ERIC ED473320: A Guide to Cost Allocation Procedures: Implementing Strategies for Universal Pre-Kindergarten.

23 Pages·1999·0.7 MB·English

by  ERIC

DOCUMENT RESUME
ED 473 320
PS 031 013
Russell-Browne, Acquenetta; Lederman, Nancy
AUTHOR
A Guide to Cost Allocation Procedures: Implementing
TITLE
Strategies for Universal Pre-Kindergarten.
Child Care, Inc., New York, NY.
INSTITUTION
1999-00-00
PUB DATE
22p.; This guide was prepared by Watson Rice, Inc. Management
NOTE
Consulting.
Child Care, Inc., 275 Seventh Ave., 15th Floor, New York, NY
AVAILABLE FROM
10001. Tel: [phone]; Fax: [phone]; Web site:
http://www.childcareinc.org.
Non-Classroom (055)
PUB TYPE Guides
EDRS Price MF01/PC01 Plus Postage.
EDRS PRICE
*Budgeting; Child Care; *Educational Finance; Financial
DESCRIPTORS
Support; *Preschool Education; *Program Improvement;
*Resource Allocation; School Accounting
*New York (New York); Program Expansion; *Universal Preschool
IDENTIFIERS
ABSTRACT
This guide is intended to assist community-based providers in
New York City who intend to blend universal pre-kindergarten funds with
public child care funds, Head Start, preschool special education, or other
funds to provide full or extended day early education programs for children.
The guide provides information on how to allocate a program's costs for
administration, staff, curriculum, equipment, and other program-related
expenses across all funding streams with the intent to optimize the dollars
available for program enhancement and expansion. The recommendations were
developed based on an analysis of cost allocation procedures of the City of
New York and the Board of Education as well as various education and care
programs. The guide is organized into six sections. Following introductory
remarks, the guide provides background information on the state legislation
authorizing a funding mechanism to create the universal pre-kindergarten
program in New York. General considerations in allocating costs across
various funding streams are detailed, including information on the acceptable
basis for allocating costs. The use of charts to document new accounting
categories for universal pre-kindergarten programs is highlighted. The guide
then provides a list of frequently-asked questions and answers on union
compensation rates, fringe benefit administration, reimbursement for pre-
kindergarten instructional space in direct lease sites, and private program
participation in the universal pre-kindergarten program. The guide's five
appendices include an administrative advisory from the Agency for Child
Development on blending funds in various types of existing programs, and
details of acceptable cost allocation categories for universal pre-
kindergarten programs in ACD-contracted programs, Head Start programs,
private day care, and preschool special education programs.
(KB)
Reproductions supplied by EDRS are the best that can be made
from the original document.
STRATEGIC GROUP
THE EARLY CHILDHOOD
A GUIDE TO
PROCEDURES:
COST ALLOCATION
FOR
IMPLEMENTING STRATEGIES
PRE-KINDERGARTEN
UNIVERSAL
U.S. DEPARTMENT OF EDUCATION
PERMISSION TO REPRODUCE AND
Office of Educational Research and Improvement
DISSEMINATE THIS MATERIAL HAS
EDUCATIONAL RESOURCES INFORMATION
BEEN GRANTED BY
CENTER (ERIC)
This document has been reproduced as
received from the person or organization
originating it.
O Minor changes have been made to
improve reproduction quality.
TO THE EDUCATIONAL RESOURCES
Points of view or opinions stated in this
INFORMATION CENTER (ERIC)
document do not necessarily represent
1
official OERI position or policy.
BY
Acquenetta Russell-Browne
and Nancy Lederman
Fall, 1999
FL1
S EST COPY AVAILABLE
2
WATSON RICE, INC.
MANAGEMENT CONSULTING
Rice, Inc. Management
This guide was prepared by Watson
Early Childhood Strategic
Consulting at the behest of the
Group.
