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Cost Allocation

General Principles and Considerations


I. The cost allocation plan should be a statement of methodology for allocation of various types of cost, as opposed to containing specific percentages or amounts. In other words, the plan should stipulate what data and describe the processes that will be used to determine appropriate allocations during each accounting period; however, it should not contain actual data. For example, the plan may say that the cost of the square footage of each staff members office will be allocated based on the percentage worked by the staff member on each grant during each month, rather than allocated at 80% to X Grant and 20% to Y Grant. II. The plan must provide for updating of cost drivers as they change, so that costs may always be allocated appropriately. For example, if an individuals office square footage is allocated based upon the percentage worked to each grant, then the amount charged to each grant in a particular month would be driven by the percentage the person worked to each grant in that month. This would generally cause different amounts to be reported each month to each grant for the office space associated with the person. In addition, either the plan or the organizations policies and procedures should include a schedule indicating when cost drivers will be reviewed. III. Cost drivers may include: 1. Percentage of time worked on a particular grant, program, or activity 2. Number of individuals being supervised and how much time each of them are on duty 3. Time involved in supervising staff members-when allocating supervisory time, the amount of time required to supervise individuals who are in various roles (e.g. an employee and a member may work the same amount of time, but may require different time commitments for supervision. Therefore, an allocation of supervisory time may not be weighted the same for each type of employee). 4. Number of individuals utilizing building space or a particular service (such as phone/internet) and the extent to which each of them uses it. 5. Square footage of a particular area. 6. Any variable that allows for a determination of the relative benefit received by a grant, program, or activity. Other Guidance: If cost drivers such as square footage, number of staff or program participants (members/volunteers) differ for a particular service site, then a specific cost allocation methodology should be customized for that site.

OneStar Foundation 9011 Mountain Ridge Drive, Ste 100 Austin, TX 78759 Ph: 512.287.2000 Fax: 512.287.2039 www.onestarfoundation.org

The plan must provide for allocation of both direct and indirect costs, and should keep the two separate. A portion of costs associated with common area building space (hallways, restrooms, reception area, breakroom, etc) should not be included as a direct cost on grants without funder permission; rather, these are generally considered indirect costs. The plan must ensure that costs that are unallowable for one or more grants are not included in any pool of direct or indirect costs that is allocated to particular grants and/or activities. The plan must be applied consistently across the organization. Considerations in determining an appropriate basis for allocating costs include: 1. The relative benefit received by the grant, program or activity to which the cost is being allocated. Appropriate care should be given in selecting the method being considered, ensuring it yields a reasonable estimate of the benefit received by each grant, project, or activity. 2. The materiality of the cost 3. The amount of time and cost to perform the allocation These principles also apply to allocation of in-kind matching contributions that simultaneously benefit more than one grant, program, or activity. In-kind contributions are donations of goods, services, or use (of building space, equipment, etc.) received from and individual or entity outside of your organization. These principles also apply to the allocation of program income that was earned through a combination of work proposed in an approved grant application and other work. Costs that are programmatic in nature, but support multiple grants, projects, or activities simultaneously, may be allocated as direct costs using a reasonable allocation method. For example, if a supervisor oversees three afterschool programs, and the work on each separate program can't be readily ascertained or is in such small and sporadic increments that tracking it would be overly burdensome, this supervisor's time may be allocated using an allocation method that yields a reasonable determination of the benefit received by each project (e.g. allocate based on the number of participants in each program).

OneStar Foundation 9011 Mountain Ridge Drive, Ste 100 Austin, TX 78759 Ph: 512.287.2000 Fax: 512.287.2039 www.onestarfoundation.org

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