Department of Finance Fiscal Systems and Consulting Unit

1. Department of FinanceFiscal Systems and Consulting Unit Pro Rata/Statewide Cost Allocation Plan Overview 2012

2. Agenda • Introduction/Overview • What is Pro Rata and SWCAP • State’s Full Cost Recovery Policy • Define Central Service Agency Cost • Central Service Cost Allocation • Reports • Budgeting for Pro Rata/SWCAP • Recoveries

3. Full Cost Recovery Policy

4. The state policy is for departments to recover full costs whenever goods or services are provided for others. The full cost includes all cost attributable directly to the activity plus a fair share of indirect costs. Full Cost Recovery Policy

5. Full Cost Recovery Policy GC 11010 ~ When billing other entities, state agencies supported by the General Fund are required to include an administrative cost factor. SAM 8752 ~ Departments providing goods or services to others will recover full costs. This applies to all departments regardless of funding sources and in all cases unless a department is specifically exempted by law.

6. Elements of Full Cost • Direct Costs - directly assignable to a program: • Salaries and wages • Equipment • Operating expenses (not included in use allowance calculations) • Travel expenses incurred to carry out the federal award

7. Elements of Full Cost • Indirect Costs - not directly assignable to a program: • Departmental (overhead) costs assigned to many programs: • Executive staff • Information technology • Accounting staff • Budget staff • Other

8. Elements of Full Cost • Statewide indirect costs: Fair share of costs incurred by central administrative service agencies. • Pro Rata (special funds) • SWCAP (federal funds)

9. Elements of Full Cost

10. Elements of Full Cost Direct Costs (DC) $ XXXX Indirect Costs (IC) a) Departmental $ XX b) Statewide: Pro Rata XX or SWCAP XX XXXX Total Costs (TC) $XXXXX DC + IC = TC (full cost)

11. What is a Central Service Agency (CSA) Cost?

12. Central Service Agency Costs State Administrative Manual Section 8753 Central service costs are those amounts expended by central service departments and the Legislature foroverall administration of state government and for providing centralized services to state departments..These functions are necessary for state operations and are centralized to provide efficient and consistent statewide policy and services.

13. Central Services

14. Central Services

15. Central Services

16. Central Services

17. Central Service Cost Allocation

18. The Plans • Central service costs are allocated through Pro Rata for special funds and through SWCAP for federal funds. • We refer to this allocation process as the Pro Rata Plan and the SWCAP Plan. • Plans are created two years before they actually take effect. For the 2013-14 year Plan, we begin in January of 2011 and the Plan is completed in September of 2012.

19. Information Needed to Allocate Central Service Costs Budget data Workload data CSA expenditures data

20. Budget Data Source The January 10 Governor’s Budget Mid-year column. When developing the 2013-14 year plan we use the 2012-13 Governor’s Budget that is released January 10 of 2012. We get this data electronically and we refer to it as the Schedule 10 download.

22. Workload CSA provides workload data for each function. We receive this data in July and it is based on actual workload for the fiscal year just ended. For the 2013-14 year plan, we will use the actual workload from 2011-12.

23. Central Service Expenditure Data • Expenditure data is received from the CSA in August. • We receive actual expenditures and budget year estimated expenditures. • Actual expenditures must agree with the year-end financial statements. • For the 2013-14 plan we would use the actuals from 2011-12.

24. Central Service Expenditure Data - continued • Estimatedexpenditures must agree with the amount shown in the Governor’s Budget for the next fiscal year. (how is this, 13-14 GB data is not available in August of 2012) • For the 2013-14 Plan the budget estimates would be for 2013-14.

25. Central Service Expenditure Data - continued • CSA expenditures are adjusted for: • Reimbursed expenditures • Unallowable CSA expenditures • Non-CSA expenditures

26. Central Service Expenditure Data - continued • Reimbursed CSA expenditures are excluded because they represent services the CSA provided and which they received reimbursement. • Including reimbursed expenditures would be doubling of charges to State departments.

27. Central Service Expenditure Data - continued • Unallowable CSA expenditures are: • Excluded from plan • For SWCAP, identified in federal circular A-87 and ASMB C-10 Some examples: Fines Penalties Lawsuits against the federal government

28. Central Service Expenditure Data - continued • Non-CSA expenditures are: • Unallowable • Excluded from the plans

29. Central Service Expenditure Data- continued

30. Calculations The calculation distributes CSA costs to each state department based on workload. In Pro Rata, a department’s allocation is then further allocated to each fund within the department. In SWCAP, since only the Federal fund is billable, the Federal portion is calculated using the department’s ratio of Federal funding to their total State Operations amount.

