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4.5 Cost Categories and Allowable Activities


Chapter 4.5.1 Resources

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Chapter 4.5.2 Resources

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4.5.1 Overview

Effective date: TBD

This section provides principles to be applied in establishing the allowability1 of certain items of cost. The recipient shall comply with these principles whether a cost is treated as direct, joint, or indirect. Failure to mention a particular item of cost is not intended to imply that it is unallowable. Based on the principles described in Basic Considerations of cost in 2 CFR 200.402 - 200.411, treatment for similar or related items of cost determine allowability. DWD-DET may give written authorization to incur costs that would otherwise be unallowable, such as conferences or interest, provided that no violation of applicable regulations occurs. The items of cost generally refer to those incurred by the recipient as an organization, rather than incurred directly for a participant.

4.5.2 Cost Categories and Allowable Activities

Effective date: TBD


The cost of establishing and maintaining accounting and other information systems required for the management of DWD-DET grants is allowable. This includes costs incurred by central service for those same purposes.


Advertising costs include the costs of media services and associated costs. Advertising media includes magazines, newspapers, radio and television programs, direct mail, convention exhibits, electronic or computer transmittals, and the like.

  1. Allowable Advertising Costs. The only allowable advertising costs are those which are for:
    • Recruitment of personnel required for DWD-DET funded grants.
    • Procurement of goods and services.
    • Disposal of surplus materials.
    • Specific requirements of DWD-DET grants.
    • Participant and employer outreach.
  2. Public Relations. Includes community relations and means those activities dedicated to maintaining the image of the recipient or maintaining or promoting understanding and favorable relations with the community or public at large or any segment of the public. The only allowable public relations costs are those which are for:
    • Costs required by the grant;
    • Costs of communicating specific activities or accomplishments of the grant; or
    • Costs of communicating matters of public concern such as grant awards or financial matters.


Costs incurred by WDBs, local boards, advisory councils, or delegate committees for functions relative to DWD-DET programs are allowable.


Costs of alcoholic beverages are unallowable.


Financial and compliance audit costs incurred by the recipient are allowable if the audit is procured and performed in accordance with grant requirements.


The cost of data processing services is allowable.


Bad debts, or debts which are uncollectible, including losses, whether actual or estimated, arising from uncollectible accounts and other claims, are unallowable.


Costs of fidelity bonding insurance for individuals involved with DWD-DET programs are allowable.


Costs incurred for the development, preparation, presentation, and execution of budgets are allowable. Identifiable and documented costs for services of a central budget office are allowable if the central budget office actively participates in the DWD-DET grant budget process.


Costs incurred by a recipient to recover improper payments are allowable as either direct or indirect costs, as appropriate.


Compensation for personal services includes all remuneration, paid currently, or accrued, for services rendered during the period of performance under the grant, including, but not necessarily limited to wages and salaries. Compensation for fringe benefits is addressed in section "Compensation - Fringe Benefits".

  1. Compensation. Costs for compensation are allowable to the extent that total compensation for individual employees meets the following requirements:
    • Compensation is reasonable for the services rendered. Compensation for employees engaged in DWD-DET activities will be considered reasonable to the extent that it is consistent with that paid for similar work in other activities of the recipient or of similar local organizations.
    • Compensation follows an appointment made in accordance with the recipient's documented policy, and meets the requirements of federal, state, and local laws, where applicable.
    • Compensation is determined and supported by paragraphs B. and D. of this subsection.
  2. Special Considerations. Certain conditions require special consideration and possible limitations in determining costs where amounts or types of compensation appear unreasonable. Among such conditions are the following:
    • Determinations should be made that cost is reasonable for the actual personal services rendered when compensation is made to members of nonprofit organizations, trustees, directors, associates, officers, or the immediate families thereof.
    • DWD-DET may review any change in the recipient's compensation policy resulting in a substantial pay increase in the recipient's level of compensation.
  3. Incentive Compensation. Incentive compensation based on cost reduction, efficient performance, suggestion awards, etc. is allowable provided the overall compensation is reasonable and such costs are paid or accrued pursuant to the recipient's documented policies and procedures.
  4. Standards for Documentation of Personnel Expenses. Charges to federal grants for salaries and wages must be based on records that accurately reflect the work performed. Time and attendance or equivalent records must support payroll records for individual employees. Employees' salaries and wages chargeable to more than one cost objective must be supported by appropriate cost distribution records. The method used must produce an equitable distribution of time and effort, and:
    • Where time distribution reports are used, these reports must reflect actual activity of each employee. Budget estimates determined before the services are performed do not qualify as support for charges to grants.
    • Where time distribution reports are used, these reports must be signed by the individual employee, or by their supervisor with knowledge of the activities performed by the employee, attesting that the distribution of their time is an actual statement of the work performed by the employee during the time period(s) covered by the report.
    • Each time distribution report must account for the total activity for which the employee is compensated, and which is required in fulfillment of their obligations to the recipient.
    • Salaries and wages of employees used in meeting cost matching requirements on awards shall be supported in the same manner as salaries and wages claimed for reimbursement from granting agencies.


