6-500 Allowability of Costs

6-510 General Principles

Funds derived from contracts and grants are University funds and are to be expended in accordance with contract and grant terms and conditions and University policies. When University policy and funding agency restrictions on expenditures differ, the more restrictive of the two policies shall prevail. Any questions on allowability of an expense should be directed to the campus Contracts and Grants Officer or other appropriate campus fiscal or administrative officer prior to incurring the expense.

6-520 Classification of Direct and Indirect Costs

Business and Finance Bulletin A-47, "Direct Costing Procedures" outlines University policy regarding direct charging of all appropriate costs to a sponsored agreement when such costs are not reimbursed as indirect costs through application of approved indirect cost or facilities and administrative (F&A) rates. For federal awards, 2 CFR 200 incorporates the following principles for determining direct and indirect costs:

Identification with the Federal award rather than the nature of the goods and services involved is the determining factor in distinguishing direct from indirect (F&A) costs of Federal awards.

Indirect (F&A) costs are those that are incurred for common or joint objectives and therefore cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity.

For specific information on direct cost elements, see Chapter 7. For specific information on indirect costs, see Chapter 8.

6-530 Federal Cost Principles

It is the University's policy to follow the federal cost principles for federal awards as set forth in 2 CFR 200 (Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards). Proper costs under federal awards must be reasonable, allocable, consistent, and allowable.

2 CFR 200 provides the general federal framework for determining costs applicable to grants, contracts, and other agreements with educational institutions. 2 CFR 200.403 describes "factors affecting allowability of cost":

Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards:

(a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles.

(b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items.

(c) Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non-Federal entity.

(d) Be accorded consistent treatment. A cost may not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost.

(e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for state and local governments and Indian tribes only, as otherwise provided for in this part.

(f) Not be included as a cost or used to meet cost sharing or matching requirements of any other federally-financed program in either the current or a prior period. See also §200.306(b), Cost sharing or matching.

(g) Be adequately documented. See also §§200.300 (Statutory and national policy requirements) through 200.309 (Period of performance).

(h) Cost must be incurred during the approved budget period. The Federal awarding agency is authorized, at its discretion, to waive prior written approvals to carry forward unobligated balances to subsequent budget periods pursuant to 200.308(e)(3).

6-531 Reasonable Costs
In the expenditure of extramural funds, the University follows the 2 CFR 200.404 definition of reasonable costs.

6-532 Allocable Costs
In the expenditure of extramural funds, the University follows the 2 CFR 200.405 definition of allocable costs.