Introduction

This chapter compiles the applicable cost principles governing the allowability of costs, whether direct or indirect.

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General Allowability Criteria

In order to be allowable under a federal or state award, a cost must meet the general allowability criteria established by the Office of Management and Budget Circulars, and/or the Uniform Grant Management Standards, as applicable.

A cost must meet the following general criteria in order to be allowable under a federal or state award:

  • Be necessary and reasonable for proper and efficient performance and administration of the award.

    In determining whether a cost is reasonable, consideration must be given to:
  • Be allocable to the award under the provisions of applicable Office of Management and Budget (OMB) Circulars and the Uniform Grant Management Standards (UGMS). Where a cost or activity benefits multiple activities or programs, it must be allocated in accordance with the relative benefits received by each activity or program. Unless specifically advised by the head of the awarding agency, a cost or activity may not be charged to a federal or state award, to which the cost is not allocable, to overcome fund deficiencies, to avoid restrictions imposed by law or terms of the awards, or for other reasons, regardless of whether the cost would otherwise be allowable under those awards.

    However, where a cost or activity is allocable to and allowable under two or more programs in accordance with the existing program agreements, a single cost objective may be established, and funded with a combination of funds made available under those programs. See an example at ASMB C-10, Question 2-16PDF, the Implementation Guide for Office of Management and Budget Circular A-87, issued by the Assistant Secretary of Management and Budget (ASMB) for the U.S. Department of Health and Human Services.
  • Be authorized or not prohibited under state or local laws or regulations.
  • Conform to any limitations or exclusions set forth in cost principles established by applicable OMB Circulars or UGMS (Part II), federal or state laws, terms and conditions of the award, or other governing regulations as to types or amounts of cost items.
  • Be consistent with policies, regulations, and procedures that apply uniformly to both federal and/or state awards and other activities of the organization.
  • Be accorded consistent treatment. A cost may not be assigned to the award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the award as an indirect cost.
  • Except as otherwise provided for in the applicable OMB Circulars and UGMS (Part II), be determined in accordance with generally accepted accounting principles.
  • Be the net of all applicable credits. Applicable credits, whether accruing or received, that are related to allowable costs, should be credited to the applicable award(s) as a cost reduction or cash refund, as appropriate.
  • Be adequately documented. Documentation required may include, but is not limited to, travel records, time sheets, invoices, contracts, mileage records, billing records, telephone bills and other documentation that verifies the expenditure amount and appropriateness to the grant.
  • Not be included as a cost or used to meet cost sharing or matching requirements of any other federal or state award in either the current or prior period, except as specifically provided by federal law or regulation.

Authority:

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Treatment of Costs

Costs must be consistently treated as either a direct or indirect cost. A cost may not be allocated to a federal or state award as an indirect cost if any other cost incurred for the same purpose, in like circumstances, has been charged to a federal or state award as a direct cost.

In order to be allowable under a federal or state award, a cost must be consistently treated as a direct cost or indirect cost. Federal and state cost principles set forth in applicable Office of Management and Budget (OMB) Circulars and the Uniform Grant Management Standards (UGMS) provide that, “A cost may not be assigned to a federal or state award as a direct cost if any other cost incurred for the same purposes in like circumstances has been allocated to the federal or state award as an indirect cost.” No cost can be universally classified in every accounting system as a direct or indirect cost. The following guidelines must be used for purposes of treating costs as direct or indirect under a federal or state award.

Direct Costs. Direct costs are those that can be identified specifically with a final cost objective. For a direct cost to be assignable in its entirety to a particular cost objective, the cost objective must receive the full benefit from the goods, services, or effort that make up that cost. Costs that are typically charged as direct costs may include:

  • Compensation of employees for the time devoted and identified specifically to the performance of those awards
  • Cost of materials acquired, consumed, or expended specifically for the purpose of those awards
  • Equipment and other approved capital expenditures
  • Travel expenses incurred specifically to carry out the award

Any direct cost of a minor amount may be treated as an indirect cost for reasons of practicality where such accounting treatment for that cost is consistently applied to all cost objectives.

Indirect Costs. Indirect costs are those that have been incurred for common or joint objectives and cannot be readily identified with a final cost objective without effort disproportionate to the results achieved. Costs that are typically charged as indirect costs may include:

  • Depreciation and use allowances on buildings and equipment
  • Facility operations and maintenance costs
  • General administration and general expenses

Indirect costs may be identified and allocated using a cost allocation plan (see Chapter 11 of this manual), indirect cost rate (see Chapter 12 of this manual), or both. Only costs that are consistently treated as indirect costs may be included in an indirect cost pool.

Limitations on Indirect and Administrative Costs. Funding requirements may limit the amount of indirect and/or administrative costs that are allowed under a particular program or award. Indirect or administrative costs that are in excess of such limitations may not be charged to another award. Non-federal and/or non-state revenue sources must be used to pay for costs that cannot be recovered as a result of these limitations.

Indirect costs are not necessarily administrative in nature and therefore do not automatically count towards administrative cost limitations. Indirect costs should be reviewed to determine whether they are administrative or programmatic in nature. The U.S. Department of Labor’s One-Stop Comprehensive Financial Management Technical Assistance Guide (One-Stop TAG) provides the following methodology for determining the portion of indirect costs that are chargeable to administrative and program cost categories.

