Allowable Costs

Costs allowed on sponsored projects

Costs directly charged to a sponsored project must conform to the terms and conditions of the specific award. To be allowed as a direct cost on a sponsored project, a cost must be:

  • Allocable: used solely to advance the project work and can be identified specifically with a particular project or activity
  • Allowable: not subject to any restrictions under Uniform Guidance, agency terms and conditions, the specific contract or award agreement, or IU policy
  • Reasonable: necessary and justifiable for the performance of the award and does not exceed what would be incurred by a prudent person under the same circumstances
  • Consistent: treated the same way in like circumstances regardless of the source of funding

Expenses to cost share subaccounts and program income accounts must follow the same terms and conditions. These expenses must also pass the allocable, allowable, reasonable, and consistent tests. If a cost would not be allowed on the sponsored award, then it is also not allowed as cost share or as an expense on a program income account.

Learn more about cost share on sponsored projectsLearn more about program income on sponsored projects

What is an unallowable cost?

Costs that do not meet the allocable, allowable, reasonable, and consistent tests cannot be directly charged to a sponsored project. In addition, certain direct costs are generally identified as unallowable under Uniform Guidance.

Examples of direct costs that are typically unallowable or require prior approval:

  • Administrative and clerical salaries
  • Supplemental pay
  • Office supplies
  • Postage
  • Local telephone rental
  • Cell phones, PDAs, etc.
  • Advertising and promotional expenses
  • Background check charges
  • Payroll document processing fee

Who monitors unallowable costs?

Fiscal officers and principal investigators are responsible for ensuring all costs directly charged to sponsored projects are allowable. Costs that would be red flags to auditors are reviewed during the proposal development stage by the Office of Research Administration (ORA). Costs that would normally fall in the unallowable category will require full justification.

Once an account is active, ORA staff will review monthly transaction exception reports to identify potentially unallowable or misclassified financial transactions and identify data errors in Kuali Coeus (KC) Award and Kuali Financial System (KFS) account information. ORA encourages departmental staff to routinely run this report to confirm only allowable transactions are posting to sponsored projects.

To resolve exceptions, ORA considers Uniform Guidance, Federal Demonstration Partnership (FDP) expanded authorities, agency and division policies and procedures, university policies, and award-specific terms and conditions. We also consult with fiscal officers and principal investigators as needed.

ORA will work with your department to obtain adequate documentation to validate the expense on the account. If a cost is determined to be unallowable, action will be taken to remove the charge from the account.

Monthly email notices

At the beginning of each month, ORA emails notices to fiscal officers that contain helpful information. These include:

  • Account Expiration Notice—Notifies the fiscal officer of accounts that will expire within 90 days to ensure that the account is finalized so that ORA can prepare the final financial report to the sponsor.
  • Accounts Receivable Notice—Notifies the fiscal officer of accounts with accounts receivables that have been outstanding for over 90 days.
  • Cost Share Notice—Notifies the fiscal officer of cost share subaccounts that have been effective for over 60 days but have no expense charged to them.