Adult Education and Literacy

1. Adult Education and Literacy Budget Development and Cost Allocation

2. Budget Development • Budgets are financial plans on how a project will be completed. The more accurate the budget is, the more successful the program will be. • Budgets should include anticipated expenses such as potential increases in rent and annual salary increases, as well as any earned income that may be generated during the course of the project. • Budgets are best estimates of what a project will cost therefore, they often need adjusted (the Agency recommends that budget-to-actual comparisons be conducted at least quarterly).

3. Supplement Not Supplant The AEL program requires that federal AEL funds supplement and not supplant other state or local public funds expended for adult education and literacy activities. Federal funds must not result in a decrease in state or local funding that would have been available to conduct the activity had federal funds not been received. In other words, federal funds may not free up state or local dollars for other purposes but should create or augment programs to an extent not possible without federal funds.

4. Cost Allocation The process of assigning to two or more programs the costs of an item shared by the programs. Purpose To ensure that costs are equitably distributed to benefitting cost objectives and funding streams so that all programs contribute their fair share

5. Basic Considerations • Allowable expenses must be allocable to a particular cost objective in accordance with the relative benefits received. • Allocable costs must: » Be incurred specifically for and benefit the award » Be reasonable and necessary for proper and efficient performance of the award. » Not be shifted to other awards to overcome funding deficiencies, or to avoid restrictions imposed by law or by the terms of the award

6. Direct Costs Direct costs are costs that can be specifically identified with a final cost objective that receives the full benefit of those costs. Examples are salaries for program instructors, the costs of materials and supplies consumed in the class, equipment used specifically in the class; and travel expenses incurred to carry out the award.

7. Indirect Costs Indirect costs (called Facilities and Administrative (F&A) costs for educational and non-profit institutions) are costs that are incurred for common or joint objectives and cannot be identified readily and specifically with a particular project. Costs typically charged as indirect costs are depreciation on building and equipment, O & M, library, and general administration (administration that does not relate solely to the program or any major function of the institution).

8. Cost Allocation – Steps • Create a written plan. Begin by identifying all amounts and sources of funding by reporting cost category. Example: AEL (fed) AEL (state) TANF (fed) TANF (state) EL Civics Pro. Dev. $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 Total Program Costs: $2,100,00

9. 2) Estimate the number of students to be served by each class based on available slots. AEL federal + AEL state = 400 TANF federal + TANF state = 500 EL Civics = 600 Total = 1,500

10. 3) For each funding source, calculate the percentage of the of the total budget. AEL federal = $100,000/$2,100,000 = 4.8% AEL state = $200,000/$2,100,000 = 9.5% TANF federal = $300,000/$2,100,000 = 14.2% TANF state = $400,000/$2,100,000 = 19.1% EL Civics = $500,000/$2,100,000 = 23.8% Professional Development = $600,000/$2,100,000 = 28.6%

11. 4) Determine the allowable costs and assign a fair share to each program. Pick a distribution base that accurately assigns the costs in accordance with the relative benefits attributable to each program. Sample allocation bases: • Accounting: Number of transactions; direct labor hours • Auditing: Direct audit hours; expenditures audited • Budgeting: Direct labor hours • Payroll: Number of checks issued; direct labor hours; number of employees • Office machines: Direct labor hours and equipment maintenance • Office space: square feet of space occupied; staff salary distribution

12. Personnel services: number of employees • Postage: direct usage; acceptable survey methods • Printing/reproduction: direct labor hours; job basis; pages printed • Procurement: number of transactions processed; direct hours of purchasing agent’s time • Telephone: number of instruments; staff salary distribution • Travel Mileage: actual expenses; direct labor hours • Utilities: square feet of space occupied; staff salary distribution 5) Document the methodology used and the rationale. *Allocation bases will generally not be questioned if they are reasonable and consistently applied.

13. 6) Identify the cost categories (payroll, professional and contracted services, supplies and materials, capital outlays, and other operating expenses) by program AND separate these costs by administrative and program costs. Example: Administrative AEL federal - $50,000 Payroll – $30,000 Supplies and materials - $10,000 Other operating expenses - $10,000 AEL state - $100,000 Payroll – $60,000 Supplies and materials - $10,000 Other operating expenses - $30,000

14. TANF federal - $150,000 Payroll – $30,000 Supplies and materials - $10,000 Other operating expenses - $10,000 TANF state - $200,000 Payroll – $30,000 Supplies and materials - $10,000 Other operating expenses - $10,000 EL Civics - $250,000 Payroll – $200,000 Supplies and materials - $25,000 Other operating expenses - $25,000 Professional Development - $300,000 Payroll – $100,000 Supplies and materials - $50,000 Other operating expenses - $150,000

15. Program AEL federal - $50,000 Payroll – $30,000 Supplies and materials - $10,000 Other operating expenses - $10,000 AEL state - $100,000 Payroll – $60,000 Supplies and materials - $10,000 Other operating expenses - $30,000 TANF federal - $150,000 Payroll – $30,000 Supplies and materials - $10,000 Other operating expenses - $10,000 TANF state - $200,000 Payroll – $30,000 Supplies and materials - $10,000 Other operating expenses - $10,000

16. EL Civics - $250,000 Payroll – $200,000 Supplies and materials - $25,000 Other operating expenses - $25,000 Professional Development - $300,000 Payroll – $100,000 Supplies and materials - $50,000 Other operating expenses - $150,000

17. 7) Multiply the amount of each funding source by cost category by the percentage calculated in step #3 Example: Administration AEL federal: Payroll – $30,000 x 4.8% = $14,40 Supplies and materials - $10,000 x 4.8% = $480 Other operating expenses - $10,000 x 4.8% = $480,000 AEL state: Payroll – $60,000 x 9.5% = $5,700 Supplies and materials - $10,000 x 9.5% = $950 Other operating expenses - $30,000 x 9.5% = $2,850

18. TANF federal: Payroll – $30,000 x 14.2% = $4,260 Supplies and materials - $10,000 x 14.2% = $1,420 Other operating expenses - $10,000 x 14.2% = $1,420 TANF state: Payroll – $30,000 x 19.1% = $5,730 Supplies and materials - $10,000 x 19.1% = $1,910 Other operating expenses - $10,000 x 19.1% = $1,910 EL Civics: Payroll – $200,000 x 23.8% = $47,600 Supplies and materials - $25,000 x 23.8% = $5,950 Other operating expenses - $25,000 x 23.8% = $5,950

19. Professional Development: Payroll – $100,000 x 28.6% = $28,600 Supplies and materials - $50,000 x 28.6% = $14,300 Other operating expenses - $150,000 x 28.6% = $42,900 The total funds available by each funding source divided by the anticipated number of students = cost per student per program.

20. 8) Develop a system of internal control to disburse funds by funding stream – keep in mind the administrative cost caps. Each disbursement must be tracked to the appropriate cost category and documented. Funds must not be co-mingled!! For current contracts, TANF state funds must be expended by the end of each fiscal year (August 31, 2015) to prevent recapture!! 9) Monitor the budget plan - compare actual cost to the budget and make periodic adjustments. At the end of a project, the budget must reflect all reimbursed costs by cost category and funding stream.

21. Documentation Requirements for Personnel Support the distribution of wages among specific activities or cost objectives. Records indicating the total number of hours worked each day are also required for nonexempt employees. Reports must reflect actual activity - budget estimates do not qualify as support but may be used for interim accounting purposes. Each report must account for the total activity for which each employee is compensated.

22. Questions? Please email questions to Fiscal Technical Assistance at fiscal.ta@twc.state.tx.us.