Procedures for Determining Costs Allowability on Sponsored Agreements and Identifying Direct and Indirect Costs on Federal Awards
Note: For all sponsored projects, always refer to the award's specific terms and conditions, which may include additional restrictions on cost allowability, or contact your SPA Representative
Salary, Wages, and Stipends
OMB Circular A-21 Cost Principles for Educational Institutions identifies direct and indirect costs that may be charged to federal grants and contracts, otherwise known as sponsored agreements. A-21 also identifies those charges that cannot be charged to sponsored agreements and are considered unallowable expenses. Circular A-21 offers four tests to determine the allowability of costs applied to federally sponsored agreements.
Allowable costs must be:
- Reasonable - For a cost to be considered reasonable, it must be necessary for fulfillment of the agreement, acquired by means consistent with federal and state laws and regulations, and consistent with University policies and practices.
- Allocable - A cost is allocable to a sponsored agreement if the goods/services involved are charged in accordance with the relative benefits received by that agreement. To be considered allocable, a cost must be incurred solely to advance the work under the sponsored agreement or benefit both the sponsored agreement and other work of the institution in proportions that can be approximated through use of reasonable cost allocation methods.
Note: Any cost that is allocable to a particular sponsored agreement may not be moved (e.g., cost transfer) to another sponsored agreement in order to meet deficiencies caused by overruns or other funding considerations, to avoid restrictions imposed by law or by terms of the sponsored agreement, or for other reasons of convenience.
- Treated consistently throughout the University - similar costs normally cannot be treated as both direct and indirect costs.
- Conform to any limitations or exclusions in the sponsored agreement.
According to A-21, direct costs are those costs that can be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy. Identification with the sponsored work rather than the nature of the goods and services involved is a determining factor in distinguishing direct from indirect (F&A) costs of sponsored agreements. Examples of costs charged directly to a sponsored are:
- compensation of employees for performance of services under the sponsored agreement including related benefit costs;
- costs of materials consumed or expended in the performance of the work;
- travel, including expenses for transportation, lodging, subsistence, and related items incurred by employees who are traveling on official business directly related to the sponsored project
Costs incurred for common or joint objectives which cannot be identified specifically with a particular sponsored project are treated as indirect costs. Examples include:
- utilities, maintenance and operation
- building and equipment use expenses
- administrative costs (see details below)
- library costs
- student service costs
Most sponsored agreements include a percentage of the direct cost to cover these charges known as the Facilities and Administrative Cost Rate (F&A). Refer to the Controller's Office web page for more information about RIT's F&A Rates:
Federal regulations limit instances where administrative costs can be charged to grants and contracts. The following is a list of the types of expenses that are generally not allowable as a direct cost per the Federal government. An exception may be made if there is EXTENSIVE use of such expenses, the expenses have been properly justified/documented in the grant/contract proposal, and they have been approved as a direct cost by the appropriate federal agency.
The most common administrative costs are:
- Administrative and clerical salaries and wages
- Printing and copying costs
- Office supplies
- Postage and mail
- Telephone and internet expense