Sponsored Cost Allocation Methodology Guidance
 

Guidance Statement

Brown University has established the following guidance for the allocation of costs that benefit two or more projects or activities in proportions that are not easily determined. Allocations are often necessary when Principal Investigators and administrators are assigning recurring or other costs to sponsored projects or activities in alignment with relative benefit.

Reason for Guidance

Brown University must comply with the federal regulations in the Cost Accounting Standards (CAS) and the Office of Management and Budget Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, 2 CFR 200, (Uniform Guidance). For costs benefiting a single project, the expense(s) should be allocated and directly charged to that project.

Uniform Guidance Subpart E §200.405 (d), Allocable Costs, stipulates that it is necessary to substantiate the proportional benefit of costs when costs benefit two or more projects.

“If a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost, the cost must be allocated to the projects based on the proportional benefit.” These costs should be simply apportioned to reflect the easily determined 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 … the costs may be allocated or transferred to benefited projects on any reasonable documented basis.” When costs that benefit two or more projects or activities in proportions that are not easily determined, an allocation is necessary.

Allocation is one of several ways to charge expenses onto a project or activity:

Direct charging a direct cost based on an easily determined, measurable benefit to the project or activity.   

Distribution of a direct cost based on an easily determined, measurable relative benefit across several benefiting projects or activities.

Allocation of a direct cost based on relative benefit when the benefit is known, but not easily determined or not practically measurable across several funding sources. An allocation uses a reasoned basis to approximate the measurable benefit to distribute a direct cost.

This document provides guidance on the use of an “Allocation Methodology” that meets the reasonableness and documentation requirements in the Uniform Guidance. It guides users to apply a reasoned basis to a recurring cost, or a recurring group of costs, according to the anticipated proportional benefit that advances the work of each project or activity.

 

Allocation Methodology Components & Criteria

A valid allocation methodology establishes a reasoned basis for apportioning or transferring costs in proportional benefit to two or more projects or activities.

There are three basic components of an allocation:

  1. The percent of the cost charged to each project or activity.
  2. The method or reasoning used to derive that percentage.
  3. Accompanying documents and, where applicable approvals.

At Brown University, valid allocation methodologies meet all of the following criteria:

  • Provide a reasonable linkage between the cost(s) incurred and the benefit to each individual project or activity.
  • Are identified prior to the allocation of expenses to sponsored projects or activities.
  • Are documented with sufficient detail that a person unfamiliar with grants management would understand.
  • Allow for the consistent treatment of costs that meet the criteria of the allocation methodology.
  • Are reviewed periodically and adjusted as needed.

Allocation Methodology Practices

Best Practices

  • Identify the basis of the allocation method in advance of purchasing, or at the time of ordering, the goods or services whenever possible to avoid the need for manual journals or cost transfers. 
  • Apply different allocation methodologies across a department or research group to best fit the expense type and allocation cost basis, rather than using the same methodology for all costs in the department.
  • Document the allocation methodology prior to, or concurrently with, the costs being incurred and allocated. Include the rationale for using the selected basis to approximate the relative benefit received by each project or activity.  (See additional documentation practices below.)
  • Review allocations regularly to ensure they continue to reflect proportional benefit.
  • Significant changes to factors used in the allocation cost basis will indicate the need to review the allocation components, or even the allocation methodology, outside of the regular review period. This review should include monitoring for changes in funding as sponsored projects or activities begin and end.

Timing and Compliance Considerations

  • If costs are allocated and charged directly to sponsored projects or activities at the time of purchase, perform at least quarterly monitoring to ensure allocations continue to reflect relative benefit to all benefiting projects or activities 
  • If costs are accumulated in non-sponsored account, ensure allocating journal entries are completed at least quarterly to comply with the Cost Transfer Policy and perform monitoring to ensure allocations continue to reflect relative benefit to all benefiting projects or activities.
    • Do not use sponsored funds as a placeholder for costs, before they are allocated.
  • Provide sufficient justification for all journal entries or cost transfers.

Unacceptable Practices

The following allocation practices are generally unacceptable because they do not meet University standards for a high degree of accuracy or do not consider actual relative benefit.

