Financial compliance is a very important aspect of any researcher’s work, but more so for a faculty member with multiple projects and different funding sources. It can be a tricky mathematical challenge to handle cost allocation appropriately and document it properly.
First, let’s consider costs that are for items that benefit multiple projects or university activities. In this case, a good grasp on calculating percentage usage is needed. According to Beverly Rymer, University of Houston Division of Research’s executive director of the Office of Contracts and Grants (OCG), this is a critical concept because federal guidelines require costs that benefit more than one activity to be allocated based on the proportional benefit provided to each. The same is true when it comes to good accounting practice applicable to all grants and contracts.
Sharing is caring
In an online forum entitled, “The Ins and Outs of Cost Allocation,” Rymer gave this example: “If you bought boxes of syringes for two separate projects, it would not be prudent or cost effective to track which syringe was used by who and for which experiment or trial.” She goes on to say: “The cost of the syringes to each award can be based on the estimated amount of effort the lab personnel who uses the syringes expends on each award.” Documenting and applying this kind of allocation will require knowing something about adding and subtracting percentages based on usage.
Let’s look at a Proportional Benefit example! This takes a little math to iron out. A lab scale with a typical life of 12 months that cost $4,000 and was purchased just three months prior to the expiration of an award should result in a charge of $1,000 to the grant. The remaining amount should be charged to other ongoing project/s. In other words (or numbers): $4,000/12 month life span = $333.33/month x 3 months use = $1,000.
If the exact proportions cannot be reasonably determined because of the interrelationship of the work involved, then the costs may be distributed on a “reasonable and rational basis.” This is referred to by the University of Washington on their site as the “interrelationship rule.” But be sure to always document and ensure the rationality is consistent across all projects.
Science spending sprees
A big red flag for an audit occurs when a researcher purchases new computers or supplies near the end of a grant. A message from the University of North Dakota, for instance, worded it this way to their research enterprise: “In the event of an audit by a federal agency, any large purchases at the end of an award will be flagged and most likely will be disallowed resulting, at a minimum, in repayment by the awardee and potentially suspension or disbarment from future federal funding.” With such dire consequences, it is imperative that all big purchases are made at the very onset of the grant funds.
You may ask, what does spending at the end of the award have to do with cost allocation? “Well, think about it,” stated Rymer. “At the expiration of an award, when there is little or no time left to do work on the project, why would a new computer be needed? If the computer is necessary to complete the project’s work, what is the reasonable amount of that computer’s cost to charge to the expiring award?”
Grants are privileges that come with their own set of mores and norms. To those who are entrusted with a lot, a lot is expected! But the takeaway is essentially this – researchers are expected to be communicators, as well. Document! And if you have to rely on “reasonable, rational” logic, make sure you are consistent!