  1. Review all the costs included in the indirect pool and label them as program or administrative costs based on the particular program definition. For example:
    Indirect Cost Amount Administrative Program
    Director’s Salary $75,000 $50,000 $25,000
    Facility $100,000 $10,000 $90,000
    Utility $75,000 $25,000 $50,000
    Telephone $50,000 $5,000 $45,000
    Total Pool $300,000 $90,000 $210,000
  2. Calculate the proportion of total costs for each cost category. For example:
    Type of Costs Calculation Calculated Proportion
    Administration $90,000 / $300,000 30.0%
    Program $210,000 / $300,000 70.0%
    Total NA 100.0%
  3. Calculate the total dollar amount of indirect costs attributable to the particular program. (The percentages 30%, 25%, and 45% represent each fund’s equitable share of the indirect cost pool as determined using an appropriate allocation basis.) For example:
    Cost Pool Item Amount Fund A (30%) Fund B (25%) Fund C (45%)
    Director’s Salary $75,000 $22,500 $18,750 $33,750
    Facility $100,000 $30,000 $25,000 $45,000
    Utility $75,000 $22,500 $18,750 $33,750
    Telephone $50,000 $15,000 $12,500 $22,500
    Total $300,000 $90,000 $75,000 $135,000
  4. Apply the percentages calculated in step 2 to the total dollar amount of indirect costs to establish the dollar amount that is to be recorded/reported as administrative costs and the amount that is program costs for the particular program. For example:
    Type of Cost Fund A Fund B Fund C Total
    Administrative (30%) $27,000 $22,500 $40,500 $90,000
    Program (70%) $63,000 $52,500 $94,500 $210,000
    Total $90,000 $75,000 $135,000 $300,000

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Selected Items of Cost

Determination of allowability for a particular cost, whether direct or indirect in nature, must be based on the general allowability criteria provided in Section 8.1 and treatment or standards for similar or related items of cost as established by the Office of Management and Budget (OMB) and/or the Uniform Grant Management Standards (UGMS).

The items in this section form a cumulative listing of policies established by OMB Circulars A-21, A-87 (as clarified by ASMB C-10, the Implementation Guide for OMB Circular A-87, issued by the Assistant Secretary of Management and Budget for the U.S. Department of Health and Human Services), and A-122, and by UGMS (Part II) for selected items of cost. Each item is addressed in this section by citation, or by language and citation. Note that, in this section, any cost principle that is based solely on a particular OMB Circular or on the Uniform Grant Management Standards (UGMS) is only applicable to the entities subject to that particular Circular as follows:

  • OMB Circular A-21: Educational Institutions
  • OMB Circular A-87: State, Local and Indian Tribal Governments
  • OMB Circular A-122: Non-Profit Organizations
  • UGMS: State and Local Governments, recipients of block grant funding, and any other Contractor that is contractually required to comply with its requirements

Items identified as “allowable” in this section are only allowable to the extent that they also conform to the general allowability criteria discussed in Section 8.1 of this manual; i.e., necessary, reasonable, allocable, adequately documented, etc. Failure to mention a particular item of cost does not imply that it is either allowable or unallowable. If a particular item is not listed, it may be possible to determine allowability based on the degree of common characteristics between it and a similar listed item, or based on the Agency’s determination for a similar itemPDF). If no similar item is discussed, the general tests of allowability must be applied. If allowability is difficult to determine, clarification may be obtained by emailing Fiscal.TA@twc.state.tx.us.

Accounting

UGMS provides that except as associated with the general cost of government, the cost of establishing and maintaining accounting and other information systems is allowable. [See also UGMS Part II Attachment B, (1) and (24)] [Not addressed by OMB Circulars A-21, A-87 or A-122]

Advertising and Public Relations Costs

Except as specified below or as otherwise permitted by the cost principles established in OMB Circulars or UGMS, all advertising and public relations costs are unallowable. See citations below for specific examples of allowable advertising and public relations costs.

To the extent necessary to meet the requirements of the award, the only allowable advertising costs are those that are incurred solely for:

  • The recruitment of personnel required for the performance by the organization of obligations arising under a federal award (see also Section 8.3.52, Recruiting Costs, in this manual)
  • The procurement of goods and services for the performance of a sponsored agreement
  • The disposal of scrap or surplus materials acquired in the performance of a sponsored agreement (unless all disposal costs are reimbursed based at a predetermined amount)
  • Other specific purposes necessary to meet the requirements of the sponsored agreement

The only allowable public relations costs are:

  • Costs specifically required by sponsored awards
  • Costs incurred to communicate with the public and press pertaining to specific activities or accomplishments which result from performance of the award (these costs are considered necessary as part of the outreach effort of the federal or state award) (for entities subject to UGMS, the costs are allowable only as a direct cost)
  • Costs of conducting general liaison with news media and government public relations officers, to the extent that such activities are limited to communication and liaison necessary to keep the public informed on matters of public concern, such as notices of federal or state contract/grant awards, financial matters, etc.

When incurred for more than one award or for both an award and other work of the organization, the advertising and public relations costs identified above are allowable only to the extent that the principles for direct costs and for indirect costs are observed. [See also OMB Circular A-21 (J)(1); OMB Circular A-87 Attachment B, (1); OMB Circular A-122 Attachment B, (1); UGMS Part II Attachment B, (2)]

Advisory Councils

Costs incurred by advisory councils or committees are allowable as a direct cost where authorized by the federal or state awarding agency, or as an indirect cost where allocable to federal or state awards. [OMB Circular A-21 (J)(2); OMB Circular A-87 Attachment B, (2); OMB Circular A-122 Attachment B, (2); UGMS Part II Attachment B, (3)]

Alcoholic Beverages

Costs of alcoholic beverages are unallowable. [OMB Circular A-21 (J)(3); OMB Circular A-87 Attachment B, (3); OMB Circular A-122 Attachment B, (3); UGMS Part II Attachment B, (4)]

Alumni/ae Activities

Costs incurred for, or in support of, alumni/ae activities and similar services are unallowable. [OMB Circular A-21 (J)(4); not addressed by OMB Circulars A-87 or A-122, or UGMS]

Audit Costs and Related Services (H3)

The costs of audits are allowable when required by and performed in accordance with the Single Audit Act, as implemented by Circular A-133, and the State of Texas Single Audit Circular for state funds. Other audit costs are allowable if specifically approved by the awarding or cognizant agency as a direct cost to an award or if included as an indirect cost in an indirect cost rate proposal. The cost of agreed-upon procedures engagements to monitor subrecipients who are exempt from OMB Circular A-133 under section __.200(d) are allowable, subject to the conditions listed in A-133 section __.230(b)(2). [OMB Circular A-21 (J)(5); OMB Circular A-87 Attachment B, (5); OMB Circular A-122 Attachment B, (4); UGMS Part II Attachment B, (5)]

*NOTE: UGMS and OMB Circular A-87 also permit such costs if included in a cost allocation plan. UGMS also provides that generally, the percentage of costs charged to federal or state awards for a single audit shall not exceed the percentage derived by dividing federal or state funds expended by total funds expended by the grantee or subgrantee (including program matching funds) during the fiscal year. The percentage may be exceeded only if appropriate documentation demonstrates higher actual costs.

