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Cost Allocation Training Cost Allocation Training

Cost Allocation Training - PowerPoint Presentation

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Cost Allocation Training - PPT Presentation

District Submissions Presented by Dionne Denson Deputy CFO Bob Gauspohl Audits Director December 3 2015 1 Training Topics Language of Cost Allocation amp Methodologies Developing the Plan amp Submission Requirements ID: 730763

costs cost allocation indirect cost costs indirect allocation rate direct program programs plan base pool amp total based year determine benefit salaries

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Slide1

Cost Allocation TrainingDistrict SubmissionsPresented by: Dionne Denson, Deputy CFO Bob Gauspohl, Audits Director

December 3, 2015

1Slide2

Training Topics

Language of Cost Allocation & MethodologiesDeveloping the Plan & Submission Requirements

Linkage between Cost Allocation and Program

Cost Allocation Scenarios

2Slide3

What is Cost Allocation?Cost Allocation is simply a process used to allocate (assign) costs to one or more groups (programs).

3Slide4

What is the Purpose of Cost Allocation?

Costs RecoveryFair and Equitable Distribution of costsBusiness Analysis

4Slide5

Requirements for CostsReasonable

AllowableAllocable Consistent TreatmentBe Adequately Documented

5Slide6

Direct vs.

IndirectDirect Costs- Costs that can be specifically identified with a particular program or department.

Indirect Costs-

Administrative and operational costs that benefit more than one program or department

and cannot be readily assigned to a specific program. Ex. District Operations.

6Slide7

Base Costs- How to Determine?

Base Costs- Accumulated Direct Costs which is normally based on either:Salaries and Wages or

Total Direct Costs-

e

xclusive of any extraordinary or distorting expenditures

Base selected should provide for a

reasonably fair

allocation to federal awards based on benefits received.

7Slide8

Base Costs- How to Determine?Costs that should not be included in base

Both Indirect and Direct Cost bases should exclude Capital Expenditures.If using Total Direct Cost must exclude pass-though funding.

8Slide9

Indirect Cost PoolIndirect Cost Pool- The accumulated costs that have been identified as indirect.

They jointly benefit two or more cost objectives (programs).An organization may find it necessary to have one or more indirect cost pools.The decision should be based on benefit received.

9Slide10

Cost Allocation Plan

An Indirect Cost Proposal or Cost Allocation Plan (CAP) is a written

document

that

describes how an organization identifies,

accumulates

, and

distributes

allowable costs

to programs based on benefits received.

10Slide11

Cost Allocation Plan

Most State and Local Governments use an Indirect Cost Proposal (IDC).An approved IDC or Cost Allocation Plan (CAP) is required to claim administrative cost recovery under a federal award.

11Slide12

Cost Allocation Plan

The approved IDC or CAP provides the negotiated reimbursement rate.The reimbursement amount is determined by applying the negotiated rate(s) to the base used to develop the rate.

12Slide13

Predetermined RateBased on estimated costs to be incurred during the period (normally a fiscal year), and is not subject to adjustments, except under very usual circumstances.Fixed RateSimilar to the predetermined rate, except the difference between the estimated costs and the actual costs incurred is carried forward as an adjustment to the rate computation for the next year.

Provisional RateA temporary rate for a specified period (normally a fiscal year) that is used until the “final” rate for that period is established.

IDC Rates

13Slide14

Methodologies

14Slide15

Indirect Allocation Methodologies

Guidelines provide specific methodologies for allocation of indirect costs to programs.Focus is on the benefit received from indirect costs.Does your organization generally support all programs to the same degree or does the amount of support vary between programs?

15Slide16

Indirect Allocation Methodologies

Simplified MethodAll programs benefit to the same degree.Multiple Allocation MethodThe amount of support from indirect costs varies and it is necessary to accumulate indirect cost separately to reflect the benefit received. Ex. Counties vs. GIA programs.

