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Selected Cost Allocation Newsletter Articles
Article 1 - Leave Pool
Part of the basic GMS Accounting and Financial Management System is the Leave Pool. The leave pool is a method of allocating your organization’s leave costs to the appropriate programs. The logic behind using the leave pool is basic accountability. For example, you may have an employee that works on three programs over the course of a year at a ratio of 60%, 30% and 10%. When that employee takes a day of leave (any type), even with the employee’s work history you cannot really justify direct charging that leave time to those three programs. This is because while on leave, the employee is not benefitting those programs as they are not working on them. Accordingly, why would the leave time be direct charged to the programs?
The leave pool will accumulate the organization’s leave cost by class of employee and allocate them, by class, using the ratio of YTD leave costs to the selected base. For example, let’s say three months into your fiscal year the total leave costs for your class 1 staff is $22,900. Also at that time your total base (direct charged salaries) is $146,850. A simple ratio of your class 1 leave costs to
your class 1 base is $22,900/$146,850 or .1559. This percentage would then be applied to all of the direct charged class 1 salaries, under the program elements where the salaries were charged. So if a program element has $10,100 of direct charged class 1 salaries, the class 1 leave costs allocated to that element would be 1,574.59 ($10,100 * .1559).
The system will then do the same process for class 2 salaries, class 3 salaries, etc. until all employee classes have been accounted for. The first step in General Ledger\Monthly Processing\Cost Allocation is Leave Cost Allocation which generates the Leave Rate Computation and Analysis. This report provides you with the calculation and leave rates as described above.
There are a two items set up in the software that will have an effect on the leave rate(s) and how they are calculated. They are (1) whether or not you accrue the cost of certain leave types when they are earned, and (2) how your base is defined.
Article 2 - Fringe Benefit Pool
Note: the following article is based on an allocation procedure where the actual fringe benefit rate is used rather than a fixed rate.
The second pool that is included as part of the basic GMS Accounting and Financial Management System is the Fringe Benefit Pool. As with the Leave Pool, how the base is defined and the employee class structure is set up within the GMS software will be the two main factors determining how the fringe benefit costs are allocated to programs. Please refer to the Help Manual under Tools\Cost Allocation Setup, in the Class Setup and Fringe Allocation sections, for the setup of classes and the fringe benefit matrix.
When an expense is coded as a fringe benefit, the element used is 998000. (This is a control account set up in the GMS system and cannot be changed.) Typically the transaction codes set up for fringe benefits follow immediately after GL code 50500. An example would be GL code 50600
–FICAFringeBenefits.(50500iscontrolthatisusedallocatethefringeinthethefinancialstatementsandcannotAlltransactionscodedelement998000accumulated,lineonayear-to-date basis.
The system then looks at the year-to-date fringe benefit costs, on an individual line item basis, and allocates a percentage of the total cost to each individual class using the ratio of the YTD base amount (typically salaries and leave) to the YTD total base of the classes that receive each benefit. For example, let’s say the YTD FICA expense for the organization was $24,400. Class 1 total base was $168,660 and the agency total base was $321,330. The ratio of the class 1 base to the total base is $168,660/$321,330 or .5249. The system then applies the .5249 against the YTD total agency FICA $24,400. That results in $12,807.56 FICA expense being allocated to class 1. The system then follows the same procedure for the FICA expense for all remaining classes who receive the FICA benefit.
Once all classes have been accounted for and the total YTD FICA expense has been allocated, the entire process is repeated for the next and all subsequent fringe benefit costs. At the end of the process the total of all fringe benefit costs allocated to each class is then compared to that class’ base. For example, if the total allocated class 1 fringe benefit costs is $60,750, the ratio of that amount against the class 1 base is $60,750/$168,660 or .3602. That 36.02% fringe rate is then applied to all class 1 salaries during the cost allocation process.
