Incident response cost recovery:
How to get started, Part 1

Cost recovery is a hot new trend in the fire industry. Because of all the buzz, there are a number of businesses looking for ways to add this service to their existing product base. Your department may be interested in benefiting from this additional revenue stream, but maybe you’re not exactly sure how to wade through the maze of information or how to locate a reliable service provider.

Following are questions and answers that should help you to navigate the waters with confidence.

Is cost recovery legal?

Fire service incident response cost recovery is legal in every state in some form. There are variations and limits that can come into play, based on federal, state and local laws and insurance provision coverage. In most states there are no specific laws in place to address cost recovery, however, before you proceed you will want to become aware of any state guidelines that may exist and how they address the cost recovery issue. Most competent cost recovery services should be able to guide you in the right direction or provide the information to you themselves.

Does being a nonprofit organization mean that you can’t charge fees?

No. Typically, nonprofit entities like fire departments and municipal pools do charge some type of fee for services due to the necessity of covering ever-rising operational costs. A nonprofit means that any revenues are used to provide greater services and are not distributed to the employees or directors for personal gain or use. A nonprofit will typically have an assigned treasurer or officer to keep records of all revenue, and funding in general and the distribution of such. The nonprofit will need to file for tax-exempt status with the IRS, and a federal emergency identification number is assigned, so they can be held accountable for any funds collected from fees. A tax-exempt entity will typically file an IRS Form 990 annually for receipts, confirmations and accountability.

How can we implement a cost recovery program?

When there isn’t a federal or state law addressing an issue, local communities and municipalities may pass local laws that do. Cost recovery is commonly addressed as such. Because state and federal laws can be subject to change, your cost recovery service can help you stay current with relevant legislation.

In Part 1 of this How to get started guide I’ve explained what exactly cost recovery is and how it can benefit your organization. In Incident response cost recovery : How to get started, Part 2 I provide a step-by-step plan, detailing how your department can begin recovering its expenses related to incident responses.