University System of New Hampshire
Financial and Administrative Procedures

UNALLOWABLE COSTS PER OMB CIRCULAR A -21
Procedure 2-060
Issued By: Controller
Issue Date: 04/13/1999

SUMMARY OF ADMINISTRATIVE PROCEDURE

This policy explains the handling of Circular A-21 defined unallowable costs in the accounting system. Costs that are disallowed by USNH financial and administrative policies are addressed in Chapter 8, Business Expenditures, of this Financial and Administrative procedures Manual.
1. Definition:The US Office of Management and Budget (OMB) Circular A-21, Cost Principles for Educational Institutions, defines those costs that are allowable and which are unallowable. The tests of allowability under these principles are: (a) the costs must be reasonable; (b) they must be allocable to sponsored agreements under the principles and methods provided herein; (c) they must be given consistent treatment through application of those generally accepted accounting principles appropriate to the circumstances; and (d) they must conform to any limitations or exclusions set forth in these principles or in the sponsored agreement as to types or amounts of cost items. Unallowable items fall into two categories: expenses which are by their nature unallowable (e.g., alcohol), and unallowable activities (e.g., fund raising).

2. Why is an Unallowable Costs Policy Necessary? Circular A-21 defines which costs may be charged as direct costs to federal programs as well as which costs may be included as Facilities and Administrative (F&A) costs (indirect costs). Since USNH engages in federally sponsored programs, all institutional costs must comply with OMB Circular A-21.

   Circular A-21 requires USNH to maintain an accounting system that properly captures and eliminates from our F&A cost proposal all unallowable costs. Since all department expenditures are a part of the F&A cost rate calculations, it is important that all staff understand and consistently follow this policy.

3. Guidelines on the proper handling of OMB A-21 Unallowable Costs: Non-employment Advertising, Bad Debts and Legal Costs must be charged to specific object codes as described in section B.1. Alcohol is an expense that is allowed only on specific accounts (see section B.1.). In addition, the activities listed in section B.2. have predefined CUFS areas and org's that were established to specifically account for these activities. All such activities must be in one of these CUFS areas and orgs and should not be charged to other kinds of accounts. Directly associated costs must be captured as well. A directly associated cost is any cost which is generated solely as a result of the incurrence of another cost, and which would not have been incurred had the other cost not been incurred.

4. Responsibility: Responsibility for following these guidelines lies with project directors; department chairs; and administrators charged with the financial oversight of the campuses, colleges, schools, and divisions. The Office of Sponsored Research (OSR), the Controller's Office and other administrative offices are responsible for guidance, training and insuring compliance through periodic reviews. Questions on the allowability of costs should be directed to the Asset Management and Cost Analysis group in the Controller's Office (862-3466). As questions on allowability of certain costs can require interpretation and judgement, departments are encouraged to ask for assistance in making those determinations.

DETAILED OPERATING PROCEDURE

1. Unallowable Expenses: Unique object code ranges have been assigned to properly track and eliminate specific types of expenses that may not be charged to federally sponsored agreements, either directly or indirectly. The one exception is alcohol, which is authorized only on specific accounts.
   1. Advertising (Non-Employment), Selling and Marketing Expense (object codes 4980-4989): These are costs of selling and marketing any products or services of the institution to the public. This includes radio, television and newspaper marketing costs associated with campus student recruitment. It also includes posters and pamphlets for recruiting graduate students, per OMB Circular A-21, section J.1. The only allowable advertising costs are those which are solely for recruitment of personnel, the procurement of goods and services, or the disposal of scrap and surplus materials. Further guidance is contained in Procedure 8-002, Advertising.

   2. Alcohol for consumption: While alcohol is an item of expense, a separate object code range has not been established. Only specifically identified accounts (approved by the applicable campus president) may incur costs for alcohol, per OMB Circular A-21, section J.2. Further guidance is contained in Procedure 8-003, Alcohol.

   3. Bad Debts and Collection Costs (object codes 4960-4969): Per OMB Circular A-21, section J.4, any losses (whether actual or estimated) arising from uncollectible accounts and other claims and related legal and collection costs are unallowable.

