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What is a Cost Allocation Plan and Do I Need One?

Mastering Cost Allocation: Ensure compliance, fairness, and efficiency with a strong Cost Allocation Plan (CAP)

January 27, 2025

What is a cost allocation Plan

 

A Cost Allocation Plan (CAP) is a written document that outlines how your organization divides shared costs—like rent, utilities, or administrative salaries—across programs, departments, or funds. It ensures that shared expenses are allocated fairly and equitably based on the benefit received. A strong CAP is not just a best practice—it’s often required for compliance with funding and audit standards.


For example, if your organization operates three programs in the same office, your CAP would determine how rent is split among those programs based on factors like square footage or program usage.


Key Considerations for Creating a CAP


When developing or updating your Cost Allocation Plan, keep the following in mind:


  1. Fairness and Accuracy: Costs should be allocated as accurately as possible to ensure that funding streams are charged equitably.


  1. Consistency: Your CAP must be applied consistently across all expenditures and funding streams to avoid compliance issues.


  1. Alignment with Policies: Costs must align with approved internal policies and comply with Uniform Guidance (1 CFR Part 200) requirements.


  1. Reallocation During Reconciliation: Budgetary allocation percentages are estimates—real allocations must be recalculated monthly or as costs are reconciled.


  1. Staff Time Allocation: Ensure that staff time matches time and effort reporting to avoid discrepancies in audits.


It is important that organizations continually evaluate their plan and if costs need to be divided differently based on any significant internal changes.  

 

The method for distributing shared costs will vary depending on each type of expense.  When determining the most appropriate way to distribute shared costs, the following factors should be considered.  

 

  •  What would likely cause an increase or decrease to the cost?   

  •  Who receives the benefit of the cost? 


After accounting for the above considerations, an allocation method can be chosen such as Full Time Equivalent (FTE), Salary, Square Footage, Direct Program Expense, Percentage of Time, and any other method that reasonably provides a fair and equitable distribution of benefit.


Simplify Your CAP with MissionGranted


Creating and managing a Cost Allocation Plan doesn’t have to be overwhelming. With MissionGranted, you will worry less about inconsistent allocations or compliance risks.


MissionGranted’s smart compliance tools help your organization:


  • Automate Allocations: Automatically allocate shared costs based on methods like FTE, square footage, or direct program expenses.


  • Ensure Consistency: Apply your CAP uniformly across programs, ensuring compliance with Uniform Guidance.


  • Streamline Reconciliation: Recalculate allocations dynamically as costs are charged, saving time and reducing errors.


A well-designed Cost Allocation Plan is essential for compliance, transparency, and effective resource management. But keeping up with CAP requirements doesn’t have to be a burden. MissionGranted empowers nonprofits to manage shared costs with ease.


Ready to simplify your cost allocations? Request a Demo or Learn More about how MissionGranted can help your organization stay compliant and efficient.




   

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