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§ 66.4

(3) Refusal to extend a grant or
award additional funds, to make a com-
peting or noncompeting continuation.
renewal, extension, or supplemental
award; or

(4) Voiding of a grant upon deter-
mination that the award was obtained
fraudulently, or was otherwise illegal
or invalid from inception.

Terms of a grant or subgrant mean all
requirements of the grant or subgrant,
whether in statute, regulations, or the
award document.

Third party in-kind contributions mean
property or services which benefit a
federally assisted project or program
and which are contributed by non-Fed-
eral third parties without charge to the
grantee, or a cost-type contractor
under the grant agreement.

Unliquidated obligations for reports
prepared on a cash basis mean the
amount of obligations incurred by the
grantee that has not been paid. For re-
ports prepared on an accrued expendi-
ture basis, they represent the amount
of obligations incurred by the grantee
for which an outlay has not been re-
corded.

Unobligated balance means the por-
tion of the funds authorized by the
Federal agency that has not been obli-
gated by the grantee and is determined
by deducting the cumulative obliga-
tions from the cumulative funds au-
thorized.

§66.4 Applicability.

(a) General. Subparts A—D of this part
apply to all grants and subgrants to
governments, except where incon-
sistent with Federal statutes or with
regulations authorized in accordance
with the exception provision of §66.6,
or:

(1) Grants and subgrants to State and
local institutions of higher education
or State and local hospitals.

(2) The block grants authorized by
the Omnibus Budget Reconciliation
Act of 1981 (Community Services; Pre-
ventive Health and Health Services; Al-
cohol, Drug Abuse, and Mental Health
Services; Maternal and Child Health
Services; Social Services; Low-Income
Home Energy Assistance; States’ Pro-
gram of Community Development
Block Grants for Small Cities; and Ele-
mentary and Secondary Education

28 CFR Ch. | (7-1-10 Edition)

other than programs administered by
the Secretary of Education under title
V, subtitle D, chapter 2, Section 583—
the Secretary’s discretionary grant
program) and titles I-III of the Job
Training Partnership Act of 1982 and
under the Public Health Services Act
(section 1921), Alcohol and Drug Abuse
Treatment and Rehabilitation Block
Grant and part C of title V, Mental
Health Service for the Homeless Block
Grant).

(3) Entitlement grants to carry out
the following programs of the Social
Security Act:

(i) Aid to Needy Families with De-
pendent Children (title IV-A of the Act,
not including the Work Incentive Pro-
gram (WIN) authorized by section
402(a)19(G); HHS grants for WIN are
subject to this part);

(ii) Child Support Enforcement and
Establishment of Paternity (title IV-D
of the Act);

(iii) Foster Care and Adoption Assist-
ance (title IV-E of the Act);

(iv) Aid to the Aged, Blind, and Dis-
abled (titles I, X, XIV, and XVI-AABD
of the Act); and

(vy) Medical Assistance (Medicaid)
(title XIX of the Act) not including the
State Medicaid Fraud Control program
authorized by section 1903(a)(6)(B).

(4) Entitlement grants under the fol-
lowing programs of The National
School Lunch Act:

(i) School Lunch (section 4 of the
Act),

(ii) Commodity Assistance (section 6
of the Act),

(iii) Special Meal Assistance (section
11 of the Act),

(iv) Summer Food Service for Chil-
dren (section 18 of the Act), and

(v) Child Care Food Program (section
17 of the Act).

(5) Entitlement grants under the fol-
lowing programs of The Child Nutri-
tion Act of 1966:

(i) Special Milk (section 3 of the Act),
and

(ii) School Breakfast (section 4 of the
Act).

(6) Entitlement grants for State Ad-
ministrative expenses under The Food
Stamp Act of 1977 (section 16 of the
Act).

(7) A grant for an experimental, pilot,
or demonstration project that is also

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supported by a grant listed in para-
graph (a)(3) of this section;

(8) Grant funds awarded under sub-
section 412(e) of the Immigration and
Nationality Act (8 U.S.C. 1522(e)) and
subsection 501(a) of the Refugee Edu-
cation Assistance Act of 1980 (Pub. L.
96-422, 94 Stat. 1809), for cash assist-
ance, medical assistance, and supple-
mental security income benefits to ref-
ugees and entrants and the administra-
tive costs of providing the assistance
and benefits;

(9) Grants to local education agencies
under 20 U.S.C, 2386 through 241-1(a),
and 242 through 244 (portions of the Im-
pact Aid program), except for 20 U.S.C.
938(d)2)(c) and 240(f) (Entitlement In-
crease for Handicapped Children); and

(10) Payments under the Veterans
Administration’s State Home Per Diem
Program (38 U.S.C. 641(a)).

