Unallowable Costs

A cost may be allowable by the University and State of Texas standards but unallowable based on Uniform Guidance 2 CFR 200. The federal government will not reimburse these costs; however, they may be entirely appropriate and permissible activities. Guidance is given in this document as to classification of costs if unallowable. If there are any questions, please contact the Office of Sponsored Programs (OSP).

A partial list of allowable and unallowable costs is provided below:

Expenditure type




Only costs
necessary to meet the requirements of the sponsored agreement such as
recruitment of personnel, procurement of goods or services, or disposal of
surplus materials.

Costs of
meetings, conventions, convocations, or other events related to other
activities of the institution. Costs
of promotional items and memorabilia.
Advertising designed solely to promote the institution.

Alcoholic beverages


alcoholic beverages are unallowable.

Alumni activities


All Alumni
activities are unallowable.

Audit costs and related services

The costs
required by, and performed in accordance with, the Single Audit Act or if
specifically approved by the awarding agency as a direct cost to an


Bad Debt


(whether actual or estimated) arising from uncollectible accounts and other
claims, related collection costs, and related legal cost.

Business Meals



[Click on Expenditure Type for the
topic for more information.]

Commencement and convocation costs


commencement and convocation costs are unallowable.

Communication costs

incurred for telephone services, local and long distance telephone calls,
telegrams, postage, messenger, electronic or computer transmittal services
which are specifically identifiable to the project.


Compensation for personal services

for personal services covers all reasonable amounts, including fringe
benefits, paid currently or accrued by the organization for employee services
rendered to the grant-supported project.
These costs are allowable to the extent that the total compensation to
individual employees conforms to the established policies of the institution.


Contingency provisions


to a contingency reserve are unallowable.

Defense and prosecution of criminal and civil proceedings, claims, appeals and patent


unallowable. Costs incurred by the
institution for defense of suits brought by its employees or ex-employees are
unallowable if the institution was found liable or settlement was
reached. Legal, accounting,
consulting, and related costs incurred in defense against government claims
or appeals, or in prosecution of claims or appeals against the government, are
unallowable. Legal, accounting, consulting,
and related costs incurred in connection with patent infringement litigation
are unallowable unless provided for in the sponsored program agreement.

Donations and contributions


or donations, including cash, property, and services, made by the
institution, regardless of the recipient, are unallowable



Costs of
entertainment, including amusement, diversion, and social activities and any
costs directly associated with such costs are unallowable

Equipment and other capital expenditures

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

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 improvements which materially increase their value or useful life

Fines and penalties


resulting from violations of, or failure of the institution to comply with,
Federal, State, and local or foreign laws and regulations unless specifically
approved by the agency

Fund raising and investment costs

related to the physical custody and control of monies and securities

Costs of
organized fund raising, including financial campaigns, endowment drives,
solicitation of gifts and bequests, and similar expenses incurred solely to
raise capital or obtain contributions

Goods or services for personal use


Costs of
goods or services for personal use are unallowable regardless of whether the
cost is reported as taxable income to the employees

Housing and personal living expenses


Costs of
housing, housing allowances and personal living expenses for institutional

Insurance and indemnification

Costs of
insurance required or approved, and maintained, pursuant to the sponsored

losses which could have been covered by permissible insurance unless
expressly provided for in the sponsored agreement Costs of insurance with
respect to any costs incurred to correct defects in the institution’s
materials or workmanship



incurred in attempting to influence, either directly or indirectly, an
employee of the federal government regarding a sponsored program



Any losses
on other sponsored agreements or contracts

Material and supplies

incurred for materials, supplies, and fabricated parts necessary to carry out
a sponsored agreement


Meetings and Conferences

Costs of
meetings and conferences, the primary purpose of which is the dissemination
of technical information


Memberships, subscriptions and professional activity

Costs of
the institution’s membership in business, technical, and professional
organizations Costs of the institution’s subscriptions to business,
professional, and technical periodicals are allowable.

