1. Cost Allocation, Cost Pooling & Time Distribution
On-Line Financial Management Workshops
Cost Allocation, Cost Pooling & Time Distribution
June 2009

2. Financial Management Workshop
Cost Allocation,
Cost Pooling
&
Time Distribution
Welcome to our Financial Management Workshop on Cost Allocation, Cost Pooling and Time Distribution.
This is one of a series that has been designed to provide operational and financial management guidance for grantee staff responsible for ensuring the financial integrity of Employment and Training Administration (ETA) awarded grants. We have prepared this series because we know that financial management under government grants is a highly specialized and technical field. ETA is committed to ensuring, to the extent possible, that grantees understand the financial requirements contained in the official grant agreements.
As we discuss cost allocation requirements and appropriate methods for allocating costs, reference will be made to applicable Department of Labor (DOL) and ETA rules and regulations, as well as Office of Management and Budget (OMB) Circulars. The One Stop Comprehensive Financial Management Technical Assistance Guide, which was developed in to provide assistance to grantees in the implementation of the Workforce Investment Act of 1998 (WIA), is also referenced as a source of additional guidance. At the conclusion of this training, you will be provided with websites where you can access all of these documents.

3. Cost Allocation Cost Pooling Cost Allocation Plans Time Distribution
Topics We Will Cover
Cost Allocation
Cost Pooling
Cost Allocation Plans
Time Distribution
Cost allocation is the process of distributing or allocating allowable costs to benefiting cost objectives. One of the basic principles governing cost allowability is the allocability of costs. Allocability is a measure of the extent to which a cost benefits a funded cost objective. The total cost of a grant is comprised of both allowable direct and indirect costs associated with carrying out the grant objectives. The direct costs can be readily identified with and chargeable to a specific cost objective.
On the other hand, there are usually grant costs that cannot be readily chargeable to a final cost objective. These types of costs are typically pooled into intermediate cost objectives and are then allocated on a specified periodic basis to final cost objectives using an appropriate cost allocation methodology. When it is beneficial to pool costs, they must be ultimately allocated to the final cost objectives in proportion to the relative benefits received by each cost objective.
A cost allocation plan (CAP) is a document that identifies allowable indirect and direct costs and is used to accumulate and distribute such costs. The CAP becomes the official source documentation in support of the distribution of costs to the final cost objectives.
And finally, we will cover time distribution which is the process for appropriately charging personnel salaries and fringe benefits costs to your ETA grant. OMB Circular A-122, Attachment B, Item 7 contains the requirements that must be met to support personnel compensation for non-profit organizations. OMB Circular A-87, Attachment B, Item 11 contains similar requirements for governmental organizations. Both sets of documents, however, require that personnel compensation costs be supported by a time distribution system that includes personnel activity reports or periodic certification.

4. Federal Requirements & Guidance
OMB Circular A-87
OMB Circular A-122
OMB Circular A-21
48 CFR Part 31
45 CFR Part 74, Appendix E
Guidance on direct and indirect costs
The requirements and guidance applicable to cost allocation are found in the OMB Circulars and regulations that establish principles and standards for determining costs of grants, contracts and other agreements with Federally funded organizations. There are different circulars and regulations applicable to the various organizations receiving ETA funds. It is important for you to remember that it is the nature of the organization expending the funds that dictates which of the following rules are to be followed:
OMB Circular A-87. This circular applies to activity conducted by State, local, and Indian tribal governments. It also includes State schools (lower and higher education).
OMB Circular A This circular applies to activity conducted by nonprofit organizations that are not covered by other applicable cost principles.
OMB Circular A-21. This circular applies to activity conducted by institutions of higher education (i.e., post-secondary colleges and universities). It does not apply to proprietary schools. These latter institutions are covered by the principles contained in either A-122 or the Federal Acquisition Regulations, depending on the type of organization.
48 CFR Part 31 contains the cost principles applicable to commercial recipients. These organizations are defined as “private-for-profit” and are acting as recipients or subrecipients of Federal funds. Title 48 is commonly referred to as the Federal Acquisition Regulations or FAR.
45 CFR Part 74, Appendix E contains the cost principles for hospitals that are recipients or subrecipients of Federal funds. Hospitals may be for-profit or nonprofit organizations, but they are governed by these regulations rather than the circular or regulation applicable to other for-profit or nonprofit organizations.

