OMB Circulars and Cost Principles
Overview: A significant majority of MIT’s sponsored funding comes from the federal government. As steward of the taxpayer’s money, the government has issued principles for determining costs allocable to research and administrative regulations to augment these principles.
The Institute uses the following federal requirements in establishing its Institute procedures for administering all awards for research and other sponsored agreements:
- OMB Uniform Guidance, Subpart E (Cost Principles)
- Office of Management & Budget (OMB) A-21: Cost Principles for Educational Institutions
- OMB Circular A-110: Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations
- OMB Circular A-133: Audits of States, Local Governments, and Non-Profit Organizations
- Federal Acquisition Regulations (FAR): Contracting requirements
The provisions of the OMB Circulars and the FAR are applicable to all agencies that award federal funds. MIT has translated these principles into its Institute policies.
Significance of Uniform Guidance and OMB A-21: The cost principles in Uniform Guidance and A-21 provide the general accounting “rules” for colleges and universities. Subpart E of the UG and A-21 spell out the Four Cost Principles that apply to all award costs:
- A cost is allowable when:
- It serves an Institute business purpose, including instruction, research, and public service
- It is permissible, according to MIT policy and federal regulations (regardless of whether or not it is a sponsored project)
- It is permissible (for a sponsored project) according to the terms and conditions of the Sponsored Agreement
- It does not meet the rules for “unallowables”
- A cost is allocable:
- When the cost benefits the project that is being charged
- A cost is reasonable if a prudent person would purchase the item at that price:
- The cost is necessary for the performance of the activity
- Incurrence of the cost is consistent with established Institute policies and practices
- A cost is consistent when like expenses are treated in the same manner in like circumstances. For sponsored projects, consistency means that sponsors pay for costs either as a direct charge or as an F&A cost, but not both directly and indirectly. The Institute establishes policies that, if followed, ensure consistency.
- A Senior Research Associate buys a leather briefcase and would like to use Institute funds to pay for the item. The briefcase costs $400. Is this allowable for reimbursement by MIT?
No, the cost is not reasonable. It is not necessary for the performance of the person’s job and is not permitted by Institute policy because it is a personal item. This cost is unallowable for reimbursement by MIT and through a sponsored project. It must be paid for by the individual.
- An important faculty member is retiring from MIT after 35 years of service to the Institute. A party is given in the faculty member’s honor. Is this an allowable cost?
It is unlikely that this could be charged to a sponsored program however the case may be an appropriate institutional expense. If allowable the expenditure must be classified in a general ledger account type designated as unallowable for reimbursement by the federal government.
- Your grant explicitly states NO TRAVEL OUTSIDE OF MASSACHUSETTS. You would like to travel outside of the state to present a paper about your research. Since the grant has supported the research, can you charge the grant for your travel?
The travel expense is unallowable as a direct charge to the sponsor per the award terms and conditions. If you want to travel for this purpose, the expense must be charged to a source where the travel is allowable, allocable, and reasonable. For example, you may be able to charge this trip to a discretionary gift account; or you may seek special permission from the sponsor to approve this particular trip out of state. For the latter, you would need written permission from the sponsor allowing the travel expenditure.