isf workshop presenters: auditor – controller / treasurer – tax collector information technology...

ISF Workshop

Presenters:Auditor – Controller / Treasurer – Tax Collector

Information Technology ServicesGeneral ServicesRisk Management

Central Warehouse

Internal Service Funds

What is an Internal Service Fund (ISF)?

A governmental centralized service that provides services or products on a cost-reimbursement basis to other governmental units or external users with a break-even motive.

To qualify as an ISF the predominant users of the services or products must be the government itself.


ISF vs. Central Service Department

The ISF is a central service department that recovers costs via cost reimbursement as services and/or products are provided via invoicing or direct billing.

The non-ISF central service department recoups costs via direct billing and via the Cost Plan (A-87) for non-billed costs for services and/or products allocated to departments based upon the level of service provided to each department.


• General Methodology

The Internal Service Fund accumulates all costs related to operating the ISF and allocates those costs over the number of productive units (goods or services) to be provided to determine a per unit cost of production.

Total Costs/Service Units = Cost per unit


• How are ISF rates calculatedI. Service Level

- Determine the appropriate service level necessary to meet the projected demands of user departments

Example:

- Number of vehicles required to meet transportation demand of user departments

Internal Service Funds• How are ISF rates calculated (cont’d)

II. What elements are included in the rates?A. Operational Costs

- Salary and benefits of ISF Personnel- Operational Expenses – service and supplies- Allowable Indirect Costs (department)- Allowance for Replacement Costs- A-87 Costs (other central service department costs)

- Working Capital / Operating Reserve – 60 day avg)

B. Retained Earnings from Prior Year - Unreserved surplus or deficit from the prior year

(Note: Retained Earnings reserved for a specific purpose are not included in the rates, i.e. replacement vehicles, building improvements)

Internal Service Funds• How are ISF rates calculated (cont’d)

Rate Calculation Example

ISF Operation: Cost assumptions:Fleet Service ISF for a 10 vehicle fleet unit Personnel:

Salary and benefits ( 2 staff) $60,000Operational Assumptions for Fiscal Year: (upcoming):Number of Vehicles in Fleet Operations 10 Operations:Number of miles driven Per vehicle (avg) 30,000 Fuel 28,000.00 Number of vehicles scheduled for service 60 Oil 1,600.00 (Vehicles are serviced every 5,000 miles) Insurance 12,000.00 Vehicles replaced per year 1 Parts 3,500.00 Staff required to manage Fleet operations: 2 Indirect Overhead Costs (A-87) 1,800.00

Replacement Cost 25,000.00

Total Cost $131,900

ISF Rate:$131,900/300,000 miles = 0.44$ per mile



• Application of ISF Rate

The ISF will charge the users for their services and/or products the calculated ISF rate by either invoicing the user or preparing a journal voucher billing for the service and/or product.


• Mid-Year Rate Review/Adjustment

The ISF should review their current level of activity to determine if their activity level is above or below the estimates used to calculate the ISF rates.

The ISF rates should be adjusted at mid-year if the activity level is materially different from the estimates.


• Why adjust ISF rates at Mid-year?

A. Service activity > Service Estimates

The ISF will be collecting more revenue than estimated and the rates should be adjusted to reflect this additional revenue.

The additional revenue should create additional net income that should be used to adjust rates downward to reflect the reduced cost of service on a per unit basis.


• Why adjust rates at Mid-year? (cont’d)

B. Service Activity < Service Estimates

The ISF will be collecting less revenue than estimated and the rates should be adjusted to reflect this lower than anticipated revenue.

The reduction in revenue should cause a net loss and rates should be adjusted upward to offset the lost revenue that reflects an increased cost of service on a per unit basis.


Cost assumptions: Component Unit Breakdown:Personnel: ISF Rate: 0.44$ per mileSalary and benefits ( 2 staff) 60,000$

Variable Cost:Cost per

mileEstimated

CostEstimated

MilesOperations: Fuel 0.09$ 28,000$ 300,000 Fuel (25 miles/gallon) 28,000.00 Oil 0.01 1,600 300,000 Oil 1,600.00 Parts 0.01 3,500 300,000 Insurance 12,000.00 Total VC/mile 0.11 33,100 Parts 3,500.00 Indirect Overhead Costs (A-87) 1,800.00 Fixed Cost:Replacement Cost 25,000.00 Salary and Benefits 0.20 60,000 300,000

Insurance 0.04 12,000 300,000 Total Cost $131,900 Indirect Overhead 0.01 1,800 300,000

Replacement Cost 0.08 25,000 300,000 ISF Rate: Total FC/mile 0.33 98,800 $131,900/300,000 miles = . $0.44 per mile Total Cost/mile 0.44$ 131,900$

Internal Service FundsMid-Year Analysis


(a) (b) (c) (d) (e) (f) (g) (h)=(a) * $.44 = (a) * $.11 =(d) -(e) = $98,800/12 = (f) - (g)

Miles per month

Miles at Mid-year

Miles at Year-end Revenue/Mo

Variable Cost Expense/Mo

Gross Margin/Mo

Fixed Cost/Mo

Net Income/Mo

Base-line Usage (estimate) 25,000 150,000 300,000 11,000.00$ 2,758.33$ 8,241.67$ 8,233.33 8.33$

Actual activity > baseline 30,000 180,000 360,000 13,200.00 3,310.00 9,890.00 8,233.33 1,656.67

Actual activity < baseline 20,000 120,000 240,000 8,800.00 2,206.67 6,593.33 8,233.33 (1,640.00)

Mid-Year Rate adjustment: Activity level > baseline usage Estimated number of miles for 2nd half of year 180,000 Total Fixed Cost for year 98,800.00$ (6 * 30,000 miles)Total Fixed Cost consumed at mid-year (49,400.00) Total Fixed Cost left for year 49,400.00 Total Fixed Cost/mile for 2nd half of year 0.22$ Less: Additional Net Income (1st half) 9,940.00 ($1,656.67 * 6) ($39,460 / 180,000)Fixed Cost to be allocated 39,460.00$

New ISF Rate per mile (.11 VC + .22 FC) 0.33$

Proof:

Miles per month Revenue/Mo

Variable Cost

Expense/MoGross

Margin/Mo Fixed Cost/Mo Net Income First 6 mo activity 30,000 13,200.00$ 3,310.00$ 9,890.00$ 8,233.33$ 1,656.67$

Second 6 mo activity 30,000 9,886.67 3,310.00 6,576.67 8,233.33 (1,656.66)

Internal Service FundsMid-Year Analysis

Internal Service Funds• Why adjust rates at Mid-year? (cont’d)

A. Authoritative Guidelines

1. A-87, Cost Principles for State, Local, and Indian Tribal Governments recommends that ISF rates be reviewed semi-annually and adjusted as necessary.

