MIT follows four cost principles. The cost must be (1) allowable, (2) allocable, (3) reasonable, and (4) consistent. Though these principles may change depending on the project, they must be used to determine whether the costs are appropriate for a sponsored project. The rules for allowability are based on the cost principles in the Code of Federal Regulations (eCFR).
- 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 it is a sponsored project
- It is permissible for a sponsored project according to the terms and conditions of the sponsored agreement
- A cost is allocable:
- For a sponsored project when the cost provides “benefit” to the project
- For a gift when it corresponds to the intent of the donor
- A cost is reasonable if a prudent person would purchase the item at that price. Determine whether a cost is reasonable by considering whether:
- 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 under like circumstances. For sponsored projects, consistency means that sponsors pay for costs either as a direct charge or as a Facilities and Administrative (F&A) cost, not both directly and indirectly. The Institute establishes policies that, if followed, ensure consistency.
Federal regulations set forth additional principles for allowability:
- The cost is not included as a cost or used to meet cost sharing or matching requirements of any other federally-financed program in either the current or a prior period.
- The cost is adequately documented.
Both activities and transactions could be considered unallowable due to regulations put in place by the federal government or other sponsor. Unallowable costs may also be identified in the specific terms and conditions of a sponsored project. These can be more specific than those outlined in the federal regulations. For example, if a sponsor specifies that international travel costs cannot be charged to a particular project, then those costs may not be charged to that project, even though general MIT and federal regulations may allow them.
Unallowable activities include:
- Alumni activities
- Organized fundraising
- Commencement and Convocation
- General public relations and alumni activities
- Student activities such as intramural activities and student clubs
- Managing investments solely to enhance income
- Prosecuting claims against the federal government
- Defending or prosecuting certain criminal, civil, or administrative proceedings
- Housing and personal living expenses of Institute officers
- Selling or marketing of goods and services (does not include selling goods or services internal to the Institute by its service centers)
Unallowable transactions include:
- Advertising (only certain types are allowable)
- Alcoholic beverages
- Fundraising or lobbying costs
- Fines and penalties
- Memorabilia or promotional materials
- Relocation costs if employee resigns within 12 months
- Certain recruitment costs, such as color advertising
- Certain travel costs, such as first-class travel
- Cash donations to other parties, such as donations to other universities
- Interest payments, except certain interest specifically coded as paid to outside parties and authorized by the Office of Finance
- Membership in civic, community, and social organizations or in dining and country clubs (seldom reimbursable by MIT)
- Goods or services for the personal use of employees, including automobiles
- Insurance against defects in MIT’s materials or workmanship