FEDgrant Solutions
Cost sharing, also known as matching, is a crucial component of many federally funded projects. It refers to the portion of project costs not covered by the federal grant, which must be provided by the grant recipient or third parties. While cost sharing can demonstrate an organization's commitment to a project, it also comes with stringent compliance requirements under the OMB Uniform Guidance.
Understanding these requirements is essential for avoiding audit findings and ensuring your organization's financial health.
What is Cost Sharing?
Cost sharing involves committing resources—whether in cash or in-kind—that support the objectives of a federally funded project. It's important to note that cost sharing is not inherently required for federal grants unless it is specifically called out by the federal awarding agency. When required, these contributions can come from various sources, including the recipient organization, state or local governments, private entities, or even other federal funds (with prior approval).
Cost sharing can be categorized into three types:
Mandatory Cost Sharing: This type is required by the federal agency as a condition of the award. It must be included in the proposal and is legally binding.
Voluntary Committed Cost Sharing: This occurs when an organization voluntarily includes cost sharing in the project proposal, even though it wasn't required by the sponsor. Once committed, it becomes a binding obligation.
Voluntary Uncommitted Cost Sharing: These are contributions that are not included in the project budget or proposal but are provided during the course of the project. Unlike the other types, these do not require formal documentation or tracking.
Cash Contributions
Cash contributions refer to actual monetary funds provided by the recipient or third parties. These funds are used to pay for allowable project costs, such as salaries, equipment, or supplies, and must be verifiable in the recipient's financial records.
In-Kind Contributions
In-kind contributions, on the other hand, consist of non-cash resources that are donated to the project. These may include donated goods, services, or facilities. For example, volunteer time, donated office space, or equipment provided at no cost to the project would qualify as in-kind contributions. The value of these contributions must be determined based on fair market value and properly documented to comply with federal regulations.
While both cash and in-kind contributions are valuable forms of cost sharing, they differ in how they are documented and valued. Cash contributions are straightforward, recorded as financial transactions in the recipient's accounting system. In-kind contributions, however, require careful valuation and documentation to ensure they meet the allowability, allocability, and reasonableness criteria.
Compliance Requirements Under the OMB Uniform Guidance
The OMB Uniform Guidance, specifically §200.306, outlines the rules for cost sharing to ensure that these contributions are allowable, allocable, and reasonable. To be accepted as part of the non-Federal entity's cost sharing or matching, all contributions—whether cash or third-party in-kind—must meet the following criteria:
Verifiable Records: Contributions must be verifiable from the non-Federal entity's records, meaning they should be clearly documented and traceable within the organization's financial system.
Unique Contributions: These contributions must not be included as contributions for any other Federal award. Double-counting the same contributions for multiple awards is not permissible.
Necessity and Reasonableness: Contributions must be necessary and reasonable for the accomplishment of the project's objectives, ensuring they directly support the goals of the federal award.
Allowability: Contributions must be allowable under Subpart E—Cost Principles of the OMB Uniform Guidance. This means they must conform to specific criteria regarding the types of costs that are permissible under federal awards.
Non-Federal Funding: Contributions must not be paid by the Federal Government under another Federal award, except where specifically authorized by federal statute. This ensures that the cost-sharing funds are not derived from another federal source unless explicitly permitted.
Budget Inclusion: When required by the Federal awarding agency, the contributions must be provided for in the approved budget. This ensures that all cost-sharing commitments are transparent and accounted for in the project’s financial planning.
Conformity to Regulations: Contributions must conform to all other applicable provisions of the OMB Uniform Guidance, ensuring comprehensive compliance with federal regulations.
Additionally, unrecovered indirect costs, including those on cost sharing or matching, may only be included as part of cost sharing or matching with the prior approval of the Federal awarding agency. Unrecovered indirect costs refer to the difference between the amount charged to the Federal award and the amount that could have been charged under the non-Federal entity's approved negotiated indirect cost rate.
Valuation Best Practices for Cost Share or Match
Valuing cost share or matching contributions accurately is critical to maintaining compliance with federal regulations and ensuring that your contributions are accepted as part of the project. Here are some best practices for valuing both cash and in-kind contributions:
Fair Market Value Determination: In-kind contributions should be valued at the fair market value at the time they are provided to the project. This involves determining what the goods, services, or facilities would cost if purchased in the open market. For example, volunteer services should be valued based on the rates typically paid for similar work within the geographic area or industry.
Use of Established Rates: When valuing services provided by employees or third parties, use established rates or salaries as the basis for calculation. Ensure that these rates are consistent with what is paid for similar work in the organization or the broader labor market.
Documenting Contributions: Meticulous documentation is essential. For cash contributions, maintain clear financial records, including receipts and payment records. For in-kind contributions, keep detailed records of the nature of the contribution, its value, the method used for valuation, and any supporting documentation, such as appraisals or market comparisons.
Valuation of Donated Equipment and Supplies: When equipment or supplies are donated, their value should reflect the fair market value, considering their condition and age. For newly purchased items, the purchase price should be used as the valuation.
Consistency in Valuation Methods: Apply the same valuation methods consistently across all contributions to avoid discrepancies that could raise questions during audits. Ensure that the methods used are in line with federal regulations and the organization’s policies.
Approval and Certification: Obtain necessary approvals for any valuation methods, especially for large or complex contributions. Certification by a knowledgeable authority within the organization can add an extra layer of assurance that the valuation is accurate and compliant.
Unrecovered Indirect Costs: If including unrecovered indirect costs as part of your cost sharing, ensure that these are calculated based on the difference between the negotiated indirect cost rate and what has been applied to the federal award. Prior approval from the Federal awarding agency is required for these costs to be included.
Managing and Documenting Cost Sharing
To manage cost sharing effectively and avoid potential audit findings, consider the following best practices:
Develop a Cost Sharing Plan: Before committing to cost sharing, create a detailed plan outlining the sources and types of contributions. Ensure that all commitments are realistic and align with project objectives.
Centralize Documentation: Establish a centralized system for tracking cost-shared expenses. This should include all relevant documentation, such as financial records, time and effort reports, and any agreements with third-party contributors.
Regular Monitoring: Conduct periodic reviews of cost-sharing contributions to ensure they are being properly documented and allocated. This proactive approach can help identify and address any compliance issues before they become problematic.
Training and Communication: Ensure that all staff involved in the project understand the importance of cost sharing and are trained on the specific compliance requirements. Clear communication and regular training can help prevent errors and ensure consistent application of cost-sharing policies.
Cost sharing can be a valuable tool for demonstrating your organization's commitment to a project, but it also requires careful management, accurate valuation, and thorough documentation to comply with federal regulations. By understanding the requirements under the OMB Uniform Guidance, implementing best practices for valuation, and maintaining diligent records, you can help your organization avoid audit findings and ensure successful project outcomes.
For more insights on federal grant compliance, feel free to reach out to our team at FEDgrant Solutions. We're here to help you navigate the complexities of cost sharing and other grant management challenges.
