Federal Cost Principles & Compliance General Rules Allowable/Unallowable Costs Prepared by Office of Sponsored Programs Spring 2011

General Criteria for Determining Allowable Costs OMB Budget Circular A – 21 – cost principles A fundamental requirement for any use of federal funds is that the cost must be “necessary & reasonable, allocable, and consistent for the proper and efficient performance and administration of the grant.” The expenditure must be: First Criteria (has to meet both conditions) necessary to achieve an important aspect of the project. Have to demonstrate that the cost addressed has an existing need and be able to prove it reasonable – is the same as the actions of a “prudent person.” The cost does not exceed an amount that could be incurred by a prudent person, and that the cost is ordinary and necessary for the grant program. Market prices for comparable goods and services

Cost principles contd… Second Criteria Allocable – The cost should provide a benefit to the sponsored program. A cost is allocable, if the goods and services in question are chargeable or allocable to the program “in accordance with relative benefits received.” Any cost allocated to a particular project cannot be charged to another award or project. Has not been included in another federally funded grant Third Criteria - Consistently treated. All costs associated with the grant must be consistent with policies and terms of the grant In accordance with generally accepted accounting principles The cost also have to be uniform, treated the same as federal and non-federal grants Costs have to be treated as direct or indirect Costs are consistent with institutional practices

Definition of Costs (allowable/unallowable/with restrictions) Whether a cost is allowable or not is based on: Is the cost subject to restrictions? IS the cost included in proposal and allowed in the program A cost must meet the program requirements Qualify in one of categories of allowable costs (listed below) If a particular cost is not listed below, it does not mean that it is allowable or unallowable Always check with OSP if you are not sure or check OMB Circular A-21.

Costs Allowable – straightforward and clear and meets the criteria (reasonable, necessary, and consistent) eg. Communication costs Unallowable – eg. Bad debts & entertainment Allowable with restrictions – They are allowable only under certain circumstances or subject to restrictions. Eg. Travel, but certain conditions have to be met or prior approval is needed

Allowable vs Unallowable Costs (or is it somewhere in between?) Communication costs Personal services – must be supported by time & effort records, that connect employee’s time and effort to the project Salaries Fringe benefits Pensions Equipment – Based on specific requirements Labor relations costs Student activity costs – if it is included in grant proposal Training costs – for employee development

Unallowable costs… Alumni activities Bad debts Personal use of vehicles Entertainment costs Donations – allowable for cost sharing or matching) Fines & penalties – there may be an exception Fundraising – there may be an exception Goods or services for personal use Housing and personal living expenses Lobbying

…Unallowable costs contd… Losses on other grant projects Social memberships Selling and marketing costs – there may be exceptions Student activity costs – unless included in grant proposal

Allowable costs with restrictions… (Generally considered unallowable) Advertising and public relations Advisory councils Audit costs (check OMB Circular – 133) Compensation for personal services (severance pay) Defense and prosecution of criminal and civil proceedings Depreciation and use allowances – may be allowed Employee health and welfare costs Fines and penalties – may be an exception Fundraising and investment management costs – may be an exception Gains and losses on depreciable assets

Allowable costs with restrictions contd… Insurance and indemnification Interest Maintenance & repair costs Materials and supplies Meetings and conferences Professional service costs Proposal costs Publication and printing costs Recruiting costs Rental cost of buildings and equipment

Allowable costs with restrictions contd… Scholarships and student aid Specialized service facilities Taxes Termination costs applicable to sponsored agreements Transportation costs Travel costs