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March 2019


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Sonya Stern <[log in to unmask]>
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Sponsored Project Administration News <[log in to unmask]>
Tue, 5 Mar 2019 15:53:21 +0000
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Dear Principal Investigators and Grant Administrators,

Allocation is the process of assigning a cost, or a group of costs, to one or more budgets, in reasonable proportion to the benefit provided to each budget. A cost is allocable to a particular project if the goods or services involved are chargeable or assignable to that project in accordance with relative benefits received.  For more details on what it means for a cost to be considered allowable, allocable and reasonable, please refer to the Federal Cost Principles<>.
If an expenditure solely benefits one award, it should be charged entirely to that award. However, sometimes an expenditure can benefit more than one award or other activity.  When this occurs, the expenditure must be charged in the same proportion as it benefits each of the awards or activities.
Sponsored project costs may not be allocated based on:
1.       Amount of available funds on an award;
2.       Budgetary convenience (to accommodate an award that is either over or under budget, budget is ending soon, etc.);
3.       Avoidance of restrictions imposed by law or terms of the award;
4.       Offset (costs charged to award A one-time and award B the next time).
There are two general methods for allocating a cost to multiple funding sources:
·         The Proportional Benefit Rule:  when it is possible to determine the exact benefit of the cost to each funding source. The cost is allocated according to the determined proportion of benefit provided.
o    Example: A lab uses 3 gallons of solution on award A and 9 gallons of solution on award B.  12 gallons of solution are purchased. 3/12th of the total cost of the solution is charged to award A, and 9/12th is charged to award B.
·         The Interrelationship Rule:   when it is not possible to determine the proportional benefit to each funding source because of the interrelationship of the work involved. The cost is distributed on any reasonable and rational basis.
o    ​Example:  A lab purchases syringes for use on experiments for two awards.  As it is impossible to tell in advance exactly how many syringes will be used for each award, and it would not be cost-effective to track the use of each syringe, the lab allocates the cost of the syringes based on the amount of effort the lab tech (who uses the syringes) expends on each award.  If the lab tech allocates his time on a 70/30 allocation between award A and B, the cost of syringes is allocated using a 70/30 allocation.
Please review examples of acceptable and unacceptable Direct Cost Allocation Methods<>.  Usage-based allocation methods are typically used on sponsored projects, but please be sure to document your allocation method when other allocation methods are necessary.
Allocation Best Practices:
·         Document the allocation methodology.  Documentation should include support for the specific costs allocated and indicate how the allocation methodology is logically related to the cost being allocated. This support should be retained by the department and be made available for review. Document why measures such as headcount, square footage or hours directly relate to the benefit received.
·         The allocation methodology established must be used consistently in like circumstances.
·         Review allocations on a routine basis. This is to ensure that the methodology continues to represent a reasonable basis for distributing the cost. If it is determined that the allocation method no longer represents a reasonable distribution of the cost it should be changed.
·         Review estimated allocations on a routine basis.  If a cost has been allocated based on an estimate, the costs can be reallocated using a cost transfer if the estimate is later determined to be inaccurate.  Be sure that re-allocations are completed promptly so that accurate costs are being recorded on the award/budget, and so that cost transfers are not completed more than 90 days from the original expense posting date.
·         Update allocations when a project begins and ends.  Allocations will need to be modified when a project ends and if a new project begins.  The basis should not change unless it no longer provides a reasonable representation of the benefit provided.
·         Take award period of performance end date into consideration.  If a cost is being allocated between multiple awards, the one award that has an end date that is disproportionate to the other, the end date of all awards should be taken into consideration when determining proportional allocation, or document why the award with a closer end date is still being charged at the regular rate.
Please reach out to me if you have questions or concerns about the above.
Thank you.
Sonya Stern, MBA | Director | Signing Official
Treasurer-Elect, National Council of University Research Administrators Region 1
University of Vermont
Sponsored Project Administration
217 Waterman | 85 South Prospect Street
Burlington, VT 05405-0160
P: 802-656-1986 | [log in to unmask]<mailto:[log in to unmask]> |<>


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