CLASSIFICATION OF COST ITEMS

The following discussion outlines which costs are allowable or unallowable to a sponsored project and whether the allowable cost is a direct or indirect cost.

  1. Administrative Costs. (See Clerical and/or AdministrativeCosts).
  2. Advertising and Public Relations Costs. (Also see Public Relations Costs). The term advertising costs includes the cost of advertising media and corollary administrative costs. Advertising media include magazines, newspapers, radio and television programs, direct mail, exhibits, electronic or computer transmissions, and the similar forms of communication.

Advertising costs that are allowable as direct costs are those incurred for the following activities:

  • Recruitment of staff required for the performance of the federal project.
  • Procurement of goods and services required for the performance of the federal sponsored project.
  • Disposition of scrap or surplus materials purchased with federal funds for a federal project.
  • Other purposes required to meet the specific needs of the federal sponsored project.

For a recruitment advertisement to be allowable, the ad should not include color, advertising material for other than recruitment purposes, or be excessive in size. Further, recruiting advertising that offers special compensation, or contains inducements to attract professionals from other institutions that do not meet the tests of reasonableness, or do not conform with established practices of the institution are unallowable.

Object code 5-4406 Advertising/Staff Recruitment, has been established to record the allowable activities listed above. Other advertising costs are considered publicity and should be charged to object code 5-4405 Publicity.

  1. Advisory Councils. Costs for advisory councils or committees are allowable as direct costs when authorized by the sponsor or as an indirect cost where allocable to sponsored agreements.
  2. Alcoholic Beverages. Any costs incurred for alcoholic beverages are unallowable.
  3. Alteration and Renovation. (See Rearrangement andAlteration Costs).
  4. Alumni Activities. Costs incurred for, or in support of, alumni activities and similar services are unallowable as either direct or indirect costs.

Schools and departments are encouraged to establish separate accounts to capture all costs associated with alumni activities including travel, supplies and expenses, and any salary and wage costs. Faculty and professional staff who complete a Personnel Activity Report (PAR) should record effort devoted to alumni activities as Other Institutional Activities (OIA).

In lieu of separate accounts, object code 5-7802 Alumni Activities has been established and may be used to identify alumni activity supply costs.

  1. Audit and Related Services. The cost of an audit required by the project and specifically approved by the awarding agency are allowable as a direct cost to the federal project.
  2. Bad Debts. Losses arising from uncollectible accounts and other claims, related collection costs and related legal costs, are unallowable as either direct or indirect costs. These costs should be posted to the general ledger using object code 5-7412 Bad Debt Expense.
  3. Bonding. Costs required to assure against financial loss are allowable. These costs include bid, performance, advanced payment, infringement, and fidelity bonds. These bond costs should be incurred in accordance with sound business practices and be reasonable rates and premiums under the circumstances.
  4. Books. Books constitute a direct charge if they will be used continuously on the sponsored project, are to be physically located within the area of the research, and are not otherwise readily available through the University Library. Books purchased as a direct charge to a sponsored account are designated through the use of object code 5-6104 Minor Equipment-Books and Publications. Other books purchased and available through the University library system are allowable indirect charges to sponsored agreements. These books are accounted for through the use of object code 5-6208 Books Catalogued by Library.
  5. Building Costs. Capitalized building costs are considered allowable indirect costs and are never allowable as a direct cost unless specifically provided in the sponsored agreement.
  6. Central Machine Shop. (See Service Unit Charges).
  7. Clerical and/or Administrative Costs. (Also see Unlike Circumstances). Clerical and administrative costs are normally considered facilities and administrative (indirect) costs. They may be charged directly to federal sponsored projects when unlike circumstances can be documented. See Unlike Circumstances for additional information.

When unlike circumstances or other unusual situations exist that can likewise be documented, the cost of clerical and administrative personnel required to conduct the federal project must be budgeted and fully justified in the proposal to the sponsor in order to be subsequently charged to the project. The determination of “clerical” or “administrative” will be based on the work performed, not the job title or internal position classification of the individual. Clerical and/or administrative costs must be included in the award or subsequently approved in accordance with the funding agency regulations in order to be an allowable charge to the project. The University will consider the costs approved if the federal agency awards the proposed budget in full, or does not explicitly remove the budget line item for those costs. Clerical and/or administrative costs should only be charged to the project when there is an identifiable benefit to the project and the charges must be supported by adequate effort reporting documentation in accordance with existing procedures.

Some federal programs do not require a detailed budget as part of the proposal process, such as modular grants awarded by the National Institute of Health (NIH). As with any other federal sponsored project, information must be provided to document unlike circumstances associated with a specific project prior to directly charging clerical or administrative costs to that project.

Clerical and administrative costs can be directly charged to non-federal projects, including state, industrial, foundation and voluntary support projects when the expense benefits the project. Projects awarded by the state with federal flow through funds must follow the guidance provided on federal projects (see above) to document unlike circumstances in order for these costs to be directly charged to the project.

