Facilities &
Administrative
Cost Accounting
Understanding how costs are classified is an important part of managing sponsored projects responsibly. This page outlines key cost principles, explains the difference between direct and indirect costs, and highlights expenses that may not be allowable on federally funded awards.
Indirect (F&A) Costs Identification and Assignment
Costing for grants and contracts requires that all expenses be reasonable, allocable, consistently treated, and allowable under federal guidelines, e.g., 2 CFR §200. Costs must directly benefit the project, be necessary for performance, and follow consistent accounting practices. Key areas include direct, indirect, and unallowable costs.
Core Cost Principles
Reasonableness
The cost reflects what a prudent person would pay under the circumstances.
Allocability
The cost benefits the specific project and can be assigned to it, or it supports the organization's overall operations.
Consistency
Similar costs are treated the same way across all projects, e.g., direct vs. indirect.
Allowability
The expense is permitted by the specific award terms and federal guidelines.
Key Cost Classifications
Direct Costs
Expenses specifically identified with a particular project, such as personnel salaries, project-specific materials, and equipment.
Indirect Costs Facilities and Administrative (F&A)
Costs that benefit multiple projects or general operations, such as utilities, rent, and administrative staff.
Unallowable Costs
Expenses that cannot be charged to a federal grant, such as alcoholic beverages, fundraising, or lobbying.
Unallowable Direct Costs
Unallowable direct costs on federal grants are expenses that cannot be charged to a federal
award because they are prohibited by 2 CFR 200 Subpart E.
| Expense | Status |
|---|---|
| Alcoholic Beverages | Unallowable. §200.423 |
| Entertainment and associated costs | Unallowable unless they have a specific, direct programmatic purpose and are included in the federal award. §200.438(a) |
| Lobbying and political activities | Unallowable including attempts to influence legislation or elections; executive branch “improper influence.” §200.450 |
| Fundraising and development costs | Unallowable with limited exceptions and prior written approval when meeting federal program objectives. §200.442(a) |
| Fines, penalties, damages, and other settlements | Unallowable with narrow exceptions. §200.441 |
| Goods or services for personal use | Unallowable; housing costs/allowances and personal living expenses are only allowable as direct costs with prior agency approval. §200.445(a)–(b) |
| Commencement and convocation costs | Unallowable except as activity costs under Appendix III.B.9. §200.429 |
| General advertising and public relations | Unallowable except for recruiting personnel, procuring goods/services, disposal of scrap, or program-required outreach. §200.421(b), (e) |
| Memberships in social, country, or dining clubs | Unallowable. §200.454(d) |
| Selling and marketing costs | Unallowable unless allowed under §200.421 and necessary for the award, and in some cases require prior approval. §200.467 |
| Idle facilities and idle capacity costs | Generally unallowable with limited exceptions; idle capacity may be allowable as a normal business cost if reasonably anticipated for award needs. §200.446(b)–(c) |
| First-class or business-class airfare | Unallowable except when justified by specific conditions, e.g., unreasonable hours, circuitous routing, medical need, etc. §200.475(e)(1) |
| Administrative and clerical salaries | Normally indirect and unallowable as direct unless all conditions for direct charging are met: integral to the project, specifically identifiable, and not also recovered as indirect. §200.413© |
| Long-term/immigration visa costs for employees | Unallowable; only short-term visas tied directly to the project are generally allowable as direct costs when UG criteria are met. §200.463(d) |
| Proposal preparation costs | Normally indirect, not direct-chargeable to a single award, for both successful and unsuccessful proposals. §200.460 |
| Student activity costs | Unallowable unless expressly authorized in the award. §200.469 |
| Losses on other awards or contracts | Unallowable as direct charges. §200.451 |
| Insurance against defects / costs to correct defects | Unallowable. §200.447(b)(5) |
| Bad debts and related collection/legal costs | Unallowable. §200.426 |
| Interest expense | Generally unallowable; financing costs, including interest, for capital assets may be allowable under strict conditions. §200.449(a)–(c) |