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Allowable Costs Policy

Policy Name: Allowable Cost Policy for Federal Grants
Policy Number:
Scope: All Faculty, Staff who administer Federal Awards
Created: 5/4/2006
Revised: 9/7/2011, June 2014

This policy outlines UT Arlington’s general policies for expenses incurred on grants and contracts and the importance of assigning correct Sponsor Information and UT Share Accounts to expenses and credits to ensure proper treatment of costs.

The majority of the external support for research at UT Arlington comes from the state and federal government. This funding is in the form of direct support for sponsored projects and often also includes reimbursement for indirect costs associated with these sponsored grants and contracts. UT Arlington’s, accounting system tracks whether expenses are allowable for reimbursement through the grant Project ID to which transactions are charged and controls allowable and unallowable cost activities through the UT Share Account assigned to record transactions.

  • Direct Costs are expenses that are specifically associated with a particular sponsored project that can be directly assigned to such activities relatively easily with a high degree of accuracy.
  • Indirect Costs are expenses that cannot be identified specifically with a particular project or activity. They are expenses that benefit more than one activity.


Rules for allowable costs on federal projects are prescribed in 2 CFR Part 220 in addition to the policies and regulations of the prime sponsor. In certain cases, the issue of whether a particular cost is allowable is a complex one. When in doubt, consult with the Office of Grant and Contract Services or review the Guide to Allowable Costs. Expenses are chargeable to the sponsored project only if they are:
  • Reasonable & Necessary - • Reasonable & Necessary - A prudent person would have purchased this item and paid this price.
  • Allocable - Expenses can be allocated to the government activity based on benefit derived, cause and effect, or other equitable relationship.
  • Consistently Treated - Like expenses must be treated the same in like circumstances.
  • Allowable - Allowable or not unallowable as specified by sponsor regulations.
If an expense does not meet the above criteria, it is not eligible to be charged to a grant or contract.

There are also selected cost items that are specifically unallowable to federal grants and contracts or are only allowable under certain conditions. A list of specifically unallowable costs or items of increased scrutiny can be found in the Code of Federal Regulations Part 220 section J.

NOTE: Agencies that sponsor grants and contracts use the term allowable to mean permitted as a direct cost under the terms of a specific grant or contract. Expenses that are generally allowable for federal reimbursement may not necessarily be permitted under the terms of a specific grant or contract.

It is the responsibility of the Principal Investigator, with the assistance of their respective department administrative personnel to correctly review process and approve expenditures to grant accounts. This is completed through the appropriate use and classification of UT Share Accounts assigned to expenditures and by subsequent signature of the monthly Statement of Account Reconciliations.

Related Policies and Guidance
OMB Circular A-21 (2 CFR Part 220)
OMB A-110
Guide to Allowable Costs
Federal Demonstration Partnership Special Terms and Conditions

Related Forms

Statement of Account