Unallowable Costs

Unallowable costs are not eligible for reimbursement from the federal government for two reasons. Either the activity or function is prohibited from reimbursement by federal regulations, or the transaction/item being purchased is prohibited.

Some common unallowable activities include:

  • Alumni functions
  • Organized fundraising
  • Lobbying
  • Commencement and convocation
  • General public relations
  • Student functions such as intramural activities
  • Prosecuting claims against the Federal Government
  • Selling or marketing of good or services (does not include selling goods or services internal to the university by its service centers)
  • Network connection and local telephone charges

Some common unallowable transactions include:

  • Advertising
  • Alcoholic beverages
  • Entertainment
  • Fundraising or lobbying costs
  • Fines and penalties resulting from violating government laws and regulations
  • Memorabilia or promotional material
  • Relocation costs if employee resigns within 12 months
  • Certain travel costs such as first class airfare
  • Cash donations to other organizations including universities
  • Goods or services for employee personal use
  • Insurance against defects in University of Arizona materials or workmanship

Accounting Treatment of Unallowable Costs

An unallowable cost mistakenly charged to a sponsored award must be transferred to a non-sponsored unrestricted account via a Cost Transfer.  If the department does not remove a cost identified as unallowable by Sponsored Projects Services, SPS will transfer the cost to the administering unit's indirect cost recovery account.

Facilities and Administrative Costs

Facilities and administrative costs (F&A) are charged based on the rate approved by the Government and allowed by each award.  These costs, therefore, are not allowed as direct charge on grants and contracts.  See Direct and Indirect (F&A) Costs of Sponsored Agreements for more information.

Supplemental Compensation

Supplemental compensation for faculty during the academic or fiscal contract employment period is not generally allowed on grants and contracts, as described in Uniform Guidance 200.430 - Compensation for Personal Service (Intra-Institution of Higher Education (IHE) consulting). See the supplemental compensation section on the Personal Services page and the UA HR Supplemental Compensation Guide for more information.

Compassionate Transfer of Leave

University policy allows employees to transfer their accrued vacation to other vacation-eligible employees who are unable to work due to having suffered a catastrophic illness or injury or who are absent due to catastrophic illness or injury within the employee’s immediate family, established household, or situations that place primary responsibility for care on the employee. Before charging compassionate leave to a sponsored project, the sponsor terms should be consulted for allowability. 

Internal Billings

Internal Billing (IB) and Service Billing (SB) documents are used to bill for goods or services provided by one University department to another University department, reflecting income to the provider and expense to the customer. These are most commonly used by Service Centers and Auxiliary Enterprise units. 

Internal billings not supported by a Financial Services approved Service Center rate or an approved Auxiliary Enterprise unit are not allowed on sponsored projects. Internal units providing goods and services to sponsored projects must have cost based rates that are approved by Financial Services Rate Studies. Refer to Financial Services Manual, Section 18.10, Service Center Policy and the Internal Billings and Service Billings - Best Practices for guidance.

As an alternative to an Internal Billing, a General Error Correction Document may be used to transfer actual costs associated with work performed, such as labor and supplies used for the sponsored project activity. 

Sponsor Restrictions

Some sponsors impose additional restrictions to disallow costs.  See more information about sponsor restrictions under the Budget Categories page.

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