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Cost Allocation. Prepared by: Colleen B. Mendel, Executive Director & Chris Watkins, Management Specialist T/TAS @ WKU 2009 FSS Fiscal Conference. Overview. Workshop will have three sections Very Brief Overview of Regulations- not everyone is subject to same sets of regulations

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cost allocation

Cost Allocation

Prepared by:

Colleen B. Mendel, Executive Director

&

Chris Watkins, Management Specialist

T/TAS @ WKU

2009 FSS Fiscal Conference

overview
Overview

Workshop will have three sections

  • Very Brief Overview of Regulations-noteveryone is subject to same sets of regulations
  • Presentation of Cost Allocation Methods
  • Quick Case Study and Discussion of Methodologies
the regulations for those providing services to children using federal h h s funds
The Regulations (for those providing services to children using Federal H.H.S funds)

2 CFR Part 215 --Uniform Administrative Requirements

2 CFR Part 220,225,230 --Cost Principles

definitions costs
Definitions: Costs
  • Direct Cost- A cost which benefits only a single funding source. No allocation is necessary.
  • Indirect Cost- An administrative cost which usually benefits all funding sources and is not readily assignable to each funding source without undue burden
definitions
Definitions
  • Single funder only costs - cost for services which are not allowable under under funding programs
  • Directly allocable costs -an administrative or programmatic cost that benefits more than one one funding source but maybe not all funding sources
definitions allowable and reasonable
Definitions: Allowable and Reasonable
  • Reasonable Cost - a cost that a prudent person would approve under the conditions at the time the cost was incurred
  • Allowable Cost - Cost that meets the requirements of the funding regulations, is uniformly applied and is in accordance with GAAP
what is a cost allocation plan
What is a Cost Allocation Plan?
  • A methodology by which costs that benefit more than one program are assigned to the correct funding streams
  • The well documented method based on actual circumstances to distribute costs that benefit more than just a single funder
  • Keep it as simple and straight forward as possible
typical costs that could be allocated
Typical costs that could be allocated
  • Shared Staff
  • Facilities
  • Equipment
  • Transportation
  • Insurance
  • Medical, Food, other costs
  • IF ANY OF THESE ARE DIRECT BILLED THEN NO ALLOCATION IS REQUIRED
steps to allocation
Steps to allocation
  • Clearly define what is to be allocated
  • Develop bases for allocation, different bases can be used for different cost categories
  • Allocate and record in accounting records
  • Review allocation and bases to actual and correct if needed
defining what to allocate
Defining what to allocate
  • Cost allocation procedures should be developed in the planning stage for program operations
  • For HS/EHS this is a fiscal tie-in with the Planning System
  • For all others this is good business
  • The actual accounting will have to be recorded and reviewed
  • This promotes greater accountability
develop bases
Develop bases
  • Does the base match the cost category?
  • Some typical bases include
    • Number of employees
    • Amount of expenses
    • Number of children
    • Square Footage
    • DOES NOT INCLUDE FUNDING AMOUNTS. The share is determined by cost allocation plan not funder dollars as a percentage of total agency budget
salary using number of children
Salary Using Number of Children
  • Total Number of Children= 55
  • Number funded by source 1= 20, by source 2= 35
  • Director’s Salary= 50,000
  • Allocation percentages
    • 20/55=35%, 35/55=65%
  • Applying percentages
    • 65% X 50,000 = 32,500
    • 35% X 50,000 = 17,500
  • The salary should be charged off to source 1 and 2 at this amount
salary using number of staff
Salary Using Number of Staff
  • Director’s Salary= 50,000
  • Staff positions funded by source 1=3
  • Staff positions funded by source 2=2
  • Director manages 5 staff
  • Allocation Percentages
    • Source 1 = 3/5=60% Source 2=2/5=40%
  • Applying Percentages
  • 60% X 50,000= $30,000
  • 40% X 50,000= $20,000
there is no one way to develop the plan
There is no one way to develop the plan
  • The plan should make sense to someone outside the situation-perhaps finance committee of the Board
  • The plan should have the costs and benefits equaling out
  • The plan should be approved by auditors and filed as part of grant application
reminder cost allocation plan should
Reminder-Cost Allocation Plan Should:
  • Provide detailed information on the sources of revenue for the program, supported by historical or other data to substantiate the amounts
reminder cost allocation plan should also
Reminder-Cost Allocation Plan Should Also:
  • Describe how many children, of the total number of Head Start enrollees, are in the portion of the program covered by the cost allocation plan
  • Include a description of the methodology used to determine the allocation of the costs of services to the various funding sources
cost allocation plan should also
Cost Allocation Plan Should Also:
  • Include the basis for allocating costs within specific cost categories (personnel, space, supplies, etc.) and a description of how expenditures within the major cost categories will be apportioned and recorded in the grantee's accounting system
  • Still be allowable, reasonable, and consistently applied
good luck
Good Luck
  • Keep it simple
  • Be able to explain it to others
  • Apply it consistently
  • Revisit the plan regularly to determine if the assumptions are true
  • Talk to agency auditors or FSS fiscal staff if questions arise.