Spotlight: Allowability, Allocability, Reasonableness | Part 1: Incorporating AAR into the Research Administrator’s Daily Routine
The Spotlight closes out the year with a study of allowability, allocability and reasonableness (AAR), essential skills in the research administrator’s toolkit. This series will define and provide examples of AAR costs, discuss compliance implications, explore internal controls, and highlight how proactively applying AAR principles can help maintain a compliant award throughout its life cycle.
How often does a research administrator (RA) hear or say some variation of, “You cannot charge that expense to this account, as it is not allowable?” or “This expense is not allocable to this research project.” Additionally, when building budgets, we often ask ourselves and our principal investigators (PIs), “Is this expense reasonable?”
Understanding the concepts of allowable, allocable, and reasonable (AAR) costs when administering grants are essential principles a new RA must learn and master.
Allowable costs are those that conform to federal guidelines and the specific terms of the grant or award. For example, travel expenses related to a conference that directly supports the objectives of a federal research grant would generally be allowable, provided that the travel costs align with the organization’s travel policies and federal guidelines. Conversely, costs for personal expenses, such as entertainment or alcohol, or bringing a companion along on a research trip and then charging the expenses to the research grant, would be considered unallowable. Allowable costs also require recipients to manage federal funds responsibly, ensuring that purchases are justified, documented, and aligned with the intended use of the award funds, such as purchasing educational materials for a grant focused on training or professional development.
Key factors for RA: The main questions to ask are: Was it proposed? Was it budgeted? Are there enough funds to support the expense? Does it benefit the scope of work/science? Is it allowed by the institution or the sponsor?
Costs are allocable to a specific federal award or cost objective if the goods or services provided are directly related to that award and can be reasonably assigned based on the benefits received. For example, if a federal research project requires lab equipment, the cost of purchasing that equipment can be allocated to the award because it directly supports the project's objectives. Similarly, salaries of staff working specifically on that project would be allocable, as their time and effort are directly tied to the execution and progression of the funded work. Unallocable costs on a project involve attempting to purchase supplies for a new research grant using unspent funds from a grant about to end. The supplies cannot be allocated to the closing grant, therefore the request must be rejected.
Key factors for RA: To determine if costs are allocable, start by reviewing the proposal. Was the equipment proposed? Was there a vendor quote in the proposal? Was it warranted in the budget justification? If yes, then the equipment is allocable. If the equipment was not proposed then more discussion with the PI is warranted. Why is the equipment needed now? Did the scope of work change? Is there enough budget for the equipment? What are the implications to indirect costs? Finally, does the sponsor require prior approval for such changes?
A great way to determine allocability is to have a new award meeting with the PI to review all areas of the award when it is first received. Compare the proposal to the notice of award, determining if there are any budgetary differences that will need to be adjusted. At this time you can also discuss the personnel and effort that need to be assigned to the award. Reviewing this periodically during the life cycle of the award will help to maintain the allocability of personnel on the sponsored funds.
Reasonable costs reflect what a prudent person, given similar circumstances, would pay for the goods or services being acquired with federal funds. For instance, renting office space in an area with average market rates would be deemed reasonable. However, renting luxury office space far beyond what is necessary for the project's needs might be seen as excessive and unreasonable. The reasonableness of a cost also considers the timing of the purchase – buying equipment at a steep discount during a sale could be considered more reasonable than purchasing it at full price later, especially when the project timeline allows for flexibility.
Key factors for RA: One area of determining reasonableness for expenditures is the timeline for the purchase. When purchasing equipment, does the request for the purchase align to the equipment timeline in the proposal? Will a laptop computer purchased in the last three months of the project benefit the scope of work?
Funded projects have success when allowable, allocable, and reasonable cost principles are practiced simultaneously. Funds are spent effectively and appropriately, in a way that maximizes the benefit to the program or project while following federal regulations as well as specific award terms.
Next month: How to use AAR when establishing internal controls.
Authored by Crina Gandila, Research Administrator,
Southern California University of Health Sciences
SRAI Catalyst Committee Member
Authored by Betty Morgan, CRA, Assistant Director of Post Award Administration, College of Sciences Research Office
North Carolina State University
SRAI Catalyst Committee Member
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