Note: If your organization uses the fringe pool in the GMS software it is imperative that you use the calculated fringe benefit rate(s) when preparing your program budgets. Too often we see clients using the fringe pool to allocate their fringe benefits but they create program budgets based on individual employee costs. In addition to saving an incredible amount of time in budget preparation when using the fringe rate(s), you should always be using the same procedure for your budgeting as you do your accounting to give you the most realistic budget comparative on your financial statements.
Article 3 - Indirect Cost Pool
Note: the following article is based on an allocation procedure where the actual indirect cost rate is used rather than a fixed rate.
The third pool that is included as part of the basic GMS Accounting and Financial Management System is the Indirect Cost Pool. The Indirect Cost Pool is a way to allocate your agency’s costs associated with common costs and central organizational functions that are necessary and beneficial to all programs. As with the Leave and Fringe Benefit pools discussed in the previous two articles, how the base is defined plays an integral part in determining how the indirect costs are allocated to programs. Note: The base set up in the GMS system should be as defined in your organization’s current indirect cost plan. This is imperative in order to keep you in compliance with your plan. Please refer to the Help Manual under Tools\Cost Allocation Setup\Indirect Cost Allocation for instructions on setting up your base in the software.
When an expense is coded to the indirect cost pool, an element within the range 999000 – 999900 is used. (These are control accounts in the GMS system and cannot be changed.) These expenses are collected in the indirect cost pool then allocated to programs on an agency fiscal year-to-date basis.
To calculate the indirect cost rate, the system looks at the total YTD indirect costs and calculates a ratio of those costs against the organization’s YTD indirect cost base. For example, if at a given month the total YTD indirect costs were $75,100 and the total base for distribution was $420,050, that ratio would be $75,100/$420,050 or .1788. (An example of an Indirect Cost base would be total direct charged salaries, allocated leave and fringe benefits.)
That ratio would then be applied to the base on all receiving elements. So if an element has a base amount of $94,000, the indirect cost amount charged to that element would be $94,000 x .1788 or $16,807. The allocated indirect cost amount will appear on line item 59700 Indirect Costs. This is a control account in the GMS software and cannot be changed.
Article 4 - How your Pools Affect Financial Reporting
This article will walk you through the process of verifying the Salary, Fringe Benefit and Indirect Cost amounts as they appear on your Revenue and Expenditure reports. To help you understand this procedure you should have in front of you a copy of the following reports for any given month:
The first report you should look at is the Year to Date Cost Allocation Summary. The column headed Reg Time reflects year to date charges by employee classification to each program element. This very simply is a total of direct charges to the individual elements as they appear on timesheets. To view this information on an employee specific basis look at the same element on the YTD Timesheet Charges by Activity.
Compare the Element Totals line of the Reg Time column for an element on the YTD Timesheet Charges by Activity report with the Elem Totals line of the Reg Time column on the Year to Date Cost Allocation Summary for the same element and you will see that they agree. Tip: If you want to get even more detail such as individual timesheet batch numbers, select Include Drill Down Details when generating the YTD Timesheet Charges by Activity. You will have the ability to double click on an employee name to see information that make up the individual employee’s total.
The next column on the Year to Date Cost Allocation Summary is Lv Alloc. This figure represents the amount of leave costs allocated to each element by employee class. The report takes the amount in the Reg Time column and multiplies it by the individual class’ leave rate to arrive at the figure in the Lv Alloc column. To view the calculation of the leave rates, look at the Leave Rate Computation and Analysis. The leave rates are calculated with each employee class on a separate page. The Total Leave Rate that appears on the bottom of a particular class’ page is the rate that is used to calculate the amount in the LV Alloc column on the Year to Date Cost Allocation Summary.
Note: The next two columns on the Year to Date Cost Allocation Summary are the Overtime and Comp Time columns. These columns will have information in them if your agency paid overtime or tracks compensatory time in the system.
