Demystifying Expenses:
Categorizing and Cost
Allocations
(Part 1)
Join us on Twitter:
@SpectrumSteve
May 26, 2015
1
for every woman
YWCA USA Financial Leadership
& Management Program
1
WELCOME
2
Today’s Conversation
• The Dual Bottom Line
• Determining True Costs
– Specific vs. Shared Costs
– Program vs. Supporting
– Cost Allocation
3
Financial Leadership Model
4
Financial Leadership Model
a) Staffing
b) Internal Controls
5
Tenets of Financial Leadership
1.
Move beyond mission vs. money thinking.
2.
Cultivate financial leadership on the staff and board.
3.
Understand your business model.
4.
Recognize the relationship between strong
infrastructure and strong programs.
5.
Set the tone of accountability and sustainability.
6
Financial Leadership Model
a) What am I looking at?
b) How do I assess?
7
Assessing Financial Health
• Immediate Financial Health
– Cash to pay bills
– Cash flow projection
– Budget
• Long-term Financial Health
– Reserves
– Profitability
– Income diversity
8
Financial Leadership Model
9
The Dual Bottom Line
10
The Dual Bottom Line
Programs
Organization
Surplus
Deficit
Surplus
Deficit
Surplus
Surplus
Deficit
Surplus
Deficit
11
The Dual Bottom Line
Revenue
Surplus
Profitability
Expenses
or
Deficit
12
Understanding Your
13
14
What goes into the price?
Coffee Beans
Water
Paper
15
What goes into the price?
Coffee Beans
Technology
Gas for roasting
Equipment
Accounting
Water
Strategic Planning Costs
Paper
Marketing & Advertising
16
Nonprofits need to do the same thing!
Equipment
Coffee Beans
Technology
Accounting
Gas for roasting
Strategic
Planning Costs
Water
Paper
Marketing &
Advertising
17
So, why don’t we?
18
JARGON
Nonprofit World
Specific Costs
Funder World
Indirect
Costs
Shared Costs
Direct Costs
Admin Costs
19
20
Peeling the Onion:
Categorizing Expenses
Program A
Specific
Program
Program B
Specific
Expenses
Administration
Common or
Shared
Expenses
Specific
Supporting
Fundraising
Allocated to both categories
21
Program Costs
Program A
Specific Costs
Program B
Shared Costs
Administration
Fundraising
Admin Costs
22
Peeling the Onion:
Categorizing Expenses
Program A
Specific
Program
Program B
Specific
Expenses
Administration
Common or
Shared
Expenses
Specific
Supporting
Fundraising
Allocated to both categories
23
Specific vs. Shared:
Definitions
Specific Expenses
Shared Expenses
Those expenses that
relate to an individual
program or activity of
the organization.
Those expenses that
are used by multiple
programs or activities
of the organization.
24
Specific vs. Shared:
Examples
Specific Expenses
• Program supplies
• Client transportation
• Development
Director’s Salary
Shared Expenses
•
•
•
•
•
Office supplies
Rent
Telephone & utilities
Liability insurance
Technology support
25
Specific vs. Shared:
Footnote
• Expenses are categorized as specific or shared by HOW
THEY FUNCTION, NOT by what they are.
For example:
• Pens and paper for classrooms
• Pens in the office supply cabinet
26
Peeling the Onion:
Categorizing Expenses
Program A
Specific
Program
Program B
Specific
Expenses
Administration
Common or
Shared
Expenses
Specific
Supporting
Fundraising
Allocated to both categories
27
Program vs. Supporting:
Definitions
Program Services
“Activities for which the
organization was created to
conduct.”
Supporting Services
All activities of a nonprofit
organization other than
program services.
Fulfill the purposes or
mission of the organization.
28
Program Services:
Examples
Support Groups
Employment / Economic
Development
Outreach and Awareness
DV Prevention Program
Shelter
Youth Development
29
Supporting Services:
Administration
Expenses associated with organization function
and management.
These include:
• Board expenses and other costs
associated with oversight and
general management.
• Legal, accounting, finance,
budgeting, general record keeping.
