Purchasing With Grant Funds
Expenses charged to grants must be allowable, allocable, and reasonable.
The concepts of allowability, allocability, and reasonableness of costs relate to the legitimacy of a cost charged against a grant. Determination of allowability, allocability, and reasonableness of a given expense is based on specific guidelines of the sponsor and according to federal cost principles.
Allowability, allocability, and reasonableness are defined and determined by the Office of Management and Budget (OMB), the sponsor's requirements and/or University policy. OMB Circular A-21, Section C, states that "The recipient institution is responsible for ensuring that costs charged to a sponsored research agreement are allowable, allocable, and reasonable ..."
Each financial transaction charged against a sponsored research award is evaluated against these three concepts. This determination is conducted by Post-Award Services in the Office of Research and Sponsored Projects. Any questions about the legitimacy or appropriateness of a particular purchase should be directed to Post-Award Services, and questions about the decision made by Post-Award Services should be directed to the Associate Vice President for Research and Sponsored Projects, NOT the sponsor. The sponsor understands that the faculty must adhere to both institutional and sponsor policies.
One of the primary legal responsibilities of the Office of Sponsored Projects is to insure that all costs charged to the sponsored research award are allowable and allocable. A determination of allowability and allocability for a given cost is based on the specific guidelines of the sponsoring agency and according to federal cost principles.
Expenses charged to a sponsored research award must meet the following allowability criteria: • The costs must be reasonable.
• The costs must be given consistent treatment through application of those generally accepted accounting principles appropriate to the circumstances.
• The costs must conform to any limitations or exclusions set forth in the sponsored agreement or in the Federal Cost Principles (OMB Circular A-21).
Once allowability criteria have been met, the cost must be evaluated against the criterion of allocability. That is, the cost has been incurred solely to support or advance the work of a specific sponsored research award. It also means the process of assigning a cost, or a group of costs, to one or more cost objectives, in reasonable and realistic proportion to the benefit provided or other equitable relationship. A cost objective may be a major function of the institution, a particular service or project, a sponsored agreement, or Facilities and Administration Cost activity. The process may entail assigning a cost(s) directly to a final cost objective or through one or more intermediate cost objectives.
The cost must be able to withstand public scrutiny, i.e., objective individuals not affiliated with the institution would agree that a cost is appropriate on a sponsored research award
Once a determination of allowability, allocability, and reasonableness has been made, it is important that all expenses (those charged to a specific grant that has been awarded) be charged to the appropriate expenditure type/natural class. Budget and expenditure information recorded in the accounting system serves the basis for: (a) the preparation of yearly financial statements for the University; (b) departmental-level planning and reporting; (c) project/account specific planning and reporting; (d) Facilities and Administration Cost proposal preparation and rate calculation; and (e) audit reviews and many other uses.
This section of the ORSP Policies and Procedures is intended as a quick reference for common types of costs. This section is not exhaustive, and the Office of Research and Sponsored Projects should be contacted for specific questions concerning a cost, preferably in advance of the incurrence of a cost.