Part III - Annual TRAC
Section D: All other costs
Chapter D.6 Steps in cost attribution
- The cost attribution process consists of several steps:
i. set up system
- A spreadsheet or database system can be used. This would cover the following:
Costs for attribution
- list of cost totals from consolidated financial statements
- calculation and addition of cost adjustments – see Annex
- 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
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
- 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
Attribution to sub-activities
T to PF and NPF – on the basis of time (if recorded) or student
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.
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.
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.
- 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).
- TRAC quality assurance requirements, including information on maintaining
audit trails, are given in Part
ii. collect cost driver data
- 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
- Costs should be extracted from the nominal ledger (which
reconciles to the audited financial statements), and from the cost adjustments – see Annex
- Costs should be total expenditure plus exceptional
items before taxation.
- 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.
- 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.
- 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.
- 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
- As shown above, costs need to be attributed to:
- lower-level activities.
- All costs should be attributed in full to all activities
– no activity should be costed on a marginal basis.
- 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 -
- 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
viii. review methods for reasonableness and amend as appropriate.
End of Section
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