1. Cost Allocation and IT Office of the State Comptroller June 1, 2009

2. Fringe Benefit Costs  Expenditures incurred by the State for the benefit of its employees and includes the costs to the State, as an employer, for pension, health insurance and terminal leave costs.  Worker's compensation and extended leave are directly charged to departments. Payroll Taxes  Unemployment, universal health and the employer’s share of Medicare insurance Assessed in the same manner as fringe benefit costs, as a percent of salaries. Basics: Fringe and Payroll Taxes

3. Calculation of Fringe Benefit Rates M.G.L. Chapter 29, Sections 6B, 5D  Assessed Costs Group Insurance Retirement Terminal Leave  A12, A13, A21  Regular employees in non-budgetary accounts A01, A07, A09

4. Roll Forward Adjustment As each new rate is prepared rates for closed fiscal years are recalculated based on actual information. Any under of over recovery is added to the new rate Fringe: Retirement + Health Insurance + Terminal leave +(-) Roll Forward Salaries =Rate

5. Indirect costs  Department costs that cannot be directly associated with the administration of a particular program and therefore cannot be charged as a direct program expense.  Include, but are not limited to: Administrative and support costs Training Information technology Space occupancy Utilities Executive office Central service agencies (e.g. TRE, HRD, OSC, OSD, etc.) Mainly object codes AA, CC, HH, JJ, UU sometimes LL,TT Indirect Costs

6. Calculation of Indirect Cost Rates M.G.L. Chapter 29, Section 6B Development of Rates Assessable Funds/Expenditures  Federal Grants  Special Revenue Trusts  Object Codes Factors Affecting Rates  Department Review  Cognizant Agency Review  Negotiation of Agreement

7. MMARS Chargeback Program Processing of CA Transactions  1 st Saturday following 1 st Wednesday of month  Creates Calculation Eligible Funds Eligible Object Codes (OBJRT)  Creates CA  Posts to Object Codes D09 E16

8. Cost Allocation process 1. Allocate Central Service Costs to all Depts. receiving Services  14 agencies - for example ANF and OSC Organize cost by program Allocate relevant programs 2. Allocate Secretariat Cost to depts. Organize costs by program Allocate relevant programs to dept within Secretariat 3. Allocate dept overhead by program Organize costs by program (one program being general admin) Allocate general admin to programs within dept.

9. Central Overhead ANF,OSC,TRE,BSB,OSD,SAO Secretariat 1 Dept 1 Secretariat 1 Dept 2 Secretariat 2 Dept 3 Secretariat 6 Dept 152 Secretariat 1

10. ANF+ Fringe Benefits+ Other Central service allocations Secretariat 1 Dept 1 Secretariat 1 Dept 2 Secretariat 2 Dept 3 Secretariat 6 Dept 152 Secretariat 1 ANF dept oversight, media relations, etc Statewide activities, Budget Capital (% of total budget)

11. OSC Secretariat 1 Dept 1 Secretariat 1 Dept 2 Secretariat 2 Dept 3 Secretariat 6 Dept 152 Secretariat 1 Payroll (dept employees as a % of total) All other (dept transactions as a % of total) Direct Chargeback's

12. How are Costs Allocated in the SWCAP? FunctionsAllocations BaseAllocation DescriptionIT allocation Impact? AGO Administrative LawCase CountCases Settled in FYNO Trial LawCase CountCases Settled in FYNO Insurance FraudSalariesDirect funded salariesNO ANF ANF FunctionANF Department SalariesDirect Funded SalariesNO Statewide FunctionModified Total Direct CostTotal Cost by DepartmentNO DCP Leasing & Office Planning Number of leasesLeases by departmentYES Planning and DesignInfrastructure spendingBonds sold for capital projects YES

13. How are Costs Allocated in the SWCAP? FunctionsAllocations BaseAllocation DescriptionIT allocation Impact? HRD Civil ServiceFTEEmployees by functionYES Non-Civil ServiceFTEEmployees by functionYES Employee RelationsFTEEmployees by functionYES Diversity & Equal Opportunity FTEEmployees by functionYES PayrollFTEEmployees by functionYES LRC State Services and Operations Bargaining Unit EmployeesUnion EmployeesYES OSC FinancialModified Total Direct CostTotal cost by Dept.NO IT FinancialTransactionsMMARS countsNO PayrollFTEEmployee countsNO

