The first step in preparing a budget is to know what is allowable and if there are any special requirements of the sponsor. The College must follow all federal, sponsor, and institutional guidelines to determine if a cost is an allowable expense. In addition to being allowable, a cost must meet the following criteria to be charged to a sponsored project:
- Allocable to the project
- Consistently treated
- Necessary for the project
- Compliant with any award restrictions
- Incurred during the project period
Under these principles, costs must be:
Reasonable - A cost may be considered reasonable if the nature of the goods or services and the amount of cost involved reflect the action that a prudent person would have taken under the circumstances prevailing at the time the decision to incur the cost was made.
Allocable - A cost is allocable to a sponsored project if (1) it is incurred solely to advance the work under the sponsored agreement; or (2) it benefits both the sponsored project and other work of the institution in proportions that can be approximated through use of reasonable methods.
Given Consistent Treatment - All costs must be treated the same, whether supported by external or internal funds.
Compliant - The cost is compliant with any limitations or exclusions set forth in applicable federal regulations and the particular award’s terms and conditions.
The federal government provides guidance on items that are considered unallowable costs. The list below includes examples of some but not all unallowable costs.
- Advertising and public relations (except costs incurred for recruiting personnel required as part of a sponsored project)
- Alcoholic beverages
- Alumni activities
- Bad debt (including collection costs and related legal costs)
- Donations and contributions
- Entertainment costs (including food)
- Fines and penalties
- Goods or services for personal use
- Interest expenses (including interest incurred on borrowed capital, temporary use of endowment funds, or the use of the College’s own funds)
- Membership to civic or community organizations
- Proposal costs (e.g. time and effort, printing and postage, etc.)