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 and sources of funds (not just for sponsored awards). 

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 Facilities & Administrative (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 Subpart E of 2 CFR Part 200 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

In order to comply with Federal Regulations when charging non-sponsored funds, the total costs of these types of expenses, including the cost of alcoholic beverages, are to be charged to the following ledger accounts:

When using any of the above LAs for a sponsored award, it is necessary to identify the cost of any alcoholic beverage and charge it to a non-sponsored award using LA 81037 for either domestic or foreign Entertainment & Alcohol – Unallowable expenses because alcoholic beverages cannot be directly charged to sponsored awards,

Travel

Section 200.474 of 2 CFR Part 200 describes allowable costs for business travel, including commercial air travel and requires the use of the least expensive available airfare with only certain exceptions as noted 2 CFR 200.474.  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 81036 – Travel - Unallowable. 

Travelers are encouraged to use the University’s preferred travel supplier Eugencia 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.

Use ledger account 81036 for all unallowable travel costs, domestic or international.

Other Common Unallowable Costs

According to OMB Circular A-81 (Subpart E of 2 CFR Part 200 ), certain activities are unallowable both as direct and F&A costs 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 ledger account.  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 ledger account 81034.

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 ledger account for unallowable salaries and wages. 

Note:  Any travel related to such activities must be coded to ledger account 81036 as appropriate for all related unallowable travel costs (domestic or international).

If a department is involved in “unallowable” activities, the department must contact the Associate Controller, Costing  in writing (e-mail: anne.navin@yale.edu) so that a determination can be made regarding the proper treatment of the costs associated with this activity to ensure their exclusion from the calculation of the F&A rate.

OMB Circular A-81 (Subpart E of 2 CFR 200) provides principles to be applied in establishing the allowability of certain items of cost.  These principles should apply irrespective of whether a particular item of cost is properly treated as direct cost or 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 definition of each cost Item and its applicability and allowability.

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.)

Reviewed for Workday Purposes on 6/27/2017.