9200     GENERAL
(Revised 8/94)

 

This section provides the accounting guidelines and requirements which agencies must follow in accumulating data to support their program budgets.  All budgets are required to be in a program appropriation format.  Any budgets remaining in a category format must be approved by Department of Finance.  Agencies still remaining with budgets in a category format must convert traditional line item costs to the required program budget levels as displayed in the Governor's Budget.

State agencies that operate under the California State Accounting and Reporting System (CALSTARS) perform their accounting functions in a comprehensive and fully documented program cost accounting environment (see SAM Section 7260) that incorporates all the cost allocation procedures and requirements described below.  Other state agencies operate their own automated accounting systems that may have established program cost accounting components (see SAM Section 7262).  The program cost accounting components in these automated accounting systems will also include adequately documented cost allocation procedures that are consistent with those described below.  A few state agencies either operate in an automated accounting system environment that does not include a program cost accounting function or operate in a manual accounting environment.

 

The following sections summarize the basic program cost allocation requirements for the benefit of state agencies that do not operate in an automated system with an integrated cost accounting component.

9201     COST ALLOCATION PROCEDURES
(Renumbered from 9205 and Revised 8/94)

 

Cost allocation procedures distribute accumulated indirect costs to the programs that benefit from the accumulated costs on the basis of percentages that represent a reasonable and equitable allocation base.

 

Special care must be exercised to ensure that the costs being allocated are complete, agree with, or are reconciled to amounts reported in state agency financial statements.  In allocating indirect costs, state agencies will use actual costs and actual usage measures (e.g., labor hours) except when management believes that other estimates are more appropriate.

 

Regardless of the cost allocation methodologies used, all state agency cost allocation procedures shall demonstrate the following characteristics:

Costs that can be identified directly to a program and/or funding source (direct costs) must be charged directly to the program.  Indirect costs should be distributed to programs and/or funding sources in the most equitable  basis practical.  The following are some typical program cost accounting accumulation categories and the typical equitable bases of distribution:

SAM Section 9244 Illustration 1 through 4 provide sample allocations of these costs and the verification of amounts allocated to the General Ledger.

9202     DOCUMENTATION OF COST ALLOCATION METHODOLOGY
(New 8/94)

 

All state agencies will document their cost allocation procedures and methods in a Cost Allocation Plan (CAP).  Refer to a sample format on SAM 9202 Illustration.  Each CAP will contain detailed information regarding the costs being allocated, the allocation method, and the following additional information:

1. The frequency of allocating various costs to programs.
2. The rationale for selecting an allocation base.
3. How  often the allocation base is evaluated to determine its continued accuracy.
4. Anticipated changes in the bases used to allocate costs.

All CAPS should be supported by appropriately cross-referenced working papers, updated periodically, and retained in state agency files for reference and for audit purposes. Special requirements apply to Indirect Cost Rate Proposals (ICRP) and CAPS from state agencies that receive federal funds.  See SAM Section 8752-8757.

9203     DESCRIPTION AND APPROVAL OF COST ALLOCATION METHOD
(Renumbered from 9212 and Revised 8/94)

 

Each agency utilizing cost allocation procedures will describe its cross-over process and methodology used to convert its traditional line-item costs to program costs and submit a copy to the Fiscal Systems and Consulting Unit, Department of Finance, for review and approval.  See 9240 Illustration for a sample report format.

 

If an agency believes that its current method of allocating costs to programs produces reasonably accurate program data, it may submit this method for review and approval even if the method is not in complete conformance with the guidelines detailed in SAM Section 9220 et seq.

 

The Budget Division, Department of Finance, will be notified by the agency of the estimated increases or decreases in workload if the agency elects to convert from an existing method of supporting program budgets to another method authorized by Section 9200 et seq.  If any workload increases that require additional funding are estimated, the approval of the Budget Division, Department of Finance, must be obtained prior to implementation.

9204     AMOUNT OF COSTS TO BE ALLOCATED
(Renumbered from 9214)

 

Costs charged to the individual programs in total must agree with the total costs recorded in the general ledger.  To insure this agreement, agencies utilizing cost allocation procedures will distribute only the amount reported as expended in the general ledger.

9220     GUIDELINES FOR ALLOCATION OF COSTS
(New 10/74)

 

The purpose of this section is to provide agencies with general guidelines and procedures for identifying and distributing line-item costs to programs.  Agencies will charge costs to programs in accordance with the following standards:

1. Direct Costs—Any cost which can be identified directly to a program will be charged to that program.
2. Indirect Costs—Indirect costs are costs which cannot practically be identified to a program.  There are three categories of indirect costs (a) line organization unit indirect costs, (b) service unit costs, and (c) administration costs. 

