Purpose of Guidelines
The purpose of these guidelines is to provide information about the identifying and allocating unallowable costs as defined in Uniform Guidance 2 CFR 200.
Uniform Guidance 2 CFR 200 establishes principles for determining costs applicable to grants, contracts and other agreements with Institutions of Higher Education (IHE). In order for the University of Florida to meet federal requirements it is necessary to identify and correctly allocate unallowable expenses as defined in Uniform Guidance 2 CFR 200. 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 and Contracts and Grants, understand and consistently follow the stated guidelines.
According to Uniform Guidance 2 CFR 200, (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 these principles.
- Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amounts of costs
- Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non-Federal entity.
- 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 (GAAP)
- Not be included as a cost or used to meet cost sharing or matching requirements of any other federally-financed program in either the current or prior period.
- Be adequately documented
In other words, we can only record expenses if they are:
- Reasonable – A prudent person would have purchased the item and paid that price.
- Allocable – Expenses are at least partially applicable to a sponsored agreement.
- Consistently Treated – Expenses for similar purposes must be treated the same way (throughout the university) under like circumstances.
- 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 Uniform Guidance 2 CFR 200. 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.
Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards Code of Federal Regulations Title 2: Grants and Agreements Part 200 (2 CFR 200).
Allowable Costs (200.403)
- 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 (200.413)
- Direct costs are those costs that can be identified specifically with a particular final cost objective, such as a Federal award, or other internally or externally funded activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy. Costs incurred for the same purpose in like circumstances must be treated consistently as either direct or indirect (F&A) costs.
Indirect (facilities & administrative (F&A)) costs (200.56)
- Indirect (F&A) costs means those costs incurred for the common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved.
- Principal Investigator on a grant, contract or cooperative agreement. This person bears the main responsibility for costs that are charged to that agreement.
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.
Although much of these guidelines have already been implemented, an effective date of December 26, 2014 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.
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 account 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.
Cost Analysis Responsibilities
In preparing the indirect cost proposal, three methods are used to identify and allocate these costs:
- All costs that can be identified by account code are excluded from the indirect cost proposal. See Charging Costs Directly or Indirectly to Sponsored Projects for a list of these account codes. These costs fall in the first category as being unallowable costs.
- 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.
- 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. 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 Uniform Guidance 2 CFR 200.