1. Are they as safe as they seem?

2.  Solve all of your cash flow problems  Make all of you business lines profitable  Cause your managers to understand their reports

3. Internal management reporting does not have to conform to GAAP. We do a lot of internal billings and cost allocations between departments, as well as indirect cost allocations.

4.  How many of you have multiple lines of business?  2 to 5 lines of business?  5 to 10 lines?  More than 10 lines?

5.  Weatherization services  Energy Training Center  Regional Energy Alliance  Single-Family Development  Homeownership Center  Realty Company  Multi-Family Development  Property Management  Contractor  Architectural Firm  Asset Management  Resident Services  Accounting Services

6.  Office space?  Shared Vehicles?  HR costs?  IT costs?  Accounting Costs?  Executive Salaries?  How many of you allocate out 100% of your “indirect” costs?

7.  You can get one the hard (and expensive way) – Like I did - $11K…  Or you can go the easy way. If HUD is your cognizant agency, you can go to:  http://rates.psc.gov http://rates.psc.gov › Submission Requirements  Non-Profit Organization  Fill out the 4 documents

8.  Which of your business lines are profitable?  Are you sure?  Can you tell which of your business lines are bleeding?  Are you sure?  Do you allocate all of your overhead costs?

9.  A process of attributing costs to a particular cost center › The assigning of a common cost to several cost objects

10. Direct Cost  Costs that can be traced directly to a cost object such as a product, department or profit center. Indirect Cost  Costs that is not directly traceable to a cost object such as a product, department or profit center.

11. Do you know your alligators?

12.  Pembroke Mgmt was an entity CHP set up to run the administration for Sec 8 vouchers in the New River Valley and to administer a local IPR program.  It had one P&L and in 2000, lost $28K.  The first month I was onboard, I had to analyze this entity and problem solve.  Without cost allocation, or separate departments set up for the two activities, we had no way of knowing who was bleeding. Mgmt. felt like we needed to drop both programs.  After departmentalizing, Sec 8 lost $30K and IPR had net income of $2K

13.  Tekoa provided group home care for “at risk” youth.  We had:  a girls home in Floyd, Va  a boys home in Radford, Va  A girls honors house in Christiansburg, Va  And, an accredited school.

14.  Usually flowed $200K in cash per year  4 months after coming to CHP, I saw we were on track to flow $100K for the year  Program director said there was “a problem somewhere”  After departmentalizing, the school and Christiansburg were performing “as expected”, Radford was doing better than expected but Floyd was on track to lose $150K

15.  By timesheet  We used to do short- term time studies and estimate % of time spent per person, per department  By revenue  By expenses  A/P costs can be allocated by number of checks cut › We found it more accurate to allocate by number of invoices processed  HR and Payroll costs can be allocated by number of employees per department

