CYS COST ALLOCATION WORKSHOP

1. CYS COST ALLOCATION WORKSHOP March 26 - 28, 2007 Chicago, Illinois Presented by R. Armstrong

2. AGENDA – Cost Allocation • INTRODUCTIONS • PURPOSE • QUESTIONS • ELEMENTS - COST ALLOCATION PLAN • QUESTION COSTS • UNALLOWABLE METHODS OF ALLOCATION • THREE PROGRAM FIGURATIONS • SUGGESTED BASES FOR COST ALLOCATION • EXERCISES • REFERENCES • WRAP UP

3. PURPOSE • To provide overview of cost allocation and how to avoid question costs • To assist Delegates and Partners required to prepare a cost allocation plan

4. PRE and POST QUESTIONS 1. What is the purpose of a cost allocation plan? 2. Is an indirect cost rate the same as a cost allocation plan? Yes or No 3. My agency is a freestanding organization that provides only Head Start services and has no other source of funding. Is a cost allocation plan required? Yes or No

5. 5. A Head Start grantee in collaboration with the State child care funding source (CCDF) provides a full day of Head Start services which meet all of the Performance Standards for the entire period at the Head Start facility. The grantee includes in its proposed budget reimbursement from CCDF through direct funding from the State or through certificates or vouchers from the parents. If all children are enrolled in Head Start and are receiving services which meet the Performance Standards, is a cost allocation plan required? Yes or No

6. 5.Can a grantee with multiple sources of funding have both an indirect cost rate and a cost allocation plan? Yes or No 6. Is there any restriction on outside CPA firm performing the annual audit and preparing the cost allocation plan for your agency? Yes or No

7. COST ALLOCATION • Means the process of assigning to two or more programs the costs of an item shared by the programs. The goal is to ensure that each program bears its fair share, and only its fair share, of the total cost of the item. H. S. Fiscal Assistant – Cost Allocation

8. Cost Allocation Plan • A written account of the methods used by the grantee to allocate costs to its various funding sources. • In order to document that costs have been properly allocated, the grantee must have a written plan.

9. FISCAL CHECKLIST - 2007 • SECTION II – USE OF HEAD START GRANT FUNDS Compliance Question #2B • If the grantee and delegate have shared costs withother programs, have they used an allocation base that best measures the relative degree of benefit for all benefiting functions? • 2 CFR Part 230, Appendix A, Nonprofit Organizations

10. Designate Person to Answer Fiscal Questions • Does the delegate have a cost allocation plan that describes the methodology for allocating shared costs? • Is the allocation methodology based on current data? • Does the delegate have a process to establish that estimated data used in the allocation process is reasonable?

11. Are occupancy costs based on the proportion of usable space occupied by each program? • Are salaries allocated based on the employee’s actual activity in each program?

12. Reasons for Question Costs • Unallowable – Failure to comply with law, regulations, contract, or FAA • Unsupported - Failure to maintain adequate documentation • Unreasonable – Failure to adhere to “Prudent Person” Rule *OMB Circular A-133.105(aa)

13. Indirect Cost Rate • Indirect CostRate is a way to compensate multi-purpose agencies with multiple sources of funding for certain overhead expenses incurred in the operation of its programs. In such agencies it is difficult to assign an actual value or share of certain costs.

14. Cost Allocation Plan (CAP) • CAP is a way to distribute costs within the direct cost budget to various funding sources when resources are being sharedby two or more programs.

15. Elements of Cost Allocation Plan • Describe or identify the sources of revenue for the program, supported by historical or other data to substantiate the amounts. • Note: Current financial statements will be helpful in identifying funding sources • Describe how many children, out of the total number of Head Start enrollees, are in the portion of the program covered by the CAP.

16. Describe the methodology used to determine the allocation of the costs of services to the various funding sources. • Describe 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. • NOTE: An organization chart will behelpful.

