WV IPG Finance Staff Orientation WV IPG Finance Staff Orientation Cost Allocation and Revised Budget Policies WORLD VISION INTERNATIONAL JUNE, 2013

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<p>WV IPG Finance Staff Orientation Cost Allocation and Revised Budget PoliciesWorld Vision InternationalJune, 2013</p> <p>1AgendaKey Clarifications and Changes in Cost AllocationRelated Changes in the NO Budget TemplateComing Tools and ResourcesQ &amp; A2Basis for changes to policy and key messagesQuickly cover the need for the policy revisions.3Support costs were not seen as a normal part of doing businessAll projects need support; few stand alone. Think about doing a grant project without finance reporting, payroll, accounts payable, information technology, security, management oversight, quality assurance, compliance, monitoring, administration, etc.</p> <p>All projects need support; few stand alone. The support functions allocated to grants benefit grants (payroll, paying for expenditures, procuring equipment and supplies, security, information technology, etc.)4Support costs were seen primarily as overheadAll projects in WV are supported by both Technical and Program Support Costs, and some by Sponsorship Support Costs and NRDThe allocation method used by WV allows both direct costing of these support costs and allocation to projects by share of the total, through a pool </p> <p>Grants, like ADP, Sponsorship and other projects in any given office are supported by technical support and program support functions. Technical support functions are usually not considered by the industry as overhead, and therefore those costs should in general be itemized in project budgets and directly expensed. The cost allocation methodology (CAM) used by World Vision accommodates both direct costing of individual support costs, when feasible, and direct costing using the share of technical and program support costs based on actual DPC. 5Previous communication about the composition of CAM rate has led to judgments about NO overhead &amp; efficiency thus, put us at a disadvantage by implying NO overhead was higher than it is. One critical common mistake Perception that Support Costs were not properly allocatedAuditedGenerally Accepted Accounting MethodBased on Actual Expenditures Double counting avoided</p> <p>Support costs are audited, are allocated through a generally accepted accounting method and are allocated based on actual expenditures.7Donors have limitsMost donors are able to pay Support CostsSome have statutory or policy-based limits to costsOthers have been confused about our costs and simply see WV as expensive</p> <p>While support costs are paid by many public and donors with little or no objection, there are donors who have statutory or long standing limitations to the amount of support costs they allow in grants. Poor communication about support costs has caused confusion about these costs with some donors in the past, especially the fact that all CAM costs were sometimes seen as being all overhead costs. 8Support costs were not properly forecasted in grant proposalsCAM Rates UsedCosts not considered as part of a Go/No-Go decisionImportance for Finance and Grant/RDU Teams have not always collaborated to accurately forecast; allocated costs varied wildly in proposals</p> <p>Support costs should always be forecasted as the expected share of Direct Program Costs for the entire National Office. While all of the support costs may not be requested of the donor, they should be forecasted and a plan to address these costsin the proposal to the donor through allocation and/or direct charging, or through re-allocation to other non USG projectsshould be agreed in advance of the go/no-go decision for the grant proposal. The ratio formerly known as CAM Rate should never be used as an allocation method in a grant proposal. This is an internal ratio used to discuss National Office budgets. To indicate the administrative support provided to programmes/projects, we no longer use the CAM rate, but rather the Programme Support Cost Budget. 9Support costs have been a barrier to seeking grantsSome support offices unable to match support costs past donor limitsToo many grant opportunities have been missed as a result</p> <p>There are several steps for addressing support costs in every grant proposal:List the costs in their entirety in the proposal budget as a part of the requested grant from the donorDirect charge as many of the costs as possible per grant regulation and reasonable to remain competitiveSeek up to the regulatory limit allowed by the donor for the support costs and apply it Re-allocate any support costs that cannot be allocated to this specific grant to other projects excluding US Government Grants. GAM staff throughout the partnership should understand the limits, perspective, and preferences of the donors for each grant project. Anticipated direct program costs for the proposed project should be determined as soon as possible in the proposal development process to allow for adequate forecasting. A plan for addressing support costs is required for every application. 