Allowable and Unallowable
Controller's Office Policy CO 09 98b
A. Purpose: This statement identifies allowable and unallowable costs according to Federal OMB Circular A-21 for use by college administrative personnel performing preaudit and compliance reviews.
B. General Guidelines / Applicable Policies
1. The criteria for determining whether costs are allowable as charges to contracts and grants projects is based on costs defined by OMB Circular A-21 as allowable or unallowable. These predetermined allowable and unallowable costs apply to all federally sponsored projects and any non-federally sponsored projects which reference Federal regulations or which fail to specify a basis for determination of allowable costs. For a complete description of the circumstances where a cost is allowable, refer to Section J of OMB Circular A-21.
2. Expenses identified below as allowable may be charged to sponsored projects unless specifically prohibited by the sponsor.
3. Expenses identified below as unallowable may not be charged to sponsored projects unless the awarding agency provides specific prior approval.
4. The budget, as approved by the sponsor, and policy restrictions of the sponsor must be consulted for each sponsored project.
5. If a cost is not included on either list, the Controller's Office, Grant Accounting, will respond to questions about whether a specific cost is allowable as a direct charge to a sponsored project.
6. All State, UNC General Administration, and UNCP regulations and procedures (travel, reimbursements, consulting, equipment purchases, payroll, purchasing, etc.) apply to expenditures charged to sponsored projects.
NOTE: Not all costs described below are allowable as a direct charge to sponsored agreements. Please refer to the Controller's Office, Grant Accounting, for guidance in determining whether the cost is direct or indirect.
Allowable costs must meet the following criteria before being charged to sponsored project:
a. Necessary - Expenditures to be funded from a sponsored project must be necessary to accomplish the approved goals and objectives of the project.
b. Reasonable - Expenditures to be funded from a sponsored project must be reasonable. That is that the cost is of a type generally recognized for the operation of the institution or the performance of the project. For example, if the services of a special test facility can be obtained at less expense than purchasing equipment to perform the same analyses, it would be considered more reasonable to obtain the service rather than buy equipment from project funds.
c. Allocable - Expenditures to be funded from a sponsored project must be identifiable with the project and are incurred solely to advance the work under the sponsored project. For example, if lab supplies are purchased which benefit several sponsored projects, the cost of those labs supplies should be charged to each project in proportion to actual use. Similar allocations of costs between instruction and sponsored projects should be made for equipment purchases that will be used jointly for both functions.
d. Timely - Expenditures to be funded from a sponsored project must be charged to the project on a timely basis. For example, in accordance with OMB Circular A-21, adjustments to salaries and wages funded from sponsored projects must be completed within 90 days after the end of the applicable effort report survey period. Also, in accordance with OMB Circular A-110, adjustments to transfer non-salary expenditures to or from a sponsored project should be completed within 90 days of incurrence.
e. Non-personal - Expenditures to be funded from a sponsored project cannot be of a personal nature or result in a benefit which the University does not normally provide for its employees. For example, if a Principal Investigator's personal watch is broken during a sponsored project field test, repair or replacement costs of the watch are not an allowable charge.
Subject to the above criteria and specific conditions or requirements indicated for each cost by the sponsored agreement, the following costs are allowable as direct charges to sponsored projects:
a. Advertising - Advertising includes the costs of advertising media and corollary administrative costs. Advertising media includes magazines, newspapers, radio and television programs, direct mail, exhibits, and the like. The only allowable advertising costs are those which are solely for:
(1) the recruitment of personnel required for the performance by the institution of obligations arising under the contract or grant, when considered in conjunction with all other recruitment costs;
(2) the procurement of goods and services for the performance of the sponsored agreement;
(3) the disposal of scrap or surplus materials acquired in the performance of the sponsored agreement; or,
(4) other specific purposes necessary to meet the requirements of the sponsored agreement.
b. Communications - Costs incurred for telephone services, local and long-distance telephone calls, telegrams, radiograms, postage, and the like.
c. Compensation for Personal Services - Includes all amounts paid currently for services of employees rendered during the period of performance and includes salaries, wages, and benefits. Charges for work performed on contracts or grants must be based on an employee's regular compensation by the University and should follow normal University procedures. Also, see Severance Pay.
