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Sponsored Project Expenditures

Allowable, Allocable, Reasonable Costs

The concepts of allowability, allocability, and reasonableness of costs address the legitimacy of a cost charged against a specific sponsored research award and are defined and determined by the Office of Management and Budget (OMB), the sponsor's requirements and/or College policy.

Alongside the PI, Research Administration Services and Grant and Contract Accounting are to ensure that all costs charged to the sponsored research award are reasonable, allowable, and allocable. A determination of these three criteria for a given cost is based on the specific guidelines of the sponsoring agency and according to federal cost principles. 

ALLOWABILITY

Definition: Legitimate and permissible allowance of grant activity and related costs.

Expenses charged to a sponsored research award must meet the following allowability criteria:

  • The costs must be in line with the programmatic or research requirements of the grant being charged
  • The costs must be given consistent treatment through application of those generally accepted accounting principles appropriate to the circumstances
  • The costs must conform to any limitations or exclusions set forth in the sponsored agreement or in the Federal Cost Principles (OMB Uniform Guidance §200.403)

Example:  A PI did not budget for an equipment failure, but their existing laser broke and the grant project is stalled until it is fixed.  The active grant has a materials and supplies budget that seemingly could support the cost of the laser’s replacement parts.  Allowability would be determined by the sponsor’s defined budget terms and conditions (or agency regulations), and whether or not the replacement parts fall into the defined materials and supplies category.

ALLOCABILITY

Definition:  Grant costs are distributed in an equitable manner as to align with the direct involvement of a project.

Allocability ensures a cost has been incurred solely to support or advance the work of a specific sponsored research award. It also means the process of assigning a cost, or a group of costs, to one or more cost objectives in a reasonable and realistic proportion to the benefit provided or other equitable relationship.

Example:  A research grant requires particular chemicals for testing.  The chemicals will only be used for this particular project, so the cost is allocated 100% to the grant.  Conversely, if the chemicals were to be used for multiple grant projects the expense would need to be allocated to all the awards benefiting, in a proportionate manner as to properly reflect true use and allocation. 

REASONABLENESS

Definition: Using sound judgement with a fair and sensible approach for reviewing and approving grant financial activity.

The cost must be able to withstand public scrutiny, and withstand internal and external review against Federal Cost Principles.   Additionally, preferred vendors and reasonable pricing for goods and services should be engaged as to prevent needless spending on the grant.

Example:  A PI needs to travel overseas in order to present their research at an international conference. Upon choosing a flight, the PI sees two flights with similar departure and arrival times.  One flight is one hour shorter than the other, but costs an additional $750 and would slightly exceed the existing travel budget.  Would it be reasonable to spend an extra $750 on the grant to save one hour of flight time?  The reasonable expectation is to engage cost savings and conduct prudent spending wherever possible.

2 CFR Part 200, Subpart E - Cost Principles of Uniform Guidance

Streamlined Non-Competing Award Process (SNAP)

On October 1, 1994, the National Institutes of Health (NIH) implemented the Streamlined Non-competing Award Process (SNAP). The grant mechanisms included in SNAP are administered under the Expanded Authorities' provisions of OMB Circular A-110, which waives cost related prior approvals. The prior approval authorities retained by PHS will remain in effect under SNAP.

The phases of SNAP are as follows:
Phase I - simplified the requirements of the non-competing application process (1995).

Phase II - the Notice of Grant Award was changed to reflect only direct and indirect costs, and indirect costs are now included in the future year recommended funding levels (1996).

Phase III - Financial Status Reports (FSR) are required at the end of the competitive segment, rather than annually. FSRs will be required by NIH 90 days after expiration of the competitive segment.

SNAP ELIGIBILITY

NIH grant recipients (including those participating in the Federal Demonstration Project) are expected to follow the streamlined non-competing process for mechanisms routinely covered under expanded authorities, except Program Project Grants (P01s) and Outstanding Investigator Grants (R35s). As published in the NIH Guide for Grants and Contracts, Vol. 23, No. 45, December 23, 1994, NIH routinely applies expanded authorities to Program Project grants (P01s),

Minority High School Student Research Apprentice Program awards (S03s), Research Career Awards (K-Series), and all Research Project grants (R-Series), except Phase I Small Business Innovation Research (R43) and Small Business Technology Transfer (R41) awards.