5. What Is Cost Allocation??
Distribution of Allowable Costs That Benefit Your Grant
Costs
Direct
Shared
Cost allocation is defined as the process used to distribute costs to a final cost objective based on the concept of benefits received. Some costs are directly charged to one cost objective, some costs are shared between multiple cost objectives, and some costs are indirect costs distributed to final cost objectives by pools and the use of appropriate allocation bases. Allocability is a measure of the extent to which a cost benefits its cost objectives, such as a particular ETA grant program or cost category.
Now let’s take a few moments and talk about each of these three types of costs. It is important that you understand each of these types of costs and how the various allowable costs you charge to your ETA grant must be appropriately distributed to final cost objectives based on benefits received. .
Indirect

6. Types of Costs Direct Shared Indirect Single Cost Objective
Multiple Cost Objectives, or
Multiple Fund Sources
Indirect
Generally Overhead
There are three separate categories of costs: direct costs, shared costs, and indirect costs. Direct costs are clearly identified with and assignable to a single final cost objective. Direct costs do not require any further allocation or breakdown by funding source or cost category.
Shared costs, however, are costs that cannot initially be charged to a single final cost objective. These costs are charged to an intermediate cost objective or cost pool and are subsequently allocated to final cost objectives or fund sources. Shared costs may be chargeable to multiple cost objectives within a single funding source, to multiple funding sources and a single cost objective, or to some combination of the two. These costs are incurred for a common or joint purpose benefiting more than one cost objective, or they benefit a single cost objective but receive funds from more than one source.
The third category of costs are the indirect costs. These costs are often referred to as overhead or General and Administrative (G&A) costs. In general, indirect costs are incurred to support the overall operation of the organization, and for which a direct relationship to a particular fund source cannot readily be determined. Indirect costs may originate either within the recipient organization or in other departments that supply goods, services, or facilities to an ETA-funded grant. Indirect costs are ultimately charged back to a grant through the application of an indirect cost rate or by using an indirect cost allocation plan. Guidance for the development of organization-wide indirect rates or cost allocation plans is contained in the appropriate OMB cost principles circulars that we referenced on a previous slide.
As we continue to talk about cost allocation requirements and methodologies, we will focus on the proper distribution of the shared and indirect costs to your grant. .

7. Treatment of Costs Direct Charge Whenever Possible
Consistent Treatment
In Accounting System
Over Time
Measuring Benefit
Benefit Determines Allocation
Let’s talk for a moment about some specific standards and principles contained in all of the Federal requirements and regulations that we just referred to and which impact heavily on cost allocability and cost allocation. These basic principles must be applied to all costs charged to your ETA grant.
First of all, to the extent possible and supportable by documentation, you should direct charge costs to your grant. Directly charging a cost means that you are able to assign that cost in its entirety to a particular cost objective that receives full benefit from the goods, services, activities, or effort that make up that cost. This is a very simple process, but you must maintain documentation supporting the full benefit of this cost to the receiving cost objective.
All costs must receive consistent treatment in your official books of account and the treatment must be consistent over time. In addition, treatment must be consistent with what would be charged to your non-grant funds for the same product or services. For example, if a cost is treated as a direct cost to a final cost objective in a WIA grant in one quarter, then the same cost incurred for the same purpose may not be assigned to a cost pool and then allocated to a final objective in a subsequent quarter.
Measuring benefit is a critical requirement and the central task of the cost allocation process. In order for a cost to be allowable, a benefit must be received by the specific program being charged. Costs may be charged only to the extent that the program receives a benefit. Often, the extent of that benefit is not readily identified and the program or a particular reporting category receives only a partial benefit. It is these costs that are subject to cost allocation.

8. What Are Direct Costs?
Those costs that can be readily identified with a
particular cost
objective.
Examples (program specific):
Salaries
Space
Supplies
Telecommunications
We have defined direct costs as being readily identified with a particular cost objective, meaning that these costs have a direct relationship to a particular cost category and fund source. As such, these costs may be immediately charged to a final cost objective and need no further breakdown.
For example, you may incur salary costs for a case manager who performs services to participants only for your one ETA funded grant. That salary cost is directly charged to your grant as a program cost. You may also incur costs for another case manager who performs services for participants funded by your ETA grant and another Federally-funded grant. If the case management duties performed for each grant are documented on time sheets reflecting the hours spent on each grant program, the actual and appropriate amount of salary costs can be directly charged to each grant.
However, you may also have shared direct costs that cannot be readily assigned to final cost objectives. These costs must be pooled initially and then assigned to final cost objectives based on some appropriate and supportable measure of benefits received.
Similar scenarios can be applied to the direct charging of space, supplies and telecommunications. When the actual square footage attributable to space utilized by your ETA grant is specifically identified, actual supplies utilized for your grant are accounted for, and actual communication costs are readily determined (based on equipment and usage), those costs can be directly charged to your grant. .

9. What Are Indirect Costs?
Those costs that are not readily identifiable with a particular cost objective
Examples:
Salaries
Space
Supplies
Telecommunications
(Management and Overhead Costs Supporting Entire Organization)
Here we have a listing of costs exactly like those on the previous slide. So how can these same types of costs be both direct and indirect?? That is because there are many circumstances where a direct relationship of certain costs to your ETA grant cannot be determined without effort disproportionate to the results achieved.
Often these types of costs are general indirect costs that are incurred to support the overall operation of an organization which may be funded by multiple sources, of which your ETA grant is only one. Indirect costs must be charged back to individual funding sources using either an approved indirect cost rate or an approved cost allocation plan (CAP). The resulting distribution of funds to final cost objectives must ensure that a proportionate share of costs is charged based on the proportion of benefits received.
For example, as an ETA grantee, your organization may also receive funding from several other Federal grants. You may have staff who perform activities and services for multiple programs. The salaries of those individuals are put into an indirect cost pool and are ultimately charged back to each fund source based on the application of an approved indirect cost rate.
The sources of requirements and guidance on indirect cost rates and cost allocation plans are found in OMB Circular A-87, Attachments C and E and OMB Circular A-122, Attachment A. There is also a separate Financial Management Workshop available on Indirect Costs and Applying for an Indirect Cost Rate. .

