Grant, Contract & Gift Accounting Manual
Section 204: Expenditure
- Background Information
- 204-01: Costs
- 204-02: Cost Classification: Assigning Account Codes
- 204-03: Allowable Direct Costs
- 204-04: Unallowable Costs
- 204-05: Facilities and Administrative Costs (Formerly Indirect Costs)
- Additional Information
There are four Cost Accounting Standards that govern expenditures for educational institutions, see GCG 105: Cost Accounting Standard Guidelines. Some entities have provided a waiver of prior approval requirements; see GCG 103: Expanded Authority.
For Federally Sponsored awards, allowable costs generally fall within these guidelines:
- Costs must be reasonable. This is defined as the action that a prudent person would take under the circumstances.
- Costs must be allocable to federally sponsored agreements under the principles and methods described in OMB A-21. (See OMB Circular A-21; Unallowable Costs.)
- Costs must be given consistent treatment through application of Generally Accepted Accounting Principles (GAAP) appropriate to the circumstances as dictated by Cost Accounting Standards (CAS). This includes the use of account codes for cost classification.
- Costs must conform to any limitations or exclusions set forth in OMB Circular A-21 or in the sponsored agreement as to types or amounts of cost items.
Under CAS these same principals are applied to all sponsored awards received by OSU, regardless of funding source.
All sponsored projects are set up on a budget. The degree of deviation allowed by the granting agency varies widely from complete discretion by the project director to requiring agency approval for all changes. The reporting of expenditures also varies in the amount of detail required and the frequency of the reports.
The administration of a contract, grant or cooperative agreement project involves identifying all costs associated with it. Cost information is needed both to manage the internal affairs of the university and to satisfy external requirements. An account code is assigned to each cost to classify the expenditure according to goods or services received. Each department/Business Center/PI is encouraged to use the FIS Banner system to record encumbrances and to stay current with commitments made during the project. See GCG 205: Expenditure Account Codes.
Direct costs are expenditures associated with grants, contracts, and cooperative agreements that are necessary for and can be identified with the performance of a specific sponsored project. Direct costs of a sponsored project include all personnel costs charged to the project; applicable payroll assessments, graduate tuition remissions, expenditures for supplies and equipment, travel expenses, printing, other service department charges, and any other expenses specifically identified with the project.
Principal Investigators and Business Center accountants should refer to the award document for requirements or restrictions specific to the project. Contact the Office of Post Award Administration for assistance with specific questions.
Unallowable functions, such as lobbying, public relations, and fund raising, are groups of costs that due to the nature of the function will make the expenditure unallowable. For example, salaries and wages are generally allowable costs; however, those same salaries and wages incurred for the benefit of a fundraiser are unallowable. Therefore, the function makes the expenditure unallowable.
Some unallowable costs, such as alcoholic beverages, are types of expenditures that are specifically unallowable by law, regulations and/or contract terms. See OMB Circular A-21 section J. Both unallowable costs and expenses connected with unallowable functions must not be direct charged to sponsored agreements.
Other costs, such as utilities and building maintenance are unallowable as a direct cost unless approved in the proposal process and by the sponsor. See GCG 205: Expenditure Account Codes, for guidance.
Facilities and Administrative (F&A) costs are expenditures associated with a grant, contract, or cooperative agreement that cannot be directly charged to nor specifically identified with individual sponsored projects. These costs include maintenance of physical facilities, library services, administrative services, and departmental administration. In general, F&A costs involve expenditures necessary for the development and maintenance of an environment conducive to research and other sponsored projects.
Most grants and contracts provide for the recovery of F&A costs incurred in their executions and management. The recovery is based upon negotiated rates and assessed to individual projects on a percentage basis. The rates for Oregon State University are negotiated with the U.S. Department of Health and Human Services, Division of Cost Allocation (DHHS-DCA). The negotiation is based on a review of the university’s costs and assessment of the reasonableness of the charges.
In most cases, F&A costs for a sponsored project are calculated by multiplying the approved F&A rate and the Modified Total Direct Cost (MTDC) paid on the award. MTDC is determined by subtracting tuition remission (1095x); equipment/capital expenditures (4xxxx); subawards over $25,000 (399xx); participant costs (5xxxx & 2863x) and other excluded items from the total direct costs (salaries and wages, fringe benefits, materials and supplies, services, travel, and subawards) posted on the sponsored project account. Account Code 70005 is used to record the recovery of F&A costs (formerly indirect costs).
- F&A cost is charged based upon the rate and base in the approved award, up to the federally negotiated rate.
- Slight F&A cost adjustments may be made manually by the Office of Post Award Administration during the award closeout process.
The current F&A rates are available at the Sponsored Programs website.