Multifamily Housing Program Financial Management Toolkit

11a. Direct Allocation Method

Since the Direct Allocation method is the method most commonly used by HUD’s nonprofit grantees and sub-recipients for handling indirect costs, it is the one we focus on in this Toolkit. The Direct Allocation method treats almost all indirect costs as direct costs. The basis for prorating indirect costs as direct costs is supported by documentation that demonstrates the relative benefit of the particular cost to the grant’s activities. Using this method, all costs are limited to three basic categories:

  • Program activities, including those performed under federal grants
  • Management functions and general expenses (M&G)
  • Fundraising, under the OMB regulations, is never eligible for HUD-reimbursement

Shared (or indirect) costs, such as insurance, depreciation, facilities, copier, other equipment and phone/Internet expenses are prorated as though they are direct costs and are assigned to one of the three categories above using a base appropriate to each particular cost type.

  • To accurately reflect each program area’s share of the organization’s total operational expenses, management and general expenses may be further allocated.
  • Detailed instructions for implementing an item-by-item methodology are contained in each sub-recipient’s Cost Allocation Plan.