10. Cost Objectives Intermediate Final Cost Pools or “Cost Staging Areas”
Funding Source
Cost Category
A cost objective is defined as an activity for which separate cost measurement is performed. When a cost cannot be readily charged to a final cost objective, then it must be accumulated with other like costs into a pool or “staging area,” called an intermediate cost objective. These costs must be periodically allocated to the final cost objectives using an appropriate allocation methodology. For our ETA grants, periodically means no less frequently than quarterly, so that the required accrued expenditures for all costs incurred cumulatively from the beginning of the grant are reported on the DOL ETA Quarterly Financial Report, ETA-9130.
In order to comply with OMB circular cost principles and uniform administrative requirements, ETA grantees must maintain adequate accounting systems and internal procedures to ensure proper cost classification and accurate reporting for ALL grant costs incurred. This, of course, includes both direct and indirect costs.
As we have already discussed, most direct costs can be readily identified with final cost objectives. However, indirect and shared costs most often require appropriate allocation through the utilization of intermediate cost objectives before the benefits received by the final cost objectives can be determined. An intermediate cost objective can be a cost pool, center, or area established for the accumulation of costs assigned to such dissimilar categories as organizational units, functions, objects, or items of expense.
The final cost objectives include specific funding sources, cost categories, grants, program activities, projects, contracts, and/or other activities. Final cost objectives for ETA funded grants are the funding source and required cost categories for accounting for and reporting accrued expenditures, based on program and /or grant specific requirements. The reporting requirements for your specific ETA grant will impact directly on the final cost objectives to which your grant costs must be ultimately allocated.

11. Cost Pool Considerations
Limited to Shared & Indirect Costs
Limited to Actual Costs
Described in CAP
Combined Administrative Costs
Prorated Personnel Services Costs
Prorated Nonpersonnel Services Costs
Allocation of Pools Should Not Be Burdensome
The following items should be considered when you are developing cost pools.
Costs that may be pooled are limited to shared and indirect costs. Non-shared direct costs should not be pooled but should always be directly charged to the benefiting cost objectives.
Only actual, not budgeted, costs may be pooled and distributed to the various funding sources.
Cost pools should be described and documented in a written cost allocation plan that is used in allocating all allocable direct costs to the various fund sources and cost categories.
Shared administrative costs can be combined with indirect administrative costs and then appropriately allocated.
Salary and fringe benefit costs of individuals who spend a portion of time on administrative functions and a portion of time on program activities can be prorated between the two cost categories based on supporting time distribution records.
Costs such as supplies associated with staff usage that benefit more than one cost objective can be prorated based on an appropriate allocation methodology.
Once an appropriate cost allocation methodology is developed, the allocation of cost pools based on benefits received should not be difficult. The expenditures distributed from cost pools to your ETA grant must be reported quarterly on the DOL ETA Financial Report and they must include accruals.

12. Facilities or maintenance Specific Function or Activity Organizational
Types of Cost Pools
Administrative
Operating
Facilities or maintenance
Specific Function or Activity
Organizational
System-wide
Now let’s take a look at the various types of pools that you may need to consider, based on the nature of the items of cost that require appropriate allocation to final cost objectives in your organization. It is very important for you to understand that, with any type of pooled costs, you must chose an allocation methodology that fairly distributes the costs to all affected funding sources.
It is often advantageous to pool administrative costs since frequently they benefit multiple programs or grants, and thus the effort to directly classify portions of various administrative costs to multiple fund sources could be tedious and cumbersome within your accounting system. Although we will talk more about cost allocation bases later in this session, it is critical when discussing cost pools to focus on appropriate allocation bases that will most accurately measure the extent of benefits received when allocating joint costs among multiple cost objectives.
The best method for allocating pooled administrative costs is based on each grant or funding source’s share of direct costs. It is not appropriate, and generally not allowable, to allocate pooled costs based on fund availability or percentage of funding source administrative dollars.
Other types of costs, such as those listed on this slide, can also be pooled when it is practical or necessary. Function or activity costs common to more than one grant or fund source can also be pooled and distributed to reflect the appropriate share to each benefiting fund source. For example, the costs of common core services such as career counseling could be pooled and allocated on the basis of a time distribution system.

