Indirect Cost Allocation - December 2009
Indirect Cost Allocation
Released December 2009
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We undertook this audit because senior management from the departments of aviation and watershed management questioned whether the city’s plan for allocating indirect costs overcharged enterprise funds and expressed concern about the lack of transparency in the allocation methods. We also noted instances in which the enterprise funds seemed to be underpaying for citywide expenses, such as the $41.6 million Oracle implementation.
- Errors in the city’s fiscal year 2008 cost allocation plan resulted in $11 million in net overcharges to the enterprise funds.
- A systematic error affected allocations of all departments that have direct funded positions and provide work effort data as an allocation basis for indirect charges
- The city’s practice of funding some support positions through direct appropriations from the enterprise funds then allocating credit for the amounts directly billed complicates the cost allocation plan
- Finance shifted the time frame for plan completion to suit its schedule, compressing the data collection schedule and reducing time for quality assurance
- The city’s contract with Maximus does not define responsibilities for ensuring data reliability
- City oversight of contract performance was minimal and the contractor did not perform all required activities