  • Rotating charges among sponsored projects or activities on a monthly basis without establishing that the rotation schedule reflects the relative benefit to each sponsored project or activity.
  • Using any allocation methodology that is based only on available sponsored funds, budgets, or to avoid restrictions imposed by law, terms of the sponsored award, or for other reasons of convenience.
  • Describing an expense inaccurately to confound understanding of what the expense is and, therefore, how it benefits the project or activity.
  • Charging expenses exclusively to sponsored projects when the expense also supports non-sponsored activities.
  • Assigning charges to sponsored projects or activities in advance of the benefit to the project. (*exclusion from this may be for advance travel expenses, such as airfare or conference registration fees.)

Documentation Practices

  • Once the allocation methodology has been determined and approved, retain the documentation in the department or local units in accordance with sponsor terms, federal regulations and University records retention policy.  This information should also be updated as supporting documentation to Workday and PCard transactions.
  • Document the type of costs to be included in the allocation methodology (e.g., consumable lab supplies, animal per diems, equipment service maintenance contracts,)
  • Document the rationale or logic that supports the linkage between costs incurred and proportional benefit to all benefiting projects.
  • Document the determination or calculation of percentages used to allocate costs to all benefiting projects, including all supporting metrics, such as headcounts, FTEs, etc.
  • Document the process for updating the methodology, including the frequency of review, revision, and approval to ensure that costs remain allocated based on relative benefit to all benefiting projects.
  • If costs are accumulated in a non-sponsored account, process a timely allocation to sponsored project accounts not less than quarterly.
  • If the allocation requires a calculation for each distribution, attach documentation supporting the calculation to each allocation journal entry.
  • If the allocation does not require a calculation for each distribution and uses a department-approved methodology, document the journal entry with support for the expenditure, as required by University policy.  ** (see interrelatedness details below)

Interrelatedness vs. Proportional Benefit

**In order for two or more awards to share in research expenses on an ongoing basis, you would first need to establish and document that interrelatedness exists between the projects on the basis that:

  • 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

Afterwards, the appropriate split would need to be established with an allocation methodology, so the split should not always be 50%/50%, unless appropriate. 

If expenses are to be shared on two or more projects that are NOT interrelated, then you would use the 'Proportional Benefit Rule'.  This rule applies when it is possible to determine the proportional benefit of the cost to each sponsored project without undue effort or cost.

It’s suggested that the allocation basis and methodology be shared with your OSP grant/contract accountant for review and approval prior to implementation.

Applicability

This guidance is applicable to all Principal Investigators (PIs) and administrators at the University within all schools, units, divisions, University-wide initiatives, and centers, who are involved with the initiation, administration, and conduct of sponsored projects.

Roles and Responsibilities

All Brown PIs, faculty and staff are responsible for monitoring the expenditures throughout the lifecycle of their sponsored projects to ensure that costs are allocated in accordance with this guidance.

Principal Investigators (PIs) have primary responsibility for ensuring compliance with federal, sponsor and university regulations as well as the monitoring of expenditures, timely review and correction of errors, and proper allocation of expenses. The PI should perform routine reviews of award expenditures and allocation methodologies to ensure alignment with relative benefit.

Grant Managers and Department/Local Level Managing Units (individuals responsible for account monitoring/management) assist PIs in the timely review and reconciliation of expenditures, including reconciliation of suspense/holding accounts, while offering valid cost basis options for an allocation methodology. Administrators should familiarize themselves with this guidance and be prepared to provide options to the PI if more than one allocation cost basis appears to fit the circumstance. Local managing units should establish the valid allocation methodologies and maintain adequate documentation in accordance with the University retention policy, with approvals where applicable, as well as support for individual allocations.

Office for Sponsored Projects (OSP) is responsible for publishing this guidance and related materials, and providing additional guidance and clarification, when applicable.

Definitions

Allocation Methodology

The reasoned basis used to approximate the proportional benefit to benefiting activities when the relative benefit cannot be easily determined. Allocation methodologies are used in allocations to support the assignment of costs.

Cost Basis

The units that represent the approximation of relative benefit over which the costs are allocated. The cost basis is part of the allocation methodology used in the allocation.

Appendices

Related Policies, Guidance, and Training