13. Allocation Methodologies
In Aggregate
All Shared Costs are Totaled
Activity based
Costs of One Particular Activity are Pooled
Item of cost based
Each Shared Item of Cost Allocated Using Separate Methodology
Any Combination of Above
Costs can be pooled and allocated in different ways, provided the costs are accumulated and treated consistently and reflect the best measure of benefits to be received by the component fund sources. Care should be taken to be sure that the method chosen does not distort the results and is appropriate to the benefiting cost objectives. You should be cautioned that the cost elements, that make up a pool containing your ETA grant costs are all allowable costs to your grant. Costs that are not allowable must be removed from the pool before the pooled costs are allocated to your ETA grant cost objectives.
Now let’s go over four methods for allocating costs.
In aggregate – Using this approach, shared costs are totaled. A single allocation base is chosen and applied to total costs. The resulting distribution constitutes the total shared costs attributable to each fund source.
On an activity basis – Using this approach, the costs associated with a particular function or activity are pooled. An allocation base is developed for each pool and then applied. The resulting distribution of costs reflects the share of costs of that particular activity or function attributable to each fund source. For example, the cost of a combined intake and eligibility determination system could be pooled and allocated on the basis of common forms attributable to each program.
On an item of cost basis – Using this approach, each item of cost is allocated to the benefiting final cost objectives using a separate allocation methodology, as appropriate, based on the nature of the item of cost. An example would be allocating telecommunications costs based on the basis of the number of units used.
Any combination of the above methodologies that accurately reflects the measure of benefits received by component fund sources. .

14. Cost Allocation Requirements & Standards
Result in Equitable Distribution of Costs
Base Corresponds to Allocated Costs
Efficient to Use and Consistently Applied
Standards
Consistent with GAAP
Consistent with OMB Circulars
Accepted by Independent Auditors
Supported by Actual Cost Data
The foremost requirement in cost allocation is for grantees to ensure that ETA-funded costs are properly and equitably distributed to the benefiting cost objectives. ETA- funded entities may choose (or be required) to establish final cost objectives based on program or grant specific reporting requirements. The methods used to charge these costs to final cost objectives and the documentation needed to support the allocations will vary by type of cost and must correspond to how the cost is treated in the grantee’s accounting system.
For a cost to be allocable to a particular cost objective, it must be treated consistently with other costs incurred for the same purpose in like circumstances. A cost may not be assigned to an award as a direct cost if any other cost incurred for the same purpose, in like circumstances, has been allocated to an award as an indirect cost.
Any costs allocated to Federal grant programs, which most assuredly includes your ETA funded grant, must comply with the following standards:
They must be consistent with Generally Accepted Accounting Principles (GAAP), which govern the treatment of costs, revenues, assets, and other financial requirements within a grantee’s official accounting records.
Costs must also be consistent with the applicable OMB circulars and uniform administrative requirements that we identified earlier in this session.
They must be accepted by an ETA grantee’s independent auditor to satisfy the audit testing required under the Single Audit Act (SAA). And finally
These costs must be supported by actual cost data. Budgeted or estimated costs cannot be used as a base for allocating Federal funds. .

15. Acceptable Allocation Bases
Fair & Equitable
Minimal distortion
Actual costs only
General acceptability
Timely management control
Materiality, cost, and practicality of use
Controllable
Direct relationship to costs
We have just talked about the requirements and standards applicable to cost allocation under Federal awards. Now let’s review the general criteria that should be used in selecting an acceptable allocation base.
It must represent a fair measure of cost benefits and an equitable distribution of the costs of services rendered or goods provided. Each base should be considered on its own merits as to the purpose for using it and the degree of equity it will achieve in allocating joint costs.
It should have minimal distortion. For example, it would be better if the costs of an intake pool are distributed on the basis of total applicants rather than on the basis of total job placements, as there is a direct relationship between applicants for services and intake costs.
It must represent actual costs and effort. It may not be based on a budget or planned activity, as these do not represent actual effort.
It should be generally acceptable and in accordance with GAAP. For example, it would not be appropriate to allocate this year’s costs using last year’s enrollment or participant data.
It should be within the ability of the organization to control in a timely manner. For example, if staff salaries are used as an allocation base, then the ending of a grant or the startup of a new grant may impact the use of the base.
It must be adjusted for variations in funding during the current funding period and from year to year, if subsequent funding is provided. If additional funding is received during the year, appropriate costs under that funding must be included as a factor in allocating costs in order to have a fair distribution. For example, if a grantee receives a grant midway through the funding period, this grant must share in the distribution of costs from an administrative cost pool.
It should also be the most practical and least costly method of allocating costs. Information that is readily available in the grantee’s information management system should be utilized whenever possible, rather than collecting or using a separate data base solely for allocating costs. .

