Hobart and William Smith Colleges

Unallowable Costs Policy

Purpose of the Unallowable Costs Policy
The Federal government provides funding for thedirectcosts of certain activities on campus, including research, public service, instructional, and training projects. The government also provides funds to the Colleges to support theindirectcosts of the Colleges associated with these sponsored projects. The Federal government has established various requirements and limitations relating to allowable expenditures additional requirements and limitations. This policy outlines those Federal laws and regulations which govern accounting for both direct and indirect costs associated with federally sponsored programs, and describes policies and procedures designed to ensure compliance with these regulations. Note that projects sponsored by either Federal or non-Federal sources may include restrictions on cost allowability in addition to the restrictions discussed in this or other policies of the Colleges, therefore, the Principal Investigator/Project Director (PI/PD) must always refer to the award's specific terms and conditions.

This policy describes the Colleges' procedures for reviewing direct and indirect costs to determine if federally defined unallowable costs are correctly accounted for. Since the underlying regulations apply to both direct and indirect costs, compliance with this policy affects all departments, not just those accountable for sponsored programs.

Explanation of the Unallowable Costs Policy
The Federal costing regulations that apply to the Colleges are primarily detailed in the Uniform Guidance (UG) at 2 CFR Part 200, Subpart E ' Cost Principles, under the following sections:

• General Provisions
• Basic Considerations
• Direct and Indirect (F&A) Costs

General Provisions for Selected Items of Cost
The UG describes the costs that are eligible for reimbursement under Federal grants and contracts (allowable costs), and the costs that are not eligible for reimbursement (unallowable costs). Except where otherwise authorized by statute, costs charged to a Federal award must meet the following general criteria in order to be allowable (UG §200.402 to §200.411):

• Be necessary and reasonable for the performance of the Federal award and be allocable thereto under the UG principles;
• Conform to any limitations or exclusions set forth in the UG principles or in the Federal award as to types or amount of cost items;
• Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the Colleges;
• Be accorded consistent treatment. A cost may not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost;
• Be allocable to the Federal award;
• Be determined in accordance with generally accepted accounting principles (GAAP);
• Not be included as a cost or used to meet cost sharing or matching requirements of any other federally-financed program in either the current or a prior period;
• Be adequately documented.

Total costs under a federally sponsored agreement consist of the allowable direct costs, plus the allocable portion of the allowable indirect costs, less any applicable credits (see UG §200.402, §200.413, §200.414, and §200.406). Under Federal regulations, unallowable costs cannot be charged to Federal grants or contracts, and must be charged to unallowable cost expenditure types so that they are not included in indirect cost rate calculations. The following list details some unallowable items to keep in mind but PIs/PDs should familiarize themselves with the full list in the General Provisions for Selected Items of Cost referenced above:

• Advertising and Public Relations: Under UG §200.421, the only allowable advertising and public relations costs are those that are necessary to meet the specific requirements of the sponsored agreement.

• Alcoholic beverages: Costs of alcoholic beverages are unallowable, including beer, wine, and mixed alcoholic drinks (UG §200.423). However, alcohol can be directly charged to sponsored projects if the nature of the research specifically requires the purchase and use of alcohol, and the sponsor explicitly approves the cost.

• Clerical/administrative salaries (including secretarial): Under UG §200.413, clerical, support staff, secretarial, and administrative salaries should normally be treated as indirect (F&A) costs (i.e., not directly charged to the Federal award), unless all of the following conditions are met:
• Administrative or clerical services are integral to a project or activity;
• Individuals involved can be specifically identified with the project or activity;
• Such costs are explicitly included in the budget or have the prior written approval of the Federal awarding agency;and
• The costs are not also recovered as indirect costs.

PIs/PDs and their departments are responsible for demonstrating that any clerical and administrative support costs to be directly charged to the Federal award meet the above requirements. Clearly PIs/PDs should be particularly attentive to requests for clerical/ administrative assistance. Identification of the individual, clear justification about the nature of the duties and their direct relationship to the sponsored work, and a reasonable level of effort commensurate with the scope of the project are very important.

