2 minute read 11 Nov 2021
Blue thread in loom

COVID-19: establishing cost reasonableness for FEMA

Authors
Allen Melton

EY Americas Forensic & Integrity Services Government & Public Sector Leader

Helping clients recover financially after disasters. Extensive experience with commercial insurance claims and federal disaster grants.

Bradley (BJ) Nichols

EY Americas Insurance & Federal Claims Services Leader

Helping clients recover financially after disasters through commercial insurance claims and federal disaster grants as a partner in the Insurance & Federal Claims Services practice.

2 minute read 11 Nov 2021

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Part 4 of 6 in a series that focuses on lessons learned and leading practices in COVID-19 disaster cost recovery. 

As discussed in parts 1, 2 and 3, there are many areas to the COVID-19 disaster recovery to be addressed. For COVID-19 costs to be considered eligible for reimbursement by FEMA, the costs must be necessary to respond to the COVID-19 pandemic and considered reasonable. A cost is reasonable if “in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost. The question of reasonableness is particularly important when the non-Federal entity is predominantly federally-funded” (2 CFR 200.404).

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Following these leading practices can greatly support a disaster response by helping reduce the potential for costs being considered unreasonable and ineligible for reimbursement by FEMA. 

A leading practice is to establish and document cost reasonableness for all procurements where federal funds may be anticipated. Not retaining all necessary documentation to prove cost reasonableness could lead to deobligation of federal funds.

A leading practice is to establish and document cost reasonableness for all procurements where federal funds may be anticipated
Christopher Terry
Senior Manager, Forensic & Integrity Services, Ernst & Young LLP

Summary

Establishing costs reasonableness can reduce the potential for costs being considered ineligible for reimbursement by FEMA. It is a leading practice to create a cost estimate prior to soliciting work, then analyze and document cost reasonableness before executing a contract for all procurements. The analysis of cost reasonableness should consider all relevant factors that impact that specific contract. 

About this article

Authors
Allen Melton

EY Americas Forensic & Integrity Services Government & Public Sector Leader

Helping clients recover financially after disasters. Extensive experience with commercial insurance claims and federal disaster grants.

Bradley (BJ) Nichols

EY Americas Insurance & Federal Claims Services Leader

Helping clients recover financially after disasters through commercial insurance claims and federal disaster grants as a partner in the Insurance & Federal Claims Services practice.

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