d. Consulting and Professional Services - Costs of professional service rendered by the members of a particular profession who are not employees of the institution are allowable if specified in the proposal budget or prior approval is received from the sponsoring agency.
e. Equipment - Equipment is defined as nonexpendable, tangible, personal property having a useful life of more than one year and an acquisition cost of $5,000 or more per unit. This definition also applies to items of equipment which are fabricated. Equipment costs are allowable subject to the prior approval requirements specified below:
(1) Special purpose equipment described in detail in the budget or budget narrative, the cost of which is included in the budget and approved by the sponsor is considered allowable. Purchases of special purpose equipment items not specifically disclosed and included in an approved budget requires prior approval. To determine whether the acquisition cost meets the $5,000 threshold requiring prior approval, the following costs should be included as acquisition cost:
(a) Net invoice price;
(b) Taxes (other than North Carolina Sales tax which is refunded to the University), duty, transit insurance, freight, and installation costs;
(c) Cost of modifications, attachments, accessories, or auxiliary apparatus necessary to make the equipment usable for the sponsored project.
(2) General Purpose equipment described in detail in the budget or budget narrative, the cost of which is included in the budget and approved by the sponsor is allowable given that the equipment is used in the actual conduct of research in accordance with OMB Circular A-21 or the Federal Demonstration Partnership Agreements (including Agency Specific Regulations). The cost of which may need to be allocated to other accounts as determined by its percentage of use on each account. Purchases of general purpose equipment items not specifically listed in an approved proposal narrative budget requires prior approval. Examples of general purpose equipment include personal computers, workstations and printers, desks, filing cabinets, and window air-conditioning units.
f. Fringe Benefits - Employer contributions or expenses for retirement, social security, employee insurance, and workers' compensation insurance. Benefits must be charged in accordance with established University policies.
g. Insurance and Indemnification - Costs of insurance required or approved in advance by the sponsor pursuant to the terms of a sponsored agreement are allowable as direct charges to the project.
h. Maintenance and Repair - Costs incurred for necessary maintenance, repair or upkeep of property (including government property unless otherwise provided for) which neither add to the permanent value of the property nor appreciably prolong its intended life but keep it in an efficient operating condition.
i. Materials - Costs incurred for purchased materials, supplies, and fabricated parts actually used for the performance of a sponsored agreement, including incoming transportation costs.
j. Patent Costs - In accordance with the clauses of a sponsored agreement relating to patents, costs of preparing documents and any other patent costs in connection with the filing of a patent application where title is conveyed to the government or non-federal sponsor are allowable.
k. Printing and Binding - Costs of printing, production, reproduction, and binding of technical reports and other specified deliverables under a sponsored agreement are allowable.
l. Professional Activity - Costs of meetings and conferences when the primary purpose is the dissemination of technical information are allowable. This includes costs of meals, transportation, rental of facilities, and other items incidental to such meetings or conferences. Also, the institution's membership in business, technical, and professional organizations and subscriptions to business, professional, and technical periodicals are allowable.
m. Public Relations - The term public relations includes community relations and means those activities dedicated to maintaining the image of the institution or maintaining or promoting understanding and favorable relations with the community or public at large or any segment of the public. The only allowable public relations costs are:
(1) Costs specifically required by sponsored agreements, or
(2) Costs of communicating with the public and press pertaining to specific activities or accomplishments which result from performance of sponsored agreements.
See UNALLOWABLE COSTS for certain public relations costs that should not be charged to sponsored projects.
n. Rearrangement and Alteration - Special arrangement and alteration costs incurred specifically for the project are allowable when work has been approved in advance by the sponsoring agency.
o. Recruiting - Costs incurred for the recruitment of new employees (advertising, travel, relocation) are allowable. Costs incurred for employment agency services in excess of standard commercial rates, advertising that includes color or advertising material for other than recruitment purposes, or advertising that is excessive in size or that does not otherwise meet the test of reasonableness or conform to the established practices of the institution are unallowable. Where relocation costs incurred incident to recruitment of a new employee have been allowed as an allocable direct cost and the newly hired employee resigns for reasons within his control within twelve (12) months after hire, the department will be required to refund or credit such relocation costs to the Government.
p. Rental Cost of Buildings and Equipment - These costs are allowable subject to approval by the awarding agency during the proposal process.
