1305 PR.04 Unallowable Costs

Contents

1.      Overview

2.      Procedure Applicability

3.      Common Unallowable Expenses

4.      Unallowable Activities

5.      Office of Management and Budget’s (OMB) General Provisions for Selected Items of Cost

6.      Year-End Closing

The purpose of this procedure is to describe the treatment of unallowable costs for all University accounts that are subject to inclusion in the University’s Facilities & Administrative (F&A) rate calculation. 

Consistent assignment of charges to specific expense types enables the University to appropriately capture and exclude unallowable costs as a direct cost as well as from the federal F&A rate proposal and subsequent reimbursement when the F&A rate is applied to sponsored awards.

Definition:

Unallowable costs: Those expenses incurred by the University which are not reimbursable by the Federal Government either as a direct or F&A type cost.

The following University entities must apply the federal costing regulations contained in 2 CFR Part 200, Subpart E for classifying their expenses:

• schools and departments that have federal awards; and
• departments that charge for goods or services, or are included in the Facilities and Administrative (F&A) cost rate calculation, such as administrative departments, facility departments, computing departments, the library system, health services, and other service departments or internal service providers.

Business Meals, Catering, Food & Beverages and Alcoholic Beverages

These types of expenses must be treated in compliance with Federal Regulations.  In order to properly identify and charge these expenses to non-sponsored funds, and to ensure their exclusion from the F&A rate calculation, use the following spend categories as appropriate:

Note:  Alcohol purchased while on sponsor related business is unallowable, either as a direct cost or an F&A cost.  The cost of the beverage must be charged to a non-sponsored source of funding using SC256 Entertainment and Alcohol regardless if the travel was domestic or foreign.

Travel

2 CFR Part 200.475 describes the basis for and the types of business travel costs appropriate to charge to federal awards.  Such costs include, but are not limited to, lodging and subsistence and commercial air travel with certain restrictions (e.g., least expensive available airfare with only certain exceptions as noted in 2 CFR Part 200.475 and University Policy 3301 Travel on University Business).

University Policy 3301 Travel on University Business sets forth certain instances for International Travel where business class fares are acceptable.  In such cases, the excess amount over the coach fare price must be charged to SC744 Travel – International – Unallowable. 

Travelers are encouraged to use the University’s preferred travel supplier Egencia by contacting them directly.  Travelers and arrangers will be able to take advantage of a complete offering of travel options and discounts; including University negotiated rates and low service fees.  If this preferred travel supplier is not used or the lowest available airfare is not obtained, the department will be responsible for substantiating compliance with the federal regulations.

Note: Any unallowable domestic or international travel must be coded to either SC749 Travel – Domestic – Unallowable or SC744 Travel – International – Unallowable, as appropriate.

Other Common Unallowable Costs

According to 2 CFR Part 200, Subpart E, certain activities are unallowable both as a direct and a F&A cost such as lobbying (review lobbying primer), alumni activities, investment activities, commencement activities, and fund-raising activities.  Charges associated with any of these “unallowable” activities should be charged to the appropriate unallowable spend category.  For example, engaging an external consulting firm or consultant to lobby for federal funds is an unallowable activity.  Since there is not a Lobbying expense type the cost of engaging the consultant would be charged to SC233.

Most employees in schools and departments are not typically involved in these “unallowable” activities. However, for faculty and staff who are involved, salaries (including miscellaneous payroll) and associated compensation should be charged to the appropriate spend category for unallowable salaries and wages.

If a department incurs an expense associated with an “unallowable” activity, the department must contact both Sponsored Projects Financial Administration (“SPFA”) and the Costing unit of the Controller’s Office (“Costing unit”) in writing (SPFA e-mail: john.maloney@yale.edu; Costing unit email: controllers.office@yale.edu) so that a determination can be made regarding the proper treatment of the costs associated with the activity to ensure its exclusion from the F&A rate calculation.

2 CFR Part 200, Subpart E provides principles to be applied when establishing the allowability of certain items of cost.  These principles should apply irrespective of whether a particular item of cost is properly treated as a direct cost or an F&A cost.  Failure of OMB to mention a particular item of cost is not intended to imply that it is either allowable or unallowable; rather, determination as to allowability in each case should be based on the treatment provided for similar or related items of cost.  In case of a discrepancy between the provisions of a specific sponsored agreement and the list below, the agreement would govern.  Click here to review the complete list of cost item definitions (or click on a specific Cost Item) to determine its applicability and allowability.  For additional guidance, refer to the sponsored award’s terms and conditions.

Unallowable costs at fiscal year-end that are not identified with the correct unallowable ledger account must be reclassified.  This action must be completed by the first close of the June period. (Contact the Controller’s Office for the current year-end closing schedule.)