(b) Entitlement programs. Entitlement
programs enumerated above in §66.4(a)
(3) through (8) are subject to subpart E.

§66.5 Effect on other issuances.

All other grants administration pro-
visions of codified program regula-
tions, program manuals, handbooks
and other nonregulatory materials
which are inconsistent with this part
are superseded, except to the extent
they are required by statute, or au-
thorized in accordance with the excep-
tion provision in § 66.6.

§66.6 Additions and exceptions.

(a) For classes of grants and grantees
subject to this part, Federal agencies
may not impose additional administra-
tive requirements except in codified
regulations published in the FRDERAT,
REGISTER.

(b) Exceptions for classes of grants or
grantees may be authorized only by
OMB.

(c) Exceptions on a case-by-case basis
and for subgrantees may be authorized
by the affected Federal agencies.

Subpart B—Pre-Award
Requirements

§66.10 Forms for applying for grants.
(a) Scope. (1) This section prescribes
forms and instructions to be used by
governmental organizations (except
hospitals and institutions of higher

§66.11

education operated by a government)
in applying for grants. This section is
not applicable, however, to formula
grant programs which do not require
applicants to apply for funds on a
project basis.

(2) This section applies only to appli-
cations to Federal agencies for grants,
and is not required to be applied by
grantees in dealing with applicants for
subgrants. However, grantees are en-
couraged to avoid more detailed or bur-
densome application requirements for
subgrants.

(b) Authorized forms and instructions
for governmental organizations. (1) In ap-
plying for grants, applicants shall only
use standard application forms or those
prescribed by the granting agency with
the approval of OMB under the Paper-
work Reduction Act of 1980.

(2) Applicants are not required to
submit more than the original and two
copies of preapplications or applica-
tions,

(3) Applicants must follow all appli-
cable instructions that bear OMB
clearance numbers. Federal agencies
may specify and describe the programs,
functions, or activities that will be
used to plan, budget, and evaluate the
work under a grant. Other supple-
mentary instructions may be issued
only with the approval of OMB to the
extent required under the Paperwork
Reduction Act of 1980. For any stand-
ard form, except the SF-424 facesheet,
Federal agencies may shade out or in-
struct the applicant to disregard any
line item that is not needed.

(4) When a grantee applies for addi-
tional funding (such as a continuation
or supplemental award) or amends a
previously submitted application, only
the affected pages need be submitted.
Previously submitted pages with infor-
mation that is still current need not be
resubmitted.

$66.11 State plans.

(a) Scope. The statutes for some pro-
grams require States to submit plans
before receiving grants. Under regula-
tions implementing Executive Order
12372, ‘‘Intergovernmental Review of
Federal Programs," States are allowed
to simplify, consolidate and substitute
plans. This section contains additional
provisions for plans that are subject to

195

§ 66.12

regulations implementing the Execu-
tive Order.

(b) Requirements. A State need meet
only Federal administrative or pro-
grammatic requirements for a plan
that are in statutes or codified regula-
tions.

(c) Assurances. In each plan the State
will include an assurance that the
State shall comply with all applicable
Federal statutes and regulations in ef-
fect with respect to the periods for
which it receives grant funding. For
this assurance and other assurances re-
quired in the plan, the State may:

(1) Cite by number the statutory or
regulatory provisions requiring the as-
surances and affirm that it gives the
assurances required by those provi-
sions,

(2) Repeat the assurance language in
the statutes or regulations, or

(83) Develop its own language to the
extent permitted by law.

(a) Amendments. A State will amend a
plan whenever necessary to reflect: (1)
New or revised Federal statutes or reg-
ulations or (2) a material change in any
State law, organization, policy, or
State agency operation, The State will
obtain approval for the amendment and
its effective date but need submit for
approval only the amended portions of
the plan.

§66.12 Special grant or subgrant con-
ditions for “high-risk” grantees.

(a) A grantee or subgrantee may be
considered ‘thigh risk” if an awarding
agency determines that a grantee or
subgrantee:

(1) Has a history of unsatisfactory
performance, or

(2) Is not financially stable, or

(3) Has a management system which
does not meet the management stand-
ards set forth in this part, or

(4) Has not conformed to terms and
conditions of previous awards, or

(5) Is otherwise not responsible; and
if the awarding agency determines that
an award will be made, special condi-
tions and/or restrictions shall cor-
respond to the high risk condition and
shall be included in the award.

