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NYS Comptroller


The Academy for New York State's Local Officials

Determining and Allocating the True Cost of Services: A Tutorial for Local Governments and School Districts

Module 2 - Accounting and Recordkeeping System

Personal Service Costs

Personal service costs (wages and salaries) and related employee benefits are a major portion of a municipality’s overall spending. Yet the manner in which these costs are allocated to related service areas is often determined by someone other than governing board members. To illustrate the problems that this can create for board members who rely on the accounting records to make important decisions regarding service delivery, consider the following common example:

In many villages, it is a common practice for the entire gross payroll of the DPW each pay period to be charged to one service area based solely on the date of the payroll with no regard for type of work being performed. For example, many villages charge the gross payroll of the DPW department to the 5142.1 account (snow removal, personal services) from December 1st of the each year to March 31st. Similar allocations of DPW payrolls are made to other service areas throughout the rest of the 12-month period based on other arbitrary methods. Other than vague entries in the DPW superintendent’s daily log book, no records are kept as to what the DPW crew was actually working on during these periods.

In many villages this practice has been in existence for so long that the personal service cost distribution in the annual budget is developed around this practice. For example, if a village’s DPW total annual budget for personal services is $120,000 and they charge four months worth of payrolls to snow removal, then the budgeted amount for snow removal salaries will be approximately $40,000. Village board members who are not involved in the day-to-day operations of the DPW, and who have no idea of how the payrolls are allocated, will come to believe that this is the actual personal service cost of removing snow in the village each year. These same village board members probably believe that the DPW superintendent and his crew are keeping hourly records each day of the various types of services being performed and that these records are then used as a method of allocating payroll costs each period. When it comes time for the village board to make important decisions regarding the funding of various DPW services, they will unknowingly do so based on erroneous information.

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