PROGRAM COST ACCOUNTING  (New 8/94)
(Sample Format) COST ALLOCATION PLAN
I.     Purpose/Scope/General Overview
II.    Definitions
III.   Budget Structure
IV.  Methodology
      Allocation of Indirect Cost Pools
      Allocation of Administration
V.  Allocation Sequence
VI.  Program and Organization Charts in Picture Form Displaying Roll-Up Levels and Coding Schemes

9220.1     LINE ORGANIZATION UNIT INDIRECT COSTS
(New 10/74)

 

These costs include staff time and any operating expenses and equipment cost not chargeable directly to a program.  Indirect staff time may be allocated to the programs on the basis of direct time charged to each program (see SAM Section 9224.3) or it may be combined with the indirect operating expenses and equipment and allocated on a basis which will allocate costs to programs with reasonable accuracy.  (See SAM Section 9228.)

9220.2     SERVICE UNIT COSTS
(New 10/74)

 

A service unit is a unit rendering a distinct class of service (e.g., data processing, laboratory unit, etc.) to other units in the agency.  These units differ from the staff support organizational units (e.g., accounting, budgeting, personnel, etc.) in that the latter do not have readily measurable products.
Where service unit costs are material, they will be charged to the programs by use of one of the following methods:

1. Machine Hours Methods
     
   Actual cost of the service unit for the period = Machine hourly rate x
   Machine hours utilized for the period charge
    
   Actual machine time used by each program for the period  =   The program's share of the service unit's cost
    
2. Direct Hours or Cost Method
    
   Hours charged to a program for a period  = Percentage x
   Total hours charged to all programs for the period

 

Total service unit cost = The program's share of the service unit's cost.

In some instances, it may be more appropriate to price out the direct hours in order that service unit costs are equitably allocated.

Service unit costs may be included as part of administration costs if they are not material in amount or if their inclusion will not materially distort program costs.

9220.3     ADMINISTRATION COSTS
(New 10/74)

 

These include all costs at the directorate level and the costs of the staff support organizational units.  Examples of administration costs are executive policy and planning, general administration, budgeting, accounting, personnel, business services, management analysis, training, legal, and any service units not included in the service unit costs above.

 

Administration costs will be distributed in a reasonable manner to the programs unless the agency's appropriation in the Budget Act includes Administration as a separate program.  When this cost is distributed depends on the information needs of management concerning the total cost of each program.  A distribution will be made at least annually at year-end.  In reporting the total cost of each program to management, administration costs will be stated separately.

Administration cost may be distributed to the programs either in total or by organizational units.  The distribution of administration costs may be accomplished by use of any of the following ratios:

 

1. Salaries and wages costs charged to each program
    Salaries and wages costs charged to all programs

 

2. Man-hours charged to each program
    Man-hours charged to all programs

 

3. Total costs charged to each program
    Total costs charged to all programs

 

The costs of the individual work activities which comprise the administration costs may be distributed to the programs based on the method which is most appropriate to the work activity involved.  For instance, the cost of the work activity "Personnel" might be best distributed based on direct man-hours charged to the program, while the work activity "Executive Policy and Planning" might be best distributed based on the total cost of programs.

9224     ALLOCATION OF SALARIES AND WAGES COSTS TO PROGRAMS
(New 10/74)

 

The allocation of salaries and wages costs to programs consists of determining the labor time spent working on each program and either (a) pricing such labor time, or (b) using the labor time to compute a percentage to be used in distributing labor costs.

9224.1     DETERMINATION OF LABOR TIME SPENT WORKING ON EACH PROGRAM
(New 10/74)

Labor time usage may be identified to programs through use of any of the following methods:

1. Continuous Positive Time Reporting
   The employee prepares a time report in which he identifies how he used all of his time during the period.
2. Continuous Exception Time Reporting
   The employee identifies only the time he spends on other than his normal work.
3. Sample Time Reporting
   During a time period which is representative of the organizational unit's work mix, each employee prepares a positive time report or an exception time report.  Based on a tabulation of these time reports, a time charging pattern is derived which is used until it is considered appropriate to take another sample, i.e., when the time charging pattern is no longer deemed to be representative of the organizational unit's work mix.
4. Other
   An agency may wish to exempt certain employees or employees in an entire organizational unit from preparing time reports when their total effort is known to be spent on a single program.  In these situations, the applicable salaries and wages costs may be charged directly to the program concerned.  Care should be taken to ensure that when this method is used, all personnel time is completely traceable to a single program.

Any combination of labor time identification methods which will accumulate time accurately may be used.

9224.2     PRICING LABOR TIME
(New 10/74)

 

Generally, the pricing of labor time is not required for the accurate allocation of program costs.  However, there may be situations where because of the salary "mix", agencies may wish to price out labor time in order to be able to allocate various indirect costs accurately.  To price out labor, the labor time determined in Section 9224.1 is multiplied by an hourly charge rate.  The hourly charge rate may be determined by (a) estimating the hourly salaries and wages rate by position classification and (b) estimating the hourly salaries and wages rate by individual employee.