Fringe benefits are allowances and services provided by employers to their employees as compensation in addition to regular salaries and wages. Except as provided elsewhere in this section, the costs of fringe benefits are allowable provided that the benefits are reasonable and required by law, recipient-employee agreement, or the recipient's documented policies and procedures. Fringe benefits include, but are not limited to, the following:

  1. Leave. Regular compensation paid to employees for authorized absences from the job for annual leave, family-related leave, sick leave, holidays, court leave, military leave, and other similar benefits, are allowable if the following criteria are met:
    • They are provided under established documented policies and procedures.
    • The costs are equitably allocated to all related activities, including federal grants.
    • The accounting basis (cash or accrual) selected for costing each type of leave is followed consistently by the recipient.
      1. If leave is accounted for using the cash basis, costs may be expensed as employees take paid leave. Payments for unused leave when an employee retires or terminates employment are allowable in the year of payment.
      2. The accrual basis may be used only for those types of leave for which a liability as defined by GAAP exists when the leave is earned. If leave is accounted for using the accrual basis, costs may be expensed as leave is earned. Allowable leave costs are the lesser of the amount accrued or funded.
  2. Fringe Benefits. The cost of fringe benefits in the form of employer contributions or expenses for social security, employees' life and health insurance plans, unemployment insurance coverage, worker's compensation insurance, retirement plans for staff, and the like are allowable, provided such benefits are granted under established, documented plans. Costs must be equitably allocated to all related activities, including federal grants.
  3. Severance Pay. Payments in addition to regular salaries and wages, made to workers whose employment is being terminated, are allowable to the extent that, in each case, they are required by law, employment agreement, or established documented policies and procedures. Actual severance payments, but not accruals, associated with normal turnover are allowable. Negotiated settlements made upon termination or because of a grievance are not allowable. Costs must be equitably allocated to all related activities, including federal grants.


Costs associated with the conduct of meetings and conferences, including the cost of renting facilities, meals, and speakers' fees, are allowable when related to the grant program.


Contributions to a contingency reserve or any similar provision made for events for which the occurrence cannot be foretold with certainty as to time, intensity, or with an assurance of their happening are unallowable. The term "contingency reserve" excludes self-insurance reserves, pension funds, and reserves for normal severance pay.


  1. Contributions and Donations Made. Funds paid by the recipient to others are unallowable.
  2. Contributions and Donations Received.
    • Professional and technical personnel, consultants, and other skilled and unskilled labor may furnish donated (volunteer) services to the recipient. The value of these services is not reimbursable, either as a direct cost or an indirect cost.
    • Donated goods or use of space may be furnished to a recipient. The value of the goods and space is not reimbursable, either as a direct cost or an indirect cost. However, depreciation or use allowances may be charge on donated assets in keeping with the provisions in section "Depreciation".


Costs incurred for any criminal, civil, or administrative proceeding commenced by the federal, state, local, tribal, or foreign government are not allowable if the proceeding relates to a violation of, or failures to comply with, a federal, state, local, tribal, or foreign government statute or regulation by the recipient, including its agents and employees.


