1. OFFICE OF SPONSORED PROJECTS
Allocation of costs
OFFICE OF SPONSORED PROJECTS

2. Agenda We will discuss: the meaning of allocability
methods for allocating costs
guidelines for allocation methodologies
examples of allocation methodologies
case studies involving allocation issues

3. Review Question
What four cost principles are used to determine when expenses can be charged to federally sponsored projects?

4. Answer All charges must be:
Allowable - permitted as a direct cost under the terms of a specific sponsored project
Allocable - expenses can be allocated to a sponsored project based on benefit derived or other equitable relationship
Reasonable - a prudent person would have purchased this item and paid this price 
Consistently Treated - like expenses must be treated the same in like circumstances 
Purpose of this slide is to demonstrate where allocability fits into the big picture of charging costs directly to grants

5. What does allocable mean?
A cost is allocable to a particular sponsored project(s) if the goods or services involved are able to be directly assigned to the specific sponsored project(s).
A cost can be attributable to one project
A cost can be attributable to two or more projects
Every incurred cost on a sponsored project must have a direct benefit to the project

6. Expenditure Benefits One Project
Is the expenditure incurred solely to advance the work of the sponsored project?
If an expenditure benefits one project, it should be charged entirely to that benefiting project.
The purchase of a piece of equipment needed solely by one project to complete the proposed scope of work should be charged to that sponsored project only.
Sometimes PI’s/Dept Admin want to charge other projects the “may” use this piece of equipment in the future – future use does not come into play when we are trying to decide how to charge the purchase of the equipment today.
Can choose to offset the cost with department funds (i.e. cost sharing) but should explain that the equipment is for the sole use of the one sponsored project.

7. Expenditure Benefits Two or More Projects
Does the expenditure benefit two or more sponsored projects?
Expenditures split between more than one sponsored project must be split on the basis of proportional benefit or other reasonable method.
Lab chemicals are an example of an expense that could potentially benefit more than one sponsored project and/or University activity.

8. What Can’t Be Done
Costs cannot be charged to sponsored projects that do not benefit the scope of work.
Computer hardware & software, travel, books, meals
Expenditures cannot be shifted to another sponsored project in order to avoid:
funding deficiencies (overspending of the award)
restrictions imposed by law or terms of the sponsored agreement
other reasons of convenience

9. What Can’t Be Done
The division of the expenditure cannot be split based upon remaining available funding.
An expenditure that benefits two or more projects that are not interrelated cannot be charged solely to one project because the other project(s) is almost out of funding.
Expenditures cannot be rotated expenditures between multiple projects.
These are examples of inappropriate allocation methodologies and they can lead to audit findings!
Discuss handout # 2
In regards to 3rd bullet – mention dept ordering pipettes for multiple lab projects and charging one order to one grant, when needed again, charging that order to a second grant and so on…………….

10. Yale Settles for $7.6M
Allegations Yale violated the false claims act in managing its research grants awarded over 6 years
Inadequate documentation for cost transfers
Summer salary wrongly charged to federal research projects
Audit expanded to review all awards from January to December 2006
$3 billion of funding
6,000 medical, science, social study and other awards
30 federal agencies

11. What do we do?

12. Methods for Allocating Costs
There are two methods for allocating allowable direct costs to two or more sponsored projects:
Proportional Benefit Rule
Interrelationship Rule
Both rules allow costs to be charged to sponsored projects because the costs advance the scope of work of the projects
It is sometimes impossible to precisely allocate costs – governing regulations allow for the exercise of judgment.

13. Proportional Benefit Rule
Rule applies when it is possible to determine the proportional benefit of the cost to each sponsored project without undue effort or cost
Cost is allocated to the projects based upon the proportional benefit to each project
Use every day example of going out to eat with a group of people

14. Example
A PI has two awards which require the purchase of mice to conduct experiments. The specific aims for one award indicate 150 mice are needed to conduct the research and the specific aims of the second award require 50 mice to conduct the research.
The PI orders 200 mice and allocates the cost of the mice 75%/25% between the awards.