2. California State Controller’s Office “Handbook of Cost Plan Procedures for California Counties” states that ISF’s should prepare and examine its financial condition at least midway through each fiscal year and if a material profit or loss is projected the billing rates should be adjusted.


• Why adjust rates at Mid-year? (cont’d)

3. California State Controller’s Office

“Accounting Standards and Procedures for Counties” states that if the ISF’s mid-year results indicate either a substantial income or loss for the year rates should be adjusted at that time.

4. Current year rates do not reflect prior year actual “net income” or “net loss”

Internal Service Funds• ISF Reserves (Fund Balance / Retained Earnings) vs.

CashA. Reserves

1. Operating ReserveProvides for 60-day cash liquidity to complete the revenue earning process from providing the service and/or product to collection of payment.

2. Designated Reserve A designation for a specific purpose of the ISF such as replacing equipment, vehicles or building remodels.

Internal Service Funds• ISF Reserves (Fund Balance / Retained Earnings)

vs. Cash3. Operating Reserve = Working Capital Reserve a. The term operating capital reserve is typically

used by staff in the County of Fresno to mean Working Capital Reserve.

b. Working Capital Reserve

The ISF may establish and maintain a reasonable level of working capital reserve. A reasonable working capital reserve is considered to be the amount required to pay for up to 60 days of average cash expenses.


• ISF Reserves (Fund Balance / Retained Earnings) vs. Cash

B. Cash– The most liquid asset held by the ISF

Does not correlate to fund balance on a 1:1 basis as fund balance can be represented by inventory, equipment, and so forth.

C. Fund Balance formula

Assets – Liabilities = Fund Balance

Internal Service Funds• ISF Reserves (Fund Balance / Retained Earnings) vs.

Cash

D. ISF Loans

An ISF may make loans only to other County funds subject to the following restrictions:

1. Loan must be recorded as an account receivable in the ISF’s financial records;

2. Loan must be repaid with interest and interest computed at the same rate that the ISF would have earned had the loan not been taken place;

3. Loan period must not exceed 36 months; 4. Loan must not impact adversely on the ISF’s current cash requirements; 5. Loan must be included in the measurement of the ISF’s assets for any actuarial

purpose; and 6. Loan agreement must include a clause that permits the ISF to demand

accelerated repayment of all or any part of the loan if its cash requirements so dictate.

(Source: SCO Handbook of Cost Plan Procedures for California Counties


• Considerations for using an ISF

A. Transparency

The rate development process should openly disclose the projected units of service and/or product to be provided with the projected expenditures (type and dollar amount) necessary to provide the service and/or product.


• Considerations for using an ISF (cont’d)

B. Efficient use of Resources

The use of an ISF segregates financial reporting for ISF operations from the rest of the Central Service Departments that should enhance responsiveness to changes in demand.


• Considerations for using an ISF (cont’d)

C. Requires Long-Term Planning

The ISF should consider the cost of repairing and/or replacing equipment in the development of rates.

Allows the operation to plan for retirement of ISF assets.


• Considerations for using an ISF (cont’d)D. Better Management and Control

The development of rates provides a tool to compare ISF rates to comparable services provided by the private sector for competitive analysis.

E. Aids management in identifying where operational inefficiencies may be: - inefficient output per unit of input- cost effectiveness of inputs to generate output- cost structure of inputs


• Potential Limitations of using an ISF

A. Lack of Flexibility

The ISF may not be able to adjust rates timely to reflect changes in demand

- demand nature of users

(in tight budgetary times users may postpone use of services and/or products until later in the budget year thus giving a “false” demand reading at mid-year)


• Potential Limitations of using an ISF (cont’d)B. User uncertainty about ISF Rates

The user department is unable to estimate ISF rates from year to year for their budgeting/planning purposes as many ISF input variables are not readily available or projectable:

- salary and benefits changes- ISF staffing level- reserve level - demand from other users

Internal Service Funds• Potential Limitations of using an ISF (cont’d)

C. Potential for “excess reserves”

The management of the ISF may develop rates with an aggressive replacement/repair program but not spend the reserves in accordance with program terms thereby accumulating reserves in excess of what is required to operate the ISF.

The users of the ISF would have then been overcharged for the services and/or products received.


• Potential Limitation for using an ISF (cont’d)

D. Lacks economy of scale

The ISF may be unable to provide competitive rates as compared to the private sector due to a smaller customer base and/or product volume.


• Review of ISF rates

A. Auditor-Controller/Treasurer-Tax Collector (ACTTC)

1. Review the rates for reasonableness of: - input costs

- output estimates

- methodology used to allocate costs

Internal Service Funds• Review of ISF rates (cont’d)

B. Cost of reviewThe cost of each review depends on the complexity and accuracy of the rate study prepared by the ISF. The ISF can assist with an efficient review by: 1.Preparing a thorough work document that:

– states the assumptions used to allocate overhead – identifies the input costs with assumptions– identifies the projected service and/or product level

with assumptions – prepares support documents that are properly

cross-referenced and tickmarked– formulas in spreadsheets should be documented

and easy to follow 2. Respond to questions timely

Internal Service Funds• Review of ISF rates (cont’d)

C. ACTTC vs. External Auditor1. Review Process

The review process will be essentially thesame as the cost accounting principles thatunderlie rate development arestandardized

2. Cost EffectivenessThe cost effectiveness will depend upon:a. experience of reviewerb. cost structure of reviewer’s entityc. adequacy of the ISF work documents

ISF WorkshopInformation Technology Services

Department

Voice Communications Information Technology

ITSD Wireless (Radio Shop) PeopleSoft Operations

ITSD – Fund Composition

• Three separate Internal Service Funds (ISF)• Four distinguishable services:

– Fund 1020 – IT Services and Network Operations– Fund 1030 – PeopleSoft Operations– Fund 1080 – Telecommunications

– Radio Operations (ITSD Wireless)

Each fund will be presented separately

– Institutional network with secure government to government connections.

