University of Minnesota  Procedure

Charging Direct Costs to Sponsored Projects


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Table of Contents

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Please use the contact section in the governing policy.

1. Introduction

Sponsored projects are funded by a variety of sponsors.  These can include Federal, State & Local, Business and Industry, foundations and other non-profit agencies.  All direct costs that are to be charged by the University of Minnesota to a sponsored project must meet the general criteria of being allocable, allowable and reasonable.

The Principal Investigator (PI), Certified Approvers (CAs) and Department Research Administrator (DRA) all have a role in ensuring that all direct costs charged to sponsored projects meet these criteria.

2. Classification of Direct Costs

Federal Sponsors

A direct cost is a cost that can be identified specifically with a particular final cost objective, such as a Federal project, or other internally or externally funded activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy. Costs incurred for the same purpose in like circumstances must be treated consistently as either direct or indirect (F&A) costs. Typical costs charged directly to a Federal project are compensation of employees who work on that project, their related fringe benefit costs, and the cost of lab supplies, chemicals, animals and other items of expense incurred for the Federal project.

All costs charged to sponsored projects must be charged in a timely manner as defined in the Processing Accounting Transactions policy/procedures and must be:

  • Allocable: A cost is allocable to a particular sponsored project or other cost objective if the goods and services involved are chargeable or assignable to that sponsored project or cost objective in accordance with relative benefits received. "If a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost, the costs must be allocated to the projects based on proportional benefit. If a cost benefits two or more projects or activities in proportions that cannot be determined because of the interrelationship of the work involved, the costs may be located or transferred to benefited projects on any reasonable basis." (UG 200.405d)
  • Allowable: Costs that are (a) reasonable; (b) allocable to sponsored agreements under the principles and methods outlined in Uniform Guidance (UG or 2 CFR 200); (c) given consistent treatment through application of those generally accepted accounting principles appropriate to the circumstances; and (d) conform to any limitations or exclusions set forth in Uniform Guidance (UG or 2 CFR 200) or in the sponsored agreement as to types or amounts of cost items. (UG 200.403)
  • Reasonable: A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost. (UG 200.404)

Any expense that does not meet all of these criteria cannot be charged to the sponsored project.

Administrative and Clerical Staff Salaries (Federal Sponsors)

Effective December 26, 2014, Uniform Guidance (2 CFR 200.412c), states that salaries of administrative and clerical staff should normally be treated as indirect (F&A) costs. Direct charging of these costs may be appropriate only if all of the following conditions are met:

  1. Administrative or clerical services are integral to a project or activity;
  2. Individuals involved can be specifically identified with the project or activity;
  3. Such costs are explicitly included in the budget or have the prior written approval of the Federal awarding agency; and
  4. Such costs are not also recovered as indirect costs.

Here are some examples of what could meet the federal definition of integral:

  • Large, complex programs, such as CTSA program projects, environmental research centers, engineering research centers, and other grants and contracts that entail assembling and managing teams of investigators from a number of institutions.
  • Projects that involve extensive data accumulation, analysis and entry, surveying, tabulation, cataloging, searching literature, and reporting (such as epidemiological studies, clinical trials, and retrospective studies of clinical records).
  • Projects that require making travel and meeting arrangements for large numbers of participants, such as conferences and seminars.
  • Projects where the principal focus is the preparation and production of manuals and large reports, books, or monographs (excluding routine progress and technical reports).
  • Projects that are geographically inaccessible to normal departmental administrative services, such as research vessels, radio astronomy projects, and other field research remote from campus.
  • Individual projects requiring significant amounts of project-specific database management; individualized graphics or manuscript preparation; human or animal protocols, and multiple project-related investigator coordination and communications.

Materials and supply costs, including costs of computer devices (Federal Sponsors)

  1. Costs incurred for materials, supplies and fabricated parts necessary to carry out the Federal project are allowable.
  2. Purchased materials and supplies must be charged at their actual prices. Materials/supplies obtained from general stores or stockrooms should be charged at their actual net costs. Incoming transportation/delivery charges are a proper part of material and supply costs.
  3. In the specific case of computing devices, direct charging can occur if the machines are essential and allocable to the project in that they are necessary to acquire, store, analyze, process, and publish data and other information electronically, including accessories (or “peripherals”) for printing, transmitting and receiving, or storing electronic information. Direct charging may not occur if the project has reasonable access to other devices or equipment that can achieve the same purpose, and devices may not be purchased for reasons of convenience or preference. NOTE: Items costing more than $5,000 per unit are considered equipment and follow federal equipment rules for when they can be direct charged.
  4. Where federally-donated or furnished materials are used in performing the Federal project, such materials will be used without charge.

Travel Costs (Federal Sponsors)

Travel costs are the expenses for transportation, lodging, subsistence and related items incurred by employees/non-employees who are in travel status on official business of the University.  Specific travel costs may be charged on an actual basis, on a per diem or mileage basis, or a combination of the two in accordance with the University’s Administrative Policy: Traveling on University Business.

