1650 S. Amphlett Blvd., Suite 213 • San Mateo, CA 94402 • 650.858.0507 SF Bay Area (Headquarters), Boston, Charlotte, Dallas, Irvine, Portland, St. Louis 1650 South Amphlett Blvd., Ste, 213 San Mateo, CA 94402 650.858.0507 October 7, 2022 SUBJECT: EXPLANATION OF FULL COST AND OMB COMPLIANT COST ALLOCATION PLAN RESULTS The City of San Bernardino (City) contracted with the Matrix Consulting Group to prepare a Full Cost Allocation Plan (CAP) that documents current indirect costs associated with citywide services and ensures that fund transfers into the general fund, which are meant to account for administrative indirect costs, are fair and accurate. In addition to the Full Cost Plan, the City also contracted to develop an Office of Management and Budget (OMB) 2 CFR Part 200 Compliant Cost Allocation Plan for purposes of reimbursement for grants and federally funded projects. The City has not conducted a Full Cost Allocation Plan in almost 10 years. The City has never conducted an OMB Compliant Cost Plan. The following subsections are meant to provide a summary overview of the Full Cost and OMB Plans developed for the City. 1 Purpose and Benefits of a Cost Allocation Plan The primary purpose of a CAP is to provide a fair and defensible document, which clearly outlines the support provided to general fund and non-general fund sources from central service departments. The results of a CAP are typically considered a more transparent and justifiable methodology for establishing transfers from non-general fund sources, as well as outline indirect costs for inclusion in cost-of-service (user fee and development impact fee) studies. A CAP analyzes the annual support provided by central service departments. The utilization of department and city specific metrics are then used to validate the support from central service departments to all sources. The methodology used to develop a CAP follows guidelines set by the Office of Management and Budget (OMB), as well as Generally Accepted Accounting Principles (GAAP). A more detailed explanation of the methodology used to develop the CAP can be found on pages 1 – 3 of the full report.
Explanation of Full Cost and OMB Compliant Cost Plan Results City of San Bernardino, CA
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2 Overview of Central Services The Matrix Consulting Group worked with the City’s staff to identify key central services for the City, which were as follows: • City Clerk Administration– this represents the support provided by the City Clerk’s office to City Council, City Commissions and City Committees and was allocated based upon number of agenda items by department. • City Clerk Records Management– this represents the support provided by the City Clerk’s Records Management to maintain City records, oversee the execution of City contracts, and route subpoena requests to departments. These support services were respectively allocated based on a two year average number of records requests by department, a two year average number of contracts by department, and a two year average number of subpoenas by department. • City Manager Administration – this represents the support provided to City departments as a whole and was allocated based upon budgeted expenditures in the CAP and actual expenditures in the OMB. The office also provides internal and communications, which was allocated based upon number of newsletters by program. • City Attorney – this represents the costs associated with providing municipal legal support to all city departments. These costs were allocated based upon a two year average of agenda items. • Customer and Neighborhood Services – this represents the costs associated with providing customer service support to city departments and are allocated based on the number of customer relationship management (CRM) requests by department. • Human Resources – this represents the costs associated with providing general employee relations and support and are allocated based on full and part time employees by department. • Finance Administration – this represents the costs associated with providing internal finance support and are allocated equally to all finance programs.
Explanation of Full Cost and OMB Compliant Cost Plan Results City of San Bernardino, CA
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• Treasurer – this represents the costs associated with providing oversight and reconciliation of the City’s investment portfolio and are allocated based on cash balance by fund and department. • Accounting – this represents the costs associated with performing all accounting and transactional functions including accounts payable (AP) and accounts receivable (AR) transactions and are allocated based on AP transactions by department and AR transactions by department. • Payroll & Benefits– this represents the costs associated with processing payroll and benefits on behalf of all City Departments and are allocated based on number of full-time employees by department. • Purchasing – this represents the costs associated with managing the City’s procurement process including requests for proposals (RFP) support and purchase order (PO) support. These costs are respectively allocated based on the number of bids and RFPs by department and 50% number of POs and 50% value of POs by department. • Budget– this represents the costs associated with developing the operating budget in consultation with City departments and are allocated based on budgeted expenditures. This division also represents