Allowable Costs
This factor determines whether a cost being considered would be authorized for payment under the terms of the award made by the sponsor (OMB A-21: Section C2). The question to ask is, “Will the sponsor pay for this expense?” The tests as to whether a cost is allowable are:
- the cost must be reasonable;
b. it must be possible to allocate the cost to a sponsored project using the principles and methods provided by the project;
c. the cost must be given consistent treatment by application of generally accepted accounting principles appropriate to the circumstances and in compliance with the University’s Disclosure Statement; and,
d. the cost must conform to any limitations or exclusions set forth in OMB Circular A-21, the award document, the sponsoring agency's guidelines in terms of types or amounts of cost items, States regulations, or UGA policy.
Allocable Costs
A cost is allocable if a specific good or service is chargeable or assignable to a particular cost objective (i.e., a specific function, project, sponsored project, department or the like) in accordance with the relative benefits received or other equitable relationship (OMB A-21: Section C4). The question to ask is, “Is the expense related to the project?” The tests as to whether a cost is allocable are:
a. is the cost incurred solely to advance the work of the sponsored project;
b. does the cost benefit both the sponsored project and other work of the institution in proportions that can be approximated through use of reasonable methods; or,
c. is the cost necessary to the overall operation of the institution based on the principles in OMB A-21 or as deemed assignable by the sponsored project.
Note: In the case of equipment or other capital items purchased with specific authority of a sponsored project, the amount authorized for such purchases is assignable to the sponsored project regardless of the use that may subsequently be made of the items. Any cost allocable to a particular sponsored project according to the standards of the project may not be shifted to other sponsored projects to compensate for overruns, other reasons of convenience, or to avoid restrictions in law or the sponsored project. Neither may costs allocable to activities sponsored by industry, foreign governments, or other sponsors be shifted to federally-sponsored projects.
Reasonable Costs
A cost is considered reasonable if the nature and amount of the goods or services acquired for or applied to a specific sponsored project reflect the actions of a prudent person under the circumstances prevailing when the decision to incur the cost was made (OMB A-21: Section C3). The question to ask is, "Is the expense reasonable?" Major considerations in determining the reasonableness of a cost are:
a. whether or not the cost is generally recognized as necessary for the performance of the sponsored project or the operation of the institution;
b. the restraints or requirements imposed by factors such as arm's-length bargaining, Federal and State regulations, terms and conditions of a sponsored agreement, or agency guidelines;
c. whether or not the individuals acted with prudence in considering their responsibilities to the institution, its employees, its students, State or Federal Government, and the public at large; and,
d. whether the actions taken to incur the cost are consistent with established institutional policies and practices applicable to the work of the institution generally and inclusive of sponsored projects.
