F&A Booklet
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7. What expenses are not allowable in cost pools
according to revised Circular A-21?
Much of the public discussion of F&A costs in the early 90’s focused on the four cost pools categorized as “Administration,” in part because the guidelines in Circular A-21 were often ambiguous with respect to expenditures allowed in this category. Whereas a number of administrative expenditures had been allowed before the intense scrutiny in 1991, new allowability standards were applied retroactively.
In the climate of the mid 1990’s, it was no longer a question of whether Circular A-21 allowed expenditures, but whether it was considered reasonable by current “standards.” In the turbulent atmosphere generated by congressional investigations, previous “unallowables” were made more explicit and new ones were added. Many universities had always acted conservatively and had routinely excluded borderline costs. Nevertheless, the redefined lists, applied retroactively, made some institutions appear to have been in violation of Circular A-21. The new and improved list of “unallowables” is presented below for ready reference.
Representative Unallowables
- Alcoholic beverages
- Alumni activities
- Institution-furnished automobiles for personal use
- Legal costs of criminal and civil proceedings, appeals and patent information
- Donations and contributions made by an institution
- Fund-raising activities
- Entertainment
- Executive and legislative lobbying
- Insurance against defects
- Fines and penalties
- Goods and services for personal use of employees
- Housing and personal living expenses of an institution’s officers
- Memberships in any civic, community or social organization or country club
- Selling or marketing of goods or services
Under the current Circular A-21, none of these “unallowables” can be allocated through F&A cost pools to research, and the university must certify that they have been identified and excluded from the F&A proposal. The difficulty in identifying these unallowable costs can best be illustrated by the following example dealing with fund raising. The university rigorously excludes all costs associated with centralized fund-raising by eliminating all expenditures included in budget numbers established for this activity. However, similar costs in departments, schools, and colleges may be commingled in operating budgets and are less readily identified. As such, it is not a trivial task to determine if fund-raising expenses, which are allowable from a university perspective, but cannot be included in the basis for the F&A rate calculation, are included in unit expenditures on state accounts.