For state and local government leaders managing multiple programs, departments, and funding streams, effective financial oversight is non-negotiable. One foundational tool that supports both operational transparency and fiscal compliance is the Cost Allocation Plan (CAP).
What is a Cost Allocation Plan?
A Cost Allocation Plan is a formal document that outlines how indirect costs (those not directly tied to a single program or service) are distributed across departments, grants, and funding sources. These costs might include administrative salaries, IT infrastructure, facilities management, or centralized services.
Rather than allocating these costs arbitrarily, a CAP applies consistent, supportable methodologies (such as FTEs, square footage, or service usage) to ensure equitable distribution and defensibility in audits.
Why It Matters for Government Operations
A well-structured CAP enables:
- Regulatory Compliance: Aligns with OMB Uniform Guidance (2 CFR Part 200) and state-level requirements.
- Cost Recovery: Maximizes reimbursement of indirect costs to support sustainable program funding.
- Audit Readiness: Creates clear documentation and defensible cost recovery methods.
- Fiscal Transparency: Builds trust with constituents, funders, and oversight agencies.
- Informed Budgeting: Helps agencies fully understand the cost-of-service delivery.
For example, a county managing multiple health and human services programs, some grant-funded, others locally funded, can use a CAP to properly recover overhead costs and ensure each program pays its proportional share.
Avoiding Common Pitfalls
Without a formal Cost Allocation Plan, local governments risk significant financial and compliance setbacks, such as leaving eligible reimbursements unclaimed, mischarging grants or restricted funds, or failing audit reviews due to unsupported indirect-cost methodologies. A well-structured CAP enables governments to recoup a meaningful share of overhead, ensuring every dollar supports public services responsibly and with full transparency.
Ready to Strengthen Your CAP? Try BURSO Free for 90 Days
BURSO simplifies the complexities of cost allocation, empowering state and local governments to improve efficiency, maintain compliance, and optimize funding opportunities. Developed by experienced municipal accounting professionals, our software enables your team to build accurate and defensible cost allocation plans with confidence. Now, you can experience the benefits firsthand through a risk-free 90-day trial. We will transfer your most recent plan into BURSO, provide full platform access for your team, and supply training materials to support a smooth onboarding process. No financial obligation, just smarter, more strategic cost allocation.
Start your free trial or email us at info@burso.com to learn more.
