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Cost Allocation Methodology Guidance for Sponsored Projects

Allocations between sponsored projects or other funding sources are often necessary when principal investigators are reviewing the relative benefit of purchased items or recurring costs.

To assist principal investigators with these processes, the University of North Texas has established the following guidance for allocating costs that benefit multiple sponsored projects or one sponsored project and other instructional or program related area.

 

Reason for this Guidance

The University of North Texas must comply with federal requirements under the Cost Accounting Standards (CAS) and the Uniform Guidance (2 CFR 200). These regulations require that costs charged to sponsored projects be reasonable, allowable, and allocable.

If an expense benefits only one sponsored project, it must be charged directly to that project.

When a cost benefits multiple projects or activities, Uniform Guidance §200.405(d) requires UNT to document and justify how that cost is allocated:

If the proportional benefit to each project can be measured, the cost must be split according to that measurable benefit.

If the proportional benefit cannot be precisely determined, but the cost benefits more than one project, the cost must be distributed using a reasonable, supportable allocation method.

This guidance explains how UNT departments should develop, document, and apply cost allocation methodologies to ensure compliance with federal and sponsor requirements.

 

What is an Allocation Methodology?

An allocation methodology is a defined, documented approach used to divide a cost among two or more sponsored projects or activities when:

  • The cost benefits each project, and
  • The benefit can be supported through reasonable, defensible data.

UNT uses allocation methodologies when:

  • Direct Charging
    • The cost clearly and easily relates to one project and is charged entirely to that project.
  • Distribution Across Multiple Projects
    • A cost benefits multiple projects and the proportional benefit is readily measurable (e.g., number of samples processed, hours of instrument use).
  • Allocation Based on Reasonable Approximation
    • A cost benefits multiple projects, but the exact proportional benefit is not easily quantified.
    • A reasonable, documented basis (e.g., square footage, FTEs, time spent) is used.
  • Recharge Centers
    • When a service is used by many researchers and usage varies, a recharge center or service center may be more appropriate to recover costs based on actual usage.

This document provides UNT administrators and PIs with expectations for establishing, using, and documenting allocation methodologies.

 

Components of a Valid Allocation Methodology

Every allocation methodology at UNT must include:

  • Allocation Percentages
    • The percentage of cost assigned to each benefiting project or activity.
  • Basis for the Allocation
    • The data, reasoning, or metric used to derive the percentages (e.g., number of lab animals used, hours of work, FTE counts, experiment counts).
  • Supporting Documentation
    • Evidence that the chosen method is reasonable, consistently applied, and reflects proportional benefit.

 

Criteria for Acceptable Allocation Methodologies

At UNT, a valid allocation methodology must:

  • Clearly demonstrate a logical connection between the cost and the benefit to each project.
  • Be developed before or at the time costs are incurred whenever possible.
  • Be documented in a manner that is understandable to individuals familiar with sponsored programs, even if they were not involved in the decision.
  • Be used consistently for the expenses it covers.
  • Be reviewed regularly and updated when circumstances (including funding or usage) change.

 

Best Practices for Allocation

  • Determine the allocation basis early, ideally before the cost is incurred, to avoid corrective cost transfers.
  • Use the most appropriate method for the type of expense; no single method fits all situations.
  • Document the rationale at the time the methodology is developed, including why the chosen basis reflects relative benefit.
  • Monitor allocations periodically (at least quarterly) to ensure the distribution still reflects actual benefit.
  • Reassess the methodology if project scope, student involvement, funding, or usage changes.
  • Follow UNT routing/approval procedures for establishing allocation methodologies.

 

Timing & Compliance Considerations

When costs are charged directly at the time of purchase:

  • Conduct quarterly monitoring to ensure the allocation remains accurate.

When costs are temporarily charged to a department account:

  • Allocate costs no less frequently than quarterly.
  • Sponsored projects may not be used as the primary account for charges that will later be allocated.

For all allocations:

  • Journals/Requisitions/Pcard Purchases must include sufficient justification and supporting documentation.
  • Allocations must never result in overcharging any sponsored project.

 

Unacceptable Allocation Practices

The following practices are not compliant and may result in audit findings:

  • Rotating charges among projects without a basis tied to actual benefit.
  • Allocating costs based solely on available funding, budget limitations, or convenience.
  • Misrepresenting the nature of an expense to justify charging it to a project.
  • Charging a cost entirely to a sponsored project when it also benefits non-sponsored activities.
  • Charging costs before any benefit occurs (e.g., charging travel to a project before the trip happens).

 

Documentation Requirements

UNT departments must retain documentation that includes:

  • The type of costs covered by the methodology (supplies, animal per diems, service contracts, etc.).
  • The logic and rationale demonstrating the linkage between the cost and each benefiting project.
  • The calculation of allocation percentages, including any metrics used.
  • The process and timeline for reviewing and updating the methodology.
  • For methodologies requiring periodic calculations, documentation must be attached to each expense method of entry. (i.e., Journal, Requisition, Pcard, Travel)
  • For standing allocation methodologies, documentation must be attached to each expense method of entry. (i.e., Journal, Requisition, Pcard, Travel)

Documentation must be retained according to sponsor terms, federal regulations, and UNT record retention policies.

 

Applicability

  • This guidance applies to:
  • Principal Investigators
  • Department administrators
  • Research staff
  • Colleges, departments, centers, and institutes
  • Anyone responsible for managing, allocating, or approving sponsored funds

 

Roles and Responsibilities

Principal Investigators

  • Ensure costs charged to their projects are reasonable, allowable, and allocated based on relative benefit.
  • Regularly review expenditures and allocation methodologies.
  • Identify changes in project scope or usage that may require adjustments.

College Research Officers (Department/College Level)

  • Assist PIs with selecting appropriate allocation bases.
  • Perform regular reconciliation of accounts and suspense items.
  • Maintain documentation and ensure adherence to UNT retention policies.
  • Recommend updates when methodologies no longer reflect actual usage.
  • Provide oversight and additional approval processes.
  • Conduct periodic reviews.
  • Ensure unit-level procedures align with university requirements.

Grants & Contracts Administration (GCA)

  • Publishes and updates allocation guidance for UNT.
  • Provides training and consultative support to units.
  • Reviews methodologies as needed to ensure compliance.
  • Coordinates policy updates and interpretations of federal requirements.