– Enterprise applications – email and internet.– Secure Desktop environment .– Application hosting and database support.– Secure Data storage, backup and recovery.– Consultant services – analysis, programming, application

design, technology planning and project management.– Security services and appropriate use investigations. – HIPAA security administration.

ITSD – Fund 1020Basic Services Provided

ITSD – Fund 1020Service Metrics

Service metrics for last year:10,228 calls for PC support 436 printers repaired7,938 Security requestsCompleted HIPAA, Medi-Cal and CERTNA audits121 PC forensic investigations completed3,529 application support requests completed8.2 million transactions are processed on the network each day6,000 connections are blocked by our Firewalls each minute5.2 million emails are processed monthly4.5 million spam emails blocked each month120,000 virus or malware instances were blocked each month

ITSD – Fund 1020 How are service levels determined?

• Service Level Agreements.• Customer requests for specific services.• Mandated requirements either for a single

customer or countywide.• Downtime avoidance.• Risk avoidance.• Technology driven changes.• Ability of the customer to fund services.

ITSD – Fund 1020 Types of Costs

• Rate Recovered Costs (89%):– Those costs specific to the production of a

service or function which can be purchased by a customer.

• Direct Costs (11%):– Those costs which are charged directly back

to a customer. No overhead is added to direct costs. Most common direct costs are for hardware or software requested by the customer.

ITSD – Fund 1020 How are rates calculated?

• Cost Estimation:– Historical costs are reviewed.– New estimates are obtained where costs are not

set contractually.– License levels are reviewed and adjusted based

on input from customers.– Costs are accumulated in cost centers that

represent specific services.– New functions or changes are estimated with a

cost benefit completed for 1(+) useful life cycle.

• Rate Calculation:– Costs are accumulated in Cost Centers.– Indirect costs are added to the Cost Center

based on the percentage of overall cost in that Cost Center.

– Resultant total cost within a Cost Center is divided by the metric associated with the service that Cost Center represents calculating the rate for that Cost Center.

ITSD – Fund 1020 How are rates calculated? (cont.)

• With each service is associated a cost center and a rate metric.

• Rate metrics are relative to the service and indicate a measure of how costs are incurred.

• Customers can determine how many of a rate metric they wish to purchase each month, thus providing some control of their IT costs.

• The simplest example is an I-Net login.

ITSD – Fund 1020What are rate metrics?

ITSD – Fund 1020Rate Example

• I-Net login - $4.85 / person / month• Recovers costs for 1 security position, 1 help desk

position, related software and 2% of ITSD indirect costs.

• Costs associated with establishing and maintaining logins total $369,397 for FY 09/10.

• 6,348 logins times 12 months is 76,176 per year.• $369,397 divided by 76,176 is $4.85 / month.

ITSD – Fund 1020 Why are historical costs used to calculate the rates?

• Historical costs and metrics in addition to projected costs are the basis for overall budget and cost recovery rate development.

• Historical costs are adjusted by changes to policy or practices, new quotes from vendors, changes in the type of services and other various influencing factors.

• Historical costs on their own are not a strong enough base for accurate cost recovery.

ITSD – Fund 1020Cost Allocation to Customers

• Direct Costs are fully allocated to the customer without additional overhead or processing charge – pass through costs.

• Rated costs are allocated based on the rate metrics used by the Department.

• All costs are billed monthly in arrears unless it is a one time annual payment.

• Each month reflects the changes customers requested in the previous month.

ITSD – Fund 1020Cost Containment

• Return On Investment (ROI) analysis at each acquisition / replacement milestone.

• Lease / Purchase to spread costs across useful life.

• Useful life analysis to avoid high repair costs and emergency replacement costs.

• Energy efficient equipment and facilities. • Aggressive negotiations with software vendors.• Monitor expenses and revenues closely.

ITSD – Fund 1020Cost Containment (continued)

• Work closely with customers to eliminate unnecessary licenses, features.

• Leverage Open Source tools to replace commercial software where risk allows.

• Plan beyond the budgetary cycle and include long range goals that coincide with industry directions.

• Avoid “Bleeding Edge” technology and the “WOW Factor” – trust the numbers instead.

ITSD – Fund 1020Cost Containment (continued)

• Fixed cost challenges:– Rent– Power– Software Applications– Labor

• Variable cost challenges:– Software Licenses– Hardware costs– Rental personal computers

ITSD – Fund 1020 Overview of reserves held by ISF?

Reserves for Fund 1020 as of August 12, 2009 = $5,927,031Allocated as follows:

$ 950,000 excess retained earnings.$1,300,000 designated for Data Center Infrastructure upgrades.$ 431,468 designated for replacement UPS, Data Center and 21st Floor.$3,245,563 operating capital reserve.$5,927,031 Total

• Target for 60 day operating capital reserve: $3,616,438• This analysis is based on actual cash available as of August 12th.• Cash is monitored daily and depending on payments in process and

relationship to billing cycle, total on hand will vary.

ITSD – Fund 1020 How are reserves managed by the ISF?

• Excess reserves are returned through rate reductions and any shortage in reserves are collected through rate increases.

• Designations should be used for major capital expenditures with the replacement cost collected over the useful life of the capital asset.

• Cash on hand is monitored daily to detect trends that result in negative end of year balances. Early action is imperative to offset revenue shortfalls or expense overages.