Next, on the Year To Date Cost Allocation Summary if you add together all amounts in the Reg Time, Lv Alloc, Overtime and Comp Time columns you will get the amount that appears in the next column on the report, Total Sal. The Total Sal amount on the Elem Totals line will agree with the Salary amount on the Revenue and Expenditure by Element report in the YTD column!! Tip: If you want to see the total salary and leave amounts by employee, select Include Drill Down Details when generating the Revenue and Expenditure by Element Report. Due to confidentiality, consideration of this should be given when giving users access to Personnel Drill Down Detail.
The next column on the Year to Date Cost Allocation Summary is Benefits. This is the amount of Fringe Benefits applied to the total Salary amounts in the previous column. Please see the Fringe Benefit Pool article above for the detailed explanation of the fringe benefit rate(s). The amount appearing in the Total Salary column is multiplied by the fringe benefit rate that appears on the Fringe Benefit Rate Computation and Analysis for each individual employee class. The result of that calculation appears in the Benefits column. After the calculation is done for each class, the Element Totals amount for the Fringe Benefits will be the amount reflected on the Fringe Benefits line on the corresponding Revenue and Expenditure Report by Element.
The next column, Add Base, may or may not be used as a result of how the base is defined in the system for the allocation of Indirect Costs.
The final column on the Year to Date Cost Allocation Summary is Indirect. This amount is a result of the application of the Indirect Cost Rate as calculated on the Indirect Cost Rate Computation and Analysis. Please see the Indirect Cost Pool article above for a detailed explanation of the indirect cost rate. Your total base for indirect costs is multiplied by the indirect cost rate with the result appearing in the Indirect column on the Year to Date Cost Allocation Summary. Note: the base for the allocation of your Indirect Costs may be just the Salary Column, Salary and Benefits, or Salary, Benefits and Additional Base, and should always be in accordance with your approved cost allocation plan.
Article 5 - Supplement #383 Shift Indirect Costs
Some grants and/or contracts may require you to report all of your indirect costs for their program under one specific element such as Administration. If this is true for your agency, Supplement #383 Shift Indirect Costs can accomplish this. Note: This supplement does not affect or change the normal allocation of your indirect costs that should be set up in accordance with your Indirect Cost Plan. The purpose of this supplement is to help you meet your external reporting requirements.
Once the normal allocation of your indirect costs are done, Shift Indirect Costs will transfer the indirect costs from specific elements to one receiving element so all indirect costs will be reported in a single element. For example, if you have a project with 3 “program activities” elements and one “administrative” element, you can set up this supplement to transfer all of the indirect costs that are allocated to the three program activities elements to the single administrative element. Again, this transfer is for reporting purposes only and no actual allocations are affected. This transfer is documented by printing a Year to Date Cost Allocation Summary after shifting indirect costs.
Article 6 - Supplement #367 Service Unit Allocation
and Supplement #381 Special Allocations/Internal Base
Do you have program costs that benefit a specific set of programs and you are allocating them using an arbitrary base, or worse yet, based on budget? If so, one of these supplements may be of great use to your organization. The basic premise of both of these supplements is the same: They give you the ability to create an unlimited number of pools in which to collect costs to be allocated, and then you identify which programs are to receive these allocated costs.
Service Unit Allocation uses an external base. This means what drives the allocation of the pooled costs is a result of a base entered into the system, such as units of service provided. For example, you may receive four grants or contracts to provide congregate meals for the elderly. A nutrition pool could be created and into this pool you would charge such program costs as cook’s and site manager’s salaries, raw food costs, supplies, etc. These costs would then be allocated to the four programs based on the number of meals served to qualifying clients.
Special Allocations/Internal Base uses an internal base such as hours worked, personnel costs or total direct costs. Using an internal base would be a more equitable method of allocation when there is no external factor such as units of service provided. Note: This is the same type of setup that is available in the GMS system for Indirect Costs. As in the Service Unit Allocation supplement, program costs such as coordination activities, program manager’s salaries and program supplies are collected in a pool and allocated to specified elements.
Using an accurate and realistic base to allocate these costs rather than an arbitrary method will provide you with financial reports more accurately reflecting the true costs for each program!
