Review Occupancy, Cost Allocation Plans

The pandemic distancing and response requirements prompted many Human & Social Services provider organizations to reconfigure open space (such as conference & meeting rooms), in many cases resulting in more space being utilized directly in programs in furtherance of the mission. In many cases, these space management strategies have lasted beyond the pandemic, and AAFCPAs reminds clients to review the cost allocation methodologies to determine if there are material changes that could positively impact the way you present the true investment that is made in program services—which may lead to additional allowable costs for certain contracts and grants.

Clients are encouraged to consider the following to maximize the benefit of changes made:

Review Contracts for Allowable Costs

Review the computations and factors included within the specified contract details to determine how to maximize the reimbursable costs under cost-reimbursement contracts, including cost-reimbursement subcontracts as well as cost specific grant awards.

Update Your Cost Allocation Methodologies

Update and document the Organization’s cost allocation methodologies not only by performing time studies to ensure you are capturing the true personnel costs of running the programs but also by reviewing the methodology for allocating occupancy costs as well as other indirect expenses. The result will provide you with the back-up needed to support your program allocations as well as the amounts submitted for reimbursement to contracts and grants.

Review Opportunities Now, Prior to FY End

Clients are encouraged to revisit the cost allocation methodologies prior to fiscal year end to determine if changes are material and ensure your cost allocation plan reflects the true time, effort, and investment made in operating each of the Organization’s programs.

There may be opportunities to bill contracts or grants for allowable new space allocations prior to FY end.

Update Your External Narratives

Changes to cost allocation methodologies that result in an increase in program costs and decrease in overhead (general and administrative and fundraising) will be reflected in the Organization’s financial statements, Form 990, Form PC, Uniform Financial Report (Massachusetts), annual report, and other reports. AAFCPAs encourages clients to consider how changes in space may impact your narrative and how it informs the public about crucial aspects of your nonprofit mission. Most specifically, how occupancy and other indirect costs shifted from general and administrative expenses to program.

How can we help?

We are available to provide guidance on compliance, including interpretation of allowable costs for federal awards under accounting standards and contract/grant allowability. Our expertise may be leveraged to ensure compliance and maximum recovery of all available federal and state dollars.

We advise on cost allocation for health and human service agencies that support various programs including behavioral health, public health, developmental disabilities, Temporary Assistance for Needy Families (TANF), Supplemental Nutrition Assistance Program (SNAP), child welfare, and juvenile justice. We work with state, county, city, and private entities.

If you have questions, please contact Jeff Cicolini, CPA, CGMA, Partner and Leader of AAFCPAs Human & Social Services Practice at or 774.512.4026—or your AAFCPAs Partner.

About the Author

Jeff Cicolini, CPA
Jeff provides accounting, tax and consulting services to nonprofit organizations. He has extensive experience providing solutions to evolving nonprofit organizations with complex program offerings, diverse financing sources, and budgets ranging from $20 million to over $200 million. He specializes in advising human and social service agencies, including multi-service agencies, residential and day treatment behavioral healthcare providers, early education and care (EEC) agencies, community development corporations’ affordable housing projects, and membership organizations.