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Posted by Michelle Spriggs on Wed, Jun 18, 2014 @ 09:08 AM

describe the imageCost principles for organizations that receive federal grants have traditionally existed in silos. Educational institutions, state and local governments and non-profit organizations faced different cost principle requirements under their respective Office of Management and Budget (OMB) Circulars. The OMB’s latest guidelines do away with the separation among the three entity types and merge them into one combined set of cost principles.

Released in December 2013, “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards” consolidates several OMB Circulars and their cost principles. The new uniform grant guidance creates several new provisions and requirements designed to standardize the reporting requirements for federal grant recipients. Included in the changes are streamlined cost principle requirements.

Though not the first attempt at standardizing cost principles—in 2004 the federal government created consistent definitions of certain cost principle items—the uniform grant guidance brings the broadest changes to date. Organizations subject to OMB Circulars A-21, A-87 and A-122 will share the same cost principle requirements for all new federal awards and additional funding to existing awards made after December 26, 2014.  

The expectations under the uniform grant guidance remain the same as the current regulations. Grant recipients are responsible for using sound management procedures and charging practices. Organizations must not benefit from federal assistance. Total recovery calculations equal the sum of allocable costs and allowable indirect costs minus any applicable credits. In determining whether costs can be retained, recipients must demonstrate the costs are: necessary, reasonable and allocable; not charged elsewhere; adequately documented; conform to limitations, federal law and grant terms; consistent with organizational policies; consistently treated and determined in accordance with U.S. generally accepted accounting principles (GAAP).

Despite the foundations of the cost principles staying the same, certain cost principles will undergo changes. Organizations should carefully consider their treatment of the following cost principles to ensure they are prepared for implementation in late 2014.

Compensation - Personal Services

Audits frequently uncover issues in the documentation of personnel expenses because of the complex rules and documentation requirements. The uniform grant guidance makes a number of changes to allow for more flexibility and consistency in the documentation of personnel expenses.

  • Charges for salaries and wages must:
    • be based on records that reflect the work performed;
    • be supported by a system of internal controls that provide reasonable assurance the amounts charged are accurate, allowable and properly allocated; and
    • be incorporated into official records and reasonably reflect total activity for which employees are compensated.

Further guidance may be needed to clarify how these changes will be implemented. For instance, with the salary charges based on the work performed, the language leaves questions about whether the records of work performed could and should be time cards or perhaps after-the-fact documentation is acceptable as well. The guidance also does not specify how often organizations should keep those records (weekly, monthly, quarterly, etc.).

Organizations should take a good look at their documentation for compensation of personnel services to determine if they will be compliant with the new uniform grant guidance.


OMB Circulars A-21, A-87 and A-122 currently allows organizations to either use the use allowance method or negotiate an allowable cost amount after an asset has been fully depreciated. The grant reform does away with these provisions and the allowable costs will be strictly depreciation expenses over the life of the asset.  Although this is a simpler approach, this may impact allowable costs if assets are fully depreciated.

Equipment and Other Capital Expenditures

The treatment of computing devices has historically been an ambiguous area under the OMB Cost Circulars, and the new guidance seeks to clarify how these costs should be treated.

Computing devices, including tablets, laptops and smartphones will now be considered supplies if the acquisition cost falls under whichever is lower, the organization’s capitalization threshold or $5,000. The device’s useful life is not considered.

Organizations with capitalization thresholds under $5,000 may want to revisit their policy and consider increasing to allow more flexibility.

Proposal Costs

In the current OMB Circulars, A-21 and A-87 allow educational institutions and state and local governments to classify proposal costs as an indirect cost, but A-122 had no such provision for not-for-profit organizations. The new uniform grant guidance allows all three entity types to classify all costs related to preparing bids, proposals or applications for federal and non-federal awards as indirect costs even if the proposal proves unsuccessful.

More Changes Expected

The above cost principles number among several that will undergo changes in the new uniform grant guidance. For the full list and additional specifics about the changes, organizations should carefully review the new uniform grant guidance. The OMB also published a Cost Principles Comparison Chart, which shows the differences between OMB Circulars A-21, A-87 and A-122 and the new guidelines, which will help organizations to review a crosswalk of the changes from the existing to the new cost principles.

We will keep you up to date and report any additional information OMB issues for the uniform grant guidance. For further questions on how these new requirements will impact your organization, please contact us here.


SpriggsMichelle Spriggs is a Shareholder in the New England Not-For-Profit & Education Practice. She can be reached at 774.206.8336 or





Tags: Michelle Spriggs, OMB, cost principles

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