allowable
under this section solely on the basis
that they constitute personnel com-
pensation.
(2) The allowable compensation for
certain employees is subject to a ceil-
ing in accordance with statute. For the
amount of the ceiling for cost -reim-
bursement contracts, the covered com-
pensation subject to the ceiling, the
covered employees, and other relevant
provisions, see 10 U.S.C. 2324(e)(1)(P),
and 41 U.S.C. 1127 and 4304(a)(16). For
other types of Federal awards, other
statutory ceilings may apply.
(e) Special considerations. Special con-
siderations in determining allowability
of compensation will be given to any
change in a non -Federal entity's com-
pensation policy resulting in a substan-
tial increase in its employees' level of
compensation (particularly when the
change was concurrent with an in-
crease in the ratio of Federal awards to
other activities) or any change in the
treatment of allowability of specific
types of compensation due to changes
in Federal policy.
(f) Incentive compensation. Incentive
compensation to employees based on
166

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 H200.431 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 H200.431 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,
2020]
§ 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) -
(e)(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(e).
(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 A/B 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