Know your options: Allocating overhead costs can spread the burden among funds

May 20, 2020

At least initially, the general fund typically bears all general operating costs, such as for information technology, human resources, accounting, and facilities maintenance. But some local governments develop a plan to share these overhead costs with other funds that jointly benefit from the services provided. A cost allocation plan is optional and requires some work to set up and carry out, but it can take some pressure off of the general fund. This blog post will share some helpful tips and resources should you decide to go that route.

The foundation is a well-documented plan

You'll need a documented plan that lays out your allocation strategy. It needs to describe how the overhead costs will be allocated to each fund that benefits. There is no standard for what a good plan looks like. They vary greatly in documentation and complexity, depending on each government's need. If you are looking for examples from a peer to get you started, just keep in mind that no two plans are exactly alike and using several examples to get ideas is best. Also, consider peers that are as similar to you as possible.

Cost allocation is not without its rules and guidance

You'll want to be mindful of requirements outlined in the Budgeting, Accounting, and Reporting System (BARS) Manual:

If you are allocating costs to a federal grant program, you'll want to review federal guidance and check your grant agreements.

Five tips from a field auditor

  • If you leave some portion of overhead costs out of your cost allocation plan, make sure it's a conscious decision do so. It's okay if you want to do that, but we suspect there might be some accidental omissions in some plans.
  • Find a reasonable balance for your plan between accuracy and complexity, both of which increase as you allocate overhead costs in more detail. Overall, you want to strive for what is fair and equitable to all the funds involved.
  • Maintain support for the basis of your allocation. For example, if you allocate based on time spent, there should be something to back that up, such as a time study.
  • Include all funds that benefit in the overhead cost calculation. You can choose not to transfer the money from certain funds, but omitting a fund inflates charges to the other funds.
  • If you allocate overhead based on budget amounts, make sure you remember to true it up to the actual overhead if it significantly differs. Or, avoid that altogether by using actuals from a prior year.

For more information

Do you need further assistance?

Remember, we are here to help. We have financial management specialists at the Center for Government Innovation available to help you talk through technical projects. For assistance, reach out to the You can also reach out to us using our helpdesk service with specific questions.