Skip to main content
Research

Unallowable Costs

Based on OMB A-21 and the Uniform Guidance, to be allowable, costs must be necessary, reasonable, and allocable to the sponsored agreement, and given consistent treatment.

Costs must be necessary to complete the scope of work. If the scope of work can be completed without this expense, then it is not necessary to the award, and not an allowable cost.

Reasonable costs are when the cost does not exceed what a prudent person would incur under the circumstances prevailing at the time the decision to incur was made. Thresholds are not given here because each situation is different, with different circumstances. Reasonable costs will be reviewed case-by-case. If the cost is not reasonable to a prudent person, then it is not an allowable cost to the award.

Allocable means the cost was incurred solely to advance the work of the sponsored award, and can be directly linked to the sponsored award. The cost should be charged in reasonable proportion to the benefit it provided to the award. If more than one award received a benefit, the cost should be allocated accordingly. If there is no direct way to link the benefit or if it benefited multiple awards, then the cost should be treated as an indirect cost (Facilities & Administrative, F&A), and paid from the department agency F&A account.

Consistent treatment means university policy and generally accepted accounting principles would treat similar costs in similar circumstances the same way. If costs are direct costs, they are always treated as direct costs depending on their identifiable benefit to the award. The costs must be treated consistently for all work of the organization under similar circumstances, regardless of the source of funding.

Expenses are reviewed by Research and Sponsored Programs prior to payments to vendors. If costs are not reasonable, allocable or treated consistently, then they are not allowable to sponsored programs and cannot be paid from the sponsored award. If not approved for payment by Research and Sponsored Programs, Research and Sponsored Programs will notify the PI that it cannot be paid from the award. At that point, the PI should contact their department to see if other non-Restricted funds, such as General Revenue, Agency, or Foundation funds may be available to pay the expense.

The following are examples of generally unallowable expenditures under OMB A-21, and OMB Uniform Guidance 2 CFR 200. Sponsoring agencies, the State of Illinois, and Illinois State University policies may also limit other costs. Obtaining a written approval of a specific cost and purpose from the granting agency can sometimes make a cost allowable.

This list of unallowable expenses is not all inclusive:

  • Alcoholic Beverages
  • Entertainment Costs: Costs incurred for amusement, social activities, entertainment, and any related items such as meals, lodging, rentals, alcoholic beverages, transportation, and gratuities are not allowed.
  • Fines and Penalties
  • Fund Raising Costs
  • Gift Cards
  • Goods or Services for Personal Use: Costs of goods or services for personal use of the institution's employees regardless of whether the cost is reported as taxable income to the employees.
  • Pre-Agreement Costs: Costs incurred prior to the effective date of the sponsored project, whether or not they would have been allowable if incurred after such date, are unallowable unless specifically set forth and identified in the sponsored agreement, or approved through prior approval procedures.
  • Proposal Costs: These costs are incurred while writing and submitting a sponsored project. These are F&A costs.
  • Memberships in Civic or Community Organizations: Costs of an individual's membership in civic or community organizations are not allowable, likewise memberships in any social, dining, country club or organization.

Items Not Normally Treated as Direct Costs

The following items are normally included in facilities and administrative (F&A) costs. Direct charging of these costs may be appropriate where a "major project" or activity explicitly budgets for them and can be specifically identified with the project or activity. Per OMB A-21, a "major project" is defined as a large, complex project that requires support which is significantly greater than the routine level of such services and or supplies provided by academic departments.

Examples of items include:

  • administrative and clerical staff salaries
  • office supplies, postage, local telephone costs, and memberships