COUNTY ACCOUNTING
PROCEDURES MANUAL
AUDITOR-CONTROLLER, COUNTY OF ORANGE
SUBJECT:
COST APPLIED AND INTERFUND TRANSACTIONS
NUMBER:
J.1.
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
1.
POLICY
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.
1.1
Purpose
To establish a procedure for determining
and processing charges for services and materials
between departments, agencies, and districts.
1.2
Authority
Authority
Subject
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.
1.3
Definitions
1.3.1
Cost Transfer
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.
1.3.2
Cost Applied
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.
1.3.3
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.
1.3.4
Reimbursement
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.
2.
PROCEDURES
2.1
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.
2.2
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.
2.2.1
Cost Applied
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.
2.2.2
Revenue
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.
2.2.3
Reimbursement
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.
2.3
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.
2.3.1
Cost Applied
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.
2.3.2
Revenue
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.
2.3.3
Reimbursement
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.
2.3.4
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.
2.3.5
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.
2.4
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:
2.4.1
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.
2.4.2
Org (Organization)
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.
2.4.3
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.
2.5
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.
2.6
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.
2.6.1
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.
2.6.2
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.
2.6.3
Corrections
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.
2.7
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.
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