BUDGETING AND PROPOSED COST ALLOCATION

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BUDGETING AND PROPOSED COST ALLOCATION
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Session Objectives
Differentiate between direct, shared and
indirect costs
Reflecting costs in budgets proposals
Understand accounting for expenses and allocations
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OVERVIEW
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Determining Chargeable Costs

• Ordinary and necessary
• Support operation
• Contribute to performance
• Tied to cost objective, contract, service
• Proportional to benefits
• Allowability determined by
• OMB Guidelines grant provisions

REASONABLE
ALLOCABLE
ALLOWABLE
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Applying Allocation Methodologies

• Indirect costs to major functions

• Used when costs benefit activities to the same
  degree
• Used when costs benefit activities in varying
  degrees
• Treats all costs as direct costs except
  general administrative

SIMPLE
MULTIPLE
DIRECT
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Utilizing Simple Allocation Method

• direct
• Segregate costs indirect
• fundraising
• facilities
• For 10 million segregate indirect
• administration
• Allocate costs using a method that measures
  relative benefits to each function
  administration

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Utilizing Multiple Base Method
Segregate your indirect costs into three
groupings
Depreciation and Use Allowances
Operation and Maintenance Expenses
General and Administration
Allocate costs using a method that measures
relative benefits to each function
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Utilizing Direct Allocation Method
Management General Costs
Fundraising
Total Costs
Indirect Rate
All Other Costs
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Utilizing Cost Pools
200 Series Fringe Benefits
100 Series Direct Costs
300 Series Shared Facilities
500 Series Administrative Costs
400 Series Office Resources
Allocate costs using a method that measures
relative benefits to each function
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Pooling Fringe Benefit Costs
200 Series Fringe Benefits

• Apply as a percentage of salaries
• Include payroll taxes, health insurance,
  unemployment, and workers compensation insurance
• Allocate as part of regular monthly accounting
  close and included in internal and external
  financial reporting

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Pooling Facility Office Resource Costs
300 Series Shared Facilities

• Allocate on square footage or
• Allocate on percentage of salaries if staff
  regularly work on more than one activity

400 Series Office Resources

• Include rent or depreciation, utilities,
  telephone, postage, copying and printing,
  insurance, other shared costs
• Allocate as part of regular monthly accounting
  close and included in internal and external
  financial reporting

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Pooling General Administrative Costs

• Based on total costs and sometimes allocated
• as a percentage of salaries
• Include governance, legal, accounting and audit
  fees, human resources
• Allocate as part of regular monthly accounting
  close and included in internal and external
  financial reporting

500 Series Administrative Costs
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The trouble with a budget is that it's hard to
fill up one hole without digging another. -
Dan Bennett
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Developing a Program Budget

• Staffing Fringe Requirements Allocation
• Shared Cost
• Allocation
• Other Direct Indirect
• Costs Allocation

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Actions Items Needed

• Determine staffing to support program
• Determine allocable share of fringe
• Identify other direct costs (member or volunteer
  costs, travel, materials, supplies, and other
  program operating expenses)
• Determine allocable share of the cost of shared
  resources
• Determine allocable share of indirect

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Action Item Determine Staffing

• Determine work required to support the program
• Budget for proportion of time to be spent on
  program (e.g. half salary for working half time
  on one project half time on another)
• Budget based on what people will do, not how they
  are funded

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Action Item Allocate Fringe Costs

• Calculate fringe rate
• divided by
• Fringe Rate
• Multiply fringe rate by the salaries identified
  in step 1 to allocate fringe costs to the program
  budget

Total fringe costs for the organization
Total salaries for the organization
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Example Personnel Costs
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Action Item Allocate Shared Resources

• Calculate shared resources rate
• Divided by
• Shared Resource Rate
• Multiply shared resource rate by the salaries
  identified in step 1 to allocate shared resources
  costs to the program budget

Total shared resource costs for the organization
Total salaries for the organization
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Action Item Identify Other Direct Costs

• Plan resources
• Identify materials needed
• Estimate travel or equipment costs if appropriate

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Other Direct Costs
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Elements of Direct Costs
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Action Item Indirect Costs
Calculate indirect cost rate divided by
Indirect Cost Rate Multiply rate to total of all
other calculated costs
Total indirect costs for the organization
Sum of program fundraising costs for the
organization
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Total Program Cost
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Identify Federal versus Grantee Share
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Sample Program Cost Overview
Indirect
Other Direct
Salaries
Shared Resources
Fringe
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Organizing Costs
Cost Centers

• -Collect data about like costs
• -Assign individual costs to
• specific activities

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Overview of Accounting Structure
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Total Cost
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Total Program
Supporting Services
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Salaries

Fringe

Shared Resources

Other Direct Costs

Indirect


Total Program Cost

• Treat costs consistently between programs
• Costs are assigned to the activities that benefit
  from them

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Accounting for Personnel Costs

• Maintain time record reflecting activities by
  cost center
• Report fundraising administration separately
• Benefits simplifies accumulation of accounting
  information for reporting and compliance

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Coding Invoices

• Must support work of program
• Do not charge costs here simply because funding
  is available
• Charge to appropriate pool
• Not identifiable to other cost objectives

• Direct costs
• Shared costs
• Indirect costs

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Meeting the Match

• Leverage a funded activity to support the match
• In some states, the state may provide a matching
  grant.

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Documenting the Match

• Use a separate cost center to accumulate the
  match

• Support reported match with the accounting
  records

Matching Cost Center
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Guiding Principles from OMB
Circular Letters
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There are so many men who can figure costs, and
so few who can measure values. - unknown,
in a California newspaper