16. Dept # 110111112113114117118119121122123124125132136138139140150170601620710750 ExecGenCorpCburgVABCommRichPropSFTideLeaseAmeri-HUDSHPEnergyNRC SalariesAdmDevp Office Arch.EHRServOfficeMgmtDEVHOBldgsConstCorpsGrant VehicleServGrantCLDCGBWCVICCTekoaTotals Time Percentages. employee a 75,000 10.0%15.0% 75.0% 0.0% 100.0% employee b 0.0% employee c 30,000 0.1% 3.0%2.0%0.1% 0.5%40.0%0.5%0.1%0.5%48.0%0.1% 5.0%100.0% employee d 5,000 50.0% 25.0% 20.0% 5.0%100.0% employee e 12,000 0.5% 20.0%0.5%2.0%0.5% 50.0%1.0%0.5%5.0%1.0% 2.0%85.0% employee f 40,000 5.0%10.0% 85.0% 100.0% employee g 70,000 5.0% 35.0%1.0%2.0%1.0%2.0%1.0%2.0% 3.0%5.0%2.0%3.0%25.0%1.0%0.5%1.0%2.5%2.0% 100.0% employee h 40,000 1.0% 3.0%1.2%0.4%1.6%0.8%67.5%0.4%1.6% 5.8%7.0%0.8% 8.9%100.0% employee i 30,000 0.1% 3.0%2.0%0.1% 0.5%78.0%0.5%0.1%0.5%10.0%0.1% 5.0%100.0% employee j 30,000 10.0% 90.0% 100.0% employee k 40,000 1.0% 11.0% 85.0% 1.0% 2.0%100.0% employee l 40,000 2.0% 6.5%1.0%2.0% 1.0%2.0% 66.0%2.0% 1.0%2.0%1.0%0.5%0.0%1.0%2.0%1.0%0.5% 100.0% employee m 95,000 5.0% 20.0%2.0%5.0%1.0%0.0%1.0%0.0%43.0%2.0%0.0%3.0%10.0%0.0%3.0%4.0%1.0%0.0% 100.0% employee n 25,000 10.0%8.0%3.0%17.5%3.0%1.0% 2.5%8.0% 10.0%2.0%3.0% 2.0%15.0%3.0% 100.0% employee o 25,000 2.0% 4.0%1.0%5.0%1.0%4.0%5.0%2.0% 0.0%3.0%1.0%2.0%33.0%3.0%1.0% 30.0%100.0% 557,000 Dollars employee a $7,500$11,250$0 $56,250$0 $75,000 employee b $0 - employee c $30$900$0$600$0$30$0$30$150$12,000$150$30$150$14,400$30$0 $1,500$0 30,000 employee d $0$2,500$0 $1,250$0 $1,000$0 $250$0 5,000 employee e $60$2,400$60$240$60 $6,000$120$60$600$120$0 $240$0 10,200 employee f $2,000$4,000$0 $34,000$0 40,000 employee g $3,500$24,500$700$1,400$700$1,400$700$1,400 $2,100$3,500$1,400$2,100$17,500$700$350$0$700$1,750$1,400 $0 70,000 employee h $400$1,200$480$160$0$640$0$320$0$27,000$160$640$0$2,320$2,800$320$0 $3,560$0 40,000 employee i $30$900$0$600$0$30$0$30$150$23,400$150$30$150$3,000$30$0 $1,500$0 30,000 employee j $3,000$0 $27,000$0 30,000 employee k $400$4,400$0 $34,000$0 $400$0 $800$0 40,000 employee l $800$2,600$400$800 $400$800 $26,400$800 $400$800$400$200$0$400$800$400$200 $0 40,000 employee m $4,750$19,000$1,900$4,750$950$0 $950$0$40,850$1,900$0$2,850$9,500$0 $2,850$3,800$950$0 95,000 employee n $2,500$2,000$750$4,375$750$250 $625$2,000 $2,500$500$750 $500$0 $3,750$750$0 25,000 employee o $500$1,000$250$1,250$250$1,000$1,250$500 $0$750$250$500$8,250$750$250$0$250$7,500$0 25,000 Total Dollars$25,470$76,650$4,540$14,175$3,510$3,810$3,060$4,715$5,060$292,250$10,030$3,710$7,500$58,040$5,210$1,120$0$7,950$22,450$2,750$1,600 $0 $555,200 Percent of Acct Salaries 4.57%13.76%0.82%2.54%0.63%0.68%0.55%0.85%0.91%52.47%1.80%0.67%1.35%10.42%0.94%0.20%0.00%1.43%4.03%0.49%0.29% 0.00% 99.68% Total Cost to Allocate 639,000(1) Annual 29,220 87,934 5,208 16,262 4,027 4,371 3,510 5,409 5,805 335,274 11,507 4,256 8,604 66,584 5,977 1,285 - 9,120 25,755 3,155 1,836 - - 636,935 Monthly 2,435 7,328 434 1,355 336 364 293 451 484 27,940 959 355 717 5,549 498 107 - 760 2,146 263 153 - - 53,078 Monthly Charge 2,440 7,330 440 1,360 340 370 300 460 490 27,940 960 360 720 5,550 500 110 - 770 2,150 270 160 - - 53,180 840 Average Hours per Month 173 employee a 17 26 - - - - - - - 130 - - - - - - - - - - - - - - 173 employee b - - - - - - - - - - - - - - - - - - - - - - - - - employee c 0 5 - 3 - 0 - 0 1 69 1 0 1 83 0 - - - 9 - - - - - 173 employee d - 87 - - - - - - - 43 - - - 35 - - - - 9 - - - - - 173 employee e 0 17 0 2 0 0 0 0 0 43 1 0 4 1 - - - - 2 - - - - - 73 employee f 9 17 - - - - - - - 147 - - - - - - - - - - - - - - 173 employee g 9 61 2 3 2 3 2 3 3 5 9 3 5 43 2 1 - 2 4 3 3 3 - - 173 employee h 2 5 2 1 - 3 - 1 - 117 1 3 - 10 12 1 - - 15 - - - - - 173 employee i 0 5 - 3 - 0 - 0 1 135 1 0 1 17 0 - - - 9 - - - - - 173 employee j 17 - - - - - - - - 156 - - - - - - - - - - - - - - 173 employee k 2 19 - - - - - - - 147 - - - 2 - - - - 3 - - - - - 173 employee l 3 8 1 3 3 1 3 3 3 86 3 3 1 3 1 1 - 1 3 1 1 1 - - 130 employee m 9 35 3 9 2 - - 2 - 74 3 - 5 17 - - - 5 7 2 - - - - employee n 17 14 5 30 5 2 2 4 14 17 3 5 5 3 - - 26 5 - - - - - employee o 3 7 2 9 2 7 9 3 3 - 5 2 3 57 5 2 - 2 52 - - - - - Total Hours Per Month 88 306 16 63 13 17 15 18 26 1,166 40 15 26 273 24 5 - 36 117 6 4 4 - - 1,760 Per hour Billing Rate $28$24$27$22$25$21$19$25$19$24 $27$20$21$23#DIV/0!$21$18$41$37 #DIV/0! $30 Monthly Charge- 2008 2,440 7,330 440 1,360 340 370 300 460 490 27,940 960 360 720 5,550 500 110 - 770 2,150 270 160 - - 53,180 2007 4,010 8,050 590 2,000 490 410 360 670 880 29,670 1,350 580 470 6,690 1,020 160 1,500 3,560 1,190 470 450 2,000 6,150 72,880 Difference (decrease) (1,570) (720) (150) (640) (150) (40) (60) (210) (390) (1,730) (390) (220) 250 (1,140) (520) (50) (160) (730) (1,410) (920) (310) (290) (2,000) (6,150) (19,700) % Difference (decrease)%-39.2%-8.9%-25.4%-32.0%-30.6%-9.8%-16.7%-31.3%-44.3%-5.8%-28.9%-37.9%53.2%-17.0%-51.0%-31.3%-100.0%-48.7%-39.6%-77.3%-66.0%-64.4%-100.0% -27.0% Annual Difference (18,840) (8,640) (1,800) (7,680) (1,800) (480) (720) (2,520) (4,680) (20,760) (4,680) (2,640) 3,000 (13,680) (6,240) (600) (1,920) (8,760) (16,920) (11,040) (3,720) (3,480) (24,000) (73,800) (236,400)

