HomeMy WebLinkAbout07.a. (Handout) Action regarding administrative overhead percentage7a.
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Presentation of the Overhead Rate
Evaluation Study
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consulting group
Presentation Goals
♦ Present study objectives and background
♦ Discuss methodology and approach
s Present results and recommendations
♦ Questions
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Study Objectives
♦ In October 2013, the District contracted with the Matrix Consulting
Group to review and audit the District's current administrative
overhead rate methodology.
♦ Key objectives of the study were:
+ Audit the District's current model for developing overhead rates
+ Ensure compliance with GAAP, GASB, and OMB standards and guidelines
+ Provide recommendation for inclusion or exclusion of expenditure line items
+ Pros and Cons of multiple overhead rates
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District Overhead Rate Background
♦ The District currently calculates an Overhead Rate in order to
account for administrative operating expenses and indirect
support such as administration and management, payroll, etc.
♦ This rate is primarily applied to:
3 Developer's fees and charges (Plan Reviews, Inspections, etc.)
4 Clean Water Program
4 Capital Projects (CIP)
4 External agency billings
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Overview of District Methodology
♦ The District currently calculates its overhead rate based on the
following three components:
♦ Admin Overhead: This component distributes the
administrative or indirect costs associated with managing the
District.
♦ Employee Benefits: This component is calculated to determine
average benefit costs for workers compensation, medical,
dental, unemployment, etc.
♦ Non -Work Hours: This component accounts for actual
available work hours within a year for District staff.
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Discussion of Rate Components (1)
♦ Admin Overhead includes:
4 Salary, wages, and benefits associated with Administrative division and
departmental Directors and support staff.
4 OPEB, retiree premiums, accrued compensation, etc.
4 Administration and Engineering Division operating costs (utilities, repairs &
maintenance, materials & supplies, etc.)
Other adjustments such as vehicle and building depreciation and HOB
maintenance
♦ All costs included in this component are based on actual audited
expenditures.
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Discussion of Rate Components (2)
♦ Employee Benefits includes:
4 Workers compensation, unemployment, medical, dental life insurance and
retirement costs associated with all District employees.
4 All costs included in this component are based on budgeted expenditures.
♦ Non -Work Hours includes:
4 Vacation, sick leave, holidays, admin leave, birthdays, and compensated
time off.
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Overhead Rate Application
♦ Last year the District utilized two distinct overhead rates in order
to stabilize the overhead rate for external customers, while
achieving full cost recovery for internal customers.
♦ Three -Year Average— was applied to external billings and was
based on the average of the previous three year internal full cost
recovery rates.
♦ Internal Full Cost Recovery — was applied to Capital Projects,
and is comprised of the three components.
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Overview of Study Results
♦ The District's current methodology for calculating an overhead
rate is in compliance with state and federal guidelines, as well
as generally accepted accounting principles.
4 Inclusion of costs such as retiree premiums, OPEB, depreciation, etc. are
allowable under OMB guidelines.
♦ The District's use of multiple overhead rates is consistent with
other jurisdictions and is a common practice.
♦ Alternative overhead rate methodologies were assessed and it
was determined that available options would neither provide a
better rate, nor stabilize the volatility associated with the current
overhead rate.
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' consulting group
Recommendations
e While the District's current methodology is in compliance,
certain opportunities for improvement exist:
-� Utilize audited actual expenditures for the calculation of the Employee
Benefits component in order to be consistent with the Admin Overhead
component.
Allocate the OPEB costs associated with active and retired employees to
their respective divisions as direct, and premiums associated with retirees
as indirect.
When additional CCCERA UAAL payments ($5M - $10M) are paid and
included in the audit, they should be allocated directly to the divisions based
on associated employee salaries. The administrative portion can then be
included in the Admin Overhead component.
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Questions and Comments
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