full cost recovery an introduction

www.communityaccounting.co.ukwww.communityaccounting.co.uk

Full cost recoveryFull cost recoveryan introductionan introduction

John O’BrienJohn O’Brien

Community Accounting PlusCommunity Accounting Plus


Three questions to start off…Three questions to start off…

1. Who is paying for you to be here now?1. Who is paying for you to be here now?

2. How much does it cost your organisation 2. How much does it cost your organisation (per hour) for you to be here today?(per hour) for you to be here today?

3. What things ‘contribute’ to this cost?3. What things ‘contribute’ to this cost?


OverviewOverview

FCR is about activities – links to changes FCR is about activities – links to changes in charity accounting and funding in charity accounting and funding arrangementsarrangements

How much does it really cost you to do How much does it really cost you to do things?things?

If you don’t use FCR, what else is there?If you don’t use FCR, what else is there?

It’s not just about grants and fees, it’s also It’s not just about grants and fees, it’s also about good managementabout good management


What do we do at CA Plus?What do we do at CA Plus?

Preparation and independent examination Preparation and independent examination of accountsof accountsPayroll bureauPayroll bureauBookkeepingBookkeepingEmployment advice serviceEmployment advice serviceFinance trainingFinance trainingConsultanciesConsultanciesAdministration or “support”Administration or “support”


Finance trainingFinance training

Dealing with questions by ‘phone, emailDealing with questions by ‘phone, email

The websiteThe website

One to one visits for supportOne to one visits for support

One to one visits for trainingOne to one visits for training

Formal courses and seminarsFormal courses and seminars

Every Penny CountsEvery Penny Counts

ConsultancyConsultancy


Examples of Support Costs in Examples of Support Costs in CA PlusCA Plus

Staff supervision, training, subscriptionsStaff supervision, training, subscriptions

Senior staff reviewing the files, their own Senior staff reviewing the files, their own training, supervision, etctraining, supervision, etc

The equipment used such as IT, phones etc The equipment used such as IT, phones etc (what about depreciation?)(what about depreciation?)

Committee meetingsCommittee meetings

The heatingThe heating

The audit feeThe audit fee

The redecoration of the office every 5 yearsThe redecoration of the office every 5 years


Some jargonSome jargon

Direct costs – costs that clearly relate to a Direct costs – costs that clearly relate to a specific activityspecific activitySupport costs (overheads, shared, core Support costs (overheads, shared, core etc) – costs that do NOT relate to a etc) – costs that do NOT relate to a specific activityspecific activityFixed costs – these don’t change if you do Fixed costs – these don’t change if you do one more thingone more thingVariable costs – these DO change if you Variable costs – these DO change if you do one more thingdo one more thing


Marginal and Average costsMarginal and Average costs

This is crucial and at the heart of this issueThis is crucial and at the heart of this issue

Marginal cost is the cost of doing one Marginal cost is the cost of doing one more thingmore thing

Average cost is the cost of doing each Average cost is the cost of doing each thing.thing.

An example …..An example …..

www.communityaccounting.co.uk

Today

Project A B C Total

Costs

direct 10 10 10 30

shared 4 4 4 12

14 14 14 42

Grants 14 14 14 42

Net result 0 0 0 0


A new projectProject A B C D Total

Costs

direct 10 10 10 10 40

shared 4 4 4 12

14 14 14 10 52

Grants 14 14 14 10 52

Net result 0 0 0 0 0


Project B comes to an endProject A B C D Total

Costs

direct 10 0 10 10 30

shared 4 0 4 4 12

14 0 14 14 42

Grants 14 0 14 10 38

Net result 0 0 0 (4) (4)


What should you have charged What should you have charged funder D?funder D?

Funder D has only paid for ‘marginal’ costFunder D has only paid for ‘marginal’ costTotal support costs were £12 before project D. Total support costs were £12 before project D. They didn’t go up.They didn’t go up.The ‘average’ cost of project D could, and The ‘average’ cost of project D could, and should, have included an amount for support should, have included an amount for support costs.costs.At £4, with project D, the group wins. When B At £4, with project D, the group wins. When B closes, the group survives.closes, the group survives.At £3, with project D, the group wins, but when B At £3, with project D, the group wins, but when B closes, the group still dies.closes, the group still dies.


