COUNTY ACCOUNTING PROCEDURES MANUAL AUDITOR-CONTROLLER, COUNTY OF ORANGE
SUBJECT: COST APPLIED AND INTERFUND TRANSACTIONS
DEPARTMENTS & DISTRICTS AFFECTED: ALL AGENCIES, DEPARTMENTS, AND DISTRICTS GOVERNED BY THE BOARD OF SUPERVISORS
EFFECTIVE: 2/1/78 REVISED: 7/1/84, 1/1/91, 5/99
_________________________________ David E. Sundstrom, Auditor-Controller
Interdepartmental and interfund service charges are to be billed to the user department, agency, or district in each of the following instances:
The user department, agency, or district receives reimbursement from outside funding sources such as the State and Federal governments; or
The user fund is outside the General Fund; or
In cases when the County Executive Office (CEO) determines the desirability of cost transfers, such as when use of a service may be controllable by the user department, agency, district or fund.
Billable charges between County General Fund departments and agencies are to be cost applied. Billable charges between funds are to be coded as either revenue or reimbursement depending upon the nature of the charges.
To establish a procedure for determining and processing charges for services and materials between departments, agencies, and districts.
Government Code Section 26881 & Board of Supervisors Resolution No. 82-162 dated February 2, 1982
Authorizes the Auditor-Controller to prescribe the accounting policies for all offices, departments, and institutions under the control of the Board of Supervisors.
Board of Supervisors Resolution No. 97-414 dated September 16, 1997
Establishes the current cost transfer policy.
A cost transfer is a billing for costs of materials and services provided by one department or fund to another. Cost transfers can be classified into one of three categories: cost applied, revenue, or reimbursement.
A cost applied is a cost transfer between agencies within the County General Fund. Cost applieds are credited to Object 5100, "Intrafund Transfers," in the charging agency. Example 1: Sheriff charges to departments/agencies within the County General Fund for transportation and specific security services provided. Example 2: PFRD charges to departments/agencies within the County General Fund for alterations and improvements. Example 3: Employee physicals funded through HCA (Agency 042) for other the County General Fund departments.
Revenue (Quasi-External Transaction)
A revenue (quasi-external transaction) is a cost transfer by one fund to another fund for staff services performed or for the sale of materials between different funds. All charges by Internal Service and Enterprise Funds are recorded as revenue. Example 1: PFRD charges to special district funds for services provided. Example 2: PFRD charges to proprietary funds for administrative services provided. Example 3: Telephone Internal Service Fund charges to departments and agencies.
A reimbursement is a repayment of amounts remitted on behalf of another fund. These are interfund transactions that constitute reimbursements to a fund and are for expenditures initially made from one fund that properly apply to another fund. These transactions are recorded as expenditures in the reimbursing fund and as reductions of expenditures in the fund being reimbursed. Wherever possible, items shall be directly budgeted, encumbered and paid from the benefiting fund in order to minimize double budgeting and unnecessary reimbursement transactions. Example 1: A contract funded through PFRD (Fund 100, Agency 080) for service provided to Harbors, Beaches, and Parks (Fund 405), Flood Control (Fund 400), and Road (Fund 115). Example 2: Employee physicals funded through HCA (Fund 100, Agency 042) for funds other than the County General Fund.
Authorized Cost Transfers
During the budget process, the CEO will spot check the cost applied detail of service departments to insure that they comply with the cost applied policy. Service departments will be required to provide details of cost applieds in their budgets. Departments have primary responsibility to notify customer departments and achieve agreement on services and charges. CEO resolution of differences is a last resort.
Use of Cost Applied, Revenue, or Reimbursement
The following describes the use of the three types of cost transfers. With each type, a debit entry is made to the billed entity's object which best identifies the service or supply received. The credit entry is dependent upon the type of transfer.
Cost transfers between agencies within the County General Fund are recorded as cost applied entries. The County General Fund is comprised of all agency numbers from 001 through 099 within the County General Fund 100. A credit entry is recorded to the billing department's/agency's Object 5100 account.
Cost transfers for services and/or supplies from one fund to another fund are recorded as revenue in the charging fund, and to an appropriate expenditure account in the fund being billed. For these cost transfers, a credit entry is recorded to an appropriate revenue account of the billing department/agency.
Cost transfers for repayment of contract/purchase order charges incurred by one fund which properly belong to another fund are recorded as reimbursements. Reimbursements for "Services and Supplies" expenditures are recorded as credits to the billing fund's "Services and Supplies Reimbursements" account, Object 2900. Reimbursements for "Other Charges" expenditures are coded to the "Other Charges Reimbursements" account, Object 3950. Reimbursements for Capital Projects (Agency 036) expenditures are coded to the "Building and Improvements Reimbursements" account, Object 4209. Use the same Organization code ("P" Org) that is used in the "Buildings and Improvements" account, in Object 4200, to identify the capital project.