q. Restoration - Costs incurred in the restoration or rehabilitation of the institution's facilities to approximately the same condition existing immediately prior to commencement of a sponsored agreement, fair wear and tear excepted, are allowable if approved in advance by the sponsor.
r. Royalties - Royalties on a patent or invention necessary for the proper performance of a sponsored agreement are allowable unless the government has a license or right to free use of the patent; or the patent has been adjudicated invalid, has been administratively determined to be invalid, the patent is considered to be unenforceable or the patent has expired.
s. Scholarships and Student Aid - Costs of scholarships, fellowships, and other programs of student aid are allowable only when the purpose of the sponsored agreement is to provide training to selected participants and the charge has been approved by the sponsoring agency.
t. Severance Pay - Severance pay is allowable when approved in advance by the Office of Contracts and Grants.
u. Subcontracts - Subcontracts for substantive portions of the programmatic effort must be approved in advance by the sponsor to be an allowable charge.
v. Termination Costs - Costs resulting from the early termination of a sponsored project are allowable subject to prior approval by the sponsor. Examples of termination costs include loss of useful value of special tooling, equipment and machinery, rental costs under unexpired leases, and claims under subcontract agreements.
w. Transportation - Costs incurred for freight, express, cartage, postage, and other transportation services relating either to goods purchased, in process, delivered, or returned.
x. Travel - Travel costs are the expenses for transportation, lodging, subsistence, and related items incurred by employees who are in travel status on official contract or grant related business. All travel must follow University policies and procedures. Excess per diems for meals are unallowable.
Travel costs are allowable and may be subject to the prior approval requirements specified below. These requirements are Agency and Award specific. If a Federal or a Federal flow through award is involved, consult the Federal Regulatory Checklist for prior approval requirements.
y. Foreign Travel - Foreign travel is defined as any travel outside Canada, the United States, its territories, and possessions. Prior approval requirements (if applicable) for foreign travel apply regardless of whether a foreign country is the departure point or the destination point of the traveler.
U.S. flag air carriers must be used when traveling on awards sponsored directly by Federal agencies or awards from non-federal sponsors for which the Federal Government is the primary sponsor.
Airfare costs in excess of the lowest available commercial discount airfare, Federal Government contract airfare (where authorized and available) or customary standard airfare (coach or equivalent) are allowable only when such airfares would have resulted in:
(1) Circuitous routing, (2) Travel during unreasonable hours, (3) Excessively prolonged travel, (4) Greatly increased duration of the flight, (5) Increased cost that would offset transportation savings, or (6) Accommodations not reasonably adequate for medical needs of traveler.
Specific documentation of the particular situation must be offered on a case-by-case basis in order for excess air fare to be an allowable charge.
z. Tuition - Tuition and tuition remission are allowable costs only when students receive salaries and wages for work performed on the sponsored project and tuition reimbursement is allowable providing sponsor approval, if required, has been obtained from the sponsor.
Any cost which cannot be proved to be necessary, reasonable, allocable or non-personal in nature is unallowable. Any untimely charges to sponsored projects may be deemed unallowable by a sponsor.
The following specific costs are unallowable as direct charges to a sponsored project unless prior, written approval is received from the sponsor:
a. Advertising - Costs of advertising designed solely to promote the institution are unallowable. Events related to instruction or other institutional activities which involve the following types of costs are unallowable:
(1) Costs of displays, demonstrations, and exhibits;
(2) Costs of meeting rooms, hospitality suites, and other special facilities used in conjunction with shows and other special events; or
(3) Salaries and wages of employees engaged in setting up and displaying exhibits, making demonstrations, and providing briefings.
