DO YOU OVERLOOK COMMON UNALLOWABLE COSTS IN YOUR GRANT SPENDING? HERE’S WHAT YOU NEED TO WATCH FOR.
Are you new to the world of grants management or are you responsible for checking someone else’s spending on a Federal grant?
You may have heard the term “unallowable” but are not sure what exactly that means.
You just know it’s bad when they slip through in the grant spending.
Grant Management Basics: Unallowable Costs
Unallowable costs are the things that should never, ever, ever see their way into a Federal grantee’s spending.
These are the types of things that keep legions of auditors busy looking for the “bad apple” in the barrel of spending.
Even worse, this is the stuff that puts your organization at risk for repayment of grant funds, suspension and debarment from Federal grants.
Unallowable Costs Video Lesson:
Length: Approx. 6 minutes
Look at what makes costs unallowable to charge a Federal award
The criteria are essentially the opposite of the allowable cost criteria.
Are Costs Unreasonable?
“I tried being reasonable, I didn’t like it.” Clint Eastwood
First of all, costs will be “unallowable” if they are unreasonable or unallocable, even if they meet other criteria.
If you are spending grant funds like the proverbial “Dirty Harry”— out of control and accountable to no one, expect this to not end well.
Remember, this money is really not yours.
It is the taxpayers and they want their money to be spent in a reasonable manner.
No $6000 toilet seats please!
Are Costs Limited?
“Limits only exist in the mind.” Aristotle
No, actually they also exist in Federal Cost Principles section of the grant regulations known as 2 CFR Part 200 Uniform Guidance.
Costs will be unallowable if they are limited or excluded by Federal Cost Principles, or other laws and regulations.
Is Documentation Inadequate?
“Our deepest fear is not that we are inadequate.” Maryanne Williamson
Our deepest fear is that our documentation may not be sufficient.
Is this keeping you up at night?
No, not yet?
How about if you knew the Office of the Inspector General (OIG) was coming to visit next week; hmm, OK, maybe a little?
If the documentation to support the expenditures is not sufficient, you could be looking at paybacks.
Get the documentation complete while it’s still fresh in your mind.
It’s a real pain to look at a bunch of receipts years later trying to figure out what the heck was purchased.
Common Examples of Insufficient Documentation
Some common examples of insufficient documentation could include:
- Example #1: Missing receipts
- Example #2: Receipts that lack enough detail to determine what was purchased
- Example #3: Documentation that ignores the process for spending authorization
- Example #4: Inadequate screening or documentation of eligibility of Federal program services
Are Costs Unfairly Allocated?
“Life is not fair, get used to it.” Bill Gates
Uncle Sam begs to differ with you, Mr. Gates.
(Now there would be an interesting match-up. Somehow I’m thinking the Uncle is coming out ahead.)
If the policies and procedures of the organization are not applied uniformly to all activities, the costs may be disallowed.
This means that Federal awards can’t be singled out, nor excluded from the policies and procedures of the organization.
Are Costs Prohibited?
“Prohibition has made nothing but trouble.” Al Capone
I guess it depends on your perspective of trouble.
Certainly, spending grant funds and involving prohibited transactions such as fraud, suspension and debarment, and other prohibited business dealings will result in unallowable costs and a bunch of trouble if you don’t keep them out of grant spending.
Some additional examples of prohibited business dealings could include having conflicts of interest in procurements and violation of anti-corruption laws.
Hear that, Mr. Capone?
Do you recognize these common unallowable costs?
Here are five types of unallowable costs that you may encounter as you work on Federal Awards.
- 1) Certain types of travel costs
- 2) Personal use of goods and services
- 3) Alcoholic beverages
- 4) Entertainment costs
- 5) Public relations costs
Here is even more information on each one of these examples.
- Travel costs can be unallowable if the employee’s travel costs are not reasonable or consistent with the written travel policy of the organization.
- Additionally, if commercial air travel is not coach or an equivalent fare, the costs may be unallowable. In other words, no first class travel fares unless very specific criteria are met, and documented to the funding agency.
In the case of non-commercial air travel, the portion of costs that exceed what it would have cost for commercial air travel could be unallowable to charge the Federal award as well.
Personal use of goods and services
The cost of goods or services personally used by employees are unallowable for charging to Federal awards.
These types of costs are unallowable even if the costs are reported as taxable income to the employee.
Some examples of goods or services for personal use could include such things as:
- 1) Charging travel costs for family members of an employee
- 2) Personal use of office supplies and shipping services
- 3) Purchasing electronics which are not used in the performance of the Federal award
Alcoholic Beverages and Entertainment
Alcoholic beverages and entertainment costs are additional types of unallowable costs and include such items as:
- Costs for amusement and social activities
- Related costs; for example, tickets, meals, lodging and transportation
Examples of unallowable entertainment costs range from tickets for a sporting event to a social room at a conference.
Though there are some exceptions, in most circumstances, public relations costs are unallowable.
The types of public relations costs that are generally unallowable include meetings, conventions or other events to promote non-award activities.
Some example of unallowable costs could include:
- Example #1: The cost of displays, exhibits and hospitality suites
- Example #2: The cost of staff compensation to support the unallowable activities
- Example #3: The cost of promotional items such as memorabilia, gifts, and souvenirs
Danger: Watch out for those coffee mugs, stress balls, t-shirts and other promotional items that only promote the organization. These types of costs are unallowable.
How do I find out more?
The Cost Principles included in 2CFR Part 200 include a list of over 50 common types of costs and more information on their allowability or unallowability.
This is a great reference if you have further questions about specific costs.
P.S. Here’s even more free information.
Don’t miss your own very cool, one page “Quick Reference Guide: Unallowable Costs.”
(Just click on the link to download the .pdf file.)
Want to find out even more?
You can find out more about the various Cost Principles Requirements in our Grant Management Boot Camp
There are 4 “Boot Camp” modules covering the main areas related to Cost Principles requirements for recipients of Federal awards:
- Module: Cost Principles for Direct Costs
- Module: Cost Principles for Indirect Costs
- Module: Selected Items of Allowable Costs
- Module: Selected Items of Unallowable Costs