Effective Date: 7/1/2023
Allowable and unallowable costs vary by grant program and funding source; specifics are identified within grant program policies and/or guidance.
Allowable costs are costs that can be charged to the grant or used as match. Generally, a cost is allowable if it is incurred through work activities that are:
- Necessary for producing the outcomes described in the grant agreement and associated work plan;
- Occur during the grant period; and
- Based on actual costs incurred or less, if a grantee chooses to round down costs reported.
Expenses incurred before the grant is executed, or after expiration, are not allowed (exceptions exist for the Disaster Recovery Assistance Program and may occur in other instances; check the individual grant program policy for details).
Allowable costs include, but are not limited to, the items described below.
- Staff Time. The wages, benefits, and leave for staff of the grantee are allowable if necessary to activities funded by the grant and supported by time and effort documentation. Examples of staff activities (consistent with the Activity Categories in eLINK):
- Administration/Coordination (of the grant; see also Facilities and Administration below)
- Monitoring/Data Collection
- Planning and Assessment
- Project Development
- Technical/Engineering Assistance
Not all categories are allowable activities for all grants. For how to document staff time worked on grants, see the Time and Effort Documentation section of this manual. For how to charge staff time through a billing rate, see Determining a Billing Rate section of this manual. See also #5 Contractors / Services/ Project Costs below.
- Facilities and Administration. Facilities are operations and maintenance expenses. Administration is a term for general expenses, shared across an enterprise, such as accounting, human resources, and management. The costs of facilities and administration are commonly grouped together as overhead costs. Facilities and administration should be included in the billing rate or indirect cost allocation.
Examples of facilities:
- Office Maintenance
- Severance packages*
- Supervisor expenses
- Unemployment / Workers Compensation insurance
*Severance costs are only eligible when calculating leave costs with actual hours used.
Administration costs include the staff time of support personnel (including the cost of grant oversight) that is not charged directly to the grant, provided it is directly related to and necessary for grant activities.
- Donated Services or Property. The cost or estimated costs of services or property donated to the grant recipient may not be charged to the grant or included in a billing rate or indirect cost allocation. Non-state donated services or property that can be quantified may be used to meet cost share or match requirements.
To the extent feasible, donated services or property contributed as match should be supported by the same standards of documentation as costs charged to the grant.
- Supplies. Supplies are defined as all property that costs less than the threshold amount for equipment (as it is defined in section7). Supplies also have a shorter useful life than equipment. Supplies may be charged directly to the grant program(s) that benefit from their use. If necessary for all grant programs, supplies may be included in the billing rate or indirect cost allocation. Examples of supplies:
- Office supplies
- Contractors / Services / Project Costs. The actual costs of construction, professional and technical services, and other goods and services provided by contractors hired by grant recipients or land occupiers are allowable. Grantees may not inflate contractor costs. Contractors / Project Costs must be charged directly to the grant program(s) that benefit from their use. Examples of contractors / project costs:
- Construction services
- Materials and supplies and incoming freight charges for them
- Professional services specified in the approved work plan that are rendered by individuals or organizations
- Equipment rental or lease costs;
- Publication and printing expenses (including the process of composition, plate-making, press work, binding, and the end products produced) necessary for work products production and reports relating to work plan accomplishments, if specifically identified in the approved work plan for the grant.
- Reasonable food costs if included in the cost of meetings or conferences, as part of a standard per diem, or as part of a public participation event or training.
When a local government unit is providing services that will be paid for with BWSR grant funds or used to match BWSR grant funds, compensation or contributions in money, services, materials, or otherwise must be consistent with the actual cost or reasonable value of the services. See the BWSR Determining a Billing Rate Chapter of the GAM to determine reasonableness of hourly rates. All invoices for services associated with state funded initiatives are subject to BWSR review.
- Incentive Payments. If BWSR grant programs allow incentive payments, such payments must be reasonable, justifiable, and supported by grant recipient policy.
- Purchase of Equipment and Other Capital Assets. Equipment is defined as property having a useful life of more than one year and costs more than a certain threshold amount. A local government unit may establish a threshold amount defining equipment in its own policies or, if not defined, equipment is property with an acquisition cost of $5,000 or more. Examples of equipment include:
- Vehicles (e.g. pickup, SUV, or car)
- All-terrain vehicle
- Survey equipment
If equipment or other capital assets are purchased within the current fiscal year of the organization, this is considered a capital expenditure. If grant funds are used for the purchase, the capital expenditure must be allocated to the program(s) which benefit from its use as a direct cost and cannot be included in the billing rate or indirect cost allocation. If a capital expenditure charged to any one grant will exceed $10,000, the grantee must receive prior approval from BWSR by specifically including the item to be purchased in the grant work plan. If there is no work plan, Board Conservationist (BC) approval must be requested and received in writing prior to the purchase. BWSR may authorize exceptions to this requirement in writing prior to grant closeout.
If approval is requested, the request must explain why the equipment purchase is necessary for the program or project and demonstrate the cost is reasonable (compared to similar purchases for other organizations). The BC will document the request and related decision in the eLINK Grant Journal.
If a capital asset purchased with BWSR grant funds is no longer needed for the original purpose, it may be used to support other comprehensive plan activities. If the equipment is no longer needed and the fair market value is greater than $5,000, please contact the BC for disposal instructions.
- Charging Grants for Equipment or Capital Assets Already Owned. If equipment is already owned by the grant recipient, it is a capital asset. Capital assets are defined as tangible and intangible assets having a useful life of more than one year, the cost of which is spread out over a period of time. Charges for capital assets already owned by the grant recipient which are necessary to support program(s) or project(s) funded by the grant are allowable costs to BWSR grants and the costs must be properly allocated to reflect the asset’s actual use.