(b) Special conditions or restrictions
may include:

(1) Payment on a reimbursement
basis;

28 CFR Ch. | (7-1-10 Edition)

(2) Withholding authority to proceed
to the next phase until receipt of -evi-
dence of acceptable performance within
a given funding period;

(3) Requiring additional, more de-
tailed financial reports;

(4) Additional project monitoring;

(5) Requiring the grante or sub-
grantee to obtain technical or manage-
ment assistance; or

(6) Establishing additional prior ap-
provals.

(c) If an awarding agency decides to
impose such conditions, the awarding
official will notify the grantee or sub-
grantee as early as possible, in writing,
of:

(1) The nature of the special condi-
tions/restrictions;

(2) The reason(s) for imposing them;

(3) The corrective actions which must
be taken before they will be removed
and the time allowed for completing
the corrective actions and

(4) The method of requesting recon-
sideration of the conditions/restric-
tions imposed.

Subpart C—Post-Award
Requirements

FINANCIAL ADMINISTRATION

§66.20 Standards for financial man-
agement systems.

(a) A State must expand and account
for grant funds in accordance with
State laws and procedures for expend-
ing and accounting for its own funds.
Fiscal control and accounting proce-
dures of the State, as well as its sub-
grantees and cost-type contractors,
must be sufficient to—

(1) Permit preparation of reports re-
quired by this part and the statutes au-
thorizing the grant, and

(2) Permit the tracing of funds to a
level of expenditures adequate to es-
tablish that such funds have not been
used in violation of the restrictions
and prohibitions of applicable statutes.

(bo) The financial management sys-
tems of other grantees and subgrantees
must meet the following standards:

(1) Financial reporting. Accurate, cur-
rent, and complete disclosure of the fi-
nancial results of financially assisted
activities must be made in accordance

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with the financial reporting require-
ments of the grant or subgrant.

(2) Accounting records. Grantees and
subgrantees must maintain records
which adequately identify the source
and application of funds provided for fi-
nancially-assisted activities. These
records must contain information per-
taining to grant or subgrant awards
and authorizations, obligations, unobli-
gated balances, assets, liabilities, out-
lays or expenditures, and income.

(3) Internal control. Effective control
and accountability must be maintained
for all grant and subgrant cash, real
and personal property, and other as-
sets. Grantees and subgrantees must
adequately safeguard all such property
and must assure that it is used solely
for authorized purposes.

(4) Budget control. Actual expendi-
tures or outlays must be compared
with budgeted amounts for each grant
or subgrant. Financial information
must be related to performance or pro-
ductivity data, including the develop-
ment of unit cost information when-
ever appropriate or specifically re-
quired in the grant or subgrant agree-
ment. If unit cost data are required, es-
timates based on available documenta-
tion will be accepted whenever pos-
sible.

(5) Allowable cost. Applicable OMB
cost principles, agency program regula-
tions, and the terms of grant and
subgrant agreements will be followed
in determining the reasonableness, al-
lowability, and allocability of costs.

(6) Source documentation. Accounting
records must be supported by such
source documentation as cancelled
checks, paid bills, payrolls, time and
attendance records, contract and
subgrant award documents, etc.

(7) Cash management. Procedures for
minimizing the time elapsing between
the transfer of funds from the U.S.
Treasury and disbursement by grantees
and subgrantees must be followed
whenever advance payment procedures
are used. Grantees must establish rea-
sonable procedures to ensure the re-
ceipt of reports on subgrantees’ cash
balances and cash disbursements in
sufficient time to enable them to pre-
pare complete and accurate cash trans-
actions reports to the awarding agen-
cy. When advances are made by letter-

§ 66.21

of-credit or electronic transfer of funds
methods, the grantee must make
drawdowns as close as possible to the
time of making disbursements. Grant-
ees must monitor cash drawdowns by
their subgrantees to assure that they
conform substantially to the same
standards of timing and amount as
apply to advances to the grantees.

(c) An awarding agency may review
the adequacy of the financial manage-
ment system of any applicant for fi-
nancial assistance as part of a
preaward review or at any time subse-
quent to award.

§66.21 Payment.

(a) Scope. This section prescribes the
basic standard and the methods under
which a Federal agency will make pay-
ments to grantees, and grantees will
make payments to subgrantees and
contractors.

(b) Basic standard. Methods and pro-
cedures for payment shall minimize
the time elapsing between the transfer
of funds and disbursement by the
grantee or subgrantee, in accordance
with Treasury regulations at 31 CFR
part 205. ~

(c) Advances. Grantees and sub-
grantees shall be paid in advance, pro-
vided they maintain or demonstrate
the willingness and ability to maintain
procedures to minimize the time elaps-
ing between the transfer of the funds
and their disbursement by the grantee
or subgrantee.

