Policy Steward: 
Director of FA&A
Format Updated: 
University Policy & Standards Converted: 
Revision Date: 
Tuesday, October 15, 2013

* This information replaces FIS 508 Accounting for Grants and Contracts & FIS 508-01 Payment of Audit Disallowance


Information on how to account for grants and contracts is contained in the Grant, Contract and Gift Accounting (GCG) Policy & Procedure Manual.


Payment of Audit Disallowance

Oregon State University is required to provide funding organizations the necessary proof that the provided funds were expended for ordinary and necessary project expenses. Normally, this proof is made available for review by funding organizations for three years after the project is terminated.

OSU is required to refund to funding organizations those project costs that have been found to be unallowable charges against such projects. These costs for the purpose of this policy are defined as “costs disallowed by audit” and do not include costs disallowed for other reasons such as costs being outside of the project’s time period. The term “audit” only applies to the examination of source documents by the funding organization or their representative.

OSU is restricted in its sources of funds and ability to fund project costs disallowed by audit. This policy provides for a structured method of accumulating funds to provide assistance to units suffering audit disallowances.

A disallowance fund has been established and will be maintained at a level specified annually by the Vice President for Finance and Administration. Funding will be provided by allocating a portion of the Institution’s Facilities and Administrative (F & A) recovery (a.k.a. indirect cost recoveries). To maintain the required funding level each fiscal year, a portion of the total indirect costs recovered will be transferred into the disallowance fund before return of overhead is distributed.

Because the fund is derived from F & A charges, it is understood that audit disallowances on projects not receiving full indirect cost recovery will not be covered to the same extent as audit disallowances on projects recovering full indirect costs.

It is the intent of OSU to apply a maximum relief from the fund of 50% of the audit disallowances on any one disbursement that is or has received full indirect cost recovery. The unit to which the disbursement was assigned will fund the remaining 50%. It is understood that the percent of participation will fluctuate as the indirect cost recovery rate varies from full recovery.

Costs in the disallowance fund will be considered University Cost Sharing because the cost was incurred for the purpose of completing the sponsored activity. As the expense is placed in the disallowance fund, the fund will be replenished up to the maximum specified by the V.P. for Finance & Administration from the F & A Clearing Fund.

The 50% that is charged to the unit will also be coded as Cost Sharing. The cost overrun index of the department will be used. This will then automatically transfer revenue/budget from a general fund source to cover the expenses.