Article 7 - Supplement #389 Cost Allocation Locks
Do you have grants and contracts that end at various times during your fiscal year? Are you required to submit final financial reports for these programs prior to your fiscal year ending? Do you use actual rates determined by using a year-to-date base for any of the allocation pools such as leave, fringe benefits, indirect costs and/or special allocations?
If the answer to these questions is “Yes” and your grantor will not accept a revised final financial report once your fiscal year has ended, then you may want to consider using the Cost Allocation Locks supplement.
As you are aware, when using a year-to-date base to allocate your pools, the allocation rates will fluctuate on a month to month basis. If you have a program that ends during your fiscal year and you prepare the final report to the funding source based on that particular month’s Revenue & Expense report, chances are in the subsequent months the allocation rate(s) will fluctuate in either direction.
As the rates fluctuate, you will see the result of this fluctuation as small amounts charged to the programs that you have already “closed”. By the end of your organization’s fiscal year these amounts are going to have to be dealt with. The Cost Allocation Locks supplement is an excellent way to accomplish this!
When a program ends and you finalize the allocation amounts you can move the subsequent amounts caused by the rate(s) fluctuation to another program. Typically you would move these amounts to the following grant or contract for the same program. This is done very simply by identifying the “final” allocated amounts, locking them at those amounts, and specifying the program element to which the fluctuation amounts are to be transferred. GMS highly recommends that you send a letter to your grantor agency informing them of this accounting practice prior to finalizing each of the grants/contracts.
This is a great way to deal with one of the characteristics of a year-to-date base for pools when your programs have differing years than you organization’s fiscal year and your grantor agencies will not accept a revised final financial report.
Part of the basic GMS Accounting and Financial Management System is the Leave Pool. The leave pool is a method of allocating your organization’s leave costs to the appropriate programs. The logic behind using the leave pool is basic accountability. For example, you may have an employee that works on three programs over the course of a year at a ratio of 60%, 30% and 10%. When that employee takes a day of leave (any type), even with the employee’s work history you cannot really justify direct charging that leave time to those three programs. This is because while on leave, the employee is not benefitting those programs as they are not working on them. Accordingly, why would the leave time be direct charged to the programs?
The leave pool will accumulate the organization’s leave cost by class of employee and allocate them, by class, using the ratio of YTD leave costs to the selected base. For example, let’s say three months into your fiscal year the total leave costs for your class 1 staff is $22,900. Also at that time your total base (direct charged salaries) is $146,850. A simple ratio of your class 1 leave costs to
your class 1 base is $22,900/$146,850 or .1559. This percentage would then be applied to all of the direct charged class 1 salaries, under the program elements where the salaries were charged. So if a program element has $10,100 of direct charged class 1 salaries, the class 1 leave costs allocated to that element would be 1,574.59 ($10,100 * .1559).
The system will then do the same process for class 2 salaries, class 3 salaries, etc. until all employee classes have been accounted for. The first step in General Ledger\Monthly Processing\Cost Allocation is Leave Cost Allocation which generates the Leave Rate Computation and Analysis. This report provides you with the calculation and leave rates as described above.
There are a two items set up in the software that will have an effect on the leave rate(s) and how they are calculated. They are (1) whether or not you accrue the cost of certain leave types when they are earned, and (2) how your base is defined.
- If you expense all leave when it is taken, the leave cost to your organization will simply be those leave costs recorded on the timesheets. If your personnel policies allow for unused leave to be paid out upon termination, typically Annual Leave or Paid Time Off, that leave liability is normally charged when earned. In this case, in addition to the leave taken charges, the system will take into account the increase or decrease in the amount of the liability of the specific leave type(s) you are expensing when earned.
- When defining the Leave Base in the software, in addition to regular time you may also include Overtime and/or Compensatory time earned in that base period.
Article 2 - Fringe Benefit Pool
Note: the following article is based on an allocation procedure where the actual fringe benefit rate is used rather than a fixed rate.
