Allowabilitiy of Costs

Sponsored Programs Allowable and Unallowable Costs 

Responsible Official:  Associate Vice Chancellor of Research and Innovation 

Responsible Office:  Office of Sponsored Projects 

Effective Date:  January 20, 2025 

Revision Date:  January 20, 2025 

Cost Principles 

The University of Arkansas, Fayetteville’s costing practices for Sponsored Programs must comply with the guiding principles or criteria from the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards; Final Rule – 2 CFR Part 200 (i.e., the Uniform Guidance).  Recipients of federal funding are required to have solid management practices for administering awards and implementing best practices which align with cost principles.  The Cost Principles, as defined in the Uniform Guidance Subpart E, which specifies general tests for allowability of costs being directly charged to a federal award. 

Allowable Costs §200.403 

  • Costs necessary, reasonable and given consistent treatment 
  • Costs must not be included as a cost or used to meet cost sharing requirements of any other federally-financed program in either the current or a prior period §200.306(b). 

Reasonable Costs §200.404 

  • A prudent person would incur the costs at the time they are incurred. 
  • It is generally recognizable as necessary for the success of the project. 
  • It is consistent with university and sponsor policy. 
  • The cost is ordinary and necessary for the performance of the activity. 

Allocable Costs §200.405 

  • It is incurred specifically for the award. 
  • It benefits both the federal award and other work of the non-federal entity and can be distributed in proportions that may be approximated using reasonable methods. 
  • It is necessary to the overall operation of the non-federal entity and is assignable in part to the federal award in accordance with the principles in this subpart. 

Consistently Treated Cost – Cost Accounting Standards for Educational Institutions 

A cost is consistent when costs incurred for the same purpose in like circumstances are treated consistently as either direct or indirect costs.  To ensure consistency, the University of Arkansas follows the four CAS standards: 

  • This standard ensures that practices used to estimate proposal costs are consistent with practices used to record expenditures against funds. 
  • This standard describes how costs are allocated. 
  • This standard requires that all unallowable costs be identified and excluded from any billing, claim or proposal under a federal government award. 
  • This standard describes the cost accounting period, which for U of A is the fiscal year July 1 – June 30. 

Unlike/Exceptional Circumstances 

In rare circumstances when certain criteria are met, CAS 502 contains an exception to the basic rules which allows for a cost that would normally be treated as an indirect cost to instead be directly charged to a federal award. An unlike/Exceptional circumstance may exist when an activity or the use of a cost is substantively greater in amount or different in purpose than is typical. The criteria needed to justify such exceptions include: 

  • The nature of the work, unique situation, or programmatic purpose creates an unlike circumstance 
  • The cost must be specifically associated with the sponsored project with a high degree of accuracy 

To substantiate the exception, documentation must contain a justification of the unique situation which creates the unlike circumstance and be adequately documented. 

Unallowable Costs 

Unallowable costs must not be charged directly or indirectly to a sponsored award or a related cost share account. Expenses are unallowable if they: 

  • Do not comply with the terms and conditions of the sponsored award, or University Policy 
  • Cannot be associated with a project with a high degree of accuracy  
  • Are not incurred during the period of the award 
  • Are not being treated consistently to similar expenses for the same purpose and like circumstance (e.g. the recovery of indirect costs as direct costs) 

If an unallowable cost remains on a sponsored program and the department has not removed with 30 days of identification, the Office of Sponsored Programs will prepare a journal entry to transfer the unallowable cost to an unrestricted source of funding.  If an overage remains on a sponsored programs and the department has not removed within 30 days of identification, the Office of Sponsored Programs may prepare a journal entry to transfer the costs to the appropriate RIF account for the Principal Investigator or College. 

Uniform Guidance, Subpart E – Cost Principles provides a detailed listing of items that are typically allowable and unallowable.  Examples of costs normally considered unallowable include: 

  • Advertising and public relations 
  • Alcoholic beverages 
  • Convocations or other events related to instruction 
  • Donations 
  • Entertainment 
  • Fines and penalties 
  • Fully depreciated assets or assets gifted by the federal government 
  • General purpose equipment, buildings, and land 
  • Housing and personal living expenses 
  • Insurance and indemnification 
  • Legal costs 
  • Lobbying 
  • Memberships in any civic or community organization 
  • Royalties or patents 

Direct Costs vs Indirect Costs 

There are two types of costs associated with sponsored programs, direct costs and indirect costs.  These costs are distinguished by whether the cost can be directly charged to a sponsored program vs being included in the university’s Indirect Cost Rate. 

Direct Costs 

Direct costs can be identified with a particular sponsored project or can be assigned directly to such activities relatively easily with a high degree of accuracy.  Examples include: 

  • Salary of a Principal Investigator/researcher 
  • Salary of a Research Associate/Graduate student/technical staff 
  • Equipment related to a project 
  • Travel to a conference to present results of a project 

Indirect Costs 

Indirect costs (also referred to as Facilities and Administrative (F&A) costs or overhead costs) are costs incurred for a common or joint purpose benefitting more than one cost objective and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved.  Examples include: 

  • Building utility or maintenance costs 
  • Administrative/Clerical salaries 
  • General purpose supplies 
  • Library costs