Cost reports are used by State and Federal oversight agencies to both monitor the financial performance of and set reimbursement rates for health and human service providers for certain programs operated. The most important element of preparing a complete and accurate cost report in a timely and efficient manner is understanding the purpose of the cost report and how it’s used to develop reimbursement to your organization. The following are some basic guidelines that can be used to prepare your organization’s cost reports.
- Identify the funder’s reporting requirements, including how the different types of costs (i.e. direct, shared, indirect, facilities, agency administration, etc.) are required to be reported. Additionally, note the deadline of the cost report and determine whether it needs be certified by an outside independent accounting firm.
- Gather appropriate information about each schedule in the cost report, their use by the funder, what data is required, and where that information is housed in your organization. Typically, most of this data is not included in your organization’s general ledger accounting system. It may be housed in applications like payroll, accounts payable, billing, or other statistical data bases that are maintained by staff outside of the finance and accounting team.
- Prepare a detailed plan for the cost report project, including training on the report format and software used by the funding agency, how and when the information needed to complete the report will be obtained, allocation of staffing resources at the appropriate skill level, and preparation of a step-by-step work plan with staff responsibilities and due dates.
- Assess the expertise and adequacy of your staff’s skills to prepare and submit a complete and accurate cost report within the time constraints set by the funders. This should be completed in conjunction with the cost report project planning stage.
- Complete an assessment of your accounting systems along with your accounting policies and procedures to determine if staff can meet reporting requirements in the allotted time. Consider the following: does your organization have adequate systems and policies in place to report shared costs in the correct programs? Are employee time and salaries tracked appropriately to be reported in the proper programs? Are your general ledger and other software/systems properly set up? These items go a long way in efficiently preparing an accurate cost report.
- If required, certify your cost report and consider these recommendations:
- Understand which schedules of the report are subject to certification so that you can prepare them for your auditor.
- Be prepared to answer questions about significant fluctuations from the previous year’s report.
- Know your report’s deadline and give those signing off on it plenty of time. Most cost reports require signatures from the CEO/Executive Director, a CPA, and/or a county representative of NYS Consolidated Fiscal Reports if you’re receiving county funding.
If you have any questions or need further guidance with preparing, planning, staff training, or certifying cost reports, please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
