In general, sponsored project awards provide for reimbursement of actual, allowable costs incurred and are subject to allowability under Federal cost principles as well as University policy.

The Federal cost principles establish standards for the allowability of costs, provide detailed guidance on the cost accounting treatment of costs as direct or F&A costs, and set forth allowability and allocability principles for selected items of cost.  Applicability of a particular set of Federal cost principles depends on the type of organization making the expenditure.  The University of North Dakota is subject to the cost principles for educational institutions (OMB Circular A-21—Cost Principles for Educational Institutions). 

The Federal cost principles address four tests in determining the allowability of costs. The four tests are as follows:

1. Reasonableness (including necessity)

A cost may be considered reasonable if the nature of the goods or services acquired or applied and the associated dollar amount reflect the action that a prudent person would have taken under the circumstances prevailing when the decision to incur the cost was made. The cost principles elaborate on this concept and address considerations such as whether the cost is of a type generally necessary for the organization’s operations or the grant’s performance, whether the recipient complied with its established organizational policies in incurring the cost or charge, and whether the individuals responsible for the expenditure acted with due prudence in carrying out their responsibilities to the Federal government and the public at large as well as to the organization.

2. Allocability

A cost is allocable to a specific sponsored project if the goods or services involved are chargeable or assignable to that project in accordance with the relative benefits received or other equitable relationship.  A cost is allocable to a sponsored project if it is incurred solely in order to advance work under the project; it benefits both the project and other work of the institution, including other sponsored project-supported projects; or it is necessary to the overall operation of the organization and is deemed to be assignable, at least in part, to the sponsored project.

3. Consistency

Grantees must be consistent in assigning costs to cost objectives.  Therefore (although costs may be charged as either direct costs or F&A costs, depending on their identifiable benefit to a particular project or program) they must be treated consistently for all work of the organization under similar circumstances, regardless of the source of funding, so as to avoid duplicate charges.

4. Conformance

This test of allowability—conformance with limitations and exclusions as contained in the terms and conditions of award, including those in the cost principles—varies by the type of activity, the type of recipient, and other characteristics of individual awards.

These four tests apply regardless of whether the particular category of costs is one specified in the cost principles or one governed by other terms and conditions of an award.  These tests also apply regardless of treatment as a direct cost or an F&A cost. The fact that a proposed cost is awarded as requested by an applicant does not indicate a determination of allowability.

University policy concerning unallowable costs on sponsored projects bases allowability of costs on the North Dakota Century Code (NDCC).  The North Dakota Century Code is the codification of all general and permanent law enacted since statehood, and contains the Constitution of North Dakota and the North Dakota Century Code.  Because the University of North Dakota is a state entity, we are required to follow the North Dakota Century Code.

Shown below are items unallowable on sponsored projects because of University policy and/or Federal cost principles (OMB Circular A-21):

• Air Cleaners/Purifiers/Filters

• Alcoholic Beverages

• Alcohol/Disinfectant Wipes (except for public use)

• Christmas Cards

• Coffeepots

• Communication Expenses

• Cups, Water Glasses, Napkins, Tableware, etc

• Decorations

• Displays, Demonstrations and Exhibits

• Equipment Purchases ($5,000 or above)

• Facial Tissue

• Flowers

• Food or Beverages for Grant Activities

• Gifts

• Hand Sanitizers (except for public use)

• Holiday Cards

• Holiday Decorations

• Kleenex

• Lost Departmental Keys

• Meeting Room Costs

• Office Supplies

• Personal Care Items

• Personal Dues or Memberships

• Photographs, Pictures, Picture Frames

• Plants

• Postage

• Promotional Items and Memorabilia, Including Gifts and Souvenirs

• Proposal Preparation Costs

• Salaries for Administrative and Clerical Staff

• Salary Overload Payments

• Scholarship / Fellowship Payments

• Subcontractors

• Telephone Line Charges