17.  By office square footage › If the bulk of your “office costs” are real estate related (ie Mortgage, Insurance, RE Tax and Utilities – square footage may be the best method  By head count › If server costs, paper supplies, receptionist costs are the bulk of your costs – allocation by head count may be more accurate

18. Christiansburg Offices Budget 2003 Office Allocation 350365 20012002200320042005200620072008 employeesCharges Total People%ChargesNon-OfficePool CarTotal 110Executive2.5 700 912.5 1,580 1,486 1,018121320.0697515303931673 112Corporate Dev. 919 927 888121940.1381502 2311733 115Finance10 250026002965 6,633 5,156 5,8446940120.41445054403935338 116IT 010.03437500 117Architect1 350365 775 793 1,407184640.1381502 7552257 119Services2 350730 270 -000.0000 00 122Prop. Mgmt.1 350365 496 454 23913100.0000 17 132Construction3 700 1095 3,040 2,284 2,784233340.138150206642165 708VCCI1.5 350 547.5 482 584 89024200.0000 00 750Tekoa 1,705 997 13357600.0000 00 150Energy Services 280029403331 3,767 3,653 3,797125120.06975105241275 Total 7050834010311 19,667 16,334 17,00015750291.00010886970297814833 Annual 84600100080123732 236,000 196,008 204,000189000 1306361163435730178000 14833 178000 130636 Non-OfficeSq.Ft.RateUsageTotal Training Area Upstairs-9901320650%3960330Dept 115 50% CHPC 50% VCC121303%00Dept 110 930 Warehouse8970100%00Dept 115 990 Warehouse1412675%6354530Dept 110 Todd's Tools-9901320100%00Dept 132 Tech Area-9902206100%1320110115 Annual Rate 11634 Monthly Rate 970