16Slide17

Indirect Allocation Methodologies

Simplified Method

One Indirect Cost Pool

Rate Expressed as a Percentage

Same Rate Applied to each program

Multiple Allocation

Two or more Indirect Cost

Pools

Indirect

Rate developed for each separate cost

pool

Rate Expressed as a percentage

Rate applied to programs based on the cost pools

17Slide18

Cost Allocation Process

Developing an Indirect Cost Proposal & Submission Requirements

18Slide19

Developing the Plan

Financial Information System

Organizational Chart

Indirect Cost Proposal

19Slide20

Preparing the

Plan

Review how you currently categorize and allocate costs

Indirect Cost, Direct Costs and Shared Costs

Decide on the Best Methodology-Simplified or Multiple Allocation?

Decide on an Allocation basis- Salaries & Wage or Total Direct Cost?

Decide on the frequency of allocation- Must be at least quarterly- monthly is preferred.

Determine if

an

adjustment is necessary based on your

final fiscal year-end

costs.

Calculate the Indirect Rate(s).

20Slide21

Categorizing Costs

How do you determine if a cost is to be treated as direct or indirect?

Is the process well-documented?

What basis is used to allocated costs?

21Slide22

Costs Examples

Direct Costs: Program staff salaries, and supplies and materials for the program activities.Indirect Costs: Office Manager salary, accounting and human resources salaries, and supplies and materials.Shared Costs- Facility Costs

and Telecommunications.

22Slide23

Rate Determination-Simplified Method

Adjust indirect costs for the period by eliminating any costs directly reimbursed by a Federal Award. Adjust direct costs by eliminating pass-through funds and capital expenditures.

Divide the total allowable indirect costs (net of applicable credits) by the selected distribution base (S&W or MTDC).

23Slide24

Rate Determination-Multiple Allocation

Classify indirect costs into functional cost groupings (cost pools) based on the benefits provided to direct programs and departments.Select appropriate bases for distribution for each cost pool.

Distribute each cost pool to the benefiting program(s).

Calculate an indirect cost rate for each program by dividing the indirect costs allocated to that program by program’s direct cost base.

24Slide25

Distribution Bases- S&W

Determine prior fiscal year Actual Salaries and Wages based on financial reports.Adjust (+/-) for known (significant) changes for the upcoming fiscal year.

Divide Indirect Cost Pool by Direct S&W total.

25Slide26

S&W Example

26Slide27

27Slide28

Modified Total Direct CostMTDC=Direct Cost less the following

:EquipmentContracts in excess of $25K

Capital Expenditures

Pass-through funds

28Slide29

Modified Total Direct Cost Example

Indirect Cost Pool ( A)-County Costs

$4,175,000

Administrative Cost directly for county operations.

Indirect Cost Pool (B)

State

Programs

$638,000

Provide

Administrative Support

to all

programs.

29Slide30

30

Modified Total Direct Cost ExampleSlide31

Submission Requirements

Required Documentation:Worksheets and other relevant data cross referenced and reconciled to the financial data A copy of financial reports (financial statements, accounting reports, etc.)

Direct Costs broken out between salaries and wages and other direct costs

Organizational Chart along with functional statements noting the duties and responsibilities

Required Certification

31Slide32

Programs and Cost Allocation

Communication

Understanding of Program operations

Monitor expenditures to determine impact on indirect rate(s)

Assess the impact of programmatic changes

32Slide33

COST ALLOCATION SCENARIOS

33Slide34

Question #1Your auditor has requested documentation to show that you are using your approved indirect rate. What information do you provide?

34Slide35

Question # 2You have a program that has indicated that they cannot afford to pay your “high” indirect rate.

What are your options?

35Slide36

QUESTION #3You have a new program with an indirect rate that is capped below your approved rate.What are your options for allocating the indirect rate?

36Slide37

Question #4Due to reasons beyond your control, a program will not spend all of the projected direct costs you estimated during the preparation of your plan. What are your options for indirect recovery?

37Slide38

Question #5You find out during the middle of the fiscal year that your administrative costs will be increasing by 15% due to new software. How does this impact your indirect rate?

38Slide39

Question #6The auditors have requested documentation to support how you identify indirect costs vs. direct costs. What information or documentation do you provide?

39