The following cost principles for spending federal funds be implemented by the Clerk-Treasurer and followed by the city and its elected and hired employees, to wit:
(A) Implementation. The Clerk-Treasurer is responsible for the efficient and effective administration of grant funds through the application of sound management practices. Such funds shall be administered in a manner consistent with all applicable federal, state and local laws, the associated agreements or assurances, program objectives and the specific terms and conditions of the grant award.
(B) Cost principles. The total cost of a federal award is the sum of the allocable direct and allocable indirect costs less any applicable credits. Applicable credits refer to those receipts or reduction of expenditure type transactions that offset or reduce expense items allocable to the federal award. Except where otherwise authorized by statute, costs shall meet the following general criteria in order to be allowable under federal awards:
(1) (a) Be necessary and reasonable for proper and efficient performance and administration of the federal award and be allocable thereto under these principles. 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.
(b) To determine whether a cost is reasonable, consideration shall be given to:
1. Whether a cost is of a type generally recognized as ordinary and necessary for the operation of the city or the proper and efficient performance of the federal award;
2. The restraints or requirements imposed by such factors as sound business practices, arm’s length bargaining, federal, state, local, tribal and other laws and regulations, and terms and conditions of the federal award;
3. Market prices for comparable goods or services for the geographic area;
4. Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the city, its employees, the public at large, and the federal government;
5. Whether the city significantly deviates from its established practices and policies regarding the incurrence of costs, which may unjustifiably increase the federal award’s cost.
(c) Whether a cost is necessary is determined based on the needs of the program. The expenditure must be necessary to achieve an important program objective. A key aspect in determining whether a cost is necessary is whether the city can demonstrate that the cost addresses an existing need.
(d) To determine whether a cost is necessary, consideration may be given to whether:
1. The cost is needed for the proper and efficient performance of the grant program;
2. The cost is identified in the approved budget or application;
3. There is a benefit to the city or its citizens associated with the cost;
4. The cost aligns with identified needs based on results and findings from a needs assessment; and
5. The cost addresses program goals and objectives and is based on program data.
(e) A cost is allocable to the federal award or other cost objective if the goods or services involved are chargeable or assignable to the federal award or cost objective in accordance with relative benefits received. This standard is met if the cost:
1. Is incurred specifically for the federal award;
2. Benefits both the federal award and other work of the city and can be distributed in proportions that may be approximated using reasonable methods; and
3. Is necessary to the overall operation of the city and is assignable in part to the federal award in accordance with the foregoing cost principles.
(2) Conform to any limitations or exclusions set forth in these cost principles or in the federal award as to types or amount of cost items.
(3) Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the city.
(4) Be accorded consistent treatment. A cost may not be assigned to a federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the federal award as an indirect cost.
(5) Be determined in accordance with generally accepted accounting principles.
(6) Not be included as a cost or used to meet cost sharing or matching requirements of any other federally-financed program in either the current or a prior period, unless specifically authorized by the federal award.
(7) Be adequately documented:
(a) With respect to personal services, the Clerk-Treasurer shall implement a system for city personnel to account for time and efforts expended on grant funded programs to assure that only permissible personnel expenses are allocated;
(b) All other costs receipts and other invoice materials shall be retained, along with any documentation identifying the need and purpose for each expenditure if not otherwise clear.
(8) (a) Be incurred during the approved budget period.
(b) The BUDGET PERIOD means the time interval from the start date of a funded portion of an award to the end date of that funded portion during which recipients are authorized to expend the funds awarded, including any funds carried forward or other revisions pursuant to law. Prior written approval from the federal awarding agency or state pass-through entity may be required to carry forward unobligated balances to subsequent budget periods unless waived.
(B) Selected items of cost. The city shall follow the rules for selected items of cost at 2 C.F.R Part 200, Subpart E when charging these specific expenditures to a federal grant. When applicable, City staff shall check costs against the selected items of cost requirements to ensure the cost is allowable. In addition, state, city and program-specific rules, including the terms and conditions of the award, may deem a cost as unallowable, and city personnel shall follow those rules as well.