16. What Is the Best Allocation Base?
No Single Answer
Varies Based on Type of Organization and Types of Costs
Should Relate to Costs Being Allocated
Let’s Look at Some Possible Bases
What is the best allocation method? There is no single answer to this question. Many factors can affect your decision, such as type of organization, levels within an organization, organizational structure, method of program delivery, accounting and participant reporting systems, types of costs included in the pool, and availability of other types of data to use as a base.
A base that is chosen should be as directly related as possible to the costs being allocated and the benefits received. Let’s take a look at some possible bases which correlate to the function or services to be allocated.
Accounting – Number of transactions, direct labor hours, allowable survey methods
Auditing – Direct audit hours, expenditures audited
Counselor – Direct labor hours, number of participants counseled
Intake – Number of eligible participants, current period enrollments
Office space – Square feet of space occupied, staff salary distribution
Postage – Direct usage, acceptable survey methods
Printing/reproduction – Direct labor hours, job basis, pages printed
Telephone – Number of instruments, staff salary distribution
Travel – Mileage, actual expenses, direct labor hours
Utilities – Square feet of space occupied, staff salary distribution
There are many more acceptable bases for allocation. It is just important to remember that grantees must review even these suggested bases for applicability to individual ETA grants. Next, we will discuss some unacceptable allocation bases and then distinguish between input and output based allocations. .

17. Unacceptable Allocation Bases
Funds Availability or Budgets
Job Descriptions
Pre-determined Staff Hours
Planned Participant Levels
Prior Period Results
Common errors that grantees encounter in choosing an allocation base is to use a plan, budget or other estimate of future effort or cost. This type of base is typically not acceptable because it does not measure the actual activity, effort, or cost, and is subject to later adjustments which can impact negatively on the accuracy of quarterly reported financial data.
Job descriptions and other organizational documents result in only estimates or percentages of time that staff members may be involved in various activities. Although such items may be useful for planning purposes, the actual time worked on your ETA grant would eventually need to be adjusted to actual based on acceptable time distribution, for example.
This is also true of using planned participant levels or prior period results to project current year costs. Again, this predetermination is useful for budget purposes, but you are required to report quarterly the actual accrued expenditures incurred for allowable activity incurred under your ETA grant award - not estimates.
We want to also caution you that a particular base may work in some circumstances and not in others and that the ultimate test is whether the base used results in an equitable distribution of costs that reflect the level of effort or benefit received by the various cost objectives. .

18. Input-Based Allocation
Resources Used
Traditional Method
Allocated at Time Cost Is Incurred
Documentation of Use and Variances
How Input is Used
How Usage Varies
We have been covering the fundamentals of cost allocation, the requirements and standards, and acceptable and unacceptable bases. Now we will look at a distinctions between input-based and output-based allocation, so that you can determine which bases are most practical to meet your cost allocation needs.
Inputs are the resources used in a process, activity or service and are the most traditional and commonly used allocation bases. Using inputs, the cost is allocated at the same time it is incurred.
This methodology requires that the manner in which the input or resources is used must be documented, as well as any variances in usage. For example, if square footage is used as the method to distribute space costs, then the use of the facility and any changes through moving offices or changing staff levels must be documented.

19. Commonly Used Input Bases
Staff Time – Time Sheets
Facilities – Space Usage
Accounting Services – # of Transactions
Equipment – Usage or Machine Hours
Copy Machine - # of Copies
There are a number of input bases traditionally used in allocating costs which correspond to basic items of cost incurred in every grantee organization. These are very straight forward and simplistic and many of you are probably using these now. As we said on the previous slide, in using these types of input bases, the cost is allocated at the same time it is incurred. Some examples are:
Staff time that is allocated on the basis of time sheets and time distribution records.
Facilities costs that are distributed on the basis of the space usage by the staff who may represent multiple fund sources.
Accounting services that are allocated on the basis of the number of transactions processed for each funding source.
Costs of equipment distributed on the basis of either staff or participant use, representing multiple funds sources.
Copy machine use based on number of copies made.
Caution: You must document the actual usage associated with any input-based allocation methodology that you choose to use!!

20. Output-Based Allocation
Centralized Intake
Number of Participants
Job Placement
Number of Placements
Case Management
Number of Current Participants
Now let’s take a look at output-based allocation which is a process to distribute pooled costs to final cost objectives using measurable work products or some other quantifiable measure as the base. Outputs are basically the result or product of an activity or service.
You must be cautioned when using outputs as your allocation base that the output costs will most likely vary over time, often as the result of a fluctuation in client flow. For this reason, output-based allocations may create a situation where major changes in the resources are needed to fund these shared costs when the budgets are adjusted to actual costs.
Some of the most common types of output-based activities or functions associated with ETA grants include:
Costs of centralized intake that are allocated to final cost objectives and funding sources using an acceptable form of participant count, such as referrals. There are multiple counts that may be used.
Costs of centralized job placement using the number of placements made attributable to participants who received services under various programs within the organization.
Costs of case management using the number of current participants associated with each fund source.

