Part III - Annual TRAC

Section D: All other costs

Chapter D.6 Steps in cost attribution

1. The cost attribution process consists of several steps:

   set up system collect cost driver data extract and reconcile costs attribute to activities and departments calculate results test figures for reasonableness report review methods for reasonableness and amend, as appropriate

i. set up system

2. A spreadsheet or database system can be used. This would cover the following:

   Costs for attribution

   Containing:
   • list of cost totals from consolidated financial statements
   • calculation and addition of cost adjustments – see Annex 15
   • analysis into high-level accounts code groups.

   Time allocation data (note: time is a cost driver)

   Containing information from the time allocation process which shows the percentage split of time for each department between:
   • T, institution-/own-funded R, all other R, O, O(CS) and S
   • if collected, PF T, NPF T, research sponsor type, and sub-categories of S.

   Other cost drivers

   All other cost drivers would be included by department, and by activity, as appropriate, e.g.:
   • space (by department, and by activity);
   • staff numbers by department (FTE and headcount);
   • student numbers by department (FTE and headcount – split PGRs and all other);
   • research costs by department;
   • % allocations given by heads of department (e.g. for libraries, support staff, non-staff costs in their departments, external Research by research sponsor type if required);
   • numbers of Research Assistants and PGR students, by research sponsor type;
   • percentages to be used to allocate O(CS) to T, R, O and S – see Annex 10.

   Attribution to academic departments

   Academic department costs would have been attributed automatically to academic departments through their accounts codes.

   Central department groups would be attributed either:

   • automatically to O – i.e. for residences, and catering and conferences; much of Other Services Rendered and trading companies; recoverable/reimbursable salaries (medical and dental schools)
   • through application of the cost drivers – see table.

   Attribution to activities

   Most costs would be attributed to activities on the basis of their identified cost drivers.

   Some costs would have been identified as S as they were being attributed to T, R and O.

   Some would be directly attributed to activities – e.g. research grants and contracts to R; the ‘O departments’ to O; general educational expenditure to T.

   O(CS) would be attributed to T, R, O, and S on the basis of cost drivers.

   Attribution to sub-activities

   T to PF and NPF – on the basis of time (if recorded) or student numbers.

   R to research sponsor type on the basis of time (institution-/own-funded, and research sponsor type if available); and/or on the number of Research Assistants and PGR students; or (for non-laboratory departments) head of department estimates.

   Income

   As income is to be reported alongside costs in the annual TRAC return – see Annex 16 – this would usefully be included as part of the cost attribution model.

   Management information

   The ‘five figures’ for reporting would be calculated (along with the income).

   Surpluses/deficits would be calculated by activity, and, for internal information, by department as well as average T costs per student FTE; and so on.

3. Normal audit trails should be included as part of the system design to ensure data integrity, and it is good practice (periodically) to carry out an independent review of the logic etc. As part of this a running check on the totals being allocated should be done (to ensure they remain reconciled with the consolidated financial statements including exceptional items before taxation plus cost adjustments).
4. TRAC quality assurance requirements, including information on maintaining audit trails, are given in Part II.

ii. collect cost driver data

5. Cost driver data should be robust – selected and applied according to TRAC principles and conventions and recorded with appropriate audit trails.

iii. extract and reconcile costs

6. Costs should be extracted from the nominal ledger (which reconciles to the audited financial statements), and from the cost adjustments – see Annex 15.
7. Costs should be total expenditure plus exceptional items before taxation.
8. Where subsidiary companies are consolidated within institutions’ accounts their costs should be reported as part of TRAC costs. These should be attributed to T, R, O or S, on the basis of the activity being carried out in the company.
9. It is good practice for data to be collected at as high a level as possible to avoid complex data manipulation. Where data are not available at the required level (i.e. available only at an aggregate level, or at a very detailed level by accounts code) then institutions should consider:
   • using proxies (e.g. notional staff salaries to extract staff costs that require a specific attribution – e.g. 100% to R – from a general staff cost pool. The balance of costs in this pool will be attributed using the data from the time allocation schedules);
   • using data from other accounting systems – e.g. the management accounts (these might not be reconciled at all levels, but would provide, for example, a reasonable indication of the split of some costs between departments);
   • drawing from information provided for other external reporting e.g. HESA Table 6 data – accessible via Annex 1. Institutions have found the internal working papers to arrive at these HESA figures can be of use in informing their departmental split of costs, where otherwise lower-level accounts codes would need to be allocated.
10. Significant internal recharges and large adjustments in departmental costs (for example) would need to be examined to identify their purpose and relevance, and their impact on TRAC. Institutions have found that these can be significant, and unravelling them can be complex.
11. The costs would be entered into the cost allocation model and the total/s reconciled to the audited financial statements (plus adjustments). Reconciliations from cost attribution models involving significant use of management accounting information, to the published financial statements can be complex. Large cost differences can arise as accounting standards are fully applied to year-end figures, and these differences need to be identified and attributed carefully. A full audit trail should be maintained.

iv. attribute to activities and to departments

12. As shown above, costs need to be attributed to:
    • departments
    • activities
    • lower-level activities.
13. All costs should be attributed in full to all activities – no activity should be costed on a marginal basis.
14. Costs can be attributed using step-down or cascading - and this can easily become quite complex (with step-ups, and numerous iterations). A simple example here is the attribution of estates costs to a finance (administration) cost pool; and then finance to academic departments. Alternatively, finance costs could be attributed to the estates cost pool. The JCPSG publication, Costing Guidelines (page 55) – accessible via Annex 1 - illustrates this.
15. Step-down attribution is not necessary for TRAC, but could be useful if institutions wish to establish the costs of a service department to enable comparison with commercial providers or to inform pricing (for example). Use of step-down attribution might materially alter the costs attributed to activities. It is for individual institutions to determine whether step-down attribution or cascading is appropriate or necessary.

v. calculate results

vi. test for reasonableness. See Part II

vii. report

viii. review methods for reasonableness and amend as appropriate.

End of Section