187
OMB Guidance § 200.458
§ 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]
§ 200.455 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]
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2 CFR Ch. II (1–1–21 Edition) § 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
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 VerDate Sep<11>2014 13:23 Jun 29, 2021 Jkt 253005 PO 00000 Frm 00200 Fmt 8010 Sfmt 8010 Y:\SGML\253005.XXX 253005Page 246 of 321
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OMB Guidance § 200.464
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
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
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2 CFR Ch. II (1–1–21 Edition) § 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
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
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OMB Guidance § 200.466
(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,
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]
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2 CFR Ch. II (1–1–21 Edition) § 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]
§ 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
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OMB Guidance § 200.472
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 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
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2 CFR Ch. II (1–1–21 Edition) § 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
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
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17.A
195
OMB Guidance § 200.500
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-
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 VerDate Sep<11>2014 13:23 Jun 29, 2021 Jkt 253005 PO 00000 Frm 00207 Fmt 8010 Sfmt 8010 Y:\SGML\253005.XXX 253005Page 253 of 321
17.A
196
2 CFR Ch. II (1–1–21 Edition) § 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.
(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]
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17.A
197
OMB Guidance § 200.503
§ 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
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 VerDate Sep<11>2014 13:23 Jun 29, 2021 Jkt 253005 PO 00000 Frm 00209 Fmt 8010 Sfmt 8010 Y:\SGML\253005.XXX 253005Page 255 of 321
17.A
198
2 CFR Ch. II (1–1–21 Edition) § 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
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
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17.A
199
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
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2 CFR Ch. II (1–1–21 Edition) § 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
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
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201
OMB Guidance § 200.511
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
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
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202
2 CFR Ch. II (1–1–21 Edition) § 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;
(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
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203
OMB Guidance § 200.512
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(l)) 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
paragraph (c) of this section, the audi-
tor must complete the applicable data
elements of the data collection form.
The auditor must sign a statement to
be included as part of the data collec-
tion form that indicates, at a min-
imum, the source of the information
included in the form, the auditor’s re-
sponsibility for the information, that
the form is not a substitute for the re-
porting package described in paragraph
(c) of this section, and that the content
of the form is limited to the collection
of information prescribed by OMB.
(c) Reporting package. The reporting
package must include the:
(1) Financial statements and sched-
ule of expenditures of Federal awards
discussed in § 200.510(a) and (b), respec-
tively;
(2) Summary schedule of prior audit
findings discussed in § 200.511(b);
(3) Auditor’s report(s) discussed in
§ 200.515; and
(4) Corrective action plan discussed
in § 200.511(c).
(d) Submission to FAC. The auditee
must electronically submit to the FAC
the data collection form described in
paragraph (b) of this section and the
reporting package described in para-
graph (c) of this section.
(e) Requests for management letters
issued by the auditor. In response to re-
quests by a Federal agency or pass-
through entity, auditees must submit a
copy of any management letters issued
by the auditor.
(f) Report retention requirements.
Auditees must keep one copy of the
data collection form described in para-
graph (b) of this section and one copy
of the reporting package described in
paragraph (c) of this section on file for
three years from the date of submis-
sion to the FAC.
(g) FAC responsibilities. The FAC must
make available the reporting packages
received in accordance with paragraph
(c) of this section and § 200.507(c) to the
public, except for Indian tribes exer-
cising the option in (b)(2) of this sec-
tion, and maintain a data base of com-
pleted audits, provide appropriate in-
formation to Federal agencies, and fol-
low up with known auditees that have
not submitted the required data collec-
tion forms and reporting packages.
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2 CFR Ch. II (1–1–21 Edition) § 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-
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
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OMB Guidance § 200.513
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:
(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
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2 CFR Ch. II (1–1–21 Edition) § 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-
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.
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OMB Guidance § 200.515
(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 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:
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2 CFR Ch. II (1–1–21 Edition) § 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
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
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17.A
209
OMB Guidance § 200.516
(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
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).
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17.A
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2 CFR Ch. II (1–1–21 Edition) § 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
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.
$750,000.
Exceed $25 million but less
than or equal to $100 mil-
lion.
Total Federal awards ex-
pended times .03.
Exceed $100 million but less
than or equal to $1 billion.
$3 million.
Exceed $1 billion but less
than or equal to $10 billion.
Total Federal awards ex-
pended times .003.
Exceed $10 billion but less
than or equal to $20 billion.
$30 million.
Exceed $20 billion ................. 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
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17.A
211
OMB Guidance § 200.518
Type A programs. This recalculation of
the Type A program is performed after
removing the total of all large loan
programs. For the purposes of this
paragraph a program is only considered
to be a Federal program providing
loans if the value of Federal awards ex-
pended for loans within the program
comprises fifty percent or more of the
total Federal awards expended for the
program. A cluster of programs is
treated as one program and the value
of Federal awards expended under a
loan program is determined as de-
scribed in § 200.502.
(4) For biennial audits permitted
under § 200.504, the determination of
Type A and Type B programs must be
based upon the Federal awards ex-
pended during the two-year period.
(c) Step two. (1) The auditor must
identify Type A programs which are
low-risk. In making this determina-
tion, the auditor must consider wheth-
er the requirements in § 200.519(c), the
results of audit follow-up, or any
changes in personnel or systems affect-
ing the program indicate significantly
increased risk and preclude the pro-
gram from being low risk. For a Type
A program to be considered low-risk, it
must have been audited as a major pro-
gram in at least one of the two most
recent audit periods (in the most re-
cent audit period in the case of a bien-
nial audit), and, in the most recent
audit period, the program must have
not had:
(i) Internal control deficiencies
which were identified as material
weaknesses in the auditor’s report on
internal control for major programs as
required under § 200.515(c);
(ii) A modified opinion on the pro-
gram in the auditor’s report on major
programs as required under § 200.515(c);
or
(iii) Known or likely questioned costs
that exceed five percent of the total
Federal awards expended for the pro-
gram.
(2) Notwithstanding paragraph (c)(1)
of this section, OMB may approve a
Federal awarding agency’s request that
a Type A program may not be consid-
ered low risk for a certain recipient.
For example, it may be necessary for a
large Type A program to be audited as
a major program each year at a par-
ticular recipient to allow the Federal
awarding agency to comply with 31
U.S.C. 3515. The Federal awarding
agency must notify the recipient and,
if known, the auditor of OMB’s ap-
proval at least 180 calendar days prior
to the end of the fiscal year to be au-
dited.
(d) Step three. (1) The auditor must
identify Type B programs which are
high-risk using professional judgment
and the criteria in § 200.519. However,
the auditor is not required to identify
more high-risk Type B programs than
at least one fourth the number of low-
risk Type A programs identified as low-
risk under Step 2 (paragraph (c) of this
section). Except for known material
weakness in internal control or compli-
ance problems as discussed in
§ 200.519(b)(1) and (2) and (c)(1), a single
criterion in risk would seldom cause a
Type B program to be considered high-
risk. When identifying which Type B
programs to risk assess, the auditor is
encouraged to use an approach which
provides an opportunity for different
high-risk Type B programs to be au-
dited as major over a period of time.
(2) The auditor is not expected to per-
form risk assessments on relatively
small Federal programs. Therefore, the
auditor is only required to perform risk
assessments on Type B programs that
exceed twenty-five percent (0.25) of the
Type A threshold determined in Step 1
(paragraph (b) of this section).
(e) Step four. At a minimum, the
auditor must audit all of the following
as major programs:
(1) All Type A programs not identi-
fied as low risk under step two (para-
graph (c)(1) of this section).
(2) All Type B programs identified as
high-risk under step three (paragraph
(d) of this section).
(3) Such additional programs as may
be necessary to comply with the per-
centage of coverage rule discussed in
paragraph (f) of this section. This may
require the auditor to audit more pro-
grams as major programs than the
number of Type A programs.
(f) Percentage of coverage rule. If the
auditee meets the criteria in § 200.520,
the auditor need only audit the major
programs identified in Step 4 (para-
graphs (e)(1) and (2) of this section) and
such additional Federal programs with
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17.A
212
2 CFR Ch. II (1–1–21 Edition) § 200.519
Federal awards expended that, in ag-
gregate, all major programs encompass
at least 20 percent (0.20) of total Fed-
eral awards expended. Otherwise, the
auditor must audit the major programs
identified in Step 4 (paragraphs (e)(1)
and (2) of this section) and such addi-
tional Federal programs with Federal
awards expended that, in aggregate, all
major programs encompass at least 40
percent (0.40) of total Federal awards
expended.
(g) Documentation of risk. The auditor
must include in the audit documenta-
tion the risk analysis process used in
determining major programs.
(h) Auditor’s judgment. When the
major program determination was per-
formed and documented in accordance
with this Subpart, the auditor’s judg-
ment in applying the risk-based ap-
proach to determine major programs
must be presumed correct. Challenges
by Federal agencies and pass-through
entities must only be for clearly im-
proper use of the requirements in this
part. However, Federal agencies and
pass-through entities may provide
auditors guidance about the risk of a
particular Federal program and the
auditor must consider this guidance in
determining major programs in audits
not yet completed.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75887, Dec. 19, 2014; 85 FR 49574, Aug. 13,
2020]
§ 200.519 Criteria for Federal program
risk.
(a) General. The auditor’s determina-
tion should be based on an overall eval-
uation of the risk of noncompliance oc-
curring that could be material to the
Federal program. The auditor must
consider criteria, such as described in
paragraphs (b), (c), and (d) of this sec-
tion, to identify risk in Federal pro-
grams. Also, as part of the risk anal-
ysis, the auditor may wish to discuss a
particular Federal program with
auditee management and the Federal
agency or pass-through entity.
(b) Current and prior audit experience.
(1) Weaknesses in internal control over
Federal programs would indicate high-
er risk. Consideration should be given
to the control environment over Fed-
eral programs and such factors as the
expectation of management’s adher-
ence to Federal statutes, regulations,
and the terms and conditions of Fed-
eral awards and the competence and
experience of personnel who administer
the Federal programs.
(i) A Federal program administered
under multiple internal control struc-
tures may have higher risk. When as-
sessing risk in a large single audit, the
auditor must consider whether weak-
nesses are isolated in a single oper-
ating unit (e.g., one college campus) or
pervasive throughout the entity.
(ii) When significant parts of a Fed-
eral program are passed through to
subrecipients, a weak system for moni-
toring subrecipients would indicate
higher risk.
(2) Prior audit findings would indi-
cate higher risk, particularly when the
situations identified in the audit find-
ings could have a significant impact on
a Federal program or have not been
corrected.
(3) Federal programs not recently au-
dited as major programs may be of
higher risk than Federal programs re-
cently audited as major programs with-
out audit findings.
(c) Oversight exercised by Federal agen-
cies and pass-through entities. (1) Over-
sight exercised by Federal agencies or
pass-through entities could be used to
assess risk. For example, recent moni-
toring or other reviews performed by
an oversight entity that disclosed no
significant problems would indicate
lower risk, whereas monitoring that
disclosed significant problems would
indicate higher risk.
(2) Federal agencies, with the concur-
rence of OMB, may identify Federal
programs that are higher risk. OMB
will provide this identification in the
compliance supplement.
(d) Inherent risk of the Federal pro-
gram. (1) The nature of a Federal pro-
gram may indicate risk. Consideration
should be given to the complexity of
the program and the extent to which
the Federal program contracts for
goods and services. For example, Fed-
eral programs that disburse funds
through third-party contracts or have
eligibility criteria may be of higher
risk. Federal programs primarily in-
volving staff payroll costs may have
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213
OMB Guidance § 200.521
high risk for noncompliance with re-
quirements of § 200.430, but otherwise
be at low risk.
(2) The phase of a Federal program in
its life cycle at the Federal agency
may indicate risk. For example, a new
Federal program with new or interim
regulations may have higher risk than
an established program with time-test-
ed regulations. Also, significant
changes in Federal programs, statutes,
regulations, or the terms and condi-
tions of Federal awards may increase
risk.
(3) The phase of a Federal program in
its life cycle at the auditee may indi-
cate risk. For example, during the first
and last years that an auditee partici-
pates in a Federal program, the risk
may be higher due to start-up or close-
out of program activities and staff.
(4) Type B programs with larger Fed-
eral awards expended would be of high-
er risk than programs with substan-
tially smaller Federal awards ex-
pended.
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49575, Aug. 13, 2020]
§ 200.520 Criteria for a low-risk
auditee.
An auditee that meets all of the fol-
lowing conditions for each of the pre-
ceding two audit periods must qualify
as a low-risk auditee and be eligible for
reduced audit coverage in accordance
with § 200.518.
(a) Single audits were performed on
an annual basis in accordance with the
provisions of this Subpart, including
submitting the data collection form
and the reporting package to the FAC
within the timeframe specified in
§ 200.512. A non-Federal entity that has
biennial audits does not qualify as a
low-risk auditee.
(b) The auditor’s opinion on whether
the financial statements were prepared
in accordance with GAAP, or a basis of
accounting required by state law, and
the auditor’s in relation to opinion on
the schedule of expenditures of Federal
awards were unmodified.
(c) There were no deficiencies in in-
ternal control which were identified as
material weaknesses under the require-
ments of GAGAS.
(d) The auditor did not report a sub-
stantial doubt about the auditee’s abil-
ity to continue as a going concern.
(e) None of the Federal programs had
audit findings from any of the fol-
lowing in either of the preceding two
audit periods in which they were classi-
fied as Type A programs:
(1) Internal control deficiencies that
were identified as material weaknesses
in the auditor’s report on internal con-
trol for major programs as required
under § 200.515(c);
(2) A modified opinion on a major
program in the auditor’s report on
major programs as required under
§ 200.515(c); or
(3) Known or likely questioned costs
that exceeded five percent of the total
Federal awards expended for a Type A
program during the audit period.
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49575, Aug. 13, 2020]
MANAGEMENT DECISIONS
§ 200.521 Management decision.
(a) General. The management deci-
sion must clearly state whether or not
the audit finding is sustained, the rea-
sons for the decision, and the expected
auditee action to repay disallowed
costs, make financial adjustments, or
take other action. If the auditee has
not completed corrective action, a
timetable for follow-up should be
given. Prior to issuing the manage-
ment decision, the Federal agency or
pass-through entity may request addi-
tional information or documentation
from the auditee, including a request
for auditor assurance related to the
documentation, as a way of mitigating
disallowed costs. The management de-
cision should describe any appeal proc-
ess available to the auditee. While not
required, the Federal agency or pass-
through entity may also issue a man-
agement decision on findings relating
to the financial statements which are
required to be reported in accordance
with GAGAS.
(b) Federal agency. As provided in
§ 200.513(a)(3)(vii), the cognizant agency
for audit must be responsible for co-
ordinating a management decision for
audit findings that affect the programs
of more than one Federal agency. As
provided in § 200.513(c)(3)(i), a Federal
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2 CFR Ch. II (1–1–21 Edition) Pt. 200, App. I
awarding agency is responsible for
issuing a management decision for
findings that relate to Federal awards
it makes to non-Federal entities.
(c) Pass-through entity. As provided in
§ 200.332(d), the pass-through entity
must be responsible for issuing a man-
agement decision for audit findings
that relate to Federal awards it makes
to subrecipients.
(d) Time requirements. The Federal
awarding agency or pass-through enti-
ty responsible for issuing a manage-
ment decision must do so within six
months of acceptance of the audit re-
port by the FAC. The auditee must ini-
tiate and proceed with corrective ac-
tion as rapidly as possible and correc-
tive action should begin no later than
upon receipt of the audit report.
(e) Reference numbers. Management
decisions must include the reference
numbers the auditor assigned to each
audit finding in accordance with
§ 200.516(c).
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49575, Aug. 13, 2020]
APPENDIX I TO PART 200—F ULL TEXT OF
NOTICE OF FUNDING OPPORTUNITY
The full text of the notice of funding op-
portunity is organized in sections. The re-
quired format outlined in this appendix indi-
cates immediately following the title of each
section whether that section is required in
every announcement or is a Federal award-
ing agency option. The format is designed so
that similar types of information will appear
in the same sections in announcements of
different Federal funding opportunities. To-
ward that end, there is text in each of the
following sections to describe the types of in-
formation that a Federal awarding agency
would include in that section of an actual
announcement.
A Federal awarding agency that wishes to
include information that the format does not
specifically discuss may address that subject
in whatever section(s) is most appropriate.
For example, if a Federal awarding agency
chooses to address performance goals in the
announcement, it might do so in the funding
opportunity description, the application con-
tent, or the reporting requirements.
Similarly, when this format calls for a
type of information to be in a particular sec-
tion, a Federal awarding agency wishing to
address that subject in other sections may
elect to repeat the information in those sec-
tions or use cross references between the sec-
tions (there should be hyperlinks for cross-
references in any electronic versions of the
announcement). For example, a Federal
awarding agency may want to include Sec-
tion A information about the types of non-
Federal entities who are eligible to apply.
The format specifies a standard location for
that information in Section C.1 but does not
preclude repeating the information in Sec-
tion A or creating a cross reference between
Section A and C.1, as long as a potential ap-
plicant can find the information quickly and
easily from the standard location.
The sections of the full text of the an-
nouncement are described in the following
paragraphs.
A. P
ROGRAM DESCRIPTION—R EQUIRED
This section contains the full program de-
scription of the funding opportunity. It may
be as long as needed to adequately commu-
nicate to potential applicants the areas in
which funding may be provided. It describes
the Federal awarding agency’s funding prior-
ities or the technical or focus areas in which
the Federal awarding agency intends to pro-
vide assistance. As appropriate, it may in-
clude any program history (e.g., whether this
is a new program or a new or changed area of
program emphasis). This section must in-
clude program goals and objectives, a ref-
erence to the relevant Assistance Listings, a
description of how the award will contribute
to the achievement of the program’s goals
and objectives, and the expected perform-
ance goals, indicators, targets, baseline data,
data collection, and other outcomes such
Federal awarding agency expects to achieve,
and may include examples of successful
projects that have been funded previously.
