CHECK YOUR UNDERSTANDING OF FUNDAMENTAL COST PRINCIPLES

Premise:  
Total Project Costs = Allowable direct costs (DC) + allowable indirect costs (IDC or facilities & administrative costs)

Guiding Principles – 2 CRF Part 220 - Costs must be:

  • Allowable,

  • Allocable,

  • Reasonable, and

  • Consistently treated.


What’s Allowable?

  • Must be reasonable;

  • Allocable to sponsored agreements;

  • Consistently treated; and

  • Conform to sponsored agreement.

  • Sponsored agreement trumps all principles – no means no.


What’s Allocable?

  • Item can be assigned (allocated) to an activity or function

    • In proportion to benefit received

      • Direct costs – exclusive benefit to project or can be assigned to multiple projects in proportions that can be approximated through reasonable methods.

      • Indirect costs – benefit many projects or activities, can’t be reasonably assigned.


What’s Reasonable?

  • When you bought the item at price X and quantity Y

    • You acted prudently – others would have made similar decision given facts and circumstances at the time the decision was made, i.e.: 

      • necessary; 

      • followed good business practices and applicable laws and regulations, and sponsored agreement terms and conditions;

      • acted prudently given the circumstances; and

      • followed institutional policies

What’s Consistency?

  • Like costs must be treated the same for similar purposes

  • If in F&A pool, there it stays, UNLESS cost is not for same kind of purpose.

  • If allocated to one activity/project, can’t shift to another activity.

  • If charged to one award, can’t shift to another cause there’s $$ in the other pot. (Spending down the award is not allowable!)

What’s Allowable as a Direct Cost…

  • Needed to support project.

  • Cost to sponsor in proportion to benefit received.

    • They pay the whole cost, they are the sole beneficiary.

What’s Allowable in F&A  (not DC)

  • Needed to support many projects.

  • Not reasonable to assign proportion of benefit, including but not limited to

    • Sect’y/clerical (cost of doing business);

    • Laptop computers (general purpose equipment);

    • Office supplies (cost of doing business);

    • Local phone calls (cost of doing business.

And so what about Food….

  • That’s entertainment!! (j.17) – not allowable.

  • Unless conference, meeting (j.32)

    • PURPOSE – disseminate sponsor’s results (Remember: How does expenditure allow you to achieve the project’s objectives?)
    • Characteristics of meeting: formally announced; agenda; list of attendees; minutes, proceedings, etc.

      • This documentation should be available for inspection to justify expenditure.

      • If not in budget justification, sponsor approval should be obtained.

Core Questions to consider when using award funds..

  • How does purchase/expenditure (as DC) help accomplish the project’s objectives?

  • If cost is administrative (i.e., generally in IDC/F&A), how is the need in this specific situation non-routine, unlike?

  • Is item not-allowed in agreement?

  • Is prior approval necessary (e.g. international travel)?

  • If prior approval needed and not obtained, cost will not be allowed.

  • Is it a reasonable purchase?

  • DOCUMENTATION:  how purchase advances project’s objectives (i.e. allowable, reasonable, necessary, allocable, consistently treated…)

    • If not in budget justification, 

    • Then justification should ordinarily be included in purchase requisition.