Resources: Proper Coding of Allowable and Unallowable University Expenditures
Everyone who submits any type of financial transaction must be familiar with the rules for allowability of costs in order to properly code transactions. Certain expenditures are not permissible by Stanford University. Expenditures that are allowed by Stanford must be properly coded based on whether or not the federal government considers the expenditure allowable or unallowable. Government unallowable expenditures may be entirely appropriate and permissible University expenditures, even though they are not reimbursable by the federal government. In fact, many are necessary to our survival as a university!
On this page:
- Defining Allowable and Unallowable Expenditures
- Importance of Complying with Federal Regulations
- Expenditures Not Permissible by Stanford University
- Unallowable Use of Federal Funds
- Additional Resources
Defining Allowable and Unallowable Expenditures
All expenditures at Stanford, regardless of funding source, must be coded as "allowable" or "unallowable" so that they can be appropriately included or excluded from indirect cost calculations. Stanford uses the terms "allowable" and "unallowable" as defined below.
- "Allowable" expenditures are considered appropriate and reasonable by the University AND they are eligible for cost reimbursement by the federal government.
- "Unallowable" expenditures are considered appropriate and reasonable by the University, BUT they are not eligible for cost reimbursement by the federal government.
Importance of Complying with Federal Regulations
The federal government does not allow Stanford to claim unallowable costs as direct OR indirect costs for federally sponsored projects. Stanford's ability to obtain federal grants and contracts as well as to collect indirect costs on these grants and contracts is dependent upon proper coding of University expenditures.
Understanding the distinction between allowable and unallowable costs will allow you to select the appropriate University accounts (PTA's) and expenditure types when recording University expenses.
- Properly classifying unallowable expenses ensures compliance with government regulations.
- Properly classifying allowable expenses enables Stanford to be reimbursed for its recoverable indirect costs.
Failure to properly classify costs can have severe negative consequences for Stanford University.
Expenditures Not Permissible by Stanford University
Certain expenditures are not permissible by Stanford University. Stanford University does not allow the use of University funds for the following:
- Stanford Faculty Club individual member dues
- Personal social or travel club dues
- University parking permits for employees or students
- Traffic citations for either personal or University vehicles
- Personal services or personal purchases
- Interest charges incurred by individuals for late payment of their own personal bills
- Other expenditures prohibited by individual school or department policy
To understand the authorized use of University funds, see Policy Notes: Reimbursable Business Expenses.
Unallowable Use of Federal Funds
All Stanford expenditures must be properly coded as allowable or unallowable as defined by the federal government. Costs are specifically unallowable under two general conditions:
- They are for an unallowable activity (something you do and record using a PTA).
- They are for an unallowable object (something you buy and record using a line item Expenditure Type).
Specific Unallowable Activities
All expenses in support of the following activities are considered unallowable by the federal government:
- Organized fund raising
- Commencement and Convocation (Note – Can be allowable when charged to a Task with the appropriate Student Services – Service Type)
- General public relations and alumni activities
- Certain student activities (e.g., intramural activities, student clubs, etc.)
- Managing investments solely to enhance income
- Prosecuting claims against the federal government
- Defending or prosecuting certain criminal, civil or administrative proceedings
- Housing and personal living expenses of University Officers
- Selling or marketing of goods or services (this does not include selling goods or services internal to the University by its service centers)
Unallowable activities are generally recorded in separate accounts (PTAs) specifically designated for these purposes. Using unallowable activity accounts (with Tasks coded as unallowable) ensures that unallowable transactions will not be charged to the government.
Specific Unallowable Objects (Expenditure Types)
Certain costs are always unallowable by the federal government, regardless of the activity they support. These costs should be coded using unallowable expenditure types in order to segregate these costs from allowable costs. Unallowable expenditure type names all start with "UNALW" so they are easily recognized.
Unallowable objects include:
- Advertising (certain types are allowable)
- Alcoholic beverages
- Fundraising or lobbying costs
- Fines and penalties
- Memorabilia or Promotional Materials (allowable if used for "Employee Morale")
- Moving costs if employee resigns within 12 months
- Certain recruitment costs (e.g., color advertising)
- Certain travel costs (e.g., first class travel)
- Cash donations to other parties, such as donations to other universities.
- Small contributions in lieu of material goods for employee morale, health and welfare purposes are not considered cash donations and should be coded using the General Ledger Code for employee morale (e.g., a donation in lieu of flowers as a memorial).
- Costs in excess of University severance policy (see Admin Guide Memo 22.8)
- Interest payments (except certain interest specifically coded as paid to outside parties and authorized by the Controller's Office)
- Memberships in civic, community or social organizations, or dining or country clubs
- Goods and services for the personal use of employees, including automobiles
- Insurance against defects in Stanford's materials or workmanship
- For further explanation of Unallowable Costs, including examples, refer to the Unallowable Cost and Unallowable Activities & Objects sections of ORA-1101: Cost Policy web-based training.
- For help determining which expenditure type is appropriate for a particular transaction, use the Expenditure Type Definitions & Rules spreadsheet and Expenditure Type Query tool. Codes that are unallowable, or that may be confused with codes that are unallowable have been noted and cross-referenced in the definitions.
- In many cases the issue of determining whether a particular cost is allowable or unallowable is a complex matter. When in doubt, consult with your local financial administrator. See also School and Department Contacts for Sponsored Funding and Contacts for Non-Sponsored Funding.
- The federal Office of Management and Budget (OMB) Circular A-21 defines the standards for cost accounting in colleges and universities. Circular A-21and other federal regulations define what is allowable. For a detailed explanation, see Circular A-21,