• Salary of ED except what’s
allocable to programs &
fundraising
These DO NOT necessarily include:
• Rent, telephone, utilities, office
supplies, postage
• Receptionist’s salary
• All of the ED’s salary
30
Understand Staffing Costs
31
Peeling the Onion:
Categorizing Expenses
Program A
Specific
Program
Program B
Specific
Expenses
Administration
Common or
Shared
Expenses
Specific
Supporting
Fundraising
Allocated to both categories
32
What is allocation?
Allocation is the systematic process of
splitting certain expenses between activity
centers (cost centers) based on several
factors.
33
The Regulatory Environment
34
2CFR Part 230 /
OMB Circular A-122
All costs must be:
• Reasonable
• Allowable
• Allocable
• Consistently applied
• Documented
35
Acceptable Basis
• Units of service costs
• Cost-to-Cost allocation
• Full time equivalents (FTE’s)
• Payroll expenses
• Square footage
• Specific expenses
36
Bottom Line Allocation
For the Nine Months Ending September 30, 2014
Program Activities
Domestic
Employment /
Violence
Childcare /
Economic
Prevention &
Youth
Development
Intervention
Development
Supporting Activities
Admin
Fundraising
Salaries
Benefits
Personnel Expense
83,800
12,570
96,370
194,800
29,220
224,020
18,300
2,745
21,045
30,400
4,560
34,960
33,000
4,950
37,950
Professional Fees
Supplies
Telephone
Postage
Occupancy
Depreciation
Insurance
Technology
Travel
Printing
19,900
5,800
143,000
1,400
1,500
1,800
3,400
8,000
200
Total Specific Costs
$
127,670 $
11,400
1,600
381,420 $
3,480
27,825
1,100
$
47,960 $
45,000
6,750
51,750
TOTAL
100
3,600
5,500
405,300
60,795
466,095
167,800
30,700
4,900
2,600
12,100
6,500
6,700
2,900
18,780
13,600
41,850
$ 105,950 $
732,675
500
2,700
2,900
Shared
Costs
13,500
4,900
2,600
12,100
6,500
6,200
2,900
37
38
Allocation Calculation
Program FTE’s
Total FTE’s – Shared FTE’s
Allocation Percentage
(Percentage of shared costs
given to program)
For Economic Development:
2.70
(14.70 – 2.20) = 12.5
0.22 or 22%
39
For the Nine Months Ending September 30, 2014
Program Activities
Domestic
Employment /
Violence
Childcare /
Economic
Prevention &
Youth
Development
Intervention
Development
Supporting Activities
Admin
Fundraising
Salaries
Benefits
Personnel Expense
83,800
12,570
96,370
194,800
29,220
224,020
18,300
2,745
21,045
30,400
4,560
34,960
33,000
4,950
37,950
Professional Fees
Supplies
Telephone
Postage
Occupancy
Depreciation
Insurance
Technology
Travel
Printing
19,900
5,800
143,000
1,400
1,500
1,800
3,400
8,000
200
Total Specific Costs
2,700
2,900
$
Allocation of Common Costs
$
11,400
1,600
3,480
100
3,600
5,500
405,300
60,795
466,095
167,800
30,700
4,900
2,600
12,100
6,500
6,700
2,900
18,780
13,600
41,850
$ 105,950 $
732,675
127,670 $
381,420 $
22%
41%
2%
18%
17%
23,309
43,440
2,119
19,071
18,012
67,031 $
59,862
150,979 $
424,860 $
27,825
1,100
29,944
$
$
47,960 $
TOTAL
45,000
6,750
51,750
13,500
4,900
2,600
12,100
6,500
6,200
2,900
500
Allocation Rate
Total Expenses
Shared
Costs
100%