19.  Do you charge out departments that use vehicles?  How do you determine the charge?  How do you cost out vehicles used by indirect staff(pool vehicles)?  Do you purchase vehicles or do you lease?  Do you just cover current years costs? Or, Do you build depreciation cost into your lease rate?  Do you break even on your leases?

20.  We purchase all vehicles and currently have a fleet of 93  We base most of our lease rates on a 5 year lease at 6% interest with a residual value of $0  Departments with exclusive use of a vehicle are charged the monthly lease rate  For pool vehicles, we charge the full lease rate to the respective corporate office budget. During the year, we track usage by department and allocate out the pro-rata usage(by checked out day) into each departments office cost.  At the end of the “quality life” of trucks, we pass them down to properties. Cars are sold or traded in.

21.  How do you allocate general costs for grant writing?  How do you allocate out costs for HR?  How do you allocate general IT costs?  How do you allocate executive overhead?  Do you fully charge out overhead every month or do you charge out based on a departments level of activity?  Do you allocate out each type of cost separately or do you accumulate all overhead costs into one pot and charge them out one time?

22.  As you get larger, it becomes more and more difficult to allocate out all indirect costs separately – too many moving parts  We have an office department for each regional office to accumulate costs. We then allocate costs out to departments on a square foot basis by usage  We have a vehicle department to accumulate costs including 5 year depreciation, principle and interest. We then determine vehicle lease rates and charge them out monthly to fully absorb costs  We have separate departments for Executive, HR, IT, Accounting and Corporate Development (Public Relations, Grant Mgmt and Grant Writing) › These five departments are grouped as our “ Total Indirect Overhead Costs” › These departments are charged their share of office costs and vehicle costs › This “Total Indirect Overhead Cost” is the amount we cost out to departments (profit centers)

23.  Now how do you charge out these costs? What is your allocation method?  For Federal Programs/Grants, you can only charge the lesser of overhead specified in the award or the amount on your “approved” indirect cost rate plan. Many times that will be a percentage of expenses.  Is this “approved average” always a good way to analyze your lines of business?

24.  CHP Construction  Sales $20,000,000  COS 17,000,000  GP 3,000,000  OperCosts 2,000,000  NI 1,000,000  10% OH rate on total costs is $1.9 million  10% of Operating costs is $200K  Energy Training Center  Sales $3,000,000  COS 0  GP 3,000,000  Oper Costs 2,000,000  NI 1,000,000  10% OH rate on costs is $200K

25.  At CHP, we charge our Federal Programs and Grants our approved rate of 10% of operating costs.  10% is also the rate we charge all other departments with no “cost of goods sold”  For our departments with cost of goods sold we charge 40% (instead of 10%) on operating costs.

26.  Fixed Rate  Some companies fully allocate out overhead costs each month, regardless of volume  Problems with this: - A department has a bad month and overhead is just as high as a good month - A program experiences growth, possibly causing additional overhead, but overhead coverage to parent is capped  Variable Rate  Charge to department is a percentage of operating costs and varies month to month.  Problems with this: - More work each month …can’t do a recurring entry - Decreases in volume at the department level can leave the overhead “under-absorbed”

27.  Can’t allocate Corporate Indirect Costs to Properties › Overhead costs to Properties have to be covered in Management Fees How can you charge your property management division to cover your overhead costs for all of the properties they represent? Discussion