The second pool that is included as part of the basic GMS Accounting and Financial Management System is the Fringe Benefit Pool. As with the Leave Pool, how the base is defined and the employee class structure is set up within the GMS software will be the two main factors determining how the fringe benefit costs are allocated to programs. Please refer to the Help Manual under Tools\Cost Allocation Setup, in the Class Setup and Fringe Allocation sections, for the setup of classes and the fringe benefit matrix.
When an expense is coded as a fringe benefit, the element used is 998000. (This is a control account set up in the GMS system and cannot be changed.) Typically the transaction codes set up for fringe benefits follow immediately after GL code 50500. An example would be GL code 50600
–FICAFringeBenefits.(50500iscontrolthatisusedallocatethefringeinthethefinancialstatementsandcannotAlltransactionscodedelement998000accumulated,lineonayear-to-date basis.
The system then looks at the year-to-date fringe benefit costs, on an individual line item basis, and allocates a percentage of the total cost to each individual class using the ratio of the YTD base amount (typically salaries and leave) to the YTD total base of the classes that receive each benefit. For example, let’s say the YTD FICA expense for the organization was $24,400. Class 1 total base was $168,660 and the agency total base was $321,330. The ratio of the class 1 base to the total base is $168,660/$321,330 or .5249. The system then applies the .5249 against the YTD total agency FICA $24,400. That results in $12,807.56 FICA expense being allocated to class 1. The system then follows the same procedure for the FICA expense for all remaining classes who receive the FICA benefit.
Once all classes have been accounted for and the total YTD FICA expense has been allocated, the entire process is repeated for the next and all subsequent fringe benefit costs. At the end of the process the total of all fringe benefit costs allocated to each class is then compared to that class’ base. For example, if the total allocated class 1 fringe benefit costs is $60,750, the ratio of that amount against the class 1 base is $60,750/$168,660 or .3602. That 36.02% fringe rate is then applied to all class 1 salaries during the cost allocation process.
Note: If your organization uses the fringe pool in the GMS software it is imperative that you use the calculated fringe benefit rate(s) when preparing your program budgets. Too often we see clients using the fringe pool to allocate their fringe benefits but they create program budgets based on individual employee costs. In addition to saving an incredible amount of time in budget preparation when using the fringe rate(s), you should always be using the same procedure for your budgeting as you do your accounting to give you the most realistic budget comparative on your financial statements.
Article 3 - Indirect Cost Pool
Note: the following article is based on an allocation procedure where the actual indirect cost rate is used rather than a fixed rate.
The third pool that is included as part of the basic GMS Accounting and Financial Management System is the Indirect Cost Pool. The Indirect Cost Pool is a way to allocate your agency’s costs associated with common costs and central organizational functions that are necessary and beneficial to all programs. As with the Leave and Fringe Benefit pools discussed in the previous two articles, how the base is defined plays an integral part in determining how the indirect costs are allocated to programs. Note: The base set up in the GMS system should be as defined in your organization’s current indirect cost plan. This is imperative in order to keep you in compliance with your plan. Please refer to the Help Manual under Tools\Cost Allocation Setup\Indirect Cost Allocation for instructions on setting up your base in the software.
When an expense is coded to the indirect cost pool, an element within the range 999000 – 999900 is used. (These are control accounts in the GMS system and cannot be changed.) These expenses are collected in the indirect cost pool then allocated to programs on an agency fiscal year-to-date basis.
To calculate the indirect cost rate, the system looks at the total YTD indirect costs and calculates a ratio of those costs against the organization’s YTD indirect cost base. For example, if at a given month the total YTD indirect costs were $75,100 and the total base for distribution was $420,050, that ratio would be $75,100/$420,050 or .1788. (An example of an Indirect Cost base would be total direct charged salaries, allocated leave and fringe benefits.)
That ratio would then be applied to the base on all receiving elements. So if an element has a base amount of $94,000, the indirect cost amount charged to that element would be $94,000 x .1788 or $16,807. The allocated indirect cost amount will appear on line item 59700 Indirect Costs. This is a control account in the GMS software and cannot be changed.
