Unallowable Costs

Identifying Unallowable Costs under Cost Accounting Standards (CAS) 505 & OMB Circular A-21

Activities and expenses that are unallowable for reimbursement by the federal government may still be appropriate and necessary business activities/expenses permitted by OSU. These activities/expenses may still be incurred, however, such costs must be coded as unallowable to ensure that they can be readily identified. Citations refer to applicable sections of OMB Circular A-21, as revised 5/10/04.

Types of Costs Rules Method of Identification
     
1. Advertising and public relations costs [J.1 and J.42] Advertising costs that are solely for the recruitment of personnel, the procurement of goods and services, the disposal of scrap or surplus materials, or other specific purposes necessary to meet the requirements of the sponsored agreement are allowable. All other advertising costs are unallowable. Advertising expenses are authorized per OSU Policy and Procedures Letter 1-0120.

 

Allowable advertising costs incurred for personnel recruiting are recorded under subcode 8500. All other advertising costs are treated as unallowable. These are recorded under subcodes 8510-8520.

     
 

Section J.1.a. defines advertising costs as “the costs of advertising media [magazines, newspapers, radio and television programs, direct mail, exhibits, electronic or computer transmittals, etc.] and corollary administrative costs.”

 
     
 

Public relations costs specifically required by sponsored agreements or deemed necessary for communication with the public, news media, and/or government public relations officers pertaining to specific activities or accomplishments or matters of public concern are allowable. All other public relations costs are unallowable.

 
     
 

In addition, in publications, ”costs of help wanted advertising that includes color, includes advertising material for other than recruitment purposes, or is excessive in size (taking into consideration recruitment purposes for which intended and normal institutional practices in this respect), are unallowable.”

 
     

2. Alcoholic beverages [J.3]

Costs of alcoholic beverages are unallowable.

Alcoholic beverages are not charged to any of the OSU accounts except for uses related to academic purposes (e.g., wine tasting course, etc.)

     
3. Alumni activities [J.4] Costs incurred for, or in support of, alumni activities and similar services are unallowable . Expenses associated with alumni activities are charged either to OSU Foundation accounts or to Ledger 9 accounts, neither are part of the University's accounting records.
     

4. Bad debts [J.6]

“Bad debts, including losses (whether actual or estimated) arising from uncollectible accounts and other claims, related collections costs, and related legal costs, are unallowable.”

The Bursar's Office uses two procedures to record bad debts:

1. An allowance for doubtful accounts is offset against revenue in Current Funds Unrestricted (Ledger 1 accounts), and

2. An allowance for doubtful accounts is recorded as an expenditure in Agency Special Accounts (Ledger 3). Subcode 8870 is used to record the expense.

The University does not offset against the following ledgers for contributions to a bad debt reserve: Ledgers 2,4,5, and 6.

     

5. Commencement and convocations [J.8]

Costs incurred for commencements and convocations are unallowable, except as provided for in Section F9 (Student Administration and Services).

Expenses associated with commencement and convocations are specifically identified. These expenses are allowable only as indirect costs and are included in the Student Administration and Services Cost Pool.

     
6. Late-funded pension costs [J.10.f.3] Per J.10.f.3.a., “increases to normal and past service pension costs caused by a delay in funding the actuarial liability beyond 30 days after each quarter of the year to which such costs are assignable are unallowable.”

 

OTRS and TIAA-CREF. This is not applicable to OSU.
     
7. Employee auto allowances [J.10.g.] Employee auto allowances are unallowable where personal use applies. OSU Policy and Procedures Letter 3-0160 prohibits the personal use of University-owned motor pool vehicles.
     
8. Contingency provisions [J.11] Contributions to a contingency reserve or any similar provisions made for events, the occurrence of which cannot be foretold with certainty as to time, intensity, or with an assurance of their happening, are unallowable. They do not include bona fide insurance costs, which are a legitimate cost of doing business. See J.25(Insurance and Indemnification). Under the Store Policy and Procedure Letter 4-0140, contributions to a contingency reserve are prohibited.
     
9. Defense and Prosecution of criminal and civil proceedings [J.13] Costs incurred in connection with (1) any criminal, civil, or administrative proceeding commenced by the Federal government if the proceeding related to a violation of law and results in a conviction, determination of liability, monetary penalty, or debarment/ suspension, (2) the prosecution of claims or appeals against the Federal government, or (3) patent infringement litigation are unallowable. Legal fees will be recorded under subcode 8220 or recorded in a separate General University account.
     