Capital assets should be depreciated using straight-line depreciation unless justification can be provided that usage will vary from the early to later portions of the asset’s life. The depreciation method should reflect the pattern of use. Depreciation amounts are allowable as indirect costs within the billing rate (as a facilities cost) or indirect cost allocation.
When the depreciation method is administratively burdensome, a use allowance for the capital asset may be established. Use allowances should be calculated by evaluating actual costs over a period of time. When direct charging grant program/project miles driven, the basis for an allowance can be previously established rates such as the IRS established business standard mileage rate. If a combination of local and state funds were used to purchase the item, the use allowance must deduct the acquisition cost previously charged to the state.
Examples of capital assets:
- Vehicles (pickup, SUV, car)
- Additions or improvements to capital assets that materially increase their value or useful life (not ordinary repairs and maintenance).
Examples of use allowances:
- IRS established business standard mileage rate
- IRS established business standard mileage rate less the portion of the business standard rate treated as depreciation if the asset was acquired with state funds
- Custom farming rates survey / Machinery cost estimates
- Actual expenses sampled over time and divided by miles, hours, square feet, etc. during the sampled timeframe
- For buildings owned and/or occupied by the grant recipient, a market rate for an equivalent rental space in the area the building is located may be used as a use allowance and included (like rent) as a facilities cost in a billing rate or indirect cost allocation.
- Vehicle Purchase and Usage. When a vehicle is purchased and its use is necessary to support grant program(s) or project(s), be consistent from year to year in applying one of the following methods to charge grant program(s) or project(s) for vehicle use:
- Direct Charge: If grant miles driven are charged directly to the grant and documented in a vehicle log:
- Vehicle purchased 100% with grant funds – use the IRS rate less the amount allotted for depreciation (e.g. 2023 IRS rate is $.655/mile less $.28/mile depreciation = $.375/mile rate for grant miles driven in 2023)
- Vehicle purchased with some grant funds (e.g. 75% state funds & 25% non-state funds) - use the IRS rate less the prorated amount allotted for depreciation (e.g. 2023 IRS rate is $.655/mile less $.21/mile depreciation [$.28/mile times 75% purchased with state funds] = $.445/mile rate for grant miles driven in 2023)
- Vehicle purchased with non-state funds - use the IRS rate (e.g. 2023 IRS rate is $.655/mile for grant miles driven in 2023)
- Indirect Charge: Include the cost of vehicle maintenance, repairs and fuel as an indirect cost in the billing rate or indirect cost allocation and do not charge the grant directly for miles driven. During the useful life of the vehicle when depreciation applies:
- Vehicle purchased 100% with grant funds – no depreciation allowed
- Vehicle purchased with some grant funds (e.g. 75% state funds & 25% non-state funds) - may include 25% of annual vehicle depreciation as an indirect cost in the billing rate or indirect cost allocation
- Vehicle purchased with non-state funds - may include the annual vehicle depreciation as an indirect cost in the billing rate or indirect cost allocation
Use the applicable IRS standard business mileage rate in effect for the year/timeframe the vehicle is driven. Mileage and depreciation rates can be found in IRS Publication 463. For example:
- 2021 Rate: $.56/mile less $.26/mile depreciation = $.30/mile maintenance/repairs/fuel
- 2022 (Jan-June) Rate: $.585/mile less $.26/mile depreciation = $.325/mile maintenance/repairs/fuel
- 2022 (July-December) Rate: $.625/mile less $.26/mile depreciation = $.365/mile maintenance/repairs/fuel
- 2023 Rate: $.655/mile less $.28/mile depreciation = $.375/mile maintenance/repairs/fuel
- Building Purchase and Usage. When a building is purchased/built and its use is necessary to support grant program(s) or project(s), include the cost of maintenance and repairs as an indirect cost in the billing rate or indirect cost allocation during the useful life of the building (i.e. useful life for a building is 40 years; useful life for a pole shed is 20 years; land does not depreciate thus break out the cost of land if attached to the building/shed at the time of purchase).
During the depreciable life of a building owned and/or occupied by the grantee and its use it necessary to support grant program(s) or project(s), depreciation or a use allowance can be calculated to include (like rent) as a facilities cost in the billing rate or indirect cost allocation as follows:
- Building purchased 100% with grant funds – no depreciation or use allowance allowed during the depreciable life of the building
- Building purchased with some grant funds (e.g. 20% state funds and 80% non-state funds) – during the depreciable life of the building, grantee can use the net non-state funded portion towards calculation of depreciation or a use allowance (i.e. determine the annual market rate for an equivalent rental space in the area then subtract the annual 20% state funded portion of depreciation to calculate the net cost of the use allowance for the space)
- Building purchased with non-state funds when owned and/or occupied by the grantee – use depreciation or the market rate for an equivalent rental space in the area as a use allowance
Costs that are unallowable to be charged to BWSR grants, unless specifically allowed by a grant program, include but are not limited to:
- Bad debts, late payment fees, and investment management fees
- Giving donations and fundraising
- Entertainment, gifts, prizes and decorations
- Interest on loans not authorized under state statute
- Loans of BWSR grant funds
- Lobbying, lobbyists and political contributions
- Merit awards and bonuses.
Government Finance Officers Association: Determining the Estimated Useful Lives of Capital Assets
State of Minnesota Guide to Local Government Capital Assets
IRS Standard Mileage Rates
University of Minnesota Extension Machinery Cost Estimates
http://extension.umn.edu/business/farm-finance (Follow link to “Machinery Cost Estimates”)
Custom Rate Survey
Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, Part 200 of Title 2 of the Code of Federal Regulations