Allowable/Unallowable Costs at MIT Presented by The Office of Sponsored Programs John Donahue, Susie Won & The Controller’s Accounting Office Paul Arsenault/ Ellen Sico/ John Larkin/ Doug Le Vie
Why Is This Training Needed ? • Everyone who initiates and/or approves financial transactions at MIT needs to be able to accurately determine: • Is the cost is eligible for reimbursement? • Per MIT Policy • Per Federal Policy (Circular OMB A-21) • What is the appropriate: • Cost object? • G/L account?
What is an unallowable cost and why does the Institute track it? • OMB (U.S. Office of Management and Budget) Circular A-21 prohibits the charging of certain “unallowable” costs to federally sponsored agreements, either as a direct cost to sponsored research or on a recoverable facilities and administrative cost center (indirect).
Exclusion of Unallowable Costs from Federal Cost Submissions • Specific Unallowable GL Accounts • Training • Allowance for Unallowable Costs • Account Scrubbing • Statistical Sampling
Cost Certification • All Cost Submissions • Signature of the Executive VP • Under Penalty of Perjury
OMB Circular A-21 • “Provides specific guidelines for determining costs applicable to research and development, training, and other sponsored work performed by colleges and universities under grants, contracts, and other Agreements with the Federal Government.” • These agreements are referred to as Sponsored Agreements
Test for Allowability • Per A-21 costs must be: • Reasonable – reflects that actions of a “prudent person” • Allocable -- provide a benefit to research projects, either directly or indirectly • Consistently Treated -- cost treated the same in like circumstances, either as a direct or indirect
Section J • Sections J.1 - J.54 of Circular A-21 provide Principles to be applied when determining the allowability of certain costs • In case of a discrepancy between the principles listed in Section J and a specific sponsored agreement, the sponsored agreement should always govern.
Based on your experience, please list some examples of what you consider to be an unallowable cost: Unallowable Activities / Costs ?
Alumni Activities Student Recruitment Convocation Contingency provisions Fines and Penalties Lobbying Costs Fund Raising Advertising, selling or marketing of Institute products or services Entertainment Student activities Social Memberships Unallowable Activities
Unallowable G/L Accounts @ MIT • 420080 Travel-Unallowable Cost • 420166 Entertainment • 420254 Non-Reimbursable Expenses • 420302 Promotion & Memorabilia • 420304 Public Relations • 420306 Publicity • 420318 Recreation Related Expense • 421205 Alcoholic Beverages • 421584 Memberships and Dues-Social
Unallowable G/L Accounts(Cont.) • Unallowable Salaries (400812) • Record Project Overrun (420314) • Student-related costs: • Scholarship allowance (420342) • Scholarship (422305) • Undergraduate student fees (422320) • Bad Debts (421552)
MIT Unallowable G/L Accounts • Unallowable Travel (420080) This G/L account is for travel costs which are reimbursable under MIT’s Travel Policy but which are not recoverable from the Federal government. Examples would be spousal travel and airfare in excess of the lowest available commercial discount airfare.
MIT Unallowable G/L Accounts • Entertainment (420166) This G/L account is used for non-reimbursable costs normally incurred for social types of activities (e.g. a department meeting that does not qualify as a true business meeting). Entertainment also includes tickets to shows and sporting events and related meals, indoor floral arrangements, etc. The entire cost of a non-reimbursable activity can be charged to this G/L account, it is not necessary to itemize food, alcohol, etc.
MIT Unallowable G/L Accounts • Non-Reimbursable Expenses (420254) This G/L account is to be used for unallowable costs that do not seem to fit any of the other unallowable G/L accounts
MIT Unallowable G/L Accounts • Promotional Items and Memorabilia (420302) This G/L account is used for the cost of items that promote or provide memorabilia of MIT, its departments, labs or centers. Give-aways of any kind to non-MIT employees are unallowable.
MIT Unallowable G/L Accounts • Public Relations (420304) • Publicity (420306) These G/L accounts are used for public and community relations: activities with the intention of enhancing the image of MIT to the general public
MIT Unallowable G/L Accounts • Recreation Related Expenses (420318) This G/L account is for costs expended for employee morale activities such as retirement parties, birthday parties, or other office social events to a maximum of $15.00 per employee per year
MIT Unallowable G/L Accounts • Alcoholic Beverages (421205) This G/L account is used for the cost of alcoholic beverages bought on a PO for an Institute function or identifiable from receipts supporting a dinner meeting. Alcohol cannot be charged to research accounts. Alcohol does not need to be segregated out if charged to another unallowable G/L account such as entertainment or non-reimbursable expenses
MIT Unallowable G/L Accounts • Memberships and Social (421584) This G/L account is used for the cost of membership in any civic or community organization or in any country club, social, or dining club or organization. All such memberships are unallowable.
