ALLOWABLE COST Policy
Purpose:
Veterans Medical Research Foundation (VMRF) is committed to ensuring that all costs charged to sponsored projects are allowable, allocable, and
reasonable and are conducted in accordance with sponsor terms and conditions, as well as VMRF policies.
Overview:
The Federal Government is the largest sponsor of externally funded activity at VMRF. The cost principles relating to expenditures on federal awards are contained in 2 CFR 215 “Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations” and 2 CFR 230 “Cost Principles for Non-Profit Organizations.”
These cost principles require that any expense charged to a federally sponsored project be reasonable and necessary, allocable, consistently treated, and conform to any limits or exclusions set forth in these regulations or the terms and conditions of the award. In addition, individual awards may include special terms and conditions, which must be considered before allocating certain costs to the award.
This document outlines the general procedure for determining allowable costs on federally sponsored awards. The goal of this document is to provide clear guidance as to what costs constitute appropriate direct and indirect charges to sponsored projects as well as to achieve consistency in charging practices across VMRF. Any employee who is involved with the administration of sponsored agreements should be familiar with this policy. This includes Principal Investigators, Contracts & Grants Administrators, and other personnel who are involved with sponsored awards.
Definitions:
Direct Costs are expenses that are specifically associated with a particular project that can be directly assigned to such activities relatively easily with a high degree of accuracy. Common examples of direct costs include the Principal Investigator’s salary and fringe benefits, technical equipment, animal care costs, subcontract costs, travel, or other materials consumed or expended in the performance of the research project.
Indirect Costs, also called Facilities and Administrative Costs (F&A Costs), are incurred for common or joint objectives and, therefore, cannot be readily and specifically identified with a particular project or activity. They are expenses that benefit more than one activity. Common examples of indirect costs include utilities, local telephone charges, shared office supplies, general administrative or secretarial salaries, etc.
Explanation of Allowable Costs:
All costs must be allowable under federal regulations and sponsor terms and conditions, including program-specific requirements and VMRF policy. To be allowable, costs must:
1. Be reasonable and necessary
2. Be allocable to the federally sponsored project under the principles and methods provided in 2 CFR 215, and 2 CFR 230.
3. Be given consistent treatment
4. Conform to any limits or exclusions set forth in 2 CFR 215, 2 CFR 230, or the terms and conditions of the award.
2 CFR 215 and 2 CFR 230 define a cost as reasonable if the nature of the goods or services acquired or applied, and the amount involved, reflect the action that a prudent person would have taken under the prevailing circumstances when the decision to incur the cost was made.
Major considerations involved in the determination of the reasonableness of a cost are:
1. Is the cost of a type generally recognized as necessary for the performance of the research agreement?
2. Have the restraints or requirements imposed by such factors as federal and state laws and regulations, research agreement terms and conditions, and arm’s-length bargaining been satisfied?
3.Have the individuals concerned acted with due prudence in the circumstances, considering their responsibilities of VMRF, its employees, the government, and the public at large?
4. Is the extent of the actions taken with respect to the incurrence of the costs (e.g., hiring decision, choice of goods or services, determination of salary or price, vendor selection, etc.) consistent with established VMRF policies and practices applicable to the work of the institution, including government research?
Explanation of Allocable Costs:
A cost is allocable to a particular cost objective (e.g., a specific function, project, research agreement, department, or the like) if the goods or services involved are chargeable or assignable to such cost objective in accordance with relative benefits received or other equitable relationship. Every incurred cost must have a direct benefit to the project being charged.
In general, a cost is allocable to a particular project if it fulfills one of the following conditions:
1. it is incurred solely to advance the work under the sponsored agreement; or
2. it benefits both the sponsored agreement and other work of the institution, in proportions that can be approximated through use of reasonable methods; or
3. it is necessary to the overall operation of the institution and is deemed to be assignable in part to the project.
If a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost, the cost should be allocated to the projects based on the proportional benefit. If a cost benefits two or more projects or activities in proportions that cannot be determined because of the interrelationship of the work involved, then the costs may be allocated or transferred to benefited projects on any reasonable basis.
Note: Reasonable methods of allocating common use scientific items and supplies may include proportional benefit, specific anticipated use per award, FTEs on each award, lab square footage, high correlation to another lab cost that is clearly allocated, and modified total direct cost (MTDC) proportions.
In the rare instances in which a proper cost allocation cannot ultimately be determined using any reasonable methods, the cost may be charged to a single project.
Where the purchase of equipment or other capital items is specifically authorized (Note: "authorized" means approved by the sponsor) under a sponsored agreement, the amounts thus authorized for such purchases are assignable to the sponsored agreement regardless of the use that may subsequently be made of the equipment or other capital items involved.
Any costs allocable to a particular sponsored agreement under these standards may not be shifted to other sponsored agreements in order to meet deficiencies caused by overruns or other fund considerations, to avoid restrictions imposed by law or by terms of the sponsored agreement, or for other reasons of convenience.
Any costs allocable to activities sponsored by industry, foreign governments, or other sponsors may not be shifted to federally sponsored agreements.
Responsibilities of the Principal Investigator:
It is the responsibility of the Principal Investigator to correctly review, process, and approve expenditures to sponsored awards, including the appropriate classification by expenditure type, to ensure that expenditures are allowable, and to ensure budget amounts are not exceeded. Based upon this review, if an item is determined not to be reasonable or allocable to the particular research project, it is the responsibility of the Principal Investigator to produce a timely and accurate cost transfer. (Refer to VMRF’s Cost Transfer Policy). PIs and their staff are encouraged to consult with their VMRF Contract & Grant Administrator responsible for overseeing the sponsored award for more details.
Approved by the VMRF Board of Directors: September 30, 2010