The following examples are not all-inclusive. They are intended to be illustrative of certain practices that can result in direct cost disallowance during audits of sponsored agreements.
- Purchasing goods, supplies, or equipment at the end of the project simply to use up unspent funds. [For example, the Public Health Service Grants Policy Statement, section 8-16 states that "If for any reason equipment that has been ordered in good faith will not be received until after a project has terminated or will be received too late in the project for effective use, all reasonable effort must be made to cancel the order or to charge the equipment to other funds."]
- Charging 100% of a direct cost item to a sponsored project if part of the item will be used by other projects or non-sponsored activities [capital equipment approved by the sponsor (or approved internally if allowed by the sponsor) is excluded from this requirement].
- Replenishing departmental office supplies with grant funds.
- "Rotating" charges among sponsored projects by month without establishing that the rotation schedule credibly reflects the relative benefit to each grant.
- Assigning charges to the sponsored project with the largest remaining balance.
- Identifying a cost as something other than what it actually is by using an incorrect account code.
In order to be allowable, direct charges must be assignable to a sponsored project "in accordance with benefits received". If the sponsored project could not have reasonably benefited from the items purchased, then the cost would not be allocable to the sponsored project.
Identification with the sponsored work (i.e., the scope of work) rather than the nature of the goods or services is the determining factor in determining direct costs. [Office of Management and Budget Circular A-21, Section D.]
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