Cost Principles for Allocation and Expenditure of Federal Funds

The following definitions and considerations are derived from OMB Uniform Guidance (2 CFR 200), the cost principles that govern the allocation and expenditure of all funds awarded to Pomona College through Federal grants, contracts, and subawards.

Cost Principles for Allocation and Expenditure of Federal Funds


Expenditures means charges made to a project or program for which Federal funds were received. Expenditures are the sum of:

  • Cash disbursements for direct charges for property and services;
  • The amount of indirect expense incurred;
  • The value of third-party in-kind contributions applied; and
  • The net increase or decrease in the amounts owed by the College for:
    • Goods and other property received;
    • Services performed by employees, contractors, subrecipients, and other payees; and
    • Programs for which no current services or performance are required such as annuities, insurance claims, or other benefit payments.

Composition of Costs

The total cost of a Federal award is the sum of the allowable direct and allocable indirect costs less any applicable credits.

Allowable Costs

An allowable cost is one that may be charged to a federal award. A cost is allowable if:

  • It is necessary for the performance of the award activities.
  • It is reasonable, that is, a prudent person would pay that price for the item.
  • It exclusively benefits the award or has been allocated to the award in reasonable proportion to the award benefit.
  • It conforms to all limitations or exclusions that are specified in the OMB Uniform Guidance, guidelines of the sponsoring agency, and/or terms and conditions specific to the award, if any.
  • It is consistent with
    • the financial policies and procedures of Pomona College,
    • the allocation of similar costs to direct or indirect accounts at Pomona College, and
    • generally accepted accounting principles.
  • It has not been assigned as a cost, cost-match, or cost-share to any other federal award, past or present.
  • It is adequately documented.

Reasonable Costs

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

  • Whether the cost is of a type generally recognized as ordinary and necessary for the operation of the nonFederal entity or the proper and efficient performance of the Federal award.
  • The restraints or requirements imposed by such factors as: sound business practices; arm’s-length bargaining; Federal, state and other laws and regulations; and terms and conditions of the Federal award.
  • Market prices for comparable goods or services for the geographic area.
  • Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the non-Federal entity, its employees, where applicable its students or membership, the public at large, and the Federal government.
  • Whether the non-Federal entity significantly deviates from its established practices and policies regarding the incurrence of costs, which may unjustifiably increase the Federal award’s cost.

Allocable Costs

Allocation means the process of assigning a cost, or a group of costs, to one or more cost objectives in reasonable proportion to the benefit provided, or another equitable basis. The process may entail assigning costs directly to a final objective or through one or more intermediate objectives.

  • A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. This standard is met if the cost:
    • Is incurred specifically for the Federal award;
    • Benefits both the Federal award and other work at the College and can be distributed in proportions that may be approximated using reasonable methods; and
    • Is necessary to the overall operation of the College and is assignable in part to the Federal award in accordance with these cost principles.
  • All activities which benefit from the College’s indirect (F&A) cost, including unallowable activities and donated services by the College or third parties, will receive an appropriate allocation of indirect costs.
  • Any cost allocable to a particular Federal award under the principles provided for here may not be charged to other Federal awards to overcome fund deficiencies, to avoid restrictions imposed by Federal statutes, regulations, or terms and conditions of the Federal awards, or for other reasons. However, this prohibition would not preclude the College from shifting costs that are allowable under two or more Federal awards in accordance with existing Federal statutes, regulations, or the terms and conditions of the Federal awards.
  • Direct cost allocation principles. If a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost, the cost should be allocated to the projects based on the proportional benefit. If a cost benefits two or more projects or activities in proportions that cannot be determined because of the interrelationship of the work involved, then the costs may be allocated or transferred to benefitted projects on any reasonable documented basis.
  • Where the purchase of equipment or other capital asset is specifically authorized under a Federal award, the costs are assignable to the Federal award regardless of the use that may be made of the equipment or other capital asset involved when no longer needed for the original purpose.