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Sponsored Project Allowable and Unallowable Costs

If you have responsibility for the financial management of sponsored projects, find out how the allowability of a cost is determined.

Determining allowability

Determining whether an expense is allowable or unallowable is the first step in assigning a cost to an award. If an expense is not allowable on an award, do not charge it to that award. You must charge it to an unrestricted funding source.

OMB Circular A-21

The principles of OMB Circular A-21 govern costs that may be charged either directly or indirectly to the government by educational institutions. UCSD generally applies these same cost principles to non-federal funding as well, although in some cases non-federal sponsors define allowable and unallowable costs differently than federal sponsors.

Awarding agencies

Each awarding agency has the right to establish its own terms and conditions for its awards. Specific award terms and conditions take precedence over the provisions of A-21. For example, although travel is not defined as unallowable in A-21, your particular award may designate travel, or more likely foreign travel, as unallowable. In that case, you may not charge foreign travel to that project.

Sometimes a sponsoring agency may authorize or direct a practice that conflicts with UCSD-disclosed practices or a CAS (cost accounting standards) requirement. These situations are rare, as most agencies are aware of, understand, and follow applicable cost accounting standards themselves. However, if you believe that what you are being directed to do may conflict with University policy, please contact the compliance officer or the controller immediately to resolve the conflict with the agency.

Allowable costs

An allowable cost is a cost that can be paid by your contract or grant. UCSD considers a cost to be allowable when it meets the following tests:

  1. The cost is reasonable; it reflects what a prudent person might pay.
  2. The cost is allocable; the contract or grant that paid the expense benefits from it. For a cost to be allocable, it must meet one of the following criteria:
    • It is incurred solely to advance the work under the sponsored agreement.
    • It benefits the sponsored agreement and the work of the institution, in proportions that can be approximated through the use of reasonable methods.
    • It is necessary to the overall operation of the institution and is deemed to be assignable in part to sponsored projects.
  3. The accounting treatment of the cost is consistent across the campus.
  4. The cost is allowable as defined by A-21 and/ or by the terms of the particular award.

These requirements pertain to costs associated with developing a proposal, recording in the University accounting system, or reporting on a financial report.

Exceptional cirsumstances

In exceptional circumstances, a sponsoring agency may direct a normally unallowable cost to be considered a direct cost for a specific program if the inherent purpose of the program requires it. This cost will be considered allowable if it satisfies the requirements for direct costs and is sufficiently documented.

Unallowable costs

An unallowable cost is a cost that cannot be paid by your contract or grant. Such costs may be expressly prohibited by A-21 or may be considered unallowable as a result of campus policy or by mutual agreement with a governmental agency. The University has the responsibility to identify such costs and exclude them from any billing, claim, or award proposal.

Other cost guidelines

  • Any expense that is not considered recoverable under a federal sponsored agreement may not be charged to other federal sponsored agreements.
  • A sponsoring agency may state that certain costs are not reimbursable even though they are considered allowable by federal regulations. These costs are unallowable and must be excluded from billing.
  • Costs incurred in support of a specific agreement that are non-reimbursable may constitute cost sharing.

Section J

Section J of A-21 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