(105,950)
$
-
$
732,675
40
For the Nine Months Ending September 30, 2014
Program Activities
Domestic
Employment /
Violence
Childcare /
Economic
Prevention &
Youth
Development
Intervention
Development
Supporting Activities
Admin
Fundraising
Salaries
Benefits
Personnel Expense
83,800
12,570
96,370
194,800
29,220
224,020
18,300
2,745
21,045
30,400
4,560
34,960
33,000
4,950
37,950
Professional Fees
Supplies
Telephone
Postage
Occupancy
Depreciation
Insurance
Technology
Travel
Printing
19,900
5,800
143,000
1,400
1,500
1,800
3,400
8,000
200
2,700
2,900
$
Allocation Rate
Allocation of Common Costs
$
11,400
1,600
3,480
100
3,600
5,500
405,300
60,795
466,095
167,800
30,700
4,900
2,600
12,100
6,500
6,700
2,900
18,780
13,600
41,850
$ 105,950 $
732,675
127,670 $
381,420 $
22%
41%
2%
18%
17%
23,309
43,440
2,119
19,071
18,012
67,031 $
59,862
150,979 $
424,860 $
27,825
1,100
29,944
$
$
47,960 $
TOTAL
45,000
6,750
51,750
13,500
4,900
2,600
12,100
6,500
6,200
2,900
500
Total Specific Costs
Total Expenses
Shared
Costs
100%
(105,950)
$
-
$
732,675
Economic Development Shared Allocation:
$105,950 * 22% = $23,309
41
Excluded Costs
•
•
•
•
•
•
Fundraising
Lobbying
Alcoholic beverages
Entertainment costs
Investment mgt.
Housing and personal
living expenses for
officers
42
Nonprofit Expenses
Specific Costs
$127,670
Shared Costs
$23,309
Admin Costs
Admin Costs
43
Peeling the Onion:
Categorizing Expenses
Program A
Specific
Program
Program B
Specific
Expenses
Administration
Common or
Shared
Expenses
Specific
Supporting
Fundraising
Allocated to both categories
44
For the Nine Months Ending September 30, 2014
Program Activities
Domestic
Employment /
Violence
Childcare /
Economic
Prevention &
Youth
Development
Intervention
Development
Supporting Activities
Admin
Fundraising
Salaries
Benefits
Personnel Expense
83,800
12,570
96,370
194,800
29,220
224,020
18,300
2,745
21,045
30,400
4,560
34,960
33,000
4,950
37,950
Professional Fees
Supplies
Telephone
Postage
Occupancy
Depreciation
Insurance
Technology
Travel
Printing
19,900
5,800
143,000
1,400
1,500
1,800
3,400
8,000
200
Total Specific Costs
2,700
2,900
$
Allocation of Common Costs
$
11,400
1,600
3,480
100
3,600
5,500
405,300
60,795
466,095
167,800
30,700
4,900
2,600
12,100
6,500
6,700
2,900
18,780
13,600
41,850
$ 105,950 $
732,675
127,670 $
381,420 $
22%
41%
2%
18%
17%
23,309
43,440
2,119
19,071
18,012
67,031 $
59,862
150,979 $
424,860 $
27,825
1,100
29,944
$
$
47,960 $
TOTAL
45,000
6,750
51,750
13,500
4,900
2,600
12,100
6,500
6,200
2,900
500
Allocation Rate
Total Expenses
Shared
Costs
100%
(105,950)
$
-
$
732,675
45
Nonprofit Expenses
Specific Costs
$127,670
Shared Costs
$23,309
Admin Costs
Admin Costs
46
Peeling the Onion:
Categorizing Expenses
Program A
Specific
Program
Program B
Specific
Expenses
Administration
Common or
Shared
Expenses
Specific
Supporting
Fundraising
Allocated to both categories
47
Administration Allocation
Calculation
Program + Shared Expense
(Total Expenses - Admin Exp.)