  1. Commencement and Convocation. (See Student ServicesCosts). Commencement and convocation costs in accounts other than Student Administration and Student Services are unallowable as direct charges to sponsored projects. In academic departments, costs for gown rental, printed material specifically for commencement, costs associated with honors banquets and award ceremonies, are examples of commencement and convocation costs.
  1. Communications. Regularly provided local telephone service and general cellular phone monthly fees are allowable indirect costs. Long distance telephone tolls and cellular phone calls made for the direct benefit of sponsored projects are allowable direct costs.

A-21 defines postage costs as indirect costs. Postage charges, including Federal Express or UPS charges, directly incurred for the benefit of federal projects may be charged as direct charges where a clear cost-benefit relationship can be demonstrated, or when unlike circumstances have been documented as described under Clerical and/or Administrative costs.

  1. Community Relations. (See Public Relations Costs).
  1. Computer Costs. The procurement of computing services, such as time on a mainframe computer, consultation, and charges for database searches, are allowable direct costs whenever identifiable with a particular project.

Costs for providing the general computing environment (such as data networking costs of the Purdue Data Network) are not identifiable with a particular project and are therefore allowable indirect costs.

  1. Conference Arrangements. Costs of meetings and conferences, when the primary purpose is the dissemination of technical information, are allowable. This includes the costs of meals, transportation, rental of facilities and other items incidental to such meetings or conferences. The costs identified above are only allowable on federal funds for meetings or conferences specifically and clearly identified in the proposed scope of work and budget as approved by the sponsor. Federal funds are not to be otherwise spent on meals or coffee breaks for intramural meetings of the University or any of its components including, but not limited to, laboratories, departments and centers. In addition, no federal funds may be spent on alcoholic beverages or entertainment costs. (See Losses on Other Sponsored Programs and Meals/Food Costs).
  1. Consulting Fees. Consulting fees are fees for services rendered and are allowable direct costs when the cost is reasonable in relation to the services provided. Some sponsors may require prior written approval and may set maximum daily rates for fees.

Consulting fees should not be paid to employees of the University except in extremely extenuating circumstances. All such arrangements must be in accordance with University policies and approved by the sponsor.

Federal employees may not be paid consulting fees if the source of the consulting fees is also a federal supported project. Per diem, transportation, or other related expenses shall not be paid to federal employees if their employing agency has or will reimburse them for said expenses.

A formal written agreement between the consultant and the University may be required in certain circumstances. Business procedures related to personal service payments can be found at the following web address:

  1. Contingency Reserves. Contributions to a contingency reserve for events, the occurrence of which cannot be foretold with certainty as to time, intensity, or with an assurance of their happening, are unallowable, except for self-insurance reserves for University self-insurance programs. A "contribution" in this context refers to a posted financial transaction such as a non-mandatory transfer from one fund to another. This restriction does not apply to the common practice of setting aside a general fund budget for contingencies.

Excessive fund balances that accumulate in recharge centers are also considered contingency reserves. Recharge rates may not be inflated in excess of actual cost to build fund balances for future purchases. See the University’s service center policy and procedures for additional information at the following web address:

  1. Customs and Import Duties. Customs and import duties are allowable direct costs. The cost of the duty fee will be included as part of the cost of the goods received.
  1. Decorations. Although A-21 does not specifically address this cost, they have been disallowed during audits at other institutions and have been the source of embarrassing headlines for those universities. These costs, including the costs of decorative plants and flowers, are generally not allowable on University funds. However, object code 5-7906 has been established for decorations should an allowable general fund cost require special coding to ensure that it is not included in the indirect cost rate.
  1. Demurrage. Demurrage is an allowable direct cost.
  1. Department Administration. The portion of the academic department costs incurred for administrative and supporting services that benefit common or joint departmental activities are allowable indirect costs. Departmental administration costs may be incurred at the dean’s level, in academic departments, or in organized research institutes, study centers, research centers, or large research laboratories. Costs defined elsewhere in this document as normal indirect costs may be included in the departmental administration cost pool in addition to the costs claimed for the administration of academic units.
  1. Departmental Machine Shops. (See Service Unit Charges).
  1. Deposits. Refundable deposits are not allowed on sponsored accounts. A deposit represents a transfer of funds from one party to another as security against a future event(s), the occurrence of which cannot be foretold with certainty as to time, intensity, or with an assurance of the event’s happening. In this regard, a refundable deposit may be considered a contribution to a contingency reserve and is expressly unallowable under A-21. The parent department is responsible for deposit payments, and must separately identify the payment to ensure it is not included as an indirect cost.
  1. Donations and Contributions. Donations and contributions made by the institution are unallowable.
  1. Dues. (See Memberships).
  1. Duplicating Services. (See Service Unit Charges).
  1. Employee Morale, Health, and Welfare. The costs of employee information publications, wellness programs, recognition programs, and other similar program expenses established by the university for employees are allowable indirect costs.
  1. Entertainment. Costs of entertainment, including amusement, diversion and social activities, and any costs directly associated with those costs (i.e., tickets to shows or sports events, meals, lodging, rentals, transportation and gratuities) are unallowable on federal projects. These costs, if incurred on University funds, should be posted to object code 5-5605 Entertainment. For events that meet the university’s hospitality guidelines, use the hospitality object codes: 5-5606 Hospitality Food Service and 5-7988 Hospitality.
  1. Equipment. Equipment is defined as a purchased item costing $5,000 or more with a useful life of more than one year. This definition may change over time and the definition included in the University’s capitalization policy will prevail. The purchase of office equipment, furniture and other general purpose equipment is usually unallowable as a direct cost. Special purpose equipment or equipment leases are only allowable on sponsored projects with prior approval, whether in the proposal or requested subsequent to the award to the University. The process to obtain approval varies by sponsor. Once the approval is obtained, then the equipment is allowable direct cost to the sponsored project. Equipment must be utilized on the project for which it was purchased and should be received sufficiently in advance of the project’s termination to demonstrate benefit to the project.

