cost allocation plan basics
TRANSCRIPT
Cost Allocation Plan Basics
Presented by
Tom Carawan
March 12, 2009
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Presentation Outline
I. Background of Cost Allocation
II. Documenting Fair Share
III. Components of a Cost Plan
IV. Central Service Agency
V. Benefiting Agency
VI. Central Service Expenditures
VII. Activities of Central Service Agencies
VIII. Allocation Bases
IX. Filing the Document
X. Sample Plans and Indirect Cost Rate
XI. How to Use
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Background of Cost Allocation
Why necessary?
In 60’s, Federally-mandated programs pushed down to
state and local governments
No funding to administer programs
California and New York sued and won
Feds pay share of administrative costs
Good ol’ days - Feds paid up to 75%
Now averages below 50%
Golden Rule – “He who has the gold, rules”
Some is better than none
Want to get some? Play by the rules
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Background of Cost Allocation (cont)
OMB Circular A-87 History
Initially effective 7/1/1968
Reissued as FMC 74-4 effective 12/1/1976
Reissued as OMB A-87 effective 1/15/1981
Revised effective 9/1/1995
Codified as 2 CFR Part 225 effective 8/31/2005
http://rates.psc.gov/fms/dca/orgmenu.html
http://rates.psc.gov/fms/dca/2%20cfr%20part%20225.pdf
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Background of Cost Allocation (cont)
ASMB C-10
A Guide: “Cost Principles and Procedures for Developing
Cost Allocation Plans and Indirect Cost Rates for Agreements
with the Federal Government”
Issued 4/8/1997
http://rates.psc.gov/fms/dca/asmb%20c-10.pdf
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Background of Cost Allocation (cont)
“The principles are designed to provide that
federal awards bear their fair share of
cost recognized under these principles
except where restricted or prohibited by
law.”
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Documenting Fair Share
Charge costs
Directly
Indirectly
Direct costs
Specifically identified with a cost objective
Salaries of child support enforcement personnel
Rent
Supplies
Travel
Contractual Services
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Documenting Fair Share (cont)
Indirect costs
“(a) incurred for a common or joint purpose benefiting more
than one cost objective, and
“(b) not readily assignable to the cost objectives specifically
benefited, without effort disproportionate to the results
achieved.”
Indirect costs can originate from
central service departments
benefiting agency
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Documenting Fair Share (cont)
Documentation
Direct costs
Financial reports from entity
Indirect costs
Prepare
Central services cost allocation plan (CAP)
Indirect cost rate proposal (ICRP)
Purpose
Distributes (allocates) costs incurred for a common purpose
to those that benefit
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Components of a Cost Plan
Five primary components
Central service agencies
Benefiting (or receiving) agencies
Expenditures of central service agencies
Functions or activities carried out by central service agencies
Allocation bases
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Central Service Agency
Provides services to other agencies within the government
Consolidation of necessary common services
Payroll
Accounting system
Office needs
Examples of services to other units of government
Departmental oversight
Accounting
Payroll
Custodial services
Utilities
Benefits administration
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Benefiting Agencies
Agency that provides service to the public
Examples
Police or Sheriff
Tax
Solid waste
Engineering
Recorder
Clerk
Board or Council
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Central Service Expenditures
Eligible expenditures of central service agencies are
allocated to those which benefit from the services
provided
Only eligible expenditures may be allocated
Eligibility is determined by 2 CFR Part 225
Examples
Payroll services from Finance
Custodial services from Building Operations
Utility costs in government buildings
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Activities of Central Service Agencies
One or more for each central service agency
Examples
Finance - Accounting, payroll, debt management
Building operations – City Hall/Courthouse, Admin Building
Allows for different allocation bases to distribute the costs of
providing each function
Number of accounting transactions okay for accounting but perhaps
not for payroll
Square footage may okay for both but occupancy differs by building
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Allocation Bases
Identified for each function or activity
Reasonable and measurable means of distributing costs to
those units of government that benefit from the service
Recognizes that the value of providing a service is
proportionate to the service received
Examples
Finance
Accounting – Number of transactions
Payroll – Number of FTEs
Debt management – Disallowed
IT
Computer ops – Number of nodes
Telephone – Number of devices
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Other Requirements
Certification
CFO or above must sign the certification
Organization Chart
CAFR
Reconciliation to CAFR or financials (also include)
Narrative for each central service
Billed services information
Internal service funds >$5 million
Retained earnings balance calculation
Self-insurance funds
Actuarial report
Fringe Benefit information
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Filing the Document
Feds rarely require filing by local governments
Prepare and maintain on file
Virginia Department of Social Services
Federally-mandated programs
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Sample Plans
State of Missouri
http://oa.mo.gov/acct/swcap.htm
Nashville-Davidson Consolidated Government
http://www.nashville.gov/finance/omb/cost_accounting.asp
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Sample CAP
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Sample Indirect Cost Rate
Based on
Actual
FY2008 for
use in
FY2010
Based on
Actual
FY2007 for
use in FY2009
Based on
Actual
FY2006 for
use in FY2008
A
FY 2008 Total Direct Cost (exc. One-Time Katrina-Related Expenses,
Capital Outlay, Subsidies and Loans) $ 10,572,546 $ 9,264,685 $ 8,880,055
B Fixed 2008 Indirect Cost Rate 25.69% 36.63% 26.89%
C Indirect Cost Recovered - FY 2008 (A x B) $ 2,716,495 $ 3,393,704 $ 2,388,052
D Less FY 2006 Carry Forward Under/(Over) Recovery $ (218,586) $ 354,971 $ (330,750)
E Net Indirect Cost Recovered (C - D) $ 2,935,082 $ 3,038,733 $ 2,718,802
F FY 2008 Actual Indirect Costs $ 3,125,298 $ 2,978,840 $ 2,500,216
G FY 2008 Carry-Forward Under/(Over) Recovery (F - E) $ 190,216 $ (59,893) $ (218,586)
H FY 2010 Proposed Indirect Costs (F + G) $ 3,315,514 $ 2,918,947 $ 2,281,629
I FY 2010 Proposed Indirect Cost Rate (H / A) 31.36% 31.51% 25.69%
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How to Use
Recover costs from federal programs
Public assistance programs
Some other grants
ALWAYS ASK TO RECOVER INDIRECT COSTS
Document matching funds
Negate audit exceptions
Estimate indirect costs for new program
Enhance management information
Add allocated costs to actual expenditures for full cost of
service
Include in setting fees for service
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Questions / Discussion