  1. Allowability. Reimbursement for the use of buildings, capital improvements, leasehold improvements and equipment is allowable through depreciation.
  2. Basis. The computation of depreciation shall be based on the acquisition cost of the asset(s) involved. Where actual cost records have not been maintained, a reasonable estimate of the original acquisition cost may be used in the computation. The acquisition cost of an asset donated to the recipient by a third part shall be its fair market value (FMV) at the time of the donation.
  3. Computation. The computation of depreciation will exclude:
    • The cost of land;
    • The cost or any portion of buildings, leasehold improvements, and equipment provided or donated directly or indirectly by the federal government;
    • Any portion of the cost of buildings and equipment contributed by or for the recipient claimed in satisfaction of a statutory matching requirement; and
    • Any asset acquired solely for the performance of a non-federal grant.
  4. Depreciation Method. When computing depreciation charges, the following must be observed:
    • The useful life established for assets must take into consideration such factors as the type of construction, nature of the equipment, technological developments of the asset(s), historical data, and the renewal/replacement policies followed for the individual asset or classes of assets involved.
    • The depreciation method used to charge the cost of an asset or group of assets to accounting periods must reflect the consumption of the asset during its useful life. Without clear evidence that expected consumption of the asset will be significantly greater in early portions of its useful life than in later portions, the straight-line method must be recognized as the appropriate method. Switching the asset's depreciation method is unallowable unless approved by DWD-DET.
    • No depreciation is allowed on any assets that have outlived their depreciable lives.
  5. Recordkeeping. Depreciation charges must be supported by adequate property records and records showing the amount of depreciation must be maintained. Physical inventories must be taken at least once every two years to ensure the assets exist and are usable, used, and needed.


Costs of internal publications, health or first aid clinics, recreational activities, employee counseling services, and other expenses incurred in accordance with the recipient's documented policies for the improvement of working conditions, employer-employee relations, employee morale, and employee performance are allowable.


Recipient staff costs for amusement, diversion, social activities, ceremonials, and related costs such as meals, lodging, rentals, transportation, gratuities, and alcoholic beverages are unallowable.


The following rules of allowability must apply to equipment and other capital expenditures:

  • Expenditures with a unit acquisition cost of $1,000 or more but less than $5,000 are allowable.
  • Expenditures with a unit acquisition cost of $5,000 or more are allowable only with the prior written approval of DWD-DET, and then only if charged to a single program.
  • All lease purchase agreements, or capital leases, with a total unit acquisition cost of $5,000 or more require the prior written approval of DWD-DET, and then only if charged to a single program.
  • Capital expenditures for land or buildings are not allowable with DWD-DET grants.
  • Capital expenditures for improvements to land, buildings (including leasehold improvements), or equipment that materially add to the value of the asset or appreciably prolong its life, are not allowable with DWD-DET grants.
  • See section "Depreciation" for allowability of depreciation on buildings, capital improvements, and equipment. Also, see section "Rental Costs of Real Property and Equipment" for allowability of rental costs for land, buildings, and equipment.


Costs of fines, penalties, damages, and other settlements resulting from the recipient's violations of, or failure to comply with, federal, state, and local laws and regulations are unallowable.


  1. Fund Raising. Costs of organized fund raising, including financial campaigns, endowment drives, solicitation of gifts and bequests, and similar expenses incurred solely to raise capital or obtain contributions, along with any indirect costs related to such efforts, are unallowable. Costs associated with the WDB's right to solicit and accept contributions and grants (from other public or private sources) are not considered to be 'fund raising.'
  2. Investment Management. Costs of investment counsel and staff and similar expenses incurred solely to enhance income from investments are unallowable. Costs associated with investments covering retirement, self-insurance, or other such funds are not considered 'investment management.'


  1. Recognition. Gains and losses on the sale, retirement, or other disposition of depreciable property are allowable and shall be included in the year in which they occur and recognized as credits or debits to the appropriate expenditure accounts. The amount to be recognized is the difference between the amount realized on the property and the undepreciated basis of the property.
  2. Restrictions. Gains and losses are unallowable when:
    • The gain or loss is processed through a depreciation reserve account and is reflected in the depreciation allowable under section "Depreciation".
    • The property is given in exchange as part of the purchase price of a similar item and the gain or loss is considered in determining the depreciation cost of the new item.
    • A loss results from the failure to maintain permissible insurance, expect as otherwise provided in section "Insurance and Indemnification".
    • Compensation for the use of the property was provided through use allowances in lieu of depreciation in accordance with section "Depreciation".


