The University of Chicago

Financial Services

  

1013 Unallowable Costs

Subject Area: Sponsored Award Accounting
Responsible Office: Financial Services
Sponsor: Chief Financial Officer
Originally Issued: July 1992
Revised: March 1997, January 2010, December 2014
Refer Questions To: Christine Sorensen, 773-702-2398

Purpose: To comply with the unallowable cost provisions in federal regulations. Those provisions prohibit the University from charging federal funds, either directly (i.e., charges to Ledger 5) or indirectly (i.e., charges via cost pools), for unallowable costs and require the University to certify that no unallowable costs are included in the indirect cost proposal it submits to the Federal Government.

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Policy

Federal regulations define unallowable costs in the context of either a particular type of activity or a particular type of cost. Costs incurred for the following activities are unallowable: alumni activities and relations bad debt losses commencement and convocation ceremonies contingency provisions fund raising investment management lobbying public relations student activities Examples of particular types of costs that are defined as unallowable include alcoholic beverages, entertainment, fines and penalties, internal interest expense, etc.

Unallowable costs (if reimbursable under University policy) must be charged either to the appropriate unallowable cost subaccount or a unique 6-digit Financial Accounting System (FAS) account that clearly identifies in the account title and purpose that the account is one that records unallowable expenses. Unallowable costs cannot be charged to Ledger 5 grant/contract accounts without the approval of Financial Services . Under no circumstances, however, will Financial Services approve the charging of alcoholic beverages to a Federal grant or contract. Each unit of the University is responsible for establishing the procedures needed to correctly record unallowable costs in the FAS accounts.

Description of Unallowable Costs and Required Coding

Advertising, Selling and Marketing
Use subaccount 9901

The cost of advertising, selling, marketing and any corollary administrative costs incurred to promote any products or services of the University where the intent is to generate revenue must be charged to subaccount 9901.

Advertising costs incurred (1) to meet the requirements of a grant or contract, or (2) for the recruitment of personnel, or (3) for the procurement of goods or services, or (4) for the disposal of scrap or surplus materials, or (5) to inform the public of a free event are allowable costs and should be recorded in the appropriate allowable cost subaccount.

Example 1: Department A wishes to inform the public of an outstanding book it is selling on a popular academic topic. The department purchases advertising time from a local radio station. The advertising cost must be charged to subaccount 9901.

Example 2: Department B purchases advertising space in the Maroon to inform the public of a free lecture series. The advertising cost should be charged to an appropriate allowable cost subaccount.

Alumni Activities and Relations
Create a 6-digit account

The costs incurred for, or in support of, alumni activities and similar services must be charged to a unique 6-digit FAS account identified for this purpose. Costs include: salaries, wages, benefits, travel, meals, supplies, phones, advertising, etc.

Automobiles and Other Transportation for Personal Use or Benefit of Employees
Use Subaccount 9902

The operating cost of a University furnished automobile that is at least partially used by an employee for his or her own personal benefit (including transportation to or from work) must be charged to this subaccount. Financial Services will initiate entries to this subaccount based upon the information provided to the Payroll department as a part of IRS W-2 income reporting procedures.

Example: Department A purchases an automobile for use by its Director to travel between the campus and several off-campus locations. At the end of the calendar year the Director reports to Financial Services that the car was used 15% for personal business. Based on this information Financial Services will calculate an amount to be included on the employee’s W-2 wages statement and generate a journal voucher to charge the amount to the unallowable cost subaccount 9902.

Bad Debt Losses
Create a 6-digit account

Any losses, whether actual or estimated arising from uncollectible accounts or other claims, related collection costs, and related legal costs must be charged to a unique 6-digit FAS account identified for this purpose.

Business Meals and Social Activities
Use subaccounts 3000/3099

The cost of business meals (in-town or out-of-town) and beverages, including alcoholic beverages, must be charged to subaccount 3000. The cost of a meal incurred as a part of out-town-travel can be charged to a travel expense subaccount unless the meal was a business meal. The cost of all alcoholic beverages, whether incurred in-town or out-of-town, must be charged to a subaccount in the range 3000/3099.

