Cost Principles and Allowable Costs for Federal Grants, Emerson College

Policy Statement

As a non-profit institution of higher education, Emerson College is committed to the responsible stewardship of external funding that supports research, scholarship, creative works, and other projects conducted by faculty, staff, and students. Federal regulations require that funding recipients have sound management practices in place for the spending, recording, monitoring, accounting, and reporting of federal grant dollars. Those management practices must adhere to Generally Accepted Cost Principles (GAAP), and the Uniform Guidance for Federal Awards, as promulgated by the Office of Management and Budget (OMB).

Reason for the Policy

This page outlines guidance for the allowability of costs on research, training, and other sponsored work performed by Emerson College under grants, contracts, and other agreements with the Federal Government, as well as the required accounting principles and standards. Unless noted otherwise, all federal funding for faculty projects is subject to the U.S. Code of Federal Regulations, Title 2, Part 200– commonly known as the Uniform Guidance for Federal Awards.

As consistent treatment of costs is one of the four cost principles defined by federal regulations, the guidelines outlined in this policy generally apply to all grants awarded to Emerson (federal and non-federal) unless award documentation explicitly states otherwise.

Definitions

Cost Principles. Guidelines that establish standards for the allowability of costs, the cost accounting treatment of costs, and allowability and allocability principles for selected items of cost. For federal funding, the cost principles state that any charge must be Allowable, Allocable, Reasonable, and Consistently Treated.
Generally Accepted Accounting Principles (GAAP). A standardized framework of common accounting rules, standards, and practices used in the United States to record transactions and present financial information.
Fly America Act. A federal law requiring the use of "U.S. flag" airlines for all travel funded by United States federal government funds.
Prior Approval. The process of obtaining permission in advance from a government agency, or grant sponsor, before undertaking a specific action, service, or expense.
Uniform Guidance for Federal Awards. A government-wide framework, found in 2 CFR Part 200 and promulgated by the U.S. Office of Management and Budget (OMB), that provides a single, authoritative set of rules for federal awards, including grants and cooperative agreements.

Statements of Elaboration of the Policy

I. General Criteria for Allowability (Cost Principles)

In order to be charged to a Federal award, an expenditure must meet the following criteria–

Allowable. The cost is specifically related to the sponsored award and necessary for project performance, provides benefit in proportion to the amount charged, and is processed in accordance with the awardee institution's (Emerson's) policies.
Allocable. A cost is allocable when it provides direct benefit to the Federal grant and can be specifically tied to the Federal grant (CFR 200.405).
Reasonable. A cost is reasonable if:
- The cost is ordinary and necessary for the performance of the activity;
- The cost does not exceed what a prudent person would pay in the course of business;
- The cost meets Federal and State laws, sponsored agreement terms and agency regulations.
- Incurrence of the cost is consistent with established Institute policies and practices (CFR 200.404).
Consistent. A cost is consistent when expenses incurred for the same purpose in like circumstances are treated and classified consistently by the awardee institution– particularly in regards to Direct and Indirect ("Overhead"/Facilities & Administrative) Costs.

Allowable Direct Costs

Subject to the criteria outlined above, as well as the College's established policies on research, compensation, purchasing, reimbursement, and accounting, the following costs are typically allowable on federal grants–

Supplemental salary for Senior Personnel (typically Full-Time Faculty) or course release equivalencies, plus associated fringe benefits at the College's negotiated federal rates
Compensation (equal to effort) for research staff, plus associated fringe benefits at the College's negotiated federal rates
Wages for undergraduate and graduate research assistants, plus partial fringe benefits during the summer
Materials and supplies required for research
Capital equipment (>$5,000)
Travel costs related to research activities and dissemination of research progress and results (consistent with Emerson's travel reimbursement policy)
Participant Support Costs, as defined in the Uniform Guidance
Professional services and consulting costs
Subcontracts to collaborative institutions of higher education
Publication and printing costs
Membership in certain relevant professional organizations

Unallowable Direct Costs

Subpart E of the Uniform Guidance (Cost Principles) provides a detailed listing of items that are typically allowable and unallowable. Examples of costs normally considered unallowable on grants include:

Advertising and public relations
Alcoholic beverages
Convocations or other events related to instruction
Donations
Entertainment
Fines and penalties
Fully depreciated assets or assets gifted by the federal government
General purpose equipment, buildings, and land
General purpose office supplies
Housing and personal living expenses
Insurance and indemnification
Legal costs
Lobbying
Memberships in any civic or community organization

Depending on the sponsoring agency or nature of the grant, certain exceptions to the above may apply. orcs [at] emerson.edu (Contact the Office of Research and Creative Scholarship) with any questions.

