Financial Management
The Financial Management domain tests whether sponsored funds are accurate, allowable, allocable, and auditable. Expect questions on cost principles, direct and indirect costs, effort, cost transfers, drawdowns, program income, cost sharing, invoicing, reconciliation, and audit readiness.
Core rules and concepts
- Apply the cost principles in 2 CFR 200.403: a cost must be necessary and reasonable, conform to limitations, be treated consistently, follow GAAP, not be charged to another award, be net of applicable credits, and be adequately documented. It must also be allocable under 200.405.
- Direct costs can be identified specifically with a project (200.413). Indirect costs are incurred for common objectives and cannot be readily assigned (200.414). Use the negotiated rate or the sponsor's cap.
- Document transactions. Keep receipts, contracts, quotes, sole-source justification, and approvals. A budget line does not by itself make a cost allowable.
- Process cost transfers promptly and with an explanation. A transfer made only to eliminate an overdraft is a red flag.
- Draw down only actual allowable costs. Avoid drawing ahead of need; reconcile the general ledger to sponsor invoices or drawdowns.
- Apply program income under 200.307. Unless the sponsor authorizes another method, use the addition method.
- Track cost sharing. Mandatory and voluntary committed cost sharing must be documented and reported; voluntary uncommitted cost sharing need not be.
- Prepare for audit. The Single Audit threshold is $1,000,000 for fiscal years beginning on or after October 1, 2024, under 2 CFR 200 Subpart F.
Worked example
A department charges a $12,000 laptop to a grant because the PI says it will be used 60% on the project. Reasoning: the equipment threshold is $10,000, but threshold alone does not answer allowability. The cost must be allocable. If the laptop is used 60% on the project and 40% elsewhere, charge only the documented allocable share, with a written allocation basis. A general-purpose computer may also require justification or prior approval. Charging the full amount because the PI will use it mostly on the project is not sufficient.
Traps that cost marks
- Charging the full cost of a shared item without an allocation method.
- Using budget estimates as if they were actual charges.
- Ignoring program income or cost-sharing documentation.
- Making late cost transfers without explanation.