A. Purpose. As a recipient of sponsored project funding, the university is obligated to comply with regulations and standards established by the federal government and sponsoring agencies. The Office of Management and Budget (OMB) Circular A-21, Cost Principles for Educational Institutions (OMB Circular A-21) sets forth the general principles and practices for federal costing standards associated with sponsored project activity. The Cost Accounting Standards Board (CASB) [codified at 48 C.F.R. 9905] promulgated regulations to foster consistency in estimating, accumulating, allocating, and reporting costs by education institutions. These regulations are incorporated into OMB Circular A-21. Consistent with these regulations, the University requires that all unallowable costs be identified and excluded from sponsored projects. (APM 45.06).

The procedure provided in D below describes the university’s method for managing noncompliance with federal expenditure regulations, specifically the charging by university employees of unallowable costs to federal awards.

B. Determination of Cost Allowability. For a cost to be regarded as an allowable charge to a sponsored project, it must (with certain limited exceptions) satisfy four conditions for allowability established in OMB Circular A-21:

1. Costs must be reasonable. A cost is considered reasonable if the nature and the amount involved for goods or services acquired or applied reflect the action that a prudent person would have taken under the circumstances prevailing at the time the decision to incur the cost was made. (OMB Circular A-21, Section C2.)

2. Costs must be allocable to sponsored agreements under the principles and methods provided in OMB Circular A-21. A cost is considered allocable to a particular project if the goods or services involved are chargeable or assignable to the project in accordance with relative benefit received or other equitable relationship. Subject to the foregoing, a cost is allocable to a sponsored agreement if:

(a) it is incurred solely to advance the work under the sponsored agreement;

(b) it benefits both the sponsored agreement and other work of the institution, in

proportions that can be approximated through use of reasonable methods,

or

(c) it is necessary to the overall operation of the institution and is deemed to be

assignable in part to sponsored projects (OMB Circular A-21, Section C3.).

3. Costs must be given consistent treatment through application of generally accepted accounting principles appropriate to the circumstances. (OMB Circular A-21, Section C2.)

4. Costs must conform to any limitations or exclusions set forth in OMB Circular A-21 or in the sponsored award as to types or amounts of cost items. (OMB Circular A-21, Section C2.)

OMB Circular A-21 designates certain costs as expressly unallowable. (OMB Circular A-21, Section J; See also APM 45.06 for an overview of expressly unallowable costs.).

Costs that fail to meet any of these criteria must be treated as unallowable. Questions regarding the allowability of costs should be directed to the Office of Sponsored Programs, (208) 885-6651 or osp@uidaho.edu.

C. Responsibilities. Under university policy, the Principal Investigator (PI) bears the primary responsibility for ensuring the appropriateness or allowability of all costs on sponsored projects. (FSH 5100, Section H-3). This reflects the more general university mandate that all employees act as responsible stewards of resources and assets under their control (FSH 3170).

C-1. A Grant Administrator (GA), assisting Principal Investigators with reviewing, justifying, charging and tracking costs, is also responsible for making certain that expenditures are charged against awards in a manner that is consistent with applicable federal regulations, sponsor conditions, and university policies.

C-2. The Unit Administrator (department chair/head/director) is responsible for implementing this procedure in order to ensure adherence to federal cost principles including allowability, accounting regulations, and university policies. Payment of unallowable charges to sponsored projects which are subject to the expenditure requirements articulated by OMB Circular A-21, are the responsibility of the sponsoring unit or college. (FSH 5100, Section F-5).

C-3. Oversight of these procedures lies within the authority of the College Deans, for units, and the Vice President for Research, for institutes. Decisions with respect to the source(s) of repayment of unallowable costs and any penalties and interest charges shall be made by the dean and/or Vice President for Research.

C-4. Employees should speak with their direct supervisor, college finance administrator, chair, director, dean or OSP in regards to situations where there is undue influence to process charges that are unallowable. Employees should note that protections are afforded through federal and university policies to prevent retaliation in such instances. It is a violation of university policy for any employee to engage in retaliatory conduct. (see FSH 3810). As public employees, university faculty and staff are responsible for reporting any actions by university employees that are illegal or incompatible with the conscientious management of resources and assets of, or entrusted to, the university. (FSH 3170, Section C).

D. Procedure.

D-1. OSP shall review expenditures periodically through the life of a sponsored project account and prior to close through generation of exception reports based on information in the university financial system. If through this review, it is determined that an unallowable expenditure has been assessed to a project, OSP will notify the dean or director and contact the responsible college finance administrator to perform a review of the facts associated with the assessment of the expenditure.

The review will identify who was responsible for the assessment of the expenditure, the circumstances surrounding placement of the unallowable expenditure on a sponsored project budget and where the expenditure is to be transferred. (OSP may be consulted to assist in the review process to ensure allocation of costs is completed in accordance with existing regulations, award conditions, and applicability to the scope of the project.) Action, such as a review of policies and procedures, identification of resources available in making cost determinations and improvement of internal controls, will be taken by the college to ensure unallowable costs are not placed on sponsored project activity in the future.

Based upon the review, the college will determine the severity of the infraction and potential for recurrence. Taking into consideration both the severity and potential for recurrence, the college will make a recommendation for resolution.

Once a review is completed, any unallowable expenditure(s) shall be removed from the sponsored project budget and placed on an unrestricted university budget. If an unrestricted university budget is not available, the expenditure(s) will be deducted from the facilities and administrative costs returned annually to the college. Copies of all back-up documentation for the review process and associated transfers must be retained by the college and originals forwarded to OSP for retention in the official university file. (Note, resolution and provision of necessary paperwork does not preclude OSP from conducting a full review of sponsored project activity within the area under review.)

This process shall also be used if an unallowable expense is placed on a project and the unallowable expense is identified by persons other than OSP.

D-2. If it is determined that the potential for recurrence is high, URO, with the concurrence of the college, will require the individual to take or retake formal training offered by OSP.

D-3. If an individual proceeds to commit the same infraction or fails to comply with responsive actions identified through the process in D-1 and D-2, his or her repeated actions may be referred for review by an ad hoc committee comprised of the Associate Vice President for Research, the dean or dean’s designee of the individual’s college(s), a representative from OSP, a representative of the university controller, and two peers. A representative from HR and internal audit will be included in an advisory capacity. The committee will review the available facts and make recommendations for further investigation or remedial and/or disciplinary action to the appropriate individual(s). Recommended employee disciplinary action will be made to the individual’s supervisor and unit administrator/dean, and any such action shall be at the discretion of the appropriate supervisor and shall proceed in accordance with the employee disciplinary procedures in the applicable university policies. Recommendations for non-disciplinary remedial actions, such as required training or revocation of access to manage grant activity, shall be made to the Vice President for Research. Nothing herein shall limit the authority of an individual’s administrative unit or the URO to otherwise impose discipline or remedial activities within their existing authority and without referral to the above described committee.