Identifying Unallowable Expenses on Sponsored Projects

Do you know what one of the most important things to remember during grant management is? If you answered identifying unallowable expenses, then you would be correct.

Blue Wren can safely say that one of the main issues that institutions face when undergoing grant audits by federal granting agencies is identifying unallowable expenses. Avoid this mistake by familiarizing yourself with common unallowable expenses during grant management.

As defined in the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, the cost of a federal award is made up of allowable direct and indirect costs. Cost principles also require direct cost expenses to be allocable, reasonable, and treated consistently in like circumstances.

Examples of Unallowable costs include:

  • Advisory Councils
  • Alumni/ae activities
  • Bad debts
  • Commencement and convocation costs
  • Contributions and donations
  • Entertainment costs
  • Fines, penalties, damages, and other settlements
  • Fund raising and investment management costs
  • Goods or services for personal use
  • Lobbying
  • Losses on other awards or contracts
  • Memberships, subscriptions, and professional activity costs
  • Organization costs
  • Selling and marketing costs
  • Student activity costs

Additionally, there are many costs where the determination of whether the cost is allowable or not is dependent on the conditions associated with the cost and/or sponsor guidelines.

While there are regulations that define whether costs are allowable, it does not mean they are interpreted correctly, willingly followed, or that mechanisms are put in place to prevent unallowable costs from being charged. In fact, many institutions have dealt with an unexpected unallowable expense turning up during audit.

Steps your research office can take to monitor unallowable costs:

  • Clearly define guidelines regarding how each cost will be labeled
  • Establish clearly defined and consistent justifications for purchases in order to ensure they are related to the project
  • Establish a process to ensure all purchases are allocable, allowable, consistent, and reasonable
  • Receive approval for Pre-Award spending prior to making purchases
  • Review expenditure reports throughout the life of the award with the assistance of reporting mechanisms such as Blue Wren Financials

While there are regulations that define whether costs are allowable, it does not mean they are interpreted correctly, willingly followed, or that mechanisms are put in place to prevent unallowable costs from being charged. In fact, many institutions have dealt with an unexpected unallowable expense turning up during audit.

Utilizing Blue Wren’s grant accounting software solution can help make sure that all of your expenses are compliant with the appropriate cost principles as well streamline your institution’s grant accounting processes and procedures. Needless to say, Blue Wren Software can assure you that having to deal with an audit wrought full of problems is not only no fun, but also a huge hindrance on your overall research productivity. Track expenses and avoid falling into this audit pitfall with the help of Blue Wren Financials, our Financial Management and Grant Accounting Module.

Avoiding adverse audit findings can be easier than you ever thought possible – simply contact Blue Wren today for more information.