Cost allocation across several grants
How to share staff, rent and other costs fairly across several grants: direct vs indirect costs, allocation bases, timesheets and a written method.
Short answer
Cost allocation shares costs that benefit more than one grant using a fair, written method. Decide which costs are direct, shared or indirect. Choose a base that tracks real benefit, such as timesheet hours for staff or floor area for rent. Apply it the same way every month, keep the evidence, and never allocate based on which grant has money left.
Key points
- Charge a cost directly to one grant when it clearly benefits only that grant.
- Split shared costs by a base that follows benefit: time, floor area, usage.
- Staff time needs timesheets, not budget guesses.
- Write the method down and apply it the same way every period.
- Never move a cost to a grant just because that grant has money left.
Why does cost allocation matter?
Most small NGOs share people, offices, vehicles and software across several grants. Each donor expects to pay only its fair share. If you charge the same cost twice, or charge a grant for work it did not benefit from, you risk disallowed costs, refund requests and damaged trust.
Fair cost allocation also helps you. It shows the real cost of each project and avoids hidden subsidies. Mango's handbook says that core costs have to be shared out, or apportioned, between projects in a fair way.
What are direct, shared and indirect costs?
| Type | Meaning | Examples | How to charge |
|---|---|---|---|
| Direct | Benefits one grant only | Project officer salary, training materials for one project | Charge fully to that grant |
| Shared direct | Benefits several grants in a way you can measure | Staff who work on two projects, a vehicle used by several teams | Split by time, trips or usage |
| Indirect | Supports the whole organisation | Audit, general management, finance staff, rent of head office | Allocate with a fair base or an agreed indirect cost rate |
FHI 360 points out that a resource used by more than one project, such as a staff member who records time, typically falls under direct costs, because you can measure how much each project used it. A vehicle used for trips by several projects can also be charged trip by trip.
How do you choose an allocation base?
The test for any base is simple: does it follow the benefit each grant receives, and can you support it with evidence you already keep or can keep cheaply?
| Cost | Suggested base | Evidence |
|---|---|---|
| Staff working on several grants | Actual time worked | Timesheets |
| Office rent and utilities | Floor area used by each project, or staff numbers | Floor plan or staff list |
| Vehicle | Trips or kilometres by project | Vehicle logs |
| Internet and software | Number of users per project | User list |
| Printing | Pages printed per project | Print logs |
| General management and finance | A rate set by a documented method, or a share of direct costs | Allocation worksheet |
FHI 360 notes that there is no single correct method for allocating shared costs, but your organisation must be clear about how it handles them, and should adjust the formula as projects and funding change.
How do you build an allocation plan?
- List shared costs. Go through your ledger and mark every cost that benefits more than one grant.
- Choose a base for each type. Use the table above as a start.
- Check donor rules. Donors may restrict what can be charged or require a specific method or rate. Read each agreement and note limits on indirect or overhead costs.
- Write the method. One to two pages: which costs, which base, who calculates, how often and where the evidence is kept.
- Collect evidence monthly. Timesheets should be signed by staff and their supervisor.
- Run the allocation. On a worksheet, show the total cost, the base values, each grant's percentage and the amount charged.
- Reconcile. The ledger, the worksheet and the donor reports must agree. File the worksheet with the month-end close.
- Review each year. When grants start or end, revise the percentages.
What does a worked example look like?
An organisation has one finance officer who costs 600 units a month. She works on three grants. Her timesheets for the month show 50 percent of her time on Grant A, 30 percent on Grant B and 20 percent on Grant C. The allocation is 300 units to A, 180 to B and 120 to C. The timesheet is the evidence.
For shared rent of 1,000 units, the three grants occupy 40, 40 and 20 percent of the used floor area. The allocation is 400, 400 and 200 units.
These numbers are only for illustration. Use your own records.
What mistakes should you avoid?
- Allocating by remaining budget. Moving costs to a grant with unspent money breaks the principle of benefit. Under many donor rules it is not allowed.
- Budget percentages instead of actual time. A budget says 50 percent. The timesheet says 30. Charge what happened.
- Changing the method without a record. Auditors will see the change and ask why.
- Charging unallowable costs. Costs a donor does not allow, such as fines, must be kept out of every pool that touches that award.
- No evidence. A percentage that nobody can explain is a finding waiting to happen.
Check your cost allocation against your budget reports each month. See budget management and monthly budget vs actual. If an auditor tests shared costs, they will ask for your method and your evidence. See how to prepare for a donor audit.
How EMPO can help
EMPO is a reliable, trusted training and consultancy provider and one of Myanmar's leading names in practical NGO training, with 1,200+ people trained and 15 partner organisations. Our Yangon team offers budget management training and organisational development support, in English and Burmese, online and in person across Myanmar. See our services or contact us.
Sources
- Implementation Tips for USAID Partners — FHI 360, Capable Partners Program
- Financial Management Essentials: A Handbook for NGOs — Mango, 2013
Questions people ask
What is the difference between a direct and an indirect cost?
A direct cost benefits one project and is charged to it, such as a project officer's salary. An indirect cost supports the whole organisation, such as audit, general management or rent for a shared office.
Do we need timesheets?
If staff work on more than one grant, yes in most cases. Time records show actual effort and give you evidence for the split. Check your donor's rules on documentation.
Can we change the method during a grant?
You can, if circumstances change, but do it from a stated date, document the reason and apply it consistently. Changing methods to move costs to a grant with spare budget is not acceptable.