This section also may include other informa-
tion the Federal awarding agency deems nec-
essary, and must at a minimum include cita-
tions for authorizing statutes and regula-
tions for the funding opportunity.
B. F
EDERAL AWARD INFORMATION—R EQUIRED
This section provides sufficient informa-
tion to help an applicant make an informed
decision about whether to submit a proposal.
Relevant information could include the total
amount of funding that the Federal awarding
agency expects to award through the an-
nouncement; the expected performance indi-
cators, targets, baseline data, and data col-
lection; the anticipated number of Federal
awards; the expected amounts of individual
Federal awards (which may be a range); the
amount of funding per Federal award, on av-
erage, experienced in previous years; and the
anticipated start dates and periods of per-
formance for new Federal awards. This sec-
tion also should address whether applica-
tions for renewal or supplementation of ex-
isting projects are eligible to compete with
applications for new Federal awards.
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OMB Guidance Pt. 200, App. I
This section also must indicate the type(s)
of assistance instrument ( e.g., grant, cooper-
ative agreement) that may be awarded if ap-
plications are successful. If cooperative
agreements may be awarded, this section ei-
ther should describe the ‘‘substantial in-
volvement’’ that the Federal awarding agen-
cy expects to have or should reference where
the potential applicant can find that infor-
mation ( e.g., in the funding opportunity de-
scription in Section A. or Federal award ad-
ministration information in Section D. If
procurement contracts also may be awarded,
this must be stated.
C. E
LIGIBILITY INFORMATION
This section addresses the considerations
or factors that determine applicant or appli-
cation eligibility. This includes the eligi-
bility of particular types of applicant organi-
zations, any factors affecting the eligibility
of the principal investigator or project direc-
tor, and any criteria that make particular
projects ineligible. Federal agencies should
make clear whether an applicant’s failure to
meet an eligibility criterion by the time of
an application deadline will result in the
Federal awarding agency returning the ap-
plication without review or, even though an
application may be reviewed, will preclude
the Federal awarding agency from making a
Federal award. Key elements to be addressed
are:
1. Eligible Applicants—Required. Announce-
ments must clearly identify the types of en-
tities that are eligible to apply. If there are
no restrictions on eligibility, this section
may simply indicate that all potential appli-
cants are eligible. If there are restrictions on
eligibility, it is important to be clear about
the specific types of entities that are eligi-
ble, not just the types that are ineligible.
For example, if the program is limited to
nonprofit organizations subject to 26 U.S.C.
501(c)(3) of the tax code (26 U.S.C. 501(c)(3)),
the announcement should say so. Similarly,
it is better to state explicitly that Native
American tribal organizations are eligible
than to assume that they can unambiguously
infer that from a statement that nonprofit
organizations may apply. Eligibility also can
be expressed by exception, (e.g., open to all
types of domestic applicants other than indi-
viduals). This section should refer to any
portion of Section D specifying documenta-
tion that must be submitted to support an
eligibility determination (e.g., proof of
501(c)(3) status as determined by the Internal
Revenue Service or an authorizing tribal res-
olution). To the extent that any funding re-
striction in Section D.6 could affect the eli-
gibility of an applicant or project, the an-
nouncement must either restate that restric-
tion in this section or provide a cross-ref-
erence to its description in Section D.6.
2. Cost Sharing or Matching—Required. An-
nouncements must state whether there is re-
quired cost sharing, matching, or cost par-
ticipation without which an application
would be ineligible (if cost sharing is not re-
quired, the announcement must explicitly
say so). Required cost sharing may be a cer-
tain percentage or amount, or may be in the
form of contributions of specified items or
activities (e.g., provision of equipment). It is
important that the announcement be clear
about any restrictions on the types of cost
(e.g., in-kind contributions) that are accept-
able as cost sharing. Cost sharing as an eligi-
bility criterion includes requirements based
in statute or regulation, as described in
§ 200.306 of this Part. This section should
refer to the appropriate portion(s) of section
D. stating any pre-award requirements for
submission of letters or other documentation
to verify commitments to meet cost-sharing
requirements if a Federal award is made.
3. Other—Required, if applicable. If there are
other eligibility criteria (i.e., criteria that
have the effect of making an application or
project ineligible for Federal awards, wheth-
er referred to as ‘‘responsiveness’’ criteria,
‘‘go-no go’’ criteria, ‘‘threshold’’ criteria, or
in other ways), must be clearly stated and
must include a reference to the regulation of
requirement that describes the restriction,
as applicable. For example, if entities that
have been found to be in violation of a par-
ticular Federal statute are ineligible, it is
important to say so. This section must also
state any limit on the number of applica-
tions an applicant may submit under the an-
nouncement and make clear whether the
limitation is on the submitting organization,
individual investigator/program director, or
both. This section should also address any
eligibility criteria for beneficiaries or for
program participants other than Federal
award recipients.
D. A
PPLICATION AND SUBMISSION INFORMATION
1. Address to Request Application Package—
Required. Potential applicants must be told
how to get application forms, kits, or other
materials needed to apply (if this announce-
ment contains everything needed, this sec-
tion need only say so). An Internet address
where the materials can be accessed is ac-
ceptable. However, since high-speed Internet
access is not yet universally available for
downloading documents, and applicants may
have additional accessibility requirements,
there also should be a way for potential ap-
plicants to request paper copies of materials,
such as a U.S. Postal Service mailing ad-
dress, telephone or FAX number, Telephone
Device for the Deaf (TDD), Text Telephone
(TTY) number, and/or Federal Information
Relay Service (FIRS) number.
2. Content and Form of Application Submis-
sion—Required. This section must identify
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2 CFR Ch. II (1–1–21 Edition) Pt. 200, App. I
the required content of an application and
the forms or formats that an applicant must
use to submit it. If any requirements are
stated elsewhere because they are general re-
quirements that apply to multiple programs
or funding opportunities, this section should
refer to where those requirements may be
found. This section also should include re-
quired forms or formats as part of the an-
nouncement or state where the applicant
may obtain them.
This section should specifically address
content and form or format requirements
for:
i. Pre-applications, letters of intent, or
white papers required or encouraged (see
Section D.4), including any limitations on
the number of pages or other formatting re-
quirements similar to those for full applica-
tions.
ii. The application as a whole. For all sub-
missions, this would include any limitations
on the number of pages, font size and type-
face, margins, paper size, number of copies,
and sequence or assembly requirements. If
electronic submission is permitted or re-
quired, this could include special require-
ments for formatting or signatures.
iii. Component pieces of the application
(e.g., if all copies of the application must
bear original signatures on the face page or
the program narrative may not exceed 10
pages). This includes any pieces that may be
submitted separately by third parties (e.g.,
references or letters confirming commit-
ments from third parties that will be con-
tributing a portion of any required cost shar-
ing).
iv. Information that successful applicants
must submit after notification of intent to
make a Federal award, but prior to a Federal
award. This could include evidence of com-
pliance with requirements relating to human
subjects or information needed to comply
with the National Environmental Policy Act
(NEPA) (42 U.S.C. 4321–4370h).
3. Unique entity identifier and System for
Award Management (SAM)—Required. This
paragraph must state clearly that each ap-
plicant (unless the applicant is an individual
or Federal awarding agency that is excepted
from those requirements under 2 CFR
25.110(b) or (c), or has an exception approved
by the Federal awarding agency under 2 CFR
25.110(d)) is required to: (i) Be registered in
SAM before submitting its application; (ii)
Provide a valid unique entity identifier in its
application; and (iii) Continue to maintain
an active SAM registration with current in-
formation at all times during which it has an
active Federal award or an application or
plan under consideration by a Federal award-
ing agency. It also must state that the Fed-
eral awarding agency may not make a Fed-
eral award to an applicant until the appli-
cant has complied with all applicable unique
entity identifier and SAM requirements and,
if an applicant has not fully complied with
the requirements by the time the Federal
awarding agency is ready to make a Federal
award, the Federal awarding agency may de-
termine that the applicant is not qualified to
receive a Federal award and use that deter-
mination as a basis for making a Federal
award to another applicant.
4. Submission Dates and Times—Required.
Announcements must identify due dates and
times for all submissions. This includes not
only the full applications but also any pre-
liminary submissions ( e.g., letters of intent,
white papers, or pre-applications). It also in-
cludes any other submissions of information
before Federal award that are separate from
the full application. If the funding oppor-
tunity is a general announcement that is
open for a period of time with no specific due
dates for applications, this section should
say so. Note that the information on dates
that is included in this section also must ap-
pear with other overview information in a lo-
cation preceding the full text of the an-
nouncement (see § 200.204 of this part).
5. Intergovernmental Review—Required, if ap-
plicable. If the funding opportunity is subject
to Executive Order 12372, ‘‘Intergovern-
mental Review of Federal Programs,’’ the
notice must say so and applicants must con-
tact their state’s Single Point of Contact
(SPOC) to find out about and comply with
the state’s process under Executive Order
12372, it may be useful to inform potential
applicants that the names and addresses of
the SPOCs are listed in the Office of Manage-
ment and Budget’s website.
6. Funding Restrictions—Required. Notices
must include information on funding restric-
tions in order to allow an applicant to de-
velop an application and budget consistent
with program requirements. Examples are
whether construction is an allowable activ-
ity, if there are any limitations on direct
costs such as foreign travel or equipment
purchases, and if there are any limits on in-
direct costs (or facilities and administrative
costs). Applicants must be advised if Federal
awards will not allow reimbursement of pre-
Federal award costs.
7. Other Submission Requirements— Required.
This section must address any other submis-
sion requirements not included in the other
paragraphs of this section. This might in-
clude the format of submission, i.e., paper or
electronic, for each type of required submis-
sion. Applicants should not be required to
submit in more than one format and this sec-
tion should indicate whether they may
choose whether to submit applications in
hard copy or electronically, may submit only
in hard copy, or may submit only electroni-
cally.
This section also must indicate where ap-
plications (and any pre-applications) must be
submitted if sent by postal mail, electronic
means, or hand-delivery. For postal mail
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OMB Guidance Pt. 200, App. I
1 With respect to electronic methods for
providing information about funding oppor-
tunities or accepting applicants’ submissions
of information, each Federal awarding agen-
cy is responsible for compliance with Section
508 of the Rehabilitation Act of 1973 (29
U.S.C. 794d).
submission, this must include the name of an
office, official, individual or function (e.g.,
application receipt center) and a complete
mailing address. For electronic submission,
this must include the URL or email address;
whether a password(s) is required; whether
particular software or other electronic capa-
bilities are required; what to do in the event
of system problems and a point of contact
who will be available in the event the appli-
cant experiences technical difficulties.
1 E. APPLICATION REVIEW INFORMATION
1. Criteria—Required. This section must ad-
dress the criteria that the Federal awarding
agency will use to evaluate applications.
This includes the merit and other review cri-
teria that evaluators will use to judge appli-
cations, including any statutory, regulatory,
or other preferences (e.g., minority status or
Native American tribal preferences) that
will be applied in the review process. These
criteria are distinct from eligibility criteria
that are addressed before an application is
accepted for review and any program policy
or other factors that are applied during the
selection process, after the review process is
completed. The intent is to make the appli-
cation process transparent so applicants can
make informed decisions when preparing
their applications to maximize fairness of
the process. The announcement should clear-
ly describe all criteria, including any sub-
criteria. If criteria vary in importance, the
announcement should specify the relative
percentages, weights, or other means used to
distinguish among them. For statutory, reg-
ulatory, or other preferences, the announce-
ment should provide a detailed explanation
of those preferences with an explicit indica-
tion of their effect (e.g., whether they result
in additional points being assigned).
If an applicant’s proposed cost sharing will
be considered in the review process (as op-
posed to being an eligibility criterion de-
scribed in Section C.2), the announcement
must specifically address how it will be con-
sidered (e.g., to assign a certain number of
additional points to applicants who offer
cost sharing, or to break ties among applica-
tions with equivalent scores after evaluation
against all other factors). If cost sharing will
not be considered in the evaluation, the an-
nouncement should say so, so that there is
no ambiguity for potential applicants. Vague
statements that cost sharing is encouraged,
without clarification as to what that means,
are unhelpful to applicants. It also is impor-
tant that the announcement be clear about
any restrictions on the types of cost (e.g., in-
kind contributions) that are acceptable as
cost sharing.
2. Review and Selection Process—Required.
This section may vary in the level of detail
provided. The announcement must list any
program policy or other factors or elements,
other than merit criteria, that the selecting
official may use in selecting applications for
Federal award (e.g., geographical dispersion,
program balance, or diversity). The Federal
awarding agency may also include other ap-
propriate details. For example, this section
may indicate who is responsible for evalua-
tion against the merit criteria (e.g., peers ex-
ternal to the Federal awarding agency or
Federal awarding agency personnel) and/or
who makes the final selections for Federal
awards. If there is a multi-phase review proc-
ess (e.g., an external panel advising internal
Federal awarding agency personnel who
make final recommendations to the deciding
official), the announcement may describe the
phases. It also may include: the number of
people on an evaluation panel and how it op-
erates, the way reviewers are selected, re-
viewer qualifications, and the way that con-
flicts of interest are avoided. With respect to
electronic methods for providing informa-
tion about funding opportunities or accept-
ing applicants’ submissions of information,
each Federal awarding agency is responsible
for compliance with Section 508 of the Reha-
bilitation Act of 1973 (29 U.S.C. 794d).
In addition, if the Federal awarding agency
permits applicants to nominate suggested re-
viewers of their applications or suggest those
they feel may be inappropriate due to a con-
flict of interest, that information should be
included in this section.
3. For any Federal award under a notice of
funding opportunity, if the Federal awarding
agency anticipates that the total Federal
share will be greater than the simplified ac-
quisition threshold on any Federal award
under a notice of funding opportunity may
include, over the period of performance, this
section must also inform applicants:
i. That the Federal awarding agency, prior
to making a Federal award with a total
amount of Federal share greater than the
simplified acquisition threshold, is required
to review and consider any information
about the applicant that is in the designated
integrity and performance system accessible
through SAM (currently FAPIIS) (see 41
U.S.C. 2313);
ii. That an applicant, at its option, may re-
view information in the designated integrity
and performance systems accessible through
SAM and comment on any information about
itself that a Federal awarding agency pre-
viously entered and is currently in the des-
ignated integrity and performance system
accessible through SAM;
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2 CFR Ch. II (1–1–21 Edition) Pt. 200, App. I
iii. That the Federal awarding agency will
consider any comments by the applicant, in
addition to the other information in the des-
ignated integrity and performance system,
in making a judgment about the applicant’s
integrity, business ethics, and record of per-
formance under Federal awards when com-
pleting the review of risk posed by appli-
cants as described in § 200.206.
4. Anticipated Announcement and Federal
Award Dates—Optional. This section is in-
tended to provide applicants with informa-
tion they can use for planning purposes. If
there is a single application deadline fol-
lowed by the simultaneous review of all ap-
plications, the Federal awarding agency can
include in this section information about the
anticipated dates for announcing or noti-
fying successful and unsuccessful applicants
and for having Federal awards in place. If ap-
plications are received and evaluated on a
‘‘rolling’’ basis at different times during an
extended period, it may be appropriate to
give applicants an estimate of the time need-
ed to process an application and notify the
applicant of the Federal awarding agency’s
decision.
F. F
EDERAL AWARD ADMINISTRATION
INFORMATION
1. Federal Award Notices—Required. This
section must address what a successful appli-
cant can expect to receive following selec-
tion. If the Federal awarding agency’s prac-
tice is to provide a separate notice stating
that an application has been selected before
it actually makes the Federal award, this
section would be the place to indicate that
the letter is not an authorization to begin
performance (to the extent that it allows
charging to Federal awards of pre-award
costs at the non-Federal entity’s own risk).
This section should indicate that the notice
of Federal award signed by the grants officer
(or equivalent) is the authorizing document,
and whether it is provided through postal
mail or by electronic means and to whom. It
also may address the timing, form, and con-
tent of notifications to unsuccessful appli-
cants. See also § 200.211.
2. Administrative and National Policy Re-
quirements—Required . This section must iden-
tify the usual administrative and national
policy requirements the Federal awarding
agency’s Federal awards may include. Pro-
viding this information lets a potential ap-
plicant identify any requirements with
which it would have difficulty complying if
its application is successful. In those cases,
early notification about the requirements al-
lows the potential applicant to decide not to
apply or to take needed actions before re-
ceiving the Federal award. The announce-
ment need not include all of the terms and
conditions of the Federal award, but may
refer to a document (with information about
how to obtain it) or Internet site where ap-
plicants can see the terms and conditions. If
this funding opportunity will lead to Federal
awards with some special terms and condi-
tions that differ from the Federal awarding
agency’s usual (sometimes called ‘‘general’’)
terms and conditions, this section should
highlight those special terms and conditions.
Doing so will alert applicants that have re-
ceived Federal awards from the Federal
awarding agency previously and might not
otherwise expect different terms and condi-
tions. For the same reason, the announce-
ment should inform potential applicants
about special requirements that could apply
to particular Federal awards after the review
of applications and other information, based
on the particular circumstances of the effort
to be supported (e.g., if human subjects were
to be involved or if some situations may jus-
tify special terms on intellectual property,
data sharing or security requirements).
3. Reporting—Required. This section must
include general information about the type
(e.g., financial or performance), frequency,
and means of submission (paper or elec-
tronic) of post-Federal award reporting re-
quirements. Highlight any special reporting
requirements for Federal awards under this
funding opportunity that differ ( e.g., by re-
port type, frequency, form/format, or cir-
cumstances for use) from what the Federal
awarding agency’s Federal awards usually
require. Federal awarding agencies must also
describe in this section all relevant require-
ments such as those at 2 CFR 180.335 and
180.350.
