A cost may be considered reasonable if the nature of the goods or services acquired or applied, and the amount of funds involved reflects the action that a prudent person would have taken under the circumstances prevailing at the time the decision to incur the cost was made. The allowability of a cost is first determined by examining the budget that the agency approved for the project. If the item does not appear on the budget, then other reviews must be conducted to determine if the charge is allowable under a rebudgeting authority that may be granted to the Health Science Center, or if the item may be allowable only if prior approval is obtained in writing from the agency. For example, grant awards may identify certain costs that are specifically unallowed by the agency based upon recommendations from the peer review system. Even if the type of expenses proposed appear on the budget, the specific expense may not be allowable.
Most Federal agencies have guidelines for administering grants.
These guidelines give direction on the allowability of certain costs. For example, travel costs may appear in the budget, but a specific trip taken to a foreign country may require further approval from an agency pursuant to their guidelines. Section J of OMB Circular A-21 identifies the allowability of costs. For example, that section dictates certain salaries are allowable, but alcoholic beverages are not. 6.3 Rebudgeting Sponsors have differing policies for the rebudgeting of funds.