Certain costs incurred by higher education institutions cannot be charged to federally sponsored research projects, either as a direct or F&A cost. These costs are referred to as unallowable costs. The OMB Uniform Requirements (2 CFR 200) provide guidance for determining allowability.
The following specific items cannot be included in the F&A rate calculation or charged as direct costs to federal research: Advertising (displays, exhibits), Alcoholic Beverages, Alumni Activities, Bad Debts (noncollectable invoices), Commencement costs, Donations and Contributions, Entertainment Expenses, Fund Raising, Fines and Penalties, Goods and Services for Personal Use, Housing and Personal Living Expenses, Memberships in Social Organizations, Lobbying, Selling/Marketing of Goods and Services. Additional allowable costs are listed in the Uniform Requirements.
Federal agencies awarding projects to institutions may apply further restrictions on the allowability of certain costs. In addition, the Uniform Requirements include general principles governing the allowability of costs.
A cost must meet the following criteria to be allowed:
- Reasonableness - at the time the cost was incurred, a prudent person would have made a similar decision (in relationship to the goods or services purchased and the amount paid).
- Allocable to sponsored agreements - the goods or services are chargeable to sponsored research projects (either directly or indirectly) in relationship to the benefits received (an equitable allocation process).
- Consistent treatment - the cost is consistently treated as either a direct cost or an F&A cost by all university departments.