the costs associated with developing the capital budget and are allocated based on the five-year average of capital budgeted expenditures. • Grants– this represents the costs associated with managing the financial reporting related to grants and are allocated based on budgeted expenditures per grant per fund. • Custodial Maintenance– this represents the costs associated with providing routine janitorial services to City owned and occupied buildings and are allocated based on hours of custodial services per building maintained. • Building Maintenance– this represents the costs associated with the daily upkeep and repair of City-owned and occupied facilities and are allocated based on a two-year average of the number of work orders by location. As illustrated by the points, the project team worked with City staff to take a comprehensive approach to identify general service areas and unique metrics. The goal of any CAP is to allocate costs fairly and equitably. In order for an allocation metric to be
Explanation of Full Cost and OMB Compliant Cost Plan Results City of San Bernardino, CA
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fair, it must be the same metric used for all funds, and it must be allocated to all funds, even if a certain fund or program is unable to afford or bear the cost associated with that metric. The Cost Plans developed for the City utilized twenty (20) different metrics to allocate support costs to the different departments and funds. A summary of the functional areas developed for each central service, the allocation basis, and source of metrics can be found on page 35 of the Full Cost Plan Report and page 38 of the OMB Compliant Cost Plan report. 3 Cost Allocated Through the Plan The following subsections discuss the costs allocated through the two different cost plans developed for the City of San Bernardino. 3.1 Full Cost Plan Costs The Full Cost Plan developed for the City included $18,671,353 of costs for allocation. These costs were based on FY23 budgeted expenditures, as well as a cost adjustment for other operating expense PRA software and other professional & contractual services. The following table identifies the budgeted expenditures and cost adjustments associated with each central service included in the CAP. Table 1: Costs Allocated Through FY23 Full Cost Plan Department FY23 Budgeted Expenditures Cost Adjustments Total Allocated Costs City Clerk Administration $816,637 ($50,000) $766,637 Records Management $255,767 $50,000 $305,767 City Attorney $3,176,084 $0 $3,176,084 Customer & Neighborhood Svcs. $720,815 $0 $720,815 City Manager Admin. $2,265,100 $0 $2,265,100 Human Resources Admin. $2,508,177 $0 $2,508,177 Finance Admin. $774,669 ($75,000) $699,669 Treasurer $284,487 $0 $284,487 Accounting $1,110,542 $0 $1,110,542 Payroll & Benefits $354,141 $0 $354,141 Purchasing $666,006 $0 $666,006 Budget $853,898 $0 $853,898 Grants $664,287 $0 $664,287 Custodial Maintenance $1,563,690 $0 $1,563,690 Building Maintenance $2,772,054 ($40,000) $2,732,054 TOTAL $18,786,353 $115,000 $18,671,353 Budgeted expenditures for City departments for FY23 totaled approximately $18.8 million. There were three cost adjustments that were made to these expenses:
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1. $50,000 transfer from City Clerk Administration accounts for PRA software, to Records Management, as the Records Management central service deals with the public records requests. 2. $75,000 was deducted from administration other professional and contractual services associated with special district financing components. 3. $40,000 of capital outlay costs associated with Building Maintenance was adjusted as these costs are not part of the annual operating expenses. The Full Cost Plan developed for the City started with nearly $18.7 million to be allocated to departments and funds. However, not all services provided by the identified central services relate to other City departments and funds. Therefore, some costs were not allocated out, or were “unallocated,” in order to ensure departments were not unfairly burdened with costs for services not received. The following table outlines the allocated and unallocated costs associated with each central service. Table 2: Breakdown of Costs Allocated Through the FY23 Full Cost Plan Department Allocated Costs Unallocated Cost Total Costs City Clerk Administration $525,625 $182,253 $707,878 Records Management $255,767 $ 0 $255,767 City Attorney $780,611 $2,079,280 $2,859,891 Customer & Neighborhood Svcs. $531,402 $218,290 $749,692 City Manager Admin. $1,614,328 $1,012,067 $2,626,396 Human Resources Admin. $2,681,418 $0 $2,681,418 Finance Admin. $1,002,983 $0 $1,002,983 Treasurer $291,179 $0 $291,179 Accounting $1,028,440 $0 $1,028,440 Payroll & Benefits $370,050 $0 $370,050 Purchasing $6581,491 $0 $6581,491 Budget $854,336 $0 $854,336 Grants $745,465 $0 $745,465 Custodial Maintenance 1,660,007 $0 1,660,007 Building Maintenance $2,217,994 $0 $2,217,994 TOTAL $15,179,462 $3,491,891 $18,671,353 Of the nearly $18.7 million in costs allocated through the plan, approximately $15.2 million was allocated to receiving departments and funds, while about $3.5 millions was unallocated. Services that were not allocated out to departments and funds included: • City Clerk Administration – services and costs associated with fees. • City Attorney– costs associated with outside legal services. • Customer & Neighborhood Services – services and costs associated with neighborhood services.
