40 CFR § 35.2100 - Limitations on award.
(a) Facilities plan approval. Before awarding grant assistance for any project the Regional Administrator shall approve the facilities plan and final design drawings and specifications and determine that the applicant and the applicant's project have met all the applicable requirements of §§ 35.2040 and 35.2100 through § 35.2127 except as provided in § 35.2202 for Step 2 + 3 projects and § 35.2203 for Step 7 projects.
(b) Agreement on eligible costs.
(1) Concurrent with the approval of a Step 3, Step 2 + 3 or Step 7 grant, the Regional Administrator and the grant applicant will enter into a written agreement which will specify the items in the proposed project that are eligible for Federal payments and which shall be incorporated as a special grant condition in the grant award.
(2) Notwithstanding such agreement, the Regional Administrator may:
(i) Modify eligibility determinations that are found to violate applicable Federal statutes and regulations;
(ii) Conduct an audit of the project;
(iii) Withhold or recover Federal funds for costs that are found to be unreasonable, unsupported by adequate documentation or otherwise unallowable under applicable Federal cost principles;
(iv) Withhold or recover Federal funds for costs that are incurred on a project that fails to meet the design specifications or effluent limitations contained in the grant agreement and NPDES permit issued under section 402 of the Act.