Allocation of Expense

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.

There are conditions which necessitate the creation of an expense allocation PTA. An expenditure allocation PTA distributes expenses such as materials, supplies, services, or salaries to the PTAs that benefit from the expenditure.

Allocation

Whenever possible, expenses should be individually charged to a specific sponsored agreement. When this is not appropriate, allocation of expenses is allowable. A-21 defines allocation as the process of assigning a cost to one or more cost objectives in reasonable and realistic proportion to the benefit provided, or to another equitable relationship that exists.

A cost is allocable to a sponsored agreement if:

  • It is incurred solely to advance the work under the sponsored agreement.
  • It benefits both the sponsored agreement and other work of the institution, in proportions that can be approximated through use of reasonable methods.
  • It is necessary to the overall operation of the institution and, in light of the principles provided in the Circular, 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. A-21 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." A-21, J10 b(1)c.

Costs should not be charged based on availability of funds. The availability of funds to pay an expense, or the inclusion of an expense in a budget, is not evidence of the allocability of that expense. For example, 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, you must determine what proportion of the expense benefits each project and charge accordingly.

Allocability of effort and other project costs has been a focal point for recent reviews and audits.

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).

Where the PI needs to allocate costs, you need to be able to document a reasonable allocation method, e.g., on the basis of headcount, floor space, number of experiments, etc. “Available dollars” is NOT a reasonable allocation method.

See Guide Memo 3.2.3 “Allocations and Offsets” for details.

When Allocating Charges, Ask:

  • Is it reasonable?
  • Is the method of allocating expenses between projects sound?
  • Is it clearly documented?

When allocating costs, the PI working with the Research Administrators must ensure that the costs are reasonable and that costs allocated for more than one project have appropriate documentation. The allocation method must be reasonable and must relate to the costs being charged. The documentation must show that the allocation method reflects the PI's judgment and that each project benefits in the percentages or amounts indicated.

Guide Memo 3.2.3 states that documentation must be in writing and should be updated frequently enough to ensure its accuracy. The allocation method must be documented in the project file or in the online transactions.

Overlapping Benefit

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 OMB A-21. 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.

A-21 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” - OMB A-21, Section C. 4. d. (3)

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.

Would You Accept These Charges?

  • Example 1: Allocated chemical charges on the basis of comparative salaries?
  • Example 2: Allocated expenses of a consultant 50-50 for the two projects that she supports?
  • Example 3: Allocated lab supplies based on head count from 12 months ago?

The key to effective allocation methodology is to distribute the cost based on the benefit received. For example, should telephone toll charges be allocated on the basis of comparative salaries?

To answer this question, the PI and Research Administrator need to determine whether there was a direct relationship between someone’s salary and the amount of phone calls that person makes. In this case, there is no relationship; therefore the allocation should not be based on that relationship.

In the second example, should the expenses of a consultant be allocated 50-50 for the two projects she supports? The question to ask is, does the consultant work on the two projects equally? Documentation, such as verification by the Principal Investigator, needs to support this determination. If the amount of time the consultant works on the projects changes, then the allocation must change also.

In the final example, should costs for lab supplies be based on a head count from 12 months ago? The first question to ask is whether supplies are split equally among workers. The second question is whether the staffing remained consistent over the 12-month period. If the answer is yes for both questions, then the allocation methodology may be appropriate. If not, then another methodology for allocating the costs must be used.

It is recommended that Research Administrators update allocation methodologies whenever there is a change in benefit to the project. If nothing changes related to the methodology in six months, then nothing needs be changed. If circumstances change monthly, then the calculations might need to be redone monthly. Judgment should be used to help make this type of determination. The key is that cost allocation must be supportable, understandable, and reasonable based on the benefit each project receives.

When explaining a method for allocating direct costs, keep the “third-party/two-years-from-now” rule in mind.

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Examples of Allocation Methodologies

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 users 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).

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Important Points about Allocation

  • Always remember to document why measures such as headcount, square footage or hours directly relate to the benefit received.
  • Prohibited allocation methodologies include any methodology based on budgets, funding or available funds.
  • 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.
  • Allocation methodologies must be documented and auditable. 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.
  • Allocation methodologies should be reviewed 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 to the population may signal the need to review the allocation methodology.

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Expenditure Allocation PTAs

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.

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What You Can and Can't Charge to an Expenditure Allocation PTA

Expenditures that Can Be Charged

Salary and non-salary expenditures cannot be charged to the same expenditure allocation PTA. You must create either of the following:

  1. Non-salary Expenditure Allocation PTA: Use for only non-salary expenditures, which may include materials, supplies and services rental, lease, and maintenance charges.
  2. Salary Expenditure Allocation PTA: Use for only salary expenditures including related fringe benefits. These PTAs are not salary guarantee accounts. Salary guarantee accounts have been replaced by salary suspense PTAs. Every department has a salary suspense PTA.

