DETERMINING ALLOWABILITY, REASONABLENESS AND ALLOCABILITY
OF COSTS FOR GRANTS AND SPONSORED PROJECTS
When a sponsor awards funds to Kutztown University in support of a program or project, it requires the
University to manage the funds prudently and ensure that costs are allowable, reasonable and allocable.
The federal regulations that govern this determination for federal funding are contained in the 2 CFR
Part 220 (Office of Management and Budget Circular A-21, Cost Principals for Educational Institutions).
In addition, individual awards may include special terms and conditions which must be considered when
incurring costs. Principal Investigators or Projects Directors are responsible for ensuring the
appropriateness of costs charged to their sponsored program or project accounts.
Determination Factors
When incurring costs against sponsored funds (i.e., making payments utilizing external funding from
grants, contracts and cooperative agreements), the Project Director administering the project is
responsible for ensuring that all costs meet allowability, reasonableness and allocability standards prior
to the expense. All expenditures must be approved by the Office of Grants and Sponsored Projects.
Allowability
All costs must be allowable under federal regulations and sponsor terms and conditions. To be allowable
costs must:
- be reasonable;
- be allocable to sponsored projects under the principles and methods provided in OMB
Circular A-21;
- be given consistent treatment through application of those generally accepted accounting
principles appropriate to the circumstances; and
- conform to any limitations or exclusions set forth in OMB Circular A-21 or in the terms and
conditions of the award.
The OMB Circular A-21 lists in detail the allowability of particular elements of cost. Also, allowability of
certain costs may be addressed in the terms and conditions of specific awards, and can vary. When an
item is questionable, the Office of Grants and Sponsored Projects should be contacted before the cost is
incurred.
The following items of cost are unallowable according to OMB Circular A-21: Advertising and Public
Relations; Alcoholic Beverages; Alumni Activities; Bad Debts; Certain Legal Costs; Contributions or
Donations; Entertainment; Fines and Penalties; Fund Raising and Investment Management; Goods and
Services for Personal Use; Lobbying; Loses on Sponsored Agreements; and Memberships in Civil,
Community and Social Organizations.
Reasonableness
A cost may be considered reasonable if the nature of the goods or services acquired or applied, and the
amount involved therefore, reflect the action that a prudent person would have taken under the
circumstances prevailing at the time the decision to incur the cost was made. Considerations involved in
the determination of the reasonableness of a cost are:
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whether or not the cost is of a type generally recognized as necessary for the operation of
Kutztown University or the performance of the sponsored project;
the restraints or requirements imposed by such factors as arm’s length bargaining, federal
and state laws and regulations, and sponsored agreement terms and conditions;
whether or not the individuals concerned acted with due prudence in the circumstances,
considering their responsibilities to the University, its employees, its students, the
Government and the public at large; and
the extent to which the actions taken with respect to the incurrence of the cost are
consistent with established University policies and practices applicable to the work of the
University generally, including sponsored projects.
Allocability
A cost is allocable to a particular cost objective (i.e., a specific function, project, sponsored agreement,
department, or the like) if the goods or services involved are chargeable or assignable to such cost
objective in accordance with relative benefits received or other equitable relationship (Basic question –
Is the expense related to the project?). Subject to the foregoing, a cost is allocable to a sponsored
agreement if:
- it is incurred solely to advance the work under the sponsored agreement;
- it benefits both the sponsored agreement and other work of the University, in proportions
that can be approximated through use of reasonable methods; or
- it is necessary to the overall operation of the University and, in light of the principles
provided in OMB Circular A-21, is deemed to be assignable in part to sponsored projects.
Where the purchase of equipment or other capital items is specifically authorized under a sponsored
agreement, the amounts thus authorized for such purchases are assignable to the sponsored agreement
regardless of the use that may subsequently be made of the equipment or other capital items involved.
Any costs allocable to a particular sponsored agreement under the standards provided in OMB Circular
A-21, may not be shifted to other sponsored agreements in order to meet deficiencies caused by
overruns or other fund considerations, to avoid restrictions imposed by law or by terms of the
sponsored agreement, or for other reasons of convenience. In addition, any costs allocable to activities
sponsored by industry, foreign governments or other sponsors may not be shifted to federally
sponsored agreements.
If a cost benefits two or more projects or activities in proportions that can be determined without undue
effort or cost, the cost should be allocated to the projects based on the proportional benefit. If a cost
benefits two or more projects or activities in proportions that cannot be determined because of the
interrelationship of the work involved, then the costs may be allocated or transferred to benefited
projects on any reasonable basis.
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