The cost of social activities (e.g., holiday party) and any costs directly related to such costs (e.g., transportation, tent rental, tickets) must be charged to subaccount in the range 3000/3099. Personal entertainment activities are unallowable and unreimbursable expenses in accordance with the University’s travel policy (See Financial Policy No. 1202).

Example of “in-town” business meal: Administrator A lunches with Vendor B to discuss several disputed invoices. Administrator A picks up the check. This is a business meal. The cost of the meal must be charged to a subaccount in the range 3000/3099.

Example of social activity: Department A hosts a holiday luncheon for faculty, students and staff in the division’s conference room. The cost of the meal, decorations, entertainment, tables, supplies and room rental must be charged to a subaccount in the range 3000/3099.

Example of “out-of-town” business meal: Professor A and B present a research paper at a conference in New York. They pay for the dinner of a faculty member from another university. The cost of this meal must be charged to a subaccount in the range 3000/3099. The cost of all other meals can be charged to the appropriate travel expense subaccount.

Example of “out-of-town” meal with alcoholic beverage: Professor C and D present a research paper at a conference in Dallas. A glass of wine is consumed at one of their meals. The cost of the wine must be charged to a subaccount in the range 3000/3099. All other meal costs can be charged to the appropriate travel expense subaccount. Under no circumstances will Financial Services approve the charging of alcoholic beverages to a Federal grant or contract.

Commencement and Convocation Ceremony Costs
Create a 6-digit account

Costs incurred for commencement and convocations must be charged to a unique 6-digit FAS account identified for this purpose. Costs include: salaries, wages, benefits, travel, meals, supplies, phones, advertising, caps, gowns etc.

Contingency Provisions
Create a 6-digit account

Financial Services and Budget Office must be consulted before contingency reserves are established. Contributions to a contingency reserve or any similar provision (excluding contributions to a self-insurance program) made for events, the occurence of which cannot be foretold with certainty, must be charged to a unique 6-digit FAS account identified for this purpose.

Fines and Penalties
Use subaccount 9903

Costs resulting from the failure to comply with federal, state, local, foreign or University policies, regulations or laws must be charged to subaccount 9903 except when incurred as a result of compliance with specific provisions of a grant or contract. Costs (legal, accounting, consulting fees and related cost) incurred in connection with any criminal, civil or administrative proceeding commenced by the Federal Government, or a State, local or foreign government, must be charged to subaccount 9903 as well.

Credit card delinquency assessments or interest charges are not reimbursable.

Fund Raising Costs
Create a 6-digit account

The costs of organized fund raising, including financial campaigns, endowment drives, solicitation of gifts and bequests, and similar expenses incurred to raise capital or obtain contributions must be charged to a unique 6-digit FAS account when all of an individual’s or unit’s time is devoted to that sole purpose. When the solicitation of funds represents only a portion an individual’s responsibilities, the salary and fringe benefits of the individual can be charged to an allowable cost account. However, specific costs associated with a fund raising activity (e.g., travel to solicit the gift) must be charged to a specific 6-digit unallowable cost account for fund raising.

Example 1: Division A has a fund raising office. All of the activities in the office are performed with the intent of developing gifts for the division. All of the costs of this office must be charged to a unique six-digit FAS account labeled specifically for this purpose. Costs charged to this account include: Salaries, and benefits of all staff assigned to the office, postage, phones, meals, travel, supplies, and services.

Example 2: The Dean of Division B travels to New York to discuss with a potential donor the creation of an endowment for a new institute. The cost of the fund raising trip must be charged to a unique six-digit FAS account specifically labeled as an unallowable cost account for fund raising.

GEMS Card Charges
Use subaccount 9910

To record the payment of charges incurred as a result of using the GEMS Card. The procuring department is responsible for transferring the purchases initially recorded in this subaccount to the FAS subaccount which most appropriately reflects the nature of the expense.

