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Federal Compliance Requirements, Part VIII – Matching, Level of Effort, and Earmarking

2015 Traci HansonAs described in our previous articles, 14 different compliance requirements could have a direct and material effect on federal grants received by governmental or nonprofit organizations.  One of the 14 compliance requirements includes 3 separate and unique requirements: matching, level of effort, and earmarking.   These may require that recipients provide a level of contribution to a Federal program, maintain specific levels of performance or achievement, or restrict the amount of Federal funds used for a specific purpose.  Failure to meet these requirements may result in either limitation or termination of future funds. The specific requirements for matching, level of effort, and earmarking are unique to each Federal program and are found in the laws, regulations, and the provisions of contract or grant agreements pertaining to the program.


Matching or cost sharing includes requirements to provide contributions (usually non-Federal) of a specified amount or percentage to match Federal awards.  When an organization receives Federal grants, an operating budget for the federally funded program or project is prepared.  The Federal government may require the recipient to provide contributions to cover a portion of that program’s operations.  The matching requirement is based on the assertion that total program expenses are 100 percent and that, although the Federal government provides assistance for most program expenses, the recipient must still cover a portion of them.  Such proportion is solely decided by the Federal government.  Usually the recipient decides how that contribution is provided and for which expenses, so long as the contribution is verifiable, generally does not originate from another Federal program, and is considered in the operating budget.  The expenses must be necessary and reasonable, allowed under cost principles (see Part I of the Federal Grant Requirement Series), and not used for another Federal program.

The A-102 Common Rule and OMB Circular A-110 (2 CFR section 215.23) provide detailed criteria for acceptable costs and contributions. The following is a list of the basic criteria for acceptable matching:

  • Are verifiable from the non-Federal entity’s records.
  • Are not included as contributions for any other federally assisted project or program, unless specifically allowed by Federal program laws and regulations.
  • Are necessary and reasonable for proper and efficient accomplishment of project or program objectives.
  • Are allowed under the applicable cost principles.
  • Are not paid by the Federal Government under another award, except where authorized by Federal statute to be allowable for cost sharing or matching.
  • Are provided for in the approved budget when required by the Federal awarding agency.
  • Conform to other applicable provisions of the A-102 Common Rule and OMB Circular A-110 and the laws, regulations, and provisions of contract or grant agreements applicable to the program.

Matching may be in the form of contributing the recipient’s own funds for allowable program costs (e.g., paying program utility bills, paying part of program personnel payroll, etc.) or, in some cases, in the form of an in-kind contribution, which are donations of non-monetary objects such as services, materials, property, etc.

Examples of matching include the Head Start program, which requires that recipients provide 20 percent of the total annual expenses in either monetary or in-kind contributions. Recipients of these funds may contribute money to cover teacher payroll, or may contribute a building to house the program classrooms. However, the Federal government requires that in-kind contributions be properly valued and evidenced (such as estimating the value of a building to make sure that it meets 20 percent of the program budget), and certain programs specifically require that matching be made by contributing money only.

As previously mentioned, the match may be a percentage of the total project costs.  If an organization applies for a $100,000 grant that requires a 20 percent match, the match is not $20,000.  To determine match, the requested federal amount is divided by the percentage that is the federal share of the project to arrive at the total project costs. Thus, in this example the organization’s required match would be $25,000 ($100,000 divided by .80 = $125,000).

Level of Effort

Level of effort defines particular goals or objectives the recipient must achieve with the assistance received.  Level of effort may include requirements for (a) a specified level of service to be provided from period to period, (b) a specified level of expenditures from non-Federal or Federal sources for specified activities to be maintained from period to period, and (c) Federal funds to supplement and not supplant (replace) non-Federal funding of services.

Some examples are programs that establish that a recipient must provide medical services to 1,000 patients daily and programs that require that recipients spend over 50 percent of the annual budget on capital projects.

One of the more common level of effort requirements is a part of certain Department of Education grants.  A school district must maintain a combined fiscal effort per student or the aggregate expenditures of the school district from State and local funds (non-federal) for free public education for the preceding year cannot be less than 90 percent of the combined fiscal effort or aggregate expenditures for the second preceding year.  The granting information defines “combined fiscal effort” and identifies what is included and excluded from “aggregate expenditures.”


Earmarking is a requirement that specifies a limited amount or percentage of the program’s assistance that must (minimum) or may (maximum) be used for specified activities.  Examples of this include limits imposed by the Federal government on the amount of Federal funds to cover administrative expenses, or a percentage requirement for total program funds provided to subrecipients.  Earmarking may also be specified in relation to the types of participants covered (e.g. a limit on how many participants a recipient can provide assistance to).

Matching, level of effort, and earmarking are inter-related with other federal grant compliance requirements such as Activities Allowed/Allowable Costs, Reporting, and Subrecipient Monitoring.  Each of these compliance requirements is described in more detail within other parts of our series on Grant Compliance.  The grant recipient should be cognizant of reviewing the grant award along with the OMB Circular A-133 compliance supplement to ensure they are meeting the appropriate requirements.

See our previous newsletters and upcoming newsletter articles providing specific details on each of the 14 compliance requirements. Please contact Traci Hanson, Shelley Goodrich, or Sandra Weaver with specific questions.

Traci Hanson

Traci Hanson

CPA, Partner at Ketel Thorstenson, LLP
In June 2001, Traci joined the audit team at Ketel Thorstenson, LLP. With an astute and analytical skill-set, she specializes in audits for non-profit organizations, commercial businesses, rural electric cooperatives, federal grants, and governmental entities.
Traci Hanson