(ad) Reimbursement. Reimbursement
shall be the preferred method when the
requirements in paragraph (c) of this
section are not met. Grantees and sub-
grantees may also be paid by reim-
bursement for any construction grant.
Except as otherwise specified in regula-
tion, Federal agencies shall not use the
percentage of completion method to
pay construction grants. The grantee
or subgrantee may use that method to
pay its construction contractor, and if
it does, the awarding agency’s pay-
ments to the grantee or subgrantee
will be based on the grantee’s or sub-
grantee’s actual rate of disbursement.

(e) Working capital advances. If a
grantee cannot meet the criteria for

197

§ 66.22

advance payments described in para-
graph (c) of this section, and the Fed-
eral agency has determined that reim-
pbursement is not feasible because the
grantee lacks sufficient working cap-
ital, the awarding agency may provide
cash or a working capital advance
basis. Under this procedure the award-
ing agency shall advance cash to the
grantee to cover its estimated dis-
pursement needs for an initial period
generally geared to the grantee’s dis-
bursing cycle. Thereafter, the awarding
agency shall reimburse the grantee for
its actual cash disbursements. The
working capital advance method of
payment shall not be used by grantees
or subgrantees if the reason for using
such method is the unwillingness or in-
ability of the grantee to provide timely
advances to the subgrantee to meet the
subgrantee’s actual cash disburse-
ments.

(f) Effect of program income, refunds,
and audit recoveries on payment. (1)
Grantees and subgrantees shall dis-
burse repayments to and interest
earned on a revolving fund before re-
questing additional cash payments for
the same activity.

(2) Except as provided in paragraph
(f)(1) of this section, grantees and sub-
grantees shall disburse program in-
come, rebates, refunds, contract settle-
ments, audit recoveries and interest
earned on such funds before requesting
additional cash payments.

(g) Withholding payments. (1) Unless
otherwise required by Federal] statute,
awarding agencies shall not withhold
payments for proper charges incurred
by grantees or subgrantees unless—

i) The grantee or subgrantee has
failed to comply with grant award con-
ditions or

(ii) The grantee or subgrantee is in-
debted to the United States.

(2) Cash withheld for failure to com-
ply with grant award condition, but
without suspension of the grant, shall
be released to the grantee upon subse-
quent compliance. When a grant is sus-
pended, payment adjustments will be
made in accordance with § 66.43(c).

(3) A Federal agency shall not make
payment to grantees for amounts that
are withheld by grantees or sub-
grantees from payment to contractors
to assure satisfactory completion of

28 CFR Ch. | (7-1-10 Edition)

work. Payments shall be made by the
Federal agency when the grantees or
subgrantees actually disburse the with-
held funds to the contractors or to es-
crow accounts established to assure
satisfactory completion of work.

(h) Cash depositories. (1) Consistent
with the national goal of expanding the
opportunities for minority business en-
terprises, grantees and subgrantees are
encouraged to use minority banks (a
bank which is owned at least 50 percent
by minority group members). A list of
minority owned banks can be obtained
from the Minority Business Develop-
ment Agency, Department of Com-
merce, Washington, DC 202380.

(2) A grantee or subgrantee shall
maintain a separate bank account only
when required by Federal-State agree-
ment.

(1) Interest earned on advances. Except
for interest earned on advances of
funds exempt under the Intergovern-
mental Cooperation Act (31 U.S.C. 6501
et seq.) and the Indian Self-Determina-
tion Act (23 U.S.C. 450), grantees and
subgrantees shall promptly, but at
least quarterly, remit interest earned
on advances to the Federal agency. The
grantee or subgrantee may keep inter-
est amounts up to $100 per year for ad-
ministrative expenses.

§66.22 Allowable costs.

(a) Limitation on use of funds. Grant
funds may be used only for:

(1) The allowable costs of the grant-
ees, subgrantees and cost-type contrac-
tors, including allowable costs in the
form of payments to fixed-price con-
tractors; and

(2) Reasonable fees or profit to cost-
type contractors but not any fee or
profit (or other increment above allow-
able costs) to the grantee or sub-
grantee.

(b) Applicable cost principles. For each
kind of organization, there is a set of
Federal principles for determining al-
lowable costs. Allowable costs will be
determined in accordance with the cost
principles applicable to the organiza-
tion incurring the costs. The following
chart lists the kinds of organizations
and the applicable cost principles.

198

Department of Justice

For the costs of a—

Use the principles in—

State, local or Indian tribal
government.