10. Legal services [J.13.e., J.37] Section J.13.e. generally permits recovery of 80% of legal expenses where the institution successfully defends itself against misconduct claims. Where it loses, 0%. Section J.37 allows reasonable outside counsel in non-contingency cases. Legal fees will be recorded under subcode 8220 or recorded in a separate General University account.
     
11. Legal Settlements [J.13.f.] Costs incurred by the institution in connection with defense of suits brought by its employees or ex-employees under section 2 of the Major Fraud Act of 1988, including costs of all relief necessary to make such employees whole, where the institution was found liable or settled, are unallowable. Legal settlements will be recorded under subcode 8930 or 8935, or recorded in a separate General University account.
     

12. Donations and gifts [J.15]

Contributions or donations, including cash, property, and services, made by the University, regardless of the recipient, are unallowable.

Article X, Sections 14 and 15 of the Oklahoma Constitution prohibits State agencies from expending agency funds in any manner for the purpose of making any award or gift to any employee or other person. Attorney General's opinion No. 79-78 confirms the rule.

     

13. Entertainment [J.17]

Costs of entertainment, including amusement, diversion, and social activities and any costs directly associated with such costs (e.g., tickets to shows or sports events, meals, lodging, rentals, transportation, and gratuities) are unallowable.

Costs of meals are authorized while an employee is performing regular business travel for the University, provided the trip meets the overnight criteria [OSF §330.C.3.] Except for those related to academic and sponsored program purposes, expenses incurred for food/meals are not charged to OSU's E&G Part I or II accounts. For EREDF, these expenses are charged to the accounts that can be identified as unallowable.

     
14. Lobbying [J.28] Costs incurred for executive lobbying or legislative liaison activities are unallowable.

Section J.28.h defines executive lobbying costs as “costs incurred in attempting to improperly influence either directly or indirectly, an employee or officer of the Executive Branch of the Federal Government to give consideration or to act regarding a sponsored agreement or a regulatory matter.” “Improper influence means any influence that induces or tends to induce a Federal employee or officer to give consideration or to act regarding a federally-sponsored agreement or regulatory matter on any basis other than the merits of the matter.”

Section J.28.a.5. defines legislative liaison activities as ”attendance at legislative sessions or committee hearings, gathering information regarding legislation, and analyzing the effect of legislation, when such activities are carried on in support of or in knowing preparation for an effort to engage in unallowable lobbying.”

Expenses associated with the office of Federal Relations are treated as Other Institutional Activities.

Expenses associated with employees engaged in legislative liaison activities are specifically identified.

     
15. Fines and penalties [J.19] Costs resulting from violations of, or failure to comply with federal, state, local, or foreign laws and regulations are unallowable, except when incurred as a result of compliance with specific provisions of a sponsored agreement, or instructions in writing from the authorized official of the sponsoring agency authorizing in advance such payments. Fines and penalties are treated as unallowable costs and recorded either under subcode 8820 or in accounts that can be identified as unallowable.
     
16. Personal use expenses [J.22] Costs of goods or services for personal use of the institution's employees are unallowable regardless of whether the cost is reported as taxable income to the employee. Personal expenses are reimbursed as credits to expenditures.
     
17. Employee housing allowances [J.23] Employee housing allowances and other living expenses are unallowable. These include depreciation, maintenance, utilities, furnishings, rent, etc., whether or not taxable. Employee housing allowances are separately identified in the payroll system.
     

18. Insurance against defects [J.25.f]

Costs of insurance with respect to any costs incurred to correct defects in the institution's materials or workmanship are unallowable.

The University does not normally incur expenses for insurance against defects. If such expenses are incurred, they will be separately identified for the calculation of indirect cost rates.

     

19. Medical malpractice insurance (allowable only as direct costs) [J.25.g.]

Medical liability (malpractice) insurance is an allowable cost of research programs only to the extent that the research involves human subjects. Medical liability insurance costs shall be treated as a direct cost and shall be assigned to individual projects based on the manner in which the insurer allocates the risk to the population covered by the insurance.

When costs are incurred for medical malpractice insurance, these costs will be identified and reported using Form Q505, Questionnaire for Identifying Unallowable Costs .

     
20. Fund-raising/investing [J.20] Costs of organized fund-raising, including financial campaigns, endowment drives, solicitations of gifts and bequests incurred solely to raise capital or obtain contributions are unallowable. Costs of investment counsel and staff and similar expenses incurred to enhance income from investments are unallowable. Costs related to the physical custody and control of monies and securities are allowable. Expenses associated with fund raising are charged to OSU Foundation accounts. Expenses associated with employees engaged in development activities are specifically identified.
     
