Fiscal Administrative Reviews Cost Allocation - N-11/2022
Cost Allocation Plans
Providers often have centralized or administrative costs - such as accounting, supplies, and equipment purchases, etc. - that benefit all their programs and activities. A cost allocation plan defines how expenses that are not directly tied to one program, but benefit multiple programs or the organization at large, are allocated. A good cost allocation plan provides a clear picture for auditors of how the provider has spent the grant funds. When providers use a cost allocation plan, these central service costs are split among their programs, provides a true picture of what it costs to run a program, and helps determine what costs are reimbursable (2 CFR 200.416(a)).
Costs for goods or services that benefit a single source of funding (one program only) should be assigned solely to that grant. However, costs that benefit more than one funding source may be charged to each funding source based on its proportional benefit to that program. Cost allocation plans can be based on either the proportion of benefit or on the interrelation between the grants.
Proportional Benefit: Costs are assigned based on the proportion of benefit to a program. Example: 10 boxes of paper are bought by the provider. Three boxes are to be used by (assigned to) Program A and seven are assigned to Program B. The proportional benefit would be 30% for Program A and 70% for Program B. If the total cost of these 10 boxes was $100, then $30 would be allocated to Program A, and $70 to Program B.
Interrelation Benefit: Costs are assigned based on a reasonable and rational basis. Example: costs that are not readily identified by the benefit to a grant may be assigned according to an allocation methodology.
Best practices in allocation methodology include:
- Documenting thoroughly how it was developed
- Documenting its beginning and its end
- Documenting benefits to the grant (e.g., staffing, office space, hours of service)
- Being updated periodically to reflect either a loss or an addition of funding
- Being consistently used in similar circumstances
- Reviewing It routinely to assure that it continues to represent a reasonable distribution of costs
Costs may not be allocated based on:
- Adjusting costs based on available funds of an award
- Adjusting costs based on budgetary convenience
- Circumventing funding restrictions
- Offsetting costs by assigning them alternatively to one grant and then to another Example of a Cost Allocation Plan or for more examples visit Cost Allocation Plans
