Indirect Cost Analysis

Indirect Cost Study

Indirect costs are those costs that cannot be directly or exclusively assigned to one service. Enterprise funds often benefit from expenditures made by the general fund. For example, the collector, whose salaries paid by the general fund, make process enterprise user billed payments. We recommend that these indirect costs be identified and allocated to the enterprise fund using clearly established formulas to prorate the expense among departments.

Since 1995, Pioneer Consulting Group, Inc. has completed more than 50 indirect cost studies.

Our work-plan for each project was as follows:

1. Develop a list of departments to interview -  The departments to be interviewed are determined based on each governmental organizations structure but generally include; administration, finance department, treasurer/collector, clerk, health, fire, police, DPW, etc.
2. Determine the Expense Categories – The expense categories include; health, dental and life insurance, retirement, unemployment benefits, worker’s comp, property and liability insurance, legal, audit, etc.
3. Interview Department Heads – We interviewed the department heads to determine the amount of time and effort dedicated to the enterprise fund. 
4. Develop a Matrix of Time and Cost by Function – We developed a time matrix and expense based upon the interview results. We assigned the percent of time for each department, by employee and the associated expenses. The results are summarized by salary and wages and the associated fringe benefits are estimated at 35 percent.
5. Review our findings with Department Heads – Once we completed the initial calculations we reviewed each allocation with the department heads. Adjustments were made as necessary.
6. Prepare Reports – We prepared the reports outlining our calculations and recommendations.
7. Present Our Findings – We met with the governing officials to discuss our finds and recommendations.

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