Definition · Plain-language
Allowable costs
Allowable costs are the charges a recipient may legitimately apply to a federal award, judged against the Uniform Guidance cost principles.
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The four core tests
Under Uniform Guidance, a cost is allowable only if it satisfies several conditions together. It must be reasonable — a prudent person would have incurred it under the circumstances — and necessary to the project. It must be allocable, meaning it is assignable to the award in proportion to the benefit the award receives. It must comply with any limitations or exclusions in the cost principles and the award terms. And it must be given consistent treatment, so the same kind of cost is not charged as direct in one case and indirect in another.
Allowable versus unallowable
The cost principles in Subpart E also list selected items of cost and state whether, and under what conditions, each is allowable. Some categories are generally unallowable on federal awards — for example entertainment, alcoholic beverages, fundraising, lobbying and certain fines or penalties. Even an otherwise allowable cost becomes unallowable if it breaches a specific limitation, lacks adequate documentation, or is charged inconsistently. Recipients must be able to exclude unallowable costs from charges and from indirect cost rate calculations.
Why it matters at audit
Allowability is tested directly during a Single Audit and in agency reviews. Charges that fail the cost principles become questioned costs, which the awarding agency may disallow and recover. Because allowability depends on documentation as well as substance, recipients keep records showing that each cost was reasonable, allocable and within the award terms. Treating allowability as a discipline applied at the point of spending, not after the fact, is how research offices avoid findings.
Key facts
At a glance
- Definition: costs chargeable to a federal award under the cost principles
- Authority: Uniform Guidance, 2 CFR 200, Subpart E
- Tests: reasonable, allocable, allowable, consistently treated
- Allocable: assigned in proportion to the benefit the award receives
- Unallowable: e.g. entertainment, alcohol, lobbying, fundraising
- Risk: unallowable charges become questioned costs at audit
Common misconceptions
What people often get wrong
Often heard: If a cost helps the project, it is automatically allowable.
Actually: Helping the project is not enough. A cost must also be reasonable, allocable, within the award terms and consistently treated, and must not fall under an express unallowable category.
Often heard: Allowability is decided only when the auditor arrives.
Actually: Allowability is a condition of charging the cost in the first place. Recipients must apply the cost principles when the cost is incurred and keep documentation to support it.
Often heard: A cost allowable on one sponsor’s award is allowable everywhere.
Actually: Specific award terms, programme statutes and agency policies add limitations, so a cost allowable under one award may be unallowable under another.
Going deeper
