A LLOCATING NUTRITION SERVICES P ROGRAM C OSTS By Russell Gregorczyk Jansen & Gregorczyk, CPAs

TOPICS WE WILL COVER WHAT IS COST ALLOCATION? WHY DO WE HAVE TO DO IT? HOW DO WE DO IT? DIFFERENT METHODS EXAMPLES

DEFINITION DEFINITION Cost allocation is the splitting up or partitioning of a single cost to different appropriate cost objectives.

W HY DO WE NEED TO ALLOCATE COSTS ?

B ECAUSE MOST OF YOU HAVE MORE THAN ONE PROGRAM OR MORE THAN ONE FUNDING SOURCE  If you have more than one program or if you have any funding sources other than TDA, then you need to be able to allocate costs.  Thus far in our monitoring we have only encountered two agencies that only served home-delivered meals and had no DADS or AAA funding.

C OST A LLOCATION D ETERMINES A LLOWABLE TDA C OSTS TDA Home-Delivered Meals Allowable Costs Salaries Raw Food Supplies

U NIFORM G RANT M ANAGEMENT S TANDARDS  To be allowable under Federal or state awards, costs must meet the following general criteria: a. Be necessary and reasonable for proper and efficient performance and administration of Federal or state awards. b. Be allocable to Federal or state awards under the provisions of this Circular.

UNIFORM GRANT MANAGEMENT STANDARDS A cost is allocable to a particular cost objective if the goods or services involved are chargeable or assignable to such cost objective in accordance with relative benefits received.

HDM S PENDING G UIDELINES Costs must be allocated to all appropriate funding sources. TDA funds must not be expended for costs that are reimbursed by the Texas Department of Aging and Disabilities or an Area Agency on Aging.

So the question is “How do we correctly allocate costs for home-delivered meals?”

T HERE ARE MANY ALTERNATIVES, WHICH ONE IS RIGHT ? There are various methods to allocate costs that will ensure that the costs charged to the TDA home-delivered meals program are allowable. We will cover three of these methods.

SIMPLE APPROACH 1.The simple approach only allocates those costs directly related to the nutrition services programs. 2.Costs are allocated between congregate meals and home-delivered meals based on the number of meals served in each program. 3.Costs only attributable to the home- delivered meals are determined. 4.Home-delivered meal costs are allocated to the TDA grant after consideration of DADs and AAA funding.

S TEP 1: D ETERMINE JOINT COSTS OF PROVIDING NUTRITION SERVICES  Compensation of employees for the time devoted and identified specifically to the nutrition services program  Food costs and related preparation  Certifications necessary for meal service

S TEP 2: A LLOCATE THE JOINT COSTS OF PROVIDING NUTRITION SERVICES 1.Determine the total number of congregate and home-delivered meals served. 2.Calculate the % of congregate and home-delivered meals. 3.Multiply the percentages time each of the joint costs. 4.This allocates the joint costs to the home-delivered meals program.

S TEP 3: C ALCULATE THE TOTAL COSTS OF THE HOME - DELIVERED MEALS PROGRAM Take the joint costs for home-delivered meals and add costs only associated with home-delivered meals such as:  Packaging costs  Vehicle expenses  Driver salaries This equals the total direct costs of the home-delivered meals program.

S TEP 4: C ALCULATE THE COSTS ELIGIBLE FOR TDA FUNDING From the total costs for home- delivered meals calculated in the last step, subtract funding received from DADS (Title XIX and XX) and the AAA (Title IIIC2 and IIIC2 Program Income). This equals the total direct costs of the home-delivered meals program that are eligible for TDA funding.

S TEP 5: C ALCULATE THE COSTS TO BE REPORTED TO TDA  Determine the % of total HDM costs that are eligible for TDA funding by dividing the allowable TDA HMD costs determined in Step 4 by the Total HDM costs determined in Step 2.  Multiply this % times each of the total HDM costs in Step 2 to determine the costs to be reported each quarter.

S UMMARY OF S IMPLE M ETHOD Determine joint Nutrition Services costs Allocate joint costs based on number of meals served Determine total HDM costs by adding direct HDM costs Determine eligible TDA costs by subtracting DADs and AAA reimbursements Calculate the % of eligible TDA costs and use to report TDA grant expenses

E XAMPLE OF S IMPLE M ETHOD

S TEPS ’ 1 & 2: D ETERMINE AND A LLOCATE J OINT C OSTS Assumptions  Food Costs= $60,000  Kitchen supplies= $4,000  Nutrition Program Salaries = $36,000  # Congregate Meals= 5,000  #HD Meals= 15,000 Calculations  Total Joint Costs= $100,000  % of HD Meals=75% (15,000/20,000)  Joint costs of HD Meals= $75,000 ($100,000* 75%)

S TEP 3: D ETERMINE T OTAL HDM C OSTS Assumptions  Vehicle Costs= $2,000  Packaging Costs= $800  Driver Salaries = $2,200 Calculations  Joint costs of HD Meals= $75,000 (From Step 2)  Direct costs of HD Meals= $5,000  Total HD Meal Costs= $80,000

