2.4 What Are Unallowable Costs?

1. Unallowable Costs

Costs are defined as allowable or unallowable for reimbursement by the government. The federal government asserts that federal funds may not be used to pay unallowable expenses. Unallowable expenses may NOT be charged either directly or indirectly to the federal government.

All expenditures at Stanford, regardless of funding source, must be coded as allowable or unallowable so that they can be appropriately included or excluded from indirect cost calculations.

Allowable Expenditures

Are considered appropriate and reasonable by Stanford AND they are eligible for cost reimbursement by the federal government as stated in OMB Circular A-21 or the Uniform Guidance. 

Unallowable expenditures

Are considered appropriate and reasonable business expenses by Stanford, BUT they are not eligible for reimbursement by the federal government. Departments may incur these expenses but they must code them as unallowable. 

Use the Oracle Expenditure Codes and Descriptions to find the appropriate code for an expense.

We must understand the distinction between allowable and unallowable costs. It is crucial to code and categorize expenses correctly to comply with Stanford’s obligation to the federal government for both direct and F&A or indirect cost recovery. Our ability to obtain federal grants and contracts is dependent upon meeting federal requirements.  

The integrity of the Stanford's financial systems depends on the knowledge and skill of each of the individuals who process the thousands of financial transactions every day.

Expenses that must be coded unallowable for federal reimbursement include: University activities that federal regulations require to be coded as unallowable for federal reimbursement:
  • advertising (only certain types are allowable)
  • alcoholic beverages
  • entertainment
  • fundraising or lobbying costs
  • fines and penalties
  • memorabilia or promotional materials
  • moving costs if employee resigns within 12 months
  • certain recruitment costs, e.g., color advertising
  • certain travel costs, e.g., first-class travel
  • cash donations to other parties, such as donations to other universities, except for small contributions for purposes of "Employee Morale," e.g., a donation in lieu of flowers at a memorial
  • costs in excess of University severance policy
  • interest payments, except certain interest specifically coded as paid to outside parties and authorized by the Controller's Office
  • memberships in civic, community or social organizations, or dining or country clubs (seldom reimbursable by Stanford)
  • goods or services for the personal use of employees, including automobiles
  • insurance against defects in Stanford's materials or workmanship
  • in addition, Stanford voluntarily treats the travel and subsistence expenses of University trustees as unallowable.
  • fundraising
  • lobbying
  • commencement and convocation (can be allowable when charged to a Task with the appropriate Student Services - Service Type)
  • general public relations and alumni activities
  • certain student activities, e.g., intramural activities, students clubs, etc.
  • managing investments solely to enhance income
  • prosecuting claims against the Federal Government
  • defending or prosecuting certain criminal, civil or administrative proceedings
  • housing and personal living expenses of University Officers
  • selling or marketing of goods or services (does not apply to selling goods or services internal to the university by its Service Centers)

In addition Stanford does not allow reimbursement for the following. These expenses will not be paid for by Stanford. If incurred, they must be paid for by the individual.

  • Personal amusement, social activities, or entertainment (outside of activities directly related to University functions or purposes, including employee-employer relations, performance improvement, etc.)
  • Stanford Faculty Club dues for individual members
  • Personal, social, or travel club dues
  • Stanford parking permits for employees or students
  • Traffic citations for either personal or Stanford vehicles
  • Personal services or personal purchases
  • Interest charges incurred by individuals for late payment of their own personal bills
  • Or any costs specifically disallowed by school or department policy

Example of a cost unallowable for reimbursement by Stanford:

A Senior Research Associate purchases a leather brief case and would like to use university funds to pay for the item. The designer briefcase is made of fine grain leather with brass trim and costs $1250.

Explanation: The cost is not reasonable, it is not necessary for the performance of the person's job, and is not permitted by University policy because it is a personal item. It must be paid for by the individual.

Example of a cost unallowable for reimbursement by the federal government, but allowable for reimbursement by Stanford:

An important faculty member is retiring from 35 years of service to Stanford. A party is given in his honor.

Explanation: Although this is something the federal government should not pay for as a direct or indirect cost, it certainly is an appropriate Institutional expense. This event should use the expenditure types: 52310 ALCOHOL BEV UNALW for all alcohol, and 52240 EMP MORALE for the food cost. The expenditure types designated unallowable for reimbursement by the Federal Government in both cases.

Example of a cost unallowable for reimbursement by the sponsor, but allowable for reimbursement by Stanford:

The State of California grant explicitly states no travel outside of the state of California. Professor Smart would like to travel outside the state to present a paper about her research.

Explanation: No matter how great a speaker she is or how interesting her research may be, the expense is unallowable as a direct charge to the sponsor per the award terms and conditions. If Professor Smart does travel, the expense must be charged to a PTA where the travel is Allowable, Allocable and Reasonable. The expenditure type would be: 52410 Domestic Travel Allow.

Terms and Conditions of a Sponsored Project Can Be More Restrictive

UNALLOWABLE costs may also be identified in the specific terms and conditions of a sponsored project. These can be more specific than those outlined in A-21 or the Uniform Guidance.

Example: A sponsor specifies that international travel costs cannot be charged to a particular project. Those costs may NOT be charged to that project, even though Stanford and federal regulation may allow them.

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July 29, 2014
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