Budgeting for Cost Transfers
The budgeting requirements for cost transfers vary depending upon whether the transfer is a cost applied, a reimbursement, or a revenue.
Budget specific appropriations, as required, offset by negative appropriations in the Object 5100 account. During the budget process, complete the Cost Applied Detail Schedule as directed in the CEO's Budget Manual. Inform the departments/agencies which will be billed of the estimated amount of these charges. The user department's concurrence should appear on the charging department's Cost Applied Detail Schedule.
Budget specific appropriations, as required, offset by estimated revenues in the appropriate revenue sources/sub-sources for the projected charges to other funds. Inform the departments/agencies which will be billed of the estimated amount of these charges.
Budget specific "Services and Supplies" appropriations, as required, offset by negative appropriations in the "Services and Supplies Reimbursements" account, Object 2900. Budget specific "Other Charges" appropriations, as required, offset by negative appropriations in the "Other Charges Reimbursements" account, Object 3950. Budget specific "Buildings and Improvements" appropriations, as required, offset by negative appropriations in the "Building and Improvements" account, Object 4209. Complete the appropriate detail forms as directed by the CEO in the Budget Manual. Inform the departments/agencies which will be billed of the estimated amount of these charges and receive concurrence.
Rates Used for Budgeting
Whenever possible, billing rates are set at the beginning of the year to be used the entire year. User departments project a specified number of units at that rate for budget purposes.
Budget Modifications and Mid-Year Budget Adjustments for Cost Transfers
Departments are expected to absorb most changes within existing appropriations. Departments should recognize unanticipated revenues where possible to help absorb other charges. The CEO may recommend an appropriation transfer from elsewhere in the General Fund as a last resort. Expense Budget transfers from other objects should be processed through the Auditor-Controller. Transfers from Salaries and Employee Benefits require CEO approval per Board of Supervisors' Resolution #97-415 dated September 16, 1997. Increases to overall appropriations and estimated revenues or cost applied objects require approval by the Board of Supervisors, by 4/5 approval.
Accumulating Costs to be Transferred
Billing departments must adequately document the computation of costs transferred to other departments/agencies/districts. Acceptable methods of computing and accumulating such costs include:
Job Cost Accounting
The job cost accounting system may be used to accumulate costs and charges for billing to user departments. Charges for some services provided by the Public Facilities & Resources Department are automatically billed through the job cost accounting system.
Org (Organization) coding may be used to accumulate charges to user departments. However, the Org accounting system must be utilized as an organizational accounting system, and not solely as a cost accounting system.
Other Cost Accumulation Methods
If the billing department does not utilize job cost accounting and cannot accumulate costs by Org, an alternate record of costs to be transferred must be maintained. The documentation must provide a clear audit trail of all the components included in the costs transferred, such as names of employees occupying the positions involved in the cost transfer, salaries and fringe benefits of the employees, allocation of services and supplies, directly identified services and supplies expenditures, and allocation of divisional and departmental indirect costs.
Frequency of Cost Transfers
Recurring cost transfers should be recorded on a monthly basis, unless the amount is immaterial to the department being billed, in which case the billing can be made quarterly.
Other Types of Cost Transfers
In addition to the preceding standard cost transfers, there are other, infrequently used transfers/adjustments. When cost transfers such as these are needed, they must be requested by a memo to the Auditor-Controller's General Ledger Unit. Such requests should fully explain the transaction.
Allocation of Shared Expenditure
Occasionally a department may be billed for charges which should be allocated to several departments. The costs belonging to other departments are charged to the appropriate expenditure object in the other departments, with an equal amount offset against the original department's expenditure object.
Sales of Supplies Between Departments
Occasionally a department may have an overstock of a supply item which another department may need. These supplies may be sold by charging the buying department and crediting the selling department's expenditure object.
Occasionally a department may be incorrectly charged for an item. In order to correct the error, the proper department is charged and the original department's expenditure object is offset.
Cost Transfer Methodology
All cost transfer transactions are recorded on journal voucher forms. Cost transfers processed automatically through the job cost accounting system or other automated billing systems produce automated journal vouchers which automatically update the accounting system. Manually prepared cost transfers are posted to journal voucher forms by the billing department's staff and are submitted to the Auditor-Controller General Ledger unit for processing. See County Accounting Policy and Procedure No. 27, "Journal Voucher Preparation and Review" for details on preparing journal voucher forms (See Note below). Note: CAP No. 27, " Journal Voucher Preparation and Review," has not yet been completed.