15. Interrelationship Rule
Applies when it is not possible to determine the proportional benefit to each project because of how closely related the work involved is
This is called interrelatedness
Cost is distributed on any reasonable basis because the proportional benefit cannot be identified and applied to the individual sponsored projects
Continue example of eating out with a group of people

16. Document Interrelatedness
Interrelatedness must exist and be documented before costs can be allocated via the interrelatedness rule.
Interrelatedness can be demonstrated on the basis that the:
theoretical approaches are the same
studies of the same phenomenon are conducted by the same or different techniques
studies of different phenomenon are conducted by the same technique

17. Example
Acetone purchased for use in a laboratory is needed for the technicians working concurrently on three research projects.
Acetone is ordered and is allocated to the three projects based on the number of FTEs for each of the projects.

18. Guidelines for Allocation Methodologies
Allocate costs to sponsored projects in reasonable proportion to the benefits received
Always 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.
Documentation should be retained by the department and be made available for review.
Allocation methodologies must be documented and auditable.
Always remember to document why measures such as headcount, square footage or hours directly relate to the benefit received.

19. Guidelines for Allocation Methodologies
Allocate expenditures on a routine basis
Monthly or at least every 90 days
Review allocation methodologies periodically to ensure they are reasonable.
Methodologies based on sampling, surveys, etc. should be reviewed and updated annually. Changes to the population may signal the need to review the allocation methodology more frequently.
Do not wait until the end of the fiscal year or the end of the grant year to allocate expenditures.
There is no "one right way" to allocate costs. Methods will vary based on circumstances. The PI needs to exercise judgment, and then to document the selected method in the project files. A memo to the file can describe how, in the PI's judgment, the benefits to the involved projects warrant that allocation of costs.

20. Reminders Don’t allocate based upon available funds
Don’t rotate expenses among sponsored projects
Don’t allocate costs after-the-fact via cost transfers
Don’t use pooled allocation methodologies to charge administrative costs to sponsored projects
Exception-service centers with approved rates

21. Developing an Interrelationship Allocation Methodology
Interrelatedness must first exist and be documented, then:
Selected method should produce an allocation of costs to each sponsored project that reasonably reflects the benefit received by each award
Basis for allocating should logically relate to the type of expense incurred
Best practice: do not select a basis of allocation that constantly changes
When costs cannot be easily allocated and determined due to the interrelationship of work involved, it may be necessary to determine a method for allocating costs that support a reasonable distribution across multiple awards.

22. Developing an Interrelationship Allocation Methodology
Possible basis for allocations:
FTEs or headcount
Square footage
Number of experiments performed
Actual usage records from a representative sample (one week, one experiment cycle, etc.)
Award totals
Modified total direct costs (excluding subawards)
Discuss handouts # 4 and # 5

23. Basis of Allocation Maintenance agreement for scientific equipment
If the equipment is utilized 50% on project A, 20% on project B and 30% for general academic purposes based upon a usage log, allocate the cost of the maintenance in the same proportions (50% to Project A, 20% to Project B, and 30% to a departmental account).

24. Basis of Allocation
Isotopes and chemicals purchased in bulk and used on various projects:
Internally requisition supplies and charge actual cost to a project.
For example, 100 units are purchased and placed in a department's stock room. 10 units are requisitioned for Project A. Project A would be charged for 10 units x the unit cost.

25. Basis of Allocation Salary of student assistant cleaning glassware:
A student is paid a salary of $1,200/mo to clean glassware in 2 labs that are conducting similar research. The only research performed in lab A is on Grant A and the only research performed in lab B is on Grant B. Lab A is 1,400 square feet and lab B is 1,000 square feet. The labs could be charged as follows:
Lab A: 1,400/2,400 x $1,200 = $700
Lab B: 1,000/2,400 x $1,200 = $500
The following are some examples of allocation methodologies. Other reasonable methodologies can be developed, provided that they meet the A-21 allocation principles.
Refer to handout # 3

26. Questions?