Grant Writing Grant Budget Formulation 3 — Questions and Answers
Question 1: What is a 'budget justification' (also called budget narrative)?
- A summary of prior grant spending
- A written explanation of how each budget line item was calculated and why it is necessary (Correct answer)
- A list of matching fund sources
- The funder's internal cost analysis
Correct answer: A written explanation of how each budget line item was calculated and why it is necessary
The budget justification provides reviewers with a clear rationale and calculation methodology for every cost in the proposed budget.
Question 2: Under 2 CFR 200, which of the following is NOT one of the tests a cost must pass to be allowable?
- Allocable to the award
- Reasonable in nature
- Authorized by state legislation (Correct answer)
- Consistently treated per accounting standards
Correct answer: Authorized by state legislation
The Uniform Guidance requires costs to be allowable, allocable, reasonable, and consistently treated — authorization by state law is not one of the federal tests.
Question 3: A 'de minimis' indirect cost rate under 2 CFR 200 is set at:
- 5% of total direct costs
- 10% of Modified Total Direct Costs (MTDC) (Correct answer)
- 15% of personnel costs only
- 20% of total project costs
Correct answer: 10% of Modified Total Direct Costs (MTDC)
Organizations without a negotiated indirect cost rate may elect to use the de minimis rate of 10% of MTDC as allowed under 2 CFR 200.414(f).
Question 4: Which of the following costs is EXCLUDED from the Modified Total Direct Costs (MTDC) base?
- Salaries and wages
- Materials and supplies under $5,000
- Equipment costing over the capitalization threshold (Correct answer)
- Fringe benefits
Correct answer: Equipment costing over the capitalization threshold
MTDC excludes capital expenditures (equipment), patient care costs, rent, tuition, and subaward costs over $25,000 per 2 CFR 200.1.
Question 5: When a grantee needs to shift funds between budget categories, they typically must:
- Notify the IRS
- Obtain written prior approval from the funder if the reallocation exceeds threshold limits (Correct answer)
- Simply update the internal ledger with no notice required
- Return the funds and reapply
Correct answer: Obtain written prior approval from the funder if the reallocation exceeds threshold limits
Many funders require prior written approval for budget modifications above a certain percentage or dollar threshold to ensure the change aligns with program objectives.
Question 6: What is the purpose of including a 'contingency' line in some grant budgets?
- To hide unallowable costs from auditors
- To cover unforeseen allowable expenses within the project scope (Correct answer)
- To automatically increase the award amount
- To fund administrative bonuses
Correct answer: To cover unforeseen allowable expenses within the project scope
A contingency reserve covers legitimate unexpected costs; however, many federal funders restrict or prohibit contingency lines, so grantees must check guidelines.
Question 7: In grant budgeting, 'fringe benefits' typically include which of the following?
- Travel reimbursements and per diem
- Health insurance, retirement contributions, and payroll taxes (Correct answer)
- Office supply costs allocated to staff
- Training and professional development fees
Correct answer: Health insurance, retirement contributions, and payroll taxes
Fringe benefits are employer-paid costs on top of salary, such as FICA, health insurance, workers' compensation, and retirement plan contributions.
Grant Writing Grant Budget Formulation 3
What is a 'budget justification' (also called budget narrative)?