Resources, Tools, and Training

Guidance for Treatment of Unallowable Expenses on Sponsored Agreements

It is university policy to charge costs to federal and non-federal sponsored project activities in accordance with applicable laws, regulations, sponsor policies and other requirements.  For federal sponsors, the Office of Management and Budget’s (OMB) Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR §200) or – for funding effective before December 26, 2014 – OMB Circular A-21, Cost Principles for Educational Institutions (2 CFR §220) and/or OMB Circular A-110 (2 CFR § 215), collectively referred to as Federal Guidance, establishes principles for determining costs applicable to grants, contracts and other agreements with educational institutions, including federal flow-through projects.  OMB’s Federal Guidance also identifies costs that are generally unallowable as charges to federally-sponsored projects (including federal flow-through projects). These costs are termed “unallowable” costs and may not be charged to federally-sponsored projects as either direct costs or as facilities and administrative (F&A) costs. Faculty and staff who are responsible for administering federally funded sponsored projects should be familiar with the categories of costs that are generally unallowable. This policy implements and makes the university community aware of the laws, regulations and cost accounting principles that apply in charging only costs that are allowable to sponsored projects.

Responsibility for following these guidelines lies primarily with the Principle Investigators, Department Chairs, Grant Managers, and fiscal personnel with the general guidance and oversight of the colleges, schools and divisions.

The first and foremost responsibility for identifying and segregating unallowable costs is at the department level when the costs are incurred and recorded into the university’s accounting system.

At the initial posting of expenses, all unallowable costs must be identified and posted to the correct departmental account code if the transaction is unallowable on the sponsored agreement.

Best practice is to review all expenses that have posted to sponsored agreements monthly and no less than quarterly.

In monitoring agreements and in preparing reports:

Sponsored Programs Services review the award and the departmental ledgers of sponsored agreements when preparing reports in order to verify that charges are allowable by cost category and in accordance to the specific agreement.  Sponsored Programs Services does not have direct knowledge of the items purchased, how they are used, or for what award the items were purchased.  Due to this, it is the responsibility of the PI and Grant Managers to ensure charges placed on their sponsored agreement are allowable on the award.

WSU Business Policies and Procedures Manual Chapter 40 Sponsored Agreements

  • 40.01 Fiscal Responsibilities for Sponsored Projects
  • 40.03 Expenditure Deadlines for Sponsored Projects
  • 40.09 Cost Determination Guidelines

Subpart E-Cost Principles of 2 CFR 200 – General provisions for selected items of cost

Federal Cost Accounting Standards (CAS) 505, Accounting for unallowable costs – Educational institutions

In addition to meeting the specific standards for allowability under the Uniform Guidance Subpart E – Cost Principles, costs must meet certain general criteria to be allowable for federally-sponsored projects.  An allowable cost must be reasonable, allocable to the sponsored project, given consistent treatment through application of those generally accepted accounting principles appropriate to the circumstances, and conform to any limitations or exclusions set forth in the Federal Guidance or in the sponsored project agreement as to types or amounts of cost items. 

A. Reasonable Cost Test 

A cost may be considered reasonable if the nature and amount of the cost reflect actions that a prudent person would have taken under circumstances prevailing at the time. Among other factors, a reasonable cost is one generally recognized as necessary for the operation of the institution or the performance of the sponsored project, and is consistent with established institutional policies and practices applicable to the work of the institution generally, including sponsored projects. 

B. Allocable Cost Test 

Among other factors, a cost is allocable to a sponsored project   if it: (1) is incurred specifically to advance the work under the sponsored project; (2) benefits both the sponsored project and other work of the institution in proportions that can be approximated through the use of reasonable methods; or (3) it is necessary to the overall operation of the institution and, in light of the principles provided in the Federal Guidance, specifically Uniform Guidance Subpart E – Cost Principles, is deemed to be assignable in part to sponsored projects. 

In accordance with CAS 505, an unallowable cost is defined as any cost which, under the provisions of any pertinent law, regulation, or sponsored project cannot be included in prices, cost reimbursements, or settlements under the federally-sponsored project to which it is allocable.  A cost may be either expressly unallowable or directly associated with unallowable activities. “Expressly unallowable” applies to any type of cost which, under the express provisions of an applicable law, regulation, or sponsored project is specifically named and stated to be unallowable.  


  • To monitor award budget to actuals, expense detail, and cost share detail monthly to identify any unallowable expenses on your sponsored agreement(s).

If Unallowable Expenses are identified:

If the department finds that unallowable expenses have posted to the award the department has the responsibility to immediately remove the unallowable expense from the sponsored agreement to a departmental account/cost center.

At the time of award closure:

Best practice:  Within 30 days of the sponsored agreement terming

  • The PI and Grant Manager should review all expenses that have posted as direct expenses and cost share to ensure that all expenses posed are allowable on the award.
  • Check that F&A has calculated correctly on your sponsored project.
  • Immediately move any expenses that are not allowable on the award to a departmental account/cost center.

Once all of the posted expenses are accurate and allowable, please notify Sponsored Programs that the Sponsored Agreement is ready for final invoicing and reporting.

Guidance for Preventing Over Spending on Sponsored Agreements

Washington State University permits all allowable expenses related to a sponsored project to post to the sponsored project award/grant lines.  However, expenses that post above the approved agency budget become unallowable even if they would normally be allowable if the approved budget was not overspent.

