Authority To Charge Fees

The Bureau of Fire Prevention (BFP) charges fees for various inspections related to fire safety. Table 3.1.1 below lists the major fees the BFP collects. The Fire Code allows the Fire Department to adjust fees annually based on the cost of providing such services. The San Francisco Fire Code stipulates that such fees should cover the costs of providing such services, but should not exceed that amount.

Table 3.1.1
Major Fees Charged by the San Francisco
Fire Department Bureau of Fire Prevention

Cost Recovery

As part of this study, we conducted a limited review of the BFP"s methodology for determining its costs and setting its fees. Based on this review, we believe BFP is limited in its ability to accurately set its fees and make projections because of: (1) lack of sufficiently detailed data regarding collections and (2) volume of activity data based upon estimates; and (3) no tracking of actual hours of service provided or, for fees based on valuations, no tracking of service provided by valuation categories. As a result, data available for analysis was limited and the reliability of some of the data was questionable because it was based on estimates.

BFP may not be fully recovering its costs for providing fire prevention services, although for some fees, it may be recovering too much. An estimate of costs and budgeted revenues indicates that BFP is not fully recovering its costs for providing services as shown in Table 3.1.2, below.

Table 3.1.2
Estimate of Cost Recovery
SFFD Bureau of Fire Prevention - FY 2000-01

1 SFFD"s estimate of overhead for FY 2001-02 based on FY 2000-01 MOU provisions.

2 We assumed that the SFFD Overhead costs already included Citywide indirect costs, even though the Department could not tell us whether such costs were included, or provide verifiable data demonstrating that such costs were already included. If such costs are not included, the total FY 2000-01 BFP costs would be understated by $171,569. The Calculation of the $171,569 represents 2.8% of the $6,127,479 allocated to the Department in the FY 2000-01 Cost Allocation Plan prepared by the Controller.

Specifically, during our review, we noted that the BFP could not provide basic revenue collections data for each fee type identified in the Fire Code (see Table 3.1.3, below in "How BFP Sets Fees"). The BFP gathers its data from the City"s accounting system, which groups several categories of Fire Code fees together. Thus, in several instances, BFP officials were unable to isolate the revenue collected from an individual fee or had to perform a manual calculation to determine the collections for a given fee. Likewise, the volume of activity data provided by BFP was, in a number of instances, based on estimates. We believe that because the BFP does not have this basic data in a readily available form, there is a deficiency that severely limits the BFP"s ability to analyze whether it is appropriately recovering its costs. Further, without reliable volume of activity data, it becomes impossible for the BFP to adjust projections of activity levels based on changes in the economy. If the level of activity occurring now cannot be specifically identified, how can management estimate the impact of an economic slowdown or growth?

BFP management expressed frustration with the lack of useful management information available through the accounting system and is exploring technology that would aid in the collection of data that is useful to the program level management and would improve customer service.

Cost Determination

Provisions of the Fire Code

The Fire Code directs the Department chief to annually report by April 1 to the Controller: (1) the revenues collected from each type of fee, (2) the direct and indirect costs of providing the services for which the fee was charged, and (3) the anticipated costs for the ensuing fiscal year and the rates that would be necessary to support such cost for each type of fee. The Code further stipulates that the Controller file the report with the Board of Supervisors by May 15, and that the Board of Supervisors adjust fees accordingly. The Department anticipates requesting a fee increase that would take effect in January 2002. The most recent increase occurred in 2000 and, prior to that, in 1995.

In practice, the Fire Department provides its report to the Controller in a verbal, rather than written, format. In addition, periodically throughout the year, the Department meets with the Controller"s Office to monitor the fee collections to ensure they are consistent with projections. We recommend that the BFP begin providing such data in written form, as specified by the Fire Code. We further recommend that the BFP, also in a written format, analyze its fees and actual collections annually and propose adjustments, if necessary, as allowed by law.