S TEP 4: D ETERMINE HDM C OSTS E LIGIBLE FOR TDA F UNDING Assumptions  DADs Reimbursements= $12,000  AAA Title IIIC2 Reimbursements= $32,000  Title IIIC2 Program Income= $6,000 Calculations  Total HD Meal Costs= $80,000 (From Step 3)  DADs, AAA & Program Income= $50,000  TDA Eligible Costs= $30,000 ($80,000 minus $50,000)

S TEP 5: C ALCULATE HDM C OSTS R EPORTED TO TDA Assumptions  Total HD Meal Costs= $80,000 (From Step 3)  TDA Eligible Costs= $30,000 (From Step 4)  % of Costs Eligible for TDA Funding=37.5% ($30,000/$80,000) Calculations  TDA Food Costs= $16,875 ($60,000 times 75% in Step 1 times 37.5% in Step 5)  TDA Vehicle Costs= $750 ($2,000 from Step 3 times 37.5% in Step 5)  Repeat for all costs

A DVANTAGES OF THIS METHOD  It is the easiest way to document your eligible TDA expenses and expend your TDA grant funds.  For most of you, this method will work without the need for more complex cost allocation processes.  This is the method we will use to check for the allowability of costs when on- site monitoring is done.

Q UESTIONS ABOUT THIS METHOD ?

F UNDING S OURCE A PPROACH  This approach requires you to have the capability to assign each client to a unique funding source.  For example, when client eligibility is determined the client might be assigned to Title XIX, Title XX, Title IIIC2, TDA, local funds, or other state or federal grant funds.  If you cannot assign clients by funding source then you cannot use this method.

E XAMPLE OF F UNDING S OURCE M ETHOD

S TEPS ‘1 AND 2 : D ETERMINE AND A LLOCATE J OINT C OSTS ( SAME WAY ) Assumptions  Food Costs= $60,000  Kitchen supplies= $4,000  Nutrition Program Salaries = $36,000  # Congregate Meals= 5,000  #HD Meals= 15,000 Calculations  Total Joint Costs= $100,000  % of HD Meals=75% (15,000/20,000)  Joint costs of HD Meals= $75,000 ($100,000* 75%)

S TEP 3: D ETERMINE T OTAL HDM C OSTS ( SAME WAY ) Assumptions  Vehicle Costs= $2,000  Packaging Costs= $800  Driver Salaries = $2,200 Calculations  Joint costs of HD Meals= $75,000 (From Step 2)  Direct costs of HD Meals= $5,000  Total HD Meal Costs= $80,000

S TEP 4: D ETERMINE HDM C OSTS E LIGIBLE FOR TDA F UNDING Assumptions No. of HDM Meals  Title XIX= 2,000  Title XX= 2,400  Title IIIC2= 5,400  IIIC2 Prog Inc= 600  TDA= 3,000  Local= 1,000  Other grants= 600 Calculations  Total HD Meals= 15,000  TDA % of Total Meals= 20% (3,000/15,000)  TDA Eligible Costs= $16,000 ($80,000 times 20%)

S TEP 5: C ALCULATE HDM C OSTS R EPORTED TO TDA Assumptions  Total HD Meal Costs= $80,000 (From Step 3)  TDA Eligible Costs= $16,000 (From Step 4)  % of Costs Eligible for TDA Funding=20% ($16,000/$80,000) Calculations  TDA Food Costs= $9,000 ($60,000*75% in Step 1 times 20% in Step 5)  TDA Vehicle Costs= $400 ($2,000 from Step 3 times 20% in Step 5)  Repeat for all costs

Q UESTIONS

COMPLEX METHOD

C OMPLEX METHOD REQUIRES MULTIPLE AND DIFFERENT METHODS OF ALLOCATING COSTS  If your agency only provides nutrition services, then you would not use this method, you would use one of the other methods.  If your agency provides other types of services besides nutrition, then this method would be necessary to allocate all allowable costs to the TDA grant.

U NIFORM G RANT M ANAGEMENT S TANDARDS –C OST A LLOCATION Where a governmental unit's department or agency has several major functions which benefit from its indirect costs in varying degrees, the allocation of indirect costs may require the accumulation of such costs into separate cost groupings which then are allocated individually to benefited functions by means of a base which best measures the relative degree of benefit.

E XAMPLES OF O THER C OSTS Costs to be Allocated  ED Salary  Building Rent  Utilities  Insurance  Telephone  Other Indirect Costs Potential Method of Allocation  Indirect cost plan  Sq. Ft. of space  Number of Staff  Indirect cost plan

S HOULD I USE THIS METHOD ?

Y OU SHOULD USE THIS METHOD IF :  You want to allocate all allowable costs to the TDA grant.  The simple method does not result in allocating enough costs to expend your TDA grant funds.  You are required by your grant agreements to allocate all of your indirect costs across all funding sources.

I N S UMMARY :  Use the Simple Method whenever possible.  Use the Funding Source Method if you assign clients to funding sources.  Use the Complex Method if you need to allocate indirect costs to the TDA grant.

Q UESTIONS