The intent of this document is to provide guidance for the prevention, communication, and resolution of unauthorized overspending on sponsored projects. Proper project management will limit overspending and allow PIs, Grant Managers, and Sponsored Programs Services (SPS) to file timely, accurate and compliant financial reports in accordance with university and sponsor policies.

Grant managers and principal investigators (PIs) are responsible for ensuring that expenditures on all award lines under an award header do not exceed the amount awarded by the sponsor at the time the award is closed. If an overdraft occurs (or is anticipated), the administrator must initiate an accounting adjustment in Workday to transfer expenditures to a non-sponsored cost center within 45 days of the award’s end date. (See the Workday Accounting Adjustment—Cost Transfer reference guide.)

Award Monitoring:

  • Throughout the life of the project, the PI and/or designee must ensure that all project spending is consistent with the awarded budget and spending plan of the award. 
  • Grant Managers should review the budget and budget plan prior to approving expenditures to post to the award.  This review should include verifying that the Uniform Cost Principles are met prior to approval. And that the expenditure does not overrun the agency approved budget.
  • Grant managers and PIs should review the expenditures on their awards monthly and no less than quarterly to ensure that posted expenses are allowable on the award, as well as review planned and future expenses to ensure those expenses will not cause a cost overrun on the project. 

  • PI and Grant Managers are responsible for resolving cost overages by reviewing expenses that have posted to the award to ensure expenses are accurate and allowable.
  • Remove any expense commitments such as open purchase orders or salary run-ons.
  • Move a lump sum of overrun costs off of the award using the Overdraft Business Process in Workday to a non-sponsored cost center.
  • Remove all unallowable expenses by using the Create Journal business process.

WSU Business Policies and Procedures Manual Chapter 40 Sponsored Agreements

  • 40.01 Fiscal Responsibilities for Sponsored Projects
  • 40.03 Expenditure Deadlines for Sponsored Projects
  • 40.09 Cost Determination Guidelines

WSU Business Policies and Procedures Manual Chapter 30 Finance

Subpart E-Cost Principles of 2 CFR 200 – General provisions for selected items of cost

Federal Cost Accounting Standards (CAS) 505, Accounting for unallowable costs – Educational institutions

Cost overruns must be moved by the department within 45 days of the award closure to a non-sponsored cost center.  Any cost overrun greater than 45 days can be moved by SPS to the college/area non-sponsored cost center.

Guidance for Reviewing Over Spent Awards and Removing Overdrafts

Changes between legacy and Workday: 

Unlike legacy where SPS (Sponsored Program Services) did not invoice for budget-projects that were overspent, Workday invoices for all expenses up to the authorized award amount. This means that overspent grant lines may have been invoiced to the agency. All posted expenses are considered a benefit to the project thus are allowable, allocable, reasonable, and consistent until the authorized amount has been reached.

When SPS sends a notice that an award is overspent we are looking at either of the following situations:

  1. Total expenses are greater than the awarded amount, and/or
  2. Total expenses are greater than the amount paid by the agency.

The grant manager of the lead PI (Principal Investigator) is responsible for reviewing the award and all associated grant lines to determine which grant line is responsible for the total overdraft amount.

  • Overdraft is calculated at the header level of the award so total budget minus total expenses = total grant overspends. Do not include obligations or commitments in your calculation.
  • Grant managers should look at all grant lines to identify which grant lines are over or underspent.
  • The grant manager should work with the PI to authorize a re-budget between grant lines to reduce the individual grant lines to zero overspend if possible.
  • The grant manager and PI should then determine which grant line the remaining overdraft should be removed from. This can be more than one grant line.
  • The grant manager should work with the affected cost center grant manager on the changes.
  • The grant manager then submits a Create Request SPAR to re-budget the award.
  • The grant manager then submits a Create Request for Grant Overdraft Removal in Workday and includes the information in the Create Request to close the award. This will allow the Award Contract Owner (ACO) to process the overdraft on the award during closeout.
  • Over drafted awards can be transferred to a non-sponsored account to include Fixed Price Consolidation Accounts (FPCA).
  • If the above referenced accounts are not available, the overdraft should be cleared to the cost center’s F&A Returns Program Account per BPPM (Business Policies and Procedures Manual) 30.21
  • All overdrafts should be removed within 45 days of the award term and/or 45 days after receiving the notice from SPS if the award has not yet termed.
  • If no action is taken by the cost center grant manager within 45 days, SPS will follow BPPM 30.21 and transfer the overdraft to the cost center’s F&A returns account.
  • Once the expense has been transferred to the F&A returns account, the cost center can then work with their department on the overdraft.

  • If the total award is not overspent but grant lines are, the same review will take place. In this situation the over-draft grant line(s) will need to be corrected with a re-budget or by removing expenses.
  • The grant manager of the lead PI should review all related grant lines and determine with the PI’s approval how to resolve the over drafted grant lines either by rebudget or removing expenses from the grant line.

Sponsored Programs Services understands that there may be times when awards are still showing up on the overdraft report even though you have submitted the overdraft removal request.  In these cases, please continue to work with the ACO to clear the overdraft.  Competing priorities may have prevented a timelier handling of your request.