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- not everyone 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.