Financial Guidelines

FNG05 Expenditure Guidelines for Costs Not Allowable under Uniform Guidance

Policy Status: 

Under Review

Subject Matter Expert: 

Kimberly Croft, 814-865-1962,

Policy Steward: 

Associate Vice President for Finance and Corporate Controller

NOTE: The implementation of SIMBA requires the evaluation of all University Financial Policies and Guidelines.  After consultation with key constituencies, work will be underway to update, consolidate, and improve our policies to better serve you. Please be aware that due to volume, all policies may not be updated to reflect changes which have been communicated; however, policies will be updated with appropriate and applicable effective dates. Thank you for your patience as we work through this process.



The Office of Management and Budget “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards; Final Rule” was released in the Federal Register on December 26, 2013 (2 CFR Chapter I, Chapter II, Part 200, et al.). The Uniform Guidance details costs which are not allowable as charges on federally sponsored awards or grants.  These same costs are unallowable for the calculation of our Facilities and Administrative (F&A) rate, and therefore, we must code certain expenses on general funds as being unallowable so we can exclude them from the indirect cost pools used in the calculation of the F&A rate.  This coding is done through a procedure referred to as x-coding.

The procedural steps within this policy only apply to general fund accounts that are included in the indirect cost pools. Therefore, auxiliary and University service accounts as well as all campus accounts (including those coded as CO at University Park) except Penn State Health are not subject to this procedure. However, these units still should be aware of this procedure and apply it as necessary when charging general fund accounts in other areas which are subject to this procedure.

Activities and expenses which are unallowable for reimbursement on a federally funded award may still be appropriate and necessary.  Departments may still incur these activities/expense, but they MUST be x-Coded, so they can be readily identified and excluded from the indirect cost calculation.

Financial Officers and research administrators should also review the reference sections of the Uniform Guidance in relation to sponsored program accounts. Costs that are unallowable as part of the indirect cost pools would also be unallowable as direct charges on sponsored programs.


Subpart E of the Uniform Guidance provides principles to be applied in establishing the allowability of certain items involved in determining cost.These principles apply irrespective of whether a particular cost is direct or indirect. A condensed version of Subpart E is included in this guideline as Attachment A as it applies to general fund accounts that are included in the indirect cost pool.  For direct costs, refer to the Uniform Guidance and the sponsored award terms.


Financial Officers should independently consult the Uniform Guidance, Subpart E, Cost Principles, to obtain clarification or better understanding of unallowable cost provisions. If it is unclear if an expenditure is unallowable, a conservative approach should be followed and the expenditure should be x-coded. Costs associated with an unallowable/x-coded transaction should also be x-coded. For example, if an alumni dinner is held, the dinner is unallowable. In addition, costs associated with the dinner, such as physical plant set-up charges, would also be unallowable.

Certain expenses should be excluded based on function, including:

  • development (fundraising)
  • marketing or promotion
  • alumni activities
  • student activities and recruiting
  • governmental relations (lobbying)
  • diversity & inclusion

Attachment A contains guidance for x-coding Uniform Guidance provisions.  If there are questions about a specific item, contact Cost Analysis.


Even if a cost is considered to be allowable under the Uniform Guidance, 200.404, Reasonable Costs requires that a reasonableness test must also be applied.  All expenses should be evaluated for reasonableness and necessity to conduct the business of the institution in a prudent and efficient manner.  Any costs that are not considered reasonable should also be excluded using the procedures outlined below.


If an entire general funds account should be considered unallowable for indirect cost purposes, the Financial Officer must code the general funds account as unallowable using IBIS function UXCD. This should be done when new general fund accounts are created, or if revisions to the Uniform Guidance change the allowability of a particular account. A listing of such accounts will be provided to Cost Analysis for review on a periodic basis. If the entire administrative area is excluded for indirect cost purposes, the Financial Officer can code the entire administrative area as being unallowable, if approved by Cost Analysis. Once an account or administrative area is excluded, it will remain so until updated by the Financial Officer, either based on revisions to the Uniform Guidance impacting allowability or if directed to do so by Cost Analysis. There will be no need for annual reporting of excluded accounts.

Once the administrative area or account is excluded through UXCD, all transactions will be automatically x-coded (excluded) in IBIS. UXCD may also be used to indicate that this guidelines is not applicable for an administrative area, such as a Commonwealth Campus.


If a specific expenditure within a normally allowable general funds account must be coded as unallowable, the following procedures should be used:

Salaries: The portion of the salary to be excluded should be x-coded in the Pay and Effort system. If a unit does not use Pay and Effort for salary distribution, then there are two methods for excluding the costs:

  1. Update the actual detail each month for the excluded amount through ICAG.
  2. Transfer the unallowable salaries to a general funds account that is excluded in total.

Wages: Any wages that should be excluded must be coded by one of the following methods:

  1. Update the actual detail each month for the excluded amount through ICAG.
  2. Transfer the unallowable wages to a general funds account that is excluded in total.

Departmental Allotment: To identify these expenditures as unallowable for facilities and administrative (F&A) cost purposes, the X-code field in the FANS window should be completed with the amount of the transaction to be excluded. If the coding is not done at the time of the transaction, the Financial Officer can update the coding through ICAG, by updating the field in the PF10 window.


An audit will be conducted periodically to test compliance with procedures for x-coding unallowable costs.


For questions, additional detail, or to request changes to this policy, please contact Cost Analysis, a unit of the Office of the Corporate Controller.

Most Recent Changes:

  • January 21, 2019 - Editorial change changing Hershey to Penn State Health

Revision History (and effective dates):

  • November 8, 2018 - Subject Matter Expert added.
  • November 15, 2017 - Revised to remove IBIS functions being decommissioned as part of the WorkLion implementation process.
  • October 12, 2016 - Major revisions have been made to this guideline to coincide with changes to the Uniform Guidance (formerly referred to as "OMB Circular A-21").
  • October 3, 2013 - Editorial changes. Addition of policy steward information, in the event that there are questions or requests for changes to the policy.
  • December 4, 2000:
    • Changed the term "budget" to "account."
    • Under PURPOSE section, added paragraph to limit the applicability of the procedural steps within this policy to general fund accounts that are included in the indirect cost pool.
    • Under PURPOSE section, added paragraph regarding a review by Financial Officers and research administrators.
    • Under ACCOUNTS TO BE EXCLUDED section, completely revised provisions.
    • Under UNALLOWABLE COSTS WITHIN ALLOWABLE BUDGETS section, completely revised provisions.
    • The term 'budget' changed to the term 'account.')
    • Under Attachment B - UNALLOWABLE DUE TO FUNCTION section - allowability changed under "Student Activity Costs"
    • Deleted Attachment C - Sample Memo to Exclude Budget
  • January 5, 1999 - New Guideline.

Date Approved: 

June 21, 2018

Date Published: 

June 21, 2018

Effective Date: 

June 22, 2018