Costs of salaries and other expenses of local governmental bodies, such as a county supervisors or city councils, are considered a cost of general local government and are unallowable. Costs of general types of government services normally provided to the general public, such are fire and police protection, are unallowable unless provided for as a direct cost under a program statute or regulation.


Costs of goods or services for employee personal use are unallowable, regardless of whether the cost is reported as taxable income to the employee.


The costs of idle facilities and idle capacity, including costs for maintenance, repair, housing, rent, and other related costs such as property taxes, insurance, or depreciation are allowable only with the prior written approval of DWD-DET.


Costs include insurance the recipient is required to carry, or which is approved under the terms of the grant, and any other insurance the recipient maintains in connection with the general conduct of its operations. This subsection does not apply to insurance that represents fringe benefits for the recipient's employees. This subsection applies as follows:

  • Costs of insurance required or approved and maintained pursuant to the grant are allowable.
  • Costs of other insurance in connection with the general conduct of activities are allowable subject to the following limitations:
    1. Types and extent of coverage shall be in accordance with the recipient's documented policies and sound business practice. Rates and premiums shall be reasonable under the circumstances.
    2. Costs of insurance or of any contributions to a reserve covering the risk of loss of, or damage to, government property are allowable to the extent that the recipient is liable for such loss or damage.
    3. Costs allowable for business interruption or other similar insurance must exclude coverage of management fees.
    4. Costs of insurance on the lives of trustees, officers, or other key employees are allowable only to the extent that the insurance represents additional compensation. Where the recipient is the beneficiary of such insurance, the cost is unallowable.
    5. Costs of errors and omissions insurance are unallowable.
  • Costs of personal liability insurance for Workforce Development Boards (WDBs) members are allowable. Personal liability insurance for chief elected officials (CEOs) and their support staff is an allowable cost if the following conditions are met:
    1. The affected CEOs provide evidence that their current general liability coverage, required as a standard cost to the general unit of local government they represent, is insufficient to provide adequate protection for liability incurred because of their actions as public officials under DWD-DET grants; and
    2. The affected CEOs assure and certify that DWD-DET grant funds utilized for the purpose of purchasing personal liability insurance for themselves and their support staff does not and will not supplant local funds which otherwise would have been available to purchase such liability insurance; and
    3. DWD-DET funds authorized and utilized for the purchase of personal liability insurance for CEOs and/or their support staff shall not exceed the cost of including local officials as other insured under a WDB personal liability insurance policy.
  • Actual losses which could have been covered by permissible insurance, through the purchase of insurance or a self-insurance program, are allowable if:
    1. Costs incurred because of losses not covered under nominal deductible insurance coverage provided in keeping with sound business practice.
    2. Minor losses not covered by insurance, such as spoilage, breakage, and disappearance of supplies, which occur in the ordinary course of operations.


Costs incurred for interest, however represented, are unallowable.


Costs incurred to maintain satisfactory relations between the recipient and its employees are allowable. Costs may include publications, training, and related activities.


The costs of certain influencing activities associated with obtaining grants, contracts, cooperative agreements, or loans is unallowable.


Any excess of costs over income on any grant is unallowable as a cost of any other grant.


Costs incurred for necessary maintenance, repair, or upkeep of buildings, leasehold improvements, and equipment, including governmental property unless otherwise provided for, which neither add to the value of the property nor appreciably prolong its useful life, but keep it in an efficient operating condition, are allowable. Costs incurred for improvements that add to the value of the asset or appreciably prolong its useful life must be treated as capital expenditures in accordance with section "Equipment and Other Capital Expenditures".


Costs of materials and supplies necessary to operate a grant are allowable. Withdrawals from internal stores or stockrooms should be charged at cost under any recognized and consistently applied method of pricing. Material and supplies charged as a direct cost should include only the materials and supplies actually used for the performance of the grant.