21. Allocating Program-Related Administrative Costs
Do Not Relate to G&A or Overhead
Pursuant to WIA 20 CFR
Examples
Staff Time Prorated Between Administration and Program
Space Usage
Program-related administrative costs must be appropriately allocated to the proper program cost category. Many of these costs have typically been classified strictly as administrative costs for ETA programs, prior to WIA.
However, the Workforce Investment Act (WIA) regulations at 20 CFR state that other than those specifically defined administrative functions, other costs of an administrative nature that relate to the direct provision of services to participants and employers are to be charged to the program cost category.
Frequently, the actual amount of these costs cannot be readily determined, but must be allocated based on some appropriate allocation methodology. Two examples are:
A program director spends a portion of time working on the general administrative functions of the organization and a portion of time providing classroom training to participants. An appropriate method of allocating his or her time between administration and program cost categories would be through adequately maintained time sheets and time distribution records.
The grantee is housed in a facility where the administrative functions of the organization are conducted AND several rooms are used a portion of the time for participant classroom training. An appropriate method for allocating the facility-related costs would be based on space usage (square footage and time) attributable to administrative and program functions.

22. What is a Cost Allocation Plan? (CAP)
A document that identifies, accumulates, and distributes allowable direct and indirect costs and declares the allocation methods used for distribution.
Federally approved
Cost Allocation Plan
A cost allocation plan is a document that identifies, accumulates, and distributes allowable direct and indirect costs and declares the allocation methods used for distribution. A cost allocation plan is required for allocating joint costs and it must contain a description of the allocation methodology being used and the cost pool composition.
All costs included in the cost allocation plan must be supported by formal accounting records to substantiate the propriety of eventual changes.

23. Types of CAPs Indirect Cost Plan CAP of the Organization
Addressed in OMB Cost Circulars
Federal Agency Approval
Includes an Indirect Cost Rate
CAP of the Organization
Shared Indirect Costs
Awarding Agency Approval
There are two types of CAPs.
First, there is the Indirect Cost Plan used to capture general indirect costs of the organization. The specifications for the development of these plans are found in the OMB circulars, the DOL regulations, and additional guidance in resources referenced on a slide at the conclusion of this training session. The indirect cost plan identifies and distributes the costs of services provided by support organizations (such as personnel, treasury, security, legal) to departments or units administering Federal grants or contracts. ( A separate Webinar is available which provides in-depth coverage of indirect cost rates and plans. )
The second type of plan is the CAP of the organization. This type of plan provides the documentation for allocation of joint or shared costs and is also referenced in the indirect cost rate proposal approved for the overall Indirect Cost Plan. This type of CAP is developed by the unit that directly operates the ETA funded program to allocate costs between its ETA-funded and non-ETA-funded programs, and between cost categories within each of the ETA funded programs. This type of CAP is commonly referred to as an organizational or departmental CAP.

24. Cost Allocation Plan Considerations
Must Include a Process for Reconciliation and Adjustment
Should Be Periodically Validated and Updated
Must Be a Written Document
Requires Official Signature
It is important, when there are multiple agencies and/or fund sources involved in a cost allocation process, that a reconciliation and adjustment process be described in the CAP for the benefit of the partners. When preliminary allocations are based on cost projections or budgets, they must be adjusted to actual costs. Further, any service delivery changes or partner participation changes must be appropriately revisited and revised.
The CAP should contain a spreadsheet that displays the application of the allocation base to the shared costs, reflecting the costs attributable to each fund source. This means that when multiple agencies are involved, they must share information that is used in the cost allocation process. For example, if the allocation base requires numbers of customers receiving a specific service from a partner agency, then that information must be made available on a timely and prescribed manner. A process to periodically validate and update this information should be contained in the CAP.
The CAP must be a written document that is signed by authorized agency officials. Modifications and changes to CAPs must also receive official agency sign-offs.

25. Background and Mission Statement Organizational Chart
Elements of a CAP
Background and Mission Statement
Organizational Chart
Financial Statements and Budgets
Description of Pooled or Joint Costs
Methods Used to Allocate Costs
Certification
An organizational CAP is modeled on and contains the same elements as the Indirect Cost Plan. At a minimum, both types of plans should include:
A background and mission statement. All departments, types of services, and staff functions of the organization should be described. A current organizational chart should be included.
Copies of the agencies’ financial statements and current budgets.
A description of all of the pooled or joint costs that will be allocated. The description should reflect all the costs for each type of pool that will be allocated.
The allocation bases that will be used. The method used to allocate each type of pooled cost is described. Support for selecting a particular allocation base should also be included in the description.
Certification. An authorized official certifies that the plan is developed in accordance with requirements and is in compliance with the law and related regulations.
If general indirect costs have been charged to the program, the plan should also identify departments that rendered the indirect services and a summary schedule of the allocation of the central service or general indirect costs.

26. Benefits of a CAP Management Tool Equitable Sharing of Costs
Establishes Financial Management Standards
Meets Cost Principles and Standards
Eliminates Arbitrary Methods of Charging Costs
Standardizes Financial Practices
If used properly, a CAP can be a valuable tool in the overall management of funds. In addition to documenting the allocation of costs, the plan may also be used as a method to develop budgets or prepare plans.
Implementation of the plan ensures that costs are equitably distributed among all affected programs and activities. This will alleviate any audit issues that might arise. It also eliminates the sometimes arbitrary methods of direct charges and will result in full reimbursement from each program.
A CAP establishes financial management standards and practices that may be applied uniformly throughout the organization. It also meets the required cost principles and Federal financial standards.
And, finally, a CAP may be used to standardize the financial policies and practices of an organization.