Automatic Electronic Data Processing

The cost of data processing services is allowable (also see Section 8.3.22, Equipment and Other Capital Expenditures, in this manual). [UGMS Part II Attachment B, (6); not addressed by OMB Circulars A-21, A-87 or A-122]

Bad Debts

Bad debts, including losses (whether actual or estimated) arising from uncollectible accounts and other claims, and related collection and legal costs are unallowable*. [OMB Circular A-21 (J)(6); OMB Circular A-87 Attachment B, (5); OMB Circular A-122 Attachment B, (5); UGMS Part II Attachment B, (7)]

*NOTE: UGMS provides that such costs are unallowable unless provided for in federal or state program award regulations.

Bonding Costs

Costs of bonding that are required pursuant to the terms of an award are allowable. Costs of bonding required by the organization in the general conduct of its operations are allowable to the extent that such bonding is in accordance with sound business practice and the rates and premiums are reasonable under the circumstances. Bonding costs arise when the federal or state government requires assurance against financial loss to itself or others by reason of the act of default of the organization. They also arise in instances where the organization requires similar assurance. Included are such bonds as bid, performance, payment, advance payment, infringement, and fidelity bonds. [OMB Circular A-21 (J)(7); OMB Circular A-87 Attachment B, (6); OMB Circular A-122 Attachment B, (6); UGMS Part II Attachment B, (8)]

Budgeting

UGMS provides that except as associated with the general cost of government, costs incurred for the development, preparation, presentation, and execution of budgets are allowable. [UGMS Part II Attachment B, (9) and(24)] [Not addressed by OMB Circulars A-21, A-87 or A-122]

Commencement and Convocation Costs

Costs incurred for commencements and convocations are unallowable, except as provided in OMB Circular A-21, (F)(9). [OMB Circular A-21 (J)(8); not addressed by OMB Circulars A-87 or A-122, or UGMS]

Communication Costs

Costs incurred for telephone services, local and long distance telephone calls, telegrams, postage, messenger, electronic or computer transmittal services and the like are allowable. [OMB Circular A-21 (J)(9); OMB Circular A-87 Attachment B, (7); OMB Circular A-122 Attachment B, (7); UGMS Part II Attachment B, (10)]

Compensation for Personnel Services

Compensation for personnel services is generally allowable to the extent that such costs are consistent with applicable cost principles. [See also OMB Circular A-21 (J)(10); OMB Circular A-87 Attachment B, (8); ASMB C-10, Questions 3-5 through 3-24; OMB Circular A-122 Attachment B, (8); UGMS Part II Attachment B, (11); Chapter 10].

In addition, incentive compensation to employees based on cost reduction, or efficient performance, suggestion awards, safety awards, etc., are allowable to the extent that the overall compensation is determined to be reasonable and such costs are paid or accrued pursuant to an agreement entered into between the organization and the employees before the services were rendered, or pursuant to an established plan followed by the organization so consistently as to imply, in effect, an agreement to make such payment. [OMB Circular A-122, Attachment B, (7)(i); not addressed by OMB Circulars A-21 or A-87, or UGMS]

NOTE: Skills Development funds may not be used for wages for trainees. [40 TAC §803.3(d)(3)]

Construction

No construction is allowed without the prior written approval of the awarding agency. Prior approval is to be requested using TWC Form 7100. (Form 7100 is available on the TWC Financial and Grant Information page at the Agency’s website.) [UGMS Part II Attachment B, (12); not addressed by OMB Circulars A-21, A-87, or A-122]

NOTE: The following funds may not be expended on construction except as provided in the respective requirements:

  • WIA Title I funds [20 CFR §667.260];
  • Funds authorized under section 418 of the Social Security Act (CCDF Mandatory and Matching Funds) [45 CFR §98.54];
  • Funds authorized under section 658B of the Child Care and Development Block Grant Act (CCDF Discretionary Funds) [45 CFR §98.54]; and
  • Funds transferred pursuant to section 404(d) of the Social Security Act [45 CFR §98.54].

Contingencies

Contributions to a contingency reserve or any similar provision made for events, the occurrence of which cannot be foretold with certainty as to time, or intensity, or with an assurance of their happening, are unallowable. The term “contingency reserve” excludes self-insurance reserves, reserves for normal severance pay, pension plan reserves, post-retirement health and other benefit reserves computed using acceptable actuarial cost methods.* [OMB Circular A-21 (J)(11); OMB Circular A-87 Attachment B, (9); OMB Circular A-122 Attachment B, (9); UGMS Part II Attachment B, (13)]

*NOTE: UGMS also provides for such other funds as may be required or permitted in writing by the awarding agency.

Contributions and Donations

Contributions and donations, including cash, property, and services, made by the Contractor to others are unallowable. (This does not prohibit the Contractor’s acceptance of contributions or donations to meet cost sharing or matching requirements; i.e. child care local initiatives.) With the exception of UGMS, guidance on the use of received donated services and contributions to meet cost sharing or matching requirements are provided in the following citations. [See also OMB Circular A-21 (J)(15); OMB Circular A-87 Attachment B, (12); OMB Circular A-122 Attachment B, (12); UGMS Part II Attachment B, (14). UGMS Part II Attachment B, (11)(i) provides guidance for the receipt of donated services.]