Any award excluded from expanded authorities is routinely excluded from SNAP, unless specifically included in SNAP as a term and condition of the award.
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Gift versus Grant

GIFT

  • An unconditional voluntary transfer to the university
  • The university has complete discretion in the use of the funds, or the use is for general support for a specific area or purpose
  • Beyond a designation of the use, the donor does not impose contractual requirements on the award
  • Any subsequent reporting on the use of the funds to the donor is not a condition of the receipt of the funds
  • Absence of "quid pro quo"

GRANT (SPONSORED RESEARCH)

  • Characterization of the donor/grantor. If the transfer is accompanied by donor/grantor language that characterizes the transaction as a "grant" or "contract", it is evidence that the donor/grantor expects something in return for the transfer. Therefore, it is evidence of sponsored research.
  • The award/transfer binds the university to a set of terms and conditions
  • The award is directed at satisfying specific grantor requirements
  • The transfer was solicited through written proposals that include deliverables
  • The university must maintain compliance with an approved line item budget
  • Deviations from the originally approved budget must be approved by the grantor
  • A product is returned to the grantor, or grantor maintains any level of exclusive use of any product that resulted from the transfer. Even if the exclusivity is temporal and not in perpetuity.
  • Unexpended funds must be returned to the grantor
  • There are provisions for audits by or on behalf of the grantor
  • The transfer obligates the recipient to submit detailed financial reports, which may be required periodically or upon completion
  • The transfer obligates the investigator to report project results or convey rights tangible or intangible properties resulting from the project. Examples of tangible properties include, but are not limited to, equipment, records, technical reports, theses, or dissertations. Intangible properties include rights in data, copyrights, or inventions.
  • The agreement seeks considerations such as indemnification or imposes other terms that require legal accountability
  • The agreement binds the investigator to a line of scholarly or scientific inquiry that follows a plan, provides for systematic evaluation, or seeks to meet stated performance goals
  • The grantor places restrictions on publication of data from studies supported by the transfer. Even if the restriction is temporal, and short lived.
  • Studies are performed on substances/products/process, etc., which are owned or controlled by the grantor
  • The donor/grantor retains the right to revoke the award

The below criteria chart has been provided to assist in determining the appropriate fund classification.

*Please note that the presence of any single factor does not confirm the designation of gift or grant.

CRITERIA

GIFT INDICATOR

GRANT INDICATOR

Proposal Process

Initiated by donor or the Office of Institutional Advancement

Initiated by faculty members working together with the Office of Sponsored Research and Programs (OSRP)

Purpose/Intent

A donor may specify a general area of interest or a goal to be funded by their donation.

A sponsor stipulates how the funds should be utilized via supporting documentation (aka notice of award, grant, agreement, subcontract, consortium, etc.)

Documentation

Letter of Donor Intent/Gift Agreement

Grant, contract, notice of award, agreement, subcontract, consortium, etc.

Period of Performance

N/A

Start and end dates are identified within the supporting documentation.

Reporting

Any subsequent reporting on the use of the funds to the donor is not a condition of the receipt of funds, but rather a function of the donor stewardship process.

The award document specifies deliverables such as technical, financial, invention, or procurement reports, milestones, timetables, etc.

Penalties

No penalties for failing to use the funds.

Penalties may apply for failing to comply with the terms and conditions set forth by the sponsor.

Excess Funds

N/A

May be required to return to sponsor

Facilities and Administrative (F&A) Costs

N/A

F&A Cost Rates defined by DHHS

Value Exchange

There is no expectation of direct economic benefit or provision of goods and services from the recipient, other than recognition and adherence to any donor imposed restrictions. Beyond a designation of the use, the donor does not impose contractual requirements on the donation.

A transfer of money or property from a sponsor to an institution in exchange for specified deliverables.