Private nonprofit organization
ather than an (1) institution
of higher education, (2)
hospital, or (3) organization
named in OMB Circular A—
122 as not subject to that
circular.

Educational institutions. .........

For-prafit arganization other
than a hospital and an or-
ganization named in OBM
Circular A-122 as not sub-
ject to that circular.

OMB Circular A-87.

OBM Circular A-122.

OMB Circular A-21.

48 CFR part 31. Contract
Cost Principles and Proce-
dures, of uniform cost ac-
counting standards that
comply with cast principles

acceptable to the Federal
agency.

§66.23 Period of availability of funds.

(a) General. Where a funding period is
specified, a grantee may charge to the
award only costs resulting from obliga-
tions of the funding period unless car-
ryover of unobligated balances is per-
mitted, in which case the carryover
balances may be charged for costs re-
sulting from obligations of the subse-
quent funding period.

(b) Liguidation of obligations. A grant-
ee must liquidate all obligations in-
curred under the award not later than
90 days after the end of the funding pe-
riod (or as specified in a program regu-
lation) to coincide with the submission
of the annual Financial Status Report
(SF-269). The Federal agency may ex-
tend this deadline at the request of the
grantee.

§66.24 Matching or cost sharing.

(a) Basic rule: Costs and contributions
acceptable. With the qualifications and
exceptions listed in paragraph (b) of
this section, a matching or cost shar-
ing requirement may be satisfied by ei-
ther or both of the following:

(1) Allowable costs incurred by the
grantee, subgrantee or a cost-type con-
tractor under the assistance agree-
ment. This includes allowable costs
porne by non-Federal grants or by oth-
ers cash donations from non-Federal
third parties.

(2) The value of third party in-kind
contributions applicable to the period
to which the cost sharing or matching
requirements applies.

(b) Qualifications and exceptions—(1)
Costs borne by other Federal grant agree-
ments. Except as provided by Federal

§ 66.24

statute, a cost sharing or matching re-
quirement may not be met by costs
borne by another Federal grant. This
prohibition does not apply to income
earned by a grantee or subgrantee from
a contract awarded under another Fed-
eral grant.

(2) General revenue sharing. For the
purpose of this section, general revenue
sharing funds distributed under 31
U.S.C. 6702 are not considered Federal
grant funds.

(3) Cost or contributions counted to-
wards other Federal costs-sharing require-
menis. Neither costs nor the values of
third party in-kind contributions may
count towards satisfying a cost sharing
or matching requirement of a grant
agreement if they have been or will be
counted towards satisfying a cost shar-
ing or matching requirement of an-
other Federal grant agreement, a Fed-
eral procurement contract, or any
other award of Federal funds.

(4) Costs financed by program income.
Costs financed by program income, as
defined in §66.25, shall not count to-
wards satisfying a cost sharing or
matching requirement unless they are
expressly permitted in the terms of the
assistance agreement. (This use of gen-
eral program income is described in
§ 66.25(g).)

(5) Services or property financed by in-
come earned by contractors. Contractors
under a grant may earn income from
the activities carried out under the
contract in addition to the amounts
earned from the party awarding the
contract. No costs of services or prop-
erty supported by this income may
count toward satisfying a cost sharing
or matching requirement unless other
provisions of the grant agreement ex-
pressly permit this kind of income to
be used to meet the requirement.

(6) Records. Costs and third party in-
kind contributions counting towards
satisfying a cost sharing or matching
requirement must be verifiable from
the records of grantees and subgrantee
or cost-type contractors. These records
must show how the value placed on
third party in-kind contributions was
derived. To the extent feasible, volun-
teer services will be supported by the
same methods that the organization
uses to support the allocability of reg-
ular personnel costs.

199

§ 66.24

(1) Special standards for third party in-
kind contributions. (i) Third party in-
kind contributions count towards sat-
isfying a cost sharing or matching re-
quirement only where, if the party re-
ceiving the contributions were to pay
for them, the payments would be allow-
able costs.

(ii) Some third party in-kind con-
tributions are goods and services that,
if the grantee, subgrantee, or con-
tractor receiving the contribution had
to pay for them, the payments would
have been an indirect costs. Costs shar-
ing or matching credit for such con-
tributions shall be given only if the
grantee, subgrantee, or contractor has
established, along with its regular indi-
rect cost rate, a special rate for allo-
cating to individual projects or pro-
grams the value of the contributions.

(iii) A third party in-kind contribu-
tion to a fixed-price contract may
count towards satisfying a cost sharing
or matching requirement only if it re-
sults in:

(A) An increase in the services or
property provided under the contract
(without additional cost to the grantee
or subgrantee) or

(B) A cost savings to the grantee or
subgrantee.

