Enterprise Funds Administrative/Overhead
Cost Allocation Amounts

On June 26, 2019 city council adopted a resolution setting the budget for the 2019-2020 fiscal year. The budget as adopted includes the transfer of money from enterprise funds to the General Fund as an interfund reimbursement for their share of administrative and overhead services that are performed with in the General Fund. The 2019-2020 amounts budgeted are as follows:

Fund

Fiscal Year 2019-2020 Operational Budget

Administrative & Overhead Interfund Reimbursement Amount

Percent of Fund's Budget

Transfers for Costs Not Associated to the Fund

51 Water

$6,875,815

$339,860

4.94%

$0

52 Sewer

$2,087,207

$121,380

5.82%

$0

53 Power

$14,509,908

$679,716

4.68%

$0

57 Storm Drain

$1,186,183

$48,555

4.09%

$0

What is a cost allocation?

Cost allocation is the process of identifying, aggregating, and assigning costs to a department. It identifies costs that are initially accounted for in another fund and moves those costs to the department the services were provided for.  

Why is it necessary to have a cost allocation account?

If our Enterprise Funds were a stand-alone business they would be responsible for any and all costs associated with its operation.  As a part of the larger government organization, there has always been some benefit to sharing costs among all departments.  The costs that get shared are such things as: legal costs, information service costs, liability insurance, governance cost, human resource costs, etc.  Fund accounting requires that these shared costs are identified and properly allocated to each fund.

Cost Allocation Methodology

In April of 2015 the finance department completed a cost allocation study using the reciprocal method to determine the correct distribution of administrative costs for the City. The service departments were identified as Legislative, Manager, Human Resources, Utility Billing, Treasurer, Finance, Information Systems (IT), Recorder, Legal, and Administrative Services.  

The recipients of these services are all funds within the City and include the General Fund, Capital Project funds; Debt Service funds -Municipal Building Authority and Coral Canyon Special Service District; Enterprise funds - Water, Sewer, Power, Irrigation, Stormwater and the Internal Service Fleet fund.

Calculation drivers were identified for each of the service departments. These drivers are used to determine the percentage of services received by each of the recipient departments. For example, the number of employees was used as the driver for the Human Resource department. When allocating out costs for the Human Resource department the mathematical array will look at the number of employees each department has as a percentage of total employees.

Below are the results of the cost allocation study and the percentages that will be used during the budget process to allocate administrative costs until the next review period.

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During the study we used the most recent fiscal year actuals available which was fiscal year 2014. It is anticipated that we will reanalyze the cost allocation distribution at least every five years.


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