Headcount and Budgets

“Headcount” refers to the number of full time equivalent people in an organization, department or project.

Some people ask me about my obsession with headcounts. In small businesses, owners know who works for them, since they usually sign the paychecks and hand them out personally. As businesses grow the practice of personally handing out paychecks and knowing all your employees usually stops. The need to know who works for you should never stop. In service organizations, payroll  can be 75% of total expenses, in manufacturing, it’s usually the biggest expense next to the cost of material.

A budget is a financial tool. It should be used to plan future expenses based upon expected revenue.  Some organizations have several budgets based upon different scenarios; best case, expected case and worst case.  In planning a budget one looks at two types of expenses, fixed expenses such as rent and lease payments and variable expenses such as material. Personnel costs also have fixed and variable components; simplistically, managers and staff.

Large service organizations such as the city of Oxnard have grown as the population has grown. Revenues have changed from 2006 through 2014. In 2006, the General Fund was targeted to have $115,000,000 in revenues, but within 2 years, the total projected revenue for the General Fund was adjusted downward to be only $108,000,000. I am concerned that headcounts have not been efficiently adjusted accordingly. I have been monitoring monthly expenditure reports from the city’s web site for several years. These reports reflect annual and monthly budgeted and annual expenditures in greater detail than the monthly status reports presented to the city council. What is lacking is the corresponding headcount reports.

If positions for a department are budgeted, but not filled, there should be a surplus for that department since the funding was appropriated, but not expended. Those surpluses should be added to the General Fund Reserve at the end of the fiscal year. The city of Oxnard allows through its resolutions, to have the appropriated, but not expended funds, such as personnel costs (unfilled but budgeted positions), to remain in the department. I am concerned that some managers have expended those funds for items that were either denied during a previous budget process or funded pet projects that were never discussed publicly.

Internal control procedures should be implemented to assure that appropriated, but unexpended personnel costs related to budgeted, but not filled positions are transferred to the General Fund Reserves at the end of the fiscal period. One tool that would help monitor compliance would be a monthly headcount report that corresponds with the monthly expenditure reports. The information exists since people are paid and each department head is responsible for his/her department budget.

 

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