Demystifying Cost Allocation. Steve Zimmerman Spectrum Nonprofit Services, LLC. Our Conversation Today. What goes into the price?

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1 Demystifying Cost Allocation Steve Zimmerman Spectrum Nonprofit Services, LLC This project was supported by Grant No ET S6 K008 awarded by the Office on Violence Against Women, U.S. Department of Justice. Points of view in this document are those of the author(s) and do not necessarily represent the official position or policies of the Department of Justice. 1 Our Conversation Today Setting the context Understanding true costs Cost Allocation methods Cost Allocation sample Questions on allocation What goes into the price? Coffee Beans Water Paper 5 6 1

2 What goes into the price? Coffee Beans Equipment Technology Accounting Gas for roasting Water Strategic Planning Paper Marketing & Advertising Nonprofits need to do the same thing! Coffee Beans Technology Gas for roasting Strategic Planning Marketing & Advertising Equipment Accounting Water Paper 7 8 So, why don t we? What is allocation? Allocation is the systematic process of splitting certain expenses between activity centers (cost centers) based on several factors. Direct Direct Admin Admin

3 Why allocate expenses? The Regulatory Environment Business analysis / Determining True Cost recovery Efficiency All costs must be: Reasonable Allowable Allocable Consistently applied Documented 2CFR Part 230 Steps of Allocation Categorize s Choose Allocation Base(s) Allocate Allocate Administrative Overhead / Administration 16 The Texas Two Step vs. Activities Those services or expenses that carry out the mission and purpose of the organization. All other expenses. For IRS and GAAP purposes this includes unallowable fundraising expenses. 18 3

4 vs. : Definitions vs. : Examples s s s s Those expenses that relate to an individual program or activity of the organization. Those expenses that are used by multiple programs or activities of the organization. supplies Client transportation t ti Development Director s Salary Office supplies Rent Telephone & utilities Liability insurance Technology support Salary for an Outreach Coordinator A B C Salary for the bookkeeper A B C Salary for the Office Manager A B C Office supplies for the main cabinet A B C

5 Office supplies for Prevention Education A B C Annual auditing expense A B C Liability Insurance A B C Admin Summary: Categorizing s A s Common or s B Administration Fundraising Admin Allocated to categories 30 5