Costs of
an individual’s membership in any civic, community organization, country
club, social or dining club are unallowable; Costs of an individual’s
membership in membership in business, technical and professional organization
are generally unallowable [Click on
Expenditure Type for the topic for more information.]

Pre-agreement costs


incurred prior to the effective date of the sponsored agreement, whether or
not they would have been allowable, are unallowable unless approved by the
sponsoring agency.

Professional service costs

and consultant services rendered by persons who are members of a particular
profession or possess a special skill, and who are not officers or employees
of the institution For employees


Scholarships and student aid costs

Only when
the purpose of the sponsored agreement is to provide training to selected
participants and the charge is approved by the sponsoring agency

Tuition remission and other forms of compensation paid as, or in lieu of,
wages to students performing necessary work


Selling and marketing


Costs of
selling and marketing any products or services of the institution

Student activity costs


incurred for intramural activities, student publications, student clubs, and
student publications, student clubs, and student publications, student clubs,
and other student activities unless specifically provided for in the
sponsored agreements

Training costs

provided for employee development


Transportation costs

express, cartage, postage, and other transportation services relating either
to goods purchased, in process, or delivered


Travel costs

consistent with those normally allowed in like circumstances in the
institution’s non-federally sponsored activities


Other unallowable costs may occur from or include the following:

  • Expenditures transferred from one grant to another to correct for cost overruns or avoid unexpended balances.
  • Services subcontracted without sponsor approval.
  • Project funds used to generate income without prior sponsor approval and an agreement regarding the disposition of those funds.
  • The scope of the project changed without notifying the sponsor.
  • Funds excessively re-budgeted without sponsor approval.  (Tolerance for re-budgeting varies most federal allow 10%; some sponsors allow no re-budgeting, such as Florida Department of Education).
  • Delinquent certification of effort or more effort charged to the grant than was actually committed to the grant.
  • The Project Director being absent for more than three months without notifying the sponsoring agency 30 days prior to the absence.
  • The Project Director changed without requesting permission from the sponsor.
  • Higher base salary or consulting fees to recipient staff than was authorized.
  • Money spent for major equipment purchases during the last 90 days of the grant.
  • Unexpended balances used within the last 60 days of the grant account to stockpile supplies for unnecessary miscellaneous costs or for other excessive spending.
  • Foreign travel charged to the grant without prior approval from the sponsor.
  • Unrelated costs charged to the grant.  For example, travel costs of faculty not named on the grant, salary costs for effort performed on other projects or reimbursing a department for deficits incurred on an earlier grant.
  • Costs incurred after termination of the sponsored project.
  • Direct or Indirect/Facilities and administrative (F&A) costs transferred to one another without sponsor approval.

In addition to unallowable costs per se, charges to federally sponsored agreements must also exclude costs that are directly associated with the unallowable costs.  A directly associated cost is defined in federal regulations as any cost which is generated solely as a result of the incidence of another cost, and which would not have been incurred had the other cost not been incurred.  Responsibility for these guidelines lies primarily with the PI, Department Chairs/Deans and fiscal personnel with general guidance and oversight of the departments and divisions.

The responsibility for identifying and segregating unallowable costs is at the department level when the costs are incurred and recorded.  All unallowable costs should be identified to the correct account if the transaction or activity is unallowable.  The OSP staff initially reviews transactions as mentioned below as related to requisitions, disbursements, travel and personnel requests.  During this time, transactions are reviewed to verify that the charges are allowable in both a general sense and according to the specific agreement.  Also, an after the fact review is also conducted by the OSP staff on a continual basis when reviewing departmental ledgers and preparing reports to ensure that charges are allowable.  Any transactions or activity that is unallowable is identified and charges are transferred from the specific grant account to an unrestricted account.  If a cost is partially allowable, then the unallowable portion will be allocated appropriately to an unrestricted account at the initiation phase of the transaction.  If discovered after the fact, the cost will be transferred to an unrestricted account.  This will ensure that activities, which are legitimate for institutional purposes, are not included in the indirect cost base.