Certified Government Financial Manager (CGFM) Practice Exam

The correct response identifies that costs associated with grants must adhere to the principles of reasonableness and necessity, rather than being constrained to the lowest available option in every case. While it is important for organizations to pursue efficient and economical uses of funds, allowable costs should be determined based on what is necessary for the completion of the grant’s objectives and what is reasonable in relation to the competitive market, rather than simply selecting the cheapest option.

Allowable costs are subject to several standards, including being necessary for project performance, aligning with grant policies, and having proper documentation. However, stipulating that costs must always be the lowest option does not reflect the standards imposed on grant budgeting and management, which emphasize the need to justify expenditures in terms of quality and effectiveness, rather than just cost. Therefore, while maximizing the value for money is encouraged, it is not a definitive criterion for allowable costs under grants.