• Compensation: For Institutions of Higher Education, certain conditions under UG §200.430 require special consideration and possible limitations in determining allowable personnel compensation costs under Federal awards. Topics addressed include:
  
  • Allowable activities;
  • Incidental activities;
  • Salary basis;
  • Intra-institution consulting;
  • Extra service pay;
  • Periods outside of the academic year;
  • Part-time faculty;
  • Sabbatical leave costs;
  • Salary rates for non-faculty members.
• Conferences: Under UG §200.432, conference is defined as a meeting, retreat, seminar, symposium, workshop or event whose primary purpose is the dissemination of technical information beyond the Colleges and is necessary and reasonable for successful performance under the Federal award. Allowable conference costs paid by the Colleges as a sponsor or host of the conference may include rental of facilities, speakers' fees, costs of meals and refreshments, local transportation, and other items incidental to such conferences unless further restricted by the terms and conditions of the Federal award. As needed, the costs of identifying, but not providing, locally available dependent-care resources are allowable. Conference hosts/sponsors must exercise discretion and judgment in ensuring that conference costs are appropriate, necessary and managed in a manner that minimizes costs to the Federal award. The Federal awarding agency may authorize exceptions where appropriate for programs including Indian tribes, children, and the elderly. See also §§200.438 Entertainment costs, 200.456 Participant support costs, 200.474 Travel costs, and 200.475 Trustees.
• Copying: Routine copying charges that cannot be identified with specific projects should not be directly charged to Federal projects (UG Appendix III).
• Entertainment: Costs of entertainment, including amusement, diversion (such as tickets to shows or sports events), and social activities, and any associated costs, such as transportation, meals, etc., are unallowable, except where specific costs that might otherwise be considered entertainment have a programmatic purpose and are authorized either in the approved budget for the Federal award or with prior written approval of the Federal awarding agency (UG §200.438).
• Equipment and Other Capital Expenditures: Under UG §200.439, special purpose equipment (e.g. scientific equipment) is allowable as a direct charge, provided that items with a unit cost of $5,000 or more have the prior written approval of the Federal awarding agency. Capital expenditures for general purpose equipment (e.g. office computer equipment) are unallowable as direct charges, except with the prior written approval of the Federal awarding agency. Equipment and other capital expenditures are unnallowable as indirect costs.
• Fringe Benefits: UG §200.431 provides allowability details for fringe benefits. Some of the conditions therein are specific considerations for Institutions of Higher Education:
  
  • Fringe benefits in the form of undergraduate and graduate tuition or remission of tuition for individual employees are allowable, provided such benefits are granted in accordance with the established policies of the Colleges, and are distributed to all of the Colleges' activities on an equitable basis. Tuition benefits for family members other than the employee are unallowable;
  • The Colleges may offer employees tuition waivers or tuition reductions, provided that the benefit does not discriminate in favor of highly compensated employees. Employees can exercise these benefits at other institutions according to institutional policy. See §200.466 Scholarships and student aid costs, for treatment of tuition remission provided to students.
• Goods or services for personal use: Costs of goods or services for personal use of the Colleges' employees are unallowable regardless of whether the cost is reported as taxable income to the employees (UG §200.445).
  
  • Costs of housing, housing allowances and personal living expenses are only allowable if approved in advance by a Federal awarding agency.
• Memberships, subscriptions, and professional activity costs: Membership and subscription costs must not be directly charged to sponsored agreements, unless they can be shown to meet the UG criteria for a direct cost. Membership costs should be treated as follows (UG §200.454):
  
  • Membership costs for business, technical and professional organizations are allowable;
  • Subscription costs for business, professional, and technical periodicals are allowable;
  • Membership costs for any civic or community organization are allowable with prior approval by the Federal awarding agency or pass-through entity;
  • Membership costs for any country club, social or dining club or organization are unallowable;
  • Membership costs for organizations whose primary purpose is lobbying are unallowable. See also UG §200.450 Lobbying.
• Postage: Postage costs must not be directly charged to sponsored agreements, unless they can be shown to meet the UG criteria for a direct cost.
  
  • Under UG §200.474, costs incurred for freight, express, cartage, postage , and other transportation services relating either to goods purchased, in process, or delivered are allowable. When such costs can be readily identified with the items involved, they may be charged directly as transportation costs or added to the cost of such items. Where identification with the materials received cannot readily be made, inbound transportation cost may be charged to the appropriate indirect (F&A) cost accounts if the Colleges follow a consistent, equitable procedure in this respect. Outbound freight, if reimbursable under the terms and conditions of the Federal award, should be treated as a direct cost.
• Scholarship and Student Aid Costs: Under UG §200.466, costs of scholarships, fellowships, and other programs of student aid at the Colleges are allowable only when the purpose of the Federal award is to provide training to selected participants and the charge is approved by the Federal awarding agency. However, tuition remission and other forms of compensation paid as, or in lieu of, wages to students performing necessary work are allowable provided that:
  
  • The individual is conducting activities necessary to the Federal award;
  • Tuition remission and other support are provided in accordance with established policy of the Colleges and consistently provided in a like manner to students in return for similar activities conducted under Federal awards as well as other activities;
  • During the academic period, the student is enrolled in an advanced degree program at the Colleges or affiliated institution and the activities of the student in relation to the Federal award are related to the degree program;
  • The tuition or other payments are reasonable compensation for the work performed and are conditioned explicitly upon the performance of necessary work; and
  • It is the Colleges' practice to similarly compensate students under Federal awards as well as other activities.