PeopleSoft Operations - Fund 1030 Basic Services Provided

• Operates and Maintains the enterprise wide Human Resources and Financial Management System.

• Human Resources system provides payroll and employee benefits support.

• Financial system processes all financial transactions for the County and some non-County organizations.

PeopleSoft Operations - Fund 1030 Basic Services Provided FY 09

• 205,238 paychecks. • 890,535 Financial transactions (journal, voucher, & deposits).• 7,548 employee benefit statements.• Upgraded HR system from 8.9 to 9.0• Archived oldest three years of selected HR data.• New self service functions (address, phone and contact info).• New drill-down functionality for selected reports.• Clean-up of old asset data and improved asset reporting. • Implemented automated interfaces with all employees benefit

providers.

PeopleSoft Operations - Fund 1030 Basic Services Provided FY 09 (cont.)

• Provided support for pending legal actions.• Eliminated centralized printing of PeopleSoft

reports.• Automated distribution of financial system reports

to outside entities via email.• Support for the FY10 Budgeting process.• Implemented automated support and reporting for

mandatory and voluntary furlough, etc.• Implemented a new leave plan.• Improved data security for outside interfaces.

PeopleSoft Operations - Fund 1030 How are service levels determined?

• Meeting mandated accounting changes such as tax updates.

• Meeting payroll and bank deposit deadlines.• Completing benefits enrollment in a timely

manner.• Working with Auditor, Personnel, CAO and

Purchasing to meet day to day processing needs.• Working with customer departments to meet a

variety of their needs.

PeopleSoft Operations - Fund 1030 How are rates calculated?

• Rate Recovered Costs (100%):– All costs are recovered via two rates, one for

Human Resources and one for Financial.– Costs are primarily labor, software and ITSD

rated expenses.– Costs from ITSD are Board approved rates as

provided to all customers. No other ITSD overhead is included in PeopleSoft costs.

PeopleSoft Operations - Fund 1030 How are rates calculated?

Human Services Rate:• Total HR costs divided by the total number of

pay checks generated in the previous year.

Financial Management System Rate:• Total Financial costs divided by the total number

of transactions (journals, vouchers and deposits) from the previous year.

PeopleSoft Operations - Fund 1030Cost Allocation to Customers?

Human Services Costs:• Actual number of pay checks generated in the

previous month billed in arrears.

Financial Management System Rate:• Actual number of transactions (journals, vouchers

and deposits) processed in the previous month, billed in arrears.

PeopleSoft Operations - Fund 1030Cost Allocation to Customers? (cont.)

Organizations other than County Departments use the PeopleSoft Financial system. These agencies are billed using the same rates on paper bills.

Schools and Cemetery Districts are mandated to use Fresno County Treasury. By statute we cannot charge them for their share of the cost and must carry the cost as a general fund obligation.

PeopleSoft Operations - Fund 1030 Overview of reserves held by ISF?

Reserves for Fund 1030 as of August 12, 2009 = $1,099,300Allocated as follows:

$ 600,000 designated for upgrade of Financial Management System$ 499,300 operating capital reserve$1,099,300 Total

• Target for 60 day operating capital reserve: $ 461,000• This analysis is based on actual cash available as of August 12th.

• The total cash on hand will be reduced by making two large payments for annual software licenses in the next 60 days.

Telecommunications - Fund 1080 Basic Services Provided

• Comprehensive voice communication system. • Integrated IVR, call tree and voice mail services.• Cellular phone administration.• Network Fax services.• Voice and Data infrastructure wiring.• Voice network management.• Live County Operators.• Contract Management for voice related services

and materials.

Telecommunications - Fund 1080 Service Metrics

• Administer 1,353 cell phone accounts• Approx. 10,000 phone lines in 250 locations (includes emergency and alarm

lines, does not include Sheriff’s Dispatch lines)• Number of calls for service 2,113• Point-of Sale devices: 150 • FAX machines: 927• M/A/C: 703 • Number of WATS (800) Number calls 9,636• Setup for 3 Elections: phone banks (40 to 100 telephones) and 40 cell phones• JJC Courthouse: 300+ telephones, MAGEC: 50+ telephones, Fowler Library• Abandoned locations closed down: 10+ sites and 100+ telephones• IVR Systems: 4 (CUBS, Jury, Elections & HEAT)

Telecommunications - Fund 1080What is recovered by rates?

• Rate Recovered Costs (47%):– A single rate recovers labor, phone system

maintenance, depreciation and all indirect costs.

• Direct Costs (53%):– Commercial phone bills, cellular phone costs,

long distance charges and cabling costs are all charged back directly to the customer who incurred the cost. No overhead is added to direct costs.

Telecommunications - Fund 1080How are rates calculated?

• Single rate is based on Equivalent Units (EU) which is an averaging process based on original cost.

• Original cost of the phone equipment, divided by $100 gives an equivalent unit or EU number.

• All rate recovered costs are divided by the total number of EU, giving the cost recovery rate.

• The rate is applied monthly in arrears to all phone equipment in service the previous month.

Telecommunications - Fund 1080How can customers impact their costs?

• Phones can be disconnected.• Phone models can be changed, single line to

multi line, etc.• Monitor long distance costs.• Review cell phone bills.• Eliminate unused or underused phones.• Remind staff to use 5 digit dialing for in County

calls.

Telecommunications - Fund 1080Overview of reserves held by ISF?

Reserves for Fund 1080 (voice only) as of 8/12/09 = $4,465,468Allocated as follows:

$4,531,592 Equipment depreciation.$ (66,124) Operating capital reserve.$4,465,468 Total

• Target for 60 day operating capital reserve: $ 687,960• This analysis is based on actual cash available as of August 12th.• The operating capital negative balance reflects the payment of $650,000

in CalNet II phone bills not yet billed back to Customers.• Cash is monitored daily, total on hand will vary.

ITSD Wireless (Radio Shop) - Fund 1080 Services Provided

• Maintain enterprise wide microwave based radio network.• Procure, configure, install and support mobile, hand held and fixed base radios.• Support EMS and Sheriff Dispatch locations.• County wide pager system.• Radio frequency compliance and planning.• Contractual support for Madera County Sheriff radios.

