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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

This policy outlines UT Arlington’s general policies for expense reimbursement on grants and
contracts by the federal government and the importance of assigning correct Account Numbers
and Object Codes to expenses and credits to ensure proper treatment of costs.

The majority of the external support for research at UT Arlington comes from the 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 federally sponsored grants and
contracts. UT Arlington’s, accounting system tracks whether expenses are allowable for
reimbursement through the grant account number to which transactions are charged and controls
allowable and unallowable cost activities through the object codes assigned to record

  • 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 federal 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
federal government only if they are:
  • 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 government regulations.
If an expense does not meet the above criteria, it is not eligible to be charged to a federal grant or

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

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 Object Codes
assigned to expenditures and by subsequent signature of the monthly Statement of Account

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