Cost Allocation Methods Explained

When expenses benefit multiple grants, you need a fair and defensible method to allocate costs. This guide covers common allocation methods.

Why Allocation Methods Matter

Funders and auditors expect:

• Consistency - Same method applied similarly
• Reasonableness - Method makes logical sense
• Documentation - Written policies and procedures
• Accuracy - Reflects actual benefit

Common Allocation Methods

Direct Allocation

Expenses charged entirely to one grant.

When to use:

• Expense clearly benefits only one grant
• Personnel works 100% on one grant
• Supplies purchased specifically for one project

Example: A laptop purchased exclusively for the Youth Program grant.

Percentage Allocation

Split expenses by predetermined percentages.

When to use:

• Staff split time across grants
• Shared resources with known usage patterns
• Cost-sharing arrangements

Example: An employee works 60% on Grant A, 40% on Grant B. Their salary is allocated proportionally.

Direct Cost Base Allocation

Allocate based on proportion of direct costs.

Formula: (Grant's direct costs ÷ Total direct costs) × Shared expense

When to use:

• Utility costs
• General supplies
• Common area expenses

Example: If Grant A has $100K in direct costs and Grant B has $50K, shared costs are split 67%/33%.

Headcount Allocation

Allocate based on number of personnel.

Formula: (Grant's FTEs ÷ Total FTEs) × Shared expense

When to use:

• Office space
• IT support
• Administrative overhead

Example: Grant A has 3 staff, Grant B has 2 staff. Rent is split 60%/40%.

Time-Based Allocation

Allocate based on actual time spent.

When to use:

• Personnel costs
• Consultants working across projects
• Equipment usage

Example: Track hours worked on each grant and allocate salary accordingly.

Setting Up Allocation Rules in GrantLink

1. Open Todos to review unallocated transactions
2. Use Allocate to classify to a grant or split across grants
3. Review and adjust results in Allocations

Future matching transactions auto-allocate.

Documentation Requirements

Keep records of:

• Allocation methodology description
• Basis for percentages or formulas
• Board approval of allocation policy
• Periodic reviews and updates

Best Practices

1. Choose appropriate methods - Match method to expense type
2. Be consistent - Apply methods uniformly
3. Review regularly - Update percentages as circumstances change
4. Document thoroughly - Auditors will ask questions
5. Keep it simple - Overly complex methods cause errors

How GrantLink supports this today

Use the Ledger, grant Allocations tab, and Todos to review synced QBO transactions, allocate expenses, split shared costs, assign budget lines, and classify funding shares. GrantLink stores the review trail for reporting and audit support.