 

The allocation of costs will be accomplished as follows:

 

Labor time charged to each program  x  Hourly charge rate = Total labor cost chargeable to a program

 

Total labor cost chargeable to a program Total labor costchargeable to all programs

=

AllocationPercentage

x

Total indirect costs to be allocated

=

Indirect costs chargeable to a program

The total labor cost chargeable to a program computed above is not the actual cost, but rather a theoretical amount.  The allocation percentage could be used to distribute an organizational unit's salaries and wages costs to programs.

9224.3     ALLOCATION OF LABOR COSTS
(New 10/74)

 

Labor costs will generally be distributed to programs based upon percentage patterns determined by organizational units.  However, unless the salary rate "mix" is reasonably evenly distributed throughout the agency's programs, an agency will not use a single percentage pattern to distribute labor costs to all programs.  The distribution will be by organizational unit or groups of organizational units with the same salary mix.

 

Distribution may be as often as an agency desires, with a minimum distribution of at least once a year at year end.  The identification of time charged to programs will follow the guidelines in SAM Section 9224.1.  The amount to be distributed to each program by an organizational unit will be as follows:

Total hours charged to each program for the period Total hours charged to allprograms for the period

x

Total salaries and wagescosts for the organizationalunit for the period

=

Salaries and wagescosts chargeable toeach program

The above formula may also be utilized to distribute staff benefits, workmen's compensation and administration costs to the programs.

9228     ALLOCATION OF OPERATING EXPENSE AND EQUIPMENT COSTS TO PROGRAMS
(New 10/74)

 

This section is governed by the general guidelines established in SAM Section 9220.

1. Direct Costs
   Costs that can be identified directly to a program will be charged to that program.
2. Indirect Costs
   Indirect costs are all operating expenses or equipment costs which cannot practically be charged directly to a program.  Agencies may utilize worksheets to accumulate expenditures for distribution to programs.  The number of groupings on the worksheet and the number of worksheets will depend upon the number of allocation bases which will be utilized.

In allocating indirect costs, agencies will consider the following:

 

1. Organizational Unit
    
   The allocation basis may involve cost data incurred by various types of organizational units, e.g., division, bureaus, sections, etc.  However, since the final program costs may vary depending on which organizational unit level is selected as an allocation basis, agencies will select an organizational unit at a level which will provide the most accurate distribution of indirect costs to programs.  Organizational units may be combined at this level only when their pattern of expenditures are comparable.
    
2. Allocation Basis
    
   Special care and judgment should be exercised in selecting an equitable basis for distributing indirect costs.  Different bases are used, where appropriate, to allocate different types of expenditures.  For example, telephone expenditures might be allocated based on salaries and wages costs or hours, but utilities and rent might be allocated based upon square feet of space.
    
3. Allocation Data
   Actual expenditure data for the month, quarter or other appropriate period should be used in determining the allocation percentage except where agency management believes that budgeted cost estimates for the fiscal year provide a better basis for allocation than actual data for a comparable or shorter period.

 

In allocating costs to the programs, care must be exercised not to charge cost to a program which that program did not incur.

9240     DOCUMENTATION OF COST ACCUMULATION METHODOLOGY
(New 10/74)

 

Each agency will document its crossover process and methodology used to convert its traditional line-item costs to program costs and submit a copy to the Accounting Systems Branch, Audits Division, Department of Finance, for review and approval.  See 9240 Illustration for report format.

 

The report will include sufficiently detailed information to allow the reader to trace step-by-step the procedures used to build up program budget costs.  To facilitate a review of the procedures employed, agencies will attach a copy of working papers arranged in the order in which they are used or developed.  Cross-reference all allocation method descriptions on the working papers submitted with the report.

 

Information relative to the following will be included:

1. The frequency of allocating various costs to programs.
2. How often an allocation basis is evaluated to determine its continued accuracy.
3. The rationale for selecting an allocation basis not described in Section 9200 of SAM.
4. Anticipated changes in the basis for allocating costs.

Additional information or assistance, if needed, may be obtained by calling the Accounting Systems Branch, Audits Division, Department of Finance.

9244     SAMPLE COST ALLOCATION PROCESS
(New 10/74)

 

This section provides agencies with an example of a cost allocation process.  9244 Illustrations 1 through 4 show costs allocated to programs.  Agencies will allocate costs to the program level required by their program budget.

 

Each agency will ensure that all costs have been allocated by reconciling the total costs allocated with the total expenditures reflected in the Appropriation Expenditures account (including accrual expenditures) in the General Ledger at June 30.

 

Agencies in preparing their program budget will use the total amounts allocated to each program as the starting point in computing their budget for the current year and budget year.  SAM Section 6000 et seq. provides the guidelines for preparing the budget.