How BFP Determines Costs

For each type of fire prevention service provided, BFP management estimates the amount of personnel time spent on each type of service by specific personnel classification. Added to this are Fire Department and BFP overhead costs, based on the percentage of Department employees who work in BFP. BFP Administrative costs are also calculated and allocated to each of the fire prevention services that are provided.

BFP management advised us that their cost determination system has become more consistent in recent years, since the Department hired a Chief Financial Officer (CFO). Prior to that, they described the process as more haphazard. Operating personnel compile and enter the data into the model. The CFO provides them with the Department-wide overhead data.

While we agree with the BFP"s basic cost allocation approach, we believe the BFP should be more attentive and rigorous with documentation. Such an approach should provide clear definitions of direct and indirect costs that are allowable for the purpose of determining costs and would provide a consistent reference from year-to-year for determining costs. Such a format should consist of a spreadsheet completed annually that clearly identifies direct and indirect costs as well as Countywide overhead, and further allocates such costs to each type of fee-based service provided. It should also clearly indicate which services each cost allocation category includes. More thorough documentation would give the Department a basis for defending its practices should litigation ever be brought against it with regard to cost recovery. Further, the Department should closely review its methodology and compare it with guidelines promulgated by authorities in cost accounting, such as the State Controller"s Office and the Federal Office of Management and Budget. The Fire Department should also develop a specific written procedure that explains the basis for determining costs and for setting appropriate fees. Such a procedure would provide documentation to explain the Department"s practices and would also provide a guide to employees to ensure that the process is consistent.

We reviewed a draft of the BFP"s cost allocation model for a proposed fee increase anticipated for later in the current fiscal year. While the document was only a draft, it was prepared in a word processing, rather than a spreadsheet, format, making it difficult to analyze and making it difficult to identify calculation errors. Further, operational personnel who prepared the document could not tell us whether Countywide costs were included in the Department"s Overhead allocation, or the source of other numbers.

We calculated cost estimates using the BFP"s own methodology based on the information provided by the BFP. However, we converted the data to a spreadsheet format, which provided more precision, and made errors more easily identifiable. Such errors included a math error and an error in the allocation basis for distribution BFP Administrative costs). We calculated costs (as shown below in Table 3.1.3) and in four of the five cost categories, our costs exceeded the costs calculated by the BFP. Our cost calculation exceeded that of the BFP"s by $120,762.

However, since we did not audit the expenditure data upon which the department relied to source documents, such costs may still not represent the true costs of providing the services. Further, we did not add Countywide allocated costs to our calculation. If they are not already included in the Department"s calculation, our estimates are understated. As noted above, BFP personnel did not know whether such costs were included in their Department overhead data.

Table 3.1.3
Analysis of SFFD Bureau of Fire Prevention
Cost Allocation Methodological Precision

We believe the annual fee analysis, including the allocation of direct and indirect costs, should be performed by the Department"s Chief Financial Officer (CFO), since finance and accounting expertise resides in that position. While operational personnel may have some knowledge in these areas, their expertise is in fire prevention and thus, their time is more appropriately spent on fire prevention activities rather than cost accounting. Accordingly, we believe it would be more appropriate for the operational personnel to provide the direct cost data (personnel time) to the CFO, and for the CFO to perform the cost allocation and fee determination. The final model should then be reviewed with the operational personnel for assumptions and data accuracy.

How BFP Sets Fees

The BFP sets fees for each fire prevention service that it provides, based on the pay rates of the various personnel who provide the direct services. The BFP further calculates an overhead rate to be added to the hourly rate to recover overhead costs. We reviewed BFP"s fee-setting data as provided to us in the draft of the BFP"s cost allocation methodology. We noted the following with regard to fees:

· As stated above, the BFP lacks comprehensive data about the actual collections of its own fees, including the ability to provide the specific amount of revenue collected for each of the 13 fees listed in the Fire Code. For four of its fees, BFP could provide actual collection data from the City"s accounting system. For three other fees, BFP had to perform manual calculations to separately identify the collections for each fee type (including for BFP"s largest collection source, Plan Review fees.) For the remaining six fees, the BFP could provide aggregated data on collections, but could not separately identify how much was collected from each one. Table 3.1.4, below, shows collection data on the various types of fees or the reason why collections are not shown separately.