If the Federal share of any Federal award
may include more than $500,000 over the pe-
riod of performance, this section must in-
form potential applicants about the post
award reporting requirements reflected in
appendix XII to this part.
G. F
EDERAL AWARDING AGENCY CONTACT(S)—
REQUIRED
The announcement must give potential ap-
plicants a point(s) of contact for answering
questions or helping with problems while the
funding opportunity is open. The intent of
this requirement is to be as helpful as pos-
sible to potential applicants, so the Federal
awarding agency should consider approaches
such as giving:
i. Points of contact who may be reached in
multiple ways (e.g., by telephone, FAX, and/
or email, as well as regular mail).
ii. A fax or email address that multiple
people access, so that someone will respond
even if others are unexpectedly absent dur-
ing critical periods.
iii. Different contacts for distinct kinds of
help (e.g., one for questions of programmatic
content and a second for administrative
questions).
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OMB Guidance Pt. 200, App. II
H. OTHER INFORMATION—O PTIONAL
This section may include any additional
information that will assist a potential ap-
plicant. For example, the section might:
i. Indicate whether this is a new program
or a one-time initiative.
ii. Mention related programs or other up-
coming or ongoing Federal awarding agency
funding opportunities for similar activities.
iii. Include current Internet addresses for
Federal awarding agency Web sites that may
be useful to an applicant in understanding
the program.
iv. Alert applicants to the need to identify
proprietary information and inform them
about the way the Federal awarding agency
will handle it.
v. Include certain routine notices to appli-
cants (e.g., that the Federal Government is
not obligated to make any Federal award as
a result of the announcement or that only
grants officers can bind the Federal Govern-
ment to the expenditure of funds).
[78 FR 78608, Dec. 26, 2013, as amended at 80
FR 43310, July 22, 2015; 85 FR 49575, Aug. 13,
2020]
APPENDIX II TO PART 200—C ONTRACT
PROVISIONS FOR NON-FEDERAL ENTI-
TY CONTRACTS UNDER FEDERAL
AWARDS
In addition to other provisions required by
the Federal agency or non-Federal entity, all
contracts made by the non-Federal entity
under the Federal award must contain provi-
sions covering the following, as applicable.
(A) Contracts for more than the simplified
acquisition threshold, which is the inflation
adjusted amount determined by the Civilian
Agency Acquisition Council and the Defense
Acquisition Regulations Council (Councils)
as authorized by 41 U.S.C. 1908, must address
administrative, contractual, or legal rem-
edies in instances where contractors violate
or breach contract terms, and provide for
such sanctions and penalties as appropriate.
(B) All contracts in excess of $10,000 must
address termination for cause and for con-
venience by the non-Federal entity including
the manner by which it will be effected and
the basis for settlement.
(C) Equal Employment Opportunity. Ex-
cept as otherwise provided under 41 CFR
Part 60, all contracts that meet the defini-
tion of ‘‘federally assisted construction con-
tract’’ in 41 CFR Part 60–1.3 must include the
equal opportunity clause provided under 41
CFR 60–1.4(b), in accordance with Executive
Order 11246, ‘‘Equal Employment Oppor-
tunity’’ (30 FR 12319, 12935, 3 CFR Part, 1964–
1965 Comp., p. 339), as amended by Executive
Order 11375, ‘‘Amending Executive Order
11246 Relating to Equal Employment Oppor-
tunity,’’ and implementing regulations at 41
CFR part 60, ‘‘Office of Federal Contract
Compliance Programs, Equal Employment
Opportunity, Department of Labor.’’
(D) Davis-Bacon Act, as amended (40 U.S.C.
3141–3148). When required by Federal program
legislation, all prime construction contracts
in excess of $2,000 awarded by non-Federal
entities must include a provision for compli-
ance with the Davis-Bacon Act (40 U.S.C.
3141–3144, and 3146–3148) as supplemented by
Department of Labor regulations (29 CFR
Part 5, ‘‘Labor Standards Provisions Appli-
cable to Contracts Covering Federally Fi-
nanced and Assisted Construction’’). In ac-
cordance with the statute, contractors must
be required to pay wages to laborers and me-
chanics at a rate not less than the prevailing
wages specified in a wage determination
made by the Secretary of Labor. In addition,
contractors must be required to pay wages
not less than once a week. The non-Federal
entity must place a copy of the current pre-
vailing wage determination issued by the De-
partment of Labor in each solicitation. The
decision to award a contract or subcontract
must be conditioned upon the acceptance of
the wage determination. The non-Federal en-
tity must report all suspected or reported
violations to the Federal awarding agency.
The contracts must also include a provision
for compliance with the Copeland ‘‘Anti-
Kickback’’ Act (40 U.S.C. 3145), as supple-
mented by Department of Labor regulations
(29 CFR Part 3, ‘‘Contractors and Sub-
contractors on Public Building or Public
Work Financed in Whole or in Part by Loans
or Grants from the United States’’). The Act
provides that each contractor or sub-
recipient must be prohibited from inducing,
by any means, any person employed in the
construction, completion, or repair of public
work, to give up any part of the compensa-
tion to which he or she is otherwise entitled.
The non-Federal entity must report all sus-
pected or reported violations to the Federal
awarding agency.
(E) Contract Work Hours and Safety
Standards Act (40 U.S.C. 3701–3708). Where
applicable, all contracts awarded by the non-
Federal entity in excess of $100,000 that in-
volve the employment of mechanics or labor-
ers must include a provision for compliance
with 40 U.S.C. 3702 and 3704, as supplemented
by Department of Labor regulations (29 CFR
Part 5). Under 40 U.S.C. 3702 of the Act, each
contractor must be required to compute the
wages of every mechanic and laborer on the
basis of a standard work week of 40 hours.
Work in excess of the standard work week is
permissible provided that the worker is com-
pensated at a rate of not less than one and a
half times the basic rate of pay for all hours
worked in excess of 40 hours in the work
week. The requirements of 40 U.S.C. 3704 are
applicable to construction work and provide
that no laborer or mechanic must be re-
quired to work in surroundings or under
working conditions which are unsanitary,
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hazardous or dangerous. These requirements
do not apply to the purchases of supplies or
materials or articles ordinarily available on
the open market, or contracts for transpor-
tation or transmission of intelligence.
(F) Rights to Inventions Made Under a
Contract or Agreement. If the Federal award
meets the definition of ‘‘funding agreement’’
under 37 CFR § 401.2 (a) and the recipient or
subrecipient wishes to enter into a contract
with a small business firm or nonprofit orga-
nization regarding the substitution of par-
ties, assignment or performance of experi-
mental, developmental, or research work
under that ‘‘funding agreement,’’ the recipi-
ent or subrecipient must comply with the re-
quirements of 37 CFR Part 401, ‘‘Rights to In-
ventions Made by Nonprofit Organizations
and Small Business Firms Under Govern-
ment Grants, Contracts and Cooperative
Agreements,’’ and any implementing regula-
tions issued by the awarding agency.
(G) Clean Air Act (42 U.S.C. 7401–7671q.) and
the Federal Water Pollution Control Act (33
U.S.C. 1251–1387), as amended—Contracts and
subgrants of amounts in excess of $150,000
must contain a provision that requires the
non-Federal award to agree to comply with
all applicable standards, orders or regula-
tions issued pursuant to the Clean Air Act
(42 U.S.C. 7401–7671q) and the Federal Water
Pollution Control Act as amended (33 U.S.C.
1251–1387). Violations must be reported to the
Federal awarding agency and the Regional
Office of the Environmental Protection
Agency (EPA).
(H) Debarment and Suspension (Executive
Orders 12549 and 12689)—A contract award
(see 2 CFR 180.220) must not be made to par-
ties listed on the governmentwide exclusions
in the System for Award Management
(SAM), in accordance with the OMB guide-
lines at 2 CFR 180 that implement Executive
Orders 12549 (3 CFR part 1986 Comp., p. 189)
and 12689 (3 CFR part 1989 Comp., p. 235),
‘‘Debarment and Suspension.’’ SAM Exclu-
sions contains the names of parties debarred,
suspended, or otherwise excluded by agen-
cies, as well as parties declared ineligible
under statutory or regulatory authority
other than Executive Order 12549.
(I) Byrd Anti-Lobbying Amendment (31
U.S.C. 1352)—Contractors that apply or bid
for an award exceeding $100,000 must file the
required certification. Each tier certifies to
the tier above that it will not and has not
used Federal appropriated funds to pay any
person or organization for influencing or at-
tempting to influence an officer or employee
of any agency, a member of Congress, officer
or employee of Congress, or an employee of a
member of Congress in connection with ob-
taining any Federal contract, grant or any
other award covered by 31 U.S.C. 1352. Each
tier must also disclose any lobbying with
non-Federal funds that takes place in con-
nection with obtaining any Federal award.
Such disclosures are forwarded from tier to
tier up to the non-Federal award.
(J) See § 200.323.
(K) See § 200.216.
(L) See § 200.322.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75888, Dec. 19, 2014; 85 FR 49577, Aug. 13,
2020]
APPENDIX III TO PART 200—I NDIRECT
(F&A) C OSTS IDENTIFICATION AND
ASSIGNMENT, AND RATE DETERMINA-
TION FOR INSTITUTIONS OF HIGHER
EDUCATION (IHES)
A. GENERAL
This appendix provides criteria for identi-
fying and computing indirect (or indirect
(F&A)) rates at IHEs (institutions). Indirect
(F&A) costs are those that are incurred for
common or joint objectives and therefore
cannot be identified readily and specifically
with a particular sponsored project, an in-
structional activity, or any other institu-
tional activity. See subsection B.1 for a dis-
cussion of the components of indirect (F&A)
costs.
1. Major Functions of an Institution
Refers to instruction, organized research,
other sponsored activities and other institu-
tional activities as defined in this section:
a. Instruction means the teaching and
training activities of an institution. Except
for research training as provided in sub-
section b, this term includes all teaching and
training activities, whether they are offered
for credits toward a degree or certificate or
on a non-credit basis, and whether they are
offered through regular academic depart-
ments or separate divisions, such as a sum-
mer school division or an extension division.
Also considered part of this major function
are departmental research, and, where
agreed to, university research.
(1) Sponsored instruction and training means
specific instructional or training activity es-
tablished by grant, contract, or cooperative
agreement. For purposes of the cost prin-
ciples, this activity may be considered a
major function even though an institution’s
accounting treatment may include it in the
instruction function.
(2) Departmental research means research,
development and scholarly activities that
are not organized research and, con-
sequently, are not separately budgeted and
accounted for. Departmental research, for
purposes of this document, is not considered
as a major function, but as a part of the in-
struction function of the institution.
(3) Only mandatory cost sharing or cost
sharing specifically committed in the project
budget must be included in the organized re-
search base for computing the indirect (F&A)
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cost rate or reflected in any allocation of in-
direct costs. Salary costs above statutory
limits are not considered cost sharing.
b. Organized research means all research
and development activities of an institution
that are separately budgeted and accounted
for. It includes:
(1) Sponsored research means all research
and development activities that are spon-
sored by Federal and non-Federal agencies
and organizations. This term includes activi-
ties involving the training of individuals in
research techniques (commonly called re-
search training) where such activities utilize
the same facilities as other research and de-
velopment activities and where such activi-
ties are not included in the instruction func-
tion.
(2) University research means all research
and development activities that are sepa-
rately budgeted and accounted for by the in-
stitution under an internal application of in-
stitutional funds. University research, for
purposes of this document, must be com-
bined with sponsored research under the
function of organized research.
c. Other sponsored activities means programs
and projects financed by Federal and non-
Federal agencies and organizations which in-
volve the performance of work other than in-
struction and organized research. Examples
of such programs and projects are health
service projects and community service pro-
grams. However, when any of these activities
are undertaken by the institution without
outside support, they may be classified as
other institutional activities.
d. Other institutional activities means all ac-
tivities of an institution except for instruc-
tion, departmental research, organized re-
search, and other sponsored activities, as de-
fined in this section; indirect (F&A) cost ac-
tivities identified in this Appendix para-
graph B, Identification and assignment of in-
direct (F&A) costs; and specialized services
facilities described in § 200.468 of this part.
2. Criteria for Distribution
a. Base period. A base period for distribu-
tion of indirect (F&A) costs is the period
during which the costs are incurred. The
base period normally should coincide with
the fiscal year established by the institution,
but in any event the base period should be so
selected as to avoid inequities in the dis-
tribution of costs.
b. Need for cost groupings. The overall ob-
jective of the indirect (F&A) cost allocation
process is to distribute the indirect (F&A)
costs described in Section B, Identification
and assignment of indirect (F&A) costs, to
the major functions of the institution in pro-
portions reasonably consistent with the na-
ture and extent of their use of the institu-
tion’s resources. In order to achieve this ob-
jective, it may be necessary to provide for
selective distribution by establishing sepa-
rate groupings of cost within one or more of
the indirect (F&A) cost categories referred
to in subsection B.1. In general, the cost
groupings established within a category
should constitute, in each case, a pool of
those items of expense that are considered to
be of like nature in terms of their relative
contribution to (or degree of remoteness
from) the particular cost objectives to which
distribution is appropriate. Cost groupings
should be established considering the general
guides provided in subsection c of this sec-
tion. Each such pool or cost grouping should
then be distributed individually to the re-
lated cost objectives, using the distribution
base or method most appropriate in light of
the guidelines set forth in subsection d of
this section.
c. General considerations on cost groupings.
The extent to which separate cost groupings
and selective distribution would be appro-
priate at an institution is a matter of judg-
ment to be determined on a case-by-case
basis. Typical situations which may warrant
the establishment of two or more separate
cost groupings (based on account classifica-
tion or analysis) within an indirect (F&A)
cost category include but are not limited to
the following:
(1) If certain items or categories of expense
relate solely to one of the major functions of
the institution or to less than all functions,
such expenses should be set aside as a sepa-
rate cost grouping for direct assignment or
selective allocation in accordance with the
guides provided in subsections b and d.
(2) If any types of expense ordinarily treat-
ed as general administration or depart-
mental administration are charged to Fed-
eral awards as direct costs, expenses applica-
ble to other activities of the institution
when incurred for the same purposes in like
circumstances must, through separate cost
groupings, be excluded from the indirect
(F&A) costs allocable to those Federal
awards and included in the direct cost of
other activities for cost allocation purposes.
(3) If it is determined that certain expenses
are for the support of a service unit or facil-
ity whose output is susceptible of measure-
ment on a workload or other quantitative
basis, such expenses should be set aside as a
separate cost grouping for distribution on
such basis to organized research, instruc-
tional, and other activities at the institution
or within the department.
(4) If activities provide their own pur-
chasing, personnel administration, building
maintenance or similar service, the distribu-
tion of general administration and general
expenses, or operation and maintenance ex-
penses to such activities should be accom-
plished through cost groupings which include
only that portion of central indirect (F&A)
costs (such as for overall management)
which are properly allocable to such activi-
ties.
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(5) If the institution elects to treat fringe
benefits as indirect (F&A) charges, such
costs should be set aside as a separate cost
grouping for selective distribution to related
cost objectives.
(6) The number of separate cost groupings
within a category should be held within
practical limits, after taking into consider-
ation the materiality of the amounts in-
volved and the degree of precision attainable
through less selective methods of distribu-
tion.
d. Selection of distribution method.
(1) Actual conditions must be taken into
account in selecting the method or base to
be used in distributing individual cost
groupings. The essential consideration in se-
lecting a base is that it be the one best suit-
ed for assigning the pool of costs to cost ob-
jectives in accordance with benefits derived;
with a traceable cause-and-effect relation-
ship; or with logic and reason, where neither
benefit nor a cause-and-effect relationship is
determinable.
(2) If a cost grouping can be identified di-
rectly with the cost objective benefitted, it
should be assigned to that cost objective.
(3) If the expenses in a cost grouping are
more general in nature, the distribution may
be based on a cost analysis study which re-
sults in an equitable distribution of the
costs. Such cost analysis studies may take
into consideration weighting factors, popu-
lation, or space occupied if appropriate. Cost
analysis studies, however, must (a) be appro-
priately documented in sufficient detail for
subsequent review by the cognizant agency
for indirect costs, (b) distribute the costs to
the related cost objectives in accordance
with the relative benefits derived, (c) be sta-
tistically sound, (d) be performed specifically
at the institution at which the results are to
be used, and (e) be reviewed periodically, but
not less frequently than rate negotiations,
updated if necessary, and used consistently.
Any assumptions made in the study must be
stated and explained. The use of cost anal-
ysis studies and periodic changes in the
method of cost distribution must be fully
justified.
(4) If a cost analysis study is not per-
formed, or if the study does not result in an
equitable distribution of the costs, the dis-
tribution must be made in accordance with
the appropriate base cited in Section B, un-
less one of the following conditions is met:
(a) It can be demonstrated that the use of
a different base would result in a more equi-
table allocation of the costs, or that a more
readily available base would not increase the
costs charged to Federal awards, or
(b) The institution qualifies for, and elects
to use, the simplified method for computing
indirect (F&A) cost rates described in Sec-
tion D.
(5) Notwithstanding subsection (3), effec-
tive July 1, 1998, a cost analysis or base other
than that in Section B must not be used to
distribute utility or student services costs.
Instead, subsection B.4.c, may be used in the
recovery of utility costs.
e. Order of distribution.
(1) Indirect (F&A) costs are the broad cat-
egories of costs discussed in Section B.1.