(C) Cost compliance. The Clerk-Treasurer shall require that grant program funds are expended and are accounted for consistent with the requirements of the specific program and as identified in the grant application. Compliance monitoring includes accounting for direct or indirect costs and reporting them as permitted or required by each grant. Costs incurred for the same purpose in like circumstances shall be treated consistently as either direct or indirect costs, but may not be double charged or inconsistently charged as both.
(D) Determining whether a cost is direct or indirect.
(1) (a) DIRECT COSTS are those costs that can be identified specifically with a particular final cost objective, such as a federal award, or other internally or externally funded activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy. Identification with the federal award rather than the nature of the goods and services involved is the determining factor in distinguishing direct from indirect costs of federal awards.
(b) Typical costs charged directly to a federal award are the compensation of employees who work on that award, their related fringe benefit costs, the costs of materials and other items of expense incurred for the federal award. If directly related to a specific award, certain costs that otherwise would be treated as indirect costs may also be considered direct costs. Examples include extraordinary utility consumption, the cost of materials supplied from stock or services rendered by specialized facilities, program evaluation costs, or other institutional service operations.
(2) (a) INDIRECT COSTS are those costs incurred for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved.
(b) These costs may include general data processing, human resources, utility costs, maintenance and accounting and other costs of that nature.
(c) The salaries of administrative and clerical staff should normally be treated as indirect costs. Direct charging of these costs may be appropriate only if all of the following conditions are met:
1. Administrative or clerical services are integral to a project or activity;
2. Individuals involved can be specifically identified with the project or activity;
3. Such costs are explicitly included in the budget or have the prior written approval of the federal awarding agency; and
4. The costs are not also recovered as indirect costs.
(E) Timely obligation of funds.
(1) FINANCIAL OBLIGATIONS, when referencing a recipient’s or subrecipient’s use of funds under a federal award, means orders placed for property and services, contracts and subawards made, and similar transactions that require payment. The following illustrates when funds are determined to be obligated.
(2) If the obligation is for:
(a) Acquisition of property - on the date when the city makes a binding written commitment to acquire the property;
(b) Personal services by an employee of the city - when the services are performed;
(c) Personal services by a contractor who is not an employee of the city - on the date when the city makes a binding written commitment to obtain the services;
(d) Performance of work other than personal services - on the date when the city makes a binding written commitment to obtain the work;
(e) Public utility services - when the city receives the services;
(f) Travel - when the travel is taken;
(g) Rental of property - when the city uses the property;
(h) A properly approved pre-agreement cost - on the first day of the project period.
(F) Period of performance.
(1) PERIOD OF PERFORMANCE means the total estimated time interval between the start of an initial federal award and the planned end date, which may include one or more funded portions, or budget periods. The PERIOD OF PERFORMANCE is dictated by statute and will be indicated in the grant award notification. As a general rule, state administrated federal funds are available for obligation within the year for which Congress appropriated the funds. Any obligations under a grant may not be made until the grant funding period begins or all necessary materials are submitted to the granting agency, whichever is later. In the case of a direct grant, obligations may begin when the grant is approved, unless an agreement exists with the State Board of Accounts or the pass-through entity to reimburse for pre-approved expenses.
(2) Unless the federal awarding agency or pass-through entity authorizes an extension, the city must liquidate all financial obligations incurred under the federal award no later than 120 calendar days after the end date of the period of performance as specified in the terms and conditions of the federal award.
(3) The city must promptly refund any balances of unobligated cash that the federal awarding agency or pass-through entity paid in advance or paid and that are not authorized to be retained by the city for use in other projects.
(G) Validity of policy. This Cost Principles for Spending Federal Funds Policy is and shall be valid upon adoption and publication as required by law and shall remain valid indefinitely.
(Ord. 6970, passed 10-2-23)