Table 3.1.4
San Francisco Fire Code Collections - FY 2000-01

1. Based on data provided by the Bureau of Fire Prevention.

2. Combined with other fees in the budget subobject "Other Public Safety Charges" (60699).

3. Required a manual calculation by BFD because this fee revenue is combined with two others in the budget subobject "Fire Plan Checking" (60667).

4. Required a manual calculation by BFD because this fee revenue is combined with two others in the budget subobject "Fire Plan Checking" (60667).

5. These three fee revenues are combined in budget subobject "SFFD Original Filing-Posting Fee" (60672). BFP management advised that the three categories totaled $276,428. However, BFP management did not know how much was collected for each fee type.

6. BFP management advises that overtime was included in subobject "Other Public Safety Charges" (60699). BFP management could not provide data on just overtime. BFP management further advises that the Department attempted to establish a subobject just for BFP Overtime for the FY 2000-01 budget, but that the subobject was placed in a different Fire Department program.

7. BFP management did not know specifically what this category includes, only that it is a collection of various fees.

8. Required a manual calculation by BFP because the fee revenue is combined with two others in budget subobject "Fire Plan Checking" (60667).

· The BFP also lacks comprehensive data about the volume of activity/service it provides each year. Data provided to us was based on the BFP"s best estimates of the activity that took place during the year. BFP management advises that, as with revenue collection data, they do not have an adequate system to track the volume of activity. For the fees based on valuation, BFP was unable to provide data on the volume of service provided by valuation categories specified in the Fire Code. For the fees charged by the hour, BFP could not provide data on the actual number of fire prevention service hours provided. We believe that without reliable data on collections and activity, the BFP cannot adequately forecast its future activity or collections. As stated previously, BFP management is exploring technology that would enhance data collection and customer service by allowing customers to place orders online rather than physically going to the Fire Department, as is the case now. We believe it is appropriate and necessary for the BFP to attempt to improve its data collection abilities as it is doing. However, if budgetary constraints prevent the purchase of additional technology, the BFP should attempt to track collection and activity data with existing technology, even if it is a simple entry in a spreadsheet at the time a customer requests and pays for a service, or entries made later based on the daily handwritten receipts provided to customers. Fire Department management should provide the necessary assistance for BFP to track and compile such data as it is critical to meaningful analysis and forecasting.

· The BFP uses 2,080 hours per year, rather than the actual productive hours, as the basis for calculating the hourly rates upon which to base fees. We believe, therefore, that costs are understated due to this calculation. For example, actual productive hours exclude vacation time, sick time, and any mandated break time if applicable. Based on 2,080 hours, an H-4 Fire Inspector earns $45 per hour ($93,662 divided by 2,080). But if we assume estimated actual productive time is 1,650 hours, the hourly rate increases to approximately $57 per hour, or 26.7% more than the current estimate ($93,662 divided by 1,650). The BFP should make a reasonable estimate of actual productive hours from which to base its fee calculations.

· We noted that for the Pre-Application Meeting Fee, the BFP calculates a simple average of the hourly rates of three different classifications of employees who perform these reviews. We recommend that the average used to calculate the basis for the fee be weighted to proportionately reflect the amount of time spent on pre-application meetings by each personnel classification. The BFP should also ensure all fees cover pre- and post- meeting or inspection work time.