  1. Lodging and subsistence. Cost incurred by employees for travel, including cost of lodging, other subsistence and incidental expenses, are considered reasonable and otherwise allowable only to the extent such costs do not exceed charges normally allowed by the University travel policies. In addition, if these costs are charged directly to a Federal award documentation must justify that participation of the employee traveling is necessary to the Federal award and that the costs are reasonable.
  2. Commercial air travel. Airfare costs in excess of the basic least expensive unrestricted accommodations class offered by commercial airlines are unallowable except when such accommodations would:
    1. Require circuitous routing
    2. Require travel during unreasonable hours
    3. Excessively prolong travel
    4. Result in additional costs that would offset the transportation savings
    5. Offer accommodations not reasonably adequate for the traveler’s medical needs. (The University (traveler) must justify and document these conditions on a case-by-case basis in order for the use of first-class or business-class airfare to be allowable.); or,
    6. Comply with University’s travel policy and Fly America Act.
  3. Air travel by other than commercial carrier is unallowable.
  4. All travel costs incurred must comply with University’s travel policies and in the case where the sponsor has a more restrictive travel policy, the most restricted travel policy must be followed.

All Non-Federal Sponsors

For projects with nonfederal sponsors that permit administrative, supply and materials, travel, and other direct costs that can be specifically identified with the project, the specifically identifiable costs should be budgeted. These budgeted costs must be adequately justified in the proposal (see “Justify Expenses” for instructions on preparing a justification).

All Sponsors

  1. All charges must be allocable, allowable per sponsor and University policies, and be considered reasonable and necessary to carry out the project
  2. Administrative ISO/service charges are not allowable on sponsored projects unless specifically authorized by the sponsor. This includes computer server access fees, administrative pools, etc. Such costs are already covered in the F&A cost pool.
  3. Incentive payments:

    The University does not accept incentive payments (sponsor payments above projected costs for the purpose of increasing the rate of enrollment on clinical trials or prioritizing the work on a given project over other University activities). However, the University can accept compensation for higher costs that are projected to be incurred due to a time-limited need to expedite enrollment or complete a project, covering such costs as overtime for nurse coordinators or other project staff, increased recruitment or advertising costs, costs associated with clinical hours being extended, expedited lab costs or technician time, short-lead time additional travel costs to meet with project partners, etc. Such costs may be estimated and rolled into a higher payment rate per patient or per milestone, but the estimated costs are expected to be based on projected actual costs.

  4. Other costs:

    Please see appendices Direct Costs Allowability Grid (XLSX) or Examples of Unallowable Costs for determining allowability for direct cost item.  Should you have any questions regarding allowability of a direct cost please contact your Certified Approver.

3. Justify Expenses

All administrative type costs listed in the Direct Cost Allowability Grid (salaries and fringe benefits for administrative and clerical support, local phone costs, office supplies, photocopies, postage) must be explicitly justified and explained in the budget narrative section of the proposal.

PI and their DRA are responsible for ensuring that costs assigned to the project are appropriate. Restricted cost categories and other unallowable or unallocable charges may be identified in audits and result in disallowances that will  be reimbursed to the sponsor from departmental funds. See Administrative Procedure: Moving Uncollectible Costs to Non-Sponsored Programs

All Sponsors

To justify administrative type costs, address the following issues when considering putting these costs in the proposal:

  • Considering that all projects require a certain amount of cost reconciliation, correspondence, telephone use, office supplies, etc., how does the proposed charge differ from the standard level expected for all projects?
  • The job title or payroll classification may imply that administrative work is being conducted. Is the nature of the work different from the general administrative work conducted for all projects? Are the charges necessary to meet the technical purposes of the award rather than to support the administrative needs?
  • The cost category, e.g., supplies, may imply that the items are being used for administrative purposes. How will these items be used to meet the technical needs of the project? Explain in detail their relevance to the methods used in conducting the project.
  • Can the proposed charges be easily and accurately documented as appropriate to the project? How will this be done? For example, an administrator working full-time for a project can be allocated easily and accurately to the project. However, if that person works on five or more projects, it will be difficult to accurately document the relative benefit to any specific project.

4. Track and Charge Expenses

Internal controls must be in place to identify the expense to the project through standard practices such as the effort certification process and regular account reconciliation. See Administrative Policy: Reconciling and Verifying General Ledger Accounts and Other Financial Information.

Unacceptable direct charging practices include:

  • Purchasing items simply to use an unobligated balance
  • Rotating costs among projects
  • Charging the budget amount (in contrast to charging an amount based on actual costs/usage)
  • Assigning charges to an award before the cost is incurred (except as an encumbrance)
  • Charging an expense exclusively to an award when the expense has supported other activities/awards
  • Applying a "departmental tax" to projects for clerical, secretarial, and administrative costs
  • Creating ISOs or recharge accounts such as clerical and administrative/secretarial support pools to circumvent direct-charging regulations. See also Administrative Policy: Selling Goods and Services to University Departments.

5. Monitor Expenses

Financial reports (available through MyU) or other departmental reports should be used to monitor costs on sponsored accounts.

Direct costs charged to sponsored projects in excess of the award amount result in a cost overrun or deficit spending and must be moved to a non-sponsored account in accordance with Administrative Procedure: Moving Uncollectible Costs to Non-Sponsored Programs.

All adjusting/Correcting Non-Payroll and Payroll accounting transactions (cost transfers) must be in accordance with the Administrative Policy: Processing, Documenting, and Approving Financial and Accounting Transactions.