1. Children, Young People and Families Consortium Full Cost Recovery

2. Contents Introduction and background Principles of cost allocation Description of template Applying the template The ACEVO (Association of Chief Executives of Voluntary Organisations) template and SORP (Statement of Recommended Practice) Changing the landscape of core cost

3. ACEVO commissioned in 1999 – “Who pays for core costs”? Recommended – All third sector bodies: -Improve internal accounting -Develop benchmarking -Innovate to drive down overhead costs -Demonstrate effectiveness and capability -Develop ways of measuring effectiveness Introduction and Background - 1

4. The report revealed: “professional advisors to the sector commented on the immaturity of much of the voluntary sector accounting and the difficulties of associating real costs with activities”. Introduction and Background - 2

5. AVECO: Funding our Future – Funded by Big Lottery Fund, Active Communities and Northern Rock Foundation Task 1 – Campaign to ensure that Central and Local Government and funders accept the case for funding core costs and IMPLEMENT! Task 2 – Develop a system for calculating and allocating core costs Introduction and background - 3

6. Analyse and count your costs Review your costs – too high/too low? Allocate appropriately Fund the costs – full picture, informed decisions, take on below costs – why? ARAF

7. Funders reluctant – can have genuine concerns about levels of costs and double funding Funders -Generally agree with principles -Can disagree with what is justifiable cost Core Costs – A contentious issue

8. What is cost?

9. CIPFA guidance (Accountable body for the sector) Complete recharging of overheads Correct recipient Transparency Flexibility – frequency, workable for all Reality Predictability Materiality Principles of cost allocation - 1

10. Marginal costs versus average costs Marginal costs – additional cost Average costs – includes all costs Principles of cost allocation - 2 Double funding – Funders worry that average costs increase the risk of double funding Surpluses are retained for charitable purposes If occasionally double funding – the sector SHOULD NOT APOLOGISE SLA – Commercial – Quote a fee

11. Supported by NCVO and KPMG Cost allocation principles are endorses by the charity commission, HM Treasury and consistent with the SORP Principles of cost allocation - 3

12. Template designed to do two things: 1)Document and count all costs 2)Allocate – Cost Drivers -By head count -By time -By expenditure Description of the template

13. Direct output costs – front line activity Category 1 costs – direct support work Category 2 costs – indirect support work Category 3 costs – governance, strategic development and reserves What costs should be included?

14. Imputed Rent – real economic cost Assets and –if imputed rent no depreciation, Depreciation if mortgaged include depreciation Equipment – include depreciation Further Debate!

15. Template designed to cost a single output/project Full cost of output/project Step 1-Calculating direct costs Step 2-Calculating direct support costs Step 3 -Calculating building costs and direct costs of fundraising and central support functions Applying the template - 1

16. Step 4-Allocating building and related overhead costs Step 5 -Calculating the total costs of central functions Step 6-Allocating the total costs of central functions Step 7 - Calculating governance and strategic development costs Step 8-Allocate general fundraising expenditure Applying the template - 2

17. “I want people to use this toolkit to make sure that they really know what a particular activity costs them” Fiona McTaggart, Home Office Minister for the Voluntary Sector “ I commend this new guidance to third sector organisations as an important tool” John Healey MP, Economic Secretary to HM Treasury Support for the cost allocation template

18. Consistent with SORP SOFA (Statement of financial activities - P&L ) All resources expended ACEVO AND SORP - 1

19. SORP cost categoryACEVO template category Cost of activities in furtherance of charity’s objects Direct costs Support costs of activities in furtherance of charity’s objects Category 1 & 2 costs Management and administration costsCategory 3 costs Costs of generating fundsCategory 1 costs ACEVO AND SORP - 2

20. Exceptions -Costs of generating funds -Non-cash items -Timing Duplication of effort ACEVO AND SORP

21. Table – Matching core cost items and template categories Competitive Pricing – Balance confidentiality Risk Premium – Reserves – prudent financial management Funders have an interest in investing sustainable organisation Management Accounts – Budget/estimated in advance Changing the landscape of core costs

22. Full Cost Recovery Workshop Costs include? £900/30 places Smaller Project/Pieces of Work

23. FCR is both fair and good for the sectors by making them more sustainable and for Partner Agencies and funders by being clear and transparent National issue not used local A collective approach is necessary Messages to take away

24. Questions?!