Allowable and Unallowable Cost
The Federal Government has given guidance to educational institutions as to the type of costs allowed and not allowed on federally sponsored projects. Non-Federal Funders typically follow the same guidelines. Federal OMB Circular A-21 gives guidance as to whether an expense should be treated as an allowable expense (direct costs) or unallowable expense (indirect costs or not allowed even as an indirect cost). OHSU collectively calls expenses that would be typically charged as indirect costs as "Unallowables."
To determine whether an expense is to be treated as allowable and chargeable as a direct cost to the project, the expense needs to be specifically identified and assigned with relative ease and a high degree of accuracy to a particular sponsored project.
Indirect costs (also known as F&A and Overhead costs) are general institutional expenditures that are incurred for multiple or shared projects, functions, or activities and cannot be specifically identified wtih relative ease and with a high degree of accuracy to a sponsored project.
The following questions are helpful in determining if an expense can be treated as allowable as a direct cost or is unallowable and considered an indirect cost:
Is the expense Allowable?
- Used solely to advance the project work
- Can be identified specifically with a particular project or activity
Is the Expense Reasonable?
- Necessary and justifiable under project goals
- Passes the "prudent person test" - reflects what a prudent person would pay
Is the Expense treated Consistently?
- Expenses should be treated as direct costs in similar circumstances
If your expense meets all three of these criteria, it may be treated as allowable and a direct cost. If not, it is not allowable as a direct cost on a sponsored project.