Children, Young People and Families Consortium Full Cost Recovery
Jan 22, 2016
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?!