Allocation is the process of assigning a cost, or a group of costs, to one or more projects. If a cost benefits two or more projects, the cost must be allocated to (i.e. shared between) the projects based on the proportional benefit to each project. If the exact proportions cannot be reasonably determined because of the interrelationship of the work involved, then the costs may be allocated using one of the cost allocation methodologies described below. (§200.405(d)).
The basis for the allocation methodology chosen should be documented at the time the cost is incurred. The allocation should also be approved in advance by the Principal Investigator (PI) of the projects to which the costs are allocated. When it is not possible to allocate costs to the benefiting sponsored projects at the time when the goods or services are purchased, costs must be recorded in a non-sponsored account instead of being charged to a sponsored project (§200.405(c)). The redistribution of these costs to a sponsored project is a cost transfer (VT6).
Allocable Costs (§200.405(a))
A cost is allocable to a particular project if the relative benefit of the goods or services can be assigned to that award. This standard is met if the cost:
- Is incurred specifically for the award;
- Benefits both the award and other work of the University and can be distributed in proportions that may be approximated using reasonable cost allocation methods; and
- Is necessary to the overall operation of the University and is assignable in part to the award in accordance with the principles outlined in the Uniform Guidance Cost Principles (2 CFR 200 Subpart E).
Different allocation methodologies may be required for different types of expenses. The basis for the allocation methodology chosen should be part of the auditable documentation retained for the project.
Allocation based on FTEs
Acetone purchased for use in a laboratory is needed for the technicians working concurrently on Projects A, B, and C in the amount of $500/month. There is one technician working on Project A, two working on Project B, and three working on Project C. The expense allocated to Project A is $83/month (1 technician / 6 total technicians x $500/month). The expense allocated to Project B is $167/month (2 technicians / 6 total technicians x $500/month). The expense allocated to Project C is $250/month (3 technicians / 6 total technicians x $500/month).
Allocation based on usage
The monthly cost of supplies/expendables to maintain a lab computer system is $1,000. The computer system is solely used for Projects A and B. The computer operating system keeps a log of users and their time on the system. A reasonable base to allocate the expense would be computer user hours. Project A assistants have 100 combined user hours a month and Project B assistants have 80 combined user hours a month. The expense allocated to project A is $560 (100 user hrs / 180 total user hrs x $1,000). The expense to Project B would be $440 (80 user hrs / 180 total user hrs x $1,000).
Allocation based on effort
A research assistant spends 80% effort on Project A and 20% effort on Project B. The research assistant uses supplies totaling $3,000/month on the two projects. Usage is directly related to the amount of effort devoted to each project. Therefore, $2,400 (80% of $3,000) is charged to Project A and $600 (20% of $3,000) is charged to Project B.
Additional examples of methodologies that may be used as a basis for allocating costs:
- Number of experiments: The cost of syringes is allocated based upon the number of experiments performed on each project.
- Sampling: Cost of laboratory supplies is allocated based on actual usage records for a representative sample.
- Number of patients served: The cost of tests is allocated based upon the number of patients served by each project.
- Square footage: The cost of glassware for the two laboratories that are conducting similar research is allocated based upon the square footage of the two laboratories.
Unacceptable Allocation Methodologies
Administrative expenses may not be distributed or rotated among sponsored projects. Pooled allocation methodologies may not be used to charge administrative costs to sponsored projects except by service centers with approved rates.
Costs may not be allocated based on:
- Amount of available funds on a given award
- Budgetary convenience (e.g. to accommodate an award that is either over or under budget, budget is ending soon, etc.)
- Offset (i.e. costs charged to budget A one time and budget B the next time)
- Rotation of charges among sponsored projects by month without establishing that the rotation schedule credibly reflects the relative benefit to each sponsored project
- The budgeted amount in the contrast rather than the actual usage
- Assigning charges to a sponsored project in advance of the time the actual expense is incurred
- Exclusively charging to sponsored projects when the expense also supports non-sponsored activities
- Avoidance of restrictions imposed by regulations or terms of a given award
Allocation methodologies must be documented and auditable (§200.405(d)). Documentation should include the costs to be allocated and the basis for the methodology applied. Documentation must be retained within the department/center for seven (7) years following completion of the award (See The University of Texas at Austin Records Retention Schedule).
If an allocation is applied across multiple accounts, this backup documentation should be uploaded to the Image Retrieval System (IRS) when the document is routed for approval in DEFINE. These types of allocations may be applied to a variety of documents: VPE, VT5, VT6, VP2, VP1, VP7, VP5, and all PO documents.
Allocation Methodology Best Practices
- Document the allocation methodology prior to, or contemporaneously with, the costs being incurred and allocated.
- Document why the specific methodology was chosen; show how the methodology relates to the costs being allocated and the benefit received by the awards.
- Retain the supporting documentation in the department (in accordance with the University’s Records Retention policy) so it is available for review and audit.
- Review allocation methodologies periodically to ensure they are reasonable.
- Methodologies based on sampling, surveys, etc. should be reviewed and updated at least once each fiscal year. Significant changes made to the population may signal the need to review the allocation methodology.