(2) Depreciation, interest expenses, oper-
ation and maintenance expenses, and general
administrative and general expenses should
be allocated in that order to the remaining
indirect (F&A) cost categories as well as to
the major functions and specialized service
facilities of the institution. Other cost cat-
egories may be allocated in the order deter-
mined to be most appropriate by the institu-
tions. When cross allocation of costs is made
as provided in subsection (3), this order of al-
location does not apply.
(3) Normally an indirect (F&A) cost cat-
egory will be considered closed once it has
been allocated to other cost objectives, and
costs may not be subsequently allocated to
it. However, a cross allocation of costs be-
tween two or more indirect (F&A) cost cat-
egories may be used if such allocation will
result in a more equitable allocation of
costs. If a cross allocation is used, an appro-
priate modification to the composition of
the indirect (F&A) cost categories described
in Section B is required.
B. I
DENTIFICATION AND ASSIGNMENT OF
INDIRECT (F&A) COSTS
1. Definition of Facilities and Administration
See § 200.414 which provides the basis for
these indirect cost requirements.
2. Depreciation
a. The expenses under this heading are the
portion of the costs of the institution’s
buildings, capital improvements to land and
buildings, and equipment which are com-
puted in accordance with § 200.436.
b. In the absence of the alternatives pro-
vided for in Section A.2.d, the expenses in-
cluded in this category must be allocated in
the following manner:
(1) Depreciation on buildings used exclu-
sively in the conduct of a single function,
and on capital improvements and equipment
used in such buildings, must be assigned to
that function.
(2) Depreciation on buildings used for more
than one function, and on capital improve-
ments and equipment used in such buildings,
must be allocated to the individual functions
performed in each building on the basis of
usable square feet of space, excluding com-
mon areas such as hallways, stairwells, and
rest rooms.
(3) Depreciation on buildings, capital im-
provements and equipment related to space
(e.g., individual rooms, laboratories) used
jointly by more than one function (as deter-
mined by the users of the space) must be
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treated as follows. The cost of each jointly
used unit of space must be allocated to bene-
fitting functions on the basis of:
(a) The employee full-time equivalents
(FTEs) or salaries and wages of those indi-
vidual functions benefitting from the use of
that space; or
(b) Institution-wide employee FTEs or sal-
aries and wages applicable to the benefitting
major functions (see Section A.1) of the in-
stitution.
(4) Depreciation on certain capital im-
provements to land, such as paved parking
areas, fences, sidewalks, and the like, not in-
cluded in the cost of buildings, must be allo-
cated to user categories of students and em-
ployees on a full-time equivalent basis. The
amount allocated to the student category
must be assigned to the instruction function
of the institution. The amount allocated to
the employee category must be further allo-
cated to the major functions of the institu-
tion in proportion to the salaries and wages
of all employees applicable to those func-
tions.
3. Interest
Interest on debt associated with certain
buildings, equipment and capital improve-
ments, as defined in § 200.449, must be classi-
fied as an expenditure under the category
Facilities. These costs must be allocated in
the same manner as the depreciation on the
buildings, equipment and capital improve-
ments to which the interest relates.
4. Operation and Maintenance Expenses
a. The expenses under this heading are
those that have been incurred for the admin-
istration, supervision, operation, mainte-
nance, preservation, and protection of the in-
stitution’s physical plant. They include ex-
penses normally incurred for such items as
janitorial and utility services; repairs and
ordinary or normal alterations of buildings,
furniture and equipment; care of grounds;
maintenance and operation of buildings and
other plant facilities; security; earthquake
and disaster preparedness; environmental
safety; hazardous waste disposal; property,
liability and all other insurance relating to
property; space and capital leasing; facility
planning and management; and central re-
ceiving. The operation and maintenance ex-
pense category should also include its allo-
cable share of fringe benefit costs, deprecia-
tion, and interest costs.
b. In the absence of the alternatives pro-
vided for in Section A.2.d, the expenses in-
cluded in this category must be allocated in
the same manner as described in subsection
2.b for depreciation.
c. A utility cost adjustment of up to 1.3
percentage points may be included in the ne-
gotiated indirect cost rate of the IHE for or-
ganized research, per the computation alter-
natives in paragraphs (c)(1) and (2) of this
section:
(1) Where space is devoted to a single func-
tion and metering allows unambiguous meas-
urement of usage related to that space, costs
must be assigned to the function located in
that space.
(2) Where space is allocated to different
functions and metering does not allow unam-
biguous measurement of usage by function,
costs must be allocated as follows:
(i) Utilities costs should be apportioned to
functions in the same manner as deprecia-
tion, based on the calculated difference be-
tween the site or building actual square foot-
age for monitored research laboratory space
(site, building, floor, or room), and a sepa-
rate calculation prepared by the IHE using
the ‘‘effective square footage’’ described in
subsection (c)(2)(ii) of this section.
(ii) ‘‘Effective square footage’’ allocated to
research laboratory space must be calculated
as the actual square footage times the rel-
ative energy utilization index (REUI) posted
on the OMB Web site at the time of a rate
determination.
A. This index is the ratio of a laboratory
energy use index (lab EUI) to the cor-
responding index for overall average college
or university space (college EUI).
B. In July 2012, values for these two indices
(taken respectively from the Lawrence
Berkeley Laboratory ‘‘Labs for the 21st Cen-
tury’’ benchmarking tool and the US Depart-
ment of Energy ‘‘Buildings Energy
Databook’’ and were 310 kBtu/sq ft-yr. and
155 kBtu/sq ft-yr., so that the adjustment
ratio is 2.0 by this methodology. To retain
currency, OMB will adjust the EUI numbers
from time to time (no more often than annu-
ally nor less often than every 5 years), using
reliable and publicly disclosed data. Current
values of both the EUIs and the REUI will be
posted on the OMB website.
5. General Administration and General Expenses
a. The expenses under this heading are
those that have been incurred for the general
executive and administrative offices of edu-
cational institutions and other expenses of a
general character which do not relate solely
to any major function of the institution; i.e.,
solely to (1) instruction, (2) organized re-
search, (3) other sponsored activities, or (4)
other institutional activities. The general
administration and general expense category
should also include its allocable share of
fringe benefit costs, operation and mainte-
nance expense, depreciation, and interest
costs. Examples of general administration
and general expenses include: Those expenses
incurred by administrative offices that serve
the entire university system of which the in-
stitution is a part; central offices of the in-
stitution such as the President’s or
Chancellor’s office, the offices for institu-
tion-wide financial management, business
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services, budget and planning, personnel
management, and safety and risk manage-
ment; the office of the General Counsel; and
the operations of the central administrative
management information systems. General
administration and general expenses must
not include expenses incurred within non-
university-wide deans’ offices, academic de-
partments, organized research units, or simi-
lar organizational units. (See subsection 6.)
b. In the absence of the alternatives pro-
vided for in Section A.2.d, the expenses in-
cluded in this category must be grouped first
according to common major functions of the
institution to which they render services or
provide benefits. The aggregate expenses of
each group must then be allocated to serv-
iced or benefitted functions on the modified
total cost basis. Modified total costs consist
of the same elements as those in Section C.2.
When an activity included in this indirect
(F&A) cost category provides a service or
product to another institution or organiza-
tion, an appropriate adjustment must be
made to either the expenses or the basis of
allocation or both, to assure a proper alloca-
tion of costs.
6. Departmental Administration Expenses
a. The expenses under this heading are
those that have been incurred for adminis-
trative and supporting services that benefit
common or joint departmental activities or
objectives in academic deans’ offices, aca-
demic departments and divisions, and orga-
nized research units. Organized research
units include such units as institutes, study
centers, and research centers. Departmental
administration expenses are subject to the
following limitations.
(1) Academic deans’ offices. Salaries and
operating expenses are limited to those at-
tributable to administrative functions.
(2) Academic departments:
(a) Salaries and fringe benefits attrib-
utable to the administrative work (including
bid and proposal preparation) of faculty (in-
cluding department heads) and other profes-
sional personnel conducting research and/or
instruction, must be allowed at a rate of 3.6
percent of modified total direct costs. This
category does not include professional busi-
ness or professional administrative officers.
This allowance must be added to the com-
putation of the indirect (F&A) cost rate for
major functions in Section C; the expenses
covered by the allowance must be excluded
from the departmental administration cost
pool. No documentation is required to sup-
port this allowance.
(b) Other administrative and supporting
expenses incurred within academic depart-
ments are allowable provided they are treat-
ed consistently in like circumstances. This
would include expenses such as the salaries
of secretarial and clerical staffs, the salaries
of administrative officers and assistants,
travel, office supplies, stockrooms, and the
like.
(3) Other fringe benefit costs applicable to
the salaries and wages included in sub-
sections (1) and (2) are allowable, as well as
an appropriate share of general administra-
tion and general expenses, operation and
maintenance expenses, and depreciation.
(4) Federal agencies may authorize reim-
bursement of additional costs for department
heads and faculty only in exceptional cases
where an institution can demonstrate undue
hardship or detriment to project perform-
ance.
b. The following guidelines apply to the de-
termination of departmental administrative
costs as direct or indirect (F&A) costs.
(1) In developing the departmental admin-
istration cost pool, special care should be ex-
ercised to ensure that costs incurred for the
same purpose in like circumstances are
treated consistently as either direct or indi-
rect (F&A) costs. For example, salaries of
technical staff, laboratory supplies ( e.g.,
chemicals), telephone toll charges, animals,
animal care costs, computer costs, travel
costs, and specialized shop costs must be
treated as direct costs wherever identifiable
to a particular cost objective. Direct charg-
ing of these costs may be accomplished
through specific identification of individual
costs to benefitting cost objectives, or
through recharge centers or specialized serv-
ice facilities, as appropriate under the cir-
cumstances. See §§ 200.413(c) and 200.468.
(2) Items such as office supplies, postage,
local telephone costs, and memberships must
normally be treated as indirect (F&A) costs.
c. In the absence of the alternatives pro-
vided for in Section A.2.d, the expenses in-
cluded in this category must be allocated as
follows:
(1) The administrative expenses of the
dean’s office of each college and school must
be allocated to the academic departments
within that college or school on the modified
total cost basis.
(2) The administrative expenses of each
academic department, and the department’s
share of the expenses allocated in subsection
(1) must be allocated to the appropriate func-
tions of the department on the modified
total cost basis.
7. Sponsored Projects Administration
a. The expenses under this heading are lim-
ited to those incurred by a separate organi-
zation(s) established primarily to administer
sponsored projects, including such functions
as grant and contract administration (Fed-
eral and non-Federal), special security, pur-
chasing, personnel, administration, and edit-
ing and publishing of research and other re-
ports. They include the salaries and expenses
of the head of such organization, assistants,
and immediate staff, together with the sala-
ries and expenses of personnel engaged in
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supporting activities maintained by the or-
ganization, such as stock rooms, print shops,
and the like. This category also includes an
allocable share of fringe benefit costs, gen-
eral administration and general expenses,
operation and maintenance expenses, and de-
preciation. Appropriate adjustments will be
made for services provided to other functions
or organizations.
b. In the absence of the alternatives pro-
vided for in Section A.2.d, the expenses in-
cluded in this category must be allocated to
the major functions of the institution under
which the sponsored projects are conducted
on the basis of the modified total cost of
sponsored projects.
c. An appropriate adjustment must be
made to eliminate any duplicate charges to
Federal awards when this category includes
similar or identical activities as those in-
cluded in the general administration and
general expense category or other indirect
(F&A) cost items, such as accounting, pro-
curement, or personnel administration.
8. Library Expenses
a. The expenses under this heading are
those that have been incurred for the oper-
ation of the library, including the cost of
books and library materials purchased for
the library, less any items of library income
that qualify as applicable credits under
§ 200.406. The library expense category should
also include the fringe benefits applicable to
the salaries and wages included therein, an
appropriate share of general administration
and general expense, operation and mainte-
nance expense, and depreciation. Costs in-
curred in the purchases of rare books (mu-
seum-type books) with no value to Federal
awards should not be allocated to them.
b. In the absence of the alternatives pro-
vided for in Section A.2.d, the expenses in-
cluded in this category must be allocated
first on the basis of primary categories of
users, including students, professional em-
ployees, and other users.
(1) The student category must consist of
full-time equivalent students enrolled at the
institution, regardless of whether they earn
credits toward a degree or certificate.
(2) The professional employee category
must consist of all faculty members and
other professional employees of the institu-
tion, on a full-time equivalent basis. This
category may also include post-doctorate
fellows and graduate students.
(3) The other users category must consist
of a reasonable factor as determined by insti-
tutional records to account for all other
users of library facilities.
c. Amount allocated in paragraph b of this
section must be assigned further as follows:
(1) The amount in the student category
must be assigned to the instruction function
of the institution.
(2) The amount in the professional em-
ployee category must be assigned to the
major functions of the institution in propor-
tion to the salaries and wages of all faculty
members and other professional employees
applicable to those functions.
(3) The amount in the other users category
must be assigned to the other institutional
activities function of the institution.
9. Student Administration and Services
a. The expenses under this heading are
those that have been incurred for the admin-
istration of student affairs and for services
to students, including expenses of such ac-
tivities as deans of students, admissions, reg-
istrar, counseling and placement services,
student advisers, student health and infir-
mary services, catalogs, and commence-
ments and convocations. The salaries of
members of the academic staff whose respon-
sibilities to the institution require adminis-
trative work that benefits sponsored projects
may also be included to the extent that the
portion charged to student administration is
determined in accordance with subpart E of
this Part. This expense category also in-
cludes the fringe benefit costs applicable to
the salaries and wages included therein, an
appropriate share of general administration
and general expenses, operation and mainte-
nance, interest expense, and depreciation.
b. In the absence of the alternatives pro-
vided for in Section A.2.d, the expenses in
this category must be allocated to the in-
struction function, and subsequently to Fed-
eral awards in that function.
10. Offset for Indirect (F&A) Expenses Other-
wise Provided for by the Federal Govern-
ment
a. The items to be accumulated under this
heading are the reimbursements and other
payments from the Federal Government
which are made to the institution to support
solely, specifically, and directly, in whole or
in part, any of the administrative or service
activities described in subsections 2 through
9. b. The items in this group must be treated
as a credit to the affected individual indirect
(F&A) cost category before that category is
allocated to benefitting functions.
C. D
ETERMINATION AND APPLICATION OF
INDIRECT (F&A) COST RATE OR RATES
1. Indirect (F&A) Cost Pools
a. (1) Subject to subsection b, the separate
categories of indirect (F&A) costs allocated
to each major function of the institution as
prescribed in Section B, must be aggregated
and treated as a common pool for that func-
tion. The amount in each pool must be di-
vided by the distribution base described in
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subsection 2 to arrive at a single indirect
(F&A) cost rate for each function.
(2) The rate for each function is used to
distribute indirect (F&A) costs to individual
Federal awards of that function. Since a
common pool is established for each major
function of the institution, a separate indi-
rect (F&A) cost rate would be established for
each of the major functions described in Sec-
tion A.1 under which Federal awards are car-
ried out.
(3) Each institution’s indirect (F&A) cost
rate process must be appropriately designed
to ensure that Federal sponsors do not in
any way subsidize the indirect (F&A) costs of
other sponsors, specifically activities spon-
sored by industry and foreign governments.
Accordingly, each allocation method used to
identify and allocate the indirect (F&A) cost
pools, as described in Sections A.2 and B.2
through B.9, must contain the full amount of
the institution’s modified total costs or
other appropriate units of measurement used
to make the computations. In addition, the
final rate distribution base (as defined in
subsection 2) for each major function (orga-
nized research, instruction, etc., as described
in Section A.1 functions of an institution)
must contain all the programs or activities
which utilize the indirect (F&A) costs allo-
cated to that major function. At the time an
indirect (F&A) cost proposal is submitted to
a cognizant agency for indirect costs, each
institution must describe the process it uses
to ensure that Federal funds are not used to
subsidize industry and foreign government
funded programs.
2. The Distribution Basis
Indirect (F&A) costs must be distributed to
applicable Federal awards and other benefit-
ting activities within each major function
(see section A.1) on the basis of modified
total direct costs (MTDC), consisting of all
salaries and wages, fringe benefits, materials
and supplies, services, travel, and up to the
first $25,000 of each subaward (regardless of
the period covered by the subaward). MTDC
is defined in § 200.1. For this purpose, an indi-
rect (F&A) cost rate should be determined
for each of the separate indirect (F&A) cost
pools developed pursuant to subsection 1.
The rate in each case should be stated as the
percentage which the amount of the par-
ticular indirect (F&A) cost pool is of the
modified total direct costs identified with
such pool.
3. Negotiated Lump Sum for Indirect (F&A)
Costs
A negotiated fixed amount in lieu of indi-
rect (F&A) costs may be appropriate for self-
contained, off-campus, or primarily subcon-
tracted activities where the benefits derived
from an institution’s indirect (F&A) services
cannot be readily determined. Such nego-
tiated indirect (F&A) costs will be treated as
an offset before allocation to instruction, or-
ganized research, other sponsored activities,
and other institutional activities. The base
on which such remaining expenses are allo-
cated should be appropriately adjusted.
4. Predetermined Rates for Indirect (F&A) Costs
Public Law 87–638 (76 Stat. 437) as amended
(41 U.S.C. 4708) authorizes the use of pre-
determined rates in determining the ‘‘indi-
rect costs’’ (indirect (F&A) costs) applicable
under research agreements with educational
institutions. The stated objectives of the law
are to simplify the administration of cost-
type research and development contracts (in-
cluding grants) with educational institu-
tions, to facilitate the preparation of their
budgets, and to permit more expeditious
closeout of such contracts when the work is
completed. In view of the potential advan-
tages offered by this procedure, negotiation
of predetermined rates for indirect (F&A)
costs for a period of two to four years should
be the norm in those situations where the
cost experience and other pertinent facts
available are deemed sufficient to enable the
parties involved to reach an informed judg-
ment as to the probable level of indirect
(F&A) costs during the ensuing accounting
periods.