  1. Memberships. The costs of the recipient's membership in civic, business, technical, and professional organizations are allowable, provided that:
    • The benefit from the membership is related to a DWD-DET grant;
    • The expenditure is for the recipient's membership;
    • The cost of the membership is reasonably related to the value of the services or benefits received; and
    • The expenditure is not for membership in an organization that devotes a substantial part of its activities lobbying.
  2. Subscriptions. Costs of the recipient's subscriptions to civic, business, professional, and technical periodicals are allowable, when related to a DWD-DET grant.
  3. Professional Activities. Costs to attend meetings and conferences sponsored by other where the primary purpose is the delivery of technical information are allowable. This includes costs of lodging, meals, transportation, and other items incidental to such attendance. Incurred costs must be consistent with the recipient's policies and procedures.


Costs of establishing or reorganizing an agency are allowable if prior approval is obtained from DWD-DET. These costs may include legal, accounting, consulting, or other service fees. Grant implementation or plan preparation activities of an existing agency are not considered 'organization costs.'


Costs for program participants are allowable with prior approval of DWD-DET. Inclusion in any authorized plan constitutes prior approval. Costs may be paid to or on behalf of participants and include, but are not limited to, general subsistence, travel, childcare, and other training related purposes.


Costs incurred for wages and equipment for facilities protection are allowable.


Costs incurred prior to the effective date of the grant are allowable only with prior written approval of DWD-DET. Costs related to preparing program plans, applications, and budgets required by DWD-DET are not "pre-award costs."


Costs of professional and consultant services rendered by persons who are members of a particular profession or possess a special skill, and who are not officers or employees of the recipient, are allowable when reasonable in relation to the services provided. The cost of legal expenses required in the administration of grants is allowable.


Costs incurred in preparing proposals for potential grants are unallowable. Costs related to preparing program plans, applications, and budgets required by DWD-DET are not considered 'proposal costs.'


  1. Publication. Costs for electronic and print media, including distribution, promotion, and general handling are allowable. If such costs cannot be identified with a particular cost objective, they should be allocated as indirect costs to all benefitting activities of the recipient.
  2. Page Charges for Professional Journals. The costs at normal publisher rates are allowable.


  1. Rearrangement. Costs incurred for ordinary and normal rearrangement and alteration of facilities are allowable. Special arrangements and alteration costs incurred specifically for a federal grant are allowable as a direct cost with prior approval of the federal awarding agency or DWD-DET.
  2. Reconversion. Cost incurred in the restoration or rehabilitation of the recipient's facilities to approximately the same condition existing immediately prior to the effective date of a DWD-DET funded grant, less costs related to normal wear and tear, are allowable.


Costs for advertising, testing, evaluating, hiring, and training employees/potential employees are allowable. Costs must be reasonable for the recipient.


Costs for the relocation of employees are allowable and must be in accordance with the recipient's written policies and procedures.


Subject to the limitations described below, rental costs are allowable to the extent the rates are reasonable. Reasonableness of costs considers factors such as: rental costs of comparable property, if any; market conditions in the area; available alternatives; and the type, life expectancy, condition, and value of the leased property.

  1. Sale and Leaseback. Rental costs under sale and leaseback arrangements are allowable only up to the amount that would be allowed had the recipient continued to own the property. This amount would include depreciation, maintenance, taxes, and insurance.
  2. Related Party Leases. Rental costs under related party, or "less-than-arm's-length," leases are allowable only up to the amount as explained in paragraph A above. For this purpose, a related party lessee is one under which one party to the lease agreement can control or substantially influence the actions of others. Such leases include, but are not limited to those between:
    • Divisions of the recipient;
    • The recipient under common control through common officers, directors, or members; and
    • The recipient and a director, trustee, officer, or key employee of the recipient and their immediate family, either directly or through corporations, trusts, or similar arrangements in which they hold a controlling interest.
  3. Creation of Material Equity. Rental costs under leases which create a material equity in the leased property, including any interest charges, are allowable only up to the amount that would be allowed had the recipient purchased the property on the date the lease agreement was executed. A material equity in the property exists if the lease is noncancelable or is cancelable only upon the occurrence of some remote contingency and includes one or more of the following characteristics:
    • The recipient has the right to purchase the property for a price, which at the inception of the lease appears to be substantially less than the likely fair market value (FMV) at the time it is permitted to purchase the property (commonly called a lease with a bargain purchase option);
    • Title to the property passes to the recipient at some time during or after the lease period;
    • The initial term of the lease plus periods covered by any renewal option(s) is equal to 75 percent or more of the economic life of the leased property. Economic life means the period the property is expected to be economically usable by one or more users.


