(1) As used in this section: (a) "Allocable cost" means a cost for goods or services that are chargeable or assignable to a state award or cost objective in accordance with relative benefits an LEA receives. (b) "Reasonable cost" means a cost that, in nature and amount, does not exceed an amount that a prudent person would incur under the circumstances prevailing at the time the decision was made to incur the cost. (c) "State award" means: (i) money that the Legislature appropriates to state education programs for an LEA's use; or (ii) a grant that the state board awards to an LEA as part of a state education program. (2) Except as otherwise provided in this public education code, the state board shall monitor state- funded education programs and the expenditure of state funds in accordance with this section. (3) Except as otherwise authorized by statute, the state board shall not allow a cost under state awards, unless: (a) the cost is necessary and reasonable for, and allocable to, the performance of the state award; (b) the cost conforms to any limitations or exclusions that apply uniformly to the LEA's other activities; (c) the LEA accorded the cost consistent treatment among programs; (d) the LEA determined the cost in accordance with generally accepted accounting principles; (e) the LEA adequately documented the cost; and (f) the LEA incurred the cost during the approved budget period. (4) In determining whether a cost is a reasonable cost, the state board shall consider: (a) whether the cost is of a type generally recognized as ordinary for: (i) the operation of the LEA; or (ii) the proper and efficient performance of the state award; (b) the restraints or requirements imposed by: (i) sound business practices; (ii) arm's length bargaining; (iii) federal, state, local, tribal, or other laws and regulations; and (iv) the state award's restrictions and conditions; (c) market prices for comparable goods or services in the geographic area; (d) whether an individual involved in a decision to incur the cost acted with prudence in the circumstances considering the individual's responsibilities to: (i) the LEA; (ii) the LEA's employees; (iii) the LEA's students; (iv) the public; and (v) the state government; and (e) whether the LEA significantly deviated from the LEA's established practices and policies concerning incurring costs so that the costs the LEA incurs for the performance of the state award are unjustifiably increased. (5) The state board shall determine that a cost is an allocable cost if: (a) the LEA incurred the cost specifically for the state award; (b) the cost: (i) benefits both the state award and the LEA's other work; and (ii) can be distributed in proportions that may be approximated using reasonable methods; and (c) the cost is necessary to the overall operation of the LEA and is assignable in part to the state award.
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