Public Sector Chargeback & Cost Recovery SaaS for Shared Services Frequently Asked Ǫuestions
Public sector shared services groups are increasingly tasked with managing expenditures, reducing costs, standardizing infrastructure and leading digital transformations to drive policies and standards across their organizations. For many, however, processes have become more and more fragmented, with increasing cloud usage, multi-cloud environments, legacy systems that are no longer supported, key resource and stafﬁng gaps and the inability to add data, products, rates or new members to systems without development resources.
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State agencies are generally held to a higher standard for shared services chargeback & cost recovery compliance. However, the public sector’s large-scale movement to Software-as-a-Service (SaaS) has complicated IT shared services chargeback & cost recovery processes.
What is IT chargeback & cost recovery and how do I know if it is compliant?
- IT chargeback & cost recovery is a method of charging internal consumers (e.g., departments, functional units) for the IT services used. SaaS chargeback & cost recovery solutions consolidate usage data from multiple sources and calculate shared service billings or cost allocations based on actual usage rather than per capita or other non-consumption based methods.
- To comply with GAAP principles, “chargeback & cost recovery” requires double entry, accrual-based accounting of ﬁnancial transactions. This means an invoice to internal consumers must be generated from a ﬁnancial platform built around these principles.
- When evaluating ITSM/ITFM and other chargeback & cost recovery solutions, a good way to know if a solution complies with GAAP is to determine if it can produce a general ledger report with a credit and debit (double entry) for each transaction.
- Another indicator is whether the solution is “accrual based.” This simply means that revenue (charges to internal users) or expenses (internal invoices) are recorded when a transaction occurs versus when a payment is received. The method follows the matching principle, which says that revenues and expenses should be recognized in the same period.
How has the last two years influenced the modernization effort?
Covid forced employees to work from home or telecommute. This required IT organizations to enable users with more centralized cloud-based access and solutions. Many central IT organizations attempted to address the allocation of these expenses to internal agencies and departments. Most agree the shift to the cloud and related expenses will continue to grow.
What are the major changes in technology that have occurred?
The large-scale movement to Software-as-a-Service (SaaS) has changed both the development and delivery of shared services chargeback & cost recovery software.
- Development – SaaS solutions are inherently rich in scalability, user capability, cloud security, and system architecture.
- Delivery – SaaS chargeback & cost recovery solutions can be delivered remotely and integrated quickly and inexpensively.
Additionally, SaaS can be more secure by leveraging cloud security solutions and architecture delivered by cloud providers.
What benefits does it add; and what does it replace or supplement?
A dedicated chargeback & cost recovery solution typically has a powerful mediation engine that can consume charging data from many internal and external sources, then mediate or normalize these charges for the allocation of internal users.
This replaces most, if not all, manual data entry to record charges from any third-party or internal-solution provider. Additionally, this enables the reconciliation of actual charges against expected charges based on contracted pricing.
This reconciliation process becomes increasingly difﬁcult as IT solution delivery is shifting to individual end-user consumption or usage. A dedicated chargeback & cost recovery solution will
What challenges can IT chargeback & cost recovery solve for me?
- Unify fragmented data from legacy and multi-cloud systems.
- Modernize antiquated legacy systems by automating chargeback & cost recovery administration processes.
- Manage multiple billing models – base, consumption, labor, backup, colocation, mainframe, midrange, storage, enterprise email, mail hub, network, and software renewal. IT services pass-through
- Include vendor management capability to store and manage chargeback & cost recovery contracts.
- Automate IT chargeback & cost recovery to agency budgets in real time to ensure adherence to established budget processes.
- Automate to reduce or eliminate stafﬁng gaps related to chargeback & cost recovery administration.
- Restrict unauthorized use or access to IT solutions by end-users.
- Reduce inefﬁcient expense of resources that result from not being centralized.
- Manage non-compliance with OMB Circular 87 and other cost compliance principles as they relate to GAAP.
What solutions are available to help us with calculating and applying chargeback & cost recovery?
It depends on the complexity level of the chargeback & cost recovery method. Often, the method is inﬂuenced by how a vendor invoices or charges for their services.
We have been able to deﬁne 7 different methods. Starting from the simplest, the ﬁrst 3 can be managed with a combination of spreadsheets and accounting platforms. The last 4 require a more sophisticated ﬁnancial platform, like BluLogix BluIQ Chargeback & Cost Recovery, capable of reading, mediating (normalizing), and rating usage data to calculate, allocate, and generate a charge for an invoice.
What are my use cases for implementing it?
Centralized management and delivery of IT solutions and services – often moving from on-site software to cloud, hybrid, or SaaS solutions. Typical services include:
- Desktop, Endpoints
- Infrastructure, WAN/LAN Circuits
- Network Storage
- Cloud Services
- Uniﬁed Communications
What do I need to consider before procuring?
- Ensure the SaaS chargeback & cost recovery solution is SOC 2 compliant. Calculate projected return on investment (ROI).
- Experience with public sector chargeback & cost recovery.
- OMB Circular 87 (GAAP) compliance.
- Cost justiﬁcation and/or recovery of chargeback & cost recovery solution costs.
- Reduction in manual processes.
- Reduction in time for the internal user’s (agency) reconciliation and approval.
- Reconciliation of charges from third-party providers.
What hardware/software would I need to procure?
No hardware or software procurement required. Modern chargeback & cost recovery solutions are delivered as cloud-based SaaS.
Are there any limitations or restrictions I need to be aware of?
A dedicated chargeback & cost recovery solution needs to interface with public sector ITSM or ITFM software via API or ﬂat ﬁle. This includes IT asset management, professional services automation, and cost management solutions.
How does the cost structure usually work?
The cost structure is typically based on usage or charged on an annual basis payable monthly.
What else do I need to know?
It is important to deﬁne the requirements for chargeback & cost recovery around a chargeback & cost recovery framework that considers automating the chargeback & cost recovery process around a service or solution catalog. The ability to be the source of truth or integrate with another source of truth for this service catalog is a critical point of management and control.
Tim is the Recurring Revenue Evangelist for NASTD Partner Parsolvo’s BluIQ solution platform. Tim works with some of the most innovative state agencies and organizations in the world as they look to transform the way they engage their customers, manage the business, and create amazing experiences. Tim is a true subject matter expert regarding digital disruption, efﬁciency, and effectiveness. He has held previous executive positions with Votela, Force 3, and Cisco Systems.
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