65B - SERVICE FINANCIAL REPORT - Laserfiche WebLink

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STEP 5: DEFINING COSTS The definition of direct and indirect costs can vary from agency to agency. The most important aspect to understand is all costs associated with directly running a program or providing a service are identified and consistently applied across the system. Direct costs typically include the specific, identifiable expenses (fixed and variable) associated with providing a service. These expenses would not exist without the service and may be variable costs. Defining direct costs, along with examples and relative formulas is necessary during this step. Indirect costs typically encompass remaining overhead (fixed and variable) including the administrative costs of the agency, not identified as Direct Costs. These costs would exist in the absence of any one specific service. STEP 6: DETERMINING (OR CONFIRMING) CURRENT TAX INVESTMENT/COST RECOVERY LEVELS This step establishes the expectation the agency will confirm or determine current cost recovery and subsidy allocation levels by service area based on the new or revised definition of direct and in -direct costs. Consideration of revenue sources and services costs or expenses is included in this step. Typically, the organization may not be cost accounting consistently, and these inconsistencies become apparent. Results of this step will identify what it costs to provide services to the community, whether staff have the capacity or resources necessary to account for and track costs, whether accurate cost recovery levels can be identified, and whether cost centers or general ledger line items align with how the agency may want to track these costs in the future. The overall tax investment/cost recovery level is comprised of the average of everything in all of the tiers together as a whole. This step identifies what the current tax investment level is for the programs sorted into each tier. There may be quite a range within each tier, and some programs could overlap with other tiers of the pyramid. This will be rectified as implementation of recommendations occurs. The PRCSA Pyramid is shown in Figure 1. This will be refined over the first year of implementation as steps are taken to more accurately account for revenues and expenditures by category. Generally, current cost recovery percentages are shown for each category of the pyramid; however, it was not possible to extract an accurate expense for the service with the current accounting practices so there are no cost recovery percentages shown. The focus for the first year of implementation is to develop a system to capture revenues and expenses at the program level with ease. The PRCSA will also need to further define direct cost and determine if all or a portion of indirect cost will be allocated. STEP 7: ESTABLISHING COST RECOVERY/TAX INVESTMENT TARGETS The Project Team has worked to align who is benefiting from programs and services with the sources of funding used to pay for them. The tax investment is used in greater amounts at the bottom levels of the pyramid, reflecting the benefit to the Community as a whole. As the pyramid is climbed, the percentage of tax investment decreases, and at the top levels, it may not be used at all, reflecting the Individual benefit. Targets take into account current subsidy levels. As costing of services and matching revenues is a very revealing process, realistic and feasible targets are recommended to align with the pyramid model and also to meet specific financial objectives for recovery of direct and indirect cost. These targets are not g 2' 65B-31 r-'=