Deans of Faculty and Graduate Schools

The salaries and expenses of deans of faculty and graduate schools, or their equivalents, and their staffs, are allowable. [OMB Circular A-21 (J)(12); not addressed by OMB Circulars A-87 or A-122, or UGMS]

Depreciation and Use Allowances

Compensation for the use of an organization’s buildings, other capital improvements, and equipment on hand may be made through depreciation or use allowances provided the property is used, needed in the organization’s activities, and properly allocable to sponsored agreements. However, except as otherwise provided, a combination of the two methods may not be used in connection with a single class of fixed assets (e.g. buildings, office equipment, computer equipment, etc.). [See also OMB Circular A-21 (J)(14); OMB Circular A-87 Attachment B, (11); ASMB C-10, Questions 3-28 through 3-34; OMB Circular A-122 Attachment B, (11); UGMS Part II Attachment B, (16)]

Disbursing Service

The cost of disbursing funds by the treasurer or other designated officer is allowable. [UGMS Part II Attachment B, (17); not addressed by OMB Circulars A-21, A-87 or A-122]

Employee Morale, Health, and Welfare Costs

The costs of health or first-aid clinics and/or infirmaries, recreational activities, employee counseling services, employee information publications, and any related expenses incurred in accordance with an organization’s established practice or custom for the improvement of working conditions, employer-employee relations, employee morale, and employee performance are allowable. Such costs must be equitably apportioned to all activities of the organizations. Income generated from any of these activities must offset against expenses. Special considerations relating to losses from the provision of food services can be found in OMB Circular A-21. [See also OMB Circular A-21 (J)(16); OMB Circular A-87 Attachment B, (13); OMB Circular A-122 Attachment B, (13); UGMS Part II Attachment B, (18)]

Entertainment

Costs of entertainment, including amusement, diversions, and social activities, and any costs directly associated with such costs (such as tickets to shows or sports events, meals, lodging, rentals, transportation, and gratuities) are unallowable. UGMS is consistent, but adds that these costs are unallowable unless such costs are incurred for components of a program approved by the grantor agency and are directly related to the program’s purpose. [OMB Circular A-21, (J)(17); OMB Circular A-87, Attachment B, (14); OMB Circular A-122, Attachment B, (14); and UGMS, Part II, Attachment B, (19)]

Equipment and Other Capital Expenditures

Equipment and other capital assets are allowable as follows:

  • Capital expenditures for general purpose equipment, buildings, and land are unallowable as direct charges, except where approved in advance by the awarding agency
  • Capital expenditures for special purpose equipment are allowable as direct costs, provided that items with a unit cost of $5,000 or more have the prior approval of the awarding agency
  • Capital expenditures for improvements to land, buildings, or equipment which materially increase their value or useful life are unallowable as a direct cost except with the prior approval of the awarding agency

Prior written approval is to be requested from the Agency by submitting TWC Form 7100. (Form 7100 is available on the TWC Financial and Grant Information page at the Agency’s website.)

When approved as a direct charge pursuant to the three bullets above, capital expenditures will be charged in the period in which the expenditure is incurred or otherwise determined appropriate and negotiated with the awarding agency. Equipment and other capital expenditures are unallowable as indirect costs. Additional requirements for the acquisition of equipment and other capital expenditures are provided in the following citations. [See also OMB Circular A-21 (J)(18); OMB Circular A-87 Attachment B, (15); ASMB C-10, Questions 3-35 through 3-38; OMB Circular A-122 Attachment B, (15); UGMS Part II Attachment B, (20); Chapter 13]

NOTE: Neither the Skills Development nor Self Sufficiency Funds may be used to purchase proprietary or production equipment for the training project of a single employer; i.e., one-time specialized needs that could not be used by other employers. [40 TAC §803.3(d)(2) and 40 TAC §835.3(c)]

Fines and Penalties

Fines, penalties, damages, and other settlements resulting from violations (or alleged violations) of, or failure of the organization to comply with federal, state, local or Indian tribal laws and regulations are unallowable except when incurred as a result of compliance with specific provisions of the federal or state award or written instructions by the awarding agency authorizing in advance. [OMB Circular A-21 (J)(19); OMB Circular A-87 Attachment B, (16); OMB Circular A-122 Attachment B, (16); UGMS Part II Attachment B, (21)] [See also ASMB C-10, Question 3-39]

Fundraising and Investment Management Costs

Costs of organized fundraising, including financial campaigns, solicitation of gifts and bequests, and similar expenses incurred to raise capital or obtain contributions are unallowable, regardless of the purpose for which the funds will be used. This provision does not prohibit grant writing; see Section 8.3.48 Proposal Costs, in this manual. Costs of investment counsel and staff and similar expenses incurred to enhance income from investments are unallowable. OMB Circulars A-122 and A-87 specifically provide that fundraising and investment activities shall be allocated an appropriate share of indirect costs. OMB Circular A-21 excludes such a provision, but specifically requires that costs related to the physical custody and control of monies and securities are allowable. [See also OMB Circular A-21 (J)(20); OMB Circular A-87 Attachment B, (17); OMB Circular A-122 Attachment B, (17); UGMS Part II Attachment B, (22)]

Gains and Losses on Disposition of Depreciable Property and Other Capital Assets and Substantial Relocation of Federal or State Programs

Except as specified, gains and losses on the disposition of property are allowable when treated consistently with the requirements in the following documents. [See also OMB Circular A-21, (J)(21); OMB Circular A-87, Attachment B, (18); ASMB C-10, Question 3-40; OMB Circular A-122, Attachment B, (18); UGMS, Part II, Attachment B, (23)]