Guide is to assist community-based
The purpose of this
Universal Pre-K (UPK) funds
providers who intend to blend
Start, preschool special
with public child care funds, Head
provide full or extended
education or other funds in order to
children.
day early education programs for
allocate a program's
The Guide provides information on how to
and other program-
administrative, staff, curriculum, equipment
with the intent to
related costs across all funding streams
enhancement and
optimize the dollars available for program
administrators consider
expansion. It is meant to help program
perspective. The specifics
various options from an accounting
should always be reviewed with an accountant.
developed by researching
The recommendations herein were
of the City of New
and analyzing cost allocation procedures
also reviewed current
York and the Board of Education. We
by ACD-contracted
cost-allocation procedures currently used
day
Start-contracted programs, private
programs, ACS/Head
special education programs.
care programs, and
in this guide will
The effect of enacting the recommendations
who participate
depend on the efforts of program personnel
remember that cost
in the implementation. It is important to
guide is meant to
allocation is an accounting procedure. This
various options from
help program administrators consider
reviewed
perspective. The specifics should be
an accounting
with a knowledgeable accountant.
3
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TABLE OF CONTENTS
PAGE
NO.
Introduction
I.
2
Background
2
Introduction to Cost Allocation
4
Acceptable Basis for Allocating Costs
IV.
4
Recording Expenses and Allocations
V.
8
Questions and Answers
VI.
APPENDICES
ACD Administrative Advisory for Allocating
A.
.9
Costs in a Publicly-Funded Child Care Program
Allocating Cost in an Existing ACD
B-1.
13
Contracted Program
Allocating Cost in an Existing ACS
B-2.
Contracted Head Start Program
14
Allocating Cost in an Existing Private
B-3.
Day Care Program
1 5
Cost Allocation for Special Education
B-4.
16
Providers
4
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I. INTRODUCTION
with the goal of
Universal Pre Kindergarten (UPK) program
In 199T. New York State launched its
four-year-olds in the state over a five-year period.
providing early education programs to all
need for
early childhood programs, as well as the
Recognizing the diversity of providers offering
mandated that community-based providers
full day programs for working parents, the legislation
Aside from the public schools. early education
be allowed to participate in offering the UPK program.
schools, preschool special education
providers include day care centers, Head Start, nursery
family child care providers.
programs, parochial schools, and
stand-alone program that operates for 2 1/2
Within these settings, UPK can be offered either as a
integrated, full day program, or as a wrap-
hours and is supported exclusively by UPK funds, as an
around for other part day funding.
providers who intend to blend Universal
The purpose of this Guide is to assist community-based
other
funds, Head Start, preschool special education or
Pre-K (UPK) funds with public child care
education programs for children.
funds in order to provide full or extended day early
curriculum,
allocate a program's administrative, staff,
The. Guide provides information on how to
all funding streams with the intent to optimize
equipment and other program-related costs across
and expansion. It is meant to help program
the dollars available for program enhancement
perspective. The specifics should
administrators consider various options from an accounting
always be reviewed with an accountant.
accounting procedure. A good understanding
It is important to remember that cost allocation is an
sound budgets. Furthermore, knowledge
of cost allocation procedures is important in preparing
make full and appropriate use
of cost allocation procedures will help to ensure that programs can
about
design the program model and then think
of all available funds. However, the first step is to
how to finance it.
publications
this report as one of a series of
The Early Childhood Strategic Group has developed
implementation of the Universal PreK program
intended to ensure the successful planning and
for
the need expressed by many providers
in New York City. It was developed in response to
blending discreet funding streams falls to each
technical assistance in this area. The challenge of
various funding and reporting requirements.
provider. The programs must pay careful attention to the
Childhood Strategic Group, in concert with
Recognizing the complexity of this issue, the Early
Development (ACD). ACS/ Head Start, and the
the Board of Education (BOE), Agency for Child
address the challenges that continue to
Department of Health, have been meeting regularly to
Advisory to address cost allocation in publicly
arise. The ACD has published an Administrative
providers that they can blend
funded child care programs (See Appendix A). This advisory assures
be adjusted if properly documented. The
child care and UPK funds and that budget categories can
highest quality program.
intent is to ensure that all funds are used to support the
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BACKGROUND
II.
funding mechanism to help
New York State Education Law Section 3602-e provides a state
all four-year olds in the state by the year 2002.
create "Universal Pre-Kindergarten" (UPK) for
community-based providers
In New York City alone, during the 1998-1999 school year, 130
for approximately
joined with the Board of Education (BOE) schools to develop programs
300 community-based
14,000 children. In the second year of UPK implementation, over
providers will contract with the Board of Education to offer UPK services.
used by community-
The Board of Education does not prescribe the accounting system to be
offices. Nonetheless,
based providers who operate under contract with its school district
children in order to justify
eligible providers must be able to demonstrate increased services to
budget items.
accounting systems.
