Vanderbilt University School of Medicine
Accounting for Unallowable Costs
________________________________________________________________________________________
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.
__________________________________________________________________________________________
October 2002
Vanderbilt University School of Medicine
Accounting for Unallowable Costs
________________________________________________________________________________________
•
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.
__________________________________________________________________________________________
October 2002
Attachment A
Costs Requiring Special Accounting Treatment
Type of Cost
Account*
ALLOW/
UNALLOW* Description
Advertising
61420
ALLOW
Advertising;
Promotional
61419
UNALLOW
Alcoholic
Beverages
Alumni or
Fundraising
Activities
62110
61490
UNALLOW
UNALLOW
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.
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 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 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 nongovernmental funds, use this account.
“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.
Page 1 of 1
Attachment A
Costs Requiring Special Accounting Treatment
Type of Cost
Catering
Account*
ALLOW/
UNALLOW* Description
62100
ALLOW
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.
62110
UNALLOW
Commencement
Expenses
65300
UNALLOW
Employee relations
(employee morale,
health and welfare)
62115
62110
ALLOW
UNALLOW
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 nongovernmental funding source.
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 expenses are generally not
allowable on governmental grants and contracts.
The costs of in-house publications, health or firstaid 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, employeremployee relations, 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
meet the criteria of “reasonableness” as
referenced in the cover memo.
If the
expenditure meets the above criteria, it should be
charged to account 62115 (“Employee
Relations”). If the expenditure does not meet the
above criteria, it should be charged to account
62110 (“Entertainment”). If alcohol is purchased
for any of these events, it must be charged to
account 62110 (“Entertainment”).
“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.
Page 2 of 2
Attachment A
Costs Requiring Special Accounting Treatment
Type of Cost
Account*
Entertainment
62110 –
62114
Fines and Penalties
Flowers
Gifts and
Contributions
61915
62110
62115
62120
ALLOW/
UNALLOW* Description
UNALLOW
UNALLOW
UNALLOW
ALLOW
UNALLOW
Entertainment expenses are not allowable on
governmental grants and contracts.
This account should be used when nongovernmental 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 are not allowable on
governmental grants and contracts.
If expenditures for fines or penalties are incurred
on non-governmental funds, use this account.
Flowers are not allowable on governmental
grants and contracts.
Generally, when flowers are purchased from nongovernmental
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 are not allowable on
governmental grants and contracts.
If expenditures for gifts and contributions are
incurred on any other University centers, use this
account.
“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.
Page 3 of 3
Attachment A
Costs Requiring Special Accounting Treatment
Type of Cost
Meals
Meetings Expense
Account*
ALLOW/
UNALLOW* Description
6260062699
ALLOW
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.
62100
ALLOW
See “Meetings Expense” for information on
meals expense incurred as part of a meeting.
61490
UNALLOW
Meals for alumni activities should be charged to
account 61490.
62110
UNALLOW
62100
ALLOW
All other meals should be charged to account
62110 (“Entertainment”).
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.
62110
UNALLOW
When meetings expense does not meet the above
criteria or is incurred for amusement,
entertainment, etc., use account 62110
(“Entertainment”) and attach documentation
including agenda, date and a list of attendees.
“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.
Page 4 of 4
Attachment A
Costs Requiring Special Accounting Treatment
Type of Cost
Memberships and
Dues
Prizes and Awards
Recruitment
Selling or
Marketing Products
or Services of the
University
Account*
61410
64080
ALLOW/
UNALLOW* Description
ALLOW
UNALLOW
62400 –
62420
ALLOW
61419
UNALLOW
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 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.
Reasonable costs of recruitment, including
advertising and relocation, are allowable as direct
charges to governmental grants and nongovernmental 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”).
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.
“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.
Page 5 of 5