MIT Unallowable G/L Accounts • Unallowable Salaries (400812) Use of this G/L account applies to directly associated staff time in an unallowable event, that time being measured over the course of the year. If the staff time is 25% or greater in an unallowable activity, then this G/L account must be used for that person’s effort. You should contact the Payroll Office before using this G/L.
MIT Unallowable G/L Accounts • Recorded Project Overrun (420314) This G/L account is used to remove an overrun on a sponsored program in accordance with Institute policy. Project overruns may be recorded to selected general accounts (cost centers) or fund accounts (internal orders) using this G/L account.
MIT Unallowable G/L Accounts • Student Related Costs • Scholarship Allowance (420342) • Scholarship (422305) • Undergraduate student fees (422320)
MIT Unallowable G/L Accounts • Bad Debts (421552) This G/L account is used for any losses, whether actual or estimated, arising from uncollectible accounts, included associated costs of collections.
Exercise • Flower arrangement for department headquarters reception area • A research group has monthly lunch meetings to facilitate collaboration and share ideas • Visiting professor receives MIT parking ticket • $100 gift certificates given as awards within the department (charged to M&S GL) • Dry cleaning for Dean’s convocation attire • Beginning of the year kick-off lunch for a lab’s undergraduate research assistants (UROP) • Lab orders coffee mugs with lab name and logo to commemorate its 25th anniversary
“Directly Associated” Costs • A cost which is “directly associated” with an unallowable cost is also unallowable. Cost Accounting Standards (CAS) definition of a directly associated cost: “any cost which is generated solely as a result of the incurrence of another unallowable cost and which would not have been incurred had the other cost not been incurred?”
“Directly Associated” Costs • Example of a Directly Associated Cost: A department conducts a meeting which is largely a social gathering. Alcohol and food served at the meeting are unallowable costs……the cost of invitations, postage or other costs related to the unallowable nature of the meeting should also be coded as non-reimbursable
“Directly Associated” Costs • There is no specific definition of when meetings qualify for reimbursement and when they should be considered entertainment. In most cases the meeting will qualify as either business (allowable) or entertainment (unallowable) • Allowable meetings require a business purpose, agenda, list of attendees, etc. • The business purpose must be clearly documented
Rates as Direct Costs • Activities charging rates as direct costs to research are also subject to federal allowability rules and must ensure that no unallowable expenses are being charged through its rates • Service Centers • Laboratory Allocations
Items of Particular Interest • MIT Memorabilia • Personal Expenses • Prizes & Awards • Flowers/Floral Arrangements • Catering/Food • Contributions/Donations
Sponsored Accounting • Impact of unallowable charges on Sponsored Accounting • Billings, Cost Reimbursable, Letter of Credit • Journal document approvals • Removal/reclassification of unallowable charges • Audits and Final Reporting
Travel • Unallowable Travel (420080) • Airfare in excess of the lowest available discount airfare • Foreign flag carriers • Code share flights when the designator code is a foreign carrier • Spousal travel when the spouse is not formally representing MIT • Alcohol • Prospective student visits • Fundraising • Resource development • Food & beverage, entertainment • Gifts • Approved travel exceptions, out of policy - extenuating circumstances
Accounts Payable Commonly Used Unallowable GL Accounts • 421000 - Meetings - Food & Beverage • 420254 - Non-Reimbursable Expenses • 420166 - Entertainment • 420318 - Recreation Related Expenses • 420302 - Promotional Items and Memorabilia • 420319 - Prizes & Awards - Other Please call if help is needed in determining which G/L to use
Accounts Payable Staff • John Larkin, Manager 3-2729 • Wayne Dwyer, Supervisor 8-8485 • General AP Questions 3-2750 Accountsfirstname.lastname@example.org • Catherine Cherico 3-2768 MIT internal request for payments • Janet Mulstay 3-1349 Wire Transfers
Scenario 1 • MIT faculty member wins Nobel Prize and department organizes a special lecture and outdoor reception. A department administrative assistant spends time preparing invitations and planning the event (securing the location, reserving table/chair/tent rentals, ordering reception refreshments, purchasing decorations, etc.). • Identify various costs of this activity • How might you expense these costs and where would you put the unallowables?
Scenario 2 • A wealthy couple (MIT alumni) is considering making a large gift to the MIT lab where they did research. They invite the Lab Director to their home in Florida to discuss the details and request that the Director’s spouse also attend. The Lab Director asks the administrative assistant to pick up some MIT insignia items at The Coop as gifts for the couple. • Identify various costs of this activity • How might you expense these costs and where would you put the unallowables?
What Do You Need to Do ? • Be aware of OMB Circular A-21 rules (accessed through the OSP homepage) • Code transactions with correct G/L account • Review accounting statements for errors • Ask for help when you’re not sure