A questioned cost is an expenditure flagged during a single audit as potentially unallowable, unsupported, or unreasonable under 2 CFR 200.516. It is not automatically a disallowed cost — the federal awarding agency makes that determination after reviewing the audit finding and the organization’s response.

How it works

When an auditor conducting a single audit reviews expenditures charged to a federal program, they apply tests based on federal statutes, regulations, and the specific terms and conditions of each award. Any expenditure that appears to fail those tests is flagged as a questioned cost. The auditor categorizes each questioned cost into one of three types:

Unallowable — the cost violates a specific prohibition in statute, regulation, or award terms. Examples include alcohol, lobbying costs, bad debt, entertainment, and contributions to other organizations. These are enumerated across 2 CFR 200.420–200.475.
Unsupported — the cost may be allowable in principle, but the documentation required to demonstrate that is missing or inadequate. Payroll charges without time-and-effort records are the most common example.
Unreasonable — the cost is allowable and documented, but exceeds what a prudent person would pay in comparable circumstances. Sole-source contracts with inflated pricing or first-class travel frequently appear here.

Questioned costs are reported in the Schedule of Findings and Questioned Costs when the aggregate amount attributable to a single federal program exceeds $25,000 in a given audit year, per 2 CFR 200.516(a). Costs below that threshold still exist in the auditor’s workpapers and may be mentioned in the report, but are not required to be formally listed.

When it applies

Questioned costs arise in the context of a single audit — the independent audit required for any organization expending $750,000 or more in federal awards in a fiscal year. Every audit of a major program includes substantive testing of cost-claim compliance. Even a clean financial statement audit does not protect against questioned cost findings if program expenditures are tested separately.

The $25,000 reporting threshold is per program, not total. An organization with five federal programs each carrying $20,000 in questioned costs would have $100,000 in total questioned costs — but none individually meet the threshold for formal reporting. This is not common, but it illustrates that the threshold is not a global safe harbor.

Common misconceptions

Questioned costs are not disallowed costs. This is the most important distinction. A questioned cost is a preliminary flag — the auditor’s opinion that a cost warrants scrutiny. The federal awarding agency or pass-through entity decides, after reviewing the finding and the auditee’s corrective action plan, whether to accept, partially accept, or disallow the cost. Well-documented, timely responses resolve many questioned cost findings without repayment.

Below-threshold questioned costs still matter. A finding that does not meet the $25,000 reporting requirement for the Schedule of Findings is not invisible. Auditors may note patterns of below-threshold issues in management letters, which federal program officers read. Repeated low-level findings on the same compliance requirement often escalate in subsequent years.

Resolution is time-sensitive. The federal awarding agency must issue a management decision within six months of the audit report date. If an organization does not respond promptly with documentation, it risks a default determination that may not go in its favor.

Unsupported does not mean dishonest. The most common questioned cost findings involve legitimate, valid expenditures that lack required documentation — time sheets signed late, purchase records not retained, consultant invoices without adequate detail. Documentation policy, not expenditure policy, is usually the root cause.

Unallowable costs — costs explicitly prohibited from federal award charges; a subset of what may become questioned costs.
Single audit — the audit regime under 2 CFR 200 Subpart F that produces the Schedule of Findings and Questioned Costs.
Corrective action plan — the auditee’s written response to each finding, including questioned costs, submitted with the SF-SAC.
Management decision — the federal agency’s formal resolution of a finding, required within six months of the audit report.
Disallowed cost — an expenditure the federal agency has formally determined is not reimbursable; the end state of an unresolved questioned cost.

How GrantPipe handles questioned cost risk

GrantPipe surfaces documentation gaps before auditors do. Time-and-effort records are linked directly to payroll charges in the grant ledger; missing certifications are flagged at the end of each pay period. Vendor payments require attached invoices before they can be posted to a federal award code. The goal is that every expenditure on a federal award has its documentation in place at the time of posting — not reconstructed six months later when an auditor asks.

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GAO reports that cost-related findings — including questioned costs — appear in approximately 30% of single audits submitted to the Federal Audit Clearinghouse each year.