17. EXCEPTION TO COST ALLOCATION PLAN • When there is a collaborative activity between Head Start and another Federal child care or early education program, two costcategories, equipment andnonconsumable supplies, do not have to be allocated between the programs, so long as Head Start is the predominant source of funding for the activity. • *Section 640 (a)(5)(E) of the Head Start Act

18. UNALLOWABLE METHODS OF ALLOCATION • Head Start has the largest budget, so Head Start should pay the largest share of costs • Estimates of time spent on a program or activity • New funds are used only for the increased incremental cost--- not its fair share of costs

19. PRISM Cost Allocation Finding NONPROFIT ORGANIZATIONS 45 CFR 74.21(b)(6) Lack of written procedures for determining allowability, allocability, and reasonableness of costs in accordance with the provisions of the applicable Federal costs principles and conditions of the award

20. COMMON CONFIGURATIONS • Agency program is entirely Head Start Agency manages a Head Start program and in collaboration with the state funding source provides a full day of Head Start services. Agency includes reimbursement in its grant application with HHS. • Agency manages two or more separate programs that do not share costs • Agency has two or more programs which it operates as a single program with shared resources. This is a multiple purpose agency and requires a cost allocation plan.

21. SUGGESTIONS-ALLOCATION The allocation base selected must be • Reasonable and consistently applied • Supported by accurate and current data • Appropriate to the particular cost being distributed • Must result in an accurate measure of the benefits provided to each program

22. SUGGESTED BASES FOR COST DISTRIBUTION • The handout contains suggested allocation bases that might be used to direct charge joint costs to Federal awards and other activities of the grantee. • The bases are suggestions only, and should not be used if they are not suitable for the particular service involved. • ANY METHOD OF ALLOCATION CAN BE USED WHICH WILL PRODUCE AN EQUITABLE DISTRIBUTION OF COSTS

23. SELECTED ITEMS OF COST DISTRIBUTION

24. HANDOUTS • Cost Allocation Narrative • ACYF-IM-HS-01-06 dated 3/8/01 • Exercises

25. PERSONNEL Costs that benefit all programs are allocated based on a ratio of each program’s personnel costs (salaries and fringe benefits) to total personnel costs.

26. PERSONNEL • The total salaries for five programs are $2,000,000 to be divided as follows: A $150,000; B $200,000; C $250,000; D $500,000; and E $900,000. The total costs to be distributed for this agency is $290,000 for accounting, human resources, MIS, and executive office. These costs benefit all five programs and are to be distributed based upon your analysis. Fringe benefits are to be distributed in the same manner as salaries. • Your assignment is to determine the method you would use to allocate the costs, reason for choice, and then allocate the costs among the five programs.

27. PERSONNEL

28. FACILITIES Facilities cost that benefit all programs are allocated based upon a ratio of square footage used by each program compared to the total square footage of the facility. NOTE: Do not forget to include square feet for the common areas. e.g. hallways

29. FACILITIES • The agency pays $50,000 a year for the following square footage: A 4,000; B 1,000; C 2,000; D 2,000; and E 1,000. These facility costs benefit all five programs and are to be distributed based upon your analysis. • Your assignment is to determine the method for allocating the facility costs, reason for choice, and then prepare a worksheet allocating the costs among the five programs.

30. FACILITIES

31. PRINTING • Printing costs that benefit two or more programs, but not all programs, are allocated based upon ratio of each program’s expenses (direct costs other than salaries and fringe benefits) to the total of such expenses.

32. PRINTING • The agency pays $12,000 for printing costs that are shared with A, B, and D programs. The costs for the programs, other than salaries and fringe benefits, are as follows: A $150,000; B $200,000; D $250,000; and E $500,000. C and E programs have their own printers and thus do not share any printing costs. • Your assignment is to determine the method for allocating printing costs, reasons for choice, and then prepare a worksheet allocating the costs among the three programs.

33. PRINTING – One Method

34. QUESTIONS • 1. See Slide #7 • 2. No, See Slide #13 • 3. No, See Fiscal Assistant • 4. No, See ACYF-IM-HS-01-13 • 5. Yes, See Fiscal Assistant • 6. Yes, See Fiscal Assistant

35. REFERENCES • FINANCIAL MANAGEMENT ISSUES IN HEAD START PROGRAMS… ACYF-IM-HS-01-06 • BUDGETING for PARTNERSHIPS between CHILD CARE and HEAD START ACYF-IM-HS-01-13 • FISCAL ASSISTANT, COST ALLOCATION

36. Summary of Cost Distribution Requirements • Head Start only budget Cost allocation notrequired • Head Start budget with reimbursement from other program sources Cost Allocation notrequired • Joint use of Head Start resources with other non-Head Start sources Cost allocation required and costs of resource must be fairly allocated among the program sources so that programs share costs in accordance with the benefits derived *****