Allowable Costs & Cost Principles
Subpart E of 2 CFR Part 200, outlines the Cost Principles applicable to recipients of federal awards. Subpart E is essential for determining how costs may be charged to federal grants and ensuring fiscal responsibility and compliance.
Determining allocable, allowable, reasonable costs
- Allocable: A cost is considered allocable if it benefits the federal award and can be assigned proportionally. Cost must meet all regulatory, statutory, and grant terms.
- Allowable: A cost is allowable if it is necessary and reasonable for the performance of the award.
- Reasonable: A cost is reasonable if it reflects sound business practices, arms-length bargaining, and compliance with laws and terms of the award.
Documentation standards for expenditures
- Recipients must maintain supporting documentation for every expenditure, including receipts, invoices, purchase orders, contracts/subcontracts, and approval records for expenses charged to the grant. It is important that these records clearly demonstrate that the cost was necessary, reasonable, and beneficial to the award.
Effort Reporting & Payroll Certification
These processes ensure that salary and wage charges accurately reflect the actual time and effort employees dedicate to a project, in compliance with 2 CFR § 200.430.
Effort Reporting is the process of documenting and certifying the percentage of an individual’s total work time dedicated to a sponsored project. It accounts for all institutional activities to which the individual contributed effort, regardless of whether they received salary support. Effort related to non-institutional activities does not need to be reported.
- Individuals hired as a UEC employee to work on a sponsored project are not required to complete an effort report as their timesheets will serve as the effort certification.
The UEC Policy on Effort Reporting
UEC payroll processes payroll on a semi-monthly basis.
UEC Payroll | University Enterprises Corporation | CSUSB
Payroll Calendar | University Enterprises Corporation | CSUSB
Salary cap considerations
This is an important part of budgeting and managing federally funded grants—especially when working with agencies like the National Institutes of Health (NIH) or Department of Defense (DoD), which may limit the amount of salary that can be charged to a grant. A salary cap is the maximum annual rate of pay that a federal agency allows to be charged to its funds. If a project participant earns more than this capped amount, the excess salary must be funded from non-federal sources (commonly called cost sharing).
- NIH salary cap is tied to Executive Level II of the federal pay scale.
Inaccurate effort reporting and payroll certification can lead to serious consequences for both individual investigators and their institutions. Since personnel costs are often the largest portion of federally funded grants, errors or misrepresentations can trigger audits, financial penalties, and reputational damage.
- Federal or internal audits may identify noncompliance with 2 CFR § 200.430
- Sponsors like NIH or NSF may suspend or terminate awards, or decline future funding applications.
Subrecipient Monitoring
Subrecipient monitoring is the process by which a pass-through entity (PTE)—such as a university or nonprofit—oversees the performance and compliance of subrecipients who receive a portion of a federal award to carry out part of a project or program. This is a critical requirement under 2 CFR § 200.331–333 to ensure federal funds are used properly and subrecipients meet all applicable regulations.
Establishing subawards and subcontracts
To establish a subaward or subcontract, first determine whether the external entity is a subrecipient or a contractor, based on their role in the project (per 2 CFR § 200.331). Next, collect required documents such as the statement of work, budget, and audit certifications, then draft an agreement that includes federal flow-down terms, reporting requirements, and applicable compliance clauses. For subawards, conduct a risk assessment to determine the level of monitoring needed. Finally, route the agreement for internal approval and signature, and begin monitoring performance once the agreement is executed.
Subrecipient risk assessment and monitoring are required under 2 CFR § 200.332 to ensure federal funds are used properly and all compliance requirements are met. Risk assessments should be conducted before issuing a subaward and help determine the level of oversight needed. Key factors to evaluate include the subrecipient’s prior federal experience, audit history, financial stability, internal controls, and project complexity. Based on the risk level (low, medium, or high), the pass-through entity adjusts its monitoring approach accordingly. Monitoring activities may include reviewing financial and performance reports, conducting site visits, evaluating audit results, and maintaining regular communication. All monitoring efforts should be documented, tailored to the risk level, and adjusted as needed throughout the project period.
Subaward Commitment form
Reviewing subrecipient invoices and performance reports
Subrecipient invoices must be reviewed to ensure costs are allowable, allocable, and reasonable per 2 CFR § 200.403–405. Charges should align with the approved budget, include accurate cumulative totals, and apply the correct indirect cost rate. Supporting documentation should be reviewed when required to justify the expenses. Supporting documentation may include detailed expense breakdowns, timesheets or effort reports for personnel costs, travel receipts, and purchase records for materials or equipment. You may also see fringe benefit calculations, indirect cost rate documentation, or a comparison of actual expenses to the budget. In some cases, progress reports or deliverables may be required to confirm that the work was completed as agreed. If anything appears inconsistent or unsupported, reach out to your research analyst (RA) before approving payment. Any discrepancies or unapproved charges should be addressed before payment is approved.