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• City Manager – services and costs associated with external communications support and intergovernmental affairs. The identified services were not performed to support other departments and funds; thus, they should not be allocated. Therefore, in order to accurately reflect the true indirect costs associated with departments and funds, these service costs were not allocated out. The expenditures associated with each central service department outlined in Table 1 will directly tie to the City’s adopted budget. The total costs identified in Table 2, however, will differ from the budgeted expenditures, as this amount accounts for both budgeted expenditures, as well as indirect costs allocated to Receiving departments only. However, the total for both tables is the same ($18,671,353), to demonstrate that the costs allocated through the plan do not exceed the starting costs for the City and there is no double counting. As an example, City Clerk Administration allocates a total of $766,637 to all funds and departments, both Central Service and Receiving. Of that amount, $241,012 was allocated to other Central Service departments, which then allocate those costs out to Receiving departments. The remaining $525,625 (shown in Table 2) was allocated directly to Receiving departments. 3.2 OMB Compliant Cost Plan Costs The OMB Compliant Cost Plan developed for the City included $11,926,562 of costs for allocation through the plan. These costs were based on FY21 audited actual expenditures. The following table identifies the actual expenditures and cost adjustments associated with each central service included in the OMB Compliant Cost Plan. Table 3: Costs Allocated Through FY21 OMB Compliant Cost Plan Department FY21 Audited Actual Expenditures Cost Adjustments Total Allocated Costs City Clerk Administration $421,011 $0 $421,011 City Attorney $3,632,639 $0 $3,632,639 City Manager Admin. $1,285,991 ($137,587) $1,148,404 Human Resources $1,125,743 $0 $1,125,743 Finance Administration $430,153 ($123,268) $306,885 Accounting $1,062,509 $0 $1,062,509 Payroll & Benefits $249,612 $0 $249,612 Purchasing $131,423 $131,423 Budget $350,747 $350,747 Custodial Maintenance $1,337,559 $0 $1,337,559 Building Maintenance $1,899,175 $0 $1,899,175 Disallowed Items1 ($339,007) TOTAL $11,926,562 ($260,855) $11,326,700 1 The disallowed items refer to costs associated with litigation, special districting financing, and miscellaneous equipment. These types of promotional and travel costs are generally considered unallowable per 2 CFR Part 200 guidelines.
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Actual expenditures for City departments for FY21 totaled approximately $11.9 million. Two cost adjustments were made to these expenses, which were associated with City Manager Administration accounts other professional and contractual services and Finance Administration other professional and contractual services. Furthermore, specific line items were disallowed in accordance with 2 CFR Part 200 guidelines, totaling $339,007. The OMB Compliant Cost Plan developed for the City started with nearly $11.3 million to be allocated to departments and funds. However, not all services provided by the identified central services relate to other City departments and funds. Therefore, some costs were not allocated out, or were “unallocated,” in order to ensure that departments and funds were not unfairly burdened for services not received. The following table outlines the allocated and unallocated costs associated with each central service. Table 4: Breakdown of Costs Allocated Through the FY21 OMB Compliant Cost Plan Department Allocated Costs Unallocated Cost Total Costs City Clerk Administration $272,999 $127,428 $400,427 City Attorney $791,630 $2,591,963 $3,383,593 City Manager Admin. $831,437 $533,550 $1,364,988 Human Resources $1,091,929 $0 $1,091,929 Finance Administration $212,071 $0 $212,071 Accounting $945,548 $0 $945,548 Payroll & Benefits $361,846 $0 $361,846 Purchasing $223,244 $0 $223,244 Budget $501,118 $0 $501,118 Custodial Maintenance $1,391,761 $0 $1,391,761 Building Maintenance $1,450,175 $0 $1,450,175 TOTAL $8,073,758 $ 3,252,942 $11,326,700 Of the nearly $11.3 million in costs allocated through the plan, approximately $8 million was allocated to receiving departments and funds, while about $3.2 million was unallocated. Services that were not allocated out to departments and funds included: • City Clerk Administration – services and costs associated with fees. • City Attorney– costs associated with outside legal services. • City Manager – services and costs associated with external communications support and intergovernmental affairs. The identified services were not performed to support other departments and funds, thus they should not be allocated. Therefore, in order to accurately reflect the true indirect costs associated with departments and funds, these service costs were not allocated out.