General Government Expenses

Except as provided for travel costs, the costs of government, including accounting and budgeting costs associated with general government functions, are unallowable. [See also OMB Circular A-87 Attachment B, (19); ASMB C-10 Question 3-41; UGMS Part II Attachment B, (24); not addressed by OMB Circulars A-21 or A-122]

Goods or Services for Personal Use

Costs of goods or services for personal use by an organization's employees are unallowable regardless of whether the cost is reported as taxable income to the employees. [OMB Circular A-21, (J)(21); OMB Circular A-87, Attachment B, (20); OMB Circular A-122, Attachment B, (19); not addressed by UGMS]

Housing and Personal Living Expenses

Costs of housing, housing allowances and personal living expenses for/of an organization’s officers (including current and past) are unallowable as fringe benefits or indirect costs regardless of whether the cost is reported as taxable income to the employees. These costs are allowable as direct costs to a sponsored award when necessary for the performance of the award and approved by awarding agencies. [OMB Circular A-21, (J)(23); OMB Circular A-122, Attachment B, (20); not addressed by OMB Circular A-87 or UGMS]

Idle Facilities and Idle Capacity

The cost of idle facilities are unallowable except to the extent specifically provided. The cost of idle capacity is allowable when it exists under the specified circumstances. [See also OMB Circular A-21 (J)(24); OMB Circular A-87 Attachment B, (21); OMB Circular A-122 Attachment B, (21); UGMS Part II Attachment B, (25)]

Insurance and Indemnification

Costs of insurance required or approved and maintained, pursuant to the federal or state award, are allowable. Costs of other insurance in connection with the general conduct of activities are allowable subject to certain limitations. [See also OMB Circular A-21 (J)(25); OMB Circular A-87 Attachment B, (22); ASMB C-10 Question 3-42; OMB Circular A-122 Attachment B, (22); UGMS Part II Attachment B, (26)]

Interest

Costs incurred for interest on borrowed capital or the use of an organization’s own funds (or endowment funds, as applicable), however represented, are unallowable except as authorized by federal or state legislation, or for interest on debt incurred to acquire or replace capital assets. [See also OMB Circular A-21 (J)(26); OMB Circular A-87 Attachment B, (23); ASMB C-10 Questions 3-4, and 3-43 through 3-51; OMB Circular A-122 Attachment B, (23); UGMS Part II Attachment B, (27)]

Labor Relations Costs

Costs incurred in maintaining satisfactory relations between the organization and its employees, including costs of labor management committees, employees’ publications, and other related activities, are allowable. [OMB Circular A-21 (J)(27); OMB Circular A-122 Attachment B, (24); not addressed by OMB Circular A-87 or UGMS]

Defense and Prosecution of Criminal and Civil Proceedings and Claims

Legal expenses required in the administration of federal or state programs are allowable. The following legal expenses are unallowable:

  • Legal expenses for prosecution of claims against the federal government
  • Costs incurred in defense of any civil or criminal fraud proceeding or similar proceeding (including filing of false certification) brought by the United States where the Contractor is found liable or has pleaded nolo contendere to a charge of fraud or similar proceeding (including filing of a false certification)
  • Legal costs incurred in defense of any civil or criminal fraud proceeding or similar proceeding and costs incurred by a Contractor in connection with any criminal, civil or administrative proceedings commenced by the United States or a state to the extent provided in 10 U.S.C. 2324(k). [See also OMB Circular A-21 (J)(13); OMB Circular A-87 Attachment B, (10); ASMB C-10 Questions 3-25 through 3-27; OMB Circular A-122 Attachment B, (10); UGMS Part II Attachment B, (15)]

Lobbying

The cost of certain influencing activities associated with obtaining grants, contracts, cooperative agreements, or loans is an unallowable cost. Lobbying with respect to certain grants, contracts, cooperative agreements, and loans shall be governed by the grants management common rule (Common Rule) (see codification in Appendix G to this manual).

Also note that the lobbying provisions and prohibitions in Chapter 556, Texas Government Code apply to the following entities which are included in the definition of a “state agency” for purposes of that chapter:

  • A regional planning commission, council of governments, or similar regional planning agency created under Chapter 391, Texas Local Government Code
  • A local workforce development board
  • A community center created under Subchapter A, Chapter 534, Health and Safety Code

Under Chapter 556, Texas Government Code, a “state agency” shall not use funds appropriated by the legislature through the General Appropriations Act or other law to:

  • Employ as a regular full-time, part-time or contract employee, a person who is required by Chapter 305, Texas Government Code, to register as a lobbyist
  • Use appropriated funds to pay membership dues to an organization that pays part or all of the salary of a person who is required by Chapter 305, Texas Government Code, to register as a lobbyist [see also Section 8.3.39, Memberships, Subscriptions, and Professional Activities, in this manual]
  • Attempt to influence the passage or defeat of a legislative measure
  • Finance or otherwise support the candidacy of a person for an office in the legislative, executive, or judicial branch of state government or the government of the United States. This prohibition includes the direct or indirect employment of a person to support the candidacy of a person for an office in the legislative, executive, or judicial branch of state government or of the government of the United States

Additionally, under Chapter 556, Texas Government Code, a “state agency” employee or officer, as defined by the chapter, shall not:

  • Use a state-owned or state-leased motor vehicle to support the candidacy of a person for an office in the legislative, executive, or judicial branch of state government or of the government of the United States
  • Use official authority or influence or permit the use of a program administered by the state agency of which the person is an officer or employee to interfere with or affect the result of an election or nomination of a candidate or to achieve any other political purpose
  • Coerce, attempt to coerce, command, restrict, attempt to restrict, or prevent the payment, loan, or contribution of anything of value to a person or political organization for a political purpose (NOTE: This provision applies to a “state agency” employee only.) [See also OMB Circular A-21 (J)(28); OMB Circular A-87 Attachment B, (24); OMB Circular A-122 Attachment B, (25); UGMS Part II Attachment B, (28); Chapter 556, Texas Government Code; WD Letter 06-05]