Performance reports should demonstrate progress toward project goals and align with the approved scope of work. Delays or challenges must be clearly explained along with any corrective actions taken. Reported progress should be consistent with the level of spending. Documentation of the review process is important for ensuring compliance and supporting audits.
Cost Sharing / Matching Funds
Cost sharing and matching reports are used to document and verify the portion of project costs that are not covered by federal funds but are instead provided by the recipient or third parties. Said another way, Cost Sharing is defined as any project costs that are not funded by the sponsoring agency. These contributions may be required by the sponsor (mandatory cost sharing) or offered voluntarily (voluntary committed cost sharing) and must be tracked, documented, and reported accurately.
UEC’s policy on cost sharing at CSUSB and FAQ
Tracking and documenting committed cost share
This ensures that all non-federal contributions are accurately recorded, verifiable, and meet the allowability criteria under 2 CFR § 200.306 – Cost Sharing or Matching. Documentation must support the value, source, and timing of the contribution, including time records, receipts, or in-kind donation letters. Regular review helps ensure that cost share commitments are fulfilled and properly reported to the sponsor.
UEC cost sharing timesheet
Template for Letter of Contribution for cost sharing (UEC)
Third-party in-kind contributions
These are part of committed cost share, they must be carefully monitored to ensure they are allowable, properly valued, and documented in accordance with 2 CFR § 200.306. These contributions—such as donated services, equipment, or space—must be supported with detailed documentation (e.g., donation letters, fair market valuations, or timesheets). The pass-through entity or recipient is responsible for verifying that these contributions are received, tracked, and included in required financial reports. Regular oversight helps ensure compliance and audit readiness.
Recipients of federal and other sponsored awards are required to submit timely and accurate reports to the sponsor in accordance with the terms and conditions of the award. These typically include financial reports, progress/performance reports, and final closeout documents, with frequency and format specified in the award notice. Reports must reflect actual project performance, expenditures, and cost share (if applicable), and be supported by appropriate documentation. Failure to meet reporting deadlines can result in delayed payments, suspension of funds, or loss of future funding eligibility.
Procurement Standards
Under 2 CFR § 200.317–320, non-Federal entities must follow competitive procurement procedures when purchasing goods or services with federal funds. For purchases above the Simplified Acquisition Threshold (currently $250,000), formal procurement methods—including sealed bids or competitive proposals—are required. Purchases between the Micro-Purchase Threshold (currently $10,000) and the Simplified Acquisition Threshold (currently $250,000) must involve price or rate comparisons to ensure fair and reasonable pricing. All procurement actions must be well-documented, avoid conflicts of interest, and comply with federal, state, and institutional policies.
- UEC purchases over $10,000 require a minimum of three quotes.
When a purchase is made without competition—known as a sole-source procurement—the PI/PD must provide a clear and detailed justification, as required under 2 CFR § 200.320(c). A Sole Source Justification form is allowable in lieu of the three formal bids/quotes along with acceptable justification. Acceptable justifications include: the item or service is available only from a single source, there is an urgent need that will not permit delay, the federal awarding agency authorizes noncompetitive procurement in response to a written request, or after solicitation, only one responsible source submits a bid. The justification must include a description of the product or service, explanation of why competition is not feasible, and how the price was determined to be fair and reasonable. All sole-source documentation must be retained for audit purposes and approved by appropriate institutional officials before purchase.
Sole Source Justification Form
Contractor vs. subrecipient determinations
When managing grant-funded projects, it is important to distinguish between a contractor and a subrecipient. A subrecipient is typically an organization that carries out a substantive portion of the grant project’s scope of work and is responsible for programmatic decision-making, performance measurement, and adherence to applicable federal requirements. Subrecipients are considered true partners in the research or project. In contrast, a contractor (also referred to as a vendor) provides goods or services that are ancillary to the project, operates in a competitive environment, and does not assume responsibility for the project’s outcomes. The determination affects how funds are managed, reported, and monitored, so it's critical to classify each relationship appropriately from the outset.
- Subrecipients will be required to complete a Subrecipient Commitment Form.
- If you are working with a contractor and need to issue payment to the contractor they will have to complete the Independent Contractor Determination Form to determine if they can be classified as an independent contractor by the University Enterprises Corporation at CSUSB. They will also be required to complete a W9 for tax reporting purposes.
- The I/C determination form, scope of work, and budget for services rendered must be emailed to the research analyst for approval.
- Once you receive the approved I/C determination form you can now send the approved I/C determination form along with the W9 and the Independent Contractor Payment Request form to SPA_Expense@csusb.edu for processing.
- Please note that procurement asks that all 3 forms be combined into one PDF file when submitting.