(iv) The values placed on third party
in-kind contributions for cost sharing
or matching purposes will conform to
the rules in the succeeding sections of
this part. If a third party in-kind con-
tribution is a type not treated in those
sections, the value placed upon it shall
be fair and reasonable.

(c) Valuation of donated services—(1)
Volunteer services. Unpaid services pro-
vided to a grantee or subgrantee by in-
dividuals will be valued at rates con-
sistent with those ordinarily paid for
similar work in the grantee’s or sub-
grantee’s organization. If the grantee
or subgrantee does not have employees
performing similar work, the rates will
be consistent with those ordinarily
paid by other employers for similar
work in the same labor market. In ei-
ther case, a reasonable amount for
fringe benefits may be included in the
valuation.

(2) Employees of other organizations.
When an employer other than a grant-
ee. subgrantee, or cost-type contractor
furnishes free of charge the services of

28 CFR Ch. | (7-1-10 Edition)

an employee in the employee’s normal
line of work, the services will be valued
at the employee's regular rate of pay
exclusive of the employee’s fringe ben-
efits and overhead costs. If the services
are in a different line of work, para-
graph (c)(1) of this section applies.

(d) Valuation of third party donated
supplies and loaned equipment or space.
(1) If a third party donates supplies,
the contribution will be valued at the
market value of the supplies at the
time of donation.

(2) If a third party donates the use of
equipment or space in a building but
retains title, the contribution will be
valued at the fair rental rate of the
equipment or space.

(e) Valuation of third party donated
equipment, buildings, and land. If a third
party donates equipment, buildings, or
land, and title passes to a grantee or
subgrantee, the treatment of the do-
nated property will depend upon the
purpose of the grant or subgrant, as
follows:

(1) Awards for capital expenditures. If
the purpose of the grant or subgrant is
to assist the grantee or subgrantee in
the acquisition of property, the market
value of that property at the time of
donation may be counted as cost shar-
ing or matching,

(2) Other awards. If assisting in the
acquisition of property is not the pur-
pose of the grant or subgrant, para-
graphs (e)(2) (i) and (ii) of this section
apply:

(i) If approval is obtained from the
awarding agency, the market value at
the time of donation of the donated
equipment or buildings and the fair
rental rate of the donated land may be
counted as cost sharing or matching.
In the case of a subgrant, the terms of
the grant agreement may require that
the approval be obtained from the Fed-
eral agency as well as the grantee. In
all cases, the approval may be given
only if a purchase of the equipment or
rental of the land would be approved as
an allowable direct cost. If any part of
the donated property was acquired
with Federal funds, only the non-fed-
eral share of the property may be
counted as cost-sharing or matching.

(ii) If approval is not obtained under
paragraph (e)(2)(i) of this section, no
amount may be counted for donated

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land, and only depreciation or use al-
lowances may be counted for donated
equipment and buildings. The deprecia-
tion or use allowanves for this property
are not treated as third party in-kind
contributions, Instead, they are treat-
ed as costs incurred by the grantee or
subgrantee. They are computed and al-
located (usually as indirect costs) in
accordance with the cost principles
specified in §66.22, in the same way as
depreciation or use allowances for pur-
chased equipment and buildings. The
amount of depreciation or use allow-
ances for donated equipment and build-
ings is based on the property’s market
value at the time it was donated.

(f) Valuation of grantee or subgrantee
donated real property for construction/ac-
quisition. If a grantee or subgrantee do-
nates real property for a construction
or facilities acquisition project, the
current market value of that property
may be counted as cost sharing or
matching. If any part of the donated
property was acquired with Federal
funds, only the non-federal share of the
property may be counted as cost shar-
ing or matching.

(¢) Appraisal af real properly. In some
cases under paragraphs (d), (e) and (f)
of this section, it will be necessary to
establish the market value of land or a
building or the fair rental rate of land
or of space in a building. In these cases,
the Federal agency may require the
market value or fair rental value be set
by an independent appraiser, and that
the value or rate be certified by the
grantee. This requirement will also be
imposed by the grantee on subgrantees.

$66.25 Program income.

(a) General. Grantees are encouraged
to earn income to defray program
costs. Program income includes income
from fees for services performed, from
the use or rental of real or personal
property acquired with grant funds,
from the sale of commodities or items
fabricated under a grant agreement,
and from payments of principal and in-
terest on loans made with grant funds.
Except as otherwise provided in regula-
tions of the Federal agency, program
income does not include interest on
grant funds, rebates, credits, discounts,
refunds, etc. and interest earned on
any of them.