Dis-Allowed Uses of Direct Costs on Federal Grants

The following direct costing practices are not allowable because they do not meet the standards outlined in the Uniform Guidance as outlined in "General Criteria for Allowability"--

Rotation of charges between grant accounts without establishing that the rotation schedule credibly reflects the relative benefit to each sponsored project;
Assigning charges to a grant account for the purpose of spending down the account balance;
Over-charging, as opposed to charging based on actual usage, cost, or labor hours;
Assigning charges to a sponsored project in advance of the time the actual cost is incurred;
Mis-identifying or mis-classifying an expenditure in order to charge it to a federal grant;
Assigning charges that are part of normal administrative and clerical support for grants and institutional operations (e.g., accounting, payroll, general administrative expenses, office supplies, some administrative staff support, some computer costs, etc.). Refer to the "Indirect Costs" section of this guidance for more information.

II. Travel Charges on Federal Grants

Expenses for transportation, lodging, subsistence, and related items incurred by employees for activities directly related to the Federal grant are allowable, subject to the following–

The travel is necessary to the Federal award and/or approved by the Federal sponsor
The costs are reasonable and consistent with Emerson's established travel policy

Fly America Act Requirement

The Fly America Act is a federal regulation that requires the use of U.S. carriers for travel that will be reimbursed from federal grants and contracts. Travelers who will be reimbursed from federal grants and contracts can also use foreign air carriers with code-sharing agreements with U.S. flag carriers. If there is no U.S. carrier to your destination, you must travel on a U.S. carrier as far as possible. Additional cost for U.S. carrier flights is not sufficient justification to fly on foreign carriers. Please note that the same rules apply to a foreign visitor's flights supported by federal funds.

Travel that is to be reimbursed from federal grants and contracts must be booked through U.S. carriers except in the following additional circumstances:

When the use of U.S. carrier service would extend travel time (including delay at origin) by 24 hours or more
When the costs of transportation are reimbursed in full by a third party, such as a foreign government or an international agency
When U.S. carriers do not offer nonstop or direct service between origin and destination. However, a U.S. carrier must be used on every portion of the route where it provides service unless, when compared to using a foreign air carrier, such use would:
- Increase the number of aircraft changes outside the United States by two or more
- Extend travel time by at least six hours or more
- Require a connecting time of four hours or more at an overseas interchange point

International Travel

Grants from some federal agencies and most federal contracts require that international travel, even if included in the award, be approved in advance by the sponsoring agency. Before making arrangements for international travel that will be funded by a grant or contract, the traveler should review the terms and conditions of the award or consult with the orcs [at] emerson.edu (Office of Research and Creative Scholarship) to ensure compliance.

Participant Support Costs

As defined in the Uniform Guidance, Participant Support Costs are travel allowances for non-Emerson employees who are "participating in or attending program activities under a Federal award, such as trainings or conferences, but who [are] not responsible for implementation of the Federal award," such as trainees in a training program, or community members in a community engagement program. A travel allowance, in lieu of reimbursement of travel expenses may be paid to a qualifying Participant, so long as:

The amount of the travel allowance is based on a reasonable estimate created in accordance with the College's travel policy;
The travel allowance is budgeted and paid separately from any honoraria, artist fee, or speaker's fee allocated for the Participant; and
The Participant Support Costs are included as an allowable expense in the agency-approved grant budget.

III. Indirect Costs on Federal Grants

Every sponsored project has both Direct and Indirect Costs. Direct costs are those that can be specifically and easily identified with a particular project or activity and are allowable under the sponsor's guidelines. Indirect costs, as defined by the Uniform Guidance, are those costs that are incurred for common or joint objectives, and cannot be easily and specifically identified with a particular sponsored project or institutional activity. These costs are also sometimes called "facilities and administrative costs (F&A)" or "overhead."

Emerson College indirect costs include building and equipment depreciation and use allowance; general administration; departmental, sponsored program, and sponsored project administration expenses; interest; operation and maintenance expenses; library expenses; and student administration and services expenses. Thus, indirect costs are the related costs of using the College's facilities and administrative support for grant-funded research and activities.

Indirect costs on grants are typically assessed as a percentage of direct costs using a fixed rate. For federal grants, the College has a negotiated Indirect Cost Rate Agreement with the Department of Health and Human Services (DHHS), which is applicable to all federally funded projects. Non-federal sponsors will often have their own predetermined rates for indirect costs.

For more information on indirect costs, refer to the College's policy on F&A/Overhead and Overhead Distribution.

IV. Prior Approval Requirements on Federal Grants

"Prior approval" means the advance written approval of a specific cost or action to a particular federal award, by an authorized official of the sponsoring entity. Section 200.407 collects all of the references to prior approval. In general, federal agencies differ in their implementation of prior approvals; ORCS should consult the individual agency guidelines for clarification. In most cases, prior approval is required from the sponsor (if not included in the approved proposal budget) in order to:

Issue a previously unbudgeted subaward (Section 200.201)
Use unrecovered indirect costs, including indirect costs on cost sharing or matching as part of cost sharing or matching only with the prior approval of the Federal awarding agency. (Section 200.306)
Use Program Income: income earned by the recipient that is directly generated by a supported activity or earned as a result of the Federal award (Section 200.307)
Revise budget and project plans, including changes in key personnel or their level of effort (by more than 25%);
Disengagement of the PI (the new term for absence of PI, to acknowledge that a PI can be absent from campus but still engaged in the project) (200.308)
Incur unbudgeted Participant Support Costs (Section 200.456)
Transfer of funds budgeted for Participant Support Costs to other categories of expense. (Section 200.456)
Purchase capital equipment (cost >$5,000) (Section 200.439)

For questions about prior approvals — or to discuss submitting a prior approval request — contact the orcs [at] emerson.edu (Office of Research and Creative Scholarship).

V. Accounting Principles and Requirements for Federal Grants

The accounting and financial management of Federal awards must adhere to the requirements outlined in Subpart D of the Uniform Guidance, and to the Generally Accepted Accounting Principles promulgated by the Financial Accounting Standards Board.

The Office of Research and Creative Scholarship works with the Office of Finance to create a discrete account for each federal grant in Workday. Allowable costs and expenditures for a given grant are processed, monitored, and recorded in Workday.

The College must maintain records that sufficiently identify the amount, source, and expenditure of Federal funds for Federal awards. These records must contain information necessary to identify Federal awards, authorizations, financial obligations, unobligated balances, as well as assets, expenditures, income, and interest. All records must be supported by source documentation. Records must show expenditures in comparison to the awarded budget for a grant.

More broadly, the key principles of federal grant accounting include:

A. Compliance with regulations and specific grant terms

Organizations receiving federal awards must adhere to the Uniform Guidance and any specific requirements outlined in their grant agreement.

B. Financial management and internal controls

Maintain a robust financial management system that can track and report grant funds separately from other organizational resources.
Implement strong internal controls to prevent fraud and financial mismanagement.
Ensure that all financial transactions are adequately documented and supported by source documents like invoices, receipts, and contracts.
Reconcile financial records regularly to ensure accuracy.

C. Adherence to cost principles

Reasonable Costs: Costs must be necessary and reasonable for the performance of the federal award, reflecting what a prudent person might incur.
Allocable Costs: Costs must be directly assignable to the federal award and benefit the grant-funded activities.
Allowable Costs: Costs must comply with the Uniform Guidance and the terms of the specific grant award.
Consistent Treatment: Costs must be consistently treated as either direct or indirect costs in similar circumstances.
Costs should not be used as cost-sharing or matching funds for other federal awards unless allowed by law or regulation.

D. Reporting and transparency

Submit timely and accurate financial and programmatic reports to the grantor, demonstrating proper use of funds and progress towards project goals.
Maintain open communication with the granting agency to address any issues or changes in the project scope promptly.
Provide full transparency through disclosures in the financial statements, detailing the nature, amounts, and any unfulfilled conditions or contingencies attached to the grants.

E. Audit readiness

Establish strong internal controls and maintain thorough documentation to prepare for audits, including the single audit if applicable.
Regularly review financial records and project deliverables to ensure compliance with the grant's terms.
Consider external audits for an unbiased evaluation of compliance efforts.

Non-compliance with the above can lead to serious consequences, including the return of funds, fines, and disqualification from future funding opportunities.

Federal grant accounts are managed by the Office of Research and Creative Scholarship and the Office of Finance in accordance with the policies and procedures detailed on ORCS's web site. For questions regarding federal grant accounts and compliance, contact the orcs [at] emerson.edu (Office of Research and Creative Scholarship).

Key Office to Contact Regarding this Policy and its Implementation

The Office for Research and Creative Scholarship at Emerson College, in partnership with the Controller's Office in Emerson College Finance, is responsible for the oversight and implementation of this policy.

The Responsible Officer for this policy is the Provost and Vice President of Academic Affairs. Questions relating to the implementation of this policy should be directed to the Office of Research and Creative Scholarship, or the appropriate Vice Presidents for aspects of implementation for which they are responsible.

Cost Principles and Allowable Costs for Federal Grants