Article 4 - How your Pools Affect Financial Reporting
This article will walk you through the process of verifying the Salary, Fringe Benefit and Indirect Cost amounts as they appear on your Revenue and Expenditure reports. To help you understand this procedure you should have in front of you a copy of the following reports for any given month:
- YeartoTimesheetChargesActivity
- LeaveComputationAnalysis
- FringeBenefitAnalysisandComputation
- IndirectCostRateComputationandAnalysis
- YearToDateSummary
- RevenueandExpenditureReportElement
The first report you should look at is the Year to Date Cost Allocation Summary. The column headed Reg Time reflects year to date charges by employee classification to each program element. This very simply is a total of direct charges to the individual elements as they appear on timesheets. To view this information on an employee specific basis look at the same element on the YTD Timesheet Charges by Activity.
Compare the Element Totals line of the Reg Time column for an element on the YTD Timesheet Charges by Activity report with the Elem Totals line of the Reg Time column on the Year to Date Cost Allocation Summary for the same element and you will see that they agree. Tip: If you want to get even more detail such as individual timesheet batch numbers, select Include Drill Down Details when generating the YTD Timesheet Charges by Activity. You will have the ability to double click on an employee name to see information that make up the individual employee’s total.
The next column on the Year to Date Cost Allocation Summary is Lv Alloc. This figure represents the amount of leave costs allocated to each element by employee class. The report takes the amount in the Reg Time column and multiplies it by the individual class’ leave rate to arrive at the figure in the Lv Alloc column. To view the calculation of the leave rates, look at the Leave Rate Computation and Analysis. The leave rates are calculated with each employee class on a separate page. The Total Leave Rate that appears on the bottom of a particular class’ page is the rate that is used to calculate the amount in the LV Alloc column on the Year to Date Cost Allocation Summary.
Note: The next two columns on the Year to Date Cost Allocation Summary are the Overtime and Comp Time columns. These columns will have information in them if your agency paid overtime or tracks compensatory time in the system.
Next, on the Year To Date Cost Allocation Summary if you add together all amounts in the Reg Time, Lv Alloc, Overtime and Comp Time columns you will get the amount that appears in the next column on the report, Total Sal. The Total Sal amount on the Elem Totals line will agree with the Salary amount on the Revenue and Expenditure by Element report in the YTD column!! Tip: If you want to see the total salary and leave amounts by employee, select Include Drill Down Details when generating the Revenue and Expenditure by Element Report. Due to confidentiality, consideration of this should be given when giving users access to Personnel Drill Down Detail.
The next column on the Year to Date Cost Allocation Summary is Benefits. This is the amount of Fringe Benefits applied to the total Salary amounts in the previous column. Please see the Fringe Benefit Pool article above for the detailed explanation of the fringe benefit rate(s). The amount appearing in the Total Salary column is multiplied by the fringe benefit rate that appears on the Fringe Benefit Rate Computation and Analysis for each individual employee class. The result of that calculation appears in the Benefits column. After the calculation is done for each class, the Element Totals amount for the Fringe Benefits will be the amount reflected on the Fringe Benefits line on the corresponding Revenue and Expenditure Report by Element.
The next column, Add Base, may or may not be used as a result of how the base is defined in the system for the allocation of Indirect Costs.
The final column on the Year to Date Cost Allocation Summary is Indirect. This amount is a result of the application of the Indirect Cost Rate as calculated on the Indirect Cost Rate Computation and Analysis. Please see the Indirect Cost Pool article above for a detailed explanation of the indirect cost rate. Your total base for indirect costs is multiplied by the indirect cost rate with the result appearing in the Indirect column on the Year to Date Cost Allocation Summary. Note: the base for the allocation of your Indirect Costs may be just the Salary Column, Salary and Benefits, or Salary, Benefits and Additional Base, and should always be in accordance with your approved cost allocation plan.
