What is a Cost Allocation Plan and Do I Need One?

A Cost Allocation Plan (CAP) is a formal, written document that explains how a nonprofit organization divides shared costs—such as rent, utilities, technology, insurance, and administrative salaries—across multiple programs, departments, or funding sources. In U.S. nonprofits, a CAP ensures that each funding stream is charged its fair share of expenses based on the actual benefit received.

For example, if your nonprofit runs three programs—youth services, food distribution, and job training—from the same office, your CAP might allocate rent according to each program’s square footage, staff hours, or client usage. The method you choose must be reasonable, consistent, and easy to justify to funders and auditors.

A CAP isn’t just good bookkeeping—it’s often a compliance requirement. Federal grant recipients must follow Uniform Guidance (2 CFR Part 200), which requires documented allocation methods. Without a CAP, nonprofits risk noncompliance, inaccurate reporting, and even repayment of funds.

If you’re a U.S. nonprofit with more than one program, multiple funding sources, or shared resources like staff or office space, the answer is almost always yes. A Cost Allocation Plan is the written policy that explains how you split shared costs—rent, utilities, admin salaries—fairly across programs based on the benefit received. For organizations receiving federal funds, it’s not optional: Uniform Guidance (2 CFR Part 200) requires documented allocation methods. Even if it’s not mandated, a CAP protects you from charging costs to the wrong fund, reduces audit risk, improves transparency with funders, and makes budgeting cleaner and faster.

Examples of nonprofits that benefit from a CAP:

• Small, community-based nonprofits – e.g., a neighborhood food pantry sharing staff and space with a youth tutoring program.
• Mid-sized regional organizations – e.g., an arts council running exhibitions, educational workshops, and grantmaking under one roof.
• Large, multi-state nonprofits – e.g., a health services provider operating clinics, outreach programs, and telehealth initiatives funded by multiple grants.
• Sector-specific cases – social services, housing and shelter providers, education and workforce development programs, environmental nonprofits, healthcare and public health agencies, arts and culture institutions.

MissionGranted makes it easy to stay compliant without the spreadsheet headache. Automate allocations by FTE, square footage, or other methods, keep rules consistent across all programs, and recalculate instantly as costs are posted—so your CAP is always accurate and audit-ready.

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