Tip: Consider using Oracle labor distribution schedules to allocate salary instead of an expenditure allocation PTA. If your activity requires you to allocate salary and non-salary expenditures, you must request two separate PTAs - one for salary expenditures and one for non-salary expenditures. Otherwise you must be a service center.

Also, remember if you can direct charge the expenditure you do not need an expenditure allocation PTA.

Expenditures that Can't Be Charged

The following expenditures may not be charged to an expenditure allocation PTA:

  • Transactions that are not in the 4XXXX or 5XXXX GL code/expenditure type ranges
  • Capital equipment
  • Expenditures in unallowable expenditure types (Charge these expenditures to an unrestricted PTA)
  • Financial aid
  • If you are allocating expenditures to a sponsored award, you may not allocate expenses to the award that the sponsor has identified as unallowable
  • Subawards (expenditure types 54710, 54720)
  • Indirect Costs
  • Veterinary Service Center Charges (expenditure types 58710, 58720)

Departments should refrain from building up on-hand supplies beyond what is reasonably needed to anticipate actual demand.

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How to Request an Expenditure Allocation PTA

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.

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Allocating Expenditures to Benefiting PTAs

The expenditure allocation PTAs are cleared using the iJournals allocation form. You must clear these PTAs on a monthly basis. It is good business practice and good customer service to clear these charges on a timely basis to the PTAs that benefited from them.

Expenditures can be associated with the month in which they provided the benefit and rejected late charges to sponsored projects can be avoided. The department allocating the expense must have received prior approval from an authorized individual to charge a benefiting PTA.

Approval may be documented by email or written request. This approval should be retained by the department allocating the expenditures. The expenditure item date for transactions should be set to the first of the month to which the transactions pertain unless the actual date of service is used.

Example:

If you allocate expenditures in September 2012, the expenditure item date would be 01-SEP-12. Reversals should be made using the iJournal new journal form.

Non-salary Expenditures

Non-salary expenditures may be allocated using the same expenditure type where the non-salary expenditure was charged. In some cases, it is not possible to use the same expenditure types to clear the transactions. Use the Interdepartmental Revenue objects (category 48100) to credit the expenditure allocation PTA and use the appropriate expenditure type from category 58000 (Internal Expenditures) to charge the receiving PTA.

The total dollars charged to the 48xxx revenue objects must offset the total dollars charged to the 58xxx expenditure types and net to zero.

Example: Allocate expenditures out of the same Expenditure Type

The department is allocating laboratory supplies in expenditure allocation PTA 1074587-100-AAQWS to several sponsored projects in October 2012. The department has determined these supplies benefited the sponsored projects.

Example: Allocate expenditures using an Interdepartmental Revenue Object.

A department has a copier that is being used by several different areas. PTA 1026999-100-AAQXX is accumulating the cost of operating the copier. A log documents the number of copies made by users. Users are charged by the copy (16 cents each). In December 12, the department charges users for copies made during the month of November 12. The revenue codes are reproduced below.

Salary Expenditures

Salary must be allocated (cleared) using the same expenditure type in which the salary was originally charged. Clearing salary transactions out of a different expenditure type may prevent fringe benefit charges and vacation accrual from properly clearing as different salary expenditure types may have different fringe and vacation accrual rates. If it is appropriate to charge the salary to a different expenditure type, the entry clearing the expenditure allocation PTA must be to the same expenditure type originally charged. Currently only Payroll can process these kinds of entries.

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Managing an Expenditure Allocation PTA

  • 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.

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Expenditure Allocation PTA in Oracle

The following attributes describe the expenditure allocation PTA in the Oracle financial system:

Attribute

Description

Comments

Award Number

AAQ…

All expenditure allocation accounts are set up in the award range AAQ. (This range also includes the salary suspense and AP suspense PTAs.)

Award Name

EXP ALLOC...
< title>SALARY ALLOC

Non-salary expenditure alloc awards
Salary expenditure alloc awards

Award Type

CLR_EXP_ALLOC

 

Award Purpose

CLR_NON_SAL_EXP
CLR_SALARY

Non-salary or salary expenditure allocations

Project Name

ALC SAL… (Salary)
ALC NS…. (Non-salary)

It is recommended that the project title begin with "ALC SAL…" or ALC NS…"

Task Title Description

ALC SAL… (Salary)
ALC NS… (Non-salary)

It is recommended that the task title begin with "ALC SAL…" or ALC NS…"

Task Service Type

EXPENDITURE_ ALLOCATION

 

 

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Internal Revenue Objects

 

Object

Description

48110

INTERDEPT REV 1

48115

INTERDEPT REV 2

48120

INTERDEPT REV 3

48125

INTERDEPT REV 4

48130

INTERDEPT REV 5

48135

INTERDEPT REV 6

48140

INTERDEPT REV 7

48145

INTERDEPT REV 8

48150

INTERDEPT REV 9

48155

INTERDEPT REV 10

48160

INTERDEPT REV 11

48165

INTERDEPT REV 12

48170

INTERDEPT REV 13

48175

INTERDEPT REV 14

48180

INTERDEPT REV 15

 

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