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Cost Allocation and IT

Cost Allocation and IT. Office of the State Comptroller June 1, 2009. Basics: Fringe and Payroll Taxes. Fringe Benefit Costs

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Cost Allocation and IT

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  1. Cost Allocation and IT Office of the State Comptroller June 1, 2009

  2. Basics: Fringe and Payroll Taxes • Fringe Benefit Costs • Expenditures incurred by the State for the benefit of its employees and includes the costs to the State, as an employer, for pension, health insurance and terminal leave costs. • Worker's compensation and extended leave are directly charged to departments. • Payroll Taxes • Unemployment, universal health and the employer’s share of Medicare insurance • Assessed in the same manner as fringe benefit costs, as a percent of salaries.

  3. Calculation of Fringe Benefit Rates • M.G.L. Chapter 29, Sections 6B, 5D • Assessed Costs • Group Insurance • Retirement • Terminal Leave • A12, A13, A21 • Regular employees in non-budgetary accounts • A01, A07, A09

  4. Roll Forward Adjustment • As each new rate is prepared rates for closed fiscal years are recalculated based on actual information. • Any under of over recovery is added to the new rate Fringe: Retirement + Health Insurance + Terminal leave +(-) Roll ForwardSalaries =Rate

  5. Indirect Costs • Indirect costs • Department costs that cannot be directly associated with the administration of a particular program and therefore cannot be charged as a direct program expense. • Include, but are not limited to: • Administrative and support costs • Training • Information technology • Space occupancy • Utilities • Executive office • Central service agencies (e.g. TRE, HRD, OSC, OSD, etc.) • Mainly object codes AA, CC, HH, JJ, UU sometimes LL,TT

  6. Calculation of Indirect Cost Rates • M.G.L. Chapter 29, Section 6B • Development of Rates • Assessable Funds/Expenditures • Federal Grants • Special Revenue Trusts • Object Codes • Factors Affecting Rates • Department Review • Cognizant Agency Review • Negotiation of Agreement

  7. MMARS Chargeback Program • Processing of CA Transactions • 1st Saturday following 1st Wednesday of month • Creates Calculation • Eligible Funds • Eligible Object Codes (OBJRT) • Creates CA • Posts to Object Codes • D09 • E16

  8. Cost Allocation process • Allocate Central Service Costs to all Depts. receiving Services • 14 agencies - for example ANF and OSC • Organize cost by program • Allocate relevant programs • Allocate Secretariat Cost to depts. • Organize costs by program • Allocate relevant programs to dept within Secretariat • Allocate dept overhead by program • Organize costs by program (one program being general admin) • Allocate general admin to programs within dept.

  9. Central Overhead ANF,OSC,TRE,BSB,OSD,SAO Secretariat 1 Secretariat 2 Dept 3 Secretariat 6 Dept 152 Secretariat 1 Dept 1 Secretariat 1 Dept 2

  10. ANF+ Fringe Benefits+ Other Central service allocations ANF dept oversight, media relations, etc Statewide activities, Budget Capital(% of total budget) Secretariat 1 Secretariat 2 Dept 3 Secretariat 6 Dept 152 Secretariat 1 Dept 1 Secretariat 1 Dept 2

  11. OSC Direct Chargeback's Payroll(dept employees as a % of total) All other(dept transactions as a % of total) Secretariat 1 Secretariat 2 Dept 3 Secretariat 6 Dept 152 Secretariat 1 Dept 1 Secretariat 1 Dept 2

  12. How are Costs Allocated in the SWCAP?

  13. How are Costs Allocated in the SWCAP?

  14. How are Costs Allocated in the SWCAP?

  15. Cost Allocation process • Allocate Central Service Costs to all Depts. receiving Services • 14 agencies _for example ANF and OSC • Organize cost by program • Allocate relevant programs • Allocate Secretariat Cost to depts. • Organize costs by program • Allocate relevant programs to dept within Secretariat • Allocate dept overhead by program • Organize costs by program (one program being general admin) • Allocate general admin to programs within dept.

  16. Programs General Admin Secretariat 2 Dept 3 Secretariat 6 Dept 152 Central Overhead ANF,OSC,TRE,BSB,OSD,SAO Secretariat 1+Fringe Benefits+ Central Service Allocations Secretariat 1 Secretariat 1 Dept 1 Secretariat 1 Dept 2

  17. Cost Allocation process • Allocate Central Service Costs to all Depts. receiving Services • 14 agencies _for example ANF and OSC • Organize cost by program • Allocate relevant programs • Allocate Secretariat Cost to depts. • Organize costs by program • Allocate relevant programs to dept within Secretariat • Allocate dept overhead by program • Organize costs by program (one program being general admin) • Allocate general admin to programs within dept.

  18. Program 2 Program 3 Program 1 Administration Secretariat 1+Fringe Benefits+ Central Service allocations Programs General Admin Secretariat 1 Dept 2 Dept 1 + Fringe Benefits + Central Overhead + Secretary Overhead Secretariat 1 Dept 1

  19. Secretariat A $5 million budget All departments under the Secretariat have a total budget of $400MM All departments have an average of 3% for UU and AA related charges Department A $12 million budget $2 million is for indirect charges (overhead) including secretariat allocation of $150K Remaining $10 million is for programs of the department 20% indirect rate ($2MM / $10MM) How it will be done – SIMPLE EXAMPLE

  20. How it will be done – SIMPLE EXAMPLE • IT of $12MM moves from all departments to Secretariat A ($400MM x 3%) • Total Secretariat budget now at $17MM • All department budgets now at $388MM ($400MM - $12MM)

  21. Secretariat A Cost allocation now as follows: Adjusted Budget $17MM Department total budgets $388MM $17 / $388 = 4.38144% Allocation to Department A Budget $11.64MM Adjusted allocation $510K LESS $150K already in admin Change is $360K Department A Non-IT Budget now $11.64MM ($12MM - $360k) However, cost allocation of secretariat costs should revert approximately $360K to department Revised budget with allocated secretariat costs $12MM $10MM for programs unchanged How it will be done – SIMPLE EXAMPLE - RESULTS

  22. Movement of IT to Secretariats • Issues • Will require redo of departmental indirect rates and Secretariat allocation to departments during FY10 for FY11 • Significant variances my need to be addressed during FY10 • Will need to identify positions that are moving • Seniority tracking will serve dual purpose

  23. Actions • Secretariats Charge back methodologies determined • Direct charge vs. rate • Need to work with OSC on rate methodologies • Insure costs not already allocated through Indirect • (how were they charged last year) • Departmental cost allocation plans (DCAPs) will need to be revised especially at the secretariat level • OSC’s role • Review with HHS DCA • Make Vendors available for DCAP and Rate Methodologies • Assist in review of chargeback methodologies

  24. Secretariat IT allocated to Departments • Total Secretariat IT • Less: • IT ISA’d back to departments AA and UU • IT charged back through the chargeback • Internal to the Secretariat • Equals IT Allocated

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