CAS 505 - Accounting for Unallowable Costs
The Cost Accounting Standards Board (CASB) requires educational institutions receiving Federal funding in excess of $500,000 to comply with Cost Accounting Standards (CAS). In addition, for Federally funded awards, the University must adhere to the requirements of OMB Circular A-21, Cost Principles for Educational Institutions, in determining the allowable costs of work performed for sponsored programs and of indirect costs included in the University’s facilities and administrative cost rate calculation.
The purpose of CAS 505 is to facilitate the negotiation, audit, administration and settlement of Federal awards by establishing guidelines covering:
- Identification of costs specifically described as unallowable, “at the time such costs first become defined or authoritatively designated as unallowable”; and,
- The cost accounting treatment to be followed for identifying unallowable costs in order to promote the consistent application of sound cost accounting principles covering all incurred costs.
For the treatment of allowable and unallowable costs with respect to sponsored programs, please refer to the University Costing Policy. This policy summarizes the requirements of OMB Circular A-21 and the CAS 505 requirements.
Activities and expenses which are unallowable for reimbursement on a Federally-funded award may still be appropriate, necessary and allowable on a non-Federally funded award.
Departments may still incur these activities/expenses but they must be coded as unallowable so they can be readily identified and excluded from the indirect cost calculation. However, the accounting treatment prescribed by CAS 505 requires specific identification of these costs in the accounting records or memos and prescribes methods to prevent these costs from being included in any proposal, billing or claim that applies to a Federally funded award.
Unallowable costs are identified and segregated using the following methods:
- Separate accounts within the University’s accounting records and general ledger;
- Review of expenses conducted by the cost analysis performed as part of the development of the F&A rate proposal;
- Ongoing review of expenses conducted by sponsored programs personnel.
Appendix A provides the rules prescribed by OMB Circular A-21 and recommended procedures for selected items of cost. Some of these items are unallowable as direct or indirect costs for sponsored programs (e.g., alumni activities). Others require special treatment (e.g., student administration and services). Therefore, these items must be segregated to ensure compliance with CAS 505.
Click here to download the Policy PDF