By Dwight Buracker, CPA, CVA
As our government clients strategically manage finances to meet the increasingly complex needs of the public, compliance with Office of Management and Budget (OMB) requirements is critical.
Certain departments incur indirect costs that include administrative expenses related to other departments or agencies. These expenses might be for HR, technology, facilities, legal, finance, etc.
Government Finance Office Association (GFOA) recommends that governments allocate these indirect costs.
However, trying to track each expense and identify a cost center doesn’t make sense from a cost/benefit perspective. As such, it’s acceptable to calculate estimates to link indirect costs to the appropriate departments or programs. According to the OMB, these estimates must be made using a systematic process.
Failure to demonstrate compliance with OMB requirements is common but often unintentional. The source of the problem is typically a lack of communication or misunderstanding of compliance requirements.
Below, we’ve summarized six best practices for indirect cost allocation.
6 Best Practices for Indirect Cost Allocation
GFOA breaks down best practices into six questions that can help you determine an appropriate allocation process for indirect costs.
Take a Proactive Approach
Preparing a cost allocation plan in accordance with OMB requirements helps to promote awareness and accountability that can minimize the risk of failing to meet various requirements.
However, a proactive and carefully planned and executed indirect cost allocation can also satisfy several objectives from a management perspective.
Because these considerations can demand significant training, time, and effort, our team can simplify and streamline the indirect cost allocation process. Contact us today for a complimentary consultation.