Lesson 80 · The Grant Architect

80. Allocable and Allowable

30 min

By the end you'll be able to

  • Distinguish allowability (regulation) from allocability (proportional benefit).
  • Identify costs that are unallowable on their face under 2 CFR 200.
  • Apply an allocation methodology to a shared cost.
  • Diagnose why an otherwise allowable cost can still be unallocable to a specific award.

Allowability and allocability are two separate tests that grant teams routinely conflate. A cost is allowable if 2 CFR 200 (and any program-specific terms) permit it. A cost is allocable if it actually benefits the award being charged, in proportion to the benefit received. Both tests must pass independently. A cost can be perfectly allowable in general and still be unallocable to your specific grant because the work it supports does not benefit that award.

You will work through the practical implications. Entertainment, alcohol, lobbying, and fundraising costs are unallowable on their face, no matter how the charge is framed. Equally important, an allowable cost like staff time becomes unallocable the moment you charge 100 percent of a salary to a grant that only commands 40 percent of that person's effort. Allocation methodologies (effort reporting, square footage for space, headcount for shared services) exist precisely to prove the proportional benefit a federal cost principle demands.

By the end you should be able to look at any line in a draft budget and answer two questions in sequence: Is this cost allowable under 2 CFR 200 and the program's terms, and is the amount being charged the portion that actually benefits this award. If either answer is no, the line gets rewritten before submission, not after the audit letter arrives.

Common mistakes

These are the traps learners hit most often on this topic. Knowing them in advance is half the fix.

  • Confusing allowability with allocability.

    Treating these as the same test produces budgets where allowable categories carry unallocable amounts. Both tests must pass independently.

  • Allocating by gut feel.

    Round-number splits (50-50, 25-25-25-25) without methodology behind them collapse under audit. Effort certifications, square footage logs, and headcount records exist precisely to defend the percentages.

Practice problems

Try each on paper first. Click Show solution only after you've made a real attempt.

  1. Problem 1
    An organization wants to charge $4,000 of shared office space rent to Grant A, which occupies one of four equally sized program offices in the building. Evaluate the proposed charge.
    Show solution

    Office rent is typically recovered through the indirect cost rate, not charged directly. If the recipient has a NICRA, the 4,000 when Grant A occupies only one of four equivalent offices fails the allocability test even if rent is technically allowable as a direct cost for that recipient.

Practice quiz

  1. Question 1
    Which costs are unallowable on their face under the Uniform Guidance?
  2. Question 2
    A staff member spends 40 percent of her effort on Grant A. Charging 100 percent of her salary to Grant A is best described as:
  3. Reflection 3
    In one or two sentences, explain why allocability requires a documented methodology rather than a judgment call.

Lesson 80 recap

Allowability is a regulatory question, allocability is a proportional-benefit question, and both have to pass before a cost can be charged. Documented methodology is what makes allocation defensible.

Coming next: Lesson 81 — Direct Costs Defined

With the three tests in place, we turn to the structural distinction every federal budget rests on: direct versus indirect costs.

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