What's allowable and unallowable?
Office of Management and Budget Circular A-21
Government Definition of Direct Costs
Direct costs are those costs that can be identified specifically with a particular sponsored project, or that can be directly assigned to such activity
relatively easily with a high degree of accuracy.
Government Definition of Indirect Costs (F&A)
Costs that are incurred for common or joint objectives and, therefore, cannot be identified readily and specifically with a particular sponsored project,
an instructional activity, or any other institutional activity (i.e. printer ink)
A direct cost must be:
Reasonable: A prudent business person would have purchased this item and paid this price at the time the decision to incur the cost was made.
- Allocable: It can be assigned to the activity on some reasonable basis and the assigned costs benefit the project. It is incurred solely to advance the
work under the sponsored agreement.
- Consistently treated: Like costs must be treated the same in like circumstances, as either direct or F&A costs.
A cost is allowable when allowed by A-21, it serves the grant purpose (instruction, research, public service), federal regulations, and is allowed by the
university's policy. Such costs are:
- Salaries and fringe benefits of faculty, technicians, post docs, research assistants and other personnel directly engaged in performing sponsored grant's
scope of work
- Laboratory supplies and materials necessary for performing sponsored grant's scope of work
- Other costs such as travel, subcontracts, specialty equipment repairs and maintenance, and other directly related costs necessary for performing
sponsored grant's specific scope of work
Capital equipment that is approved by the sponsor
- Service/maintenance agreements on capital equipment approved by the sponsor
Typically unallowable on federal awards:
- Advertising for general promotion of the University, including printed materials, promotional items, memorabilia, gifts, and souvenirs
- Advertising for recruitment purposes that includes color or is excessive in size
Alumni or fund-raising activities
Bad debt write-offs
Donations or Contributions
- Costs on Industry, Foreign Government or Other Non-Government Grants/Contracts
- Decorative objects for private offices
Fines and penalties
- First-class/business-class air travel differentials
Gifts, prizes, and awards
Goods or services for personal use
Memberships in airline travel clubs
- Memberships in civic, social, community organizations or country clubs
- Faculty and exempt staff salary in excess of base rates paid by the institution.
Selling or marketing products or services of the University
A cost is allocable to a federally sponsored agreement if:
- 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 proportions that can be approximated through use of reasonable methods.
Cost Benefits Two or More Projects
If a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost, the cost should be allocated to
the projects based on the proportional benefit. E.g.: When Grant A benefits 70% and Grant B benefits 30%, 70% of capital cost is assigned to Grant A and
30% to Grant B.
If a cost benefits two or more projects or activities in proportions that cannot be determined because of the interrelationship of the work involved, then
the costs may be allocated or transferred to benefited projects on any reasonable basis. However, this allocation cannot be used to eliminate cost overruns.
A cost may be considered reasonable if a prudent person would purchase the item at the price it was purchased at.
- The cost is necessary to the research grant
- The cost is consistent with established university policies.
All costs incurred for the same purpose, in like circumstances, are either direct costs only or F&A costs only with respect to final cost objectives.
If a cost was treated as a direct cost in the past, it will be treated as a direct cost in the present. If a cost was treated as F&A in the past, it
will be treated as F&A in the present. The sponsor pays costs either as direct or F&A, not both.
Costs normally charged as F&A:
Salaries of clerical and administrative personnel engaged in routine departmental or administrative work that benefits all activities of the department
Supplies and materials for routine departmental or administrative activities of the department that benefit all activities of the department
Other costs such as travel, repairs, fees and services, local and long distance telephone expenses, copying and postage that are for routine
departmental or administrative use,
General office items with multi-functional use such as computers, fax machines, printers, printer ink, answering machines, staplers, hole punches,
filing cabinets, chairs, desks, calculators, waste baskets etc.
For any of the above items to be considered direct costs, a justification and approval are required in the proposal process, or permission, in writing,
must be given by the sponsor after the grant has been awarded.
The following examples are not all-inclusive. They are intended to be illustrative of certain practices that can result in direct cost disallowance during
audits of sponsored agreements.
- Purchasing goods, supplies, or equipment at the end of the project simply to use up unspent funds. [For example, the Public Health Service Grants Policy
Statement, section 8-16 states that ["If for any reason equipment that has been ordered in good faith will not be received until after a project has
terminated or will be received too late in the project for effective use, all reasonable effort must be made to cancel the order or to charge the equipment
to other funds."]
- Charging 100% of a direct cost item to a sponsored project if part of the item will be used by other projects or non-sponsored activities [capital
equipment approved by the sponsor (or approved internally if allowed by the sponsor) is excluded from this requirement].
Replenishing departmental office supplies with grant funds.
- "Rotating" charges among sponsored projects by month without establishing that the rotation schedule credibly reflects the relative benefit to each
- Assigning charges to the sponsored project with the largest remaining balance.
- Identifying a cost as something other than what it actually is by using an incorrect account code.
In order to be allowable, direct charges must be assignable to a sponsored project "in accordance with benefits received".
If the sponsored project could not have reasonably benefited from the items purchased, then the cost would not be allocable to the sponsored project.
Identification with the sponsored work (i.e., the scope of work) rather than the nature of the goods or services is the determining factor in
determining direct costs.
[Office of Management and Budget Circular A-21, Section D.]