Finding Text
2023-005 – Cost Allocations (Material Weakness)
U.S. Department of Treasury 21.027 Coronavirus State and Local Fiscal Recovery Funds
U.S. Department of Treasury 93.959 Block Grants for Prevention and Treatment of Substance Abuse
Criteria: Generally accepted accounting principles (GAAP), the IRS, and the Uniform Guidance (2 CFR 200.141) require nonprofit organizations to allocate expenses between three functions (program, management and general, and fundraising) on a reasonable basis that is consistently applied. The basis used should accurately distribute costs to a specific program or activity based on resource usage.
Condition: The Organization does not have a written cost allocation plan that clearly describes each overhead cost center and its allocable costs. The Organization uses a percent of revenue method to allocate costs, which may not be the most accurate approach, as it can sometimes unfairly distribute costs depending on the specific program or activity and its resource usage.
Cause: The Organization does not have a written cost allocation plan that clearly describes each overhead cost center and its allocable costs. The Organization uses a percentage of revenue to allocate salary, wages and benefits across programs which could cause too much expense to be allocated to a program with high revenue, but low costs.
Effect: The Organization uses a percentage of revenue method to allocate costs, which may not be the most accurate approach, as it can sometimes unfairly distribute costs depending on the specific program or activity and its resource usage.
Questioned Costs: None
Recommendation: We recommend the Organization develop and follow a policy that governs how they calculate and charge shared services to all funds. We recommend calculating time and effort for each individual working on more than one program, or on program and administrative or fundraising functions. This should be documented and approved by the Board of Directors. The plan should be consistently applied.
Views of Responsible Officials and Planned Corrective Actions: The Organization will develop, implement, and consistently apply a policy that governs how shared services are calculated and charged to all funds. This policy will be developed by the Executive Director, with the assistance of the DAC Finance Committee, and approved by the DAC Board of Directors. Monique Johnson, Executive Director of Allen County Drug & Alcohol Consortium, is responsible for this corrective action. The anticipated completion date is June 30, 2025.