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Plain-English guide · for nonprofits
2 CFR 200.403, explained in plain English
Updated October 2026
§200.403 sets eight tests for charging a cost to a federal award. The cost must be needed, reasonable and belong to the award. It must stay within limits and follow your own policies. It must be treated the same way each time and follow standard accounting rules (GAAP). It cannot count as match on another award. And it must be documented and spent in the budget period.
Adequately documented, (g): you can prove the cost with a record, like an invoice, receipt, approval or time record. The period rule, (h): the cost has to fall inside the approved budget period. Administrative closeout costs are the one exception. Charging salaries? The free time and effort certification template gives you that record for staff time.
The tests
§200.403 is the gate in the Uniform Guidance that every cost passes through. Fail any one test and the cost is unallowable, however sensible it seemed.
(a) Necessary and reasonable, and allocable to the award
Would a prudent person in your position have incurred it, at that price, for this award? Allocable is a separate idea and gets its own section at §200.405.
(b) Within any limits the rules or the award set
Cost principles exclude some cost types outright. Your award's terms can exclude more, or cap them.
(c) Consistent with policies that apply to all your work
The same rule for federally funded and non-federally funded activity. A mileage rate that is generous only on the grant fails here.
(d) Treated consistently as direct or indirect
A cost incurred for the same purpose in like circumstances cannot be a direct cost on one award and sit in your indirect pool on another.
(e) In line with GAAP
With carve-outs for state and local governments and Indian Tribes.
(f) Not used as cost sharing on another federal award
In this period or a prior one. That is the cost-sharing rule at §200.306.
(g) Adequately documented
Plain answer: you can prove the cost with records, such as an invoice, a receipt, an approval or a time record. Paragraph (g) points you to §§200.300 through 200.309, the financial management standards, for what counts as a record. A real cost with no record behind it is an unallowable cost.
(h) Incurred in the budget period
Plain answer: every cost must be incurred during the approved budget period. A budget period is one funded part of the period of performance, so a cost outside the period of performance generally fails this test too. Paragraph (h) makes one exception: administrative closeout costs may be incurred through the final report due date and must be liquidated by then, charged to the final budget period unless the agency says otherwise. Pre-award costs are a separate case: with the agency's written approval under §200.458, costs incurred before the start date may be charged to the initial budget period. Closeout itself is §200.344.
Two to get right first
Consistent treatment. If your executive director's time is a direct charge on the federal award but sits in overhead everywhere else, you are charging twice for the same kind of cost. The fix is a written cost allocation policy that says which costs are direct and which are indirect, applied to everything.
Documentation. Auditors do not disallow costs because they think you did not incur them. They disallow them because you cannot show it. Payroll charged by memory rather than by a certified time record is one version, and it lives at §200.430.
What to actually do
Write the cost allocation policy once
One page naming which cost types are direct and which are indirect, applied to every funding source. It answers test four permanently, and it is the kind of written control §200.303 on internal controls asks for.
Attach the evidence at the moment of the cost
Receipt, invoice, approval, and which award it hits. Reconstructing a year later is where costs get disallowed. §200.302 on financial management already requires source documentation behind every record.
Check the award terms, not just the regulation
Awards can restrict costs the Uniform Guidance would allow.
This is general information, not legal or accounting advice. Federal grant rules change and are applied differently by different agencies and auditors. Check with your auditor, your grant officer, or an attorney before relying on any of it.
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Sources: 2 CFR Part 200 (eCFR), read 29 August 2026, re-checked 1 September 2026 and again 3 October 2026. Federal grant rules change; check the current text before relying on this.