ITSD Wireless (Radio Shop) - Fund 1080Services Metrics

Maintain and service: 3,000 Mobile and portable radios 33 fixed locations for receivers, transmitters and microwave 80 base stations and 350 receivers 1,500 pagers 19 licensed, 12 un-licensed microwave pathsEmergency Radio System at 8 HospitalsParamedic Ambulance to Hospital call in networkMaintain 120 FCC LicensesActive in the First Responder Interoperability effort: APCO – Associated Public Safety Communications Officers PSRSPC – Public Safety Radio Strategic Planning Committee CALSIEC – Calif. Strategic Interoperability Executive Committee FUAWG – Fresno Urban Area Work Group

ITSD Wireless (Radio Shop) - Fund 1080How are service levels determined?

• Customer support needs.• Interaction with customers on response times.• Comparison of rates and services to commercial providers.• Mandated changes to the communications environment.• Technology changes outside the normal refresh process.• Ability of customers to fund services.

ITSD Wireless (Radio Shop) - Fund 1080How are rates calculated?

• Rates are based on a specific service.• Costs relative to that service are accumulated.• Accumulated costs are divided by the metric associated with that specific service.• Rates based on hardware metrics may contain depreciation costs where appropriate.• Resultant rate is billed monthly in arrears for actual use.• Labor is billed hourly to the customer who incurred the work.

ITSD Wireless (Radio Shop) - Fund 1080Overview of reserves held by ISF?

Reserves for Fund 1080 (Radio Shop only) as of 8/12/09 = $320,459Allocated as follows:

$ 0 Equipment depreciation is in transition.$ 320,459 Operating capital reserve.$ 320,459 Total

• Target for 60 day operating capital reserve: $ 341,265• This analysis is based on actual cash available as of August 12th.• Depreciation reserve was still being calculated at the time of this

publication due to the recent transfer of the Radio Shop to ITSD.• Cash is monitored daily.

ITSDDirections

What we want to change:• Combine like functions from each ISF.• Standardize budget and billing.• Lease purchase across useful life for equipment if cost effective.• Merge Voice, Data, Radio and Video networks where efficiency can be improved and costs avoided.• Replace existing phone system with new technology to reduce operational costs and improve efficiency.• Increase emphasis on IVR, conference call and video technology to harvest savings.

ITSD Directions (cont.)

Challenges:• Narrow Band conversion Federal Mandate 2012 and 2018.• Windows XP to Windows 7, skipping Vista.• Increased security requirements - NIST.• Disaster Recovery Site for County Data Center.• Complete the infrastructure updates at the County Data Center.• eDiscovery implications.• Internet and Social Networking.

Opportunities:• Thin client desktop.• Disaster Recovery Site.• Increased use of wireless technology.• Energy saving equipment and energy management practices.

ISF Workshop General Services

Fleet Services Graphic Communication Services

Facility Services Security Services

Fleet Services Internal Services Fund

Fleet Services ISFServices Provided

• Maintenance and repair of vehicles & equipment• Acquisition of vehicles & equipment• Fueling stations• Motor pool rentals

Fleet Services ISFService Level

• User department requests for vehicles/equipment

• Mandated and regulatory requirements– Fuel tank replacement and inspections– Equipment retrofit (CARB)– Smog checks

• Technological changes

Fleet Services ISFService Level

Miles driven by rate class (FY 2007-08)

Rate Class Description FY 07-08A02 Mid Sized Autos 3,784,340A03 Full Size Autos 714,547A06 Hybrid Vehicles 154,895T01 Compact PU 770,143T02 1/2 ton PU 1,640,491T03 3/4 ton PU 463,723T04 1 ton PU, 4x4 3/4, 3/4 Utility 530,761V02 Minivan 812,086V03 3/4 ton Van 116,180V04 1 ton Van 417,733

Motor pool requests (FY 2007-08)– Total Request for Motor Pool Vehicles 3,826– Total Number of Days Vehicles were Out 15,386

Two major elements:

A. Mileage/Meter Rate• Maintenance• Inventory Purchases (repair and maintenance parts)• Fuel - This line item is 33% of the Fleet Services

budget that is driven by market conditions/cost and fluctuations which is not a controlled cost.

B. Fixed Rate• Includes all other operational costs: data processing

services, small tools, and PeopleSoft charges, etc.• Fleet Services utilizes the Producer’s Price Index to

compute monthly inflation rate (recommended in an audit by the Auditor/Controller)

Fleet Services ISFRate Calculation & Allocated Costs


Costs are allocated to user departments based on usage, i.e. number of vehicles assigned, miles driven, motor pool requests, etc.


Rates calculated based on:• Historical costs (accumulated by shop)• Anticipated program changes• Contract increases• Cost increases for uncontrollable

commodities, i.e. fuel• Service levels as requested by user

departments• Cost accounting principles and methodology• 100% recovery of operational costs


Historical vehicle/equipment costs (FY 2005-06 – FY 2007-08)

Rate Class Description Vehicles Deprec Misc Parts Labor TotalA02 Mid Sized Autos 525 453,920 27,658 149,265 497,023 1,127,865A03 Full Size Autos 97 85,250 4,524 37,734 117,473 244,983A06 Hybrid Vehicles 17 58,316 192 22,310 13,519 94,336T01 Compact PU 89 81,977 2,220 90,029 83,958 258,183T02 1/2 ton PU 150 152,547 2,728 223,573 178,241 557,089T03 3/4 ton PU 41 54,342 814 92,208 62,659 210,022T04 1 ton PU, 4x4 3/4, 3/4 Utility 51 98,298 1,421 72,241 65,589 237,549V02 Minivan 130 127,391 3,577 112,360 133,033 376,362V03 3/4 ton Van 19 7,574 241 17,319 18,209 43,344V04 1 ton Van 66 75,229 1,331 97,412 93,211 267,183

Fuel costs for FY 2004-05 - FY 2008-09


Gallons Average Cost/GallonFiscal Year Dispensed Cost Unleaded Diesel

FY 04-05 1,839,902 $3,908,969 2.14 2.08FY 05-06 1,776,514 $4,657,867 2.62 2.65FY 06-07 1,784,721 $4,586,829 2.59 2.48FY 07-08 1,780,779 $5,431,990 3.00 3.17FY 08-09 1,604,129 $4,777,365 2.97 3.15

Fleet Services ISFCost Reductions

What departments can do?

