In allocating rent expense the most acceptable basis would be

The cost allocation plan must be adequately documented and must include all costs that will be claimed as allocated costs under federal or state awards.

The cost allocation plan must include all csts that will be claimed as an allocated cost under a federal or state award.  This includes both allocated and billed costs as described in the paragraphs below.  Costs that are omitted from the cost allocation plan will not be reimbursed.  Documentation requirements are discussed in the remainder of this section.

Documentation.  As provided in applicable cost principles, “All costs and other data used to distribute the costs in the plan should be supported by formal accounting and other records that will support the propriety of the costs assigned to federal or state awards.”  Thus, the cost allocation plan must be adequately documented.  Documentation requirements are provided below, and include both general information that is required for all cost allocation plans, as well as, more specific information that is required to support allocated and billed costs.

General.  The following types of information must accompany all cost allocation plans:

• An organization chart that is sufficiently detailed to show operations including the activities of the organization whether or not they are shown as benefiting from those functions being allocated
• A copy of the organization’s financial statements for the period covered by the costs (i.e., comprehensive annual financial report, where applicable) or, a copy of the approved budget if the plan covers budgeted costs.  The financial statements are required to support the allowable costs of each activity included in the plan.
• A certification that the plan 1) was prepared in accordance with the applicable Office of Management and Budget (OMB) Circular and/or the Uniform Grant Management Standards (UGMS), 2) contains only allowable costs, and 3) was prepared in a manner that treated similar costs consistently among the various federal or state awards and between federal and other non-federal awards/activities.  The certification is discussed further under the subtitle Certification in this section.

If the cost allocation plan is one that must be approved by a federal or state agency, documentation of the approval must also be maintained.  Submission and approval requirements are discussed later in this section.

Allocated Costs.  Certain information must be provided for every allocated cost as bulleted below.  Allocated costs refer to those that are pooled and distributed to benefiting cost objectives on a reasonable basis.  General accounting, personnel administration, and purchasing costs are commonly allocated.  Required documentation:

• Brief description of the service
• Identification of the unit rendering the service
• Identification of the operating activities receiving the service
• Items of expense included in the cost of the service
• Method used to distribute the cost of the service to the benefited entity
• Summary schedule showing the allocation of each service to the specific benefited entity

Billed Costs.  Certain information must be provided for every billed cost.  Billed costs refer to those that are billed to organizations or programs on an individual fee-for-service or similar basis, such as computer services, transportation services, insurance and fringe benefits.  Billed costs are common with internal service funds, self-insurance funds, and fringe benefits.  Required documentation for internal service and self-insurance funds, and fringe benefits follow.

• Internal Service Funds. For each internal service fund or similar activity with an operating budget of $5 million or more, the cost allocation plan must include:
  • A brief description of each service
  • A balance sheet for each internal service fund based on individual account contained in the governmental unit’s accounting system
  • A revenue/expense statement, with revenues broken out by source, e.g. regular billings, interest earned, etc.
  • A listing of all non-operating transfers into and out of the fund
  • A description of the procedures (methodology) used to charge the costs of each service to users, including how billing rates are determined
  • A schedule of current rates
  • A schedule comparing total revenues (including imputed revenues) generated by the service to the allowable costs of the service as determined under the appropriate OMB Circular

The "revenues" in the required revenue/expense statement that is listed above consists of all revenues generated by the particular service, including unbilled and uncollected amounts.  If some users were not billed at the full rate for that class of users, a schedule showing the full imputed revenues associated with these users shall be provided.  "Expenses" in the revenue/expense statement shall be broken out by object cost categories, e.g. salaries, supplies, etc.

• Self-Insurance Funds.  For each self-insurance fund, the cost allocation plan must include:
  • The self-insurance fund’s balance sheet
  • A revenue/expense statement that includes a summary of billings and claims paid by entity
  • A listing of all non-operating transfers into and out of the fund
  • The type(s) of risk(s) covered by the fund, e.g. automobile liability, workers’ compensation, etc.
  • An explanation of how the level of fund contributions are determined on an actuarial basis
  • A description of the procedures used to charge or allocate fund contributions to benefited activities

Reserve levels in excess of claims (1) submitted and adjudicated, (2) submitted but not adjudicated, and (3) incurred but not submitted must be identified and explained.

• Fringe Benefits.  The cost allocation plan must include the following for fringe benefit costs that are billed costs:
  • A listing of fringe benefits provided to covered employees, and the overall annual cost of each type of benefit
  • Current fringe benefit policies
  • Procedures used to allocate the costs of the benefits to benefited activities

In addition, for pension and post-retirement health insurance plans, the following information must be provided:

• The organization’s funding policies, e.g. legislative bills, trust agreements, or state-mandated contribution rules, if different from actuarially determined rates
• The pension plan’s costs accrued for the year
• The amount funded, and date(s) of funding
• A copy of the current actuarial report (including the actuarial assumptions)
• The plan trustee’s report
• A schedule from the activity showing the value of the interest cost associated with late funding

Certification.  An authorized official of the organization must certify that the plan has been prepared in accordance with authorizing legislation and regulations, and state or other applicable requirements.  Every cost allocation plan must include a certification.  A sample certification follows:

This is to certify that I have reviewed the cost allocation plan submitted herewith and to the best of my knowledge and belief:

• All costs included in this proposal ___ [identify date] to establish cost allocations or billings for ___ [identify period covered by plan] are allowable costs in accordance with the requirements of OMB Circular A-21, A-87, or A-122, and the federal and state awards to which they apply.  Unallowable costs have been adjusted for in allocating costs as indicated in the cost allocation plan.
• All costs included in this proposal are properly allocable to federal or state awards on the basis of a beneficial or causal relationship between the expenses incurred and the awards to which they are allocated in accordance with applicable requirements.

  Further, the same costs that have been treated as indirect costs have not been claimed as direct costs.  Similar types of costs have been accounted for consistently

I declare that the foregoing is true and correct:

Submission and Approval.  A State or local government that has been designated as a “major local government” by the Office of Management and Budget (OMB), is required to submit a cost allocation plan to its cognizant agency annually.  (OMB periodically lists “major local government” designations in the Federal Register.)

Other entities must develop a plan in accordance with cost allocation plan requirements, but are not required to submit the plan to the Agency (or a federal agency) for approval.  Instead, the approval process for these entities is conducted locally in accordance with the Contractor's local policies, with a copy of the cost allocation plan and related supporting documentation being maintained and made available for monitoring review and audit.  The cost allocation plan must be prepared and, when required, submitted within six months prior to the beginning of the Contractor’s fiscal year covered by the plan.

Entity Specific Consideration:
Local Governments that Negotiate an Indirect Cost Rate with the Agency.  The Agency serves as the State Single Audit Coordinating Agency, and therefore approves the indirect cost rates, for some local governments.  When these entities use both a cost allocation plan and an indirect cost rate, the cost allocation plan is usually considered in the negotiation of the indirect cost rate.  Although the Agency is responsible for negotiating the indirect cost rates of these entities, it is not required to and has not chosen to approve the cost allocation plan.

Authority:

What is the basis of allocation for rent?

Which allocation method should be used for rent expense?

What is the basis of allocation of expenses?

Which cost allocation method is the most accurate?