Unallowable Expenses on Grants

Costs considered "unallowable" must be identified and may not be budgeted, charged or reported on any sponsored research awards. (See OMB A-21, Part J). There are exceptions to these unallowable costs based upon the funding mechanism (i.e., Program grants, or center awards P41, etc) and the terms and conditions of the award. Please review the circular to review all costs that are allowable with their exceptions.

  • Advertising and public relations costs
  • Advisory councils
  • Clerical/administrative salaries (including secretarial)
  • Telecommunications
  • Alcoholic beverages
  • Alumni activities
  • Bad debts
  • Commencement and convocation costs
  • Contingency provisions
  • Defense and prosecution of criminal and civil proceedings, claims, appeals and patent infringement
  • Donations and contributions
  • Entertainment costs
  • Fines and penalties
  • Fund raising and investment costs
  • Goods or services for personal use
  • Housing and personal living expenses
  • Lobbying
  • Losses on other sponsored agreements or contracts
  • Pre-agreement costs
  • Selling and marketing
  • Student activity costs

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Re-budgeting/No Cost Extension requests

Re-budgeting

The principal investigator or project director is charged with the responsibility of establishing a project's operating budget and maintaining it within the limits set by the sponsor for the period(s) of the project. Limitations on the re-budgeting of project funds, and requirements to be met in re-budgeting such funds, vary across sponsors. General reasons that may require re-budgeting would include:

  • Change in effort/months of key personnel (including Principal Investigator)
  • Need or increase in equipment
  • Change in overall scope of work
  • Change in Subcontract
  • Need for additional funds
  • Consultants (if not specified in the budget)

No-Cost Extensions

No-cost extensions are necessary when a project is reaching the end date of the award and it is determined that the project requires more time to complete all the specific aims noted in the proposal. This needs to be determined at least 2-3 months prior to the end of the award.

If re-budgeting or a no-cost extension request is necessary, please contact the Office of Sponsored Research and Programs to initiate the process.
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Salary Cap

Congress has historically passed a statutory restriction in the Health and Human Services (HHS) Appropriations Act that limits the maximum rate of compensation that can be paid to an individual to the Executive Level I of the Federal Executive Pay Scale. This “salary rate cap” limits the rate of pay directly chargeable to grants, cooperative agreements and contracts issued by the National Institutes of Health (NIH), the Substance Abuse and Mental Health Services Administration (SAMHSA), and the Agency for Healthcare Research and Quality (AHRQ). For the current NIH Salary Cap Summary (FY1990 - Present), please refer to this link: https://grants.nih.gov/grants/policy/salcap_summary.htm.

The portion of salary in excess of the rate cap is not allowable on NIH, NSF, and other federal awards. When an employee's rate of pay exceeds the salary rate cap, the difference between what the employee would have earned at full pay and the maximum amount allowed under the cap for that percent of effort must not be charged to another federal award. The difference may be charged to a privately sponsored award only when specifically allowed by the private sponsor.

Salary in excess of the salary cap

Salary amounts in excess of the NIH salary cap are considered voluntary committed cost sharing. The associated fringe benefits and indirect costs are also considered cost sharing.
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Definitions of Cost Sharing

Cost sharing represents that portion of the total project costs (direct or indirect) of a sponsored agreement borne by the University, rather than by the sponsor. There are three types of cost sharing that are described below.

Types of Cost Sharing

Mandatory Cost Sharing

Mandatory cost sharing is that portion of the University contribution to a sponsored project, which is required by the terms of the project. It must be included or a proposal will receive no consideration by the sponsor.

Voluntary Cost Sharing

Voluntary cost sharing represents resources offered by IIT in sponsored project proposals when not a specific sponsor requirement.

Voluntary committed cost sharing is defined as those resources that are committed and budgeted for in a sponsored agreement.

Voluntary uncommitted cost sharing is defined as university faculty effort that is over and above that which is committed and budgeted for but not charged to the sponsored agreement. Voluntary uncommitted cost sharing should not be recorded as organized research.

In both mandatory and voluntary cost sharing when an award is received in which cost sharing was proposed, the cost sharing becomes a binding commitment that the University must provide as part of the performance of the sponsored project. Failure to properly record cost sharing may result in audit findings that could result in audit disallowances that have to be refunded to the appropriate sponsor.
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