Written by Justo Torres, Director for Contracts and Grants.
This month’s Finance Division Knowledge Base spotlight is on What is an allowable cost versus an unallowable cost?
One of the most basic and fundamental knowledge bases for a contract or grant manager is an understanding of what is and what is not an allowable cost on a contract or grant. For the purpose of this article, we will focus on federal awards, as they are the most common on campus.
Federal grants are governed by sponsor guidelines and the Uniform Guidance (in that order). The Uniform Guidance (UG) can be found Code of Federal Regulations page.
While the UG indicates much of what is allowable and enumerates some items that are not allowable, it is not all inclusive. Here is where the concepts of allowable, allocable, reasonable and consistent come into play.
A cost is allowable when it is:
- not prohibited by sponsor or university policy.
- serves a business purpose, including instruction, research and public service.
A cost is allocable when it is:
- for a sponsored project when the cost provides “benefit” to the project.
- of a nature that can be counted or apportioned to a project based on the benefit the same project received.
A cost is reasonable when:
- a reasonable person would see the benefit to a purpose and the appropriateness of the price/cost.
A cost is consistent when:
- it is reasonable and allowable regardless of funding sources.
- Note: Regardless of federal rules, a cost that is not allowable on state funds would not be allowable on a federal award, as this fails the “consistent” standard.
Rather than focusing on where it says that something is or is not allowable, it is better to treat the concepts of allowable, allocable, reasonable and consistent as the logic roadmap to better cost compliance.