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#389 Cost Allocation Locks
Overview
Cost Allocation Locks is designed to address the situation of how to handle cost allocation amounts distributed to programs which have ended during the fiscal year and after final financial reports have been submitted before the fiscal year ends.
Federal Management Circulars, as well as accepted policies and practice, prescribe using a year-to- date base to allocate year-to-date cost allocation pools. If you use a leave pool, fringe pool, indirect pool, or special allocation pools, the total cost of the pool for the year is related to the total base for the year. The result is a distribution to all programs operating in the agency during the year on the same basis. This coincides very well with the agencywide audit, which can test the pools and test the allocations easily. And, it assures all funding sources of their share regardless of when the program took place or when you incurred certain overhead charges during the year.
The federal approach normally is to allow grantees to use fixed rates with a roll forward provision, or provisional/actual rates. If fixed rates with a roll forward provision are used, then allocations are made using the fixed rates and any differences between actual or fixed rates are rolled forward to the following fiscal year. If provisional/actual rates are used, then actual rates for all programs must be applied during the year or at least by the conclusion of the fiscal year.
The problem occurs when the provisional/actual rate approach is used because amounts allocated to programs ending during the fiscal year are not final and will be readjusted each month until you reach the end of your fiscal year. While federal programs anticipate this and enable grantees to submit revised final financial reports at the conclusion of the fiscal year, many state agencies have a difficulty because of their internal reporting procedures. They expect to see final costs at the time the program ends and are not prepared for any year-end adjustments resulting from cost allocation. Ironically, this is often caused by federal reporting requirements imposed upon states.
Clients opting to use the cost allocation features of the GMS software may operate on either a fixed rate with a roll forward approach or a provisional/actual approach. If the provisional/actual rate approach is used, cost allocation amounts and distribution rates are recalculated on a year-to-date basis each time month end is processed. The result is a distribution of actual year-to-date cost allocation amounts thus eliminating the need for year-end adjustments.
This approach absolutely and correctly fulfills the federal provisional/actual rate option since actual year-to-date amounts are distributed to all programs on a consistent basis for the year. However,
since allocation amounts are constantly readjusting, even for closed programs, the problem is caused for agencies where the funding source refuses to accept year end audited financial statements adjusted for cost allocation as the final program cost. This leaves the grantee in the awkward position of fulfilling federal cost allocation procedures but in conflict with a specific state program requirement.
Function
Cost Allocation Locks enable you to finalize allocation amounts for a program when the program ends and to direct any adjustment in the amounts to another program.
For example, if CSBG ends during your fiscal year, you may lock in the cost allocation amounts at that point and specify that any adjustments to those amounts (increases or decreases) be passed to the new CSBG program. This will:
Things You Should Know
Using the Cost Allocation Locks supplement is not the solution for everyone.
Operating Instructions
Edit: Click on this button to enter or edit cost allocation lock instructions.
Element: Click on the combo box arrow and select the program element that you wish to lock. You will receive a message if you try to lock an element that is already receiving a locked amount.
GL Code: Click on the combo box arrow and select the GL code that you wish to lock. The only GL codes that may be locked will appear in the combo box. The GL codes will include control/transfer codes for salaries, fringe, indirect, and any other special allocation supplements.
Transfer Element: Click on the combo box arrow and select the program element that is to receive any difference between the locked amount and actual cost. This should typically be the new contract year program element. Note: If the program did not get new year funding, you would typically wait until year-end and transfer local unrestricted revenue into the project to cover the project overrun rather than using Cost Locks to transfer the expense to your Current Year Unrestricted program element.
Note: The Element you are locking and the Transfer Element cannot be in the same project.
Amount: Enter the dollar amount that each expenditure code should be locked at for the agency fiscal year. Normally the amount entered would be the project total reported on the final financial report less the prior year amount on the Revenue and Expenditure report. Remember, you are locking current fiscal year amounts in your system.
Effective Date: Enter the month ending date for which you wish the lock to become effective. This date represents the first month in which the lock will be active and must be within the fiscal year in which you are currently preparing reports. For any financial reports generated for a period prior to the effective date they will be prepared without the lock being active.
