Anyone authorizing the expenditures of federal funds needs to be well-versed in the cost principles contained in OMB Circular A-21.
An expense is allocable to a project if the item being charged, e.g., salaries, supplies, travel, student tuition, etc., benefits the project. Allocability is one of the cost principles defined in A-21, and expenses that are not allocable may not be directly charged.
Allocability is a focus of audit activity. Project expenditures must be supported by evidence of direct benefit to the project. The availability of funds to pay an expense, or its inclusion in a budget, is NOT evidence of the allocability of that expense to the project.
For supplies and other non-salary expenses, allocability can usually be documented through purchase/payment records or other files, as well as through the certification of expenditures. A knowledgeable person in the department must review each month's project expenditures. Any errors or requests for clarification should be brought to the PI's attention and, if necessary, corrected PROMPTLY.
The Effort Certification Statement and certification of expenditures for salaries by an administrator with expenditure authority is the primary documentation of allocability. Project expenditures must be certified by the PI or his/her designee each academic semester, assuring that salaries paid "are appropriate in relation to work performed." To be timely, the certification must be completed by the due date on the form being certified.
If an expenditure statement includes an error, the department initiates a transfer to move the charge to the right account. Department staff will do this based on information provided by the PI. This needs to take place as soon as possible after identifying the need for a correction, and be sufficient to document the benefit to the project being charged. Transfers are fertile ground for audit activity, and they will be reviewed carefully -- first by institution staff, and then often by an external auditor. One very good reason to "Do it right the first time!" is to avoid the level of scrutiny that a transfer, even one that is necessary and appropriate, will invite.
A-21 allows that PIs may allocate costs among different projects, as long as the allocation method reasonably approximates the degree to which each project benefits. Allocation methods must be documented and available for review.