• Return underutilized vehicles/equipment• Ensure semi-annual maintenance is performed• Monitor/control miles driven and fuel consumption

by reviewing monthly billings

Fleet Services ISFReserves

• As of 6-30-09, there was $6,702,878 held in reserves to support fixed asset purchases and operations.

$ 2,032,700 Designed for fixed asset purchases$ 2,098,178 Equipment depreciation$ 2,572,000 Operating capital reserve$ 6,702,878 Total

• Target for 60 day operating capital reserve: $2,572,000• Cash is monitored daily and depending on payments in

process and relationship to billing cycle, total on hand will vary.

• Departments are billed on a monthly basis in arrears

Graphic Communication Services Internal Services Fund

Graphic Communication Services ISFServices Provided

• Postal services• Countywide messenger mail service• Graphic design services• Central printing• Copy services

Graphic Communication Services ISFService Level

• User department requests for postal services, Countywide messenger mail service, graphic design services, central printing and copy services

• Technological changes


• Postage expense based on user department postage needs– FY 2007-08 $2,039,649– FY 2008-09 $2,015,300– Postal increases:

• May 2007 $.02• May 2008 $.01• May 2009 $.02• May 2010 $.02 - $.04

• Number of copies requested by user departments– FY 2007-08 6,500,000– FY 2008-09 8,500,000– Copy costs:

• FY 2007-08 County $.029 Kinko’s $.04 plus tax• FY 2008-09 County $.030 Kinko’s $.04 plus tax• FY 2009-10 County $.026 Kinko’s $.04 plus tax


• County messenger mail service stops– FY 2008-09 267 locations– FY 2009-10 137 locations

– In FY 2009-10, the method in which charges to user departments for County messenger mail services changed to a per stop charge. User departments were able to consolidate stops based on their needs.

Graphic Communication Services ISFRate Calculation

Rates calculated based on:

• Historical costs (accumulated by type of service)

• Anticipated program changes

• Contract increases

• Cost increases for uncontrollable services, i.e. postage

• Service levels as requested by user departments

• Cost accounting principles and methodology

• 100% recovery of operational costs

Costs are allocated to user departments based on usage

Graphic Communication Services ISFCost Reductions


• Monitor/control services requested by reviewing the monthly billings

Graphic Communication Services ISFReserves

• There currently is $66,000 in reserves held by Graphic Communication Services. In 2003, a PeopleSoft interface error occurred, which resulted in a deficit of $689,290. A deficit recovery plan was established in conjunction with the Auditor-Controller to reduce the deficit. As of August 1, 2009, the deficit has been eliminated.

• Target for 60 day operating capital reserve: $677,157

• Cash is monitored daily and depending on payments in process and relationship to billing cycle, total on hand will vary.

• Departments are billed on a monthly basis in arrears

Facility Services Internal Services Fund

Facility Services ISFServices Provided

• Operations and maintenance of County facilities necessary to preserve its fixed assets

• Janitorial services in County owned and many leased facilities

• Custom services such as remodeling, modifications and furniture moves

• Voice and data cabling as requested through ITSD

Facility Services ISFServices Level

• Requirements to preserve and maintain County facilities and equipment– Preventive maintenance– Repairs for infrastructure/equipment failures– Replacement of infrastructure/equipment as

recommended by manufacturer and industry standards

• Mandated requirements– Permits– Load Tests

• Technological changes• User department requests for extra services

Facility Services ISFServices Level

• Basic Services– Structure - Plumbing– Utilities - Basic janitorial– Pest Control - Window washing– Maintenance painting - Generators– Fire extinguishers - Elevators– Basic locksmith - Damage in common areas– Fire sprinklers - HVAC – Maintenance floor replacement– Safety issues – spills, hazardous situations, security

• Extra Services– Remodeling– Furniture moves– Services beyond basic janitorial– Inmate Damages– Cabling requests from ITSD-Communications– Replacement of lost or unrecovered keys and rekeying due to unrecovered

keys, etc.

Rates calculated based on:

• Historical costs (accumulated by facility/campus)

• Anticipated program changes

• Contract increases

• Cost increases for uncontrollable services, i.e. utilities

• Service levels as requested by user departments

• Cost accounting principles and methodology

• 100% recovery of operational costs

Facility Services ISFRate Calculation & Allocated Costs

Facility Services ISFRate Calculation & Allocated Costs

• Costs are allocated to user departments based on facility and, for multi-use facilities, square footage of occupied space. Costs associated with services provided to leased facilities are charged through direct billings to user departments.

Bldg Dept.Square Footage

% sq ft of BLDG Labor Material Utilities

Plaza Janitorial

Debt service - Energy project

Total by Bldg.

610 A 9,801 4.75% 31,683 25,207 30,495 9,812 8,804 106,000610 B 9,801 4.75% 31,683 25,207 30,495 9,812 8,804 106,000610 C 1,999 0.97% 6,462 5,141 6,220 2,001 1,796 21,620

Facility Services ISFCost Reductions


• Monitor/control extra services requested, such as increased level of janitorial services

• Practice energy conservation• Plan in advance for relocation/vacancies• Review monthly billings

Facility Services ISFReserves

• There are currently no reserves held by Facility Services. As a result of budget constraints, it was determined that it would be inappropriate to increase rates to user departments for operating and replacement reserves. Future budgets will include recovery for such reserves. In FY 2009-10, $175,000 was budgeted in the Interest and Miscellaneous Expenditures budget for emergency repairs.

• Target for 60 day operating capital reserve: $4,045,817• Cash is monitored daily and depending on payments in

process and relationship to billing cycle, total on hand will vary.

