Determine if a Cost is Direct or Indirect
Use this decision guide to determine whether a cost is allowable and should be treated as a direct or indirect (F&A) cost on a sponsored project.
Before You Begin
Everyone involved in proposing, accepting, and spending sponsored project funds shares responsibility for ensuring costs are proposed and recorded accurately and in accordance with sponsor requirements.
Before determining whether a cost should be treated as direct or indirect, confirm that the cost is allowable. An allowable cost must:
- Be reasonable
- Be allocable
- Be treated consistently across campus
- Be allowable under the terms of the award
If the cost is not allowable: Do not charge it to the sponsored project. Find another source of funding, such as an unrestricted fund, and use the appropriate account code so the unallowable expense can be identified correctly in the accounting system.
Determine if the Cost is Normally a Direct Cost
| Question | If Yes | If No |
|---|---|---|
| Is this type of cost normally recorded as a direct cost?
For federally funded sponsored projects, administrative and clerical salary costs and general office supplies are typically recorded as indirect costs. |
Continue to the next question to verify that the cost qualifies as a direct expense. | The cost should generally be treated as an indirect (F&A) cost and another source of funding should be used.
If you believe special circumstances may allow the cost to be treated as direct, continue to Special Circumstances. |
Can the cost be identified specifically or logically with the sponsored project?
|
The expense may be recorded as a direct cost. | Do not charge the expense as a direct cost. Find another source of funding and use the appropriate account code so the indirect expense can be identified correctly in the accounting system. |
Special Circumstances
If a cost is normally treated as indirect but you believe special circumstances apply, use the appropriate section below.
Administrative or Clerical Salaries
| Question | If Yes | If No |
|---|---|---|
| Is the administrative or clerical salary cost on a federal or federal flow-through award? | Continue to determine whether the sponsored project qualifies as a major project. | For non-federal sponsors, administrative and clerical expenses may be charged directly when they are allowable, allocable, reasonable, and permitted by the terms and conditions of the award. |
| Does the federally funded sponsored project qualify as a major project?
A major project requires an extensive amount of administrative or clerical support that is significantly greater than the routine level of services provided by academic departments. |
Continue to the employee-effort criteria below. | The cost should be treated as an indirect cost. Find another source of funding and use the appropriate account code. |
Does the employee meet at least one of the following criteria?
|
The major-project and employee-effort tests have been met. Return to Verify the Cost Qualifies as Direct. | The cost should be treated as an indirect cost. Find another source of funding and use the appropriate account code. |
Other Costs Normally Treated as Indirect
| Question | If Yes | If No |
|---|---|---|
| Is the non-administrative cost on a federal or federal flow-through award? | Continue to determine whether a different purpose or circumstance supports treating the cost as direct. | For non-federal sponsors, expenses may be charged directly when they are allowable, allocable, reasonable, and permitted by the terms and conditions of the award. |
| Is there a different purpose or circumstance that supports charging a normally indirect cost directly to the award?
Costs normally considered indirect may be treated as direct when the purposes and circumstances for which the costs are incurred are different. A typical example is when a project requires specific and identifiable support above the level normally provided and charged indirectly to university activities. Review Sponsored Project Non-Salary Direct and Indirect (F&A) Costs before making this determination. |
Continue to the criteria below. | The cost should be treated as an indirect cost. Find another source of funding and use the appropriate account code. |
Does the cost meet all of the following conditions?
|
Return to Verify the Cost Qualifies as Direct. Document your justification for the differing purpose and circumstance that may permit the cost to be charged directly. | The cost should be treated as an indirect cost. Find another source of funding and use the appropriate account code. |
Verify the Cost Qualifies as Direct
Before recording a cost as a direct expense, confirm all of the following:
- The cost can be identified specifically or logically with the sponsored project or program.
- The cost provides the project with a clear and supportable benefit.
- The sponsored project's terms and conditions do not prohibit the expense from being charged directly.
If all three conditions are met: The expense may be recorded as a direct cost.
If any condition is not met: Do not charge the expense as a direct cost. Find another source of funding and use the appropriate account code so the indirect expense can be identified correctly in the accounting system.