Finance Administrative Policies and Procedures
Section: 4- Grants and Contracts Accounting
Policy Procedure: 4-3.01
Subject: Determining Allowable and Unallowable Costs on Sponsored Agreements
Effective Date: 4/8/1999
Responsible Department: Grants and Contracts Accounting


The purpose of this procedure is to provide general guidelines and procedures for determining allowable and unallowable costs for Sponsored Agreements.

General Guidelines

MUSC's Cost Accounting Standards Policies and Procedures - Guidelines for Direct and Facilities & Administrative Costs provides the University's policy governing charging costs to Sponsored Agreements.

A. Responsibilities for Determining Allowability of Costs:

CAS Section 1.1 lists the responsibilities of the Principal Investigator, Departmental Chair, Departmental Business Manager, and University Administration in determining allowability and ensuring compliance with applicable cost principles.

B. General Guidelines for Determining Allowability:

CAS Section 2 provides the guidelines and tests for allowability of costs.

C. Classification of Expenditures:

In accordance with the applicable costing guidelines, expenditures may be incurred at MUSC under the following circumstances:

1. Costs may be allowable as direct costs to Sponsored Projects.

2. Costs may be unallowable as direct costs but allowable as facilities and administrative (F&A, or indirect) costs to Sponsored Projects.

3. Costs may be unallowable as both direct and F&A costs to Sponsored Projects, but may be charged to other University fund sources as long as the costs are not included in F&A Cost Rate calculations.

Questions regarding allowability of costs should be addressed to the appropriate Grants and Contracts Accounting Accountant based on departmental assignment (see Distribution of Grants by Administrator) or at 792-2850.


A. Procedures for Determining Allowable Costs:

The Principal Investigator, Departmental Business Manager, and designated staff must follow the applicable costing principles, guidelines, and procedures when incurring expenditures, including:

1. OMB Circular A-21 - Refer to the Schedule of Commonly Used Account Codes, which cross-references MUSC expenditure account codes to the specific section of Circular A-21 that addresses that expenditure item.

2. Federal Cost Accounting Standards (OMB Circular A-21, Appendix A)

3. State of South Carolina Procurement Policies and Procedures

4. Specific sponsor guidelines and regulations, including requirements for prior sponsor approval of certain direct cost items

5. Specific award terms and conditions

6. Specific awarded budget

B. Procedures for Determining Allowable Direct Costs vs. F&A Costs:

Guidelines for determining if an allowable expense should be treated as a direct cost vs. an F&A cost are found in Procedure 4-3.02: Determining Direct Costs vs. F&A Costs on Sponsored Agreements.

C. Procedures for Determining Unallowable Costs:

Certain expenses are clearly designated as unallowable for both the federal government and the State of South Carolina. In addition, certain types of expenses may be allowable for federal purposes, but the sponsor has specifically determined the expense to be unallowable. The following procedures must be followed for these types of expenditures:

1. Expenses Unallowable for Both Sponsored Projects and State Fund Sources:

These must not be charged as either direct costs and must not be included in F&A Cost Rates charged to Sponsored Agreements. However, they may be charged to UMA or other foundation fund sources if appropriate and necessary for the University?s operations. A not necessarily all-inclusive list of these type expenditures are as follows:

a. Alcoholic beverages

b. Entertainment - movies, concerts, sporting events

c. Memberships for social, dining, or country clubs, civic and community organizations

d. Good and services for personal use of employees

e. First class air travel (Note: First class air travel may be allowable if absolutely necessary and documented by written justification. See Procedure 4-3.11: Charging Travel Expenditures to a Sponsored Project.

f. Lobbying

2. Activities and Expenses Allowable for MUSC but Unallowable for F&A Cost Rates:

These must not be charged to Sponsored Projects as direct costs and must not be included in the F&A Cost Rates. The Federal government will not reimburse the University for these costs even though the activities may be entirely appropriate and necessary for MUSC?s operations. In order to prevent the charging of these unallowable costs to the Federal sponsors, the departments and PIs must clearly identify these as unallowable costs when charging these expenditures to Non-Sponsored Projects in the accounting system. Detailed procedures may be found in Procedure 4-3.03: Coding Unallowable Expenditures on Non-Sponsored Projects. A not necessarily all-inclusive list of these type expenditures are as follows:

a. Unallowable Activities:

1) Organizing fund raising

2) Commencement and convocation

3) Corporate public relations to promote MUSC

4) Marketing and selling of goods and services

5) Defending/prosecuting certain criminal, civil, or administrative proceedings

6) Alumni activities

b. Unallowable Expenses:

1) Advertising (Note: Advertising for recruitment of personnel, disposal of scrap/excess materials, or procurement of goods/services are allowable as F&A costs.)

2) Fines and penalties

3) Promotional materials

4) Certain travel costs (first class travel, alumni-related travel)

5) Entertainment