Why Cost Planning?

As units of government increase in size and complexity, the necessity for budgeting and accountability become more crucial. A few examples of how a cost allocation plan can be an effect management tool:

GENERAL FUND DIFFICULTIES – Because the majority of the central service departments are in the general fund, the general fund continues to experience an increased burden. These financial burdens have led to caps and cutbacks imposed on the critical departments which serve the entire governmental entity as a whole.

SOLUTION: A cost allocation plan allocates central services costs (Accounting or Personnel) to the user departments (Water, Sewer, Planning and Building). Also, as Water and Sewer departments grow there is usually a need for the additional services from the Accounting or Personnel departments. These additional demands on the Accounting and Personnel departments stem from growth in the governmental entity as a whole. The cost allocation plan will give management the full picture pertaining to the cost of operating departments that serve the public or have requirements under Federal or State mandate.

UNKNOWN FULL COST OF OPERATIONS – Departments (Water, Sewer, Planning, Building, etc.) who serve the public do not know the full cost of operations. These departments use general tax monies to support a department that should be funded by user costs (ie: water bills, sewer bills, building permits, etc.). Because general tax monies are used to fund these “user fee based” departments, there are less monies available to fund other needs or requirements within the governmental entity.

SOLUTION: A cost allocation plan allocates costs to the departments/funds that are user fee based. This allows management to know the full cost of operating the Water department. The Water department will be better equipped to perform the duties of setting rates to properly charge the customers.

GENERAL FUND DIFFICULTIES – Because the majority of the central service departments are in the general fund, the general fund continues to experience an increased burden. These financial burdens have led to caps and cutbacks imposed on the critical departments which serve the entire governmental entity as a whole.

SOLUTION: A cost allocation

UNAVAILABLE FEDERAL COSTS – Governmental entities are unable to receive indirect costs from the Federal Government because they do not have an OMB A-87 indirect cost allocation plan.

SOLUTION: An OMB A-87 Cost Allocation Plan performed in compliance with the Federal regulation allows the governmental entity to recover indirect costs for federally mandated programs. This provides two benefits: The governmental entity receives indirect cost for administering a federally mandated program, and indirect costs are recovered so that the governmental entity can redirect local revenue streams used to support a federal program.