GEMS Card Bank Service Charges
Use subaccount 9911

To record the payment of bank service charges assessed in conjunction with the GEMS Card program. The procuring department is responsible for transferring the bank service charges out of this subaccount to the FAS subaccount ultimately charged for the procurement.

Gifts to Employees
Use subaccount 9907

See Financial Policy No. 1211

The cost of a gift to a University employee must be charged to subaccount 9907.

Example 1: Department A gives Employee B a gift at his retirement. The cost of the gift should be charged to subaccount 9907.

Example 2: Department A sends flowers to the family of a recently deceased University employee. The cost of the flowers should be charged to subaccount 9907.

Housing and Personal Living Expenses for University Officers.
Use subaccount 9904

When a University Officer is required by the University to live in specific housing on campus, the cost of housing (e.g., depreciation, maintenance, utilities, furnishings, rent, etc.), housing allowances and personal living expenses must be charged to subaccount 9904.

Institutional Donations and Contributions
Use subaccount 9905

A donation or contribution made by the University must be charged to subaccount 9905. See Financial Policy No. 1206 for the University’s policy on gifts to other not-for-profit and charitable organizations.

Interest Costs for Internal Loans
Use subaccount 9010

Interest charges for internal loans must be charged to subaccount 9010. See Financial Policy No. 1805 for the University’s policy on Internal Loans: Equipment, Construction and Major Renovations.

Investment Management Costs
Create a 6-digit account

The costs of investment counsel and staff and similar expenses incurred solely to enhance income from investments must be charged to a unique 6-digit FAS account identified for this purpose. Costs include: salaries, wages, benefits, travel, meals, supplies, phones, advertising, etc.

Lobbying
Create a 6-digit account

Lobbying expenses, other than those incurred to provide technical and factual presentations related to the performance of a grant or contract in response to a documented request, are unallowable. All questions concerning any activities in this area should be referred to the Office of Government Relations.

Memberships for Civic, Community, Social, Travel or Dining
Use subaccount 9906

Membership fees and dues in civic, community, social, travel or dining organizations and clubs are unallowable costs and must be charged to subaccount 9906. See Financial Policy No. 1209 to determine if these costs are reimbursable under University policies.

Example 1: Department A joins a national association comprised of administrators in similar areas of higher education. This institution membership fee is an allowable cost and should be charged to the appropriate allowable cost subaccount. See Financial Policy No. 1207 for the University’s policy on institutional membership fees and dues.

Example 2: Professor A is a member of the American Bar Association. Her professional organization membership fee is an allowable cost and should be charged to the appropriate allowable cost subaccount. See Financial Policy No. 1208 for the University’s policy on individual, professional, business, and technical organization membership fees and dues.

Example 3: Professor B is a member of the Quadrangle Club and an airline club. The membership fee to both the Quadrangle Club and the airline club are unallowable per federal regulations and non-reimbursable per Financial Policy No. 1209.

Miscellaneous Charges
Use subaccount 9912

This subaccount is to be used to record unallowable costs which do not belong to any of the other Unallowable Cost subaccounts.

Pension Costs
Use subaccount 9908

This subaccount is reserved for use by Financial Services in the application of General Provisions for Selected Items of Cost §200.420.

Public Relations
Create a 6-digit account

Public relations costs and corollary administrative costs incurred to promote the institution must be charged to a unique 6-digit FAS account identified for this purpose. Costs include: salaries, wages, benefits, travel, meals, supplies, phones, advertising, etc.

Student Activity Costs
Create a 6-digit account

Costs incurred for intramural activities, student publications, student clubs, and other student activities, unless specifically provided for in the sponsored agreements, must be charged to a unique 6-digit FAS account identified for this purpose. Costs include: salaries, wages, benefits, travel, meals, supplies, phones, advertising, etc.

Trustee Expenses
Use subaccount 9909

Travel, subsistence, life insurance or any other expenses


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