Financial Affairs Policies


UMB Policy on Unallowable Costs for Federal Awards

Financial Affairs   |   Approved December 18, 2020

Responsible VP/AVP

Dawn M. Rhodes, DBA, MBA


The purpose of this policy is to provide guidance to the University of Maryland, Baltimore (UMB) community on defining and identifying costs that are unallowable for reimbursement by the federal government on Sponsored Projects.

Policy Statement

Unallowable Costs may not be charged as either direct or indirect costs to federally funded Sponsored Projects, as set forth in the U.S. Office of Management and Budget (OMB) Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“Uniform Guidance”) at 2 C.F.R. 200 and as further described below.

Costs that are charged to federally funded Sponsored Projects that are subsequently identified as unallowable during a review or audit of the project must be removed from the project by the Principal Investigator’s (PI) department as soon as possible. The PI/department is responsible for paying for these cost(s).

The following guidelines must be followed when determining whether a cost is unallowable:

  • Any expense that is considered not reimbursable under a federally funded Sponsored Project may not be charged to any other federally funded Sponsored Project.
  • If a sponsoring federal agency disallows a cost that should be allowable pursuant to federal regulations, the department should request the sponsoring federal agency to clarify which provision of the Uniform Guidance deems the cost unallowable, before the department incurs the cost.
  • Non-reimbursable costs that are incurred in support of a specific agreement may constitute cost-sharing pursuant to 2 C.F.R. 200.306 if they are allowable costs under 2 C.F.R §§ 200.400 – 200.475 (Subpart E – Cost Principles).

Uniform Guidance - Unallowable Costs

A full list of types of unallowable costs can be found in 2 C.F.R §§ 200.400 – 200.475 (Subpart E – Cost Principles). The following list is a quick summary of some of these unallowable costs. This list is not exhaustive. For further information on how these references relate to a specific Sponsored Project, refer to the applicable federal regulations or contact the Sponsored Projects Accounting and Compliance Team.

  • Advertising and public relations - Advertising costs (the costs of advertising media and corollary administrative costs) are unallowable, with some exceptions set forth at 2 C.F.R. §200.421.
  • Alcoholic beverages – Costs of alcoholic beverages are unallowable. 2 C.F.R. §200.423.
  • Bad debts and collection – Bad debts, including losses (whether actual or estimated) arising from uncollectible accounts and other claims, and the related legal and collection costs, are unallowable. 2 C.F.R. §200.426.
  • Commencement and convocations - For Institutions of Higher Education (IHEs), costs incurred for commencements and convocations are unallowable, except as provided in Appendix III to Part 200. 2 C.F.R. §200.429.
  • Entertainment – Costs of entertainment, including amusement, diversion, and social activities and any associated costs are unallowable unless the cost has a programmatic purpose and was authorized either in the approved budget or with prior written approval of the federal awarding agency. 2 C.F.R. §200.438.
  • Fines and penalties – Costs resulting from a violation or failure to comply with federal, state, local or foreign laws and regulations are unallowable, unless they are incurred as a result of complying with a specific provision of the award or with prior written approval of the federal awarding agency. 2 C.F.R. §200.441.
  • Fully depreciated assets – If an asset has been fully depreciated, the asset’s depreciation is unallowable. 2 C.F.R. §200.436. 
  • Housing and personal living expenses – The costs of goods or services for personal use are unallowable, even if the cost is taxable to an employee. Housing and personal living expenses are only allowable if they are approved in advance by the federal awarding agency. 2 C.F.R. §200.445.
  • Intellectual Property Costs in connection with filing and prosecuting any foreign patent application, or any United States patent application where the federal award does not require conveying title or a royalty-free license to the federal government, are unallowable. These costs are also unallowable if it is determined that the federal government already has the rights or there is an invalid or expired patent or copyright. 2 C.F.R. §200.448. 
  • Legal costs – Legal costs are unallowable if incurred in connection with any criminal, civil or administrative case brought against UMB by a government agency or a whistle blower employee where UMB is found to be in violation of laws, regulations or the terms of an agreement. This includes the costs of in-house and private legal counsel, consultants, and accountants. 2 C.F.R. §200.435.
  • Lobbying – Costs of certain influencing activities associated with obtaining grants, contracts, cooperative agreements, or loans are unallowable. In addition, for IHEs, any costs associated with attempts to influence an election or federal or state legislation are unallowable. 2 C.F.R. 200.450.


Allowable Cost - a cost that can be charged against a federally funded Sponsored Project based on the following factors. The cost is:

  • Reasonable – A prudent person would have purchased the item and paid that price.
  • Allocable – Expenses are at least partially applicable to a Sponsored Project.
  • Consistently Treated – Expenses for similar purposes must be treated the same way (throughout the university) under like circumstances, pursuant to 48 C.F.R. § 9905.502.
  • Allowable – The expense must be allowable or not specifically unallowed pursuant to federal regulations or as specified by the Sponsored Project requirements.

Sponsored Project - an externally funded activity that is separately budgeted and accounted for according to the terms of the sponsor. Sponsored Projects include but are not limited to grants, contracts and cooperative agreements for research, training and other public service activities.

Unallowable Cost - a cost that the federal government deems inappropriate to be charged against a federally funded Sponsored Project, and that the federal government will not reimburse.

Scope and Exceptions


This policy applies to all federally funded Sponsored Projects. The Uniform Guidance at 2 C.F.R. 200 establishes principles for determining which costs applicable to federally funded Sponsored Projects are Allowable Costs.


Costs must be consistently treated as direct costs or indirect costs when the costs are incurred for the same purpose, in like circumstances. However, costs normally considered indirect costs (e.g., administrative salaries, postage and express mail, telephone, copier expenses, general office supplies, and space-related costs) may be allowable as direct costs if they meet all three of the following criteria:

  1. An unlike circumstance exists in which a Sponsored Project requires resources beyond those normally expected for a typical research project;
  2. The cost can be associated with the specific Sponsored Project with a high degree of accuracy; and
  3. The cost was authorized either in the approved budget or with prior written approval of the federal awarding agency.

Roles and Responsibilities

The Sponsored Projects Accounting and Compliance Team is responsible for:

  • Providing assistance with the interpretation and implementation of this policy.
  • Periodically reviewing Sponsored Projects to identify Unallowable Costs and notifying campus departments to make any necessary changes.

Department Administrators and Coordinators are responsible for:

  • Reviewing Sponsored Projects on a monthly basis to ensure that all expenditures charged are Allowable Costs that are reasonable, allocable, and consistently treated.
  • Identifying and classifying Unallowable Costs when they are incurred and recorded in the financial system for Sponsored Project accounting, and making adjustments when necessary. This includes removing costs that were charged to a federally funded Sponsored Project and subsequently identified as unallowable.

Principal Investigators are responsible for:

  • Reviewing Sponsored Projects on a monthly basis to ensure that all expenditures charged are Allowable Costs that are reasonable, allocable, and consistently treated.
  • Timely reviewing and approving adjustments to Sponsored Project accounting.
  • Coordinating payment of Unallowable Costs that have been removed from a federally funded Sponsored Project, including identifying an appropriate funding source.


Other Sources for Allowable and Unallowable Costs:

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