5. Negotiated Fixed Rates and Carry-Forward
Provisions
When a fixed rate is negotiated in advance
for a fiscal year (or other time period), the
over- or under-recovery for that year may be
included as an adjustment to the indirect
(F&A) cost for the next rate negotiation.
When the rate is negotiated before the carry-
forward adjustment is determined, the carry-
forward amount may be applied to the next
subsequent rate negotiation. When such ad-
justments are to be made, each fixed rate ne-
gotiated in advance for a given period will be
computed by applying the expected indirect
(F&A) costs allocable to Federal awards for
the forecast period plus or minus the carry-
forward adjustment (over- or under-recovery)
from the prior period, to the forecast dis-
tribution base. Unrecovered amounts under
lump-sum agreements or cost-sharing provi-
sions of prior years must not be carried for-
ward for consideration in the new rate nego-
tiation. There must, however, be an advance
understanding in each case between the in-
stitution and the cognizant agency for indi-
rect costs as to whether these differences
will be considered in the rate negotiation
rather than making the determination after
the differences are known. Further, institu-
tions electing to use this carry-forward pro-
vision may not subsequently change without
prior approval of the cognizant agency for
indirect costs. In the event that an institu-
tion returns to a post-determined rate, any
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over- or under-recovery during the period in
which negotiated fixed rates and carry-for-
ward provisions were followed will be in-
cluded in the subsequent post-determined
rates. Where multiple rates are used, the
same procedure will be applicable for deter-
mining each rate.
6. Provisional and Final Rates for Indirect
(F&A) Costs
Where the cognizant agency for indirect
costs determines that cost experience and
other pertinent facts do not justify the use
of predetermined rates, or a fixed rate with
a carry-forward, or if the parties cannot
agree on an equitable rate, a provisional rate
must be established. To prevent substantial
overpayment or underpayment, the provi-
sional rate may be adjusted by the cognizant
agency for indirect costs during the institu-
tion’s fiscal year. Predetermined or fixed
rates may replace provisional rates at any
time prior to the close of the institution’s
fiscal year. If a provisional rate is not re-
placed by a predetermined or fixed rate prior
to the end of the institution’s fiscal year, a
final rate will be established and upward or
downward adjustments will be made based on
the actual allowable costs incurred for the
period involved.
7. Fixed Rates for the Life of the Sponsored
Agreement
a. Except as provided in paragraph (c)(1) of
§ 200.414, Federal agencies must use the nego-
tiated rates in effect at the time of the ini-
tial award throughout the life of the Federal
award. Award levels for Federal awards may
not be adjusted in future years as a result of
changes in negotiated rates. ‘‘Negotiated
rates’’ per the rate agreement include final,
fixed, and predetermined rates and exclude
provisional rates. ‘‘Life’’ for the purpose of
this subsection means each competitive seg-
ment of a project. A competitive segment is
a period of years approved by the Federal
awarding agency at the time of the Federal
award. If negotiated rate agreements do not
extend through the life of the Federal award
at the time of the initial award, then the ne-
gotiated rate for the last year of the Federal
award must be extended through the end of
the life of the Federal award.
b. Except as provided in § 200.414, when an
educational institution does not have a nego-
tiated rate with the Federal Government at
the time of an award (because the edu-
cational institution is a new recipient or the
parties cannot reach agreement on a rate),
the provisional rate used at the time of the
award must be adjusted once a rate is nego-
tiated and approved by the cognizant agency
for indirect costs.
8. Limitation on Reimbursement of
Administrative Costs
a. Notwithstanding the provisions of sub-
section C.1.a, the administrative costs
charged to Federal awards awarded or
amended (including continuation and re-
newal awards) with effective dates beginning
on or after the start of the institution’s first
fiscal year which begins on or after October
1, 1991, must be limited to 26% of modified
total direct costs (as defined in subsection 2)
for the total of General Administration and
General Expenses, Departmental Adminis-
tration, Sponsored Projects Administration,
and Student Administration and Services
(including their allocable share of deprecia-
tion, interest costs, operation and mainte-
nance expenses, and fringe benefits costs, as
provided by Section B, and all other types of
expenditures not listed specifically under
one of the subcategories of facilities in Sec-
tion B.
b. Institutions should not change their ac-
counting or cost allocation methods if the ef-
fect is to change the charging of a particular
type of cost from F&A to direct, or to reclas-
sify costs, or increase allocations from the
administrative pools identified in paragraph
B.1 of this Appendix to the other F&A cost
pools or fringe benefits. Cognizant agencies
for indirect cost are authorized to allow
changes where an institution’s charging
practices are at variance with acceptable
practices followed by a substantial majority
of other institutions.
9. Alternative Method for Administrative Costs
a. Notwithstanding the provisions of sub-
section C.1.a, an institution may elect to
claim a fixed allowance for the ‘‘Adminis-
tration’’ portion of indirect (F&A) costs. The
allowance could be either 24% of modified
total direct costs or a percentage equal to
95% of the most recently negotiated fixed or
predetermined rate for the cost pools in-
cluded under ‘‘Administration’’ as defined in
Section B.1, whichever is less. Under this al-
ternative, no cost proposal need be prepared
for the ‘‘Administration’’ portion of the indi-
rect (F&A) cost rate nor is further identifica-
tion or documentation of these costs re-
quired (see subsection c). Where a negotiated
indirect (F&A) cost agreement includes this
alternative, an institution must make no
further charges for the expenditure cat-
egories described in Section B.5, Section B.6,
Section B.7, and Section B.9.
b. In negotiations of rates for subsequent
periods, an institution that has elected the
option of subsection a may continue to exer-
cise it at the same rate without further iden-
tification or documentation of costs.
c. If an institution elects to accept a
threshold rate as defined in subsection a of
this section, it is not required to perform a
detailed analysis of its administrative costs.
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However, in order to compute the facilities
components of its indirect (F&A) cost rate,
the institution must reconcile its indirect
(F&A) cost proposal to its financial state-
ments and make appropriate adjustments
and reclassifications to identify the costs of
each major function as defined in Section
A.1, as well as to identify and allocate the fa-
cilities components. Administrative costs
that are not identified as such by the insti-
tution’s accounting system (such as those in-
curred in academic departments) will be
classified as instructional costs for purposes
of reconciling indirect (F&A) cost proposals
to financial statements and allocating facili-
ties costs.
10. Individual Rate Components
In order to provide mutually agreed-upon
information for management purposes, each
indirect (F&A) cost rate negotiation or de-
termination must include development of a
rate for each indirect (F&A) cost pool as well
as the overall indirect (F&A) cost rate.
11. Negotiation and Approval of Indirect (F&A)
Rate
a. Cognizant agency for indirect costs is
defined in Subpart A.
(1) Cost negotiation cognizance is assigned
to the Department of Health and Human
Services (HHS) or the Department of De-
fense’s Office of Naval Research (DOD), nor-
mally depending on which of the two agen-
cies (HHS or DOD) provides more funds di-
rectly to the educational institution for the
most recent three years. Information on
funding must be derived from relevant data
gathered by the National Science Founda-
tion. In cases where neither HHS nor DOD
provides Federal funding directly to an edu-
cational institution, the cognizant agency
for indirect costs assignment must default to
HHS. Notwithstanding the method for cog-
nizance determination described in this sec-
tion, other arrangements for cognizance of a
particular educational institution may also
be based in part on the types of research per-
formed at the educational institution and
must be decided based on mutual agreement
between HHS and DOD. Where a non-Federal
entity only receives funds as a subrecipient,
see § 200.332.
(2) After cognizance is established, it must
continue for a five-year period.
b. Acceptance of rates. See § 200.414.
c. Correcting deficiencies. The cognizant
agency for indirect costs must negotiate
changes needed to correct systems defi-
ciencies relating to accountability for Fed-
eral awards. Cognizant agencies for indirect
costs must address the concerns of other af-
fected agencies, as appropriate, and must ne-
gotiate special rates for Federal agencies
that are required to limit recovery of indi-
rect costs by statute.
d. Resolving questioned costs. The cog-
nizant agency for indirect costs must con-
duct any necessary negotiations with an edu-
cational institution regarding amounts ques-
tioned by audit that are due the Federal
Government related to costs covered by a ne-
gotiated agreement.
e. Reimbursement. Reimbursement to cog-
nizant agencies for indirect costs for work
performed under this Part may be made by
reimbursement billing under the Economy
Act, 31 U.S.C. 1535.
f. Procedure for establishing facilities and
administrative rates must be established by
one of the following methods:
(1) Formal negotiation. The cognizant
agency for indirect costs is responsible for
negotiating and approving rates for an edu-
cational institution on behalf of all Federal
agencies. Federal awarding agencies that do
not have cognizance for indirect costs must
notify the cognizant agency for indirect
costs of specific concerns (i.e., a need to es-
tablish special cost rates) which could affect
the negotiation process. The cognizant agen-
cy for indirect costs must address the con-
cerns of all interested agencies, as appro-
priate. A pre-negotiation conference may be
scheduled among all interested agencies, if
necessary. The cognizant agency for indirect
costs must then arrange a negotiation con-
ference with the educational institution.
(2) Other than formal negotiation. The cog-
nizant agency for indirect costs and edu-
cational institution may reach an agreement
on rates without a formal negotiation con-
ference; for example, through correspond-
ence or use of the simplified method de-
scribed in this section D of this Appendix.
g. Formalizing determinations and agree-
ments. The cognizant agency for indirect
costs must formalize all determinations or
agreements reached with an educational in-
stitution and provide copies to other agen-
cies having an interest. Determinations
should include a description of any adjust-
ments, the actual amount, both dollar and
percentage adjusted, and the reason for mak-
ing adjustments.
h. Disputes and disagreements. Where the
cognizant agency for indirect costs is unable
to reach agreement with an educational in-
stitution with regard to rates or audit reso-
lution, the appeal system of the cognizant
agency for indirect costs must be followed
for resolution of the disagreement.
12. Standard Format for Submission
For facilities and administrative (indirect
(F&A)) rate proposals, educational institu-
tions must use the standard format, shown
in section E of this appendix, to submit their
indirect (F&A) rate proposal to the cog-
nizant agency for indirect costs. The cog-
nizant agency for indirect costs may, on an
institution-by-institution basis, grant excep-
tions from all or portions of Part II of the
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standard format requirement. This require-
ment does not apply to educational institu-
tions that use the simplified method for cal-
culating indirect (F&A) rates, as described in
Section D of this Appendix.
As provided in section C.10 of this appen-
dix, each F&A cost rate negotiation or deter-
mination must include development of a rate
for each F&A cost pool as well as the overall
F&A rate.
D. S
IMPLIFIED METHOD FOR SMALL
INSTITUTIONS
1. General
a. Where the total direct cost of work cov-
ered by this Part at an institution does not
exceed $10 million in a fiscal year, the sim-
plified procedure described in subsections 2
or 3 may be used in determining allowable
indirect (F&A) costs. Under this simplified
procedure, the institution’s most recent an-
nual financial report and immediately avail-
able supporting information must be utilized
as a basis for determining the indirect (F&A)
cost rate applicable to all Federal awards.
The institution may use either the salaries
and wages (see subsection 2) or modified
total direct costs (see subsection 3) as the
distribution basis.
b. The simplified procedure should not be
used where it produces results which appear
inequitable to the Federal Government or
the institution. In any such case, indirect
(F&A) costs should be determined through
use of the regular procedure.
2. Simplified Procedure—Salaries and Wages
Base
a. Establish the total amount of salaries
and wages paid to all employees of the insti-
tution.
b. Establish an indirect (F&A) cost pool
consisting of the expenditures (exclusive of
capital items and other costs specifically
identified as unallowable) which customarily
are classified under the following titles or
their equivalents:
(1) General administration and general ex-
penses (exclusive of costs of student adminis-
tration and services, student activities, stu-
dent aid, and scholarships).
(2) Operation and maintenance of physical
plant and depreciation (after appropriate ad-
justment for costs applicable to other insti-
tutional activities).
(3) Library.
(4) Department administration expenses,
which will be computed as 20 percent of the
salaries and expenses of deans and heads of
departments.
In those cases where expenditures classi-
fied under subsection (1) have previously
been allocated to other institutional activi-
ties, they may be included in the indirect
(F&A) cost pool. The total amount of sala-
ries and wages included in the indirect (F&A)
cost pool must be separately identified.
c. Establish a salary and wage distribution
base, determined by deducting from the total
of salaries and wages as established in sub-
section a from the amount of salaries and
wages included under subsection b.
d. Establish the indirect (F&A) cost rate,
determined by dividing the amount in the in-
direct (F&A) cost pool, subsection b, by the
amount of the distribution base, subsection
c.
e. Apply the indirect (F&A) cost rate to di-
rect salaries and wages for individual agree-
ments to determine the amount of indirect
(F&A) costs allocable to such agreements.
3. Simplified Procedure—Modified Total Direct
Cost Base
a. Establish the total costs incurred by the
institution for the base period.
b. Establish an indirect (F&A) cost pool
consisting of the expenditures (exclusive of
capital items and other costs specifically
identified as unallowable) which customarily
are classified under the following titles or
their equivalents:
(1) General administration and general ex-
penses (exclusive of costs of student adminis-
tration and services, student activities, stu-
dent aid, and scholarships).
(2) Operation and maintenance of physical
plant and depreciation (after appropriate ad-
justment for costs applicable to other insti-
tutional activities).
(3) Library.
(4) Department administration expenses,
which will be computed as 20 percent of the
salaries and expenses of deans and heads of
departments. In those cases where expendi-
tures classified under subsection (1) have
previously been allocated to other institu-
tional activities, they may be included in the
indirect (F&A) cost pool. The modified total
direct costs amount included in the indirect
(F&A) cost pool must be separately identi-
fied.
c. Establish a modified total direct cost
distribution base, as defined in Section C.2,
The distribution basis, that consists of all
institution’s direct functions.
d. Establish the indirect (F&A) cost rate,
determined by dividing the amount in the in-
direct (F&A) cost pool, subsection b, by the
amount of the distribution base, subsection
c.
e. Apply the indirect (F&A) cost rate to
the modified total direct costs for individual
agreements to determine the amount of indi-
rect (F&A) costs allocable to such agree-
ments.
E. D
OCUMENTATION REQUIREMENTS
The standard format for documentation re-
quirements for indirect (indirect (F&A)) rate
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proposals for claiming costs under the reg-
ular method is available on the OMB
website.
F. C
ERTIFICATION
1. Certification of Charges
To assure that expenditures for Federal
awards are proper and in accordance with
the agreement documents and approved
project budgets, the annual and/or final fis-
cal reports or vouchers requesting payment
under the agreements will include a certifi-
cation, signed by an authorized official of
the university, which reads ‘‘By signing this
report, I certify to the best of my knowledge
and belief that the report is true, complete,
and accurate, and the expenditures, disburse-
ments and cash receipts are for the purposes
and intent set forth in the award documents.
I am aware that any false, fictitious, or
fraudulent information, or the omission of
any material fact, may subject me to crimi-
nal, civil or administrative penalties for
fraud, false statements, false claims or oth-
erwise. (U.S. Code, Title 18, Section 1001 and
Title 31, Sections 3729–3733 and 3801–3812)’’.
2. Certification of Indirect (F&A) Costs
a. Policy. Cognizant agencies must not ac-
cept a proposed indirect cost rate unless
such costs have been certified by the edu-
cational institution using the Certificate of
indirect (F&A) Costs set forth in subsection
F.2.c
b. The certificate must be signed on behalf
of the institution by the chief financial offi-
cer or an individual designated by an indi-
vidual at a level no lower than vice president
or chief financial officer.
An indirect (F&A) cost rate is not binding
upon the Federal Government if the most re-
cent required proposal from the institution
has not been certified. Where it is necessary
to establish indirect (F&A) cost rates, and
the institution has not submitted a certified
proposal for establishing such rates in ac-
cordance with the requirements of this sec-
tion, the Federal Government must unilater-
ally establish such rates. Such rates 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 indi-
rect (F&A) cost rates are unilaterally estab-
lished by the Federal Government because of
failure of the institution to submit a cer-
tified proposal for establishing such rates in
accordance with this section, the rates es-
tablished will be set at a level low enough to
ensure that potentially unallowable costs
will not be reimbursed.
c. Certificate. The certificate required by
this section must be in the following form:
Certificate of Indirect (F&A) Costs
This is to certify that to the best of my
knowledge and belief:
(1) I have reviewed the indirect (F&A) cost
proposal submitted herewith;
(2) All costs included in this proposal [iden-
tify date] to establish billing or final indi-
rect (F&A) costs rate for [identify period
covered by rate] are allowable in accordance
with the requirements of the Federal agree-
ment(s) to which they apply and with the
cost principles applicable to those agree-
ments.
(3) This proposal does not include any costs
which are unallowable under subpart E of
this part such as (without limitation): Public
relations costs, contributions and donations,
entertainment costs, fines and penalties, lob-
bying costs, and defense of fraud pro-
ceedings; and
(4) All costs included in this proposal are
properly allocable to Federal agreements on
the basis of a beneficial or causal relation-
ship between the expenses incurred and the
agreements to which they are allocated in
accordance with applicable requirements.
I declare that the foregoing is true and cor-
rect.
