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Cost Accounting Standards

What are the Federal Cost Principles for Educational Institutions?

Four guiding principles or criteria from OMB Circular A-21 for Educational Institutions shall be used to determine whether a cost can be charged to a sponsored agreement. These criteria apply for both direct and indirect (Facilities & Administrative) costs, which are defined below. For a given cost to be charged to a sponsored agreement, all four (4) of these criteria must be met.

Reasonable
– For a cost to be considered reasonable, it must be:

  • Recognized as necessary for the operation of the institution or the performance of the sponsored agreement,
  • Consistent with the requirements imposed by arms-length bargaining, federal or state laws and regulations, and ethical business practices, and
  • Related  to an action and/or in an amount deemed within the norms of business conduct (i.e., passes the “prudent person” test).
Allocable – For a cost to be considered allocable, it must:
  • Be incurred solely to advance the work under a sponsored agreement, or
  • Benefit both the sponsored agreement and other work of the institution, in proportions that can be approximated through the use of reasonable methods, and
  • Be assignable to the benefiting activities without undue effort or cost.
Allowable – For a cost to be considered allowable, it must:
  •  Not be designated as “unallowable” under Section J of OMB Circular A-21,
  •  Adhere to sponsor-specific policies and award-specific terms and conditions regarding specific items of cost, and
  • Adhere to University policies regarding specific items of cost.
Consistent in Treatment – Consistent treatment of costs is a basic cost accounting principle and is specifically required by OMB Circular A-21 to assure that the same types of costs are not charged to federally sponsored agreements both as direct costs and as indirect costs. Consistency in this context means that costs incurred for the same purpose, in like circumstances, must be treated uniformly as either direct costs or as indirect costs. Thus, since certain types of costs, such as the salaries of administrative and clerical staff, office supplies, and postage are normally treated as indirect costs, the same types of costs cannot be charged directly to federally sponsored agreements, unless the circumstances related to a particular project are clearly different from the normal operations of the institution.

Last modified January 12 2012 02:01 PM

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