Common use of Classification of Costs Clause in Contracts

Classification of Costs. As identified in the Auditor General’s review of contracted services administered by the Department of Elder Affairs, administrative costs reported in the audited financial statements of the contractors and subcontractors varied widely. In an attempt to more consistently report administrative costs, the following guidelines should help to more clearly identify the appropriate classification and allocation of administrative costs. These guidelines apply to the preparation of the Statement of Functional Expenses, (see template) as well as to the unit cost methodology used in determining future contracted unit rates and actual unit costs. [1] Footnote 6 to paragraph 27 of FASB Statement No. 117 Administrative Costs: Costs incurred for supporting activities such as management and general, and fund raising. Management and general activities are those that are not identifiable with a single program or fund-raising activity but that are indispensable to the conduct of those activities and to an organization’s existence. They include oversight, business management, general record keeping, budgeting, financing, and all management and administration except for direct conduct of program services or fund-raising activities. The costs of oversight and management usually include the salaries and expenses of the governing board, the chief executive officer of the organization, and the supporting staff. However, if such staff spend a portion of their time directly supervising program services, their salaries and expenses should be allocated among those functions, proportionate to time spent on those activities. The costs of disseminating information to inform the public of the organization’s “stewardship” should similarly be classified as management and general expenses.[2] According to the Office of Management and Budget, general administration and general expenses are those that have been incurred for the overall general executive and administrative offices of the organization and other expenses of a general nature which do not relate solely to any major function of the organization. This category shall also include its allocable share of fringe benefit costs, operation and maintenance expense, depreciation and use allowances, membership dues, corporate filing fees and other costs to maintain general business operations. Examples of this category include central offices, such as the director’s office, the office of finance, business services, budget and planning, personnel, safety and risk management, general counsel, management information systems, and library costs.[3] (NOTE: Indirect cost is not synonymous with administrative costs.) The following expense line items should be displayed on the functional expense statement as management and general (administrative):

Classification of Costs. As identified in the Auditor General’s review of contracted services administered by the Department of Elder Affairs, administrative costs reported in the audited financial statements of the contractors and subcontractors varied widely. In an attempt to more consistently report administrative costs, the following guidelines should help to more clearly identify the appropriate classification and allocation of administrative costs. These guidelines apply to the preparation of the Statement of Functional Expenses, (see template) as well as to the unit cost methodology used in determining future contracted unit rates and actual unit costs. [1] Footnote 6 to paragraph 27 of FASB Statement No. 117 Administrative Costs: Costs incurred for supporting activities such as management and general, and fund raising. Management and general activities are those that are not identifiable with a single program or fund-raising activity but that are indispensable to the conduct of those activities and to an organization’s existence. They include oversight, business management, general record keeping, budgeting, financing, and all management and administration except for direct conduct of program services or fund-raising activities. The costs of oversight and management usually include the salaries and expenses of the governing board, the chief executive officer of the organization, and the supporting staff. However, if such staff spend a portion of their time directly supervising program services, their salaries and expenses should be allocated among those functions, proportionate to time spent on those activities. The costs of disseminating information to inform the public of the organization’s “stewardship” should similarly be classified as management and general expenses.[2] expenses.2 According to the Office of Management and Budget, general administration and general expenses are those that have been incurred for the overall general executive and administrative offices of the organization and other expenses of a general nature which do not relate solely to any major function of the organization. This category shall also include its allocable share of fringe benefit costs, operation and maintenance expense, depreciation and use allowances, membership dues, corporate filing fees and other costs to maintain general business operations. Examples of this category include central offices, such as the director’s office, the office of finance, business services, budget and planning, personnel, safety and risk management, general counsel, management information systems, and library costs.[3] costs.3 (NOTE: Indirect cost is not synonymous with administrative costs.) The following expense line items should be displayed on the functional expense statement as management and general (administrative):): Salaries – should include the executive director, fiscal office, human resources office, data processing office and all related supporting personnel for those offices. Payroll taxes and benefits – should include the payroll taxes and fringe benefits associated with the personnel included in number 1. Travel – should include all travel and related expenses associated with the personnel included in number 1. Communications/Postage – should include all telephone, cell phone, pagers, and internet service for the administrative offices associated with the personnel in number 1. Also includes mailing costs of materials for the benefit of the organization as a whole. Utilities- electric, water, sewer, and other utilities for the administrative offices associated with the personnel in number 1.