Institution of Higher Education:
Signature: llllllllllllllllll
Name of Official: llllllllllllll
Title: llllllllllllllllllll
Date of Execution: lllllllllllll
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75888, Dec. 19, 2014; 80 FR 54409, Sept. 10,
2015; 85 FR 49577, Aug. 13, 2020]
APPENDIX IV TO PART 200—I NDIRECT
(F&A) C OSTS IDENTIFICATION AND
ASSIGNMENT, AND RATE DETERMINA-
TION FOR NONPROFIT ORGANIZA-
TIONS
A. GENERAL
1. Indirect costs are those that have been
incurred for common or joint objectives and
cannot be readily identified with a par-
ticular final cost objective. Direct cost of
minor amounts may be treated as indirect
costs under the conditions described in
§ 200.413(d). After direct costs have been de-
termined and assigned directly to awards or
other work as appropriate, indirect costs are
those remaining to be allocated to benefit-
ting cost objectives. A cost may not be allo-
cated to a Federal award as an indirect cost
if any other cost incurred for the same pur-
pose, in like circumstances, has been as-
signed to a Federal award as a direct cost.
2. ‘‘Major nonprofit organizations’’ are de-
fined in paragraph (a) of § 200.414. See indi-
rect cost rate reporting requirements in sec-
tions B.2.e and B.3.g of this Appendix.
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OMB Guidance Pt. 200, App. IV
B. ALLOCATION OF INDIRECT COSTS AND
DETERMINATION OF INDIRECT COST RATES
1. General
a. If a nonprofit organization has only one
major function, or where all its major func-
tions benefit from its indirect costs to ap-
proximately the same degree, the allocation
of indirect costs and the computation of an
indirect cost rate may be accomplished
through simplified allocation procedures, as
described in section B.2 of this Appendix.
b. If an organization has several major
functions which benefit from its indirect
costs in varying degrees, allocation of indi-
rect costs may require the accumulation of
such costs into separate cost groupings
which then are allocated individually to ben-
efitting functions by means of a base which
best measures the relative degree of benefit.
The indirect costs allocated to each function
are then distributed to individual Federal
awards and other activities included in that
function by means of an indirect cost rate(s).
c. The determination of what constitutes
an organization’s major functions will de-
pend on its purpose in being; the types of
services it renders to the public, its clients,
and its members; and the amount of effort it
devotes to such activities as fundraising,
public information and membership activi-
ties.
d. Specific methods for allocating indirect
costs and computing indirect cost rates
along with the conditions under which each
method should be used are described in sec-
tion B.2 through B.5 of this Appendix.
e. The base period for the allocation of in-
direct costs is the period in which such costs
are incurred and accumulated for allocation
to work performed in that period. The base
period normally should coincide with the or-
ganization’s fiscal year but, in any event,
must be so selected as to avoid inequities in
the allocation of the costs.
2. Simplified Allocation Method
a. Where an organization’s major functions
benefit from its indirect costs to approxi-
mately the same degree, the allocation of in-
direct costs may be accomplished by (i) sepa-
rating the organization’s total costs for the
base period as either direct or indirect, and
(ii) dividing the total allowable indirect
costs (net of applicable credits) by an equi-
table distribution base. The result of this
process is an indirect cost rate which is used
to distribute indirect costs to individual
Federal awards. The rate should be expressed
as the percentage which the total amount of
allowable indirect costs bears to the base se-
lected. This method should also be used
where an organization has only one major
function encompassing a number of indi-
vidual projects or activities, and may be
used where the level of Federal awards to an
organization is relatively small.
b. Both the direct costs and the indirect
costs must exclude capital expenditures and
unallowable costs. However, unallowable
costs which represent activities must be in-
cluded in the direct costs under the condi-
tions described in § 200.413(e).
c. The distribution base may be total di-
rect costs (excluding capital expenditures
and other distorting items, such as sub-
awards for $25,000 or more), direct salaries
and wages, or other base which results in an
equitable distribution. The distribution base
must exclude participant support costs as de-
fined in § 200.1.
d. Except where a special rate(s) is re-
quired in accordance with section B.5 of this
Appendix, the indirect cost rate developed
under the above principles is applicable to
all Federal awards of the organization. If a
special rate(s) is required, appropriate modi-
fications must be made in order to develop
the special rate(s).
e. For an organization that receives more
than $10 million in direct Federal funding in
a fiscal year, a breakout of the indirect cost
component into two broad categories, Facili-
ties and Administration as defined in para-
graph (a) of § 200.414, is required. The rate in
each case must be stated as the percentage
which the amount of the particular indirect
cost category ( i.e., Facilities or Administra-
tion) is of the distribution base identified
with that category.
3. Multiple Allocation Base Method
a. General. Where an organization’s indi-
rect costs benefit its major functions in
varying degrees, indirect costs must be accu-
mulated into separate cost groupings, as de-
scribed in subparagraph b. Each grouping
must then be allocated individually to bene-
fitting functions by means of a base which
best measures the relative benefits. The de-
fault allocation bases by cost pool are de-
scribed in section B.3.c of this Appendix.
b. Identification of indirect costs. Cost
groupings must be established so as to per-
mit the allocation of each grouping on the
basis of benefits provided to the major func-
tions. Each grouping must constitute a pool
of expenses that are of like character in
terms of functions they benefit and in terms
of the allocation base which best measures
the relative benefits provided to each func-
tion. The groupings are classified within the
two broad categories: ‘‘Facilities’’ and ‘‘Ad-
ministration,’’ as described in section A.3 of
this Appendix. The indirect cost pools are de-
fined as follows:
(1) Depreciation. The expenses under this
heading are the portion of the costs of the
organization’s buildings, capital improve-
ments to land and buildings, and equipment
which are computed in accordance with
§ 200.436.
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2 CFR Ch. II (1–1–21 Edition) Pt. 200, App. IV
(2) Interest. Interest on debt associated
with certain buildings, equipment and cap-
ital improvements are computed in accord-
ance with § 200.449.
(3) Operation and maintenance expenses.
The expenses under this heading are those
that have been incurred for the administra-
tion, operation, maintenance, preservation,
and protection of the organization’s physical
plant. They include expenses normally in-
curred for such items as: janitorial and util-
ity services; repairs and ordinary or normal
alterations of buildings, furniture and equip-
ment; care of grounds; maintenance and op-
eration of buildings and other plant facili-
ties; security; earthquake and disaster pre-
paredness; environmental safety; hazardous
waste disposal; property, liability and other
insurance relating to property; space and
capital leasing; facility planning and man-
agement; and central receiving. The oper-
ation and maintenance expenses category
must also include its allocable share of
fringe benefit costs, depreciation, and inter-
est costs.
(4) General administration and general ex-
penses. The expenses under this heading are
those that have been incurred for the overall
general executive and administrative offices
of the organization and other expenses of a
general nature which do not relate solely to
any major function of the organization. This
category must also include its allocable
share of fringe benefit costs, operation and
maintenance expense, depreciation, and in-
terest costs. Examples of this category in-
clude central offices, such as the director’s
office, the office of finance, business serv-
ices, budget and planning, personnel, safety
and risk management, general counsel, man-
agement information systems, and library
costs.
In developing this cost pool, special care
should be exercised to ensure that costs in-
curred for the same purpose in like cir-
cumstances are treated consistently as ei-
ther direct or indirect costs. For example,
salaries of technical staff, project supplies,
project publication, telephone toll charges,
computer costs, travel costs, and specialized
services costs must be treated as direct costs
wherever identifiable to a particular pro-
gram. The salaries and wages of administra-
tive and pooled clerical staff should nor-
mally be treated as indirect costs. Direct
charging of these costs may be appropriate
as described in § 200.413. Items such as office
supplies, postage, local telephone costs, peri-
odicals and memberships should normally be
treated as indirect costs.
c. Allocation bases. Actual conditions
must be taken into account in selecting the
base to be used in allocating the expenses in
each grouping to benefitting functions. The
essential consideration in selecting a method
or a base is that it is the one best suited for
assigning the pool of costs to cost objectives
in accordance with benefits derived; a trace-
able cause and effect relationship; or logic
and reason, where neither the cause nor the
effect of the relationship is determinable.
When an allocation can be made by assign-
ment of a cost grouping directly to the func-
tion benefitted, the allocation must be made
in that manner. When the expenses in a cost
grouping are more general in nature, the al-
location must be made through the use of a
selected base which produces results that are
equitable to both the Federal Government
and the organization. The distribution must
be made in accordance with the bases de-
scribed herein unless it can be demonstrated
that the use of a different base would result
in a more equitable allocation of the costs,
or that a more readily available base would
not increase the costs charged to Federal
awards. The results of special cost studies
(such as an engineering utility study) must
not be used to determine and allocate the in-
direct costs to Federal awards.
(1) Depreciation. Depreciation expenses
must be allocated in the following manner:
(a) Depreciation on buildings used exclu-
sively in the conduct of a single function,
and on capital improvements and equipment
used in such buildings, must be assigned to
that function.
(b) Depreciation on buildings used for more
than one function, and on capital improve-
ments and equipment used in such buildings,
must be allocated to the individual functions
performed in each building on the basis of
usable square feet of space, excluding com-
mon areas, such as hallways, stairwells, and
restrooms.
(c) Depreciation on buildings, capital im-
provements and equipment related space
(e.g., individual rooms, and laboratories)
used jointly by more than one function (as
determined by the users of the space) must
be treated as follows. The cost of each joint-
ly used unit of space must be allocated to
the benefitting functions on the basis of:
(i) the employees and other users on a full-
time equivalent (FTE) basis or salaries and
wages of those individual functions benefit-
ting from the use of that space; or
(ii) organization-wide employee FTEs or
salaries and wages applicable to the benefit-
ting functions of the organization.
(d) Depreciation on certain capital im-
provements to land, such as paved parking
areas, fences, sidewalks, and the like, not in-
cluded in the cost of buildings, must be allo-
cated to user categories on a FTE basis and
distributed to major functions in proportion
to the salaries and wages of all employees
applicable to the functions.
(2) Interest. Interest costs must be allo-
cated in the same manner as the deprecia-
tion on the buildings, equipment and capital
equipment to which the interest relates.
(3) Operation and maintenance expenses.
Operation and maintenance expenses must
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OMB Guidance Pt. 200, App. IV
be allocated in the same manner as the de-
preciation.
(4) General administration and general ex-
penses. General administration and general
expenses must be allocated to benefitting
functions based on modified total costs
(MTC). The MTC is the modified total direct
costs (MTDC), as described in § 200.1, plus the
allocated indirect cost proportion. The ex-
penses included in this category could be
grouped first according to major functions of
the organization to which they render serv-
ices or provide benefits. The aggregate ex-
penses of each group must then be allocated
to benefitting functions based on MTC.
d. Order of distribution.
(1) Indirect cost categories consisting of
depreciation, interest, operation and mainte-
nance, and general administration and gen-
eral expenses must be allocated in that order
to the remaining indirect cost categories as
well as to the major functions of the organi-
zation. Other cost categories should be allo-
cated in the order determined to be most ap-
propriate by the organization. This order of
allocation does not apply if cross allocation
of costs is made as provided in section B.3.d.2
of this Appendix.
(2) Normally, an indirect cost category will
be considered closed once it has been allo-
cated to other cost objectives, and costs
must not be subsequently allocated to it.
However, a cross allocation of costs between
two or more indirect costs categories could
be used if such allocation will result in a
more equitable allocation of costs. If a cross
allocation is used, an appropriate modifica-
tion to the composition of the indirect cost
categories is required.
e. Application of indirect cost rate or
rates. Except where a special indirect cost
rate(s) is required in accordance with section
B.5 of this Appendix, the separate groupings
of indirect costs allocated to each major
function must be aggregated and treated as a
common pool for that function. The costs in
the common pool must then be distributed to
individual Federal awards included in that
function by use of a single indirect cost rate.
f. Distribution basis. Indirect costs must
be distributed to applicable Federal awards
and other benefitting activities within each
major function on the basis of MTDC (see
definition in § 200.1).
g. Individual Rate Components. An indi-
rect cost rate must be determined for each
separate indirect cost pool developed. The
rate in each case must be stated as the per-
centage which the amount of the particular
indirect cost pool is of the distribution base
identified with that pool. Each indirect cost
rate negotiation or determination agreement
must include development of the rate for
each indirect cost pool as well as the overall
indirect cost rate. The indirect cost pools
must be classified within two broad cat-
egories: ‘‘Facilities’’ and ‘‘Administration,’’
as described in § 200.414(a).
4. Direct Allocation Method
a. Some nonprofit organizations treat all
costs as direct costs except general adminis-
tration and general expenses. These organi-
zations generally separate their costs into
three basic categories: (i) General adminis-
tration and general expenses, (ii) fund-
raising, and (iii) other direct functions (in-
cluding projects performed under Federal
awards). Joint costs, such as depreciation,
rental costs, operation and maintenance of
facilities, telephone expenses, and the like
are prorated individually as direct costs to
each category and to each Federal award or
other activity using a base most appropriate
to the particular cost being prorated.
b. This method is acceptable, provided each
joint cost is prorated using a base which ac-
curately measures the benefits provided to
each Federal award or other activity. The
bases must be established in accordance with
reasonable criteria and be supported by cur-
rent data. This method is compatible with
the Standards of Accounting and Financial
Reporting for Voluntary Health and Welfare
Organizations issued jointly by the National
Health Council, Inc., the National Assembly
of Voluntary Health and Social Welfare Or-
ganizations, and the United Way of America.
c. Under this method, indirect costs con-
sist exclusively of general administration
and general expenses. In all other respects,
the organization’s indirect cost rates must
be computed in the same manner as that de-
scribed in section B.2 of this Appendix.
5. Special Indirect Cost Rates
In some instances, a single indirect cost
rate for all activities of an organization or
for each major function of the organization
may not be appropriate, since it would not
take into account those different factors
which may substantially affect the indirect
costs applicable to a particular segment of
work. For this purpose, a particular segment
of work may be that performed under a sin-
gle Federal award or it may consist of work
under a group of Federal awards performed
in a common environment. These factors
may include the physical location of the
work, the level of administrative support re-
quired, the nature of the facilities or other
resources employed, the scientific disciplines
or technical skills involved, the organiza-
tional arrangements used, or any combina-
tion thereof. When a particular segment of
work is performed in an environment which
appears to generate a significantly different
level of indirect costs, provisions should be
made for a separate indirect cost pool appli-
cable to such work. The separate indirect
cost pool should be developed during the
course of the regular allocation process, and
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2 CFR Ch. II (1–1–21 Edition) Pt. 200, App. IV
the separate indirect cost rate resulting
therefrom should be used, provided it is de-
termined that (i) the rate differs signifi-
cantly from that which would have been ob-
tained under sections B.2, B.3, and B.4 of this
Appendix, and (ii) the volume of work to
which the rate would apply is material.
C. N
EGOTIATION AND APPROVAL OF INDIRECT
COST RATES
1. Definitions
As used in this section, the following terms
have the meanings set forth in this section:
a. Cognizant agency for indirect costs means
the Federal agency responsible for negoti-
ating and approving indirect cost rates for a
nonprofit organization on behalf of all Fed-
eral agencies.
b. Predetermined rate means an indirect cost
rate, applicable to a specified current or fu-
ture period, usually the organization’s fiscal
year. The rate is based on an estimate of the
costs to be incurred during the period. A pre-
determined rate is not subject to adjust-
ment.
c. Fixed rate means an indirect cost rate
which has the same characteristics as a pre-
determined rate, except that the difference
between the estimated costs and the actual
costs of the period covered by the rate is car-
ried forward as an adjustment to the rate
computation of a subsequent period.
d. Final rate means an indirect cost rate
applicable to a specified past period which is
based on the actual costs of the period. A
final rate is not subject to adjustment.
e. Provisional rate or billing rate means a
temporary indirect cost rate applicable to a
specified period which is used for funding, in-
terim reimbursement, and reporting indirect
costs on Federal awards pending the estab-
lishment of a final rate for the period.
f. Indirect cost proposal means the docu-
mentation prepared by an organization to
substantiate its claim for the reimbursement
of indirect costs. This proposal provides the
basis for the review and negotiation leading
to the establishment of an organization’s in-
direct cost rate.
g. Cost objective means a function, organiza-
tional subdivision, contract, Federal award,
or other work unit for which cost data are
desired and for which provision is made to
accumulate and measure the cost of proc-
esses, projects, jobs and capitalized projects.
2. Negotiation and Approval of Rates
a. Unless different arrangements are
agreed to by the Federal agencies concerned,
the Federal agency with the largest dollar
value of Federal awards directly funded to an
organization will be designated as the cog-
nizant agency for indirect costs for the nego-
tiation and approval of the indirect cost
rates and, where necessary, other rates such
as fringe benefit and computer charge-out
rates. Once an agency is assigned cognizance
for a particular nonprofit organization, the
assignment will not be changed unless there
is a shift in the dollar volume of the Federal
awards directly funded to the organization
for at least three years. All concerned Fed-
eral agencies must be given the opportunity
to participate in the negotiation process but,
after a rate has been agreed upon, it will be
accepted by all Federal agencies. When a
Federal agency has reason to believe that
special operating factors affecting its Fed-
eral awards necessitate special indirect cost
rates in accordance with section B.5 of this
Appendix, it will, prior to the time the rates
are negotiated, notify the cognizant agency
for indirect costs. (See also § 200.414.) If the
nonprofit does not receive any funding from
any Federal agency, the pass-through entity
is responsible for the negotiation of the indi-
rect cost rates in accordance with
§ 200.332(a)(4).
b. Except as otherwise provided in
§ 200.414(f), a nonprofit organization which
has not previously established an indirect
cost rate with a Federal agency must submit
its initial indirect cost proposal immediately
after the organization is advised that a Fed-
eral award will be made and, in no event,
later than three months after the effective
date of the Federal award.
c. Unless approved by the cognizant agency
for indirect costs in accordance with
§ 200.414(g), organizations that have pre-
viously established indirect cost rates must
submit a new indirect cost proposal to the
cognizant agency for indirect costs within
six months after the close of each fiscal year.
d. A predetermined rate may be negotiated
for use on Federal awards where there is rea-
sonable assurance, based on past experience
and reliable projection of the organization’s
costs, that the rate is not likely to exceed a
rate based on the organization’s actual costs.
e. Fixed rates may be negotiated where
predetermined rates are not considered ap-
propriate. A fixed rate, however, must not be
negotiated if (i) all or a substantial portion
of the organization’s Federal awards are ex-
pected to expire before the carry-forward ad-
justment can be made; (ii) the mix of Federal
and non-Federal work at the organization is
too erratic to permit an equitable carry-for-
ward adjustment; or (iii) the organization’s
operations fluctuate significantly from year
to year.
f. Provisional and final rates must be nego-
tiated where neither predetermined nor fixed
rates are appropriate. Predetermined or
fixed rates may replace provisional rates at
any time prior to the close of the organiza-
tion’s fiscal year. If that event does not
occur, a final rate will be established and up-
ward or downward adjustments will be made
based on the actual allowable costs incurred
for the period involved.