Losses on Awards

Any excess of costs over income on any award is unallowable as a cost of any other award. This includes, but is not limited to, the organization’s contributed portion by reason of cost sharing agreements or any under-recoveries through negotiation of lump sums for, or ceilings on, indirect costs. [See also OMB Circular A-21 (J)(29); OMB Circular A-122 Attachment B, (26); UGMS Part II Attachment B, (44); not addressed by OMB Circular A-87]

Maintenance, Operations and Repairs

Unless prohibited by law, the cost of utilities, insurance, security, janitorial services, elevator service, upkeep of grounds, necessary maintenance, normal repairs and alterations, and the like are allowable to the extent that they:

  • Keep property in an efficient operating condition
  • Do not add to the permanent value of the property or appreciably prolong its intended life
  • Are not otherwise included in rental or other charges for space

Costs that add to the permanent value of property or appreciably prolong its intended life shall be treated as capital expenditures. [OMB Circular A-21 (J)(30); OMB Circular A-87 Attachment B, (25); OMB Circular A-122 Attachment B, (27); UGMS Part II Attachment B, (29)]

Materials and Supplies

The costs of materials, supplies, and fabricated parts necessary to carry out a federal or state award are allowable. Purchases should be charged at their actual prices after deducting all cash discounts, trade discounts, rebates, and allowances received. Withdrawals from general stores or stockrooms should be charged at their actual net cost under any recognized method of pricing inventory withdrawals, consistently applied. Incoming transportation charges are a property part of materials and supply costs. Only materials and supplies actually used for the performance of a federal award may be charged as direct costs. Where federally-donated or furnished materials are used in performing the federal award, such materials will be used without charge. [OMB Circular A-21 (J)(31); OMB Circular A-87 Attachment B, (26); OMB Circular A-122 Attachment B, (28); UGMS Part II Attachment B, (30)]

Meetings and Conferences

Costs of meetings and conferences, the primary purpose of which is the dissemination of technical information, are allowable. This includes costs of meals, transportation, rental of facilities, speakers’ fees and other items incidental to such meetings or conferences. But see also Section 8.3.21, Entertainment Costs, in this manual. For OMB Circular A-122, see also Section 8.3.43, Participant Support Costs, in this manual. [OMB Circular A-21 (J)(32); OMB Circular A-87 Attachment B, (27); OMB Circular A-122 Attachment B, (29); UGMS Part II Attachment B, (31)(c)]

Memberships, Subscriptions, and Professional Activities

Costs of the organization’s memberships in business, technical, and professional organizations are allowable. Costs of subscriptions to business, technical and professional periodicals are allowable. Except as provided by OMB Circular A-21, costs of memberships in civic or community organizations are allowable with the approval of the federal or state awarding agency. This excludes memberships in any country club, or social or dining club or organization. Costs of membership in organizations substantially engaged in lobbying are unallowable.

Also note that the lobbying provisions and prohibitions in Chapter 556, Texas Government Code apply to the following entities which are included in the definition of a “state agency” for purposes of that chapter:

  • A regional planning commission, council of governments, or similar regional planning agency created under Chapter 391, Texas Local Government Code
  • A local workforce development board
  • A community center created under Subchapter A, Chapter 534, Texas Health and Safety Code

Under Chapter 556, Texas Government Code, a “state agency” shall not use funds appropriated by the legislature, through the General Appropriations Act or other law, to pay membership dues to an organization that pays part or all of the salary of a person who is required by Chapter 305 of the Texas Government Code to register as a lobbyist.

Before incurring expenditures for membership dues of any type, steps should be taken to ensure the organization to which the dues will be paid, does not have lobbyists registered with the Texas Ethics Commission. Lobbyists and lobby organizations are required to publicly disclose and regularly identify expenditures and activities with the Texas Ethics Commission. Therefore, the Agency recommends that the Contractor search the list of registered lobbyists at the Texas Ethics Commission website and print the screen that displays the result of such a search.

In addition, the Agency recommends that Boards obtain a written certification from the organization regarding the use of the membership dues when using state-appropriated funds to purchase or renew a membership. Boards shall retain a copy of the certification and provide it upon request by the Agency, the office of the Texas Comptroller of Public Accounts, or other appropriate authority.

[OMB Circular A-21 (J)(33); OMB Circular A-87 Attachment B, (28); OMB Circular A-122 Attachment B, (30); and UGMS Part II Attachment B, (31); WD Letter 06-05; also see Texas Government Code §556.005]

Motor Pools

The costs of a service organization which provides automobiles to user governmental units at a mileage or fixed rate and/or provides vehicle maintenance, inspection, and repair services are allowable. [UGMS Part II Attachment B, (32); not addressed by OMB Circulars A-21, A-87 or A-122]

Organization Costs

Expenditures, such as incorporation fees, brokers’ fees, fees to promoters, organizers or management consultants, attorneys, accountants, or investment counselors, whether or not employees of the organization, in connection with the establishment or reorganization of an organization, are unallowable except with prior approval of the awarding agency. [OMB Circular A-122 Attachment B, (31); not addressed by OMB Circulars A-21 or A-87, or UGMS]

Page Charges

Page charges in professional journal publications are allowable as a necessary part of research costs where the research papers report work supported by the federal government, and the charges are levied impartially on all research papers published by the journal, whether or not by federally-sponsored authors. [OMB Circular A-21 (J), (39)(c); OMB Circular A-87 Attachment B, (34)(c); OMB Circular A-122 Attachment B, (32); not addressed by UGMS]

Participant Support Costs

Participant support costs are direct costs for items such as stipends or subsistence allowances, travel allowances, and registration fees paid to or on behalf of participants or trainees (but not employees) in connection with meetings, conferences, symposia, or training projects. These costs are allowable with the prior approval of the awarding agency. [OMB Circular A-122 Attachment B, (33); not addressed by OMB Circulars A-21 or A-87, or UGMS]

