Budget Development

6.1 Cost Accounting Standards

The majority of externally sponsored funding at the University is provided by the federal government. Cost accounting principles for higher education grantees are established by the federal Office of Management and Budget (OMB). The OMB circulars that are the most relevant to universities include:

  • OMB Circular A-21 Cost Principles for Educational Institutions
  • OMB Circular A-110 Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education
  • OMB Circular A-133 Audits of States, Local Government, and Non-Profit Organizations

Costs must meet the below criteria in order to be charged to federal grants:

6.1.1 Reasonable

The nature of the expenditure and the amount must reflect an action that a prudent person would take under the circumstances.

6.1.2 Allocable

The expenditure must provide a direct benefit to the project (i.e., the cost of a piece of equipment that is required to accomplish the work of two projects may be proportionately shared by those projects).

6.1.3 Consistent

Costs incurred for the same purpose in like circumstances must be treated consistently as direct or indirect (F&A) costs across the institution.

6.1.4 Allowable

Costs must conform to any limitations or exclusions as set forth in OMB Circular A-21 (Cost Principles for Educational Institutions). Examples of generally unallowable costs under federal sponsorship include alcoholic beverages, entertainment costs, administrative and clerical salaries, telephone charges, postage, office supplies and memberships. If a charge is unallowable as a direct cost, it is also unallowable as a match or cost share expense.

Non-governmental sponsors may apply different cost principles. PI’s should read the sponsor instructions carefully and consult with Management Accounting and Analysis for further advice.

Last Updated: 5/16/17