§ 66.25

(b) Definition of program income. Pro-
gram income means gross income re-
ceived by the grantee or subgrantee di-
rectly generated by a grant supported
activity, or earned only as a result of
the grant agreement during the grant
period. “During the grant period’’ is
the time between the effective date of
the award and the ending date of the
award reflected in the final financial
report.

(c) Cost of generating program income.
If authorized by Federal regulations or
the grant agreement, costs incident to
the generation of program income may
be deducted from gross income to de-
termine program income.

(a) Governmental revenues. Taxes, spe-
cial assessments, levies, fines, and
other such revenues raised by a grantee
or subgrantee are not program income
unless the revenues are specifically
identified in the grant agreement or
Federal agency regulations as program
income.

(e) Royalties. Income from royalties
and license fees for copyrighted mate-
rial, patents, and inventions developed
by a grantee or subgrantee is program
income only if the revenues are specifi-
cally identified in the grant agreement
or Federal agency regulations as pro-
gram income. (See §66.34.)

(f) Property. Proceeds from the sale of
real property or equipment will be han-
dled in accordance with the require-
ments of §§ 66.31 and 66.32.

(g) Use of program income. Program
income shall be deducted from outlays
which may be both Federal and non-
Federal as described below, unless the
Federal agency regulations or the
grant agreement specify another alter-
native (or a combination of the alter-
natives). In specifying alternatives, the
Federal agency may distinguish be-
tween income earned by the grantee
and income earned by subgrantees and
between the sources, kinds, or amounts
of income. When Federal agencies au-
thorize the alternatives in paragraphs
(g) (2) and (8) of this section, program
income in excess of any limits stipu-
lated shall also be deducted from out-
lays.

(1) Deduction. Ordinarily program in-
come shall be deducted from total al-
lowable costs to determine the net al-
lowable costs. Program income shall be

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§ 66.26

used for current costs unless the Fed-
eral agency authorizes otherwise. Pro-
gram income which the grantee did not
anticipate at the time of the award
shall be used to reduce the Federal
agency and grantee contributions rath-
er than to increase the funds com-
mitted to the project.

(2) Addition. When authorized, pro-
gram income may be added to the
funds committed to the grant agree-
ment by the Federal agency and the
grantee. The program income shall be
used for the purposes and under the
conditions of the grant agreement.

(3) Cost sharing or matching. When au-
thorized, program income may be used
to meet the cost sharing or matching
requirement of the grant agreement.
The amount of the Federal grant award
remains the same.

(a) Income after the award period.
There are no Federal requirements gov-
erning the disposition of program in-
come earned after the end of the award
period (i.e., until the ending date of the
final financial report, see paragraph (a)
of this section), unless the terms of the
agreement or the Federal agency regu-
lations provide otherwise.

§66.26 Non-Federal audit.

(a) Basic rule. Grantees and sub-
grantees are responsible for obtaining
audits in accordance with the Single
Audit Act Amendments of 1996 (31
U.S.C. 7501-7507) and revised OMB Cir-
cular A-133, ‘Audits of States, Local
Governments, and Non-Profit Organi-
zations.”? The audits shall be made by
an independent auditor in accordance
with generally accepted government
auditing standards covering financial
audits.

(b) Subgrantees. State or local govern-
ments, as those terms are defined for
purposes of the Single Audit Act
Amendments of 1996, that provide Fed-
eral awards to a subgrantee, which ex-
pends $300,000 or more (or other
amount as specified by OMB) in Fed-
eral awards in a fiscal year, shall:

(1) Determine whether State or local
subgrantees have met the audit re-
quirements of the Act and whether sub-
grantees covered by OMB Circular A-
110, ‘Uniform Administrative Require-
ments for Grants and Agreements with
Institutions of Higher Education, Hos-

28 CFR Ch. | (7-1-10 Edition)

pitals, and Other Non-Profit Organiza-
tions,” have met the audit require-
ments of the Act. Commercial contrac-
tors (private for-profit and private and
governmental organizations) providing
goods and services to State and local
governments are not required to have a
single audit performed. State and local
governments should use their own pro-
cedures to ensure that the contractor
has complied with laws and regulations
affecting the expenditure of Federal
funds;

(2) Determine whether the sub-
grantee spent Federal assistance funds
provided in accordance with applicable
laws and regulations. This may be ac-
complished by reviewing an audit of
the subgrantee made in accordance
with the Act, Circular A-110, or
through other means (e.g., program re-
views) if the subgrantee has not had
such an audit;

(3) Ensure that appropriate correc-
tive action is taken within six months
after receipt of the audit report in in-
stance of noncompliance with Federal
laws and regulations;

(4) Consider whether subgrantee au-
dits necessitate adjustment of the
grantee’s own records; and

(5) Require each subgrantee to permit
independent auditors to have access to
the records and financial statements.

