Allowable vs. Unallowable Costs Guide Sheet

Allowable vs. Unallowable Costs

Guide Sheet

Grant Financial Management

Requirement

Basic financial management cost principles define

any charges incurred by the federal grant as either

allowable or unallowable. Allowable costs are charges

incurred by a program that can be covered with your

Office of Justice Programs (OJP) grant. Unallowable

costs are charges incurred by a program that cannot

be covered or reimbursed by your OJP grant.

Important Information to Know

Allowable costs

Allowable costs (for all non-federal entities, other

than for-profit entities and hospitals) are those

costs consistent with the principles set out in

2 CFR 200, Subpart E, and those permitted by the grant

program’s authorizing legislation. The fact that a cost

requested in a budget is awarded, does not ensure

a determination of allowability. The organization is

responsible for consistently presenting costs.

To be allowable (see 2 CFR 200.403) under federal

awards, costs must be reasonable, allocable, and

necessary to the project, and they must also comply

with the funding statute and agency requirements. To

meet federal standards for allowability, a cost charged

to an award must be:



Allocable to the award under the provisions of the

applicable cost principles.

Necessary and reasonable for proper and efficient

performance and administration of the grant or

cooperative agreement.

Treated consistently as a direct or indirect cost.

Determined in accordance with the Generally Accepted

Accounting Principles, except as otherwise stipulated

in the applicable cost principles.



Net of all applicable credits.

Not included as cost or used to meet the cost-

sharing or matching requirements of another federal

award, unless specifically permitted by federal law or

regulation.

Adequately documented.

Authorized or not prohibited under state or local laws

and regulations.

In conformance with limits or exclusions on types or

amounts of costs, as set forth in the applicable cost

principles, federal laws, award terms and conditions,

or other governing regulations.

Consistent with the recipient’s policies, regulations,

and procedures that apply to both federal awards and

other activities of the recipient.

For more information about specific factors

that affect whether costs are allowable, refer

to 2 CFR 200, Subpart E, including the list of specific

items of cost in 2 CFR 200.420 through 2 CFR 200.475.

Unallowable costs

There are other costs, categorized as unallowable

costs, that will not be reimbursed. If a cost cannot

meet the criteria of reasonableness, allowability,

allocability, and consistency, it is unallowable. Non-

federal entities must not use award or match funding

for unallowable costs. Also, any costs considered

inappropriate by the awarding agency are within

the category of unallowable costs. See 2 CFR 200.31

(disallowed costs), which states, “Disallowed costs

means those charges to a Federal award that the

Federal awarding agency or pass-through entity

determines to be unallowable, in accordance with the

applicable Federal statutes, regulations, or the terms

and conditions of the Federal award.”

Standard unallowable costs are identified in

2 CFR 200, Subpart E—Cost Principles. (For-profit entities

and hospitals follow different cost principles, see FAR

31.2 and 2 CFR 200—Appendix IX, respectively). Specific

items of unallowable costs that may be of particular

relevance for programs funded by the Department of

Justice (DOJ) are highlighted in the tables below.

How This Applies to Your Grant

It is important that each OJP grantee applies the

allowable cost test when deciding on spending grant

funds. Per 2 CFR 200.410, “Payments made for costs

determined to be unallowable by either the Federal

awarding agency, cognizant agency for indirect costs,

or pass-through entity, either as direct or indirect

costs, must be refunded (including interest) to the

Federal Government in accordance with instructions

from the Federal agency that determined the costs

are unallowable unless Federal statute or regulation

directs otherwise.”

The following tables show broad categories of

allowable and unallowable costs and then specific

examples of allowable and unallowable costs.

Table One. Categories of Allowable and

Unallowable Costs

Allowable Unallowable



Audit services

Budgeting costs

Communications

Conference grant costs

Consulting services

Equipment and other

Maintenance and repair

costs

Meals



Advertising

Alcoholic beverages

Bad debt

Certain travel costs (e.g.,

flying first class)

Entertainment costs

Fines and penalties

Fundraising costs

Interest

Lobbying costs

Table Two. Specific Examples of Allowable and Unallowable Costs

Item of Cost Allowable Unallowable

Uniforms

for research lab security guards

Cost

of an employee personal assistance program to provide

mental

health, alcohol, and drug counseling and referral services

Royalties

paid by the corporation to a university for use of a

machine

patented by the university under a federal award

Costs

associated with a canned food drive to assist flood victims

Handbook

outlining procedures for employee grievance actions

Beer

and wine purchased for “Employee Networking Night”

Fees

paid to hire a lawyer to persuade DOJ to award a grant to the

company

Employee

training in the updated version of a state agency’s word

processing

software

Expenses

for an organization-wide picnic

Fees

to a collection agency to recover equipment loaned to a

subrecipient;

equipment was not recovered



Best practices for avoiding unallowable costs



Implement an adequate and comprehensive compliant

accounting system (see 2 CFR 200, Subpart E—Cost

Principles) that has the ability to track allowable and

unallowable costs as they are entered into the system.

Develop formal written policies and procedures

for your entire organization that describe and

differentiate allowable and unallowable costs.

Invest the time and money that it takes to train key

personnel on these policies and procedures, and

make sure employees know what to look for when

identifying unallowable costs.

Test the policies and procedures periodically to ensure

they are operating effectively. This can be done via

internal audits and reviews or a voluntary external audit.

Review and revise your policies and procedures, as

needed, to make sure they are in compliance with any

changes that occur in the regulations.

For further guidance on whether a cost is allowable

or unallowable, please refer to 2 CFR 200, Subpart E;

OMB Circulars A-21; agency rules/guidelines; program

specific guidelines; award agreement/document;

special conditions; institutional policy; or consult with

your fiscal monitor.

Resources

U.S. Department of Justice. (2017). DOJ Grants Financial

Guide. https://www.ojp.gov/DOJFinancialGuide

Government Publishing Office. (n.d.). Electronic code of

federal regulations—2 CFR 200, subpart E. https://www.

ecfr.gov/cgi-bin/text-idx?node=2:1.1.2.2.1.5&rgn=div6

OJP TFSC offers resources on a variety of grants financial

management topics, which can be found on our website

at https://www.ojp.gov/tfsc/resources

About the OJP Territories

Financial Support Center

The Office of Justice Programs Territories Financial

Support Center (OJP TFSC) offers free resources,

training, and technical assistance for grantees in the

U.S. territories. OJP TFSC services focus on building financial

management capacity and can be accessed by emailing

OJPTFSC@usdoj.gov via our Virtual Support Center.

This product was prepared under contract/call order number

GS-00F-010CA/15PCFD20F00000200 awarded by the Office of Justice

Programs, U.S. Department of Justice and does not constitute financial

or other professional advice. The opinions, findings, and conclusions

expressed in this product are those of OJP TFSC and do not represent

the official position or policies of the U.S. Department of Justice.

OJP.GO V/ T FSC