31. Pro Rata Fund Allocation Example: • State department XXX, has three funds. State Operations amount for each fund is shown below. Percentage is of each fund to the total fund amount: $ per fund% Fund 1 $ 400 40% Fund 2 300 30% Fund 3 300 30% Total State Ops 1000 100%

32. Pro Rata Fund Allocation - continued Example: • The total allocated to the department is $50,000. Using the percentage for each fund, calculate the amount per fund. Fund 1 $ 400 40% 20,000.00 Fund 2 300 30% 15,000.00 Fund 3 300 30% 15,000.00 Total $1000 100% $50,000.00 Note: 50,000 times 40% equals 20,000.00

33. Pro Rata Fund Allocation - continued Using the previous example: • State department’s funds are distributed between billable and non billable. Fund 1 is billable, funds 2 and 3 are non billable. • Billable: Fund 1 $20,000.00 Total Billable $20,000.00 • Non-Billable: Fund 2 $15,000.00 Fund 3 15,000.00 Total Non-billable $30,000.00 • Total Billable and non-billable $50,000.00

34. SWCAP Allocation - continued Example: • The total allocated to the department is $50,000. • The department’s Federal funding ratio is: $ 559 167,240 = .003342 The SWCAP amount is

37. Pro Rata Transfers In June, Finance certifies to the State Controller’s Office (SCO) the billable funds. Certification informs the SCO to transfer from the appropriation or directly from the fund.

38. Pro Rata Transfers - continued Quarterly, SCO transfers funds from: State department appropriation. Directly from a fund. All transferred funds are deposited in the General Fund.

39. Pro Rata Transfers - continued Transfers are an automatic process. SCO sends each State department a journal entry notifying them of the transfer. Pro Rata analyst receives a copy of the transfer.

40. Pro Rata Transfers - continued Each State department: Records the transfer. Reconciles the transfer with SCO. Notifies SCO of any discrepancies.

41. Calculation - continued • Pro Rata • Determine the total allocated to each fund • Calculate the total allocation using the departmental allocation for each fund (PY and BY) from Step 3 and the BY estimate from two years ago (PY estimate). PY PY Roll - BY Total Actual Estimate Forward Estimate + = – =

42. Central Service Costs Allocation • Classify the allocation from Step 4 as billable or nonbillable funds (Pro Rata only) • Billable funds: • Funded by special revenue sources such as fees, licenses, penalties, assessments, interests, etc. • Nonbillable funds: • General Fund • Federal Funds • Special Deposit Fund (SWCAP only federal fund is billable)

43. CSA Reported Expenditure Data PY Actual and BY Estimate CSA Reported Workload Data PY Actual Miscellaneous Agencies Reported Data Budget Data (Schedule 10 download) Pro Rata/SWCAP Process CSA Cost Allocation Pro Rata Reports SWCAP Reports

44. Reports

45. Central Service Cost Allocation Pro Rata: • Allocate costs to departments by function • Distribute department’s total allocation to each fund based on the fund’s proportion of total funding • Classify each fund’s cost as billable or nonbillable SWCAP: • Allocate costs to departments by function • Distribute department’s total allocation to federal fund based on its proportion of total funding • Federal fund is only billable fund

46. Budgeting for Pro Rata

47. Budgeting for Pro Rata Pro Rata Assessment Sheet (green sheet) • Does not include amounts less than $1,000 or negative amounts. • Finance budget analysts complete the assessment sheets for billable funds only. • Finance budget analysts forwards assessment sheet(s) to the departments for certification.

48. Budgeting for SWCAP(Federal Recoveries)

49. Budgeting for SWCAP All departments receiving federal funds must budget and recover SWCAP. If the federal grant limits administrative costs to a certain percent of the total grant, the amount available for administrative costs must be shared between departmental indirect costs and statewide indirect costs. SWCAP Method A Calculation: Department’s Total SWCAP Allocation Department’s Budgeted SWCAP = Federal Funding State Operations X

50. Budgeting for SWCAP Finance budget analyst receives SWCAP apportionment sheet (pink). • Department budget analyst, in collaboration with Finance budget analyst, determine if the Method A calculation results in an equitable budgeted amount, or if a Method B should be used. • Department certification and Finance approval is required.