Teleconference on Cost Allocation

Notes from the teleconference on "Grant Administration: Cost Allocation" -- Sept. 29, 2005.

Speaker: Henry Flood, president of The Institute for Grant Program Administration, Miami, FL.

Intoduction

Cost allocation can quickly become a complex and confusing topic, but it need not be this way. By adhering to certain fundamental principles, cost allocation can be readily managed.

Cost Allocation Defined

Cost allocation refers to the assignment of particular costs in a grant budget to designated categories so that such costs are allocated consistently according to their assigned categories. A good analogy is to think about your mail delivery. Mail handlers handle thousands of pieces of mail. They have to sort what they get in terms of zip codes and ultimately to names and numbers that direct items to particular persons. The same is true when it comes to cost allocation. Every cost gets broken down into a particular category and then assigned somewhere as its final resting place.

Cost Allocation Concepts

Some general background on cost allocation:

A. Activities Must Be Related to Categories of Defined Costs

Good cost allocation begins when you first put your application request budget together. Initially, you define your particular needs in a grant application in two key ways. First, you have activities in mind such as education, training, outreach services, supplies, equipment and so on. Each activity involves a specific cost that is assigned to that activity. The more carefully you define and explain the cost for each activity, the easier it will be to allocate and assign its exact role in your pre-award budget and ultimately in your winning grant.

B. Activities and Defined Costs Must Be Allowable by Agency Rule and Cost Rules

We all know that proposal and awarded costs are regulated by the laws and rules of the grant program to which you are applying, plus the government-wide cost rules that pertain to your type of organization. Since most all of our participants are nonprofit organizations, OMB Circular A-122 is your source of government-wide cost allocation.

At this point, a word of caution is in order. Do not be lulled into thinking that OMB Circular A-122 is the only source of authority on cost allocation and allowable costs. There are many instances where a particular program restricts costs that are otherwise allowable under OMB Circular A-122. These restrictions range from pre-approval requirements, reduced eligibility and outright un-allowable. For example, capital equipment over $5,000 usually requires a pre-approval before you obligate funding. Construction may be specifically unallowable. Renovation may be restricted to minor repair. Stipends to individuals may be unallowable. If you have an approved indirect cost rate, that rate may be fully allowable, capped to a percentage of your approved rate or totally unallowable. As you can see, rules influence eligibility and therefore how such costs may be allocated. Remember our postal analogy. Make sure you do not exceed your administrative caps.

IV         A Model Budget Example

Budget to be discussed in terms of allocation management

A budget is a plan to spend money. It is the job of a project manager to ensure that the costs are allocated and spent in the right categories. Each item of cost has allowable costs, just make sure that each expense fits into each of the costs. If you have written policies within your office, travel, per diems, etc, you must follow those. Timesheets must be broken down into time spent on each grant and allocated for each day. The budget needs to monitored consistently to remain an effective tools of accountability.