• Departments are billed on a quarterly basis in advance

Security ServicesInternal Services Fund

Security Services ISFServices Provided

• Security of County facilities/grounds and employees

• County parking program• Centralized County identification badge services• County high security access control system• Transport services for LPS conservatees

Security Services ISFService Level

• Requirements to provide security services for County facilities/grounds and safety of employees

• Mandated requirements– Fire/intrusion monitoring, alarm maintenance and repair– Fire inspections/drills

• Technological changes• User department requests for extra services

– Additional security services, i.e. security officers posted at stations as requested by user departments

– New requests for installation and activation of security access control system

– Transport services for LPS conservatees

Security Services ISFRate Calculation & Allocated Costs

Rates calculated based on:• Historical costs (accumulated by type of service)• Anticipated program changes• Contract increases• Service levels as requested by user

departments• Cost accounting principles and methodology• 100% recovery of operational costs

Security Services ISFRate Calculation & Allocated Costs

• Costs are allocated to user departments based on facility and, for multi-use facilities, square footage of occupied space.

Security Services ISFCost Reductions


• Monitor/Control extra services requested by reviewing monthly billings

Security Services ISFReserves

• As of 6-30-09, there was $289,686 held in Reserves, which is about 20 days of operating capital reserve

• Target for 60 day operating capital reserve: $815,750

• Cash is monitored daily and depending on payments in process and relationship to billing cycle, total on hand will vary

• Departments are billed on a quarterly basis in advance

RISK MANAGEMENTINTERNAL SERVICE FUND

RISK MANAGEMENT ISF

• Administers:– Workers’ Compensation– General Liability – Medical Malpractice– Unemployment Insurance– Vehicle, Property and other insurance programs– Group Health, Prescription, Life, Disability, Deferred Compensation and

other benefit programs

• Maintains PeopleSoft Human Resource Management System (HR/Benefits)

• Directs County Safety Program

Risk Management Program AllocationTotal 2009-10 Budget $102.5M

(in millions)

Workers' Compensation, $16.9

Unemployment Ins., $1.0

General Liability, $5.6

Benefit Administration, $1.2

Health Programs, $76.7

All Other, $1.1

RISK MANAGEMENTRETAINED EARNINGS/(DEFICIT) SUMMARY

ESTIMATED 6-30-09

(30.0)

(20.0)

(10.0)

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Workers'Compensation

UnemploymentIns.

General Liability BenefitAdministration

Health Programs All Other Total

(IN

MIL

LIO

NS

)

Reserve Net Assets Retained Earnings/(Deficit)


(in millions)


All Other, $1.1




Workers' Compensation,

$16.9

• Coordinate management of workers’ compensation claims between departments and third party administrator (TPA).

• Monitor TPA to ensure effective service delivery.• Review and recommend settlement proposals.• Assist departments in the interactive process for

industrial and non-industrial conditions.

WORKERS’ COMP. PROGRAMServices Provided

OutcomesPrevent injuries to County employees; Mitigate costs where

injuries do occur; Facilitate proactive resolution of all claims in order to get injured employees back to the level of productivity

experienced prior to the occurrence of any injury.

COST REDUCTION EFFORTSWORKERS’ COMPENSATION

• Loss Prevention Training (ergonomic, Defensive Driving, etc.)

• Proactive On-site Safety Inspections to assist departments in identifying and resolving issues

• Proactive approach in determining AOE/COE issues• Proactive Claims Management• Triennial WC & Safety Coordinator Meetings• Continued Updating of Intranet Site

WORKERS’ COMPENSATION ALLOCATED PROGRAM COSTS

• Salaries and Benefits (6 positions)

• Operating Services and Supplies

• Direct Program Services and Supplies– Claim Costs (disability, medical, legal,

administration)– Self Insured State Assessment– Excess Insurance Coverage (SIR $500,000)

WORKERS’ COMPENSATION FUNDING POLICY

• Approved by Board on 4-29-03

• Fully fund each year’s estimated claims/program cost

• Adopt a flexible “confidence level” to permit annual program funding within a confidence range of 75% to 85%

• Amortize deficit over 10 year period

WORKERS’ COMPENSATION FUNDING POLICY

• 2007-0875% Conf. Level , no deficit recovery

• 2008-9 70% Conf. Level, no deficit recovery

• 2009-10 75% Conf. Level, $1M deficit recovery

Due to the downturn in the economy and overall financial hardships facing the County, the Board has waived the funding policy the last three fiscal years as shown below:

Actuarial• $18.1

• $18.8

• $20.1

Adopted• $14.2

• $14.6

• $16.7

WORKERS’ COMPENSATION RATE CALCULATION

• Annual Actuarial Study is performed to determine Countywide Charge

• Departmental Allocations are based on 80% historical incurred claim costs (7 yrs) and a 20% exposure component – consistent with the State Controller guidelines

• Total incurred cost per claim is capped at $50,000 to minimize significant departmental rate fluctuations resulting from a single large claim


(in millions)



$16.9




All Other, $1.1

• Manage tort claims for damages against County.

• Coordinate cases with defense attorneys.

• Maintain case reserves to reflect true exposure.

• Ensure compliance with Claims Filing Statute.

• Represent County in settlement negotiations and court proceedings.

GENERAL LIABILITY PROGRAMServices Provided

OutcomesEducate departments on safe and appropriate work practices in order to prevent claim accrual; Mitigate costs where claims do

occur; Facilitate proactive and effective resolution of all claims.