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g. The results of each negotiation must be
formalized in a written agreement between
the cognizant agency for indirect costs and
the nonprofit organization. The cognizant
agency for indirect costs must make avail-
able copies of the agreement to all concerned
Federal agencies.
h. If a dispute arises in a negotiation of an
indirect cost rate between the cognizant
agency for indirect costs and the nonprofit
organization, the dispute must be resolved in
accordance with the appeals procedures of
the cognizant agency for indirect costs.
i. To the extent that problems are encoun-
tered among the Federal agencies in connec-
tion with the negotiation and approval proc-
ess, OMB will lend assistance as required to
resolve such problems in a timely manner.
D. Certification of Indirect (F&A) Costs
(1) Required Certification. No proposal to
establish indirect (F&A) cost rates must be
acceptable unless such costs have been cer-
tified by the nonprofit organization using
the Certificate of Indirect (F&A) Costs set
forth in section j. of this appendix. The cer-
tificate must be signed on behalf of the orga-
nization by an individual at a level no lower
than vice president or chief financial officer
for the organization.
(2) Each indirect cost rate proposal must
be accompanied by a certification in the fol-
lowing form:
Certificate of Indirect (F&A) Costs
This is to certify that to the best of my
knowledge and belief:
(1) I have reviewed the indirect (F&A) cost
proposal submitted herewith;
(2) All costs included in this proposal [iden-
tify date] to establish billing or final indi-
rect (F&A) costs rate for [identify period
covered by rate] are allowable in accordance
with the requirements of the Federal awards
to which they apply and with subpart E of
this part.
(3) This proposal does not include any costs
which are unallowable under subpart E of
this part such as (without limitation): Public
relations costs, contributions and donations,
entertainment costs, fines and penalties, lob-
bying costs, and defense of fraud pro-
ceedings; and
(4) All costs included in this proposal are
properly allocable to Federal awards on the
basis of a beneficial or causal relationship
between the expenses incurred and the Fed-
eral awards to which they are allocated in
accordance with applicable requirements.
I declare that the foregoing is true and cor-
rect.
Nonprofit Organization: lllllllllll
Signature: llllllllllllllllll
Name of Official: llllllllllllll
Title: llllllllllllllllllll
Date of Execution: lllllllllllll
[78 FR 78608, Dec. 26, 2013, as amended at 80
FR 54410, Sept. 10, 2015; 85 FR 49579, Aug. 13,
2020]
APPENDIX V TO PART 200—S TATE/LOCAL
GOVERNMENTWIDE CENTRAL SERVICE
COST ALLOCATION PLANS
A. GENERAL
1. Most governmental units provide certain
services, such as motor pools, computer cen-
ters, purchasing, accounting, etc., to oper-
ating agencies on a centralized basis. Since
federally-supported awards are performed
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 reason-
able and consistent basis. The central service
cost allocation plan provides that process.
All costs and other data used to distribute
the costs included in the plan should be sup-
ported by formal accounting and other
records that will support the propriety of the
costs assigned to Federal awards.
2. Guidelines and illustrations of central
service cost allocation plans are provided in
a brochure published by the Department of
Health and Human Services entitled ‘‘ A
Guide for State, Local and Indian Tribal Gov-
ernments: Cost Principles and Procedures for
Developing Cost Allocation Plans and Indirect
Cost Rates for Agreements with the Federal
Government.’’ A copy of this brochure may be
obtained from the HHS Cost Allocation Serv-
ices or at their website.
B. D
EFINITIONS
1. Agency or operating agency means an or-
ganizational unit or sub-division within a
governmental unit that is responsible for the
performance or administration of Federal
awards or activities of the governmental
unit.
2. Allocated central services means central
services that benefit operating agencies but
are not billed to the agencies on a fee-for-
service or similar basis. These costs are allo-
cated to benefitted agencies on some reason-
able basis. Examples of such services might
include general accounting, personnel ad-
ministration, purchasing, etc.
3. Billed central services means central serv-
ices that are billed to benefitted agencies or
programs on an individual fee-for-service or
similar basis. Typical examples of billed cen-
tral services include computer services,
transportation services, insurance, and
fringe benefits.
4. Cognizant agency for indirect costs is de-
fined in § 200.1. The determination of cog-
nizant agency for indirect costs for states
and local governments is described in section
F.1.
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2 CFR Ch. II (1–1–21 Edition) Pt. 200, App. V
5. Major local government means local gov-
ernment that receives more than $100 million
in direct Federal awards subject to this Part.
C. S
COPE OF THE CENTRAL SERVICE COST
ALLOCATION PLANS
The central service cost allocation plan
will include all central service costs that
will be claimed (either as a billed or an allo-
cated cost) under Federal awards and will be
documented as described in section E. omit-
ted from the plan will not be reimbursed.
D. S
UBMISSION REQUIREMENTS
1. Each state will submit a plan to the De-
partment of Health and Human Services for
each year in which it claims central service
costs under Federal awards. The plan should
include (a) a projection of the next year’s al-
located central service cost (based either on
actual costs for the most recently completed
year or the budget projection for the coming
year), and (b) a reconciliation of actual allo-
cated central service costs to the estimated
costs used for either the most recently com-
pleted year or the year immediately pre-
ceding the most recently completed year.
2. Each major local government is also re-
quired to submit a plan to its cognizant
agency for indirect costs annually.
3. All other local governments claiming
central service costs must develop a plan in
accordance with the requirements described
in this Part and maintain the plan and re-
lated supporting documentation for audit.
These local governments are not required to
submit their plans for Federal approval un-
less they are specifically requested to do so
by the cognizant agency for indirect costs.
Where a local government only receives
funds as a subrecipient, the pass-through en-
tity will be responsible for monitoring the
subrecipient’s plan.
4. All central service cost allocation plans
will be prepared and, when required, sub-
mitted within six months prior to the begin-
ning of each of the governmental unit’s fis-
cal years in which it proposes to claim cen-
tral service costs. Extensions may be grant-
ed by the cognizant agency for indirect costs
on a case-by-case basis.
E. D
OCUMENTATION REQUIREMENTS FOR
SUBMITTED PLANS
The documentation requirements described
in this section may be modified, expanded, or
reduced by the cognizant agency for indirect
costs on a case-by-case basis. For example,
the requirements may be reduced for those
central services which have little or no im-
pact on Federal awards. Conversely, if a re-
view of a plan indicates that certain addi-
tional information is needed, and will likely
be needed in future years, it may be rou-
tinely requested in future plan submissions.
Items marked with an asterisk (*) should be
submitted only once; subsequent plans
should merely indicate any changes since the
last plan.
1. General
All proposed plans must be accompanied by
the following: an organization chart suffi-
ciently detailed to show operations including
the central service activities of the state/
local government whether or not they are
shown as benefitting from central service
functions; a copy of the Comprehensive An-
nual Financial Report (or a copy of the Exec-
utive Budget if budgeted costs are being pro-
posed) to support the allowable costs of each
central service activity included in the plan;
and, a certification (see subsection 4.) that
the plan was prepared in accordance with
this Part, contains only allowable costs, and
was prepared in a manner that treated simi-
lar costs consistently among the various
Federal awards and between Federal and
non-Federal awards/activities.
2. Allocated Central Services
For each allocated central service*, the
plan must also include the following: a brief
description of the service, an identification
of the unit rendering the service and the op-
erating agencies receiving the service, the
items of expense included in the cost of the
service, the method used to distribute the
cost of the service to benefitted agencies,
and a summary schedule showing the alloca-
tion of each service to the specific benefitted
agencies. If any self-insurance funds or
fringe benefits costs are treated as allocated
(rather than billed) central services, docu-
mentation discussed in subsections 3.b. and
c. must also be included.
3. Billed Services
a. General. The information described in
this section must be provided for all billed
central services, including internal service
funds, self-insurance funds, and fringe ben-
efit funds.
b. Internal service funds.
(1) For each internal service fund or simi-
lar activity with an operating budget of $5
million or more, the plan must include: A
brief description of each service; a balance
sheet for each fund based on individual ac-
counts contained in the governmental unit’s
accounting system; a revenue/expenses state-
ment, with revenues broken out by source,
e.g., regular billings, interest earned, etc.; a
listing of all non-operating transfers (as de-
fined by GAAP) into and out of the fund; a
description of the procedures (methodology)
used to charge the costs of each service to
users, including how billing rates are deter-
mined; a schedule of current rates; and, a
schedule comparing total revenues (includ-
ing imputed revenues) generated by the serv-
ice to the allowable costs of the service, as
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determined under this part, with an expla-
nation of how variances will be handled.
(2) Revenues must consist of all revenues
generated by the service, including unbilled
and uncollected revenues. If some users were
not billed for the services (or were not billed
at the full rate for that class of users), a
schedule showing the full imputed revenues
associated with these users must be pro-
vided. Expenses must be broken out by ob-
ject cost categories (e.g., salaries, supplies,
etc.).
c. Self-insurance funds. For each self-insur-
ance fund, the plan must include: the fund
balance sheet; a statement of revenue and
expenses including a summary of billings
and claims paid by agency; a listing of all
non-operating transfers into and out of the
fund; the type(s) of risk(s) covered by the
fund (e.g., automobile liability, workers’
compensation, etc.); an explanation of how
the level of fund contributions are deter-
mined, including a copy of the current actu-
arial report (with the actuarial assumptions
used) if the contributions are determined on
an actuarial basis; and, a description of the
procedures used to charge or allocate fund
contributions to benefitted activities. Re-
serve levels in excess of claims (1) submitted
and adjudicated but not paid, (2) submitted
but not adjudicated, and (3) incurred but not
submitted must be identified and explained.
d. Fringe benefits. For fringe benefit costs,
the plan must include: a listing of fringe ben-
efits provided to covered employees, and the
overall annual cost of each type of benefit;
current fringe benefit policies; and proce-
dures used to charge or allocate the costs of
the benefits to benefitted activities. In addi-
tion, for pension and post-retirement health
insurance plans, the following information
must be provided: the governmental unit’s
funding policies, e.g., legislative bills, trust
agreements, or state-mandated contribution
rules, if different from actuarially deter-
mined rates; the pension plan’s costs accrued
for the year; the amount funded, and date(s)
of funding; a copy of the current actuarial
report (including the actuarial assumptions);
the plan trustee’s report; and, a schedule
from the activity showing the value of the
interest cost associated with late funding.
4. Required Certification
Each central service cost allocation plan
will be accompanied by a certification in the
following form:
CERTIFICATE OF COST ALLOCATION
PLAN
This is to certify that I have reviewed the
cost allocation plan submitted herewith and
to the best of my knowledge and belief:
(1) All costs included in this proposal [iden-
tify date] to establish cost allocations or bil-
lings for [identify period covered by plan] are
allowable in accordance with the require-
ments of this Part and the Federal award(s)
to which they apply. Unallowable costs have
been adjusted for in allocating costs as indi-
cated in the cost allocation plan.
(2) All costs included in this proposal are
properly allocable to Federal awards on the
basis of a beneficial or causal relationship
between the expenses incurred and the Fed-
eral awards to which they are allocated in
accordance with applicable requirements.
Further, the same costs that have been
treated as indirect costs have not been
claimed as direct costs. Similar types of
costs have been accounted for consistently.
I declare that the foregoing is true and cor-
rect.
Governmental Unit: lllllllllllll
Signature: llllllllllllllllll
Name of Official: llllllllllllll
Title: llllllllllllllllllll
Date of Execution: lllllllllllll
F. N
EGOTIATION AND APPROVAL OF CENTRAL
SERVICE PLANS
1. Federal Cognizant Agency for Indirect Costs
Assignments for Cost Negotiation
In general, unless different arrangements
are agreed to by the concerned Federal agen-
cies, for central service cost allocation
plans, the cognizant agency responsible for
review and approval is the Federal agency
with the largest dollar value of total Federal
awards with a governmental unit. For indi-
rect cost rates and departmental indirect
cost allocation plans, the cognizant agency
is the Federal agency with the largest dollar
value of direct Federal awards with a govern-
mental unit or component, as appropriate.
Once designated as the cognizant agency for
indirect costs, the Federal agency must re-
main so for a period of five years. In addi-
tion, the following Federal agencies continue
to be responsible for the indicated govern-
mental entities:
Department of Health and Human Services —
Public assistance and state-wide cost alloca-
tion plans for all states (including the Dis-
trict of Columbia and Puerto Rico), state
and local hospitals, libraries and health dis-
tricts.
Department of the Interior —Indian tribal
governments, territorial governments, and
state and local park and recreational dis-
tricts.
Department of Labor —State and local labor
departments.
Department of Education —School districts
and state and local education agencies.
Department of Agriculture —State and local
agriculture departments.
Department of Transportation —State and
local airport and port authorities and transit
districts.
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2 CFR Ch. II (1–1–21 Edition) Pt. 200, App. V
Department of Commerce —State and local
economic development districts.
Department of Housing and Urban Develop-
ment—State and local housing and develop-
ment districts.
Environmental Protection Agency—State and
local water and sewer districts.
2. Review
All proposed central service cost allocation
plans that are required to be submitted will
be reviewed, negotiated, and approved by the
cognizant agency for indirect costs on a
timely basis. The cognizant agency for indi-
rect costs will review the proposal within six
months of receipt of the proposal and either
negotiate/approve the proposal or advise the
governmental unit of the additional docu-
mentation needed to support/evaluate the
proposed plan or the changes required to
make the proposal acceptable. Once an
agreement with the governmental unit has
been reached, the agreement will be accepted
and used by all Federal agencies, unless pro-
hibited or limited by statute. Where a Fed-
eral awarding agency has reason to believe
that special operating factors affecting its
Federal awards necessitate special consider-
ation, the funding agency will, prior to the
time the plans are negotiated, notify the
cognizant agency for indirect costs.
3. Agreement
The results of each negotiation must be
formalized in a written agreement between
the cognizant agency for indirect costs and
the governmental unit. This agreement will
be subject to re-opening if the agreement is
subsequently found to violate a statute or
the information upon which the plan was ne-
gotiated is later found to be materially in-
complete or inaccurate. The results of the
negotiation must be made available to all
Federal agencies for their use.
4. Adjustments
Negotiated cost allocation plans based on a
proposal later found to have included costs
that: (a) are unallowable (i) as specified by
law or regulation, (ii) as identified in subpart
F, General Provisions for selected Items of
Cost of this Part, or (iii) by the terms and
conditions of Federal awards, or (b) are unal-
lowable because they are clearly not allo-
cable to Federal awards, must be adjusted, or
a refund must be made at the option of the
cognizant agency for indirect costs, includ-
ing earned or imputed interest from the date
of transfer and debt interest, if applicable,
chargeable in accordance with applicable
Federal cognizant agency for indirect costs
regulations. Adjustments or cash refunds
may include, at the option of the cognizant
agency for indirect costs, earned or imputed
interest from the date of expenditure and de-
linquent debt interest, if applicable, charge-
able in accordance with applicable cognizant
agency claims collection regulations. These
adjustments or refunds are designed to cor-
rect the plans and do not constitute a re-
opening of the negotiation.
G. O
THER POLICIES
1. Billed Central Service Activities
Each billed central service activity must
separately account for all revenues (includ-
ing imputed revenues) generated by the serv-
ice, expenses incurred to furnish the service,
and profit/loss.
2. Working Capital Reserves
Internal service funds are dependent upon
a reasonable level of working capital reserve
to operate from one billing cycle to the next.
Charges by an internal service activity to
provide for the establishment and mainte-
nance of a reasonable level of working cap-
ital reserve, in addition to the full recovery
of costs, are allowable. A working capital re-
serve as part of retained earnings of up to 60
calendar days cash expenses for normal oper-
ating purposes is considered reasonable. A
working capital reserve exceeding 60 cal-
endar days may be approved by the cog-
nizant agency for indirect costs in excep-
tional cases.
3. Carry-Forward Adjustments of Allocated
Central Service Costs
Allocated central service costs are usually
negotiated and approved for a future fiscal
year on a ‘‘fixed with carry-forward’’ basis.
Under this procedure, the fixed amounts for
the future year covered by agreement are
not subject to adjustment for that year.
However, when the actual costs of the year
involved become known, the differences be-
tween the fixed amounts previously approved
and the actual costs will be carried forward
and used as an adjustment to the fixed
amounts established for a later year. This
‘‘carry-forward’’ procedure applies to all cen-
tral services whose costs were fixed in the
approved plan. However, a carry-forward ad-
justment is not permitted, for a central serv-
ice activity that was not included in the ap-
proved plan, or for unallowable costs that
must be reimbursed immediately.