10Delinking Budget &amp; Cost Allocation</p> <p>Signpost slidemove quickly111) Costing the Organisational StructureNational Director decides, Regional Leader approvesTransparent and total view into NO &amp; ZOStandard TemplateStandard cost categories: Programme Support/ Technical Support/ Sponsorship Support/ NRDProgramme Support Rate for internal discussion not for proposals; no more CAM Rate Responsive to changes in fundingExpectation = NO budgets to remain flat until FY16, with few exception. Decision of the National DirectorApproved by the Regional LeaderIncludes appropriate support/oversight functionsProvides transparent and total view into NO &amp; ZOUse of a Standard TemplateUse of standard cost categories: Programme Support/ Technical Support/ Sponsorship Support/ NRDProgramme Support Rate only (no more CAM Rate)Needs to be responsive to changes in funding (ND responsibility with RO oversight)Expectation = NO budgets to remain flat until FY16, with few exception. Finance needs to help identifying costs savings (e.g. on travel, communication) while others are increasing (e.g. inflation) =&gt; refocus</p> <p>122) Funding the Organisational StructurePlan, budget and direct charge where possible (invoice, SLA, LDR etc.)Limit allocation (Programme Support Costs and General Technical Support costs e.g. operations &amp; ministry quality)Apply allocation methodology thoughtfullyRecognise that Cost Allocation simply distributes costs</p> <p>How have the policies been revised?14Budget Policy</p> <p>Timeline Organizational Structure</p> <p>Signpost slidemove quickly15TimelineMay 15FRSC release Budget Template (per budget guidelines) Delays due to some changes Templates released on May 15, except those for Fragile States (released on May 16) Note that NOs do not need to wait for the template to start working on their budget June 20SOs update MYPBAS with FY14-16 forecastThis is important to allow NOs to reflect the most updated SO amount in the NO Budget templateJuly 15NOs submit NO Budget Template to RO for review ( with draft annual business plan)July 16FRSC provides NO analytical information to the RO Aug 8Deadline for RO to approve and post in WVCentral NO Budget Template, after thorough review Aug 12 Summary NO budget template available to SOs in wvcentral Aug 21 Review of NO budget template at GFFT call 16Organizational StructureNO Staff/ Function CategoriesDetermining the specific staff/functions categories in a NO organizational structure contributes to a better understanding of costs that are directly linked to project objectives versus costs that provide support and oversight to accomplish the project objectives.17Budgeting Policy for NO/ZO Budget support execution of the NO strategy at all levels.The organisational structure approved by the Regional Leader (RL) conduct its activities pursuant to the detailed NO budgetBudget is a transparent and complete view of the cost of support functions Reflects actual need, good stewardship and compliance with benchmarks or standards. Increases prohibited without the written approval of the RL is granted. The National Director (ND) determines the appropriate organisational structure that will support execution of the NO strategy at all levels.The organisational structure proposed by the ND should be approved by the Regional Leader (RL) prior to execution. Each NO must conduct its activities pursuant to the detailed NO budget approved by the Regional Leader (RL). The NO Budget is intended to provide a transparent and complete view of the cost of support functions before they are funded by programmes/projectsThe NO Budget must reflect actual need, good stewardship of resources, and comply with any applicable benchmarks or standards. Any change to the approved NO budget during the fiscal year is prohibited unless exceptional circumstances arise and the written approval of the RL is granted. </p> <p>18Cost Allocation PolicyBasics3 stepsPrinciples</p> <p>Signpost slidemove quickly19Cost Allocation PolicySame DriverThree step process for allocationDirect Cost, when feasible, especially incremental costsAllocate to projects using current allocation tool to the limits of the donorReallocate remainder to other projects without restrictionForecasting for new project done based on estimated actualNo CAM RateMonthly allocation Reduce incremental costs at end of grant</p> <p>Signpost slidemove quickly20The 3-Step Cost Allocation ProcessDirectly charge the NO/ZO costs, where feasiblebased on evidencejustifiable Charge remaining pool of Support Cost (total support costs minus the ones directly charged) using Allocation Tool, up to the limit of the donorUse the Reallocation Tool to re-allocate uncovered support costs to all other projects without donor restrictionsAs much as possible, directly charge the NO/ZO costs to the relevant projects based on the direct evidence which can justify the direct benefits to the specific projects (e.g. SLAs, LDRs audit trip)In case the calculated base amounts of PSC and TSC in Step 2 cannot be charged to grants (whether its a grant portion or private match portion) because donor regulations restrict it, run the Re-Allocation Tool to re-allocate uncovered support costs to all other projects without restrictions. Ensure that no donor cap has been exceeded. Note that we cannot re-allocate to US Government grantsExclude all the cost directly charged to the relevant projects and/or FCSF in Step 1 from the NO and all ZO costs (referred to as Support Costs pool) and simply run the Allocation Tool to calculate the base amounts of PSC, TSC &amp; SSC to the relevant projects</p> <p>21Cost Allocation StandardsCost based on the nature &amp; purpose of the costBudgeting based on the best estimate of likely actual charges, including portfolio changesLocally-funded projects must have adequate budget available to cover support costsFundraising costs of NRD offices should not be allocated to projectsNOs without stable funding base can be charged to the Fragile Context Special Fund (FCSF).</p> <p>NO/ZO support costs are classified based on the nature &amp; purpose of the cost, and not on how these costs are allocated to projects.Budgeting for support costs should be based on the best estimate of what will actually be charged to the project, taking into account changes in the funding portfolio. Locally-funded projects (inclusive of locally grant-funded projects), must have adequate budget available to cover a portion of support costs.When applicable, Fundraising costs of NRD offices should not be allocated to projects. It should be funded from local income raised by the NO.When applicable, a portion of Support Costs for grant-funded NOs without stable funding base can be charged to the Fragile Context Special Fund (FCSF).</p> <p>22To summarizewhats new ?New name: CAM to Cost Allocation PolicyNew tools: Re-Allocation, Forecasting, etc.New separate policy: Budgeting Policy for NO/ZOIdentify and charge to grants incremental costsreduce at end of grant absent new funding Fair share only in through step 2Step 3 is called leveraging existing fundingSupport Offices are no longer required to provide additional match for Support Costs beyond donor limits, can provide match for competitiveness Service Level Agreements (SLAs), especially for S23 Technical services and sectors &amp; S27 ZO technical services. Guidance pending.Additional match for Support Costs is different from the required match per Grant Regulations. SO will need to continue providing required match per grant regulation. This only refers to the need under the CAM policy for SO to provide additional match to cover the fair share of Support Cost for any grant. </p> <p>23Does this have any impact on overall NO Costs?24Potential NO Cost impacts of new policesExisting grant budgets remain the same, but allocations to existing projects could be reduced because of flat budgets and more grants Global Centre attempting to lower costs through flat budgets for three years, could help reduce overhead rates NO Efficiency ratios monitored and kept at a reasonable levelSupport Offices have access to the approved NO Budgets and they are reviewed annually in August</p> <p>The National Director (ND) determines the appropriate organisational structure that will support execution of the NO strategy at all levels.The organisational structure proposed by the ND should be approved by the Regional Leader (RL) prior to execution. Each NO must conduct its activities pursuant to the detailed NO budget approved by the Regional Leader (RL). The NO Budget is intended to provide a transparent and complete view of the cost of support functions before they are funded by programmes/projectsThe NO Budget must reflect actual need, good stewardship of resources, and comply with any applicable benchmarks or standards. Any change to the approved NO budget during the fiscal year is prohibited unless exceptional circumstances arise and the written approval of the RL is granted. </p> <p>25What will be different about proposal budgeting in grants?26Basic process: Forecasting allocated costs in grant proposals Existing NO budget will have PSC, TSC and DPC CostsDPC for proposed project is added to current projects to determine share of DPCThe share of DPC determines the forecast of PSC and TSC for the proposed projectFollow three step process to assess the impact of the proposed project on other projectsMake Go/No-Go decision; Present PSC and TSC in proposal as preferred by the donor</p> <p>The National Director (ND) determines the appropriate organisational structure that will support execution of the NO strategy at all levels.The organisational structure proposed by the ND should be approved by the Regional Leader (RL) prior to execution. Each NO must conduct its activities pursuant to the detailed NO budget approved by the Regional Leader (RL). The NO Budget is intended to provide a transparent and complete view of the cost of support functions before they are funded by programmes/projectsThe NO Budget must reflect actual need, good stewardship of resources, and comply with any applicable benchmarks or standards. Any...</p>