   4. Legal Expenses & Settlements, Fines and Penalties (object codes 4970-4979): Per OMB Circular A-21, section J.11 and J.18, all legal, settlement, and fine expenses (including the costs of legal, accounting and consultant services incurred in connection with any criminal, civil, or administrative proceeding commenced by the Federal, State, local or foreign government) are unallowable.

2. Unallowable Activities: In addition to the object codes used to track unallowable expenses noted above, specific CUFS areas and/or orgs are used to track the costs of activities that may not be charged to federal programs. Some of these activities are explicitly unallowable under other USNH policies (see cross-reference below). Other items, such as alumni activities or public relations, are entirely appropriate and permissible activities of USNH. However, none of these costs are allowable for the purpose of calculating indirect costs based on Circular A-21. These items are noted below (followed by their Circular A-21 section reference):
   1. Commencement and convocation costs, per OMB Circular A-21, section J.6.

   2. Contributions to a contingency reserve or any similar provision made for events, the occurrence of which cannot be foretold with certainty as to time or intensity, per OMB Circular A-21, section J.9.

   3. Costs in excess of normal severance (e.g., golden parachutes), per OMB Circular A-21, section J.43.

   4. Costs incurred for, or in support of, alumni/ae activities, per OMB Circular A-21, section J.3.

   5. Costs of investment counsel and staff and similar expenses incurred solely to enhance income from investments, per OMB Circular A-21, section J.23.

   6. Costs of organized fund raising, including financial campaigns, endowment drives, solicitations of gifts and bequests, and similar expenses incurred solely to raise capital or obtain contributions, per OMB Circular A-21, section J.22.

   7. Donations and contributions made by USNH to benefit other individuals or organizations, per OMB Circular A-21, section J.12. (Further guidance is contained in Procedure 8-006, Contributions - Charitable and Political.)

   8. Entertainment costs, including amusement, diversion, and social activities and any costs directly associated with such costs (such as tickets to shows or sports events, meals, lodging, rentals, transportation, and gratuities), per OMB Circular A-21, section J.15.

   9. Excessive recruitment costs, per OMB Circular A-21, section J.37. (Further guidance is contained in Procedure 8-001, Introduction to Business Expenditures.)

   10. Goods and services for personal use of the institution's employees, regardless of whether the cost is reported as taxable income to the employees,per OMB Circular A-21, section J.19. (Further guidance is contained in Procedure 8-001, Introduction to Business Expenditure Policies.)

   11. Housing allowances and personal living expenses of the institution's officers, regardless of whether the cost is reported as taxable income to the employees, per OMB Circular A-21, section J.20.

   12. Interest on borrowed capital or temporary use of endowment funds, however represented, per OMB Circular A-21, section J.22. (An exception exists for the costs of interest paid to an external party which is associated with the purchase or construction of buildings or equipment costing over $10,000. this is outlined in more detail in OMB Circular A-21.)

   13. Legal Counsel office costs, per OMB Circular A-21, section J.11.

   14. Lobbying costs, per OMB Circular A-21, section J.24. These are specifically not allowed at USNH. (Further guidance is contained in Procedure 8-006, Contributions - Charitable and Political.)

   15. Losses, where expenses exceed income under any other sponsored agreement or contract of any nature, per OMB Circular A-21, section J25. (This includes, but is not limited to, the Institution's contributed portion under cost-sharing agreements and any under-recoveries resulting from the negotiation of flat amounts for F&A costs.)

   16. Memberships in civic organizations, country or dinner clubs, per OMB Circular A-21, section J.28. (Further guidance is contained in Procedure 8-001, Introduction to Business Expenditures.)

   17. Non-coach travel, under normal circumstances, per OMB Circular A-21, section J.48. (These costs are also specifically prohibited in Procedure 7-005, Air, Travel, Domestic and Foreign.)

   18. Public relations costs, per OMB Circular A-21, section J.1.

   19. Student activities costs for intramural sports, student publications, student clubs, and the like, unless specifically provided for in the sponsored agreements, per OMB Circular A-21,section J.45.