Sylvia: Basically, our policy in the City of San Luis Obispo is to avoid them. (And
we follow this policy: right now, we don't have any IS Funds).
For example, rather than setting-up an internal service fund for MIS services like
some cities do, we allocate these costs through our cost allocation plan. The end
result is the same (a reasonable allocation of shared costs, which is especially
important for enterprise operations) but with a lot less organizational effort.
We take this approach in allocating costs for a number of internal support service
costs. We don't view allocating copier costs (or vehicle maintenance costs) as being
conceptually any different than allocating costs for the City Manager's Office (or
City Attorney or Finance). I'm not aware of anyone who sets these kind of
organizational support services as IS Funds (but many distribute these kind of costs
through indirect cost allocation plans), yet the concept of charging for these
services based on use by the operating departments is no different than for any other
internal support costs (including those most-often accounted for in IS Funds).
Some specific reasons for limiting the use of IS Funds to where they are really the
only management (not accounting) solution:
o Operating departments generally don't like them; it results in charges to their
budget that they don't control. A lot of organizational energy can get consumed in
dealing with their concerns.
o It's a lot of work to correctly capture use data and set fees. If your ability to
get financial management resources is limited (mine is, at any rate), then don't you
want to enure that you are using them for the highest priority, "value-added"
services? If you're doing detailed accounting for printing or postage costs, then you
don't have the resources to do something else that might have a more meaningful
community or organizational impact.
o It can often result in a misleading picture of overall city costs. In budget
documents, IS Funds are either ignored (in which case a large part of the organization
might be overlooked); or more commonly, they are included in city-wide totals,
resulting in an overstatement of city costs (since the same costs are conceptually
included in both the operating department budget as well as the IS Fund). This is one
of the reasons why GASB Statement No. 34 eliminates IS Funds at the government-wide
level.
o One argument for IS Funds is that they improve organizational accountability (and
thus, hopefully, productivity) and resource allocation by better linking services with
fees. Maybe, but I'm from Missouri on this one.
In fact, it may obscure problems. If the vehicle maintenance staff is doing a poor
job of meeting my needs, I'm not sure how this gets improved by directly charging my
budget for it. (In fact , it seems to just add insult to injury.)
The underlying issue isn't how my budget is being charged, but whether I have reliable
transportation to meet my service needs. This should just be straightforwardly
addressed as the management (not accounting) problem that it really is. And since
the fund needs to cover its costs, if there are efficiency and effective problems, it
seems the end-result (without addressing the real problem) will simply be to increase
internal "per unit" charges than to address fundamental customer service and
productivity concerns. In short, IS Funds are often the result of looking for an
accounting solution to fix something that isn't really an accounting problem at all
(something we've accused GASB of doing with its infrastructure reporting
requirements).
o In the final analysis, IS Funds are just a cost allocation exercise. It doesn't
result in additional City resources (although it may result in a better allocation of
resources, but that's a leap of faith that I'm not likely to easily make, either). If
there are equally reasonable ways of allocating costs that get you the same basic
result, why use a harder one?
In summary, there may very well be cases where an internal service fund is really the
best accounting approach in helping solve a management problem. But I think these are
far fewer than actual practice.
In deciding to set-up an IS Fund, the primary policy considerations should be:
o Will this result in much better management of the operation?
o Will the end service delivery will be significantly better or cheaper simply
because of the way we account for it?
If the answers are "yes," then by all means set-up the IS Fund. But if the answers are
"probably not," then save your "car fare" and allocate your limited Finance resources
to something else where you can answer "yes."
Hope this was helpful. Please call me at 805.781-7125 if you have any questions.
Bill
Bill Statler, Director of Finance
City of San Luis Obispo
990 Palm Street
San Luis Obispo, CA 93405
Phone: (805) 781-7125
Fax: (805) 781-7401
Email: [EMAIL PROTECTED]
>>> "Lopez, Sylvia" <[EMAIL PROTECTED]> 2/3/00 10:57:13 AM >>>
Greetings,
I am interested in hearing from agencies about Internal Service Funds.
- Does your agency have guidelines for when to set up an Internal Service
Fund (ISF)? If so, please email or fax a copy (805-643-6315).
- Do you have policies and procedures regarding setting up a new ISF? If
so, please email or fax a copy (805-643-6315).
Thanks!
Shery Lewanda,
Budget & Finance Manager
City of San Buenaventura
>>> "Lopez, Sylvia" <[EMAIL PROTECTED]> 2/3/00 10:57:13 AM >>>
Greetings,
I am interested in hearing from agencies about Internal Service Funds.
- Does your agency have guidelines for when to set up an Internal Service
Fund (ISF)? If so, please email or fax a copy (805-643-6315).
- Do you have policies and procedures regarding setting up a new ISF? If
so, please email or fax a copy (805-643-6315).
Thanks!
Shery Lewanda,
Budget & Finance Manager
City of San Buenaventura