6 Acceptable Basis Units of service costs Cost to Cost allocation Full time equivalents (FTE s) Payroll expenses Square footage expenses Direct Split Out For the Nine Months Ending September 30, 2011 Activities Awareness Counseling Outreach Admin Fundraising TOTAL Salaries 83, ,800 18,300 30,400 33,000 45, ,300 Benefits 12,570 29,220 2,745 4,560 4,950 6,750 60,795 Personnel 96, ,020 21,045 34,960 37,950 51, ,095 Professional Fees 19, ,000 1,500 3, ,800 Supplies 5,800 1,400 1,800 8, ,500 30,700 Telephone 4,900 4,900 Postage 2,600 2,600 Occupancy 12,100 12,100 Depreciation 6,500 6,500 Insurance 500 6,200 6,700 Technology 2,900 2,900 Travel 2,700 11,400 3,480 1, ,780 Printing 2,900 1,600 3,600 5,500 13,600 Total $ 127,670 $ 381,420 $ 27,825 $ 47,960 $ 41,850 $ 105,950 $ 732,675 These percengages tie back to timesheets. Staffing Plan For the Nine Months Ending 9/30/11 These percengages tie back to timesheets. Staffing Plan For the Nine Months Ending 9/30/11 Position Activities Fund- Awareness Counseling Outreach Admin raising Position Activities Fund- Awareness Counseling Outreach Admin raising Executive Director 100% 5% 10% 15% 35% 35% Admin Assitant 100% 15% 5% 5% 45% 30% Finance Director 100% 100% Development Director 100% 100% Director of Shelter 100% 100% Director of Education 100% 100% Shelter advocates 400% 400% Teachers 150% 150% Director of Technology 100% 100% Receptionist 100% 100% Custodian 20% 20% Bookkeeper 50% 50% Development 50% Coordinator 50% Executive Director 100% 5% 10% 15% 35% 35% Admin Assitant 100% 15% 5% 5% 45% 30% Finance Director 100% 100% Development Director 100% 100% Director of Shelter 100% 100% Director of Education 100% 100% Shelter advocates 400% 400% Teachers 150% 150% Director of Technology 100% 100% Receptionist 100% 100% Custodian 20% 20% Bookkeeper 50% 50% Development 50% Coordinator 50% Total FTE's Total FTE's w/o Total FTE's Total FTE's w/o Allocation % 22% 41% 2% 18% 17% Allocation % 22% 41% 2% 18% 17% Using FTE's Allocation of For the Nine Months Ending September 30, 2011 A B C B*C =D A+D Awareness Allocation Percentage Education Share Awareness Salaries 83,800 45,000 22% 9,900 93,700 Benefits 12,570 6,750 22% 1,485 14,055 Personnel 96,370 51,750 11, ,755 Professional Fees 19,900 22% - 19,900 Supplies 5,800 13,500 22% 2,970 8,770 Telephone - 4,900 22% 1,078 1,078 Postage - 2,600 22% Occupancy - 12,100 22% 2,662 2,662 Depreciation - 6,500 22% 1,430 1,430 Insurance - 6,200 22% 1,364 1,364 Technology - 2,900 22% Travel 2,700 22% - 2,700 Printing 2,900 5,500 22% 1,210 4,110 Total with $ 127,670 $ 105,950 $ 23,309 $ 150,979 Your Turn: Allocation of For the Nine Months Ending September 30, 2011 Allocation Admin Using FTE's Admin Percentage Share Administration Salaries 30,400 45,000 Benefits 4,560 6,750 Personnel 34,960 51,750 9,315 44,275 Professional Fees 3,400-3,400 Supplies ,000 13,500 2,430 10,430 Telephone - 4, Postage - 2, Occupancy - 12,100 2,178 2,178 Depreciation - 6,500 1,170 1,170 Insurance 500 6,200 1,116 1,616 Technology - 2, Travel 1,100-1,100 Printing - 5, Total with $ 47,960 $ 105,950 $ 19,071 $ 67,031 6

7 The Texas Two Step Summarized Statement of Functional Income & s For the Nine Months Ending September 30, 2011 Activities Awareness Counseling Outreach Admin Fundraising TOTAL Personnel 96, ,020 21,045 34,960 37,950 51, ,095 Non Personnel s 31, ,400 6,780 13,000 3,900 54, ,580 Total 127, ,420 27,825 47,960 41, , ,675 Allocation % 22% 41% 2% 18% 17% 100% Allocation of 23,309 43,440 2,119 19,071 18,012 (105,950) without Admin. 150, ,860 29,944 67,031 59, ,675 Activity Source Budget Education and Awareness Foundation Foundation Foundation Federal State General Awareness A B C Contract Contract Fund Revenue 144,080 15,000 17,000 10,000 75,255 26,825 Salaries 102,432 10,000 12,700 6,500 46,386 16,535 10,312 Benefits 15,365 1,500 1, ,958 2,480 1,547 Personnel 117,797 11,500 14,605 7,475 53,344 19,015 11,859 Professional Fees 20,671 2,395 9,361 3,337 5,579 Supplies 11, ,400 5,043 1, Telephone 1, Postage Occupancy 3,156 1, ,217 Depreciation 1, Insurance 1, Technology Travel 2,949 1,000 1, Printing 4,335 1,075 1, Total $ 166,183 $ 15,000 $ 17,000 $ 10,000 $ 75,255 $ 26,825 $ 22,103 Fundraising Lobbying Alcoholic beverages Entertainment costs Investment mgt. Housing and personal living expenses for officers Excluded 39 Questions on Allocation How do these costs fit in with the overall budget? Are all the costs allowable? How are common costs being allocated to the program and then subsequently the contract? Is the allocation being consistently applied? Is each funder paying their fair share? Can you explain your allocation methodology? Admin 42 7

8 Quick summary Your Questions! 1. Figure out what to allocate: 2. Choose an allocation basis 3. Allocate Common 4. Allocate Administrative Steve Zimmerman Phone: