Cost allocations are especially important for maximizing revenue from cost reimbursement grants. Developing and consistently executing allocations requires time and expertise which a small nonprofit might not have. Documentation of the assumptions used is critical.

Examples: A nonprofit can maximize its funding by making sure that shared staff are allocated correctly. I have used “time spent” as an allocation method when it makes more sense than FTEs or program participants. Sometimes you can carve out some of the cost of various M&G personnel if the hours spent directly on the program can be documented. For shared office space I use FTEs rather than square footage because that method is so much less labor intensive.

Another suggestion: revenue recognition of grant contracts is complicated and often the nonprofit finance person is not familiar with all of the rules. I recommend having the auditors review the grant contract to determine if the grant is conditional or unconditional as this determines if the revenue has to be recognized all at once or as the expenses are incurred.