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

Cost Allocation and IT

Office of the State Comptroller

June 1, 2009

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.

Basics: Fringe and Payroll Taxes

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

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 Forward Salaries

=Rate

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

Indirect Costs

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

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

Cost Allocation process

1. Allocate Central Service Costs to all Depts. receiving Services

14 agencies - for example ANF and OSC Organize cost by program Allocate relevant programs

2. Allocate Secretariat Cost to depts. Organize costs by program Allocate relevant programs to dept within Secretariat

3. Allocate dept overhead by program Organize costs by program (one program being general

admin) Allocate general admin to programs within dept.

Central Overhead

ANF,OSC,TRE,BSB,OSD,SAO

Secretariat 1

Dept 1

Secretariat 1

Dept 2

Secretariat 2

Dept 3

Secretariat 6

Dept 152

Secretariat 1

ANF+ Fringe Benefits+ Other Central service allocations

Secretariat 1

Dept 1

Secretariat 1

Dept 2

Secretariat 2

Dept 3

Secretariat 6

Dept 152

Secretariat 1

ANF dept oversight, media relations, etc

Statewide activities, Budget Capital(% of total budget)

OSC

Secretariat 1

Dept 1

Secretariat 1

Dept 2

Secretariat 2

Dept 3

Secretariat 6

Dept 152

Secretariat 1

Payroll(dept employees as a % of

total)

All other(dept transactions as a

% of total)

Direct Chargeback's

How are Costs Allocated in the SWCAP?

Functions Allocations Base Allocation Description IT allocation Impact?

AGO

Administrative Law Case Count Cases Settled in FY NO

Trial Law Case Count Cases Settled in FY NO

Insurance Fraud Salaries Direct funded salaries NO

ANF

ANF Function ANF Department Salaries Direct Funded Salaries NO

Statewide Function Modified Total Direct Cost

Total Cost by Department NO

DCP

Leasing & Office Planning

Number of leases Leases by department YES

Planning and Design Infrastructure spending Bonds sold for capital projects

YES

How are Costs Allocated in the SWCAP?Functions Allocations Base Allocation Description IT allocation Impact?

HRD

Civil Service FTE Employees by function YES

Non-Civil Service FTE Employees by function YES

Employee Relations FTE Employees by function YES

Diversity & Equal Opportunity

FTE Employees by function YES

Payroll FTE Employees by function YES

LRC

State Services and Operations

Bargaining Unit Employees Union Employees YES

OSC

Financial Modified Total Direct Cost Total cost by Dept. NO

IT Financial Transactions MMARS counts NO

Payroll FTE Employee counts NO

How are Costs Allocated in the SWCAP?Functions Allocations Base Allocation Description IT allocation Impact?

OSD

Procurement of Commodities

Statewide contracts Statewide Contracts YES

Procurement of Services MM and M03 expenditures MM and M03 expenditures YES

TRE

Banking

MMARS Modified Total Direct Cost Total Cost by Dept. NO

Payroll FTE Employees by function NO

Debt Bond Expenditures Bonds sold for cap projects NO

Cost Allocation process

1. Allocate Central Service Costs to all Depts. receiving Services

14 agencies _for example ANF and OSC Organize cost by program Allocate relevant programs

2. Allocate Secretariat Cost to depts. Organize costs by program Allocate relevant programs to dept within Secretariat

3. Allocate dept overhead by program Organize costs by program (one program being general

admin) Allocate general admin to programs within dept.

Central Overhead

ANF,OSC,TRE,BSB,OSD,SAO

Secretariat 1

Dept 1

Secretariat 1

Dept 2

Secretariat 2

Dept 3

Secretariat 6

Dept 152

Secretariat 1

Programs General Admin

Secretariat 1+Fringe Benefits+ Central Service Allocations

Cost Allocation process

1. Allocate Central Service Costs to all Depts. receiving Services

14 agencies _for example ANF and OSC Organize cost by program Allocate relevant programs

2. Allocate Secretariat Cost to depts. Organize costs by program Allocate relevant programs to dept within Secretariat

3. Allocate dept overhead by program Organize costs by program (one program being general

admin) Allocate general admin to programs within dept.

Secretariat 1

Dept 1

Secretariat 1

Dept 2

Programs General Admin

Secretariat 1+Fringe Benefits+ Central Service allocations

Dept 1 + Fringe Benefits +

Central Overhead + Secretary Overhead

Program 3 AdministrationProgram 2Program 1

How it will be done – SIMPLE EXAMPLE 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 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)

How it will be done – SIMPLE EXAMPLE - RESULTS 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

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

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

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