OMB Circular A-21, Cost Principles for Educational Institutions, identifies direct and indirect costs that may be charged to federal research grants and contracts. The cost principles also identify those charges that cannot be charged to grants and are considered unallowable expenses.
OMB Circular A-21 offers four tests to determine the allowability of costs applied to federally sponsored agreements. In addition to conforming to any limitations or exclusions in the sponsored agreement, all expenses charged to sponsored accounts must:
Allowable expenses are reasonable and necessary, allocable to sponsored projects, given consistent treatment and conform to any limitations or exclusions set forth in the relevant federal regulations (if applicable), the sponsored agreement and the University policy.
An expense is allocable if it is incurred solely to advance the work under the agreement or if it benefits both the sponsored agreement and other work of the institution, in proportions that can be approximated through use of reasonable methods.
A reasonable cost is one that a prudent person would have incurred under the circumstances prevailing when the purchase was made.
Costs incurred for the same purpose, in like circumstances, must be treated consistently as either a direct or indirect (F&A) costs.