Remember: Programs risk the failure of a claim if they use inadequate
if appropriate
They may also fail to make a proper claim for program enhancement or expansion
cost accounting procedures are not followed.
INTRODUCTION TO COST ALLOCATION
III.
for like services.
Cost allocation is necessary when there are different funding sources paying
with the Board
For example, the day care and Head Start programs may share similar costs
funding, it is important
of Education's Universal PreK program. Therefore, when there is blended
to charge each program with its fair share of program costs.
allocating items such
In the absence of contractual agreements that provide specific rules for
Accepted Accounting Principles (GAAP)
as rent, salaries, and other cost items, Generally
principles:
issued by the American Institute of CPAs (AICPA) will apply. Under these
be allocated across
0 A teacher who teaches for more than one program must
all programs for which he/she works.
all
General maintenance and overhead expenses must be allocated among
programs.
The cost of supplies that are purchased for distribution among multiple
if direct charges are not
programs must be allocated among these programs
possible.
books, records,
A contractor is expected to consistently follow GAAP and to maintain
the Board of
documents, and other evidence in sufficient detail to support all claims against
(Note
Education and other funding sources. Not to do so is to risk the loss of funding dollars.
other
that some UPK providers, such as 4410 Special Education providers, have contracts with
funding sources that do prescribe certain accounting procedures. In these cases, those
procedures should be applied to UPK as well.)
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GENERAL CONSIDERATIONS
made. These are:
In order to allocate costs, a series of determinations must be
from indirect program costs (see Definitions,
O Direct program costs must be distinguished
below).
allocation must be made for each cost category (see
* Direct and indirect cost basis for
Acceptable Basis for Cost Allocation. below).
be made (see Definitions).
* Costs allowable under each contract must
made (see Definitions).
O Costs allocable to each contract must be
DEFINITIONS
that can be specifically identified with
Direct program costs. Direct program costs are any costs
teachers, materials, equipment.
a particular program: for example:
administration and overhead, are any costs
Indirect program costs. Indirect costs. also known as
they cannot practically be assigned
resulting from common or joint activities and of such nature that
director's time.
to the contract as direct costs: for example, electricity,
broad criteria:
Allowable costs. For costs to be allowable, they must meet four
$
They must be reasonable;
They must be allocable;
+
principles;
They must result from the application of generally accepted accounting
O
*
They must comply with the terms of the contract.
Reasonable costs. A cost is reasonable if:
of the contract or for the
In type and amount. it is necessary to the completion
performance of business;
arrived at as the result of
It is not in excess of an amount that would have been
transaction:
a competitive "arm's-length"
It is in compliance with the terms of the contract.
charged to a particular
Allocable costs. An allocable cost is any cost that can be assigned or
incurred especially for that contract or if it is
contract. A cost is allocable to a contract if it is
necessary to the operation of the business.
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ACCEPTABLE BASIS FOR ALLOCATING COSTS
IV.
Different costs must be allocated using a basis appropriate and acceptable to the category that
is being measured. The acceptable bases for allocating costs are:
BASIS
COSTS
Time
Personnel Costs
Square footage, time
Space, Gas. Light, & Heat
Number of children
Equipment & Supplies
Number of children
Administration & Overhead
Actual costs
Accounting Personnel Costs
Documentation for all allocation methods (bases and percentages) must be retained for a minimum
of seven years.
Please see Appendices B1 through B4 for charts that detail acceptable cost allocation categories
for UPK programs in 1) ACD-contracted programs, 2) Head Start programs, 3) private day care,
and 4) preschool special education programs.
V. RECORDING EXPENSES AND ALLOCATIONS
A sound chart of accounts is critical to the accounting operation. You will probably need to work
with your accountant to set up your chart of accounts to include new categories for UPK. An
updated chart of accounts designed to reflect the Universal Pre-K expenses will indicate transactions
by accountabilities and responsibilities to the maximum extent possible.
