University Corporation for Atmospheric Research

Finance and Administration

Allocable Accounting Guidelines

I. General Comments

The purpose of this guideline is to outline when allocable accounting is appropriate, what is necessary to qualify for the process, and how the approval process works. Within this guideline, the term sponsor and broker are used interchangeably. Note: all sponsors involved in the project must agree to the allocable accounting treatment prior to implementation.

II. Definitions

     Allocable Accounting Methodology

Allocable accounting is a method of accounting that is used when funding is received from multiple sponsors on one proposal in support of a project and the specific expenditures cannot be directly identified with a specific sponsor’s funding. The accounting method allocates expenditures accumulated in a "primary" account key to "secondary" account keys where the specific sponsor’s expenditures are captured. All allocations of expenditures must be consistently and equitably applied based upon contract provisions.      Primary account key The primary account key is the account key that holds expenditures and encumbrances for a series of account keys that are funding the same project. The purpose of the primary key is to collect all expenditures including overhead, benefits and computing service center costs, which will then be allocated equitably to the secondary keys.      Secondary account key The secondary account key is the account key that is associated with an individual sponsor but the expenditures for the agreement cannot be directly linked with a specific sponsor’s funding. The secondary account key is the recipient of allocated expenditures from a primary account key.      Sponsor A legally binding agreement with an external party who agrees to reimburse UCAR for costs incurred on a specified project.      Pooling Pooling is a combination of resources to achieve some common purpose.      Broker A sponsor acts as an intermediary in gathering funding for a project. III. Procedures

      Requesting allocable accounting

When an administrator becomes aware that a proposal is being brokered or various sponsors want to pool resources on a project, the administrator should contact their respective entity budget and planning (B&P) office to begin the approval process for allocable accounting. The request should include the original sponsor, any potential additional sponsors, and the explanation of why the sponsor’s funding cannot be directly linked with a specific cost objective. The respective entity B&P office will review the request to determine if the request qualifies for allocable accounting treatment. If the B&P office determines the proposal qualifies for allocable accounting, the division should contact the Manager of Sponsored Agreements to begin working with the sponsors to have the agreements amended to reflect the acceptance of allocable accounting. The amendment should address title issues when equipment is purchased under this arrangement.      Setting up the allocation Once all of the sponsor’s agreements have been amended and approved, the division administrator should setup the primary account key for the allocation process. The primary account key will have "allocable" as the fund source and contract in the chart of accounts. The secondary account keys will be directly related to the signed agreements and should not have expenditures directly charged. If a secondary account key can be directly charged, that account key would not qualify as part of the allocation process. The premise behind the allocable is that NO expenses can be directly linked to a specific sponsor’s funding; therefore, the rates applied to each sponsor’s agreement must have the same rate as the primary account key for overhead, fringe benefits, and computing service center.      Special rules for the primary account keys
    1. The primary account key CANNOT be part of an existing outside direct contract
    2. The funding source and contract is ALLOCABLE.
    3. The primary account key will hold all of the expenditures and encumbrances. This means that the rate applied to each sponsor’s agreement must be the same as the primarys.
    4. The primary account key is a temporary holding place for expenditures; therefore, no budgets are entered into the primary account key.
     Special rules for the secondary account keys
    1. The principal assumption in the allocable process is that expenditures cannot be linked to the secondary account keys; therefore, secondary accounts cannot have original expenditures or encumbrances.
    2. All secondary account keys are subject to the same restrictions regarding overspending/pre-spending that apply to other account keys.
    3. The allocation of expenditures should be applied consistently and equitably to secondary programs. The allocation method should not be an attempt to receive special treatment or "disguise" unwanted expenditures.
    4. The allocation process will occur during the month end closing process and the expenditures are summarized at the expense class level.
    5. Budgets are posted in the secondary account keys.
     Requests by sponsor for specific expenses If a sponsor requests to have specific expenses charged to them, then a separate account key must be setup to accommodate these charges. This account key will have the same funding source and contract as the secondary key that is involved in the allocation process but will not be included in the allocation process.      The allocation process The division administrator will coordinate with their division project accountant to determine the allocation percentages for each sponsor’s secondary account key. This should be done by using the total funding provided by each sponsor and determining their percentage of the whole. For example, Sponsor A provides $100, Sponsor B $350, and Sponsor C $50 with the total funds for the project equaling $500. Rather than allocating 1/3 of the costs to each sponsor, which is not equitable considering the funding levels of each sponsor, the allocation percentages would be determined by dividing each sponsor's funding by the total funding received. Thus, Sponsor A would be allocated 20%, Sponsor B 70% and Sponsor C 10%. The primary account key would be zeroed at the end of each month because 100% of the costs are being allocated to the respective secondary keys. Finally, the purchase of equipment including title issues must be agreed upon by all participating sponsors before the allocable accounting can be implemented.