(c) Auditor selection. In arranging for
audit services, §66.36 shall be followed.

(Order No. 1252-88, 53 FR 8068 and 8087, Mar.
11, 1988, as amended at 62 FR 45939 and 45942,
Aug. 29, 1997]

CHANGES, PROPERTY, AND SUBAWARDS

$66.30 Changes.

(a) General. Grantees and subgrantees
are permitted to rebudget within the
approved direct cost budget to meet
unanticipated requirements and may
make limited program changes to the
approved project. However, unless
waived by the awarding agency, certain
types of post-award changes in budgets
and projects shall require the prior
written approval of the awarding agen-
cy.

(b) Relation to cost principles. The ap-
plicable cost principles (see § 66.22) con-
tain requirements for prior approval of
certain types of costs. Except where
waived, those requirements apply to all

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grants and subgrants even if para-
graphs (c) through (f) of this section do
not.

(c) Budget changes—(1) Nonconstruc-
tion projects. Except as stated in other
regulations or an award document,
grantees or subgrantees shall obtain
the prior approval of the awarding
agency whenever any of the following
changes is anticipated under a non-
construction award:

di) Any revision which would result
in the need for additional funding.

(ii) Unless waived by the awarding
agency, cumulative transfers among di-
rect cost categories, or, if applicable,
among separately budgeted programs,
projects, functions, or activities which
exceed or are expected to exceed ten
percent of the current total approved
budget, whenever the awarding agen-
cy’s share exceeds $100,000.

(iii) Transfer of funds allotted for
training allowances (i.e., from direct
payments to trainees to other expense
categories).

(2) Construction projects. Grantees and
subgrantees shall obtain prior written
approval for any budget revision which
would result in the need for additional
funds.

(3) Combined construction and non-
construction projects. When a grant or
subgrant provides funding for both con-
struction and nonconstruction activi-
ties, the grantee or subgrantee must
obtain prior written approval from the
awarding agency before making any
fund or budget transfer from non-
construction to construction or vice
versa,

(d) Programmatic changes. Grantees or
subgrantees must obtain the prior ap-
proval of the awarding agency when-
ever any of the following actions is an-
ticipated:

(1) Any revision of the scope or objec-
tives of the project (regardless of
whether there is an associated budget
revision requiring prior approval).

(2) Need to extend the period of avail-
ability of funds.

(8) Changes in key persons in cases
where specified in an application or a
erant award. In research projects, a
change in the project director or prin-
cipal investigator shall always require
approval unless waived by the award-
ing agency.

§ 66.31

(4) Under nonconstruction projects,
contracting out, subgranting (if au-
thorized by law) or otherwise obtaining
the services of a third party to perform
activities which are central to the pur-
poses of the award. This approval re-
quirement is in addition to the ap-
proval requirements of §66.36 but does
not apply to the procurement of equip-
ment, supplies, and general support
services.

(e) Additional prior approval require-
ments. The awarding agency may not
require prior approval for any budget
revision which is not described in para-
graph (c) of this section.

(f) Requesting prior approval. (1) A re-
quest for prior approval of any budget
revision will be in the same budget for-
mal the grantee used in its application
and shall be accompanied by a nar-
rative justification for the proposed re-
vision.

(2) A request for a prior approval
under the applicable Federal cost prin-
ciples (see §66.22) may be made by let-
ter.

(3) A request by a subgrantee for
prior approval will be addressed in
writing to the grantee. The grantee
will promptly review such request and
shall approve or disapprove the request
in writing. A grantee will not approve
any budget or project revision which is
inconsistent with the purpose or terms
and conditions of the Federal grant to
the grantee. If the revision, requested
by the subgrantee would result in a
change to the grantee’s approved
project which requires Federal prior
approval, the grantee will obtain the
Federal agency’s approval before ap-
proving the subgrantee’s request.

§66.31 Real property.

(a) Title. Subject to the obligations
and conditions set forth in this section,
title to real property acquired under a
grant or subgrant will vest upon acqui-
sition in the grantee or subgrantee re-
spectively.

(b) Use. Except as otherwise provided
by Federal statutes, real property will
be used for the originally authorized
purposes as long as needed for that pur-
poses, and the grantee or subgrantee
shall not dispose of or encumber its
title or other interests.

203