Children, Young People and Families Consortium Full Cost Recovery

Children, Young People and Families Consortium

Full Cost Recovery

Contents

• Introduction and background• Principles of cost allocation• Description of template• Applying the template• The ACEVO (Association of Chief Executives of

Voluntary Organisations) template and SORP (Statement of Recommended Practice)

• Changing the landscape of core cost

• ACEVO commissioned in 1999 – “Who pays for core costs”?

• Recommended – All third sector bodies:- Improve internal accounting- Develop benchmarking- Innovate to drive down overhead costs- Demonstrate effectiveness and capability- Develop ways of measuring effectiveness

Introduction and Background - 1

• The report revealed:

“professional advisors to the sector commented on the immaturity of much of the voluntary sector accounting and the difficulties of associating real costs with activities”.

Introduction and Background - 2

• AVECO: Funding our Future – Funded by Big Lottery Fund, Active Communities and Northern Rock Foundation

• Task 1 – Campaign to ensure that Central and Local Government and funders accept the case for funding core costs and IMPLEMENT!

• Task 2 – Develop a system for calculating and allocating core costs

Introduction and background - 3

• Analyse and count your costs

• Review your costs – too high/too low?

• Allocate appropriately

• Fund the costs – full picture, informed decisions, take on below costs – why?

ARAF

• Funders reluctant – can have genuine concerns about levels of costs and double funding

• Funders- Generally agree with principles- Can disagree with what is justifiable cost

Core Costs – A contentious issue

What is cost?

• CIPFA guidance (Accountable body for the sector)• Complete recharging of overheads• Correct recipient• Transparency• Flexibility – frequency, workable for all• Reality• Predictability• Materiality

Principles of cost allocation - 1

• Marginal costs versus average costs

• Marginal costs – additional cost

• Average costs – includes all costs

Principles of cost allocation - 2

• Double funding – Funders worry that average costs increase the risk of double funding

• Surpluses are retained for charitable purposes• If occasionally double funding – the sector SHOULD

NOT APOLOGISE• SLA – Commercial – Quote a fee

• Supported by NCVO and KPMG

• Cost allocation principles are endorses by the charity commission, HM Treasury and consistent with the SORP

Principles of cost allocation - 3

• Template designed to do two things:

1) Document and count all costs2) Allocate – Cost Drivers

- By head count- By time- By expenditure

Description of the template

• Direct output costs – front line activity

• Category 1 costs – direct support work

• Category 2 costs – indirect support work

• Category 3 costs – governance, strategic development and

reserves

What costs should be included?

• Imputed Rent – real economic cost

• Assets and – if imputed rent no depreciation,

Depreciation if mortgaged include depreciation

• Equipment – include depreciation

Further Debate!

• Template designed to cost a single output/project

• Full cost of output/project

• Step 1 - Calculating direct costs

• Step 2 - Calculating direct support costs

• Step 3 - Calculating building costs and direct costs of fundraising and central support

functions

Applying the template - 1

• Step 4 - Allocating building and related overhead costs

• Step 5 - Calculating the total costs of central functions

• Step 6 - Allocating the total costs of central functions

• Step 7 - Calculating governance and strategic development costs

• Step 8 - Allocate general fundraising expenditure

Applying the template - 2

• “I want people to use this toolkit to make sure that they really know what a particular activity costs them”

Fiona McTaggart, Home Office Minister for the Voluntary Sector

• “I commend this new guidance to third sector organisations as an important tool”

John Healey MP, Economic Secretary to HM Treasury

Support for the cost allocation template

• Consistent with SORP

• SOFA (Statement of financial activities - P&L )

• All resources expended

ACEVO AND SORP - 1

SORP cost category ACEVO template category

Cost of activities in furtherance of charity’s objects

Direct costs

Support costs of activities in furtherance of charity’s objects

Category 1 & 2 costs

Management and administration costs Category 3 costs

Costs of generating funds Category 1 costs

ACEVO AND SORP - 2

• Exceptions

- Costs of generating funds- Non-cash items- Timing

• Duplication of effort

ACEVO AND SORP

• Table – Matching core cost items and template categories• Competitive Pricing – Balance confidentiality • Risk Premium – Reserves – prudent financial management• Funders have an interest in investing sustainable

organisation• Management Accounts – Budget/estimated in advance

Changing the landscape of core costs

• Full Cost Recovery Workshop

• Costs include?

• £900/30 places

Smaller Project/Pieces of Work

• FCR is both fair and good for the sectors by making them more sustainable and for Partner Agencies and funders by being clear and transparent

• National issue not used local

• A collective approach is necessary

Messages to take away

Questions?!