14. How are Costs Allocated in the SWCAP? FunctionsAllocations BaseAllocation DescriptionIT allocation Impact? OSD Procurement of CommoditiesStatewide contractsStatewide ContractsYES Procurement of ServicesMM and M03 expenditures YES TRE Banking MMARSModified Total Direct CostTotal Cost by Dept.NO PayrollFTEEmployees by functionNO DebtBond ExpendituresBonds sold for cap projectsNO

15. Cost Allocation process 1. Allocate Central Service Costs to all Depts. receiving Services  14 agencies _for example ANF and OSC Organize cost by program Allocate relevant programs 2. Allocate Secretariat Cost to depts. Organize costs by program Allocate relevant programs to dept within Secretariat 3. Allocate dept overhead by program Organize costs by program (one program being general admin) Allocate general admin to programs within dept.

16. Central Overhead ANF,OSC,TRE,BSB,OSD,SAO Secretariat 1 Dept 1 Secretariat 1 Dept 2 Secretariat 2 Dept 3 Secretariat 6 Dept 152 Secretariat 1 Programs General Admin Secretariat 1+Fringe Benefits+ Central Service Allocations

17. Cost Allocation process 1. Allocate Central Service Costs to all Depts. receiving Services  14 agencies _for example ANF and OSC Organize cost by program Allocate relevant programs 2. Allocate Secretariat Cost to depts. Organize costs by program Allocate relevant programs to dept within Secretariat 3. Allocate dept overhead by program Organize costs by program (one program being general admin) Allocate general admin to programs within dept.

18. Secretariat 1 Dept 1 Secretariat 1 Dept 2 Programs General Admin Secretariat 1+Fringe Benefits+ Central Service allocations Dept 1 + Fringe Benefits + Central Overhead + Secretary Overhead Program 3 Administration Program 2 Program 1

19. How it will be done – SIMPLE EXAMPLE Secretariat A  $5 million budget  All departments under the Secretariat have a total budget of $400MM  All departments have an average of 3% for UU and AA related charges Department A  $12 million budget  $2 million is for indirect charges (overhead) including secretariat allocation of $150K  Remaining $10 million is for programs of the department  20% indirect rate ($2MM / $10MM)

20. How it will be done – SIMPLE EXAMPLE IT of $12MM moves from all departments to Secretariat A ($400MM x 3%)  Total Secretariat budget now at $17MM  All department budgets now at $388MM ($400MM - $12MM)

21. How it will be done – SIMPLE EXAMPLE - RESULTS Secretariat A  Cost allocation now as follows: Adjusted Budget $17MM Department total budgets $388MM $17 / $388 = 4.38144%  Allocation to Department A Budget $11.64MM Adjusted allocation $510K LESS $150K already in admin Change is $360K Department A  Non-IT Budget now $11.64MM ($12MM - $360k)  However, cost allocation of secretariat costs should revert approximately $360K to department  Revised budget with allocated secretariat costs $12MM  $10MM for programs unchanged

22. Movement of IT to Secretariats Issues  Will require redo of departmental indirect rates and Secretariat allocation to departments during FY10 for FY11  Significant variances my need to be addressed during FY10  Will need to identify positions that are moving Seniority tracking will serve dual purpose

23. Actions Secretariats Charge back methodologies determined  Direct charge vs. rate  Need to work with OSC on rate methodologies  Insure costs not already allocated through Indirect (how were they charged last year)  Departmental cost allocation plans (DCAPs) will need to be revised especially at the secretariat level OSC’s role  Review with HHS DCA  Make Vendors available for DCAP and Rate Methodologies  Assist in review of chargeback methodologies

24. Secretariat IT allocated to Departments Total Secretariat IT  Less: IT ISA’d back to departments AA and UU IT charged back through the chargeback Internal to the Secretariat Equals IT Allocated