The following hypothetical situation illustrates the cost principles defined in OMB Circular A-21:
- You have a research grant from the National Science Foundation to study changing climate patterns. The project includes participating in a conference in Seattle. A graduate student in your lab has been invited to present a paper at this conference. There are no prohibitions against travel on the grant, so the student's travel costs are ALLOWABLE.
At the conference, your student has dinner with a friend and orders wine
(the student is, of course, of legal drinking age in the state of Washington). The cost of the wine (plus tax and tip) is an UNALLOWABLE cost (as identified in A-21), and that part of the bill may NOT be charged to the Government. Stanford can reimburse the student for this portion of the dinner expense, but the money must come from non-sponsored funds, and be recorded in Stanford's accounting system as an UNALLOWABLE cost.
- The ALLOCABILITY cost principle stipulates that any expense paid by a project must benefit that project. This particular conference focuses on the "El Nino" effect on global climate. Your student will present her paper and interact with colleagues from other academic institutions. The trip will benefit the project, and the travel costs are therefore ALLOCABLE to the project.
Without some documentation, Stanford's central administrative offices (or an external auditor) might question the ALLOCABILITY of this expense to your project. In a case like this, when your department submits expense reports for reimbursement, the package should include the conference agenda or other documentation to support the relationship between the travel and the project which paid for it.
- Your student was feeling rather good after her presentation and decided to
celebrate in a BIG way. She brings back receipts showing that the cost of
her final dinner in Seattle, exclusive of the wine, was $147. per person.
Even though the trip was allowable and allocable, that cost is not REASONABLE. The cost principle of REASONABLENESS stipulates that costs will be reimbursed only if a prudent person would have paid this amount. If not, the expense may not be charged to the Government.
Stanford University also has an "actual and reasonable" requirement for travel expenses (where a traveler is not using "per diem" reimbursement). Your student may therefore not be fully reimbursed for this expense by Stanford either, although she can be reimbursed for a lesser, reasonable amount.
Questions as to whether a particular expense is reasonable or not may be referred to a cognizant Dean's office or to the Controller's Office.
- Because your student's participation in this conference directly benefitted
your NSF project, reasonable travel costs should be charged DIRECTLY to that project. Other expenses incurred in similar circumstances in other parts of the University should also be charged directly to the appropriate projects.
Consider, for example, the situation of a medical student presenting a paper at a professional conference. If his expenses are charged to departmental funds, a portion of those costs could end up in Stanford's indirect cost pools.
Pooled expenses are then charged to ALL sponsors through the application of Stanford's indirect cost rates. Your project would then be paying the DIRECT costs of your student's travel, plus, by paying INDIRECT costs, the project could also be paying a portion of the travel costs of the medical student. This inconsistency violates Cost Accounting Standards, and leads to unfair "double charging."