Patent Costs

Costs of preparing disclosures, reports, and other documents required by the award and of searching the art to the extent necessary to make such disclosures are allowable. Other allowable and unallowable costs are also identified in the following documents. [See also OMB Circular A-21 (J)(34); OMB Circular A-87 Attachment B, (29); OMB Circular A-122 Attachment B, (34); not addressed by UGMS]

Plant and Homeland Security Costs

Necessary and reasonable expenses incurred for routine and homeland security to protect facilities, personnel, and work products are allowable. Such costs include, but are not limited to, wages and uniforms of personnel engaged in security activities; equipment; barriers; contractual security services; consultants; etc. Capital expenditures for homeland and plant security purposes are subject to the requirements for Equipment and Other Capital Expenditures discussed in Section 8.3.22 of this chapter. [OMB Circular A-21 (J)(35); OMB Circular A-87 Attachment B, (30); OMB Circular A-122 Attachment B, (35); not addressed by UGMS]

Pre-award Costs (Preagreement Costs)

Pre-award costs are allowable only to the extent that they would have been allowable if incurred after the date of the award and only with the written approval of the awarding agency. [OMB Circular A-21 (J)(36); OMB Circular A-87 Attachment B, (31); OMB Circular A-122 Attachment B, (36); and UGMS Part II Attachment B, (33)]

Professional Services

Costs of professional and consultant services rendered by persons or organizations that are members of a particular profession or possess a special skill, and who are not officers or employees of the organization, are allowable subject to certain conditions. Legal and related services are limited to those allowed under Section 8.3.33, Defense and Prosecution of Criminal and Civil Proceedings and Claims, in this manual.

Proposal Costs

Costs of preparing proposals for potential federal or state awards are allowable. [Texas Government Code §2308.266, a state statute, also expressly permits Boards to "solicit additional funds from other public and private sources."] The prohibition against fundraising in Section 8.3.24, Fundraising and Management Costs, in this manual, does not prohibit the Board from writing grants. Proposal costs should be treated as indirect costs and be allocated to all activities of the organizations utilizing the cost allocation plan and indirect cost rate proposal. In accordance with OMB Circular A-87 and UGMS, proposal costs may be charged directly to federal or state awards with the prior approval of the federal or state awarding agency. OMB Circular A-21 allows the costs to be charged only if the results are found to be reasonable and equitable. [See also OMB Circular A-21 (J)(38); OMB Circular A-87 Attachment B, (33); ASMB C-10 Question 3-52; UGMS Part II Attachment B, (35); not addressed by OMB Circular A-122]

Publication and Printing Costs

Publication costs, including the costs of printing (including the processes of composition, plate-making, press work, binding, and the end products produced by such processes), distribution, promotion, mailing, and general handling are allowable. Publication costs also include page charges in professional publications. [See also OMB Circular A-21 (J)(39); OMB Circular A-87 Attachment B, (34); OMB Circular A-122 Attachment B, (38); UGMS Part II Attachment B, (35)]

Rearrangements and Alterations

Costs incurred for ordinary or normal rearrangement and alteration of facilities are allowable. Special arrangement and alteration costs incurred specifically for a project are allowable with prior approval of the awarding agency. Prior approval is to be requested using TWC Form 7100. (Form 7100 is available on the TWC Financial and Grant Information page at the Agency’s website.) [OMB Circular A-21 (J)(40); OMB Circular A-87 Attachment B, (35); OMB Circular A-122 Attachment B, (39); UGMS Part II Attachment B, (37)]

Reconversion Costs

Costs incurred in the restoration or rehabilitation of the organization’s facilities to approximately the same condition existing immediately prior to commencement of a federal or state award, fair wear and tear excepted, are allowable. UGMS adds that allowability is subject to the prior approval of the awarding agency. [OMB Circular A-21 (J)(41); OMB Circular A-87 Attachment B, (36); OMB Circular A-122 Attachment B, (40); UGMS Part II Attachment B, (38)]

Recruiting Costs

Recruiting costs are allowable to the extent that such costs are incurred pursuant to a well-managed recruitment program, and in accordance with certain conditions. [See also OMB Circular A-21 (J)(42); OMB Circular A-122 Attachment B, (41); not addressed by OMB Circular A-87 or UGMS]

Relocation Costs

Relocation costs are costs incident to the permanent change of duty assignment of an existing employee or upon recruitment of a new employee. Relocation costs are allowable, subject to certain limitations. [See also OMB Circular A-122 Attachment B, (42); not addressed by OMB Circulars A-21, A-87 or UGMS]

Rental Costs

Subject to the limitations in the applicable principles below, rental costs are allowable to the extent that the rates are reasonable in light of such factors as: rental costs of comparable property, if any; market conditions in the area; alternatives available; and, the type, life expectancy, condition, and value of the property leased. Rental agreements should be reviewed periodically to determine if circumstances have changed and other options are available. [See also OMB Circular A-21 (J)(43); OMB Circular A-87 Attachment B, (37); ASMB C-10 Question 3-53; OMB Circular A-122 Attachment B, (43); UGMS Part II Attachment B, (39); and Chapter 13 of this manual, especially prior approval for capital leases]

NOTE: Skills Development funds may not be used to pay for the lease of equipment if any one of the following four criteria is characteristic of the lease transaction:

  • The lease transfers ownership of the equipment to the lessee at the end of the lease term
  • The lease contains a bargain purchase option
  • The lease term is equal to 75% or more of the estimated economic life of the leased equipment
  • The present value of the minimum lease payments at the inception of the lease, excluding executory costs, equals at least 90% of the fair value of the leased equipment [40 TAC §803.3(e)]

