How to Reduce Your Childcare Centre's CWELCC Recovery
Updated: 18 hours ago
A practical guide to staying on top of your finances and reducing CWELCC recovery surprises
The shift to cost-based CWELCC funding has made budgeting and regular financial reporting more important than ever.
Even though funding is provided to centres throughout the year, the amount a centre can keep is not finalized until after year-end. This creates a lot of stress, confusion, and anxiety when an unexpected recoveries occur.
With regular financial reporting and forecasting, you can identify a potential recovery early, estimate its size and make informed spending decisions before year-end.
In this post, we'll review:
How CWELCC recoveries are calculated
How to estimate your recovery before year-end
How to reduce your childcare centre's projected CWELCC Recovery
How are CWELCC recoveries calculated?
Each centre receives a Program Cost Allocation based on factors such as its licensed and operating capacities, service days and location. The Program Cost Allocation is intended to support the centre's eligible operating costs for the year.
Centres also receive an Allocation in Lieu of Profit/Surplus, which is approximately 8% of the Program Cost Allocation.
[You can find more detail about the cost-based funding and its components here]
Program Cost Recoveries
After year-end, the region compares the centre’s actual eligible costs with its Program Cost Allocation. If eligible costs are less than the program cost allocation, the unused amount would result in a recovery.
For example, assume a centre has a $1 million program cost allocation, but it's total eligible expenses are $900,000. The $100,000 difference is underspending and would result in a recovery.
When there is a cost recovery, there is also an associated reduction/recovery in the Allocation in Lieu of Profit/Surplus . The Allocation in Lieu of Profit/Surplus is based on actual funding the centre is entitled to retain, and will be recalculated based on the total eligible expenses if they are less than the Program Cost Allocation. If we use 8% as an estimate, the $100,000 reduction in cost-based funding, would also decrease the Allocation in Lieu of Profit/Surplus by $8,000 (8% of the $100,000 recovery). The total recovery would be approximately $108,000.
Base Fee Revenue Recoveries
As part of the Cost-Based Funding Allocation, the region will deduct a Base Fee Revenue Offset. This represents the estimated parent fees and fee subsidy revenue the centre is expected to collect, assuming 95% enrollment.
If the centre's actual base-fee revenue from parents (including fee subsidy) exceeds the estimated Base Fee Revenue Offset, the excess amount will be a recovery. This would happen if your enrollment is above 95%. Unfortunately, we cannot do anything about this type of recovery. It is not caused by underspending, it is a sign your enrollment is exceptional.
Recoveries can also arise from operational changes, expenses that are allocated to other programs or costs that are later determined to be ineligible.
Not every recovery can be avoided. However, a large recovery should not come as a complete surprise if the centre’s financial results are being monitored throughout the year.
Estimate Your Recovery Before Year-End
Year-to-date financial statements only show what has already happened. To estimate a potential recovery, the centre must also forecast its eligible costs for the remainder of the calendar year.
The process should include four steps.
1. Start with current financial results
Determine how much the centre has spent to date on eligible expenses.
This requires up-to-date bookkeeping and financial statements that properly separate eligible CWELCC expenses from ineligible expenses and other programs (school age) if applicable. If the accounting is several months behind, the centre will not have a reliable starting point for its recovery estimate.
2. Forecast costs through December
Estimate what the centre expects to spend during the rest of the year.
The forecast should include expected:
Wages, benefits and payroll costs
Supply staffing and overtime
Food and program supplies
Rent and occupancy costs
Repairs and maintenance
Insurance, technology and professional fees
Office supplies
Other expected program investments
Consider staff vacancies, wage increases, seasonal costs, planned repairs/maintenance, purchases, and other one-time expenses should all be considered.
3. Compare projected costs with the allocation
Add the centre’s actual eligible expenses to date to the eligible costs forecast for the remainder of the year.
Then compare the total eligible cost estimate with the Program Cost Allocation. If projected eligible costs are below the Program Cost Allocation, the difference represents potential underspending and provides an estimate of the Program Cost Allocation recovery.
4. Update the estimate regularly
The recovery estimate should be updated as actual results become available and the centre’s plans develop.
Quarterly forecasting may be sufficient earlier in the year. More frequent updates may be appropriate as year-end approaches, particularly when a significant recovery is expected.
Develop a Responsible Spending Plan
Once a potential recovery has been identified, the centre can review its operational needs and determine whether there are eligible expenses that should be incurred before year-end.
Depending on the centre’s circumstances, these might include:
Increasing staffing levels or staff hours
Improving employee wages or benefits
Providing staff with merit-based performance bonuses
Investing in professional development
Purchasing classroom materials or equipment
Replacing small worn furniture
Completing minor repairs
Improving technology or administrative systems
Hiring a better accounting team! Get in Touch
Each expenditure should address a genuine need, benefit the centre and qualify as an eligible CWELCC cost.
You should also consider whether the expense creates an ongoing commitment.
For example, a permanent wage increase may be appropriate, but it will affect costs in future years. A centre should consider whether it can support the increase on an ongoing basis rather than relying on unused funding from a single year.
For unusual or significant expenses, confirm eligibility with your region before committing to the cost.
Do Not Wait Until December
Identifying a potential recovery early gives the centre time to:
Assess its operational priorities
Consult with its Board or Owners
Confirm whether proposed expenses are eligible
Obtain quotes and approvals
Hire additional staff
Complete planned spending initiatives
If a recovery is not identified until December, it may be too late to make thoughtful spending decisions or complete planned purchases before year-end.
Early forecasting helps the centre make deliberate decisions instead of rushing to spend money.
Ask Your Accounting Team for Regular Recovery Estimates
Your bookkeeper or accounting team should be able to explain:
How much the centre has spent to date
What costs are forecast for the remainder of the year
Whether a recovery is projected
The estimated size of the recovery
How much room remains for additional eligible spending
Which assumptions could materially change the estimate
This information gives the operator and Board a clear basis for deciding what action, if any, should be taken.
The Bottom Line - How to Reduce Your Centre's CWELCC Recovery
A potential CWELCC recovery should be identified early and managed throughout the year—not discovered when the annual reconciliation is prepared.
Keep your bookkeeping current, forecast eligible costs through December and compare the projected results with your Program Cost Allocation.
If the forecast identifies potential underspending, estimate the likely recovery and determine whether there are eligible expenses your centre can responsibly make before year-end. The earlier you identify the recovery, the more opportunity you have to use the funding effectively while avoiding an unnecessary and costly repayment.
If you need additional bookkeeping or accounting support, please reach out! You can also email us at hello@childcarecpa.ca.