See ALLOWABLE COSTS for advertising costs that are allowable.
b. Air Fare (Excess) - Air fare costs in excess of the lowest commercial discount airfare, Federal Government contract airfare (where authorized and available) or customary standard airfare (coach or equivalent) which has not been properly documented are unallowable. See ALLOWABLE COSTS - Travel - for more information on documentation requirements.
c. Alcoholic Beverages - Costs of alcoholic beverages are unallowable.
d. Alumni Activities - Costs incurred for or in support of alumni activities and similar services are unallowable.
e. Bad Debts - Any losses, whether actual or estimated, arising from uncollectible accounts and other claims, related collection costs, and related legal costs are unallowable.
f. Commencement and Convocation - Costs incurred for commencements and convocations are unallowable.
g. Contingency Provisions - Contributions to a contingency reserve or any similar provision made for events, the occurrence of which cannot be foretold with certainty as to time, intensity, or with an assurance of their happening, are unallowable.
h. Donations and Contributions - Donations or contributions of services and/or property are unallowable, regardless of the recipient.
i. Entertainment - Costs incurred for amusement, diversion, and social activities and any costs directly associated with such activities (such as, tickets to shows or sports events, meals, lodging, rentals, transportation and gratuities) are unallowable.
j. Equipment - Costs incurred for general purpose equipment; such as, typewriters, personal computers, file cabinets, and desks are unallowable unless prior approval is received from the sponsoring agency.
k. Excess per Diems - Reimbursement for the cost of meals in excess of applicable University per diems are unallowable.
l. Executive Lobbying - Costs incurred in attempting to improperly influence either directly or indirectly an employee or officer of the Executive Branch of the Federal Government to give consideration or to act regarding a sponsored agreement or regulatory matter are unallowable.
m. Fines and Penalties - Costs resulting from violations of, or failure to comply with Federal, State, and local laws and regulations are unallowable except when incurred as a result of compliance with specific provisions of the sponsored agreement or written instructions from the authorized official of the sponsoring agency authorizing in advance such payment.
n. Goods or Services for Personal Use - Costs of goods or services for personal use of the institution's employees are unallowable regardless of whether the cost is reported as taxable income to the employees.
o. Insurance against Defects - Costs of insurance with respect to any costs incurred to correct defects in the institution's materials or workmanship are unallowable.
p. Legal Fees - Costs for the defense and prosecution of criminal and civil proceedings, claims, appeals, and patent infringement are unallowable unless specifically provided for in a sponsored agreement or approved in advance by the authorized Federal official.
q. Lobbying - Costs incurred for any lobbying activity is unallowable. The following activities are considered as lobbying:
(1) Attempting to influence the outcomes of any Federal, State, or local election, referendum, initiative, or similar procedure;
(2) Establishing, administering, contributing to, or paying the expenses of a political party, campaign, political action committee or other organization established for the purpose of influencing the outcomes of elections;
(3) Attempting to influence the:
(a) introduction of Federal or State legislation;
(b) the enactment or modification of any pending Federal or State legislation through communication with any member or employee of the Congress or State legislature; or
(c) any government official or employee in connection with a decision to sign or veto enrolled legislation;
(4) Attempting to influence the:
(a) introduction of Federal or State legislation;
(b) the enactment or modification of any pending Federal or State legislation by preparing, distributing, or using publicity or propaganda or by urging members of the general public or any segment thereof to contribute to or participate in any mass demonstration, march, rally, fund- raising drive, lobbying campaign or letter writing or telephone campaign; or
(5) Legislative liaison activities, including attendance at legislative sessions or committee hearings, gathering information regarding legislation, and analyzing the effect of legislation when such activities are carried on in support of or in knowing preparation for an effort to engage in unallowable lobbying.
r. Losses on Other Sponsored Projects - Unrelated cost overruns on other sponsored projects are unallowable.
s. Memberships in Civic, Community Organizations, and Country Clubs - The costs of memberships in civic, community organizations and memberships in country clubs, social or dining clubs are unallowable.
t. Pre-agreement or Pre-award Costs - Costs incurred prior to the effective date of the sponsored agreement, whether or not they would have been allowable thereunder if incurred after such date, are unallowable unless approved prior to the incurrence of the costs by the sponsor.
u. Public Relations - Costs incurred for purposes designed solely to promote the institution and costs of promotional items and memorabilia, including models, gifts, and souvenirs are unallowable. See ALLOWABLE COSTS for examples of public relations costs which are allowable.
v. Selling and Marketing - Costs of selling and marketing any products or services of the institution are unallowable.
w. Student Activity - Costs incurred for intramural activities, student publications, student clubs, and other student activities are unallowable, unless specifically provided for in the sponsored agreement.
x. Trustees - Travel and subsistence costs of University trustees, regardless of the purpose of the trip, are unallowable.