A key factor in the sound financial management of sponsored program funds are the external regulations that must be followed which assures compliance. In addition to a funding agency’s regulations, OMB Circular A-21 describes the basis for determining allowable costs to a contract:
- Reasonable costs. A cost may be considered reasonable if the nature of the goods or services acquired or applied, reflect the action that a prudent person would have taken under the circumstances prevailing at the time the decision to incur the cost was made.(Would a prudent person have purchased the item or services and paid the budgeted price for it?)
To determine if an expenditure is reasonable:
a. Is this cost generally recognized as necessary for the operation of the institution and the performance of the sponsored program?
b. Does this cost conform to the requirements imposed by Federal and State regulations or the sponsored program terms and conditions?
c. Has the PI or other designated person incurring the cost acted with prudence?
d. Was the cost incurred in a manner consistent with institutional policies applicable to the work of the institution, including sponsored programs?
- Allocable costs. A cost is allocable to a sponsored agreement if the goods or services involved are chargeable or assignable to the cost objective of the sponsored program. (It is incurred solely to advance the work under the sponsored agreement or it benefits both the sponsored agreement and other work of the institution, in proportion that can be approximated through the use of reasonable methods).
To determine if an expenditure is allocable:
a. Was the cost incurred solely to advance the work under the sponsored program?
b. If the cost benefits both the sponsored program and work of the University, can the proportions be approximated through the use of reasonable methods?
- Consistency. Costs must be given consistent treatment through the application of those generally accepted accounting principles appropriate to the circumstances.(Expenses for similar purposes must be treated the same way throughout the university under like circumstances).
4. Conformity. They must conform to any limitations or exclusions set forth in these principles or in the sponsored agreement as to types or amounts of cost items. (The expenses are allowable by federal regulations and by the particular sponsored research agreement).
Below is a quick reference of allowable and unallowable costs specified in Section J of OMB Circular A-21. Remember, these costs must be budgted in your project.
Type of Cost
Allowable as a Direct Cost
Unallowable as a Direct Cost
Allowable only if related to and necessary for performance of the sponsored project
Unallowable for advertising related to the image of the University, or events related to instruction or institutional activities, promotional items.
Long distance phone calls and postage only if related to and necessary for the performance of the sponsored project
Unallowable for line charges, network charges, local phone costs.
Compensation for Personal Services
Salaries, wages, and fringe benefits of personnel who directly contribute to the project (faculty, post doc, research associate, graduate and undergraduate student)
Unallowable for administrative and clerical staff
Donations and Contributions
Unallowalbe-includes amusement, diversion, and social activities
Allowable only for special purpose equipment used exclusively for research, medical, scientific, or other technical activities.(Prior approval from awarding agency required for items with a unit cost of $5,000 or more)
Unallowable for general purpose equipment not used exclusively for research (i.e., office equipment and furnishings, modular offices, telephone networks, AC equipment, printing equipment, etc)
Fines and Penalties
Allowable only when incurred as a result of compliance with specific provisions of the sponsored agreement, or instructions in writing from the authorized official of the sponsoring agency
Goods or Services for Personal Use
Housing and Personal Living Expenses
Losses on Other Sponsored Agreements or Contracts
Maintenance & Repair Costs
Allowable as necessary to keep property in an efficient operating condition necessary for the performance of the sponsored project. Must be approved by funding agency.
Unallowable for costs incurred for necessary maintenance, repair, or upkeep of buildings & equipment, which neither add to the permanent value of the property not appreciably prolong its intended life.
Materials and Supplies Costs
Allowable as a direct cost when necessary for the performance of the sponsored project.
Unallowable for routine office supplies (pens, paper, disks, folders,copy charges, fax, postage,etc)
Meetings & Conferences
Allowable when the primary purpose is the dissemination of technical information directly related to the sponsored project. This includes meals, transportation, rental of facilities, speakers’ fees and other items incidental to such meetings or conferences. Must be budgeted in sponsored project.
Unallowable for “Entertainment Costs”
Memberships, Subscriptions & Professional Activity Costs
Allowable for the institution’s membership in business, technical, professional organizations, and subscriptions to business, professional, and technical periodicals.
Unallowable to membership in any civic or community organization, country club, social or dining club.
Allowable if required by the sponsored project.
Unallowable for foreign patents
Allowable with prior approval from the awarding agency.
Professional Services Costs
Allowable when necessary for the performance of the sponsored project.
Publication and Printing Costs
Allowable if the costs can be identified with the sponsored project. For page charges, they are allowable if the work is supported by the Federal Government and the charges are levied impartially on all research papers published, not just those funded by federally sponsored authors
Unallowable for routine copy and printing costs.
Rearrangement and Alteration Costs
Allowable with prior approval of the awarding agency and incurred specifically for the sponsored project.
Unallowable for ordinary or normal rearrangement or alteration of facilities.
Rental Costs of Buildings and Equipment
Allowable when specifically for the sponsored project
Royalties and Other Costs for Use of Patents
Allowable when necessary for the performance of the sponsored project.
Unallowable when the Federal Government has a license or the right to free use of the patent or copyright; or when the patent or copyright has been adjudicated to be invalid, has been administratively determined to be invalid, is considered to be unenforceable, or has expired.
Scholarships and Student Aid Costs
Allowable only when the purpose of the sponsored agreement is to provide training to selected participants and the charge is approved by the sponsoring agency.
Student Activity Costs
Allowable unless specifically provided by the sponsored project.
Termination Costs Applicable to Sponsored Agreements
Allowable for costs which would not have arisen had the sponsored agreement not been terminated, provided they meet the requirements of OMB A-21, Section J50
Allowable for training provided for employee development for a specific sponsored project.
Transportation (Freight Costs)
Allowable when related to goods purchased specifically for the sponsored project.
Allowable for transportation, lodging, subsistence and related items for employees who are in travel status on project-specific business, subject to University policy
Unreasonable travel costs are unallowable (including airfare costs in excess of the lowest awailable commercial discount airfare except when justified and documented)