Lesson 7.2: Point of Entry vs. Indirect Cost Allocations

In the previous lesson, we introduced the concept of allocating costs to ensure accurate program reporting. This lesson dives deeper into the two specific mechanisms FastFund Online provides for this purpose: Point of Entry (POE) Allocations and Indirect Cost Allocations. You will learn the mechanical differences between them, how to set up a Point of Entry allocation set, and when to choose one method over the other.

1. Point of Entry (POE) Allocations

Point of Entry Allocations are designed to automate the distribution of expenses or revenue at the moment you record the transaction. This method is a data entry accelerator. Instead of manually entering five different lines of coding every time you pay a recurring bill (like a telephone bill or rent), you select a pre-defined “Allocation Set,” and the system auto-fills the distribution grid for you.

Where it works: You can use POE Allocations in the following transaction screens:

• Cash Disbursements

• Cash Receipts

• Vendor Invoices

• Revenue Journal

• Note: POE Allocations cannot be used in General Journal Entries.

Types of POE Allocations: FastFund offers two types of POE setups:

1. Percentage Based: You define the accounts and the exact percentage of the total transaction that goes to each. The system calculates the amounts automatically. This is ideal for costs that are always split by the same ratio (e.g., a grant that always covers 20% of the rent). The total must equal 100%.

2. Accounts Only: You define the list of accounts and project codes, but not the amounts/percentages. When applied, the system fills in the account lines, and you manually enter the amounts. This is useful for transactions that always affect the same set of accounts but in varying amounts (e.g., a credit card bill that always hits Office Supplies, Travel, and Postage, but the amounts change monthly).

Setting Up a POE Allocation:

1. Navigate to Cost Allocations > Allocation Types > Point of Entry Setup.

2. Click New +.

3. Name: Give the set a descriptive name (e.g., “Telephone Split”).

4. Type: Select “Percentage Based” or “Accounts Only”.

5. Distribution Grid:

    ◦ Account: Select the Fund/Cost Center/Object Code.

    ◦ Percentage: Enter the % (up to two decimal places).

    ◦ Project: (Optional) Pre-assign a project code.

    ◦ Memo: (Optional) Pre-assign a line-item memo.

6. Repeat for all lines until the total equals 100% (for percentage-based sets).

7. Click Save.

2. Indirect Cost Allocations

Indirect Cost Allocations operate after transactions have been posted to the General Ledger. This is a robust engine designed to take a pool of costs (collected in a specific Cost Center) and distribute them to other Cost Centers based on a mathematical basis.

Key Characteristics:

• Cost Center Driven: This method relies entirely on your Cost Center structure. You allocate from one Cost Center (e.g., Administration) to benefiting Cost Centers (e.g., Program A, Program B).

• Object Code Consistency: The system moves the expense from the source Cost Center to the destination Cost Center using the same Object Code. (e.g., $1,000 of Rent in “Admin” becomes $600 Rent in “Program A” and $400 Rent in “Program B”).

• Sub-Account Limitation: Indirect Cost Allocations do not work with Sub-Accounts. Your Chart of Accounts must rely on Funds, Cost Centers, and Object Codes to use this feature.

The “Step-Down” Capability: Indirect Cost Allocations support a “step-down” method. This means you can run a sequence of allocations where costs are distributed in a specific order.

• Example: First, allocate Occupancy costs (Rent/Utilities) to all departments based on square footage. Next, allocate the Administrative department (which now includes its share of Occupancy) to the Program departments based on direct labor.

Comparison Summary: When to use which?