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 the reimbursement to your organization. The following are some basic guidelines that can be used to prepare your organization’s cost reports.
- Identification of the funder’s reporting requirements, including how the different types of costs (i.e. direct, shared costs, indirect costs, facilities, agency administration, etc.) are to be reported. Additionally, the reporting deadline of the cost Report and whether it needs be certified by an outside independent accounting firm should be determined.
- Gather appropriate information about all the schedules in the cost report; their use by the funder, what required data is needed in each of the individual schedules; and where is that information housed in your organization. It should be noted a significant amount of data is not included in your organization’s general ledger accounting system, possibly housed in other applications such as payroll, accounts payable, billing, or other statistical data bases, that are maintained by staff outside of the finance and accounting team.
- Planning the cost report project, preparing a detail plan that includes; training on the cost report format and software used by the funding agency; how and when will the information needed to complete the report will be obtained; allocation of staffing resources at the appropriate skill level needed to prepare the cost report, and preparation of a step by step work plan with staff assigned and due dates.
- Proper assessment of expertise and adequacy of the organization’s staff skills to prepare and submit a complete and accurate cost report within the time constraints set by the funders should be completed in conjunction with the Cost Report project planning stage.
- Lastly, Management should complete as assessment of its accounting systems, along with its accounting policies and procedures, to determine if they can meet reporting requirements needed to complete a reasonably accurate cost report. Including such things as; does the organization have adequate systems and policies in place report shared costs in the correct programs; f is employee time and salaries tracked appropriately to be reported in the proper programs. Proper set up of the general ledger and other software/systems goes a long way in efficiently preparing an accurate cost report.
- When it comes time for the certification of your cost report (if required), here a few additional tips:
- Understand which schedules of the cost report are subject to certification (they may not all be) so that you can be prepared for your auditor to request those various schedules.
- Most auditor certifications will include an analytic review of the cost report, often comparing to the prior year, so be prepared to answer questions about significant fluctuations.
- Most cost reports will require several signatures for submission, including the CEO/Executive Director, CPA, and with NYS Consolidated Fiscal Reports a county representative if receiving County funding. Knowing the timing of when the cost report will be completed and any possible time off for those signers will help alleviate a rush near the deadline.
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.
