Allowability of Costs
Expenditure allowability for Federal Funds
- The Office of Management and Budget, published in the Federal Register the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards: Final Rule (Uniform Guidance), 2 CFR Chapter 1, Chapter II, Part 200. Commonly referenced as 2 CFR Part 200.
- UG (Uniform Guidance) is the regulation that guides the allowability of costs on federal awards. 2 CFR 200 Subpart E sets forth the criteria for acceptable methods of determining costs applicable to federal grants, contracts, and other agreements with educational institutions.
- It is the responsibility of the department’s grants administrator and the PI to determine whether expenditures are reasonable, allocable, and allowable per UG based on the standards outlined in this section.
Direct Costs vs. Facilities & Administrative (F&A) Costs:
- Direct Costs
- Costs that can be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity.
- Costs that can be directly assigned to such activities relatively easily with a high degree of accuracy.
- F&A Costs
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- Costs incurred for common or joint objectives.
- Costs that cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity.
- Costs incurred for the same purpose in like circumstances must be treated consistently as either Direct or F&A costs. Where an institution treats a particular type of cost as a direct cost of sponsored agreements, all costs incurred for the same purpose in like circumstances shall be treated as direct costs of all activities of the institution.
The test of allowability of costs under the UG principles follows:
- Reasonable Cost: A cost may be considered reasonable if the nature of the goods or services acquired, and the amount involved, reflect the action that a prudent person would have taken under the circumstances at the time the decision to incur the cost was made. 2 CFR 200.404
- Allocable Cost: To sponsored agreements under the principles and methods provided in the UG (the cost can be assigned to the activity on some reasonable basis); A cost is allocable to a sponsored agreement if the goods or services involved can be charged or assigned based on relative benefits received or some other equitable relationship. 2 CFR 200.405 Subject to this, a cost is allocable if:
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- It is incurred solely to advance the work under the sponsored agreement.
- It benefits both the sponsored agreement and other work of the institution, in proportions that can be approximated through use of reasonable methods; or
- It is necessary to the overall operation of the institution, and it is deemed to be assignable in part to sponsored projects.
- Consistent treatment through application of those generally accepted accounting principles appropriate to the circumstances (like costs must be treated the same in like circumstances as either direct or F&A costs); 2 CFR 200.403(d) and
- Limitations: Costs must conform to limitations or exclusions set forth in UG and the sponsored agreement (including the request for proposal). When the maximum amount allowable under a sponsored agreement is less than the total amount allowable in accordance with the principles in UG, the amount that is not recoverable may not be charged to other sponsored agreements. Any costs allocable to activities funded by industries, foreign governments or other sponsors may not be shifted to federally sponsored agreements. Costs caused by overruns or other fund considerations, and costs incurred to avoid restrictions imposed by law or by the terms of the sponsored agreement, may not be shifted to federal funds. 2 CFR 200.403(b)
- Budget Period: Costs must be incurred during the approved budget period. 2 CFR 200.403(h)
Expenses on non-federal awards require the careful review of terms and conditions and any other supporting documentation (e.g., approved budget, sponsor guidance) to determine the appropriateness of charges.
If unsure whether a cost is allowable, please check with the SPA Grant Manager prior to incurring the charge.