21. Interest [J.26] Financial interest is unallowable with the exception of that incurred for the acquisition of new facilities and equipment (costing $10,000 or more), subject to lease-purchase analysis. Debt obligations are monitored by Accounting Services.
     
22. Covering overruns and losses on other sponsored projects [J.29] These costs are unallowable.

 

The rules regarding covering overruns are explained in OSU Policy and Procedure Letter 4-0136, Retroactive Cost Transfers Relating to Sponsored Agreements .

     
23. Meetings and conferences [J.32] Costs of meetings and conferences, when the primary purpose is the dissemination of technical information, are allowable. Expenses related to meetings and conferences for business purposes are treated as allowable costs. When these meetings do not meet the test of business purposes, their associated expenses must be specifically identified as unallowable costs.
     

24. Memberships in social and civic clubs [J.33.c & d.]

Memberships in social and civic clubs are unallowable.

Allowable institutional professional memberships are recorded under subcode 8401. Other institutional memberships, including social and civic clubs, are unallowable and recorded under subcode 8410.

     
25. Private patent development [J.34] Patent-related costs where the federal government holds an interest are allowable. Where only private patent rights apply, related costs are unallowable. Expenses associated with OSU/EREDF-owned patent development are specifically identified.
     

26. Preagreement costs [J.36]

Unless approved by the sponsoring agency, preagreement costs are unallowable.

The Circular A-21 rules are enforced.

     

27. Recruiting costs [J.42]

Most recruiting costs are allowable. However, “costs of help wanted advertising, special emoluments, fringe benefits, and salary allowances incurred to attract professional personnel from other institutions that do not meet the test of reasonableness or do not conform with the established practices of the institution are unallowable.” Also, in publications, “costs of help wanted advertising that includes color, includes advertising material for other than recruitment purposes, or is excessive in size (taking into consideration recruitment purposes for which intended and normal institutional practices in this respect), are unallowable.”

Allowable advertising costs (see item 1) are recorded using subcode 8500. All other advertising costs are treated as unallowable and are recorded using subcodes 8510-8520 or segregated in separate accounts that can be identified as unallowable.

 

     
29. Selling and marketing [J.46] Costs of selling and marketing any products or services of the institution are unallowable. Allowable advertising costs (see item 1) are recorded using subcode 8500. All other advertising costs are treated as unallowable and are recorded using subcodes 8510-8520 or segregated in separate accounts that can be identified as unallowable.
     
31. Student activity costs [J.48] Student activity costs are unallowable, except where permitted by the sponsored agreement. OSU Policy and Procedure Letter 4-0135, Costing Practices for Sponsored Research and Service Projects outlines the rules regarding sponsored agreements.
     
32. Excess airfare and related 
travel [J. 53]
Except for medical necessity, first-class airfare and related costs beyond coach or available discount rates are generally unallowable. Office of State Finance - Procedure Manual Chapter 300, Section 29.19 states that regardless of the mode of travel, reimbursement for out-of-state transportation costs shall not exceed that of coach class airplane fare. Travel by first-class commercial airline may be reimbursed if coach class is not available within a reasonable time and is justified by a statement of the facts from the agency in support of the payment.
     

33. Termination costs applicable to sponsored agreements [J.50]

§J.50 provides restrictions on allowable termination costs applicable to sponsored programs.

Termination costs applicable to sponsored programs are monitored by Grants and Contracts.

     
34. Trustees travel [J.54] Trustees travel costs are subject to the same restrictions provided in #32. Board expenses are reviewed for calculation of facilities and administrative cost rates.
     

35. Late/unsupported cost transfers [C.4.b. & c, G.1.a.3]

Cost transfers must meet the criteria specified in Circulars A-21 and A-110.

The rules regarding retroactive cost transfers applicable to sponsored programs are outlined in OSU Policy and Procedure Letter, Retroactive Cost Transfers Relating to Sponsored Agreements.

     
37. Student administration and services [F.9] Allowable costs include those incurred for the administration of student affairs and for services to students, including such activities as deans of students, admissions, registrar, counseling and placement services, student advisers, student health and infirmary services, catalogs, and commencements and convocations. The expenses in this category must be identified and allocated solely to the instruction function. As in the case of expenses associated with commencement and convocation, expenses related to student administration and services are specifically identified or segregated in separate accounts. These expenses are allowable only as indirect costs and included in the Student Administration and Services Cost Pool.
     

38. Professional services [J.37]

The cost of consulting services rendered by an employee of the university is unallowable.

In general, individuals cannot work simultaneously as an employee and a consultant. The rules regarding consulting costs applicable to sponsored programs are outlined in OSU Policy and Procedure Letter 4-0135, Costing Practices for Sponsored Research and Service Projects .