This can be done by using a chart of accounts that indicates funding sources for each account
code. For example:
with Funding Sources
Account Code
Description
Direct Costs
i-s an. Frin
500.00
# 500
B-
i
.
.
Pre-K
500.01
Head Start
500.02
500.03
Day Care
Special Ed
500.04
Other Than Personnel Services
600.00
# 600
Pre-K
600.01
Head Start
600.02
Day Care
600.03
600.04
Special Ed
Indirect Costs
Salaries and Fringe Benefits
# 700
700.00
Pre-K
700.01
Head Start
700.02
Day Care
700.03
700.04
Special Ed
800.00
# 800
Other Than Personnel Services
800.01 Pre-K
Head Start
800.02
800.03
Day Care
800.04
Special Ed
4
8
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incurred expenses using
allocations is to consistently record
The simplest way of applying GAAP to cost
bases by expense category
each expense category. if allocation
the same agreed-upon basis of allocation for
easier reporting of
beginning of the year, it will facilitate
(for all expense categories) are defined at the
expenditures as required.
Allocations
Examples of Recording Expenses and
be prescriptive.
accounting practice. They are not meant to
The following examples represent good
with your accountant.
There are a number of options to explore
Direct Costs
by ACS/ACD and BOE UPK
I. Blended Teacher Position Funded
additional responsibility
day care center now takes on the
In this example, a teacher in an ACD-contracted
Board of Education. Following
her time be allocated to ACD and the
to teach 2 112 hours of UPK. How can
is
direct cost for both programs. The cost
allocation is "time" and the cost is a
our process, the basis for
for allocation, we come up
the BOE. Using "time" as the basis
allowable and allocable to both ACD and
with the following:
UPK 2 1/2 Hours per day
ACD 7 112 Hours per day
Program Hours
UPK 180 days per year
ACD 261 days per year
Program Days
Hours per day
Assumed Annual Salary $35,000 for 7 1/2
Bi-Weekly Salary $1,341
Daily Salary $134.10
Hourly Salary $17.88
Calculate cost allocation percentages
Step I
ACD
$ 16,092
180 days =
x
$17.88 per hour
x
5 hours
10,862
81 days =
x
$17.88 per hour
7 1/2 hours
x
16:95
0t
261 days
Total ACD
r
UPK
23%
8.046
180 days =
x
$17.88 per hour
2 1/2 hours
x
100%
$ 35.000
Grand Total All
Calculate allocated expense amounts
2
Step
ACD
Gross Salary
$1,032.57
=
.77
$ I,341 bi-weekly salary x
UPK
$ 308.43
Gross Salary
=
.23
1,34 1 bi-weekly salary x
$
of Accounts
Record gross salary expense as per Chart
Step 3
Direct Costs:
308.43
500.01 UPK
$
Salaries
$ 1,032.57
500.03 Day Care
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2. Blended Program Director
indirect Cost Administration and Overhead
In this example, the cost of
a Program Director who oversees a Head Start program and
a UPK program
is allocated accordingly. The basis for allocation
for administration is the "number of children." The
cost is allowable and allocable to Head Start and the
BOE. The cost is indirect.
Total number of children all ages: 55
Total number of UPK-funded children:
20
Assumed Annual Salary: $50,000
Bi-Weekly Salary: $1,915.71
Step I
Calculate cost allocation percentages
Head Start
35 children divided by 55 children
= .636 or 64% rounded
UPK
20 children divided by 55 children
= .363 or 36% rounded
Step 2
Calculate allocated
expense amounts
Head Start
$1,915.71 bi-weekly salary
x .64 = $1,226.05 Gross Salary = $32,000
UPK
x .36 = $
$1,915.71 bi-weekly salary
689.66 Gross Salary = $18,000
Step 3
Record gross salary expense
as per Chart of Accounts
Indirect Costs
Salary and Fringe Benefits
700.01 UPK
$ 18,000
700.02 Head Start
$ 32,000
3. Examples of Program Enhancement
If we follow the above examples.
money was freed up from ACD and Head Start budgets. The directors
can now use this money to provide program enhancements.
Here are some examples that are allowable and
allocable under the ACD and Head Start budget
guidelines.
LE
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