The following hypothetical situation illustrates the cost principles defined in OMB Circular A-21:
In order to be charged to a sponsored project, costs must be ALLOWABLE, ALLOCABLE and REASONABLE. Costs which do not meet these criteria MAY be reimbured by Stanford from non-sponsored funding, but they MAY NOT be charged to sponsored projects.
- Professor Smart's grant includes funds for travel to a conference in Seattle. Jane Bright, a graduate student in Professor Smart's lab, has been invited to present a paper at this conference. There are no prohibitions against travel on the award, so Jane's travel costs are ALLOWABLE. Remember that some awards specificially identify travel costs as UNALLOWABLE, and, if that were the case here, Jane could travel to the conference, but could NOT charge the expenses of the trip to this grant.
At the conference, Jane has dinner with a colleague and orders wine (she 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 Jane for this portion of her dinner expense, but the money must come from non-sponsored funds.
- This particular conference focuses on the research activity funded by Professor Smart's grant. Jane will presenting her paper and interact with colleagues at other institutions. The expense of this trip will benefit the project, and is therefore an ALLOCABLE cost. In cases like this, when Jane submits expense reports for reimbursement, she should include the conference agenda or other documentation to support the relationship between the travel and the project which paid for it.
- Jane 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 $150 per person. Even though the trip was allowable and allocable, that cost is not REASONABLE. Sponsors reserve the right to decide whether a prudent person would have paid this amount. If not, the expense may not be charged to the government. Since Stanford also has an "actual and reasonable" requirement for travel expenses (where a traveler is not using "per diem" reimbursement), Jane is probably not eligible for full reimbursement of this expense from Stanford either. This trip may have been more of a "learning experience" than she wanted.
Section 1 of the Audit Survival Guide also contains definitions of these key terms. Remember that these principles in Circular A-21 flow down to the recipient of any subcontract or subgrant on a Stanford award.