Allowable vs. Unallowable Costs
An allowable cost is a cost that can be paid by your contract or grant. A cost is allowable only if:
- The cost is reasonable; it reflects what a prudent person might pay.
- The cost is allocable; the contract or grant that paid the expense benefits from it. For a cost to be allocable, it must meet one of the following criteria:
- It is incurred solely to advance the work under the sponsored agreement.
- It benefits the sponsored agreement and the work of the institution, in proportions that can be approximated through the use of reasonable methods.
- It is necessary to the overall operation of the institution and is deemed to be assignable in part to sponsored projects.
- The accounting treatment of the cost is consistent across the campus.
- The cost is allowable as defined by the OMB Uniform Guidance (UG) and/ or by the terms of the particular award.
In exceptional circumstances, a sponsoring agency may direct a normally unallowable cost to be considered a direct cost for a specific program if the inherent purpose of the program requires it. This cost will be considered allowable if it satisfies the requirements for direct costs and is sufficiently documented.
An unallowable cost is a cost that cannot be paid by your contract or grant. Such costs may be expressly prohibited by the UG or may be considered unallowable as a result of campus policy or by mutual agreement with a governmental agency. NC State University has the responsibility to identify such costs and exclude them from any billing, claim or award proposal.
Other Cost Guidelines
- Any expense that is not considered recoverable under a federal sponsored agreement may not be charged to other federal sponsored agreements.
- A sponsoring agency may state that certain costs are not reimbursable even though they are considered allowable by federal regulations. These costs are unallowable and must be excluded from billing.
- Costs incurred in support of a specific agreement that are non-reimbursable may constitute cost sharing.
Subpart E of the Uniform Guidance (UG)
Subpart E of the UG – Cost Principles provides a detailed listing of items that are typically allowable and unallowable. Examples of costs normally considered unallowable include:
- Advertising and public relations
- Alcoholic beverages
- Convocations or other events related to instruction
- Fines and penalties
- Fully depreciated assets or assets gifted by the federal government
- General purpose equipment, buildings, and land
- Housing and personal living expenses
- Insurance and indemnification
- Legal costs
- Memberships in any civic or community organization
- Royalties or patents