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The expenditures associated with each central service department outlined in Table 3 will directly tie to the City’s audited actuals. The total costs identified in Table 4, however, will differ from the actual expenditures, as this amount accounts for both actual expenditures, as well as indirect costs allocated to Receiving departments only. However, the total for both tables is the same ($11,326,700), to demonstrate that the costs allocated through the plan do not exceed the starting costs for the City and there is no double counting. As an example, City Clerk Administration allocates a total of $421,011 to all funds and departments, both Central Service and Receiving. Of that amount, $148,012 was allocated to other Central Service departments, which then allocate those costs out to Receiving departments. The remaining $272,999 (shown in Table 4) was allocated directly to Receiving departments. 4 Use of Full Cost and OMB Plan Results The purpose of developing the Full Cost and OMB Compliant Cost Plans is to utilize them effectively within the organization. The following subsections discus how to incorporate and use the results from these plans. 3.1 Use of Full Cost Plan Results The following table shows the total costs allocated from the Cost Plan by Fund: Table 5: Results of FY22 Full Cost Plan Fund Total Allocated Cost General Fund $11,134,694 CDBG $290,371 Federal Grant Programs $753,081 Animal Control $553,617 Gas Tax $153,110 Assessment District $288,944 Integrated Waste Management $182,738 Internal Service Funds $924,844 Successor Agency $31,115 Other Funds2 $866,947 TOTAL $15,179,4623 As the table indicates, approximately $11 million of the $15 million allocated is to the General Fund. The next set of funds to receive the highest allocations are the Internal Service Funds (Liability Insurance, Fleet Services, Workers Compensation, and Information Technology). The results from this Cost Plan can be utilized as follows: 2 The other funds include General Plan Update, Development Impact Fee Funds, Home Improvement funds, etc. 3 The total allocated costs ties to Table 2 the costs allocated column.
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1. Incorporation into User Fee Study: The detailed results of the Full Cost Plan show the indirect cost associated with many City fee-related services and the indirect costs associated with those departments can be incorporated into the Citywide fee study. 2. Transfers from Non-General Fund Sources: The plan details the costs that the general fund could recover from other funds such as the Internal Service Funds, Animal Control, Gas Tax, and Integrated Waste Management. The City is in the midst of conducting a user fee study and as such the Full Cost Plan will be utilized and incorporated into that analysis. As it relates to recovery from non-general fund sources, the City should review the purpose and funding restrictions of each fund to determine if administrative indirect costs can be recovered from any of those funds. If any of the above funds support payment of administrative costs, the City could then review the associated fund balance, and determine if a general fund transfer should be instituted. The City should consider developing an indirect cost policy document that outlines the following information for each fund: • Ability to Recover Administrative Overhead: This would outline any local, state, or federal guidelines that limit or explicitly preclude the City’s ability to recover administrative indirect costs. • Administrative Cost Recovery Goal: This would detail the percentage or dollar amount that the City targets to recover for administrative overhead. • Reasons for Non-Recovery: If the City has the ability to recover costs from a fund, but chooses not to, this reasoning should be documented. This will allow future decision makers to understand current reasonings and make adjustments should future circumstances dictate it. While the CAP identifies the total allowable administrative costs that can be charged to a fund or department, it is up to the City to determine if, and how much, should be recovered annually. 3.2 Use of OMB Compliant Cost Plan Results Unlike the Full Cost Plan, the results of the OMB Compliant Cost Plan can only be utilized for very specific purposes – reimbursement from grants and federally funded projects. This recovery could be identified directly from the detailed results if the grants or federally
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funded projects reside in their own fund and / or department. Therefore, the results of this plan can be used to generate two different CDBG Composite Indirect Rates: 1. Total Direct Expenses: This is the indirect rate that can be used to apply towards projects that have both labor and contractual services. 2. Total Direct Salaries & Benefits (Labor): This is the indirect rate that can be used to apply towards projects and / or grants that only have personnel cost. The following table shows the calculation for the City of San Bernardino-CDBG: Table 6: OMB Compliant CDBG Composite Rate – Total Expenses Total Indirect Costs Allocated $144,2104 = 24% Total CDBG Direct Expenses $603,2205 Table 7: OMB Compliant CDBG Composite Rate – Total Labor Expenses Total Indirect Costs Allocated $144,2106 = 34% Total CDBG Direct Salaries and Benefits $418,5357 As the table indicates, the Citywide composite rate is 24% for expenses and 34% for labor. The 24% is above the federal de-minimis rate of 10%. This rate can be applied by the City against all personnel and non-personnel CDBG grant-related expenditures. The use of a total direct expenses indirect rate provides the City and CDBG staff with greater flexibility in terms of being able to apply it to all projects regardless of level of staff charges to that project or grant. The 34% rate can be applied to any CDBG grant or project that only has city staff and allows the City to recover the appropriate overhead against labor charges. 5 Summary The detailed Full Cost and OMB Compliant Plan reports have been provided under separate cover to City staff. These reports are extensive and provide additional information on how indirect costs were allocated to various funds and departments to meet the fairness, equitability, and defensibility criteria for successful cost allocation plans. 4 The $144,210 ties to the total costs allocated to CDBG from the OMB Cost Plan provided under separate cover to the City. 5 Direct expenses represent all CDBG expenses. 6 The $144,210 ties to the total costs allocated to CDBG from the OMB Cost Plan provided under separate cover to the City. 7 Direct salaries and benefits represent all CDBG salaries and benefits