The cost of selling any product or service of the recipient's organization when necessary for the performance of the grant is allowable.


The cost of specialized, complex facilities when necessary for the performance of the grant is allowable.


In general, taxes or payments in lieu of taxes (PILOT) which the recipient is required to pay are allowable, except for:

  • Taxes from which exemptions are available to the recipient;
  • Special assessments on land which represent capital improvements;
  • Federal income taxes; and
  • State income taxes.


Costs incurred for telecommunications and video surveillance services or equipment such as telephones, internet, video surveillance, cloud servers and the like are allowable, including installation of a new communications system which is necessitated by the addition or expansion of DWD-DET programs.


Termination of a grant may cause the incurrence of costs, or the need for special treatment of costs, which would not have occurred had the grant not been terminated. Cost principles covering these items are detailed below. They are to be used in conjunction with other provisions of this section in termination situations, subject to the availability of funds.

  • The cost of items reasonably usable in the recipient's other work are unallowable unless the recipient submits evidence that it would not retain such items at cost without sustaining a loss.
  • If certain costs cannot be discontinued immediately after the effective date of termination, such costs are generally allowable, but only up to the amount of the grant. Such costs continuing after termination due to the negligent or willful failure of the recipient to discontinue such costs shall be unallowable.
  • Loss of useful value of special tooling, machinery and equipment which was not charged to the grant as a capital expenditure is generally allowable if not reasonably capable of use in the other work of the recipient.
  • Rental costs under unexpired leases are generally allowable where clearly shown to have been reasonably necessary for the performance of the terminated grant less the residual value of such leases, if:
    1. The amount of such rental claimed does not exceed the reasonable use value of the property leased for the period of the grant and such further period as may be reasonable, and
    2. The organization makes all reasonable efforts to terminate, assign, settle, or otherwise reduce the cost of such lease. There also may be included the cost of alterations of such leased property, provided such alterations were necessary for the performance of the grant, and of reasonable restoration required by the provisions of the lease.
  • Settlement expenses, including the following, are generally allowable:
    1. Accounting, legal, clerical, and similar costs reasonably necessary for the preparation and presentation to the grantor of settlement claims and supporting data with respect to the terminated portion of the grant, unless the termination is for default; and for the termination and settlement of subgrants.
    2. Reasonable costs for the storage, transportation, protection, and disposition of property provided by the DET or acquired or produced for the grant; except when grantees are reimbursed for disposals at a predetermined amount.


The cost of training and education for employee development, which directly or indirectly benefits grant programs, is allowable.


Costs for freight, shipping, and postage are allowable.


Travel costs for transportation, lodging, subsistence, and related incidental costs incurred by recipient employees who are in travel status on official business are allowable when they are directly attributable to specific work under a grant, subject to following:

  • Costs may be charged on an actual basis, on a per diem or mileage basis in lieu of actual costs incurred, or on a combination of the two, provided the method used results in charges consistent with those normally allowed in like circumstances and in accordance with recipient's written travel reimbursement policies.
  • Costs for traveling to a foreign county must be authorized in the grant agreement.


Travel costs and per diems for trustees or directors are allowable. Costs must be in accordance with the recipient's written policies and procedures.

Direct Costs

Effective date: July 26, 2019

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. DWD-DET interprets this definition to include training services, support services, and certain individualized career services where funding is provided directly to, or on behalf of, the participant. This excludes basic career services and costs associated with staff time.

2 CFR § 200.413(a)

Indirect Costs

Effective date: September 13, 2023

Costs that benefit more than one cost objective, and that are not readily assignable to the cost objectives specifically benefitted. For example, accounting and personnel management functions.

Joint Costs

Effective date: September 13, 2023

Costs that benefit more than one service, and for which it is not possible to separate the contirbution to each service. For example, set-up costs associated with all WIOA grants.


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