Allocation is the process of assigning a cost, or a group of costs, to one or more cost objectives. Costs may be allocated only if they advance the work of the project in the same proportion as the cost. For example, technical supplies are allocable if they benefit a project. In addition, costs must be supported by evidence of direct benefit to the project.

Costs should not be charged based on availability of funds. The availability of funds to pay an expense, or its inclusion in a budget is not evidence of the allocability of that expense. For instance, when a Principal Investigator wishes to charge an expense to a project, the Research Administrator may assist the PI in determining whether it will be used on only one project or on many projects, and therefore charge accordingly. If the expense is used on more than one project, determine what proportion of the expense benefits each project and charge accordingly.

A cost is allocable to a sponsored agreement if:

1. It is incurred solely to advance the work under the sponsored agreement.

2. It benefits both the sponsored agreement and other work of the institution, in proportions that can be approximated through use of reasonable methods.

3. It is necessary to the overall operation of the institution and, in light of the principles provided in the OMB Circulars, is deemed to be assignable in part to sponsored projects.

Criterion (1) above indicates the best approach to justify a cost on a specific sponsored agreement. Certain types of costs incurred for the benefit of a specific research agreement may easily be uniquely identified. Examples include approved pieces of equipment, animal costs, or chemicals purchased solely for one project.

Other costs may clearly be allowable and reasonable but a question arises: how best to allocate among one or more sponsored agreements that benefit from that cost? The most typical example of a cost that must be allocated among sponsored projects is general laboratory supplies. Federal Regulations acknowledges that it is sometimes impossible to precisely identify or allocate such costs; governing regulations thus allow for the exercise of judgment: "A precise assessment of factors that contribute to costs is not always feasible, nor is it expected. Reliance, therefore, is placed on estimates in which a high degree of tolerance is appropriate."

Non-administrative supplies purchased in bulk for multiple ongoing projects may not be distributed in an arbitrary manner, e.g., charged entirely to one project one month, and then entirely to another project the second month (unless that is the way that supplies were actually used).

Sometimes costs may overlap because they benefit more than one project. In such cases, the PI and the Research Administrator should determine the allocation based on the proportional benefit each project receives. If the proportions are difficult to determine due to interrelationship of the work, then the costs may be charged “on any reasonable basis,” according to federal regulations. Documenting the method of allocation is crucial. The allocation method must be in writing and be current. It is important to have a proper method of allocation. If expenses have been charged based on a distribution method that is ultimately disallowed, those expenses may be disallowed for many months or even years, depending on how long that allocation methodology was used.

Basing an allocation of expenses solely on what was proposed and awarded in the budget will almost always be considered inadequate.

Federal Regulations allows that:

If a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost, the costs should be allocated to the projects based on the proportional benefit. If a cost benefits two or more projects or activities in proportions that cannot be determined because of the interrelationship of the work involved, then, notwithstanding subsection b, the costs may be allocated or transferred to benefited projects on any reasonable basis.

Subsection b:

Any costs allocable to a particular sponsored agreement under the standards provided in this Circular may not be shifted to other sponsored agreements in order to meet deficiencies caused by overruns or other fund considerations, to avoid restrictions imposed by law or by terms of the sponsored agreement, or for other reasons of convenience.

Allocation is generally based on effort or usage:

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.

Allocation Based on Usage

The monthly cost of supplies/expendables to maintain a lab computer system is $1,000. The computer system is used solely 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 cost allocated to project A is $560 (100 user hrs. /180 total user hrs. x $1,000). The cost allocated to project B would be $440 (80 user hrs. /180 total user’s hrs. x $1,000).

Allocation Based on Square Footage

A student is paid a salary of $1,500 a month to clean glassware in two laboratories that are conducting similar research. In this example, the square footage of the laboratories could be used as a reasonable basis. Lab A is 1600 square feet and Lab B is 1,200 square feet. Lab A is charged $855 (1,600-sq. ft/2800 sq. ft x $1,500) and Lab B charged $645 (1,200-sq. Ft/2800 sq. ft x $1,500).

