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Q: How do you decide how you want to spread incoming costs?
The best question to ask is: does the cost coming in follow the staff in the department?
In most cases, this cost coming in from the other department is considered a general agency-wide overhead. This cost will come into the department and follow how the staff spends their time. You would use the expenditure spread if the overhead cost is better represented following the overall expenditures of the department. This is the case if you have functions that have a disproportionate cost of salaries and services and supply cost. Then you would want to use the expenditure spread.
For example, imagine that you have a function that your staff and a large contract service are working on, and the large contract service is the major cost of the function. Then, if you followed the salaries, no overhead cost would be picked up, and that would not be representative of the service received.
Lastly, you would use the proportion spread when you were trying to indicate a specific function spread of the incoming cost. This is used in the special function cost or you are told something by the agency that would indicate a different spread from the salaries.
Q: Does the double step-down methodology/cross-allocation help organizations achieve a higher reimbursement or simply a higher level of accuracy in their spread? Or both?
The double step down methodology has the potential to help organizations achieve a higher reimbursement. That is all dependent on whether or not a specific allocation to a central support department will lead to a higher allocation out to another receiving department.
For example, let’s say that a county counsel allocates $100,000 to Facilities Management. In a second allocation, Facilities Management ends up allocating $75,000 (of that original $100,000) to outside funds that the general fund gets collected from. But, if they did not spread that to Facilities Management and just allocated the whole $100,000 to the remaining NON-CENTRAL service departments in county counsel, it might have led to only $50,000 of that original $100,000 going to the non-general fund departments, and then the double step down would have been successful in increasing a higher reimbursement.
But the real reason for the double step down is the higher level of accuracy. The idea is that the cost should go to where the costs were received. If you exclude the allocation to the other central service departments then you have overstated the cost to the remaining receiving departments, and it is not an accurate reflection of your costs.
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2016 Q3 ISSUE COSTTREE CAPTURE. 35
Thank you to everyone who submitted a question to CAPTURE by CostTree. All questions submitted and not shown below will be answered via email.
Enterprise Fund: used to report any activity for which a fee is charged to external users for goods or services.
Intangible Costs: consist of the amortization of hard to value items that are not tangible by nature, meaning they cannot be seen or touched.