Identification and Treatment of Unallowable Costs on Sponsored Awards

Purpose

To prevent unallowable costs from being charged to sponsored awards and to ensure that those costs are removed from the award as soon as they are discovered.

Policy Narrative

It is university policy to charge costs to federal and non-federal sponsored projects in accordance with applicable laws, regulations, sponsor policies, and other requirements. For federal sponsors, the Office of Management and Budget’s (OMB) Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (aka, “Uniform Guidance”), Section 2 CFR §200.400 Subpart E establishes principles for determining applicability and allowability of costs to grants, contracts, and other agreements with educational institutions.

These principles apply regardless of whether a particular cost is treated as a direct cost or an indirect cost.

This policy applies to all sponsored projects at the university; however, costs identified as “unallowable” on federally funded projects may be allowable on a non-federally funded project if permitted by both university policy and the non-federal sponsor’s award terms and conditions or with written sponsor approval.

When unallowable costs are discovered as part of award monitoring or project close-out, the costs will be removed from the award cost center and transferred to the indirect cost center of the home department of the Principal Investigator or other cost center provided by the department.

Roles and Responsibilities:

Principal Investigator

• Familiarize themself with the award’s terms and conditions and this policy.
• Ensure that all charges made against the award are allowable, reasonable, and directly benefit the project. (See definitions below)
• Monitor grant budgets and supporting documentation monthly and notify Sponsored Programs Administration and department staff right away of any unallowable costs.
• Work with Sponsored Programs Administration and department staff to promptly resolve any questionable charges.

Sponsored Programs Administration

• Monitor costs charged to sponsored awards for allowability.
• Contact the Principal Investigator and/or their department staff to review any questionable costs.
• For costs deemed to be unallowable, prepare journal voucher listing the grant, fund number, description, amount, department account receiving the cost, and a statement that the cost being moved off the grant is an unallowable charge.

Vice President for Research and Innovation

• Provide final authority for any disputes relating to unallowable costs.

Definitions:

Allowable Costs

In addition to meeting the specific standards for allowability under 2 CFR 200.400 Subpart E-Cost Principles, costs must meet certain general criteria to be allowable for federally sponsored projects. To be allowable, the cost must be reasonable, allocable to the sponsored project, be treated consistently between sponsored and non-sponsored funds, and conform to any limitations or exclusions set forth in 2 CFR 200 or in the sponsored project agreement.

Reasonable Cost Test 

A cost may be considered reasonable if the nature and amount of the cost reflect actions that a prudent person would have taken under circumstances prevailing at the time. Among other factors, a reasonable cost is one generally recognized as necessary for the operation of the university or the performance of the sponsored project and is consistent with established institutional policies and practices applicable to the work of the institution generally, including sponsored projects. 

Allocable Cost Test 

A cost is allocable to a sponsored project if it is incurred specifically to advance the work under the sponsored project. When a cost benefits both the sponsored project and other activities of the university, charges to the project should be based on reasonable estimates of the benefit to each institutional activity (also referred to as cost allocation).

Allowability and Unallowability of Selected Items of Costs

Unallowable costs are not eligible for reimbursement by the sponsor. Below is a list of costs normally considered unallowable under Uniform Guidance. Depending on the nature of the award and the sponsor-specific agreement, some costs that are generally unallowable may be allowable for a specific award.

Advertising:

• These costs are only allowable when solely related to the project. See Uniform Guidance section 200.421 for the only allowable costs.

Alcoholic beverages:

• Unallowable

Commencement and convocation cost:

• Unallowable

Entertainment:

• Costs of entertainment are unallowable except for specific costs which have a programmatic purpose and are authorized either in the approved budget for the award or with prior written approval.

Fundraising, lobbying, and public relations costs:

• Unallowable

Fines and penalties and defense of fraud proceeding, including insurance against defects in University’s materials or workmanship:

• Fines, penalties, damages, and other settlements resulting from violations of, or failure to comply with, Federal, State, and local laws and regulations are unallowable except when incurred because of compliance with specific provisions of the award or written approval by the sponsor.

Memorabilia or promotional material:

• The only allowable expenses for memorabilia, promotional materials, or public relations costs are those specifically required for the performance of the award.

Moving or relocation costs if employee resigns within 12 months:

• Relocation costs on federal awards must follow the standards in the Uniform Guidance section 200.464 Relocation costs of employees.

Certain travel costs:

• Travel costs should be reasonable and in compliance with university policy. On federal awards the Fly America Act applies. The Fly America Act requires that foreign air travel funded with federal dollars be performed on U.S. flag air carriers, unless an exception is made.

Cash donations to other organizations including universities:

• Unallowable

Goods or services for employee personal use:

• Unallowable

Additional compensation:

• Supplemental compensation for faculty during their regular appointment is not allowed on grants and contracts, unless specifically approved by the sponsor.

Administrative Salaries:

• Salaries of administrative and clerical staff (Uniform Guidance section 413) should normally be treated as indirect costs, but may be allowable as direct costs if appropriately justified and if the charges meet all of the following criteria:
  • costs are required by the project’s scope of work; costs can be specifically and easily identified to the project.
  • and costs represent a special need that could be classified as an unlike circumstance.

Membership costs:

• These are costs in community organizations, country clubs, or social or dining clubs and are unallowable. Costs of memberships in organizations whose primary purpose is lobbying are unallowable. Membership and subscription costs related to the performance of the award and conference registrations are allowable.

Publication, documentation, and dissemination:

• Costs of documenting, preparing, publishing, disseminating, and sharing research findings and supporting material are allowable. Page charges for scientific and engineering journal publications are allowable when the research papers report work supported by the grant and the charges are levied impartially on all research papers published by the journal, whether by non-government or government sponsored authors.

Selling and marketing costs:

• These costs are unallowable except when approved by the awarding agency and necessary for the performance of the award.

Severance costs:

• Costs are allowable for severance pay only when the pay is required by university policy.

Policy References:

Uniform Guidance 2 CFR 200

George Washington University Policy Identification and Treatment of Unallowable Costs on Sponsored Projects

University of Houston Allowable and Unallowable Costs

University of Arizona Unallowable Costs