4. Adjustments of Billed Central Services
Billing rates used to charge Federal awards
must be based on the estimated costs of pro-
viding the services, including an estimate of
the allocable central service costs. A com-
parison of the revenue generated by each
billed service (including total revenues
whether or not billed or collected) to the ac-
tual allowable costs of the service will be
made at least annually, and an adjustment
will be made for the difference between the
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revenue and the allowable costs. These ad-
justments will be made through one of the
following adjustment methods: (a) a cash re-
fund including earned or imputed interest
from the date of transfer and debt interest, if
applicable, chargeable in accordance with
applicable Federal cognizant agency for indi-
rect costs regulations to the Federal Govern-
ment for the Federal share of the adjust-
ment, (b) credits to the amounts charged to
the individual programs, (c) adjustments to
future billing rates, or (d) adjustments to al-
located central service costs. Adjustments to
allocated central services will not be per-
mitted where the total amount of the adjust-
ment for a particular service (Federal share
and non-Federal) share exceeds $500,000. Ad-
justment methods may include, at the option
of the cognizant agency, earned or imputed
interest from the date of expenditure and de-
linquent debt interest, if applicable, charge-
able in accordance with applicable cognizant
agency claims collection regulations.
5. Records Retention
All central service cost allocation plans
and related documentation used as a basis
for claiming costs under Federal awards
must be retained for audit in accordance
with the records retention requirements con-
tained in subpart D of this part.
6. Appeals
If a dispute arises in the negotiation of a
plan between the cognizant agency for indi-
rect costs and the governmental unit, the
dispute must be resolved in accordance with
the appeals procedures of the cognizant
agency for indirect costs.
7. OMB Assistance
To the extent that problems are encoun-
tered among the Federal agencies or govern-
mental units in connection with the negotia-
tion and approval process, OMB will lend as-
sistance, as required, to resolve such prob-
lems in a timely manner.
[78 FR 78608, Dec. 26, 2013, as amended at 80
FR 54410, Sept. 10, 2015; 85 FR 49581, Aug. 13,
2020]
APPENDIX VI TO PART 200—P UBLIC
ASSISTANCE COST ALLOCATION PLANS
A. GENERAL
Federally-financed programs administered
by state public assistance agencies are fund-
ed predominately by the Department of
Health and Human Services (HHS). In sup-
port of its stewardship requirements, HHS
has published requirements for the develop-
ment, documentation, submission, negotia-
tion, and approval of public assistance cost
allocation plans in Subpart E of 45 CFR Part
95. All administrative costs (direct and indi-
rect) are normally charged to Federal awards
by implementing the public assistance cost
allocation plan. This Appendix extends these
requirements to all Federal awarding agen-
cies whose programs are administered by a
state public assistance agency. Major feder-
ally-financed programs typically adminis-
tered by state public assistance agencies in-
clude: Temporary Aid to Needy Families
(TANF), Medicaid, Food Stamps, Child Sup-
port Enforcement, Adoption Assistance and
Foster Care, and Social Services Block
Grant.
B. D
EFINITIONS
1. State public assistance agency means a
state agency administering or supervising
the administration of one or more public as-
sistance programs operated by the state as
identified in Subpart E of 45 CFR Part 95.
For the purpose of this Appendix, these pro-
grams include all programs administered by
the state public assistance agency.
2. State public assistance agency costs means
all costs incurred by, or allocable to, the
state public assistance agency, except ex-
penditures for financial assistance, medical
contractor payments, food stamps, and pay-
ments for services and goods provided di-
rectly to program recipients.
C. P
OLICY
State public assistance agencies will de-
velop, document and implement, and the
Federal Government will review, negotiate,
and approve, public assistance cost alloca-
tion plans in accordance with Subpart E of 45
CFR Part 95. The plan will include all pro-
grams administered by the state public as-
sistance agency. Where a letter of approval
or disapproval is transmitted to a state pub-
lic assistance agency in accordance with
Subpart E, the letter will apply to all Fed-
eral agencies and programs. The remaining
sections of this Appendix (except for the re-
quirement for certification) summarize the
provisions of Subpart E of 45 CFR Part 95.
D. S
UBMISSION, D OCUMENTATION, AND AP-
PROVAL OF PUBLIC ASSISTANCE COST ALLO-
CATION PLANS
1. State public assistance agencies are re-
quired to promptly submit amendments to
the cost allocation plan to HHS for review
and approval.
2. Under the coordination process outlined
in section E, affected Federal agencies will
review all new plans and plan amendments
and provide comments, as appropriate, to
HHS. The effective date of the plan or plan
amendment will be the first day of the cal-
endar quarter following the event that re-
quired the amendment, unless another date
is specifically approved by HHS. HHS, as the
cognizant agency for indirect costs acting on
behalf of all affected Federal agencies, will,
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17.A
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2 CFR Ch. II (1–1–21 Edition) Pt. 200, App. VII
as necessary, conduct negotiations with the
state public assistance agency and will in-
form the state agency of the action taken on
the plan or plan amendment.
E. R
EVIEW OF IMPLEMENTATION OF APPROVED
PLANS
1. Since public assistance cost allocation
plans are of a narrative nature, the review
during the plan approval process consists of
evaluating the appropriateness of the pro-
posed groupings of costs (cost centers) and
the related allocation bases. As such, the
Federal Government needs some assurance
that the cost allocation plan has been imple-
mented as approved. This is accomplished by
reviews by the Federal awarding agencies,
single audits, or audits conducted by the
cognizant agency for indirect costs.
2. Where inappropriate charges affecting
more than one Federal awarding agency are
identified, the cognizant HHS cost negotia-
tion office will be advised and will take the
lead in resolving the issue(s) as provided for
in Subpart E of 45 CFR Part 95.
3. If a dispute arises in the negotiation of
a plan or from a disallowance involving two
or more Federal awarding agencies, the dis-
pute must be resolved in accordance with the
appeals procedures set out in 45 CFR Part 16.
Disputes involving only one Federal award-
ing agency will be resolved in accordance
with the Federal awarding agency’s appeal
process.
4. To the extent that problems are encoun-
tered among the Federal awarding agencies
or governmental units in connection with
the negotiation and approval process, the Of-
fice of Management and Budget will lend as-
sistance, as required, to resolve such prob-
lems in a timely manner.
F. U
NALLOWABLE COSTS
Claims developed under approved cost allo-
cation plans will be based on allowable costs
as identified in this Part. Where unallowable
costs have been claimed and reimbursed,
they will be refunded to the program that re-
imbursed the unallowable cost using one of
the following methods: (a) a cash refund, (b)
offset to a subsequent claim, or (c) credits to
the amounts charged to individual Federal
awards. Cash refunds, offsets, and credits
may include at the option of the cognizant
agency for indirect cost, earned or imputed
interest from the date of expenditure and de-
linquent debt interest, if applicable, charge-
able in accordance with applicable cognizant
agency for indirect cost claims collection
regulations.
[78 FR 78608, Dec. 26, 2013, as amended at 85
FR 49581, Aug. 13, 2020]
APPENDIX VII TO PART 200—S TATES AND
LOCAL GOVERNMENT AND INDIAN
TRIBE INDIRECT COST PROPOSALS
A. GENERAL
1. Indirect costs are those that have been
incurred for common or joint purposes.
These costs benefit more than one cost ob-
jective and cannot be readily identified with
a particular final cost objective without ef-
fort disproportionate to the results achieved.
After direct costs have been determined and
assigned directly to Federal awards and
other activities as appropriate, indirect costs
are those remaining to be allocated to bene-
fitted cost objectives. A cost may not be al-
located to a Federal award as an indirect
cost if any other cost incurred for the same
purpose, in like circumstances, has been as-
signed to a Federal award as a direct cost.
2. Indirect costs include (a) the indirect
costs originating in each department or
agency of the governmental unit carrying
out Federal awards and (b) the costs of cen-
tral governmental services distributed
through the central service cost allocation
plan (as described in Appendix V to this part)
and not otherwise treated as direct costs.
3. Indirect costs are normally charged to
Federal awards by the use of an indirect cost
rate. A separate indirect cost rate(s) is usu-
ally necessary for each department or agen-
cy of the governmental unit claiming indi-
rect costs under Federal awards. Guidelines
and illustrations of indirect cost proposals
are provided in a brochure published by the
Department of Health and Human Services
entitled ‘‘A Guide for States and Local Govern-
ment Agencies: Cost Principles and Procedures
for Establishing Cost Allocation Plans and Indi-
rect Cost Rates for Grants and Contracts with
the Federal Government.’’ A copy of this bro-
chure may be obtained from HHS Cost Allo-
cation Services or at their website.
4. Because of the diverse characteristics
and accounting practices of governmental
units, the types of costs which may be classi-
fied as indirect costs cannot be specified in
all situations. However, typical examples of
indirect costs may include certain state/
local-wide central service costs, general ad-
ministration of the non-Federal entity ac-
counting and personnel services performed
within the non-Federal entity, depreciation
on buildings and equipment, the costs of op-
erating and maintaining facilities.
5. This Appendix does not apply to state
public assistance agencies. These agencies
should refer instead to Appendix VI to this
part.
B. D
EFINITIONS
1. Base means the accumulated direct costs
(normally either total direct salaries and
wages or total direct costs exclusive of any
extraordinary or distorting expenditures)
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used to distribute indirect costs to indi-
vidual Federal awards. The direct cost base
selected should result in each Federal award
bearing a fair share of the indirect costs in
reasonable relation to the benefits received
from the costs.
2. Base period for the allocation of indirect
costs is the period in which such costs are in-
curred and accumulated for allocation to ac-
tivities performed in that period. The base
period normally should coincide with the
governmental unit’s fiscal year, but in any
event, must be so selected as to avoid inequi-
ties in the allocation of costs.
3. Cognizant agency for indirect costs means
the Federal agency responsible for reviewing
and approving the governmental unit’s indi-
rect cost rate(s) on the behalf of the Federal
Government. The cognizant agency for indi-
rect costs assignment is described in Appen-
dix V, section F.
4. Final rate means an indirect cost rate ap-
plicable to a specified past period which is
based on the actual allowable costs of the pe-
riod. A final audited rate is not subject to
adjustment.
5. Fixed rate means an indirect cost rate
which has the same characteristics as a pre-
determined rate, except that the difference
between the estimated costs and the actual,
allowable costs of the period covered by the
rate is carried forward as an adjustment to
the rate computation of a subsequent period.
6. Indirect cost pool is the accumulated
costs that jointly benefit two or more pro-
grams or other cost objectives.
7. Indirect cost rate is a device for deter-
mining in a reasonable manner the propor-
tion of indirect costs each program should
bear. It is the ratio (expressed as a percent-
age) of the indirect costs to a direct cost
base.
8. Indirect cost rate proposal means the doc-
umentation prepared by a governmental unit
or subdivision thereof to substantiate its re-
quest for the establishment of an indirect
cost rate.
9. Predetermined rate means an indirect cost
rate, applicable to a specified current or fu-
ture period, usually the governmental unit’s
fiscal year. This rate is based on an estimate
of the costs to be incurred during the period.
Except under very unusual circumstances, a
predetermined rate is not subject to adjust-
ment. (Because of legal constraints, pre-
determined rates are not permitted for Fed-
eral contracts; they may, however, be used
for grants or cooperative agreements.) Pre-
determined rates may not be used by govern-
mental units that have not submitted and
negotiated the rate with the cognizant agen-
cy for indirect costs. In view of the potential
advantages offered by this procedure, nego-
tiation of predetermined rates for indirect
costs for a period of two to four years should
be the norm in those situations where the
cost experience and other pertinent facts
available are deemed sufficient to enable the
parties involved to reach an informed judg-
ment as to the probable level of indirect
costs during the ensuing accounting periods.
10. Provisional rate means a temporary indi-
rect cost rate applicable to a specified period
which is used for funding, interim reimburse-
ment, and reporting indirect costs on Fed-
eral awards pending the establishment of a
‘‘final’’ rate for that period.
C. A
LLOCATION OF INDIRECT COSTS AND
DETERMINATION OF INDIRECT COST RATES
1. General
a. Where a governmental unit’s depart-
ment or agency has only one major function,
or where all its major functions benefit from
the indirect costs to approximately the same
degree, the allocation of indirect costs and
the computation of an indirect cost rate may
be accomplished through simplified alloca-
tion procedures as described in subsection 2.
b. Where a governmental unit’s depart-
ment or agency has several major functions
which benefit from its indirect costs in vary-
ing degrees, the allocation of indirect costs
may require the accumulation of such costs
into separate cost groupings which then are
allocated individually to benefitted func-
tions by means of a base which best meas-
ures the relative degree of benefit. The indi-
rect costs allocated to each function are
then distributed to individual Federal
awards and other activities included in that
function by means of an indirect cost rate(s).
c. Specific methods for allocating indirect
costs and computing indirect cost rates
along with the conditions under which each
method should be used are described in sub-
sections 2, 3 and 4.
2. Simplified Method
a. Where a non-Federal entity’s major
functions benefit from its indirect costs to
approximately the same degree, the alloca-
tion of indirect costs may be accomplished
by (1) classifying the non-Federal entity’s
total costs for the base period as either di-
rect or indirect, and (2) dividing the total al-
lowable indirect costs (net of applicable
credits) by an equitable distribution base.
The result of this process is an indirect cost
rate which is used to distribute indirect
costs to individual Federal awards. The rate
should be expressed as the percentage which
the total amount of allowable indirect costs
bears to the base selected. This method
should also be used where a governmental
unit’s department or agency has only one
major function encompassing a number of in-
dividual projects or activities, and may be
used where the level of Federal awards to
that department or agency is relatively
small.
b. Both the direct costs and the indirect
costs must exclude capital expenditures and
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2 CFR Ch. II (1–1–21 Edition) Pt. 200, App. VII
unallowable costs. However, unallowable
costs must be included in the direct costs if
they represent activities to which indirect
costs are properly allocable.
c. The distribution base may be (1) total di-
rect costs (excluding capital expenditures
and other distorting items, such as pass-
through funds, subcontracts in excess of
$25,000, participant support costs, etc.), (2)
direct salaries and wages, or (3) another base
which results in an equitable distribution.
3. Multiple Allocation Base Method
a. Where a non-Federal entity’s indirect
costs benefit its major functions in varying
degrees, such costs must be accumulated
into separate cost groupings. Each grouping
must then be allocated individually to bene-
fitted functions by means of a base which
best measures the relative benefits.
b. The cost groupings should be established
so as to permit the allocation of each group-
ing on the basis of benefits provided to the
major functions. Each grouping should con-
stitute a pool of expenses that are of like
character in terms of the functions they ben-
efit and in terms of the allocation base
which best measures the relative benefits
provided to each function. The number of
separate groupings should be held within
practical limits, taking into consideration
the materiality of the amounts involved and
the degree of precision needed.
c. Actual conditions must be taken into ac-
count in selecting the base to be used in allo-
cating the expenses in each grouping to ben-
efitted functions. When an allocation can be
made by assignment of a cost grouping di-
rectly to the function benefitted, the alloca-
tion must be made in that manner. When the
expenses in a grouping are more general in
nature, the allocation should be made
through the use of a selected base which pro-
duces results that are equitable to both the
Federal Government and the governmental
unit. In general, any cost element or related
factor associated with the governmental
unit’s activities is potentially adaptable for
use as an allocation base provided that: (1) it
can readily be expressed in terms of dollars
or other quantitative measures (total direct
costs, direct salaries and wages, staff hours
applied, square feet used, hours of usage,
number of documents processed, population
served, and the like), and (2) it is common to
the benefitted functions during the base pe-
riod.
d. Except where a special indirect cost
rate(s) is required in accordance with para-
graph (C)(4) of this Appendix, the separate
groupings of indirect costs allocated to each
major function must be aggregated and
treated as a common pool for that function.
The costs in the common pool must then be
distributed to individual Federal awards in-
cluded in that function by use of a single in-
direct cost rate.
e. The distribution base used in computing
the indirect cost rate for each function may
be (1) total direct costs (excluding capital ex-
penditures and other distorting items such
as pass-through funds, subawards in excess of
$25,000, participant support costs, etc.), (2)
direct salaries and wages, or (3) another base
which results in an equitable distribution.
An indirect cost rate should be developed for
each separate indirect cost pool developed.
The rate in each case should be stated as the
percentage relationship between the par-
ticular indirect cost pool and the distribu-
tion base identified with that pool.
4. Special Indirect Cost Rates
a. In some instances, a single indirect cost
rate for all activities of a non-Federal entity
or for each major function of the agency may
not be appropriate. It may not take into ac-
count those different factors which may sub-
stantially affect the indirect costs applicable
to a particular program or group of pro-
grams. The factors may include the physical
location of the work, the level of administra-
tive support required, the nature of the fa-
cilities or other resources employed, the or-
ganizational arrangements used, or any com-
bination thereof. When a particular Federal
award is carried out in an environment
which appears to generate a significantly
different level of indirect costs, provisions
should be made for a separate indirect cost
pool applicable to that Federal award. The
separate indirect cost pool should be devel-
oped during the course of the regular alloca-
tion process, and the separate indirect cost
rate resulting therefrom should be used, pro-
vided that: (1) The rate differs significantly
from the rate which would have been devel-
oped under paragraphs (C)(2) and (C)(3) of
this Appendix, and (2) the Federal award to
which the rate would apply is material in
amount.
b. Where Federal statutes restrict the re-
imbursement of certain indirect costs, it
may be necessary to develop a special rate
for the affected Federal award. Where a ‘‘re-
stricted rate’’ is required, the same proce-
dure for developing a non-restricted rate will
be used except for the additional step of the
elimination from the indirect cost pool those
costs for which the law prohibits reimburse-
ment.
D. S
UBMISSION AND DOCUMENTATION OF
PROPOSALS
1. Submission of Indirect Cost Rate Proposals
a. All departments or agencies of the gov-
ernmental unit desiring to claim indirect
costs under Federal awards must prepare an
indirect cost rate proposal and related docu-
mentation to support those costs. The pro-
posal and related documentation must be re-
tained for audit in accordance with the
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