Source: U.S. Government Accountability Office, Single Audit reports

The Federal Audit Clearinghouse receives over 30,000 single audit submissions annually; cost-claim findings are among the five most frequently cited finding types.

Source: Federal Audit Clearinghouse, FAC.gov

Under 2 CFR 200.516(a), questioned costs must be reported in the Schedule of Findings when the amount attributable to a single federal program exceeds $25,000.

Source: Office of Management and Budget, 2 CFR Part 200

Unallowable cost: An expenditure prohibited from charging to a federal award under statute, regulation, or the award's terms and conditions — for example, alcohol, lobbying, bad debt, fines, or entertainment costs as specified in 2 CFR 200.420–200.475.

Unsupported cost: A cost that may be allowable in principle but lacks the documentation required to demonstrate it was actually incurred and properly charged — for example, payroll costs without time-and-effort records.

Unreasonable cost: A cost that is allowable and documented but exceeds the amount a prudent person would pay for the same goods or services under comparable circumstances.

Management decision: The written determination from a federal awarding agency or pass-through entity indicating whether it accepts, partially accepts, or rejects the auditor's finding and questioned costs. Required within six months of the audit report.

Corrective action plan: The auditee's written response to audit findings, including questioned costs, describing the steps taken or planned to address each finding. Submitted as part of the SF-SAC package.

Q&A

What are questioned costs in a single audit?

Expenditures identified by the auditor as potentially unallowable, unsupported, or unreasonable under 2 CFR 200.516. They are reported in the Schedule of Findings and Questioned Costs when the aggregate exceeds $25,000 per program.

Q&A

What is the difference between a questioned cost and a disallowed cost?

A questioned cost is flagged by the auditor — it may or may not be disallowed. The federal awarding agency makes the final determination after reviewing the finding and the auditee's response. Questioned costs become disallowed only after a federal agency issues a management decision saying so.

Q&A

What is the reporting threshold for questioned costs?

$25,000 per federal program per audit year, per 2 CFR 200.516(a). Questioned costs below $25,000 for a given program still exist but are not required to appear in the Schedule of Findings and Questioned Costs.

Q&A

What are the three categories of questioned costs?

Unallowable (costs that violate statute, regulation, or award terms), unsupported (costs lacking adequate documentation), and unreasonable (costs exceeding what a prudent person would incur).

Q&A

How long does the resolution process take?

The federal awarding agency must issue a management decision within six months of the audit report date. The auditee's corrective action plan response is typically submitted within 30–60 days of the report.

Frequently asked

Frequently Asked Questions

What is a questioned cost?

An expenditure identified during a single audit as potentially unallowable, unsupported, or unreasonable under 2 CFR 200.516. Formally reported in the Schedule of Findings and Questioned Costs when the amount exceeds $25,000 per program.

What happens after a cost is questioned?

The auditor includes it in the Schedule of Findings. The auditee responds with documentation or a corrective action plan. The federal awarding agency reviews both and issues a management decision — accepting, partially accepting, or disallowing the cost.

Do questioned costs have to be repaid?

Not automatically. Costs become repayable only after the federal agency issues a management decision formally disallowing them. Well-documented responses to questioned costs often result in costs being accepted.

What triggers a questioned cost finding?

Missing or inadequate documentation, charges that appear to violate award terms, costs that fall in explicitly unallowable categories (lobbying, alcohol, entertainment), and costs that seem excessive relative to market rates.

Is an unsupported questioned cost the same as an unallowable cost?

No. An unsupported cost may be allowable in principle — it just lacks documentation. An unallowable cost violates a specific prohibition. Both are reported as questioned costs, but the resolution path differs.

What is the Schedule of Findings and Questioned Costs?

Part of the single audit report package that lists each finding, the criteria violated, the condition found, the cause, the effect, and the dollar amount of questioned costs. Submitted to the Federal Audit Clearinghouse as part of the SF-SAC.

Questioned Costs: Definition in Single Audits