Allowable Activities and Cost Principles
OMB Circular A-21 establishes the principles for determining costs applicable to grants, contracts, and other agreements with educational institutions. Circular A-21 states that a cost may be charged directly to a sponsored project if the expenditure meets the following criteria:
Allowable: Costs that are permitted and/or not expressly prohibited according to the terms and conditions of the specific award, awarding agency policies, NDNU policies, and federal cost principles.
Allocable: Costs that provide a direct benefit to the project and can be associated with the project with a high degree of accuracy.
Reasonable: Costs that are necessary for the completion of program or project objectives and that are able to withstand public scrutiny, i.e., objective individuals not affiliated with the institution would agree that the cost is reasonable and appropriate.
Consistent: Costs that are consistently treated in the same manner under like circumstances and are either directly charged or included in F&A recovery, not both.
The following is a list of questions that should be asked to assist in determining the allowability of each grant expenditure:
- Is this cost prohibited by OMB rules? *
- Is this cost included in the approved grant budget?
- Is this cost incurred specifically for benefit to the project? **
- Is this cost necessary for the performance of the project?
- Does this cost reflect sound business practices?
- Does this cost pass the ‘prudent person’ test? ***
- Is this cost treated in a manner consistent with University policies?
* Please note that even though a cost may be allowable under federal regulations, it must have also been approved in the grant application (or approved grant modification/amendment) to be allocable to the grant.
** If the cost benefits multiple projects, it must be allocated to the projects based on proportional benefit that can be approximated through use of reasonable methods.
*** “A cost may be considered reasonable if the nature of the goods or services acquired or applied, and the amount involved therefore, reflect the action that a prudent person would have taken under the circumstances prevailing at the time the decision to incur the cost was made.” (OMB Circular A-21, Sec. C.3.)
There are certain activities and costs that the federal government deems inappropriate and will not reimburse. These categories of activities and costs are referred to as unallowable. Below is a partial list of activities and costs that are generally considered unallowable under OMB Circular A-21. For a complete list of unallowable costs, please refer to Section J of OMB Circular A-21.
- Advertising, Public Relations
- Alcoholic Beverages, Including Tips for Alcohol
- Alumni Activities
- Bad Debts
- Commencement and Convocation
- Fines and Penalties
- First Class Air Travel
- Goods and Services for Personal Use
- Promotional Items and Memorabilia
Supplement not Supplant
Supplanting is when grant funds are used to pay for ongoing activities that had previously been funded from the University’s regular budget. Federal funding agencies typically have non-supplanting requirements; that is, grant funds are to be used to supplement (add to), not to supplant (replace) a position/program/activity that the University provided with non-federal funds in the prior year.