Purpose of Guidelines

The purpose of these guidelines is to provide information about the identifying and allocating unallowable costs as defined in OMB Circular A-21.

Background

Circular A-21 establishes principles for determining costs applicable to grants, contracts and other agreements with educational institutions. In order for the University of Florida to meet federal requirements it is necessary to identify and correctly allocate unallowable expenses as defined in A-21. All departmental expenditures, both direct and indirect costs, are a part of the indirect cost rate calculations, therefore it is important that all department staff and PIs, as well as the offices of Finance and Accounting, understand and consistently follow the stated guidelines.

According to OMB Circular A-21, "The test of allowability of costs under these principles (A-21) are:

1. they must be reasonable;
2. they must be allocable to sponsored agreements under the principles and methods provided herein;
3. they must be given consistent treatment through application of those generally accepted accounting principles appropriate to the circumstances; and
4. they must conform to any limitations or exclusions set forth in these principles or in the sponsored agreement as to types or amounts of cost items. "

In other words, we can only report expenses if they are:

1. Reasonable - A prudent person would have purchased the item and paid that price.
2. Allocable - Expenses are at least partially applicable to a sponsored agreement.
3. Consistently Treated - Expenses for similar purposes must be treated the same way (throughout the university) under like circumstances.
4. Allowable - The expense must be allowable or not specifically excluded as specified by government regulations (examples of specifically excluded costs are discussed later) or by the contract/grant/cooperative agreement requirements.
   

If an expense cannot meet the above criteria, it is NOT eligible for inclusion in the indirect cost rate regardless of its purpose.

A cost may be allowable by University of Florida and State of Florida standards but unallowable for the purpose of calculating the Indirect Cost Rate based on A-21. The federal government will not reimburse these costs, however, they may be entirely appropriate and permissible activities. Guidance is given in this document as to classification of costs if unallowable. If there are any questions, please call Contracts and Grants 392-1235 for assistance.

Definitions

A-21 Office of Management and Budget (OMB) circular of Cost Principles for Educational Institutions.

Allowable Costs

An expense which can be placed in the indirect cost rate proposal based on the following:

1. Reasonable - A prudent person would have purchased the item and paid that price.
2. Allocable - Expenses are at least partially applicable to a sponsored agreement. This is true for direct and indirect costs.
3. Consistently Treated - Expenses for similar purposes must be treated the same way (throughout the university) under like circumstances.
4. Allowable - The expense must be allowable or not specifically excluded as specified by government regulations.

Direct Costs

Costs which are specifically associated and identified to a particular project, program or activity.

Indirect Costs

Costs incurred for a common or joint purpose benefiting more than one cost objective and which cannot be readily assigned to a particular project, program or activity.

PI

Principal Investigator on a grant, contract or cooperative agreement. This person bears the main responsibility for costs that are charged to that agreement.

Guideline Issues

Unallowable costs fall into two categories, those costs unallowable in and of themselves such as entertainment or lobbying, and costs related to activities that are unallowable such as alumni activity or public relations. It is important that all unallowable costs be recorded in a manner that makes them identifiable. In order for that to occur, there needs to be campus wide awareness and training at the departmental level where costs are incurred and first recorded.

The effective date of these guidelines is July 1, 1996.

Although much of these guidelines have already been implemented, an effective date of July 1, 1996 is set to allow for university wide training at the department level so as to ensure compliance and consistency.

Responsibility for compliance

Responsibility for following these guidelines lies primarily with Principle Investigators, Department Chairs and fiscal personnel with the general guidance and oversight of the colleges, schools and divisions. The University of Florida administration is responsible for guidance and training and for insuring compliance through periodic internal and external audits.

Department Responsibilities

The first and foremost responsibility for identifying and segregating unallowable costs is at the department level when the costs are incurred and recorded. All unallowable costs should be identified to the correct object code, if the transaction is unallowable, or the correct account, if the activity is unallowable. Any questions regarding coding can be addressed to The Office of Contracts and Grants, 392-1235, which is the central unit designated to carry out these oversight responsibilities.

Contracts and Grants Responsibilities

In monitoring agreements and in preparing reports:

Contracts and Grants staff review the award and the departmental ledgers of sponsored agreements when preparing reports in order to verify that the charges are allowable in both the general sense and according to the specific agreement. This is an after the fact review and should be seen as a stop gap precaution. The first and foremost responsibility for identifying and segregating unallowable costs is at the department level when the costs are incurred and recorded.

In preparing the indirect cost proposal, three methods are used to identify and allocate these costs:

1. All costs that can be identified by object code are excluded from the indirect cost proposal. See attachment 1 for a list of these object codes. These costs fall in the first category as being unallowable costs.
   
2. Any areas/departments/accounts that are identified as being solely or almost solely used for an unallowable activity are identified and moved to Other Institutional Activities. In this way these activities, which are legitimate for university purposes, are not included in the organized research base and still draw their share of general administrative and other costs. See attachment 2 for a list of these areas/departments/accounts that are treated in this manner.
   
3. Some costs must be identified through a survey. All accounts identified as General Administration, College Administration or Department Administration are surveyed. The questionnaire requests information on what the account is used for, if any unallowable costs have been paid from the account and if there are any similar accounts that should have been polled but were missed. See attachment 3 for an example of the survey forms. In addition, certain costs such as lobbying and maintenance to the President's home are identified. Once these amounts are identified they are moved to the Other Institutional Activities cost pool or excluded depending on whether the charges are unallowable (as in #1) or the activity is unallowable (as in #2).

Service Centers' Responsibilities

As stated in the University of Florida Guidelines on Service Centers, Recharge Centers and Specialized Service Facilities, each service center will remove unallowable costs from the rate calculations as set forth by OMB Circular A-21.