Policy on Unallowable Costs

Purpose

The purpose of this policy is to ensure compliance with federal regulations regarding unallowable costs for sponsored research programs.

Scope

This policy applies to the University of Dayton’s college, schools, departments, and Research Institute conducting sponsored research.

Policy History

I. Effective Date:  January 8, 2015

II. Approval:  March 10, 2021

III. History: 

• Approved in its original form: January 8, 2015
• Approved as amended:  March 10, 2021

IV. Maintenance of Policy: Director, Contracts and Grants

Policy

Federal regulations provide principles to be applied in establishing the allowability of certain items involved in determining cost. General provisions for selected items of cost are contained in the Office of Management and Budget (OMB) Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, 2 CFR 200, commonly referred to as the “Uniform Guidance,” Subpart E – Cost Principles.    These principles apply irrespective of whether a particular item of cost is treated as a direct cost or a facility and administrative (F&A or indirect) cost. 

In accordance with 2 CFR 200.403, except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards:

• Be necessary and reasonable for the performance of the Federal award and be allocable thereto under the Uniform Guidance;
• Conform to any limitations or exclusions in the Uniform Guidance or in the Federal award as to types or amount of cost items;
• Be consistent with policies and procedures that apply uniformly to both federal and non-federal University activities;
• 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.
• Be determined in accordance with generally accepted accounting principles;
• Not be included as cost or used to meet cost sharing or matching requirements of any other federally financed program;
• Be adequately documented and within the period of performance of the Federal award.

Unallowable costs should be either properly segregated in the University’s accounting system or identifiable from departmental records to ensure that they will not be charged to the government.

In cases of discrepancy between the provisions of a specific sponsored agreement and the provisions of the Uniform Guidance, the agreement should govern. 

The following is a quick reference guide for determining “unallowable” costs.  It is not intended to replace the Uniform Guidance.  Refer to the complete text for establishing allowability of costs.

• Advertising and Public Relations– Costs of advertising designed solely to promote the institution are unallowable.  Public Relations costs of meetings, conventions, convocations or other activities of the institution including: (a) costs of displays, demonstrations, and exhibits; (b) costs of meeting rooms, hospitality suites, and other special facilities used in conjunction with shows and other special events; and (c) salaries and wages of employees engaged in setting up and displaying exhibits, making demonstrations and providing briefings are unallowable.  Costs of promotional items and memorabilia, including models, gifts, and souvenirs are also unallowable.  See the Uniform Guidance for specific exceptions, which may include advertising for recruitment of employees or human subjects, costs specifically required by the award, communicating with the public and press pertaining to specific activities or accomplishments which result from the performance of the award, and conducting general liaison with news media and others as necessary to keep the public informed on matters of public concern.
• Alcoholic Beverages
• Alumni Activities
• Bad Debts
• Commencement or Convocation Costs
• Contingency Provisions
• Contributions and Donations
• Entertainment costs, including amusement diversion, social activities, and any costs directly associated with such costs (such as tickets to shows or sporting events, meals, lodging, rentals, transportation, and gratuities)
• Fines, Penalties, Damages and Other Settlements
• Fund Raising and Investment Management Costs
• Goods or Services for Personal Use
• Intellectual Property (with specific exceptions)
• Interest (with specific exceptions)
• Lobbying
• Losses on other sponsored agreements or contracts (cost overruns). Any excess of costs over income under any other sponsored agreement or contract of any nature is unallowable.  This includes, but is not limited to, the institutions contributed portion by reason of cost-sharing agreements or any under-recoveries through negotiation of flat amounts for indirect costs.
• Memberships in any civic or community organization, country club, social or dining club
• Pre-agreement costs, unless approved by the sponsoring agency or permitted under expanded authorities
• Selling and marketing of any products or services of the institution, except as direct costs with prior approval of the sponsor.
• Student activity costs incurred for intramural activities, student publications, student clubs, etc.

In addition to unallowable costs, charges to federally sponsored agreements must also exclude costs that are directly associated with the unallowable costs.  A directly associated cost is defined in federal regulations as any cost which is generated solely as a result of the incidence of another cost, and which would not have been incurred had the other cost not been incurred.  An example of the cost that is directly associated with an unallowable cost is the cost of airfare to go to another city for the purpose of entertaining business associates, or for fundraising.  Since the entertainment and fundraising costs are expressly unallowable under the Uniform Guidance, and the airfare would not have been incurred had the unallowable costs not been incurred, the airfare is an unallowable directly associated cost.

RESPONSIBILITY FOR ENFORCEMENT, REMEDIES, SANCTIONS

The Office of Contracts and Grants, UDRI Director’s Office, Research Accounting, and Research Purchasing Offices are responsible for enforcement of this policy to ensure that no unallowable costs are charged to sponsored programs.

Applicable Federal Regulations

1. OMB Uniform Guidance, Subpart E – Cost Principles

Reference Documents

1. University of Dayton Accounting Guidelines for Unallowable Costs