Screening requirements may vary by sponsor. Information about screening requirements are available at the following website:

Additional information can be obtained by contacting Sponsored Programs Services.

  1. Executive Lobbying. (See Lobbying).
  1. Fabricated Equipment. Costs associated with the construction of equipment should be recorded in the accounting records in accordance with instructions provided in the Business Procedures Manual. These costs include blueprints, drawings, component parts, materials, supplies, and labor associated with the construction and installation of the equipment. Those items that individually meet the definition of equipment are exempt from indirect costs. Non-capital items, such as labor and materials, will be charged indirect costs in accordance with University policy. Sponsored program budgets must be developed appropriately.
  1. Federal Employees. Salaries of employees of the Federal Government, including those in leave without pay status, are unallowable charges to federal sponsored projects without specific prior written approval of the employing agency.
  1. Fellowships. Fellowships may not be charged to federal research sponsored projects. Federal appropriations for research cannot be used for payments having furtherance of student training as their principal purpose. Therefore, “non-service” appointments are not permitted on these funds. Neither may fellowships be charged to industrial sponsored research projects. There are other sponsored funds where fellowship appointments are allowable (See Tuition).
  1. Fines and Penalties. OMB Circular A-21 states: "Costs resulting from the violations of, or the failure of the institution to comply with Federal, State, local or foreign laws and regulations are unallowable, except when incurred as a result of compliance with specific provisions of the sponsored agreement, or instructions in writing from the authorized official of the sponsoring agency authorizing in advance such payments."
  1. Freight. (See Materials).
  1. Fringe Benefits. Fringe benefits are defined as employer payments for Social Security, Medicare/Medicaid, Retirement, Group Life Insurance, Long Term Disability, Medical Insurance and Staff Fee Remissions. These are allowable direct costs. The charge rates are determined annually based on costs incurred. A separate charge for each of the above categories is applied to the gross salary of all classes of employees who are covered by these benefits except for Medical Insurance, which is charged as a flat rate for each eligible employee. The charge for the above items is estimated for sponsored program budgeting purposes as part of the composite fringe benefit rate.

Fringe benefits are also defined as regular compensation paid to employees during periods of authorized absences from the job. These benefits include vacation, holiday, sick, and military leaves. Vacation, holiday, military leave andsick leave are allowable direct costs that should be prorated on the basis of the projects or accounts the individual is working on at the time the leave is taken. (See Severance Pay).

  1. Fund Raising. Costs of organized fund raising, including capital campaigns, endowment drives, solicitations of gifts and bequests, and similar expenses incurred solely to raise capital or obtain contributions, are unallowable.
  1. Gains and Losses on Depreciable Assets. Gains and losses on the sale, retirement, or other disposition of depreciable property shall be included in the year in which they occur as credits or charges to the asset group of the item. The amount of the gain or loss to be included is the difference between the amount realized on the property and the undepreciated basis of the property.

For additional information on the treatment of gains or losses, see the capitalization policy or property accounting procedures at the following website:

  1. General and Administrative Expenses. These costs include the services rendered by the President’s Office, Executive Vice President and Treasurer’s Office, Vice President for Business Services and Assistant Treasurer, Comptroller, Accounting, Payroll, Purchasing, etc. The portion of these costs allocable to sponsored projects are allowable indirect costs.
  1. Goods or Services for Personal Use. Any costs incurred for personal use are unallowable regardless of whether the cost is reported as taxable income to the employee(s). These types of costs are not allowable on University controlled funds.
  1. Honoraria. Payments of honoraria when the primary intent is to confer distinction on or symbolize respect, esteem or admiration for the recipient are not allowable. Fees for services rendered are considered consulting fees (see consulting fees).
  1. Hospitality. (See also Entertainment). Generally, hospitality expenses are unallowable on federally sponsored programs. Expenses in accordance with University hospitality guidelines should be recorded on object code 5-5606 Hospitality Food Service or 5-7988 Hospitality.
  1. Independent Contractors. Charges for individuals not employed by the University are allowable for services performed of benefit to the University. (See Consulting Fees).
  1. Insurance. Equipment owned by the federal government may not be insured at sponsor expense, either as a direct or indirect cost. A standard policy insuring persons traveling on University business is carried as an allowable indirect cost. No additional charge may be made for such insurance.

General liability insurance and worker’s compensation insurance maintained by the University is an allowable direct cost. Property insurance maintained by the University covering buildings and contents is an allowable indirect cost.