Cost Allocation Methodology
The prompt
$18
Why this works
Cost allocation methodology review is one of the highest-impact financial management activities for nonprofits because systematic misallocation of shared costs produces both incorrect program cost information and funder compliance risk. The federal award compliance section is specifically important because OMB Uniform Guidance has specific requirements for indirect cost allocation that differ from generally accepted practices. Building the board-approved indirect cost rate into the methodology ensures the allocation is a governance decision, not just a staff practice.
Risks & review
Cost allocation methodology changes require updating all grant budgets and reports that are based on the old methodology — a change that seems administratively simple can create compliance issues with grants that are already in progress. Review the implementation plan with your auditors before changing the methodology, and communicate the change to all program officers at active funders who have approved budgets based on your prior allocation approach.