Article 5 - Supplement #383 Shift Indirect Costs
Some grants and/or contracts may require you to report all of your indirect costs for their program under one specific element such as Administration. If this is true for your agency, Supplement #383 Shift Indirect Costs can accomplish this. Note: This supplement does not affect or change the normal allocation of your indirect costs that should be set up in accordance with your Indirect Cost Plan. The purpose of this supplement is to help you meet your external reporting requirements.
Once the normal allocation of your indirect costs are done, Shift Indirect Costs will transfer the indirect costs from specific elements to one receiving element so all indirect costs will be reported in a single element. For example, if you have a project with 3 “program activities” elements and one “administrative” element, you can set up this supplement to transfer all of the indirect costs that are allocated to the three program activities elements to the single administrative element. Again, this transfer is for reporting purposes only and no actual allocations are affected. This transfer is documented by printing a Year to Date Cost Allocation Summary after shifting indirect costs.
Article 6 - Supplement #367 Service Unit Allocation
and Supplement #381 Special Allocations/Internal Base
Do you have program costs that benefit a specific set of programs and you are allocating them using an arbitrary base, or worse yet, based on budget? If so, one of these supplements may be of great use to your organization. The basic premise of both of these supplements is the same: They give you the ability to create an unlimited number of pools in which to collect costs to be allocated, and then you identify which programs are to receive these allocated costs.
Service Unit Allocation uses an external base. This means what drives the allocation of the pooled costs is a result of a base entered into the system, such as units of service provided. For example, you may receive four grants or contracts to provide congregate meals for the elderly. A nutrition pool could be created and into this pool you would charge such program costs as cook’s and site manager’s salaries, raw food costs, supplies, etc. These costs would then be allocated to the four programs based on the number of meals served to qualifying clients.
Special Allocations/Internal Base uses an internal base such as hours worked, personnel costs or total direct costs. Using an internal base would be a more equitable method of allocation when there is no external factor such as units of service provided. Note: This is the same type of setup that is available in the GMS system for Indirect Costs. As in the Service Unit Allocation supplement, program costs such as coordination activities, program manager’s salaries and program supplies are collected in a pool and allocated to specified elements.
Using an accurate and realistic base to allocate these costs rather than an arbitrary method will provide you with financial reports more accurately reflecting the true costs for each program!
Article 7 - Supplement #389 Cost Allocation Locks
Do you have grants and contracts that end at various times during your fiscal year? Are you required to submit final financial reports for these programs prior to your fiscal year ending? Do you use actual rates determined by using a year-to-date base for any of the allocation pools such as leave, fringe benefits, indirect costs and/or special allocations?
If the answer to these questions is “Yes” and your grantor will not accept a revised final financial report once your fiscal year has ended, then you may want to consider using the Cost Allocation Locks supplement.
As you are aware, when using a year-to-date base to allocate your pools, the allocation rates will fluctuate on a month to month basis. If you have a program that ends during your fiscal year and you prepare the final report to the funding source based on that particular month’s Revenue & Expense report, chances are in the subsequent months the allocation rate(s) will fluctuate in either direction.
As the rates fluctuate, you will see the result of this fluctuation as small amounts charged to the programs that you have already “closed”. By the end of your organization’s fiscal year these amounts are going to have to be dealt with. The Cost Allocation Locks supplement is an excellent way to accomplish this!
When a program ends and you finalize the allocation amounts you can move the subsequent amounts caused by the rate(s) fluctuation to another program. Typically you would move these amounts to the following grant or contract for the same program. This is done very simply by identifying the “final” allocated amounts, locking them at those amounts, and specifying the program element to which the fluctuation amounts are to be transferred. GMS highly recommends that you send a letter to your grantor agency informing them of this accounting practice prior to finalizing each of the grants/contracts.
This is a great way to deal with one of the characteristics of a year-to-date base for pools when your programs have differing years than you organization’s fiscal year and your grantor agencies will not accept a revised final financial report.
