PURPOSE

This section of the manual provides guidelines and procedures for allowable charges to Contracts and grants.

GENERAL GUIDELINES/APPLICABLE POLICIES

1.Because of their nature, contract and grant expenditures must comply with the authorities detailed in this section.

2. The basic accounting principles for reimbursing institutions of higher education for costs associated with sponsored contracts and grants are specified in OMB Circular A-21. These principles establish the two following cost groupings for the reimbursement of cost associated with contracts and grants and agreements:

a. Direct Costs - Direct costs include the salaries and wages of those working on the project, and expenses for equipment, materials and other related costs of the project. In summary, direct costs are those expenses particular to a sponsored project. The direct costs discussed under DIRECT COST. are considered allowable; however, these costs must be necessary and utilized in support of the sponsored project to which the costs are charged. It is always the responsibility of Principal Investigators to support and justify all direct costs charges to a contract or grant in the event of a State or Federal audit.

b. Indirect Cost -- These are costs that are incurred for common or joint objectives and therefore cannot be readily identified with a particular sponsored project. These are defined in more detail under INDIRECT COST. Virtually all nonfederal funding sources rely on the University to apply these basic principles to their agreements.

3. The criteria for charging expenses to federal contracts and grants is based on following predetermined groups of allowable and unallowable costs as identified in OMB Circular A-21 Section C "Cost Principles for Educational Institutions." The tests of allowability of costs under these principles (OMB Circular A-21) are:

1. They must be reasonable. A prudent person would have purchased the item and paid the price
2. They must be allowable to sponsored agreements under the principles and methods provided herein
3. They must be consistently treated. Expenses for similar purposes must be treated the same way under like circumstances
4. They must be allowable. The expense must be allowable or not specifically excluded as specified by government regulations. Expense grouped in the unallowable cost category may not be charged to contracts and grants unless the awarding agency provides specific approval. The aforementioned guidelines are not all inclusive. In each case, the budget as approved by the sponsor in making an award and policy restrictions of the sponsor must be consulted.