Allocation Percentage
For Economic Development:
(127,670 + 23,309) = 150,979
0.2268 or 22.68%
(732,675 – 67,031) = 665,644
48
For the Nine Months Ending September 30, 2014
Program Activities
Domestic
Employment /
Violence
Childcare /
Economic
Prevention &
Youth
Development Intervention Development
Supporting Activities
Fundraising
Admin
Salaries
Benefits
Personnel Expense
83,800
12,570
96,370
194,800
29,220
224,020
18,300
2,745
21,045
30,400
4,560
34,960
33,000
4,950
37,950
Professional Fees
Supplies
Telephone
Postage
Occupancy
Depreciation
Insurance
Technology
Travel
Printing
19,900
5,800
143,000
1,400
1,500
1,800
3,400
8,000
200
Total Specific Costs
2,700
2,900
$
Allocation of Common Costs
$
Admin Allocation %
Admin. Allocation
TRUE COST
$
11,400
1,600
3,480
27,825
1,100
100
3,600
5,500
405,300
60,795
466,095
167,800
30,700
4,900
2,600
12,100
6,500
6,700
2,900
18,780
13,600
41,850
$ 105,950 $
732,675
127,670 $
381,420 $
22%
41%
2%
18%
17%
23,309
43,440
2,119
19,071
18,012
67,031 $
59,862
424,860 $
23%
64%
4%
-100%
9%
15,204
42,784
3,015
(67,031)
6,028
467,643 $
32,959
$
47,960 $
150,979 $
166,183 $
29,944
$
$
-
$
TOTAL
45,000
6,750
51,750
13,500
4,900
2,600
12,100
6,500
6,200
2,900
500
Allocation Rate
Expense without Admin.
Shared
Costs
65,890
100%
(105,950)
$
-
$
732,675
$
732,675
Economic Development Admin Allocation:
$67,031 * 22.68% = $15,204
49
Nonprofit Expenses
Specific Costs
$127,670
Shared Costs
$23,309
$166,183
Admin Costs
$15,204
50
For the Nine Months Ending September 30, 2014
Program Activities
Domestic
Employment /
Violence
Childcare /
Economic
Prevention &
Youth
Development Intervention Development
Supporting Activities
Fundraising
Admin
Salaries
Benefits
Personnel Expense
83,800
12,570
96,370
194,800
29,220
224,020
18,300
2,745
21,045
30,400
4,560
34,960
33,000
4,950
37,950
Professional Fees
Supplies
Telephone
Postage
Occupancy
Depreciation
Insurance
Technology
Travel
Printing
19,900
5,800
143,000
1,400
1,500
1,800
3,400
8,000
200
Total Specific Costs
2,700
2,900
$
Allocation of Common Costs
$
Admin Allocation %
Admin. Allocation
TRUE COST
$
11,400
1,600
3,480
100
3,600
5,500
405,300
60,795
466,095
167,800
30,700
4,900
2,600
12,100
6,500
6,700
2,900
18,780
13,600
41,850
$ 105,950 $
732,675
127,670 $
381,420 $
22%
41%
2%
18%
17%
23,309
43,440
2,119
19,071
18,012
67,031 $
59,862
150,979 $
424,860 $
27,825
1,100
29,944
$
$
47,960 $
22.682%
64%
4%
-100%
9%
15,204
42,784
3,015
(67,031)
6,028
166,183 $
467,643 $
32,959
$
-
$
TOTAL
45,000
6,750
51,750
13,500
4,900
2,600
12,100
6,500
6,200
2,900
500
Allocation Rate
Expense without Admin.
Shared
Costs
65,890
100%
(105,950)
$
-
$
732,675
$
732,675
51
Homework: Determine True Costs
Determine the true costs of
programs by:
• Use our template for a
program.
• Use our template for your
Association.
• Use your own template and
describe the process.
52
Resources
• Sample Financial
Statements
53
Recap
True Program Costs
include:
Categorize Costs
Correctly
•
•
•
•
•
Specific expenses
Shared expenses
Admin expenses
Understand Your
Staffing Costs
•
Staffing Plan
Specific vs. Shared
Program vs. Supporting
Allocate Costs
•
•
Shared and Admin Costs
Choose a relevant basis
54
Your Questions
55
YWCA FLM: Discussion Site
http://ywcaflm.ning.com/
56
Next Webinar: June 22
Demystifying Expenses
Part 2: Categorizing
Expenses and Cost
Allocation
• Discussion / Your Questions
• Homework Review
– Homework is not due until after the
next webinar!
57
Steve Zimmerman
Spectrum Nonprofit Services
www.spectrumnonprofit.com
stevez@spectrumnonprofit.com
414-727-1029
58