Enter or tab: Be sure to record the cost lock information into the grid by entering, tabbing, or clicking on the next row.
Save Edit: Click on this button to save the cost lock information reflected in the grid. Print Click on this button to print the Cost Allocation Locks Matrix.
Cost Allocation tab
Period: The period should reflect the month end that is being processed and that has been used for the other pool allocations.
Cost Allocation menu, Cost Allocation Locks button: Click on this button to print the Cost Allocation Lock report.
Note Regarding Step Down Locks:
You may not lock a Transfer Element. For example, if element 300000 is locked and the difference sent to Element 310000, you may not lock Element 310000. If for some reason you need to lock a
Transfer Element, you must first change the original cost lock that was set up transferring the cost to that Element.
For example: Element A is locked and costs are transferred to Element B. Then later in the fiscal year, you need to lock Element B and transfer differences to Element C. You would need to change Element A to be transferred to Element C. You don’t change the amount at which Element A is locked, therefore, it will remain the same. You may then lock Element B at the desired amount and send the difference to Element C.
Cost Allocation Locks is designed to address the situation of how to handle cost allocation amounts distributed to programs which have ended during the fiscal year and after final financial reports have been submitted before the fiscal year ends.
Federal Management Circulars, as well as accepted policies and practice, prescribe using a year-to- date base to allocate year-to-date cost allocation pools. If you use a leave pool, fringe pool, indirect pool, or special allocation pools, the total cost of the pool for the year is related to the total base for the year. The result is a distribution to all programs operating in the agency during the year on the same basis. This coincides very well with the agencywide audit, which can test the pools and test the allocations easily. And, it assures all funding sources of their share regardless of when the program took place or when you incurred certain overhead charges during the year.
The federal approach normally is to allow grantees to use fixed rates with a roll forward provision, or provisional/actual rates. If fixed rates with a roll forward provision are used, then allocations are made using the fixed rates and any differences between actual or fixed rates are rolled forward to the following fiscal year. If provisional/actual rates are used, then actual rates for all programs must be applied during the year or at least by the conclusion of the fiscal year.
The problem occurs when the provisional/actual rate approach is used because amounts allocated to programs ending during the fiscal year are not final and will be readjusted each month until you reach the end of your fiscal year. While federal programs anticipate this and enable grantees to submit revised final financial reports at the conclusion of the fiscal year, many state agencies have a difficulty because of their internal reporting procedures. They expect to see final costs at the time the program ends and are not prepared for any year-end adjustments resulting from cost allocation. Ironically, this is often caused by federal reporting requirements imposed upon states.
Clients opting to use the cost allocation features of the GMS software may operate on either a fixed rate with a roll forward approach or a provisional/actual approach. If the provisional/actual rate approach is used, cost allocation amounts and distribution rates are recalculated on a year-to-date basis each time month end is processed. The result is a distribution of actual year-to-date cost allocation amounts thus eliminating the need for year-end adjustments.
This approach absolutely and correctly fulfills the federal provisional/actual rate option since actual year-to-date amounts are distributed to all programs on a consistent basis for the year. However,
since allocation amounts are constantly readjusting, even for closed programs, the problem is caused for agencies where the funding source refuses to accept year end audited financial statements adjusted for cost allocation as the final program cost. This leaves the grantee in the awkward position of fulfilling federal cost allocation procedures but in conflict with a specific state program requirement.
Function
Cost Allocation Locks enable you to finalize allocation amounts for a program when the program ends and to direct any adjustment in the amounts to another program.
For example, if CSBG ends during your fiscal year, you may lock in the cost allocation amounts at that point and specify that any adjustments to those amounts (increases or decreases) be passed to the new CSBG program. This will:
- Assure CSBG that they will pay only for their share of allocated costs
- Assure other programs that they will not have to absorb CSBG’s under/over recovery (which would not be legitimate)
- Prevent cost allocation amounts for closed programs from wiggling as they readjust
- Avoid the problem of the agency’s current year unrestricted funds having to absorb the under/over recovery of cost allocation amounts
Things You Should Know
Using the Cost Allocation Locks supplement is not the solution for everyone.
