Vanderbilt University School of Medicine Accounting for Unallowable Costs

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Vanderbilt University School of Medicine

Accounting for Unallowable Costs

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__________________________________________________________________________________________ October 2002

Federal regulations guide the accounting for many of the charges that we incur on sponsored agreements, whether as direct charges or as indirect charges. Attached is a reminder regarding the costs which can not be charged to a federally-funded grant or contract. Many of these costs may be allowable under Vanderbilt policy when paid for from unrestricted or non-governmental restricted funds. Because we are in our base year for indirect cost purposes, it is important that all unallowable charges be charged to the proper account code in our accounting system. Although the regulations have not changed in recent years, please take this opportunity to refresh your department’s method of accounting for such costs.

Many costs which are specifically identified as unallowable for federal funding purposes may be allowable if paid for from non-governmental funds. As a result, special attention should be given to properly account for such costs if they are paid for from institutional or non-governmental funds. Following is a list of those costs which are specifically prohibited by the federal government:

• Advertising for general promotion of the University, including printed materials, promotional items, memorabilia, gifts and souvenirs

• Alcoholic beverages

• Alumni or fundraising activities • Antiques

• Bad debt write offs • Charitable contributions • Commencement expenses

• Decorative objects for private offices • Entertainment

• Fine/original art • Fines and penalties

• First-class/business-class air travel differentials • Flowers

• Gifts and awards

• Goods or services for personal use • Lobbying

• Membership in airline travel clubs

• Membership in civic, social, community organizations or country clubs • Selling or marketing products or services of the University

• Social events

Attachment A provides additional detail on some of the costs that may be allowable in the Medical Center. For all costs, the federal government will allow only those costs that are reasonable, allocable, properly documented, and consistently charged throughout the University.

• Reasonable costs are defined by the government as those that “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 K.c.3).” All costs must be reasonable and necessary.

• Costs are considered allocable if they are charged or assignable to a particular cost objective in accordance with relative benefits received or other equitable relationships.

• Properly documented costs are those for which valid supporting invoices or receipts are provided or are within established University guidelines for reimbursement.

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• Consistency in charging costs means that costs are treated similarly whether charged to government grants or to University funds and are given consistent treatment through application of generally accepted accounting principles.

We recognize the effort and judgment necessary to comply with these cost principles, particularly for your unrestricted expenditures, and we appreciate those efforts. Please make every effort to ensure that all costs falling into these categories are charged to the proper account codes, and please do not hesitate to call Craig Carmichel, Steve Todd or Melissa Smith as questions and issues arise.

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Attachment A

Costs Requiring Special Accounting Treatment

“ALLOW” means that the cost is included as an allowable expense for both direct and indirect cost purposes, whether on governmentally funded projects or funded by institutional sources.

“UNALLOW” means that the cost is considered to be unallowable as a direct charge to a federal grant or contract and requires special account coding if used on a non-governmental center.

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Type of Cost

Account*

**UNALLOW* Description**

ALLOW/

Advertising 61420 ALLOW Advertising costs are allowable on government grants and contracts only for recruiting personnel, procurement of goods and services necessary for the performance of the sponsored agreement, or the disposal of scrap or surplus materials acquired in the performance of a sponsored agreement.

Advertising;

Promotional 61419 UNALLOW Promotional advertising costs are not allowable on government grants and contracts. General advertising and promotional advertising costs are incurred solely to promote the University/Medical Center for public/customer relations, fundraising and alumni relations purposes, etc. (including promotional items and memorabilia, models, gifts and souvenirs). Alcoholic

Beverages 62110 UNALLOW Alcoholic beverages are not allowable on government grants and contracts. When using non-governmental funds, use account 62110 (“Entertainment”).

When alcohol is a portion of another expense, such as catering, meetings expense, travel or recruitment, calculate the portion related to alcohol and code that portion to account 62110. Whenever possible, obtain a separate itemization for costs containing alcoholic beverages. If actual amount is not known, estimate the total cost of the alcohol and code the estimated cost to account 62110.

Alumni or Fundraising Activities

61490 UNALLOW Alumni or fundraising activities are not allowable on government grants and contracts.

Generally, alumni or fundraising activities are unique to certain designated University departments. If alumni or fundraising costs (including visiting alumni and/or meeting expenses with alumni) are incurred on any non-governmental funds, use this account.

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Type of Cost

Account*

ALLOW/

**UNALLOW* Description**

Catering 62100 62110 ALLOW UNALLOW

Catering costs are generally unallowable on governmental grants and contracts unless the cost meets the specific criteria found under “Meetings Expense” in OMB Circular A-21. If expenditure meets A-21 criteria for “meetings expense,” use account 62100 (“Meetings Expense”) whether expense is charged to governmental funding source or non-governmental funding source. If expenditure does not meet A-21 criteria for “meetings expense,” use account 62110 (“Entertainment Expense”) whether expense is charged to governmental funding source or non-governmental funding source.

Commencement

Expenses 65300 UNALLOW Commencement expenses are not allowable on governmental grants and contracts. Commencement expenses are charged to University centers specifically created for that purpose. If commencement expenses are incurred on any non-governmental funds, use this account.

Employee relations (employee morale, health and welfare)

62115 62110

ALLOW UNALLOW

Employee relations expenses are generally not allowable on governmental grants and contracts. The costs of in-house publications, health or first-aid clinics, infirmaries, recreational activities, food services, employee counseling services and other expenses incurred in accordance with the institution’s established practice or custom for the improvement of working conditions, employer-employee relations, employer-employee morale and employee performance are allowable when paid for from non-governmental funds. Examples of activities that meet the criteria for Employee Relations include the annual football tailgate party, annual merit/years-of-service recognition events, and annual employee functions such as University/college/school/division-wide

employee events as long as they are in accordance with the University’s established practice or custom. Any such expenses must also

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Attachment A

Costs Requiring Special Accounting Treatment

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Type of Cost

Account*

ALLOW/

**UNALLOW* Description**

Entertainment 62110 –

62114 UNALLOW Entertainment expenses are not allowable on governmental grants and contracts. This account should be used when non-governmental funds are used to fund an entertainment expenditure. Examples of items that meet the criteria for Entertainment includes alcohol, amusement, diversion and social activities and any costs directly associated with these activities (such as tickets to shows or sports events, meals, lodging, rentals, transportation and gratuities). See “Meetings Expense” for explanation of allowable costs of meals.

Fines and Penalties 61915 UNALLOW Fines and penalties are not allowable on governmental grants and contracts.

If expenditures for fines or penalties are incurred on non-governmental funds, use this account. Flowers 62110

62115 UNALLOW ALLOW Flowers are not allowable on governmental grants and contracts. Generally, when flowers are purchased from non-governmental funds, account 62110 (“Entertainment”) should be used. If flower purchase would meet the criteria of “Employee Relations,” account 62115 should be used. An example of a flower purchase meeting the criteria would be if Vanderbilt policy was to provide flowers to all hospitalized employees. All other flower purchases initiated by individual offices should be coded to account 62110. See “Employee Relations” and/or “Gifts” for more information.

Gifts and Contributions

62120 UNALLOW Gifts and contributions are not allowable on governmental grants and contracts.

If expenditures for gifts and contributions are incurred on any other University centers, use this account.

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Type of Cost

Account*

ALLOW/

**UNALLOW* Description**

Meals 62600-62699 62100 61490 62110 ALLOW ALLOW UNALLOW UNALLOW

Reasonable meal expense incurred while traveling on University business is allowable on government grants and contracts unless specifically prohibited by the granting agency. Use account 62600 through 62699 as appropriate. See “Meetings Expense” for information on meals expense incurred as part of a meeting. Meals for alumni activities should be charged to account 61490.

All other meals should be charged to account 62110 (“Entertainment”).

Meetings Expense 62100

62110

ALLOW

UNALLOW

Meetings expenses are generally not allowable on governmental grants and contracts unless specifically provided for in the budget, approved by the sponsoring agency and directly related to the work on the project. If the meeting meets these criteria, use account 62100 (“Meetings Expense”) and charge expense directly to the project. Payment documents related to such expenses must contain meeting agenda, date and a list of attendees.

When using non-governmental funds, use account 62100 (“Meetings Expense”) for the reasonable costs of meals/refreshments served at staff meetings, conferences or business meetings where the meal is necessary in order to conduct University business directly related to work under government grants and contracts or related to allowable administrative and operational activities (i.e. not fundraising, alumni, public relations, etc.). Payment documents must contain agenda, date and a list of attendees.

When meetings expense does not meet the above criteria or is incurred for amusement, entertainment, etc., use account 62110 (“Entertainment”) and attach documentation

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Attachment A

Costs Requiring Special Accounting Treatment

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Type of Cost

Account*

ALLOW/

**UNALLOW* Description**

Memberships and

Dues 61410 ALLOW Memberships and dues are allowable on governmental grants and contracts only if expenditure meets certain criteria. If the expenditure is necessary to conduct the research and/or the cost of the membership in the society is less than the cost of buying a necessary journal or attending a necessary event as a non-member, then the charge may be allowable on a governmental project. If charged to a governmental project, documentation describing the specific circumstances causing the expenditure to be allowable should be attached to the payment request.

When using non-governmental funds, expenditures meeting University policy for membership in professional, business or technical organizations should be charged to this account. Prizes and Awards 64080 UNALLOW Prizes and awards are not allowable on

governmental grants and contracts.

When using non-governmental funds, use this account. All requests for payments of prizes or awards must comply with University policy. Recruitment 62400 –

62420 ALLOW Reasonable costs of recruitment, including advertising and relocation, are allowable as direct charges to governmental grants and non-governmental funds. No color advertising is allowable, and material for anything other than the grant-related position cannot be included. In the event that an employee for whom relocation costs were directly charged to a governmental project resigns for reasons under his/her control within twelve months of the hire date, the expense becomes unallowable on the governmental project, and the cost must be transferred to account 62605 (“Travel– Excluded”) or account 62110 (“Entertainment”). Selling or

Marketing Products or Services of the University

61419 UNALLOW Not allowable on governmental grants and contracts.

In general, marketing expenses are charged to University centers specifically created for that purpose. If expenditures for the purpose of marketing are incurred on any non-governmental funds, use this account.