27. What Is Time Distribution?
System That Distributes Staff Salaries & Benefits
Based on Staff Time
Multiple Fund Sources Paying Staff
Must Be Documented
Source of Requirements
OMB Circulars A-122 and A-87
A time distribution system is a formal method for accumulating labor costs associated with specific programs. Amounts charged to ETA funded programs for personnel services, regardless of whether treated as direct or indirect costs, must be based on payrolls that are documented and approved in accordance with the established practice of the employing entity.
Payrolls must be supported by time and attendance or equivalent records for individual employees. The time distribution records or other verifiable means must be used to document how personnel services costs are charged to cost objectives. Time sheets and/or time and attendance records alone may not satisfy the time distribution requirements.
ETA grantees and subgrantees are urged to carefully review the specific requirements for documenting personnel services costs that are contained in the OMB cost principle circulars. For non-profit organizations, the requirements are found in OMB Circular A-122, Attachment B, Item 7. For governmental organizations, the requirements are found in OMB Circular A-87, Attachment B, Item 11.
Both circulars require that personnel compensation costs be supported by a time distribution system that includes personnel activity reports or periodic certification. The method used to charge these costs to cost objectives, and the documentation needed to support the allocation of costs, will vary by type of cost and how that cost is treated in the accounting system.

28. Time Distribution Documentation
Recording Actual Time Spent on Each Cost Objective
Proof That Individual Works on Only One Cost Objective
Varies Based on Circumstances
Time distribution can be documented in a variety of ways. The most commonly accepted method is to record actual time spent on each cost objective during each working day by means of a time sheet. However, the most appropriate method to use depends on the circumstances in each case.
When an individual’s time is spent entirely on administrative activities that can be charged as direct costs to the administrative cost category, it is not necessary to maintain a daily time distribution record for that person. Other documentation should be available to support the claim that the person’s activities and costs do not need to be allocated to more than one cost objective. Other documentation could include negative time distribution reporting, approved and written office policies and procedures, or other written forms of task assignment.
When salaries and wages of many employees are chargeable to more than one grant or cost category as shared costs, daily time distribution records are the most common form of documentation. Budget estimates or other distributions determined before the services are performed cannot be used to support charges to ETA funded grants.

29. Time Distribution Methods
Time & Attendance Records
Personnel Activity Reports (PARs)
Various Methods
Time Sampling Methods
Cognizant Agency Approval
Measurable Work Outputs
Allocating Nonpersonnel Costs
As we have discussed, the most common time distribution system involves the use of time sheets or personnel activity reports (PARs) to record the actual time spent on a particular activity or cost objective during a given period. There are, however, alternatives to time and attendance records that will satisfy time distribution requirements.
Time sampling methods are also allowable. The specific requirements for using time sampling can be found in the OMB circulars. There are conditions about statistical validity, timeframes, and other issues that have to be considered when using time sampling methodologies. In addition, both governmental and non-governmental direct grantees must have the approval of the cognizant agency prior to using time sampling as a mechanism to distribute labor costs. Nonprofit organizations subject to OMB Circulars A-122 and A-87 (found in Attachment B, Item 11) must also obtain approval from their cognizant Federal agency to use time sampling methods as a time distribution system.
In some limited situations and for certain types of staff work, the cost of staff time can be allocated on a basis other than time distribution. This is most often done when some quantitative measure, such as units of work performed, direct expenditures, or participants served, provides an equitable basis for allocating staff time and related costs. The methods, such as transaction counts or units of work, used to allocate costs must be documented and maintained to support the basis of the allocation.
Nonpersonnel services costs, when directly associated with time worked by staff, may also be allocated to the benefiting cost objectives based on documented distributions of actual time worked. These costs could include space costs, utilities, building maintenance, supplies, and other costs correlated with staff usage. To use time distribution as the basis for allocation of nonpersonnel services costs, time worked must be an equitable measure of the benefit derived from the nonpersonnel services costs.

30. Common Compliance Findings
Associated with …
Cost Allocation
Indirect Costs
Charging Staff Time
Administrative Cost Limits
As the result of monitoring reviews and documented audit findings, many common compliance issues have surfaced in the areas identified on this slide. A review of these common findings may help grantees improve their programs and reduce the number and/or frequency of non-compliance findings.
In the area of cost allocation, grantees have frequently allocated costs based on funding projections. In other instances, costs have been allocated every six months. Inconsistent use of allocation bases has also been a problem with many grantees.
Indirect cost rates have not been approved and thus not in place within the allotted time period. Unallowable costs have been included in the indirect costs charged to ETA grants.
Staff time of individuals working on multiple programs has been frequently charged to one program. In addition, staff time of individuals working on multiple functions within one program has not been appropriately charged.
The administrative cost limit has often been exceeded resulting from costs related to an approved indirect cost rate.

