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
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Cost Allocation TrainingDistrict SubmissionsPresented by: Dionne Denson, Deputy CFO Bob Gauspohl, Audits Director
December 3, 2015
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Training Topics
Language of Cost Allocation & MethodologiesDeveloping the Plan & Submission Requirements
Linkage between Cost Allocation and Program
Cost Allocation Scenarios
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What is Cost Allocation?Cost Allocation is simply a process used to allocate (assign) costs to one or more groups (programs).
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What is the Purpose of Cost Allocation?
Costs RecoveryFair and Equitable Distribution of costsBusiness Analysis
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Requirements for CostsReasonable
AllowableAllocable Consistent TreatmentBe Adequately Documented
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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
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Methodologies
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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?
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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.
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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
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Cost Allocation Process
Developing an Indirect Cost Proposal & Submission Requirements
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Developing the Plan
Financial Information System
Organizational Chart
Indirect Cost Proposal
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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).
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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?
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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.
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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).
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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.
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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.
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S&W Example
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Modified Total Direct CostMTDC=Direct Cost less the following
:EquipmentContracts in excess of $25K
Capital Expenditures
Pass-through funds
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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.
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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
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Programs and Cost Allocation
Communication
Understanding of Program operations
Monitor expenditures to determine impact on indirect rate(s)
Assess the impact of programmatic changes
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COST ALLOCATION SCENARIOS
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Question #1Your auditor has requested documentation to show that you are using your approved indirect rate. What information do you provide?
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Question # 2You have a program that has indicated that they cannot afford to pay your “high” indirect rate.
What are your options?
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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?
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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?
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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?
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Question #6The auditors have requested documentation to support how you identify indirect costs vs. direct costs. What information or documentation do you provide?
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