Federal Costing Guidelines for Sponsored Projects

Office of Management and Budget Circular A-21 established the principles for determining costs applicable to grants, contracts and other agreements with educational institutions. The principles are designed to provide that the federal government bear its fair share of the total cost, determined in accordance with generally accepted accounting principles, except where restricted or prohibited by law. The basic considerations for determining the allowability of costs are:

  1. Costs must be reasonable. This is defined as the action a prudent person would have taken under the circumstances.
  2. Costs must be allocable to sponsored agreements under the principles and methods described in A-21. Any costs allocable to a particular sponsored agreement may not be shifted to other sponsored agreements to clear an overdraft or for other reasons of convenience.
  3. Costs must be given consistent treatment through the application of generally accepted accounting principles appropriate to the circumstances.
  4. Costs must conform to any limitations or exclusions set forth in these principles or in the sponsored agreement as to types or amounts of cost items.

UK’s "Costing Guidelines for Sponsored Projects" establishes the processes that UK uses to meet the requirements of OMB Circular A-21. The Costing Guidelines provide additional detail on allowable and unallowable costs and exceptions that exist based on UK’s implementation of the A-21 requirements. The Costing Guidelines also provide detail on acceptable accounting practices.

Explicitly Unallowable Costs on Federal Agreements

Federal regulations identify specific categories of costs that cannot be charged, directly or indirectly, to federally sponsored agreements.

The following list covers costs specifically designated as unallowable in OMB Circular A-21. This is a quick reference. The specific wording in A-21 should be referred to for greater detail. Additional costs are unallowable as direct costs to sponsored agreements based on the University of Kentucky’s implementation of federal cost accounting standards requirements specified under this same OMB Circular (CAS 9905.501).

Unallowable Costs

Description, Guidance, and Exceptions
Advertising & Public Relations Costs Purchase of promotional items. Production & distribution of magazines, newsletters, radio & TV programs, direct mail, exhibits, unless directly related to the performance of a sponsored project. Expenses for employee and subject recruitment are allowable.
Alcoholic Beverages Alcoholic beverages are unallowable.
Alumni/ea Activities Costs incurred for, or in support of, alumni/ae activities and similar services are unallowable.
Bad debts Any losses, whether actual or estimated, arising from uncollectible accounts and other claims, related collections costs, and related legal costs, are unallowable.

Commencement and Convocation Costs

All costs related to commencement and convocation are unallowable.

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.

Directly Associated Unallowable Costs

Costs that are directly associated with the unallowable costs are also unallowable. A directly associated cost is defined in federal regulations as any cost which is generated solely as a result of the incidence of another cost, and which would not have been incurred had the other cost not been incurred. An example of a cost that is directly associated with an unallowable cost is the cost of airfare to go to another city for the purpose of entertaining business associates, or for fundraising. Since entertainment and fundraising costs are expressly unallowable under OMB Circular A-21, and the airfare would not have been incurred had the unallowable costs not been incurred, the airfare is an unallowable directly associated cost.

Entertainment

Costs of entertainment, including amusement, diversion, and social activities and any costs directly associated with such costs (such as tickets to shows or sports events, meals, lodging, rentals, transportation, and gratuities) are unallowable.

Fines and Penalties

Costs resulting from violations of, or failure of the institution to comply with, Federal, State, and local or foreign laws and regulations are unallowable, except when incurred as a result of compliance with specific provisions of the sponsored agreement, or instructions in writing from the authorized official of the sponsoring agency authorizing in advance such payments.

Fund raising

Costs of organized fund raising, including financial campaigns, endowment drives, solicitation of gifts and bequests, and similar expenses incurred solely to raise capital or obtain contributions, are unallowable.

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.

Lobbying

Attempts to influence the outcomes of any Federal, State, or local election, referendum, initiative, legislation, or similar procedure, through in kind or cash contributions, endorsements, publicity, or similar activity;

Losses on other sponsored agreements or contracts (Cost Overruns)

Any excess of costs over income under any other sponsored agreement or contract of any nature is unallowable. This includes, but is not limited to, the institution's contributed portion by reason of cost-sharing agreements or any

under-recoveries through negotiation of flat amounts for F&A costs.

Medical Liability Insurance

Only allowable on research programs to the extent that the research involves human subjects.

Memberships

Membership in any civic or community organization or country club or social or dining club or organization are unallowable. As is membership in business, technical, and professional organizations.

Selling and marketing

Costs of selling and marketing any products or services of the institution are unallowable.

Student Activity Costs

Costs incurred for intramural activities, student publications, student clubs, and other student activities, are unallowable, unless specifically provided for in the sponsored agreements.

Pre-Agreement Costs

Costs incurred prior to the effective date of the sponsored project, whether or not they would have been allowable thereunder if incurred after such date, are unallowable unless specifically set forth and identified in the sponsored agreement, or approved through prior approval procedures.

University of Kentucky | UK Research
Updated March 9, 2012 | Questions/Corrections to Sean Scott