Sponsored Program Compliance
13. Documenting Allocability
Connecting Expenses to the Benefited Project
An expense is allocable to a project if the item being charged, e.g., salaries, supplies, travel, student tuition, etc., benefits the project. Allocability is one of the cost principles defined in the Uniform Guidance (U.G.), and expenses that are not allocable may not be directly charged.
Allocability is a focus of audit activity. Project expenditures must be supported by evidence of direct benefit to the project. The availability of funds to pay an expense, or its inclusion in a budget, is NOT evidence of the allocability of that expense to the project. In addition, if an appropriate basis, such as usage, cannot be identified at the time of purchase to allocate the charges with relative ease, such costs may be considered indirect costs (vs. direct costs).
For supplies and other non-salary expenses, allocability can usually be documented through purchase/payment records or other files, as well as through the certification of expenditures. A knowledgeable person in the department must review each month's project expenditures. Any errors or requests for clarification should be brought to the PI's attention and, if necessary, corrected PROMPTLY. For salaries and wages, the PI's review and certification of project expenditures is the primary documentation of allocability.
If an expenditure statement includes an error, the department initiates a cost transfer to move the charge to the right Financial Activity Object (FAO) [account]. This needs to take place as soon as possible after identifying the need for a correction, and be sufficient to document the benefit to the project being charged. Transfers are fertile ground for audit activity, and they will be reviewed carefully -- first by UR staff, and then often by an external auditor. One very good reason to "Do it right the first time!" is to avoid the level of scrutiny that a transfer, even one that is necessary and appropriate, will invite.
PIs may allocate costs among different projects, as long as the allocation method reasonably approximates the degree to which each project benefits. Allocation methods must be documented in department files or in the online transaction documentation.
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