1 Department of Finance Fiscal 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 GC ~ 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: a)Departmental (overhead) costs assigned to many programs: Executive staff Information technology Accounting staff Budget staff Other

8 Elements of Full Cost b) 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 Indirect Costs Department’s Indirect Costs (Budgets, IT, Acctg, etc.) Pro Rata Costs (CSA cost allocation to special funds) SWCAP Costs (CSA cost allocation to federal funds) Only 60 departments have SWCAP

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 for overall 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 Function Code Central ServiceWorkload UnitSource Finance (DOF) 004 AuditsAudit HoursDOF/OSAE 005 BudgetsBudget HoursDOF/Admin 010 CALSTARSState Ops $DOF/Sch. 10 California Technology Agency 105 CA Technology AgencyState Ops $DOF/Sch. 10 Financial Information Systems for California 110 Financial Information System for California (SWCAP only) State Ops $DOF/Sch. 10 State Controller’s Office (SCO) 201 AccountingTransactionsSCO 202 Claim AuditsWarrantsSCO 203 PayrollWarrantsSCO 204 General DisbursementsWarrantsSCO

14 Central Services Function Code Central ServiceWorkload UnitSource State Controller’s Office (SCO) 205 Field AuditsAudit HoursSCO 211 Personnel/Payroll Services Division PositionsSCO State Treasurer’s Office (STO) 301 Investment (Pro Rata Only)Interest EarnedSCO 302 Item ProcessingWarrantsSCO 303 Cash Mgmt/Public FinanceState Ops $DOF/Sch State Personnel Board (SPB)PositionsSCO 410 California Human Resources (CalHR) Positions SCO 510 Office of Admin Law (OAL)Review HoursOAL 520 CA State Library (CSL)State Ops $DOF/Sch.10

15 Central Services Function Code Central ServiceWorkload UnitSource 600 Health Benefits (HB) for Annuitants (Retired) HB Costs for Active Employees SCO/PERS/DPA 601 Dental Benefits (DB) for Annuitants' (Retired) DB Costs for Active Employees SCO/PERS/DPA Department of Justice (DOJ) 605 Legal (SWCAP Only)Attorney HoursDOJ 607 Tort Liability (SWCAP Only)Attorney HoursDOJ Agency Secretaries 700 & 705 Wtd Avg. of State Ops. for the Depts. they overseeState Ops/Sch Bureau of State Audits (BSA) Audit Hours DOF/FSCU

16 Central Services Function Code Central ServiceWorkload UnitSource 800 Legislature (Pro Rata Only)Sum of Past ActualDOF/FSCU 805 Legislative Counsel Bureau (Pro Rata Only) Sum of Past ActualDOF/FSCU 810 Governor’s Office (Pro Rata Only)Sum of Past ActualDOF/FSCU 815 Office of Planning & Research (Pro Rata Only) Sum of Past ActualDOF/FSCU

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 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 year plan we use the Governor’s Budget that is released January 10 of We get this data electronically and we refer to it as the Schedule 10 download.

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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 year plan, we will use the actual workload from

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 plan we would use the actuals from

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

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 –Excluded from plan –For SWCAP, identified in federal circular A-87 and ASMB C-10 Some examples: Fines Penalties Lawsuits against the federal government Unallowable CSA expenditures are:

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

29 Central Service Expenditure Data - continued Total CSA expenditures $ XXXX Less: Reimbursements (XXX) Non-central service (XX) Unallowable (X) Allowable non-reimbursed expenditures $ XXX Expenditures distributed in the plan

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 January 22, 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 $ % Fund % Fund % Total State Ops %

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 $ % 20, Fund % 15, Fund % 15, Total $ %$50, 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, Total Billable $20, Non-Billable: Fund 2 $15, Fund 3 15, Total Non-billable $30, 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: The SWCAP amount is $ ,240 =

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37 July 30, 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 July 30, 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 July 30, 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 July 30, Pro Rata Transfers - continued Each State department: Records the transfer. Reconciles the transfer with SCO. Notifies SCO of any discrepancies.

41 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). Calculation - continued PY PY Roll - BY Total Actual Estimate Forward Estimate – = + =

42 Central Service Costs Allocation 5)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 Pro Rata/SWCAP Process CSA Reported Workload Data PY Actual Pro Rata Reports CSA Cost Allocation CSA Reported Expenditure Data PY Actual and BY Estimate Budget Data (Schedule 10 download) Miscellaneous Agencies Reported Data 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: Federal Funding State Operations Department’s Total SWCAP Allocation X = Department’s Budgeted SWCAP

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.

51 Pro Rata and SWCAP Departments and Finance budget analyst must verify that correct budgeted Pro Rata and SWCAP amounts are reflected on the Supplementary Schedule of Operating Expenses and Equipment (DF-300). Pro Rata object code SWCAP object code

52 Recoveries

53 Pro Rata Recoveries Pro Rata Certification In June Finance certifies Pro Rata billable assessments to the SCO. SCO notifies state entities of their Pro Rata assessments. SCO will set-up the transfers to occur automatically on a quarterly basis.

54 SWCAP Recoveries SWCAP Plan submitted/approved to the federal government. Methods of SWCAP Cost Recovery: ICRP’s (Indirect Cost Rate Proposal) CAP (Cost Allocation Plan) PACAP (Public Assistance Cost Allocation Plan) Direct billing

55 SWCAP Recoveries As a general rule ICRP’s, CAP’s, and PACAP’s are to be filed with the department’s cognizant federal agency at least six months prior to the fiscal year that applies. ICRP’s, CAP’s, and PACAP’s must be submitted to the Department of Finance for approval before filing with the cognizant federal agency.

56 SWCAP Recoveries State departments must bill the federal government for direct and indirect costs. Departments are responsible for complying with federal and state requirements to ensure that SWCAP costs can be recovered from the federal government. Each federally funded state department must initiate the transfer process via a Transaction Request, TR form CA 504. Transfers are not done automatically. SAM section explains transfers of SWCAP recoveries to the General Fund.

57 Departments submit TR form CA 504, to SCO with a copy to FSCU and a copy to the department’s Finance Budget analyst. SWCAP transfer(s) are due within 30 days after the end of a quarter where a recovery occurs. SWCAP recoveries are tracked, reviewed, and reported by FSCU. State departments will be contacted for discrepancies. SWCAP Recoveries

58 SWCAP Recoveries If a department has not transferred federal funds to the General Fund on a timely basis, Finance has the authority to enforce recovery by instructing the SCO to transfer the amount that should have been transferred pursuant to GC Section Beginning with the Budget Act, Control Section 8.54 was added, which provides Finance authority to reduce a department’s support appropriation when required transfers are past due or not sufficient.

59 SWCAP Recovery Process Bill Federal Fund for Direct Plus Indirect Costs Receipt in Federal Fund Transfer SWCAP to General Fund

60 References Pro Rata/SWCAP: – Variety of information: Federal information: – Federal Circular A-87: – Cost Principles and Procedures (ASMB C-10):

61 Contacts Phone: (916) Pro Rata Analyst – Andrew Erias (ext 2138) SWCAP Analyst – Natalie Villanueva (ext 2139) DOF Website:

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