Cost Accounting in Local Government

Allocating Administrative Functions in Other Departments

During my time as a Finance Director I was happy with hiring the best user fee consultant for the job and letting him or her do all the work. Now that I’m part of RCS and performing such work, there’s some interesting things I didn’t realize. For instance, service department staff engaged in general administrative work does not affect the cost allocation plan as one may think.

Service departments who directly provide public amenities to residents and customers (planning, public works, police) now process various administrative functions that have generally belonged to finance, human resources, risk management, or information technology.  If an agency decentralizes their purchasing and contract administration functions, then the administrative analyst or assistant for the police, public works and planning departments are now assisting in those functions.  So, the service departments want their “admin charges” reduced, but the reality is that finance and HR staff are still performing 100% of the purchasing function citywide, PLUS we have to add more time from each service department. Citywide, it’s a gain in purchasing and contract administration time, and not a net shift to departments.

So how can the finance department suggest that decentralization of purchasing saves time, yet the police analyst now sees extra work for herself?  Finance has to process more purchase orders than in the past, but with less personnel. They also have more requirements than before, like the need to review insurance coverage and contract expiration, confirmation of business license, and increase awareness of fraud prevention. They are trying to do more with less resources.

What can service departments do about the extra responsibility placed upon them?  First, the cost related to the service department staff performing those function will be calculated within the fully burdened hourly rate, so the planning, building and engineering departments will recover these expenses through user fees. In large cities, it is common for the Planning bureau to have its own staff handling purchasing, information technology and/or human resources function, and their user fees will be higher.

We also realize that municipal services are constantly evolving, and it’s now common to see building division staff operating as cashiers, or finance staff operating as code enforcement officers. The strategy now is to break out the various functions of each department employee, calculate the time detail for those functions and calculate the associated cost. With this information, the City Manager can make informed decision about how staff and resources should be used.

So, what do you think? Is your city effectively allocating its administrative functions? Please let me know at chu@revenuecost.com.

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