An expenditure allocation PTA is used to to accumulate specific expenditures such as materials, supplies, services, or salaries whose distribution to the PTAs benefiting from the expenditures cannot be determined at the time the expenditure is incurred.  You then distribute (or allocate) these expenditures monthly from the expenditure allocation PTA to the benefiting PTAs. You must allocate expenses using an allocation methodology that:

• Logically relates to the type of expense incurred.
• Produces an allocation of expenses to each PTA in reasonable proportion to the benefit received.
• Results in charges to PTAs that are allowable, allocable and reasonable.

It is not necessary to open an expenditure allocation PTA for a one-time allocation of expense. However, one-time allocations of expense should be carefully justified, including a statement addressing the one-time nature of the allocation.

Example:

Example of an Allocation Process

Each month a department purchases supplies for a laboratory where several different sponsored projects are on-going. Bench scientists on the sponsored projects use these supplies in their research. At the time the supplies are purchased the department does not know how the supplies will be used on the sponsored projects. The department does know that the use of these supplies is directly related to the number of bench scientists on each project. (Each bench scientist performs similar tasks and therefore uses the supplies in the same way.)

1. The department requests a non-salary expenditure allocation PTA to be opened by completing the Request for New Expenditure Allocation PTA form.
2. The department purchases the supplies and charges them to the Expenditure Allocation PTA using expenditure type 55210.
3. At the end of the month, the department tallies the number of bench scientists working on each project for the month and calculates relative number per project to allocate the monthly expense.
4. The department initiates an ijournal crediting the Expenditure Allocation PTA and debiting the sponsored projects for their calculated share of the monthly expense using expenditure type 55210.

Use the Request for Expenditure Allocation PTA form to request new projects, tasks, and awards (If you are using Firefox, please save a copy of the form onto your desktop to fill out.) This form must be used for requests for new PTAs and to request new projects and/or tasks on existing awards/projects. A guarantee award is required in order to open the expenditure allocation PTA.

Salary and non-salary expenditures are set up as separate expenditure allocation awards. Expenditures subject to different allocation methodologies should be segregated into separate project/task combinations.

Expenditure Allocation PTA Maintenance

Changes to information documented on the Request form made after the PTA has been set up should be transmitted to Joanna Tseng by email. For example, a change in the purpose or use of the PTA, the individual responsible for clearing the account, the allocation methodology, etc. Requests for changes to principal owner, award, project, and task manager as well as titles and other attributes may be requested by email.

• Allocate expenditures on a routine basis-don't want until the end of the fiscal year! (Ideally, these PTAs should carry zero balances each month.)
• Allocation methodologies should not result in an over or under recovery of expense. An over recovery of expense may result in potential refunds. An under recovery may need to be covered by the department. For sponsored projects it is extremely important to ensure expenditures are properly allocated to avoid over (and undercharging) the sponsors.

Monitoring Expenditure Allocation PTAs

In addition to the expenditure statements we recommend departments use the online Reportmart3 reportsFIN_OP_101_Operating_Detail or FIN_OP_102_Oper_Award_and_GL_Sum. These reports document both expenditures and revenue.

Rolling Over Expenditure Allocation Project Balances

Expenditures should be fully allocated as of fiscal year-end. Any year-end balances in the expenditure allocation PTAs are rolled forward each year into the next fiscal year at the project level. These balances are the net of revenues and expenditures incurred during the year plus any balance from the prior fiscal year. These ending/beginning fiscal year balances can be seen in Reportmart3 on the FIN_OP_101_Operating_Detail and FIN_OP_102_Oper_Award_and_GL_Sum reports. Schools and departments should run these reports to ensure they have not omitted allocating these balances.

Closing an Expenditure Allocation PTA

Send an email request to Joanna Tseng documenting the specific Expenditure Allocation PTA you would like closed and explain why it should be closed. All Expenditure Allocation PTAs must have a zero fund balance before they may be closed. Be sure you have allocated all expenditures to benefiting PTAs. Any remaining expenditures that cannot be allocated to benefiting PTAs should be transferred to an unrestricted departmental PTA. Adjust any labor distribution schedules, purchase requisitions/orders so they do not attempt to charge the Expenditure Allocation PTA after it is closed.