ALLOCATING NUTRITION ALLOCATING NUTRITION SERVICESSERVICES

PROGRAM COSTSPROGRAM COSTSBy Russell Gregorczyk

Jansen & Gregorczyk, CPAs

TOPICS WE WILL COVERTOPICS WE WILL COVERWHAT IS COST ALLOCATION?

WHY DO WE HAVE TO DO IT?

HOW DO WE DO IT?

DIFFERENT METHODS

EXAMPLES

DEFINITIONDEFINITION

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

WHY DO WE NEED TO WHY DO WE NEED TO ALLOCATE COSTS?ALLOCATE COSTS?

BECAUSE MOST OF YOU HAVE MORE BECAUSE MOST OF YOU HAVE MORE THAN ONE PROGRAM OR MORE THAN ONE PROGRAM OR MORE

THAN ONE FUNDING SOURCETHAN 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.

COST ALLOCATION COST ALLOCATION DETERMINES DETERMINES

ALLOWABLE TDA COSTS ALLOWABLE TDA COSTS

UNIFORM GRANT UNIFORM GRANT MANAGEMENT STANDARDSMANAGEMENT STANDARDS

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 UNIFORM GRANT MANAGEMENT STANDARDSMANAGEMENT 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 SPENDING GUIDELINESHDM SPENDING GUIDELINES

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?”

THERE ARE MANY ALTERNATIVES, WHICH THERE ARE MANY ALTERNATIVES, WHICH ONE IS RIGHT?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 APPROACHSIMPLE 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.

STEP 1: DETERMINE JOINT STEP 1: DETERMINE JOINT COSTS OF PROVIDING COSTS OF PROVIDING NUTRITION SERVICESNUTRITION 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

STEP 2: ALLOCATE THE STEP 2: ALLOCATE THE JOINT COSTS OF PROVIDING JOINT COSTS OF PROVIDING

NUTRITION SERVICESNUTRITION SERVICES1. 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.

STEP 3: CALCULATE THE TOTAL STEP 3: CALCULATE THE TOTAL COSTS OF THE HOME-COSTS OF THE HOME-

DELIVERED MEALS PROGRAMDELIVERED MEALS PROGRAMTake the joint costs for home-delivered meals and add costs only associated with home-delivered meals such as:Packaging costsVehicle expensesDriver salariesThis equals the total direct costs of the home-delivered meals program.

STEP 4: CALCULATE THE COSTS STEP 4: CALCULATE THE COSTS ELIGIBLE FOR TDA FUNDINGELIGIBLE 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.

STEP 5: CALCULATE THE COSTS STEP 5: CALCULATE THE COSTS TO BE REPORTED TO TDATO 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.

SUMMARY OF SIMPLE SUMMARY OF SIMPLE METHODMETHOD

EXAMPLE OF SIMPLE EXAMPLE OF SIMPLE METHODMETHOD

STEPS’ 1 & 2: DETERMINE STEPS’ 1 & 2: DETERMINE AND ALLOCATE JOINT COSTSAND ALLOCATE JOINT COSTS

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%)

STEP 3: DETERMINE STEP 3: DETERMINE TOTAL HDM COSTSTOTAL HDM COSTS

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

STEP 4: DETERMINE HDM STEP 4: DETERMINE HDM COSTS ELIGIBLE FOR TDA COSTS ELIGIBLE FOR TDA

FUNDINGFUNDINGAssumptions

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)

STEP 5: CALCULATE HDM STEP 5: CALCULATE HDM COSTS REPORTED TO TDACOSTS REPORTED 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

ADVANTAGES OF THIS ADVANTAGES OF THIS METHODMETHOD

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.

QUESTIONS ABOUT THIS QUESTIONS ABOUT THIS METHOD?METHOD?

FUNDING SOURCE FUNDING SOURCE APPROACHAPPROACH

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.

EXAMPLE OF FUNDING SOURCE EXAMPLE OF FUNDING SOURCE METHODMETHOD

STEPS ‘1 AND 2 : DETERMINE STEPS ‘1 AND 2 : DETERMINE AND ALLOCATE JOINT COSTS AND ALLOCATE JOINT COSTS

(SAME WAY)(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%)

STEP 3: DETERMINE TOTAL STEP 3: DETERMINE TOTAL HDM COSTS (SAME WAY)HDM COSTS (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

STEP 4: DETERMINE HDM STEP 4: DETERMINE HDM COSTS ELIGIBLE FOR TDA COSTS ELIGIBLE FOR TDA

FUNDINGFUNDINGAssumptions

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%)

STEP 5: CALCULATE HDM STEP 5: CALCULATE HDM COSTS REPORTED TO TDACOSTS REPORTED 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

QUESTIONSQUESTIONS

COMPLEX METHODCOMPLEX METHOD

COMPLEX METHOD REQUIRES COMPLEX METHOD REQUIRES MULTIPLE AND DIFFERENT MULTIPLE AND DIFFERENT

METHODS OF ALLOCATING COSTSMETHODS 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.

UNIFORM GRANT UNIFORM GRANT MANAGEMENT STANDARDS –MANAGEMENT STANDARDS –

COST ALLOCATIONCOST ALLOCATIONWhere 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.

EXAMPLES OF OTHER EXAMPLES OF OTHER COSTSCOSTS

Costs to be Allocated

ED SalaryBuilding RentUtilitiesInsuranceTelephoneOther Indirect Costs

PotentialMethod of Allocation Indirect cost plan Sq. Ft. of space Sq. Ft. of space Sq. Ft. of space Number of Staff Indirect cost plan

SHOULD I USE THIS SHOULD I USE THIS METHOD?METHOD?

YOU SHOULD USE THIS YOU SHOULD USE THIS METHOD IF: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.

IN SUMMARY:IN SUMMARY:

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.

QUESTIONSQUESTIONS