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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. 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

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  1. Cost Allocation Prepared by: Colleen B. Mendel, Executive Director & Chris Watkins, Management Specialist T/TAS @ WKU 2009 FSS Fiscal Conference

  2. 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

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

  12. Sample of Bases

  13. 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

  14. 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

  15. 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

  16. Simple Examples

  17. 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

  18. 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

  19. 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

  20. 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.

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