Charges for tuition remission and other forms of compensation paid to students as, or in lieu of, salaries and wages must be subject to the reporting requirements in UG §200.430 Compensation—personal services, and must be treated as direct or indirect cost in accordance with the actual work being performed. Tuition remission may be charged on an average rate basis. See also UG §200.431 Compensation—fringe benefits.

• Supplies: Under UG §200.453, supplies necessary to carry out a Federal award are allowable. Please note that:
  
  • Purchased materials and supplies must be charged at their actual prices, net of applicable credits. Withdrawals from general stores or stockrooms must be charged at their actual net cost under any recognized method of pricing inventory withdrawals, consistently applied. Incoming transportation charges are a proper part of materials and supplies costs;
  • Materials and supplies used for the performance of a Federal award may be charged as direct costs. In the specific case of computing devices costing <$5,000, charging as direct costs is allowable for devices that are essential and allocable, but not solely dedicated, to the performance of a Federal award;
  • Where federally-donated or furnished materials are used in performing the Federal award, such materials will be used without charge.
• Taxes: Under UG §200.470, taxes from which the Colleges have exemptions available either directly or based on exemption afforded the Federal Government and, in the latter case, when the Federal awarding agency makes available the necessary exemption certificates, are unallowable.
• Telecommunications expense: Basic local telephone services on campus, including phone installation, monthly line charges and internet charges, cellular phones, pagers and Ethernet charges should be treated as indirect (F&A) costs. Such costs should only be directly charged to a Federal award if they can be shown to meet the UG criteria for a direct cost.
  
  • Under UG §200.471, costs incurred for telecommunications and video surveillance services or equipment such as phones, internet, video surveillance, cloud servers are allowable except for purchases of covered telecommunications services or equipment as described in UG §200.216. Federal funds cannot be used to procure or obtain, extend or renew a contract to procure or obtain, enter into a contract (or extend or renew a contract) to procure, or obtain the covered equipment, services or systems described in UG §200.216. The covered equipment, services and/or systems are telecommunications or video surveillance equipment or services produced or provided by an entity that the Secretary of Defense, in consultation with the Director of the National Intelligence or the Director of the Federal Bureau of Investigation, reasonably believes to be an entity owned or controlled by, or otherwise connected to, the government of a covered foreign country. Specifically, costs of equipment produced by Huawei Technologies Company or ZTE Corporation (or any subsidiary or affiliate of such entities) are unallowable. For purpose of public safety, security of government facilities, physical security surveillance of critical infrastructure, and other national security purposes, costs of video surveillance and telecommunications equipment and services produced or provided by, or using equipment and services produced or provided by, Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company (or any subsidiary or affiliate of such entities), are unallowable.

Roles and Responsibilities
The PI/PD is responsible for the management of his/her individual award within the financial constraints outlined by the individual sponsor in the terms of the award, and in accordance with the UG and the Colleges' Authorized Grant Expenditures Policy and this Unallowable Costs Policy. To facilitate the review process, the PI/PD must provide sufficient detailed information describing the item purchased and the purpose or function of the expenditure on every disbursement document. The PI/PD is responsible for monitoring all expenses charged to the grant under the process described in the Colleges' Authorized Grant Expenditures Policy.

Expenditure Review Process
Federal grant agreement related e-procurement transactions, initiated by the PI/PD faculty support, must be reviewed and approved by the PI/PD. All Federal grant agreement related e-procurement transactions, initiated and approved by the PI/PD, must be approved by the Grants Manager in the Business Office.

All Federal grant agreement related requests for reimbursement to the PI must be signed by the PI and reviewed and approved by the Grants Manager in the Business Office prior to the reimbursement being made. The Business Office review will verify compliance and appropriateness to determine if the charge is correctly accounted for.

If the Business Office determines that a cost is unallowable according to the Colleges' policy or the grant award, the documents will be returned to the PI/PD with an explanation and will require them to identify a non-Federal funding source for the expenditure. The PI/PD needs to initiate a cost transfer form in accordance with the Federal Grants Cost Transfer Policy to remove the unallowable expenditure.

The Grants Manager in the Business Office will review the financial details of each Federal grant and send a budget-to-actual spreadsheet to the PI/PD at least each quarter, and the PI/PD is responsible for reviewing this spreadsheet timely to verify that there are no errors or issues with the costs charged. The PI/PD should review these reports each time they are received to ensure that issues are identified within the Colleges' fiscal year. Any unallowable costs identified through this review process must be removed from the grant initially charged and charged to a non-Federal funding source using the procedures described in the Federal Grants Costs Transfer Policy.