QUARTERLY FINANCIAL REPORT (cont)
SECOND QUARTER, 2019-20
Quarter Ended December 31, 2019
Budget to Actual
Here is presented budget to actual information through the end of the quarter. It includes information for each department, presented in total and further detailed by operations and capital expenditures. The presentation includes budget to actual information for each City fund, including the general fund.
Budget to Actual by Department
For the Period Ended December 31, 2019
(Including indirect costs)
Budget to Actual by Department
Operations (excluding capital and indirect costs)
Notes:
1. Operations is presented discretely from capital to provide a clearer picture of regular departmental activities and their budgetary performance. Capital project budgetary information, and its related expenditures, can distort budgetary department performance.
2. Budgets that exceeded their appropriations resulted primarily from the following:
-Community Services: Increased personnel costs, partially offset by increased revenues for recreation programs.
-City Manager's Office: Worker's Comp expenditures, accounted for in this department, were higher than budgeted estimates.
-Human Resources/Risk Management: Insurance premiums and deductibles were higher than anticipated.
-City Attorney: Legal services in the general fund were higher than anticipated.
-Airport: Aviation fuel expenditures were higher than initially estimated.
Budget to Actual by Department
Capital Only
Budget to Actual by Fund
For the Period Ended December 31, 2019
(Including Indirect Cost)
Click on the chart to expand and view more detail.
Capital Improvement Program Update
Beginning in budget year 2018-19 the City of Ukiah adopted its first formal Five Year Capital Improvement Program. Presented here is a summary of the plan through June 30, 2020. Several projects, which began before formal adoption of the plan also are included in this presentation.
Click on the chart to drill down into further detail.
Notes:
1. A significant portion of infrastructure completed in 2019 was the recycled water project.
CIP Update by Project
(Scroll down within the table to view the complete list)
Special Report: Indirect Cost Allocation Plan
The purpose of the City’s Cost Allocation Plan is to identify the total costs of providing specific City services. Why is a separate cost accounting analysis required to do this? Because in almost all organizations—whether in the private or the public sector—the cost of producing goods or delivering services can be classified into two basic categories: direct and indirect costs.
“Direct costs” by their nature are usually easy to identify and relate to a specific service. However, this is not the case for “indirect costs.” As such, if we want to know the “total cost” of providing a specific service, then we need to develop an approach—a plan—for reasonably allocating indirect costs to direct cost programs.
What Are Direct and Indirect Costs?
Direct costs are those that can be specifically identified with a particular cost objective, such as street maintenance, police protection and water service. Indirect costs are not readily identifiable with a direct operating program, but rather, are incurred for a joint purpose that benefits more than one cost objective.
Common examples of indirect costs include accounting, purchasing, legal services, personnel administration and building maintenance. Although indirect costs are generally not readily identifiable with direct cost programs, their cost should be included if we want to know the total cost of delivering specific services.
Budgeting and Accounting for Indirect Costs.
Theoretically, all indirect costs could be directly charged to specific cost objectives; however, the cost of doing so and the practical difficulties generally preclude such an approach for organizational and accounting reasons. As such, almost all organizations separately budget and account for direct and indirect costs at some level depending on their financial reporting needs and the complexity of their operations.
Distributing Indirect Costs.
In order to determine the total cost of delivering specific services, some methodology for determining and distributing indirect costs must be developed, and that is the purpose of cost allocation plans: to identify indirect costs and to allocate them to benefiting direct cost programs in a logical, consistent and reasonable manner.
Plan Goal: Reasonable Allocation of Costs.
It is important to stress that the goal of the Cost Allocation Plan is a reasonable allocation of indirect costs, not a “perfect” one. By their very nature, indirect costs are difficult to link with direct costs. As such, in developing an allocation approach, it is important to keep this goal in mind as we balance the cost and effort of complicated allocation methods with the likely benefits from the end results.
Basis of Allocation
This method of cost allocation assumes that all indirect costs are incurred proportionately to the direct cost of the program. However, this may not be a reasonable assumption in all cases, as the benefit received from certain types of support service programs may be more closely related to another indicator of activity than cost.
For example, if a program service is primarily delivered through contract and does not have any City staffing directly associated with it, distributing human resources costs to it may result in an inequitable allocation of costs. Because of this, the City’s Cost Allocation Plan establishes separate bases of allocation for each major indirect cost category. With this approach, indirect costs can be allocated to each direct cost program in a fair, convenient, and most importantly, consistent manner. Provided in Schedule A is a synopsis of the primary methods of allocation used in distributing indirect costs to direct cost programs.
Some of these costs lend themselves to an easily justified, rational approach of distribution. For example, human resources costs are related to the number of employees serviced. Other costs may not be as intuitive; however, the allocation bases are consistent with generally accepted accounting principles and recognize the concept that the cost of developing the information necessary to perform the cost allocations should not exceed the benefits likely to be gained.
Where there is not otherwise a clear relationship to another allocation base (like authorized staffing or assigned space), allocating costs based on operating budget is the common industry practice, and as such, this approach is used by the City.
Here we see the basis of indirect cost allocation used for each indirect cost center.
Administrative and Overhead Costs Over Time
Administrative and overhead costs presented here are accounted for in the general fund. The rate of this indirect cost through this period was 6.89%, meaning for every $100 dollars of direct cost incurred in the provision of services an additional $6.89 was incurred in indirect administrative and overhead cost.
Internal Service Funds Over Time
Many cities allocate costs through formal internal service funds for services like printing, information technology, fleet maintenance and insurance. Typically, with this approach, the internal service fund provides services to the organization and charges back for departments based on their actual usage of the service and standard per-unit billing rates, like a private company would (except the goal is to break even rather than earn a profit). In this case, for the operating programs, indirect costs become direct costs, as they would if they contracted out for the service.
While this approach can result in added accounting costs to develop internal billing rates and track actual usage, it has the advantage of encouraging more efficient use of internal services by allocating costs based on actual usage, setting aside funds for long-term capital replacement needs (or in the case of insurance, adequate reserves) and helping measure performance.
As shown in the side bar, the City uses eight internal service funds to allocate organization-wide support costs.
The rate of this indirect cost through this period was 11.12%, meaning for every $100 dollars of direct cost incurred in the provision of services an additional $11.12 was incurred in indirect administrative and overhead cost.
Indirect Cost by Type
Presented here are the allocated costs associated with each type of indirect cost, e.g., administrative, risk management, and IT.
Indirect costs have increased over the last three years primarily due to increased insurance premiums and deductibles, IT capital projects, and deferred maintenance projects in building maintenance.
Indirect Cost by Fund
Presented here is the allocation of indirect costs between the difference fund types, starting with governmental versus business-type. Click the chart for a more detailed presentation by fund.
Indirect Cost by Department
Presented here is the same information as presented by fund but broken down by department.