So how much does it cost to do So how much does it cost to do things?things?

The average cost of each unit of activity is The average cost of each unit of activity is simply the cost divided by the total amount simply the cost divided by the total amount of activityof activity

If you only have one staff member and If you only have one staff member and they advise 500 clients a year, it’s simply they advise 500 clients a year, it’s simply your organisation’s costs divided by 500, your organisation’s costs divided by 500, which will give you the average cost per which will give you the average cost per client.client.


If it’s complicated…If it’s complicated…

1.1. identify all your different activitiesidentify all your different activities

2.2. Allocate any ‘direct’ costs to each Allocate any ‘direct’ costs to each activity. This might include the salary activity. This might include the salary costs of the particular staff involved, the costs of the particular staff involved, the travel costs, specific materials, specific travel costs, specific materials, specific audit costs, etcaudit costs, etc


3.3. Think about what generates or causes Think about what generates or causes the costs in each activity. (For many the costs in each activity. (For many voluntary organisations it will be primarily voluntary organisations it will be primarily the employment of staff, but you can get the employment of staff, but you can get more complicated if you want)more complicated if you want)

4.4. Allocate the ‘support’ costs, between the Allocate the ‘support’ costs, between the activities. You can break these down into activities. You can break these down into sections. This involves a choice…sections. This involves a choice…


Allocating the support costs Allocating the support costs between activitiesbetween activities

Per personPer person

In proportion to time spent on the activityIn proportion to time spent on the activity

In proportion to direct costs, floor space, In proportion to direct costs, floor space, funding, salary costs etcfunding, salary costs etc

The point is…The point is…– Be reasonableBe reasonable– Be consistentBe consistent– Think about what generates the costsThink about what generates the costs


What can you do now you know the What can you do now you know the full cost?full cost?

If you know how much time you spend on If you know how much time you spend on each activity you can see the cost per houreach activity you can see the cost per hour

You can move on to ask how you finance You can move on to ask how you finance this activity…by grants, contracts, fees, this activity…by grants, contracts, fees, fundraising etc fundraising etc

If you charge fees for some services, you If you charge fees for some services, you can see the minimum you should charge can see the minimum you should charge to break even.to break even.


What can you see?What can you see?

The output that might be reasonably The output that might be reasonably expected for the fundingexpected for the funding

The targets for fees as well as the outputs The targets for fees as well as the outputs for each activity – useful for monitoring for each activity – useful for monitoring and managementand management

The activities that are giving you a The activities that are giving you a financial problemfinancial problem

The activities that are keeping you solventThe activities that are keeping you solvent


Grants & feesGrants & fees

It’s unusual to get grants to pay for you to go to It’s unusual to get grants to pay for you to go to meetings, but these are real costs that need to meetings, but these are real costs that need to be covered.be covered.Most funders want an output or even an Most funders want an output or even an “outcome”.“outcome”.You need to make sure that all your support You need to make sure that all your support costs are paid for by whoever is funding the costs are paid for by whoever is funding the activity. This could be a grant for a project, a fee activity. This could be a grant for a project, a fee for a service, or a price for a productfor a service, or a price for a productIf not, is this OK?If not, is this OK?


The problem with accepting ‘core The problem with accepting ‘core funding’funding’

You may think it’s good to have pure ‘core’ You may think it’s good to have pure ‘core’ funding – money just to be there. But there funding – money just to be there. But there is a risk.is a risk.It allows you to do other projects or It allows you to do other projects or activities in return for marginal funding, activities in return for marginal funding, with these funders or clients not paying the with these funders or clients not paying the ‘full cost’‘full cost’But what happens when the core funding But what happens when the core funding is reduced?is reduced?


Is this all real?Is this all real?

There are lots of assumptions in all thisThere are lots of assumptions in all this

If you don’t do this, how do you know If you don’t do this, how do you know whether the income is sufficient. whether the income is sufficient.

If you have a financial problem, you need If you have a financial problem, you need to know where the problem lies.to know where the problem lies.


And finallyAnd finally

If in doubt, call it £40 an hourIf in doubt, call it £40 an hour

full cost recovery an introduction

Documents

organisations costs

travel costs

salary costs

thingvariable costs

specific audit costs

ukexamples of support

issuemarginal cost

thingaverage cost