WESTAR Procedure #9:Overhead Allocation Procedure

Purpose:

To detail the steps used to implement WESTAR Policy # FA-07-07, “Overhead Cost Allocation”. This procedure may be used in lieu of establishing and implementing an indirect rate with the approval by EPA of a grant application that includes a budget which allocates overhead consistent with this procedure.

Definitions:

Indirect expenses – expenses relating to “overhead” charges, consistent with OMB-Circular A-122

Direct expenses – expenses relating to a specific project (Grant or contract)

Program income –income derived from grant or contract funds, including but not limited to product rebates and registration fees.

Overhead Allocation Procedure

Revised February 12, 2007

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General Notes:

This policy establishes procedures to prorate overhead expenses between entities that provide funds to WESTAR (e.g., grants and contracts). In this context, overhead expenses and indirect expenses are the same. That is, the OMB rules regarding indirect (e.g., what can and cannot be included as indirect expenses and the requirement to allocate indirect expenses fairly between funding sources) apply to overhead as it is used in this procedure.

It is the Executive Director’s responsibility to ensure that all expenses incurred by WESTAR are reimbursable in accordance with applicable grant rules and contract provisions – that is, to ensure that payments from grant funds are allowable, reasonable, and are properly allocated.

As detailed in Procedure #8, “Coding and Allocation Procedures”, WESTAR has established a coding system that allocates expenses to specific fund sources (grants and/or contracts), and to specific expense categories (chart of accounts). The system further allocates expenses for each project within a grant or contract (for example, expenses may be allocated to specific projects funded under one EPA grant, such as training and PSD). The chart of accounts is set up to meet the reporting requirements of the funding entity. For example, EPA grants are awarded based on work plans and budgets for expenses in the following expense categories: Personnel, Fringe Benefits, Travel, Equipment, Contractual, Other, and Indirect Costs. EPA expects financial reports to summarize expenses for each of these expense categories. Similarly, contractors require accounting according to their needs. WESTAR’s accounting system is set up to meet these different grant and contractual requirements, and is implemented under the oversight of an independent CPA to ensure that all accounting is done in accordance with GAAP.

WESTAR may be invoiced for approved grant expenses, expenses incurred under a contractual agreement, or for expenses that are not reimbursable through either grants or contracts. Since the rules governing reimbursable expenses (“allowable” expenses) differ, expenses must be correctly allocated to the appropriate fund source and cost category.

Process Steps/Descriptions:

WESTAR typically bills against contracts on a monthly basis, and draws down against grants as needed. This procedure assumes that indirect expenses will be prorated on a monthly basis so that contract billings will include the applicable prorated share of indirect. The following steps are used to prorate overhead expenses to funding sources.

I.Determine total direct and indirect expenses for each funding source:

  1. Complete entry into the accounting system of all expenses incurred during the month for which WESTAR will seek reimbursement.
  2. Reconcile all expenses since the beginning of the grant by ensuring that the total cumulative expenses for the entire grant period are equal based on a profit/loss standard and profit/loss by job.
  3. Run a profit/loss by job for the month to determine the total indirect expenses incurred during the month, and the total direct expenses incurred for each grant and contract.

II.Prorate the indirect expenses for the month based on the actual direct expenses incurred by each grant/contract.

Example:

Grant direct expenses20,000

Contract 1 direct expenses8,000

Contract 2 direct expenses1,800

Total direct expenses29,800

Indirect expenses4,500

Grant indirect = 4,500*(20,000/29,800) =3,020

Contract 1 indirect = 4,500*(8,000/29,800) = 1,208

Contract 2 indirect = 4,500*(1,800/29,800) = 272

III.Bookkeeping/accounting:

Overhead expenses are to be accounted for using the same procedure used to allocate indirect expenses (policy # FA-00-04 “Indirect Cost Repayment from Non-Grant Accounts”.

IV.Documentation:

  1. The above calculations are to be kept on file each time indirect is determined using this procedure (typically monthly).
  2. Backup details should be kept on file that provide details of all expenses used in the above calculation, including the profit/loss by job used to prorate the expenses for the month.

Overhead Allocation Procedure

Revised February 12, 2007

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