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Business and Policy Areas
Business and Policy Areas

NACUBO Guidance: Classifying VUCS in Research Functional Expense Category

August 12, 2011

It is not always clear how to classify costs associated with Voluntary Uncommitted Cost Sharing (VUCS). When VUCS are specifically tracked and assignable to a specific research project, the costs should be included in the functional expense category of research. Only those amounts actually spent on research should be included; the mere fact that VUCS may be budgeted does not justify its inclusion in the research functional category. 

In 2001, the Office of Management and Budget issued a clarification of the treatment of VUCS in the computation of facilities and administrative (F&A) rates. This clarification stated that “voluntary uncommitted cost sharing should be treated differently from committed effort and should not be included in the organized research base for computing the F&A rate or reflected in any allocation of F&A costs.” It should be noted that this definition relates only to the treatment of VUCS in the computation of F&A rates and does not necessarily dictate the way those costs should be classified for functional expense purposes in the audited financial statements.

NACUBO’s Financial Accounting and Reporting Manual defines the functional category of research as including “all expenses for activities specifically organized to produce research, whether commissioned by an agency external to the institution or separately budgeted by an organizational unit within the institution.” The phrase “separately budgeted and accounted for” has been a source of confusion when it comes to determining the amounts to be included in the organized research totals reported by institutions. Some institutions have relied on the term “separately budgeted” and included all amounts budgeted as research whether or not the budgeted amount represents the actual effort expended. Functional expense reporting should not be driven solely by budget allocations, but rather by the actual amounts spent on a particular function. To the extent that VUCS can be associated with a specific research project, it should be included in the functional expense category of research. 

Read the entire Advisory Report.


Sue Menditto
Director, Accounting Policy