Sponsored Project expenses are reviewed in various ways.
In general, sponsored project awards provide for reimbursement of actual, allowable costs incurred and are subject to allowability under Federal regulations as well as University policy.
The Federal regulations are governed by the Uniform Guidance (located in 2 CFR 200) which establishes standards for the allowability of costs, provide detailed guidance on the cost accounting treatment of costs as direct or F&A costs, and set forth allowability and allocability principles for selected items of cost.
The Federal cost principles address four tests in determining the allowability of costs. The four tests are as follows:
1. Reasonableness (including necessity)
A cost may be considered reasonable if the nature of the goods or services acquired or applied and the associated dollar amount reflect the action that a prudent person would have taken under the circumstances prevailing when the decision to incur the cost was made.
A cost is allocable to a specific sponsored project if the goods or services involved are chargeable or assignable to that project in accordance with the relative benefits received or other equitable relationship. A cost is allocable to a sponsored project if it is incurred in order to advance work under the project.
Grantees must be consistent in assigning costs to cost objectives. Therefore (although costs may be charged as either direct costs or F&A costs, depending on their identifiable benefit to a particular project or program) they must be treated consistently for all work of the organization under similar circumstances, regardless of the source of funding, so as to avoid duplicate charges.
4. Conformance (allowable)
This test of allowability—conformance with limitations and exclusions as contained in the terms and conditions of award, including those in the cost principles—varies by the type of activity, the type of recipient, and other characteristics of individual awards.
These four tests apply regardless of whether the particular category of costs is one specified in the cost principles or one governed by other terms and conditions of an award. These tests also apply regardless of treatment as a direct cost or an F&A cost. The fact that a proposed cost is awarded as requested by an applicant does not indicate a determination of allowability.
University policy concerning unallowable costs on sponsored projects bases allowability of costs on the North Dakota Century Code (NDCC). The North Dakota Century Code is the codification of all general and permanent laws enacted since statehood, and contains the Constitution of North Dakota and the North Dakota Century Code. Because the University of North Dakota is a state entity, we are required to follow the North Dakota Century Code.
Shown below are items unallowable on sponsored projects because of University policy and/or Federal cost principles. Some items listed below can become allowable with specific agency approval.
- Air Cleaners/Purifiers/Filters
- Alcoholic Beverages
- Alcohol/Disinfectant Wipes/Hand Sanitizers (except for public use)
- Communication Expenses
- Cups, Water Glasses, Napkins, Tableware, etc
- Displays, Demonstrations and Exhibits
- Equipment Purchases $5,000 or above
- Facial Tissue/Kleenex
- Food or Beverages for Grant Activities
- Holiday Cards/Decorations
- Lost Departmental Keys
- Meeting Room Costs
- Office Supplies
- Personal Care Items
- Personal Dues or Memberships
- Photographs, Pictures, Picture Frames
- Promotional Items and Memorabilia, Including Gifts and Souvenirs
- Proposal Preparation Costs
- Salaries for Administrative and Clerical Staff
- Salary Overload Payments
- Scholarship/Fellowship Payments
- Telephone Line Charges
A cost overrun occurs when direct costs charged to a sponsored project (grant, cooperative agreement or contract) are in excess of the awarded amount. Deficit spending on these funds is inappropriate and should rarely occur. When such an occurrence exists, the deficit must be moved from the sponsored project to a non-grant departmental fund with the same function.
If the deficit is incurred in anticipation of additional funding, these costs should be treated as pre-award costs, and a memo should be prepared by Grants Management and sent to the UND Grants & Contracts Accounting Office. See Pre-Award Costs for criteria.
A cost transfer is the correction of an expense from the original funding source to the appropriate funding source. These transfers should be accomplished within 90 days of the expense and they must be supported by documentation that fully explains how the error occurred. An explanation of "to change the funding source" is not allowable.
Here are some points about cost transfers:
- Cost transfers are mechanisms for correcting errors.
- Cost transfers are not a means of managing cash flow. Grant project funds are not interchangeable.
- When transferring costs, the integrity of each grant project must be maintained.
- The fundamental principles of allowability of costs must be followed for all transfers of costs.
- Proper documentation that explains the rationale for the cost transfer must be maintained.
Finally, cost transfers must be completed in accordance with the Uniform Guidance and cost principles:
The most common cost transfer is the salary correction. Here is some information on salary corrections:
What is a Salary Correction?
A salary correction is a permanent adjustment to an employee’s source of salary. This adjustment is needed when the department has determined that an employee was paid from an incorrect funding source.
Salary corrections are not used to adjust the amount of salary that an employee receives.
When is a Salary Correction Necessary?
Because salary corrections are always carefully monitored due to sponsor requirements, if an adjustment is necessary, the correction should be done in a timely manner (within 90 days). No corrections should be requested after effort has been certified on a Personnel Activity Confirmation report.
Salary corrections are NOT appropriate to reduce overruns on other grants or institutional funds; to avoid restrictions imposed by law or by the terms of the agreement; for the purpose of utilizing unexpended balances; if the expenses are to no direct benefit to the grant; or for other reasons of convenience.
Frequent or inadequately explained salary corrections raise serious questions about the allowability of the transfers themselves as well as the overall reliability of the department’s internal controls.
How is Salary Corrected?
In order to be consistent with Appointment Revision Forms, and have an accurate audit trail for both internal and external auditors, a "Budget Retrodistribution Form" has been developed to adjust salary and fringes on sponsored projects.
Once this form has been completed and signed by the department, it should be sent to Grants Management.
It is the responsibility of the department to keep a copy of the salary correction paperwork in case it is needed in the future.
Where Can the Salary Correction Forms Be Found?
UND Retroactive Distribution Request Instructions, a UND Retroactive Distribution Request and the Retro Partial Salary Correction Spreadsheet can be found on the UND Payroll website under Salary Retrodistribution Forms. These forms are used for salary corrections at UND.
Sometimes it is necessary to have a UND project number established prior to the execution of the final award document. It is inappropriate to charge pre-award costs to a local or appropriated fund and then transfer them to a grant project number later.
To establish a project number that will be used for pre-award costs, a memo needs to be sent from Grants Management to the UND Grants & Contracts Administration office. This memo should be signed by the department and the SMHS, and should include the following:
- The Principal Investigator's name.
- The proposal title.
- The sponsor's name.
- The anticipated award amount.
- The projected start date of the award.
- The department must accept the financial risk in the event an award is not forthcoming, the start date is changed by the sponsor, or an acceptable agreement can not be negotiated.
Once the project number is established, you will be able to view screens and reports just as if we had received the award document. The only difference is that we are unable to invoice the sponsor until we have received, negotiated, and signed a legally binding award document.