31. Possible Solutions Awareness of Unacceptable Allocation Bases
Familiarity With Grant Agreement Requirements
Familiarity With Cost Principles
Remembering You Can Only Use ETA Grant Funds to Pay for Costs Which Benefit Your ETA Grant!!
So to avoid the common findings of non-compliance cited on the previous slide, what can you do?
First and foremost, you must become familiar with the cost principles applicable to your grant. In the early part of this presentation, we referenced and discussed the OMB circulars containing cost principles which provide guidance on cost allowability, treatment of costs, types of costs, including indirect costs. Your grant agreement also contains special clauses and conditions which incorporate many grant specific requirements, including those on indirect costs and administrative cost limits. You MUST know the requirements applicable to your grant!!
And remember:
Cost allocation bases can never be based on funding projections or budgets or planned participant levels or prior period results. Allocation bases must reflect actual costs only and must provide a fair basis for distributing costs, based on benefits received by the final cost objectives.
Staff time of individuals working on multiple programs or multiple functions within one program must be properly allocated to the benefiting cost objectives.
Finally, administrative costs charged to your grant cannot exceed your designated administrative cost limit, or such excess costs will become disallowed costs.

32. What are the 3 types of costs that can be charged to your grant?
Test Your Knowledge!
Question 1.
What are the 3 types of costs that can
be charged to your grant?
Now it is time to test your knowledge on cost allocation and time distribution. Here are several questions that we hope you can readily answer!
Question 1. What are the 3 types of costs that can be charged to your grant?
The answers to these questions can all be found in the materials contained in this Financial Management Module.

33. Direct, Shared, Indirect
Answer Key
Answer 1.
Direct, Shared, Indirect
Answer 1. The types of costs that you may charge to your grant fall into three categories. They are:
- Direct Costs which can be clearly identified with and assignable to a final cost objective.
- Shared Costs which cannot be initially charged to a final cost objective because they benefit more than one final cost objective. They must therefore be appropriately allocated based on benefits received.
- Indirect Costs, which are often referred to as overhead or general and administrative costs, are primarily incurred to support the overall operation of the grantee organization. These costs are generally pooled and charged back to a grant based on the application of an approved indirect cost rate or cost allocation plan.

34. What is an acceptable cost allocation basis? Choose one:
Test Your Knowledge!
Question 2.
What is an acceptable cost allocation basis? Choose one:
a. Prior period performance data
b. Actual costs
c. Funds Availability
Question 2. What is an acceptable cost allocation basis? Choose one:
a. Prior period performance data
b. Actual costs
c. Funds Availability

35. Answer Key Answer 2. (b.) Actual Costs
Answer 2. An acceptable basis for cost allocation is actual costs. Funds availability, budgets, prior period results, and planned participant levels are all unacceptable bases.

36. When a staff person works on multiple Programs what is a sound and
Test Your Knowledge!
Question 3.
When a staff person works on multiple
Programs what is a sound and
acceptable method for allocating his or
her costs?
Question 3. When a staff person works on multiple programs, what is a sound and acceptable method for allocating his or her costs? e.

37. Time Sheets – Time Distribution Records
Answer Key
Answer 3.
Time Sheets – Time Distribution Records
Answer 3. When a staff person works on multiple programs or multiple functions within one program, his or her costs must be appropriately allocated based on the benefits received by each final cost objective. This can be accurately accomplished through the use of well documented time sheets and time distribution records.

38. Resources Indirect Cost Rate Determination Guide ASMB C-10 Guide
Guides to Developing Cost Allocation Plans and Indirect Cost Rate Agreements
Indirect Cost Rate Determination Guide
Issued by DOL–OASAM
For Non-Profits
ASMB C-10 Guide
Issued by HHS
For State and local governments
Includes a Q&A section
OMB Circulars
The websites on this slide will guide you to the resources we have referenced throughout this training session. You are urged to visit these websites which provide the source documents containing the requirements and methodologies that we have been discussing relative to properly allocating costs to the various funding sources you may have received in your organization.
It is our objective in providing these Webinar financial management training sessions to help you operate the best possible program to benefit your community. To that end, it is extremely important that you comply with the required rules and regulations and take proactive steps to maintain a sound financial management system and stay out of trouble with the auditors!!

39. If you have questions, please contact your Federal Project Officer
It is very important that you maintain on-going communication with your Federal Project Officer. That is the person who can guide and direct you as you navigate through all of the rules and regulations and take steps to apply them and comply with them, while implementing your ETA grant. They are your first point of contact with ETA and will ensure that your questions are addressed.
We thank you for participating in this Fiscal Management Workshop on Cost Allocation, Cost Pooling and Time Distribution. We hope you have found it useful!!!
There are many other topics covered in ten additional Financial Management Workshops that we think you will find interesting and helpful. Check them out soon.
If you have questions, please contact your Federal Project Officer