Chapter 2: Fiscal Responsibilities

2.3 The Cost Principles

Anyone authorizing the expenditure of federal funds must understand the cost principles contained in Title 45 CFR Part 74 Appendix E. These principles identify the general accounting "rules" for hospitals and define those costs that are allowable and allocable to the federal government.

These principles govern costs that may be charged to the government by hospitals either directly or indirectly and are reinforced by the CHOP Research Institutes' policy on cost principles. The same cost principles are generally applied to non-federal funding as well, although in some cases non-federal sponsors define allowable/unallowable costs differently than federal sponsors.

Any cost being charged to a sponsor must satisfy the following criteria:

  • The cost must be ALLOWABLE as defined by Title 45 CFR Part 74 Appendix E and/or by the terms of your particular award.
  • The cost must be ALLOCABLE, that is, the project that paid the expense must benefit from it.
  • The expense must be REASONABLE, that is, the cost reflects what a "prudent person" might pay.
  • The expense must be CONSISTENT with costs charged in similar circumstances to other sponsored projects.

If costs are not allowable, allocable, reasonable and consistent, then they may not be charged to a sponsored project. Examples can be found in the "more information" tab of this section.

Besides Title 45 CFR Part 74 Appendix E, other circulars that are frequently referenced in the administration of sponsored projects are:

  • OMB Circular A-110
    Grants and Agreements With Institutions of Higher Education, Hospitals and Other Non-Profit Organizations

    This circular sets forth standards for the pre-award and post-award administration of grants to and agreements with institutions of higher education, hospitals and other non-profits. It includes provisions related to property, procurement standards, and reports and records, among others.

  • OMB Circular A-133
    Audits of Institutions of Higher Education and Other Non-Profit Institutions

    This circular sets forth standards for obtaining consistency and uniformity among federal agencies for the audit of non-profit organizations expending federal awards. A-133 requires a single, annual compliance audit of non-federal institutions receiving federal funding (see "Audit Realities" for more information).

The provisions of these circulars are applicable to all federal agencies that award federal dollars.

Ask the Experts

Steve Wiley
Director
Department of Research Finance



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CHOP Research Resources

  • Responsible Departments: Research Finance, Sponsored Projects
  • The CHOP Research Institutes' Cost Principles Policy

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More Information

  • What is Title 45 CFR Part 74 Appendix E?
  • Cost Principle Examples
    • Allowability
    • Allocability
    • Reasonableness
    • Consistency
  • Information on the A-110 Circular
  • Information on the A-133 Circular
  • Cost Principles for Non-Profits

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