Identifying and Allocating Unallowable Expenses

Directive Statement

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:

1. Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles
2. Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amounts of costs
3. Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non-Federal entity
4. 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
5. Be determined in accordance with generally accepted accounting principles (GAAP)
6. 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
7. 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 (352) 392-1235 for assistance.

Reason for Directive

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 Principal Investigators (PIs), as well as the offices of Cost Analysis and Contracts and Grants, understand and consistently follow the stated guidelines.

Who must comply?

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 ensuring 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.

1. 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
2. Any questions regarding coding can be addressed to The Office of Contracts and Grants, (352) 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:

1. 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
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
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
   • 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.

Guideline Issues

Unallowable costs fall into two categories:

1. Those costs unallowable in and of themselves such as entertainment or lobbying
2. 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.  For that to occur, there needs to be campus-wide awareness and training at the departmental level where costs are incurred and first recorded

Last Reviewed

Last reviewed on 03/20/2024

Resources

2 CFR 200 Quick Reference Guide

Uniform Guidance 2 CFR 200

48 CFR 9905 – Cost Accounting Standards (CAS) for Education Institutions

Toolkits

UF HR Toolkit – CAS Exemption Process

Training

RSH260: Cost Principles

RSH206: Cost Principles Advanced Topics

Contacts

Contracts & Grants: (352) 392-1235

Cost Analysis: (352) 392-5778