Grant Management & Financial Oversight
AAR in Research Administration: Completing the Discussion
In research administration, the principles of allowable, allocable, and reasonable (AAR) costs are essential to the effective management of research grants and sponsored projects. These principles ensure that research funds are used appropriately, in compliance with federal regulations, and in alignment with the specific terms of each award. For research administrators (RAs), understanding and applying these principles is crucial not only for maintaining compliance but also for fostering financial integrity and supporting the success of research projects.
Allowable Costs: Adhering to Grant Terms and Regulations
Allowable costs are expenses that conform to both the federal regulations and the specific terms set by the sponsor of the grant or award. These are the types of costs that are explicitly permitted under the terms of the award, which could include costs such as salaries for personnel directly working on the project, necessary supplies, and travel expenses for activities that directly benefit the research objectives. For example, travel expenses related to attending a conference that directly contributes to the research goals would typically be considered allowable, provided they meet the organization’s travel policies and federal guidelines.
On the other hand, costs such as personal entertainment, alcohol, or expenses related to a companion accompanying the researcher on a trip are unallowable. This means that RAs must rigorously ensure that any expense charged to a grant is aligned with the federal regulations, institutional policies, and sponsor guidelines. The main questions an RA should ask when reviewing expenses for allowability are: Was this cost proposed in the grant application? Does the expense benefit the research project directly? Is it consistent with the guidelines provided by the sponsor or the institution?
By ensuring that only allowable costs are charged to grants, RAs help safeguard the integrity of the research process and reduce the risk of financial mismanagement and audit issues.
Allocability: Ensuring Costs Directly Support the Project
Allocability refers to the requirement that costs must be directly related to the research project or cost objective. In other words, for an expense to be allocable, it must directly benefit the research project and be necessary for its execution. For instance, if a project requires lab equipment to carry out the research, the purchase of that equipment is considered allocable because it directly supports the goals of the project. Similarly, salaries of staff working specifically on the project are allocable because their time and efforts are directly tied to the funded work.
However, costs cannot be allocated to a project if they are not directly related to the project’s objectives or if they are for a different grant. For example, trying to purchase supplies for a new research project using funds from a grant that is about to end would be considered an unallocable cost.
To determine whether an expense is allocable, RAs should carefully review the proposal and budget justification to confirm that the expense was proposed and is directly necessary for the research project. If the expense was not originally proposed, it is important to engage with the PI to understand why it is now needed. RAs should also assess whether there is enough budget to support the expense and whether any changes to the scope of work might impact the allocability of the cost. In these cases, prior approval from the agency may be needed to proceed. A proactive approach involves having regular discussions with the PI, particularly during the award’s lifecycle, to ensure that the expenses being incurred remain allocable and support the project’s objectives.
Reasonable Costs: Judging Appropriateness of Expenses
Reasonable costs are those that a prudent person (like a taxpayer!) would consider appropriate for the goods or services being purchased, given the circumstances of the project. Reasonableness is not just about whether the cost is low or high but also about whether the cost is appropriate relative to the research project’s needs and objectives. For example, renting office space at market rates is generally considered reasonable, but renting luxurious office space for a research project that doesn’t require such facilities would be considered excessive and unreasonable.
Reasonableness also involves the timing of the purchase. For instance, purchasing equipment during a sale might be considered more reasonable than purchasing the same equipment at full price later in the project, especially if the purchase is not time sensitive. RAs must evaluate the appropriateness of the expense in the context of the project’s needs and objectives, taking care to ensure that the cost is not only justified but also necessary for the successful completion of the project. Another example is purchasing a stockpile of supplies or a computer/laptop in the last month of the grant.
When evaluating whether an expense is reasonable, RAs should ask themselves: Does the expense align with the project timeline and needs? Is the cost consistent with the market rate for similar goods or services? Is the timing of the purchase aligned with the needs of the research project?
Internal Controls: Ensuring AAR Compliance
The successful application of AAR principles requires strong internal controls at both the departmental and central office levels. Departmental controls begin at the proposal development stage, where RAs ensure that the proposed budget aligns with sponsor guidelines and that all costs are allowable, allocable, and reasonable. Departments are responsible for verifying that expenses, such as personnel costs and supplies, are properly justified and documented.
Once the award is granted, RAs must conduct a thorough review of the notice of award (NOA) and ensure that any discrepancies from the proposed budget are addressed. Regular internal meetings with the PI and other key personnel help ensure that the scope of work remains aligned with the approved budget and that any expenses incurred continue to adhere to AAR principles.
The central office plays a key role in providing oversight, confirming that the proposed costs comply with federal regulations and sponsor guidelines. This includes reviewing salary rates, subcontractor fees, and indirect costs to ensure they are justifiable, reasonable, and allocated appropriately. Additionally, the central office conducts periodic audits to confirm that expenses are compliant with institutional policies and the sponsor’s guidelines. In many cases, the central office is the only authorized representative of the university that can correspond with the funding agency. Working with the central office ensures timely submissions of prior approval requests that may be needed for rebudgeting, asking for project extensions, etc.
The principles of allowable, allocable, and reasonable costs form the backbone of effective research administration. By ensuring that expenses are aligned with federal guidelines, sponsor terms, and project needs, RAs help maintain financial integrity and support the successful completion of research projects. With strong internal controls, careful monitoring, and ongoing collaboration with the PI, central offices and departments, research administrators can navigate the complexities of managing sponsored funds and ensure that research projects are compliant, efficient, and successful. In an increasingly regulated and competitive landscape, mastering these principles is key to sustaining a high standard of excellence in research administration.