COST REDUCTION EFFORTSGENERAL LIABILITY

• Mandated Harassment Training• Loss Control Visits• Proactive Claims Management• Updated Risk Management Intranet Site• More Expansive Contract Review• Defensive Driving Training Program• Proactive On-site Safety Inspections to assist

departments in identifying and resolving issues

GENERAL LIABILITY ALLOCATED PROGRAM COSTS

• Salaries and Benefits (5 positions)


• Direct Program Services and Supplies– Claim Costs (judgments, settlements,

medical, legal, administration)– Excess Insurance Coverage (SIR $750,000)

GENERAL LIABILITY RATE CALCULATION

• Annual Actuarial Study is performed to determine Countywide Charge

• Departmental Allocations are based on 80% historical incurred claim costs (7 yrs) and a 20% exposure component – consistent with the State Controller guidelines

• Total incurred cost per claim is capped at $50,000 to minimize significant departmental rate fluctuations resulting from a large claim


(in millions)


All Other, $1.1



Benefit Administration,

$1.2


$16.9

• Personnel Processing

• Ancillary/Voluntary Benefits

BENEFITS ADMINISTRATIONSEVICES PROVIDED

• Personnel Records Management

• Personnel Transaction Approval

• Peoplesoft HCM Coordination


PERSONNEL PROCESSING

OutcomeEnsure accurate, timely personnel transactions

and benefits eligibility that comply with applicable County policies and federal/state law.

Personnel Records Management• Online PAN/JCI Forms• Department Query Access• Enhanced Web Site

Personnel Transaction Approval• Department Engagement/Education• Exploring Third Party Services

Peoplesoft HCM Coordination• Online Open Enrollment• Increased Reporting/Access to Departments

BENEFITS ADMINISTRATIONCOST CONTAINMENT EFFORTS

PERSONNEL PROCESSING

• Negotiated Benefits Administration

• Voluntary Benefits Administration


ANCILLARY/VOLUNTARY BENEFITS

OutcomeOffering quality benefits for County employees,

attracting qualified candidates, and saving money for the County and employees.

Negotiated Benefits Administration• Online PAN/JCI Forms• Department Query Access• Enhanced Web Site

Voluntary Benefits Administration• Department Engagement/Education• Exploring Third Party Services

BENEFITS ADMINISTRATIONCOST CONTAINMENT EFFORTS

ANCILLARY/VOLUNTARY BENEFITS

BENEFIT ADMINISTRATION ALLOCATED PROGRAM COSTS

• Salaries and Benefits (5.5 positions)


• Direct Program Services and Supplies– Advance Disability Retirement Payments

(reimbursed by retirement/employee)

BENEFIT ADMINISTRATION RATE CALCULATION

• Total estimated cost to fund the program for the upcoming year is calculated

• Total estimated cost is divided by the projected number of positions

• The resulting benefit administration cost per position is published in the CAO’s Budget Instructions

• Retained Earnings/Deficits are returned or collected over a 3 to 5 year time frame


(in millions)


All Other, $1.1





$16.9

• Health Insurance Eligibility

• Health Insurance Administration

HEALTH ADMINISTRATIONSEVICES PROVIDED

OutcomeProvide quality, cost-efficient health insurance

programs to County employees, their dependents and retirees.

Health Insurance Eligibility• Online Employee Enrollment• Electronic Eligibility Feeds to Vendors• Streamline Processes• Third Party Administrator Consolidated Billing

Health Insurance Administration• Dependent Eligibility Audit• Explore Purchasing Coalition Options• California Health Care Coalition• Employee Engagement Project

HEALTH ADMINISTRATIONCOST CONTAINMENT EFFORTS

HEALTH ADMINISTRATION ALLOCATED PROGRAM COSTS

• Salaries and Benefits (6.5 positions) • Operating Services and Supplies• Direct Program Services and Supplies

– Health Plan Costs (Health, Dental, Vision, Prescription, Mental Health)

• The total cost of health plans are a pass thru of actual costs which are funded by employees and the County’s contribution toward employee health plans (a prescription rate is calculated by the Health Benefit Consultant to recover estimated costs of the totally self insured prescription program

• The total cost of health plans for retirees are entirely funded by retiree participants

– Employee Assistance Program– Health Benefit Consultant

HEALTH ADMINISTRATION RATE CALCULATION

• Total estimated cost to fund the program for the upcoming calendar year is calculated

• Enrollment of the County population and retirees is separated by the number of employee only, employee + spouse/children and employee + family

• The resulting administration cost is allocated by the breakdown listed above, where the rate increases for employee + populations

• Retained Earnings/Deficits are returned or collected over a 3 to 5 year time frame

RISK MANAGEMENT ISF

QUESTIONS

Central Warehouse ISF

Transitioning from ISF to General Fund Central Service Program

Effective July 1, 2010

Central Warehouse ISFServices

• Supply and distribution of 93 different paper products and other supplies (gloves, can liners, etc.)

• Annual inventory purchases of $1.2 million • Secure warehouse storage of department items• Rental on storage containers both on-site (34)

and off-site (4)• Administer county-wide shredding contract

Central Warehouse ISF Costs

• Annual Operating Budget of $1.44 million• Inventory Costs (75%) • Salaries and Benefits (12%) • GSA Services Costs - Fleet, Buildings and

Grounds, Facility Services (8%)• Other ISF Costs - PeopleSoft, Data Processing,

Liability Insurance, etc. (3%)• Other - (2%)

• The gradual reduction in the number of inventory items carried by the Central Warehouse has reached the point where it is no longer an efficient use of resources to operate as an ISF.

• There are more cost effective means for departments to order supplies directly from the vendors.

• The Central Warehouse no longer meets the requirements to function as an ISF.

Why Transition the ISF to a General Fund Central Service Program?

Services to be Provided as a General Fund Program

• Storage of departmental inventory items (paper towels, janitorial supplies, toilet paper, copy paper, envelopes, etc.)

• Shipping and receiving for the County• On-request delivery of storage items to

departments• Administer county-wide shredding contract

Projected FY 2010/11 Costs as General Fund Program

• Warehouse Operation Expenses $199,020

• Offsetting Warehouse Operation Revenues ($139,300)

• Net County Cost $ 59,720

Central Warehouse Next Steps

• September 2009 - Departments notified that Central Warehouse ISF is transitioning to Central Service General Fund Program

• April 2010 - Purchasing adds departments to current vendor contracts for inventory items

• May 2010 - Warehouse stops buying inventory

• July 2010 - Departments begin buying their own supplies

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