OnLine Financial Management Workshops Cost Allocation Cost Pooling

On-Line Financial Management Workshops Cost Allocation, Cost Pooling & Time Distribution June 2009 1

Financial Management Workshop Cost Allocation, Cost Pooling & Time Distribution 2

Topics We Will Cover § Cost Allocation § Cost Pooling § Cost Allocation Plans § Time Distribution 3

Federal Requirements & Guidance § § § OMB Circular A-87 OMB Circular A-122 OMB Circular A-21 48 CFR Part 31 45 CFR Part 74, Appendix E Guidance on direct and indirect costs 4

What Is Cost Allocation? ? Distribution of Allowable Costs That Benefit Your Grant Costs Direct Shared Indirect 5

Types of Costs § Direct – Single Cost Objective § Shared – Multiple Cost Objectives, or – Multiple Fund Sources § Indirect – Generally Overhead 6

Treatment of Costs § Direct Charge Whenever Possible § Consistent Treatment – In Accounting System – Over Time § Measuring Benefit – Benefit Determines Allocation 7

What Are Direct Costs? § Those costs that can be readily identified with a particular cost objective. § Examples (program specific): – Salaries – Space – Supplies – Telecommunications 8

What Are Indirect Costs? § Those costs that are not readily identifiable with a particular cost objective § Examples: – Salaries – Space – Supplies – Telecommunications (Management and Overhead Costs Supporting Entire Organization) 9

Cost Objectives § Intermediate – Cost Pools or “Cost Staging Areas” § Final – Funding Source – Cost Category 10

Cost Pool Considerations Limited to Shared & Indirect Costs Limited to Actual Costs Described in CAP Combined Administrative Costs Prorated Personnel Services Costs Prorated Nonpersonnel Services Costs § Allocation of Pools Should Not Be Burdensome § § § 11

Types of Cost Pools § Administrative § Operating § Facilities or maintenance § Specific Function or Activity § Organizational § System-wide 12

Allocation Methodologies § In Aggregate – All Shared Costs are Totaled § Activity based – Costs of One Particular Activity are Pooled § Item of cost based – Each Shared Item of Cost Allocated Using Separate Methodology § Any Combination of Above 13

Cost Allocation Requirements & Standards § Requirements – Result in Equitable Distribution of Costs – Base Corresponds to Allocated Costs – Efficient to Use and Consistently Applied § Standards – Consistent with GAAP – Consistent with OMB Circulars – Accepted by Independent Auditors – Supported by Actual Cost Data 14

Acceptable Allocation Bases § Fair & Equitable § Minimal distortion § Actual costs only § General acceptability § Timely management control § Materiality, cost, and practicality of use § Controllable § Direct relationship to costs 15

What Is the Best Allocation Base? § No Single Answer § Varies Based on Type of Organization and Types of Costs § Should Relate to Costs Being Allocated § Let’s Look at Some Possible Bases 16

Unacceptable Allocation Bases § Funds Availability or Budgets § Job Descriptions § Pre-determined Staff Hours § Planned Participant Levels § Prior Period Results 17

Input-Based Allocation § Resources Used § Traditional Method § Allocated at Time Cost Is Incurred § Documentation of Use and Variances – How Input is Used – How Usage Varies 18

Commonly Used Input Bases § Staff Time – Time Sheets § Facilities – Space Usage § Accounting Services – # of Transactions § Equipment – Usage or Machine Hours § Copy Machine - # of Copies 19

Output-Based Allocation § Centralized Intake – Number of Participants § Job Placement – Number of Placements § Case Management – Number of Current Participants 20

Allocating Program-Related Administrative Costs § Do Not Relate to G&A or Overhead § Pursuant to WIA 20 CFR 667. 220 § Examples – Staff Time Prorated Between Administration and Program – Space Usage 21

What is a Cost Allocation Plan? (CAP) § A document that identifies, accumulates, and distributes allowable direct and indirect costs and declares the allocation methods used for distribution. Federally approved Cost Allocation Plan 22

Types of CAPs § Indirect Cost Plan – Addressed in OMB Cost Circulars – Federal Agency Approval – Includes an Indirect Cost Rate § CAP of the Organization – Shared Indirect Costs – Awarding Agency Approval 23

Cost Allocation Plan Considerations § Must Include a Process for Reconciliation and Adjustment § Should Be Periodically Validated and Updated § Must Be a Written Document § Requires Official Signature 24

Elements of a CAP § Background and Mission Statement § Organizational Chart § Financial Statements and Budgets § Description of Pooled or Joint Costs § Methods Used to Allocate Costs § Certification 25

Benefits of a CAP § Management Tool § Equitable Sharing of Costs § Establishes Financial Management Standards § Meets Cost Principles and Standards § Eliminates Arbitrary Methods of Charging Costs § Standardizes Financial Practices 26

What Is Time Distribution? § System That Distributes Staff Salaries & Benefits • Based on Staff Time • Multiple Fund Sources Paying Staff • Must Be Documented • Source of Requirements – OMB Circulars A-122 and A-87 27

Time Distribution Documentation § Recording Actual Time Spent on Each Cost Objective § Proof That Individual Works on Only One Cost Objective § Varies Based on Circumstances 28

Time Distribution Methods § Time & Attendance Records – Personnel Activity Reports (PARs) – Various Methods § Time Sampling Methods – Cognizant Agency Approval § Measurable Work Outputs § Allocating Nonpersonnel Costs 29

Common Compliance Findings Associated with … § § Cost Allocation Indirect Costs Charging Staff Time Administrative Cost Limits 30

Possible Solutions § Awareness of Unacceptable Allocation Bases § Familiarity With Grant Agreement Requirements § Familiarity With Cost Principles § Remembering You Can Only Use ETA Grant Funds to Pay for Costs Which Benefit Your ETA Grant!! 31

Test Your Knowledge! § Question 1. What are the 3 types of costs that can be charged to your grant? 32

Answer Key § Answer 1. Direct, Shared, Indirect 33

Test Your Knowledge! § Question 2. What is an acceptable cost allocation basis? Choose one: a. Prior period performance data b. Actual costs c. Funds Availability 34

Answer Key § Answer 2. (b. ) Actual Costs 35

Test Your Knowledge! § Question 3. When a staff person works on multiple Programs what is a sound acceptable method for allocating his or her costs? 36

Answer Key § Answer 3. Time Sheets – Time Distribution Records 37

Resources Guides to Developing Cost Allocation Plans and Indirect Cost Rate Agreements § Indirect Cost Rate Determination Guide – Issued by DOL–OASAM – For Non-Profits – www. dol. gov/oasam/programs/boc/ocd-guidemain. htm § ASMB C-10 Guide – Issued by HHS – For State and local governments – Includes a Q&A section – www. hhs. gov/grantsnet/state/asmbc 10. pdf § OMB Circulars – www. whitehouse/gov/omb/circulars/index. html 38

Questions? If you have questions, please contact your Federal Project Officer 39