- First, there are a number of GMS clients who reject the use of cost allocation pools entirely preferring to direct charge some or all portions of leave, fringe, or indirect costs. These agencies may find the cost allocation lock approach solves a problem that they were previously unable to deal with and will allow them to use cost allocation features in the future.
- Second, those agencies using the actual rate approach and where funding sources are prepared to deal with final year end adjustments generally have no reason to consider cost allocation locks.
- Third, those agencies using fixed rate with roll forward rate agreements have no need to use the cost allocation locks since the rates are not readjusted on a year-to-date basis each month.
- Finally, those agencies prepared to absorb under/over recovery amounts with unrestricted monies generally have no need to lock cost allocation amounts.
- Our estimate is that it leaves the majority of GMS clients – those that want to implement proper cost allocation techniques following preferred procedures, those that prefer using the actual rate approach for cost allocation rather than deferring the difference into a future year, and those who are required to submit final cost reports in advance of when final costs are known. We believe that the cost allocation lock approach is an appropriate solution for these agencies to consider.
- If you decide to use the Cost Allocation Locks supplement, GMS recommends that you secure some type of understanding in writing with your funding sources allowing you to transfer the final cost allocation differences from the old year project to the new. While the transfers should be minor amounts, having the funding source approve this technique in advance will save you potential aggravation later. It may be to your advantage if you send a letter to all affected grantor agencies. State that you are going to follow this manner of closing out the program on your books at the end of the fiscal year to coincide with the final financial report that was previously submitted and they should contact you if they have any questions or concerns.
- If you install cost allocation locks during the fiscal year, be sure to display the cost allocation and financial reporting screens for the previous month before running the current month.
Operating Instructions
Edit: Click on this button to enter or edit cost allocation lock instructions.
Element: Click on the combo box arrow and select the program element that you wish to lock. You will receive a message if you try to lock an element that is already receiving a locked amount.
GL Code: Click on the combo box arrow and select the GL code that you wish to lock. The only GL codes that may be locked will appear in the combo box. The GL codes will include control/transfer codes for salaries, fringe, indirect, and any other special allocation supplements.
Transfer Element: Click on the combo box arrow and select the program element that is to receive any difference between the locked amount and actual cost. This should typically be the new contract year program element. Note: If the program did not get new year funding, you would typically wait until year-end and transfer local unrestricted revenue into the project to cover the project overrun rather than using Cost Locks to transfer the expense to your Current Year Unrestricted program element.
Note: The Element you are locking and the Transfer Element cannot be in the same project.
Amount: Enter the dollar amount that each expenditure code should be locked at for the agency fiscal year. Normally the amount entered would be the project total reported on the final financial report less the prior year amount on the Revenue and Expenditure report. Remember, you are locking current fiscal year amounts in your system.
Effective Date: Enter the month ending date for which you wish the lock to become effective. This date represents the first month in which the lock will be active and must be within the fiscal year in which you are currently preparing reports. For any financial reports generated for a period prior to the effective date they will be prepared without the lock being active.
Enter or tab: Be sure to record the cost lock information into the grid by entering, tabbing, or clicking on the next row.
Save Edit: Click on this button to save the cost lock information reflected in the grid. Print Click on this button to print the Cost Allocation Locks Matrix.
Cost Allocation tab
Period: The period should reflect the month end that is being processed and that has been used for the other pool allocations.
Cost Allocation menu, Cost Allocation Locks button: Click on this button to print the Cost Allocation Lock report.
Note Regarding Step Down Locks:
You may not lock a Transfer Element. For example, if element 300000 is locked and the difference sent to Element 310000, you may not lock Element 310000. If for some reason you need to lock a
Transfer Element, you must first change the original cost lock that was set up transferring the cost to that Element.
For example: Element A is locked and costs are transferred to Element B. Then later in the fiscal year, you need to lock Element B and transfer differences to Element C. You would need to change Element A to be transferred to Element C. You don’t change the amount at which Element A is locked, therefore, it will remain the same. You may then lock Element B at the desired amount and send the difference to Element C.