SR-02-26-1980-11ESanta Monica, California, February 29, 1980
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FEB 2 6 1980
To: Mayor and City Council
From: City Staff
Subject: Preparation of Indirect Cost Allocation Plan
Background
An indirect cost allocation plan distributes certain city overhead expenses,
such as personnel and accounting services, to the line department activities
which benefit from them. It provides a full costing of services which might
not be otherwise possible to account for without incurring excessive accounting
costs in order for it to be upheld in an audit.
The Federal government mandates such a plan in order for the City to
recover all indirect City costs associated with the Community Development Block
Grant program. The current plan expires on June 30, 1980 and has recovered
approximately $40,000. The City expects to recover approximately $50,000 in
fiscal year 1980 -81 with an updated plan. The Federal government must approve
the plan in order for the City to receive the reimbursement.
Price Waterhouse and Co. prepared the present plan which was subsequently
approved by the Federal government.
Evaluation
City staff recommends an up to date and broader in scope plan in order to
better comply with Proposition 4 (Gann). Gann exempts City enterprises from
budget regulation. These include the Airport, Transportation, Water, Sewer and
Storm Drain, the Pier, the Cemetery and Refuse Collection divisions. An
indirect cost allocation plan would provide a full costing of these activities.
It should provide the City with the proper budget amounts regulated by Gann
before the City Council approves the 1980 -81 budget this June, 1980.
M
FEB 2 6 1980
To: Mayor and City Council
2 February 29, 1980
Price Waterhouse and Co. CPAs prepared the present cost allocation plan and
is highly qualified to prepare an updated plan because of their familiarity and
understanding of the City's structure, staff and operations. Their experience
with the City will lead to an accurate plan within minimal time requirements at
a reasonable cost. They are familiar with the Federal government requirements,
as indicated by the approval of the present plan. Price Waterhouse provides the
City with the advantage in that they are independent and thus the plan will be
more defensible if the State should audit the City's compliance with Proposition
4. Price Waterhouse and Co. fee will not exceed $10,000.
Alternative
1. Do nothing at this time.
2. Direct City staff to prepare the indirect cost allocation plan. (The
City staff has very limited manpower and expertise to do a thorough
cost allocation plan.)
3. Contract with Price Waterhouse and Co. to prepare an expanded plan.
Recommendation
The staff recommends that Price Waterhouse and Co, be awarded a contract
for professional services to develop an indirect cost allocation plan for the
City for a price not to exceed $10,000 and that the City Manager be authorized
to execute the contract. We believe the plan will be much more readily accepted
by both grantor agencies and by auditors verifying our compliance with
Proposition 4 if it is developed by a prestigious CPA firm such as Price
Waterhouse.
Staff also recommends that council appropriate $10,000 to pay for the plan.
The benefited grants will pay their fair share of the cost. The remainder will
be paid for by the General Fund,
Prepared by: Kay Watanabe, Acting Director of Finance
Ray Randolph, Acting Assistant Director of Finance
Robert Tompkins, Budget Analyst
a
606 SOUTH OLIVE STREET
LOS ANGELES. CALIFOR N IA 90014
213 - 625-4400
February 22, 1980
Mr. Kent McClain
City Manager
City of Santa Monica
1085 Main Street
Santa Monica, California 90401
Dear Mr. McClain:
PROPOSAL TO ASSIST THE CITY OF
SANTA MONICA IN ESTABLISHING A
COST ALLOCATION PLAN FOR
MUNICIPAL SERVICES
We are pleased to submit to the City of Santa Monica our
proposal to assist you in establishing a cost allocation plan
for your municipal services. We welcome this opportunity to
demonstrate our abilities and provide a meaningful public service
to.t_he community.
_Price Waterhouse & Co. believes it is best qualified to serve
the ity of Santa Monica in this engagement for the following
reasons:
1. Our previous federal grant cost allocation and
indirect cost study, conducted for the City of
Santa Monica in 1978, provides us with the
familiarity and understanding of the City's
structure, staff and operations. As a result,
we can achieve the objectives of the City in
an efficient and effective manner.
2. Our assigned staff each has considerable
experience working with local government.
I
°2°
Proposed Scope and Approach
We understand that you require a determination of the "full
cost" of the various operating departments of the city government.
As such, our work will include identification of the City's gen-
eral government (i.e., central service) functions, the total cost
of each and the proper bases for allocating the costs of these
general government functions to the operating departments. These
allocated costs, together with the direct costs incurred by the
operating departments, constitute the. "full cost" of the operating
departments.
In carrying out our work, we will employ the Price Waterhouse
& Co. computer cost- finding model, RECAP. The RECAP system pro-
vides an efficient means of performing the many cost calculations
and allocations required in a project of this type.
The results of the study will be presented in a report which
will include a brief description of our approach, the specific
direct and allocated costs associated with each department and
the bases for the -allocation of general government costs. These
results would be an important step towards identifying selected
program and service costs in the future.
Proposed Project Staffing
The staff to be assigned to this engagement include the
following:
e Project Manager -
- The partner -in- charge of the project team is Paul B.
Goodstat. Mr. Goodstat is currently the managing
partner of our Management Advisory Services (1,1AS)
practice in Region IV. Prior to that, he was
partner -in- charge of our consulting practice in the
firm's Office of Government Services (OCS) in
Washington, D: C.
-3-
® Project Manager -
The project manager is Stanley C. Yocum, a manager
in our Los Angeles office. Mr. Yocum was the proj-
ect manager on the federal grant cost allocation
and indirect cost engagement conducted for the City
of Santa Monica in 1978.
a Project Staff -
The project staff will
consultant in our Los
has had eight years of
experience in addition
government consulting.
Estimate of Fees and Expenses
include Thomas E. Flavin, a
kngeles office. Mr. Flavin
staff and city management
to three years of local
lie estimate that our fees and out -of- pocket expenses for
this project will not exceed $10,000. Our fees are based upon the
hourly billing rate for the individuals assigned and will be billed
monthly in the form prescribed by the City.
We are pleased to have this opportunity to submit our
proposal to the City of Santa Monica and look forward to assisting
you in this important engagement.
If you have any questions, please contact Paul B. Goodstat or
Stanely C. Yokum in our Los Angeles office at 213- 625 -4400.
Yours very truly,
bt
CONTRACT NO. 3459 - Price Waterhouse and Company
Staff report is the contract per Watanabe
'Agenda Item ll -E: Presented for consideration at this time was a
!recommendation for award of a contract to Price Waterhouse and Company
,for development of an indirect cost allocation plan in an amount not to
exceed $10,000; funds to be appropriated from the unappropriated reserves
'of the General Fund. Councilmember Reed moved to approve the staff
recommendation and award Contract No. 3459 (CCS) to Price Waterhouse and
'Company, not to exceed $10,000. Second by Councilmember Jennings. The
.,motion was approved by the following vote:
Council Vote: Unanimously approved 6 -0
Absent: Councilmember van den Steenhoven
CITY COUNCIL MEETING - March 4, 1980