Royalties and Other Costs for Use of Patents and Copyrights

Royalties on patent or copyright or amortization of the cost of acquiring by purchase a copyright, patent, or rights thereto, necessary for the proper performance of the award are allowable except as otherwise provided in the following referenced documents. [See also OMB Circular A-21 (J)(44); OMB Circular A-87 Attachment B, (38); OMB Circular A-122 Attachment B, (44); not addressed by UGMS]

Scholarships and Student Aid Costs

Costs of scholarships, fellowships, and other programs of student aid are allowable when provided in accordance with the provisions of OMB Circular A-21. [See also OMB Circular A-21 (J)(45); not addressed by OMB Circulars A-87 or A-122, or UGMS]

Security Deposits

Outlays for security deposits (e.g., rent, utilities, equipment rental) when required to carry out an authorized program are allowable. These outlays will be shown as “assets” until returned to the grantee. Any funds returned to the grantee or subrecipient shall be treated as program income in the year recovered. [UGMS Part II Attachment B, (40); not addressed by OMB Circulars A-21, A-87 or A-122]

Selling and Marketing

Costs of selling and marketing any products or services of the institution are unallowable except as specifically provided in the following OMB Circulars. [See also OMB Circular A-21 (J)(46); OMB Circular A-87 Attachment B, (39); OMB Circular A-122 Attachment B, (45); not addressed by UGMS]

Specialized Service Facilities

The costs of services provided by highly complex or specialized facilities operated by an organization, such as computers, wind tunnels, and reactors, are allowable when incurred in accordance with the provisions of the following OMB Circulars. [See also OMB Circular A-21 (J)(47); OMB Circular A-122 Attachment B, (46); not addressed by OMB Circular A-87 or UGMS]

Student Activity Costs

Costs incurred for intramural activities, student publications, student clubs, and other student activities, are unallowable, unless specifically provided for in the sponsored agreements. [OMB Circular A-21 (J)(48); not addressed by OMB Circulars A-87 or A-122, or UGMS]

Taxes

Taxes that an organization is legally required to pay are allowable, subject to certain limitations. [See also OMB Circular A-21 (J)(49); OMB Circular A-87 Attachment B, (40); ASMB C-10 Question 3-54; OMB Circular A-122 Attachment B, (47); UGMS Part II Attachment B, (41)]

Termination Costs

Termination of awards generally give rise to the incurrence of costs, or the need for special treatment of costs, which would not have arisen had the award not been terminated. Such costs may or may not be allowable as follows:

  • The cost of items that are reasonably usable on other work of the organization are unallowable, unless the organization submits evidence that it would not retain such items at cost without sustaining a loss
  • Costs that cannot be discontinued immediately after the effective date of termination, despite all reasonable efforts, are generally allowable within the limitations of applicable cost principles
  • Costs continuing after termination due to the negligent or willful failure of the organization to discontinue such costs are unallowable
  • Loss of useful value of special tooling, machinery and equipment which was not charged to the award as a capital expenditure is generally allowable if it is not reasonably capable of use in other work of the organization, or if the government’s interest is protected by transfer of title or other means deemed appropriate by the awarding agency
  • Rental costs under unexpired leases are generally allowable subject to conditions discussed in the OMB Circulars
  • Settlement expenses, such as those described in OMB Circulars are generally allowable
  • Claims under subawards, including the allocable portion of claims which are common to the award, and to other work of the organization are generally allowable [See also OMB Circular A-21 (J)(50); OMB Circular A-87 Attachment B, (41); OMB Circular A-122 Attachment B, (48); FMGC Chapter 21; not addressed by UGMS]

Training Costs

The cost of training provided for employee development is allowable. [See also OMB Circular A-122 Attachment B, (49)] [OMB Circular A-21 (J)(51); OMB Circular A-87 Attachment B, (42); UGMS Part II Attachment B, (42)]

NOTE: Skills Development funds may not be used to pay the training costs and related costs of an employer who relocates the employer’s worksite from one place in Texas to another. [40 TAC §803.3(d)(1)]

Transportation Costs

Costs incurred for freight, express, cartage, postage, and other transportation services relating either to goods purchased, in process, delivered, are allowable. When such costs can readily be identified with the item involved, they may be charged directly as transportation costs or added to the cost of such items. Where identification with the materials received cannot be readily made, inbound transportation cost may be charged to the appropriate Facilities and Administration (also referred to as indirect) cost accounts if the institution follows a consistent, equitable procedure in this respect. Outbound freight, if reimbursable under the terms of the sponsored agreement, should be treated as a direct cost. [OMB Circular A-21 (J)(52); OMB Circular A-122 Attachment B, (50); not addressed by OMB Circular A-87 or UGMS]

Travel Costs

Travel costs are allowable for expenses for transportation, lodging, subsistence, and related items incurred by employees traveling on official business subject to certain provisions. [See also OMB Circular A-21 (J)(53); OMB Circular A-87 Attachment B, (43); ASMB C-10 Question 3-55; OMB Circular A-122 Attachment B, (51); UGMS Part II Attachment B, (43); and Chapter 9 of this manual]

NOTE: Boards are also subject to the travel regulations in the current General Appropriations Act and Texas Government Code, Chapter 660. Accordingly, the State of Texas Travel Allowance Guide issued by the Texas Comptroller of Public Accounts also applies.

NOTE: Skills Development funds may not be used to pay for trainee or instructor travel costs or trainee drug tests. [40 TAC §803.3(d)(4)]

Trustees

Travel and subsistence costs of trustees (or directors) are allowable. The costs are subject to restrictions regarding lodging, subsistence, and air travel costs for Travel (see Section 8.3.65, Travel Costs, in this manual). [OMB Circular A-21 (J)(54); OMB Circular A-122 Attachment B, (52); not addressed by OMB Circular A-87 or UGMS]

Authority:

*Also includes other authorities specifically identified in this Section.

 

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