· The BFP did not have data readily available on the number of square feet of high-rise buildings inspected during FY 2000-2001. BFP originally stated that 113,000,000 square feet were inspected. However, this contradicted the fact that $630,627 was collected for this fee in FY 2000-2001. Assuming the collection data is accurate and that the BFP did indeed charge $6.00 per 1,000 square feet as specified in the Fire Code, the number of square feet inspected would have been 105,104,500 calculated as follows:

· The BFP"s largest category of revenue collection is for Plan Review fees. Based on the cost allocation, revenue collection, and volume of activity data available to us, we calculated the current cost recovery by the BFP. We also calculated, as noted in the previous section on costs, the costs and the level of recovery per unit necessary based on those costs.

· BFP management informed us that the Consultation Fee, currently included as Fire Code section 106.7, has been too high and a reduction will be proposed during the current fiscal year. The Consultation Fee is based on Section 13235 of California"s Health and Safety Code and is for inspections of various social services facilities prior to an applicant being awarded final fire clearance approval. BFP had been charging $74 per hour for this service but recently learned that State law limits the allowable charge to $50 for a structure to accommodate 25 or fewer people, and a maximum of $100 for a structure to accommodate more than 25. BFP advises that this fee will likely be revised to still be based on an hourly rate but that the total amount charged would not exceed the State mandated limits.

Policy Considerations

The BFP provides a number of inspections that are mandated by law or otherwise necessary to promote public health and safety. Examples of such inspections include annual residential inspections of buildings with more than 9 units. In FY 2000-2001, the BFP estimates it conducted 4,343 such inspections. Other such inspections for which the BFP does not charge include schools, single residency occupancy hotels, Treasure Island, and residential care facilities. The BFP estimates it provided 2,878 such inspections in FY 2000-2001 at a cost of $1,126,654. We estimated the costs to be slightly less at $987,601. Regardless of the exact actual cost, no revenue is collected to cover these costs. The rationale for not charging for such inspections is to encourage compliance and promote public safety. We did not closely review each such category for which fees are not charged. Thus, we are not recommending that the BFP start charging for certain services it now provides free of charge. It may appropriate to continue to not charge for certain inspections. However, for others, while it may be politically unpopular to charge a fee, it may also be in the best interest of the City from a fiscal perspective. Therefore, the BFP and the Board of Supervisors should consider whether it would be appropriate to charge for any of the fire prevention services for which the BFP does not currently charge.

Conclusions

The Bureau of Fire Prevention (BFP) charges fees for a variety of fire safety inspections and code violations. The BFP is allowed by law to recover its costs for providing such services but is not allowed to recover more than cost.

The BFP was unable to provide certain basic data regarding revenue collected from fees. Volume of activity data was based on estimates because it is not tracked through a management information system. The BFP also does not track the actual number of hours spent on given types of fire prevention services or, for fees based on valuation, the breakdown of service provided by valuation category.

The BFP"s methodology for determining its costs is not based on a standardized, consistent methodology and thus is likely to result in errors that misstate costs. As a result, the BFP"s fees may not be based on its actual costs.

If a lawsuit were filed alleging the BFP does not fully recover its costs (as has occurred in other California jurisdictions), the BFP would not currently have sufficient supporting documentation to defend itself and thus the City could potentially be found liable.

The BFP should adopt a cost allocation plan based on a standardized, consistent methodology. Such a methodology, as well as the fee-setting process, should be incorporated in a written Department procedure and its provisions should be well documented. Finance, rather than operational, personnel should apply the methodology to determine costs and establish appropriate fees. Lastly, the Department should develop appropriate tools for accurately tracking costs and revenues, through the accounting or other management information systems.

Better data on actual revenue collections and actual levels of activity will improve the Department"s ability to forecast collections. A more precise and better-documented cost allocation plan and fee-setting procedure would help BFP to determine and recover its actual costs.

Recommendations

The Fire Chief should direct BFP to:

3.1.1 Improve its data collection processes with regard to (1) actual revenue collected, and (2) actual volume of activity by valuation category or by actual hours of service provided, depending on the fee. BFP should, at a minimum, attempt to collect revenue data and volume of activity data with existing technology.

3.1.2 Adopt a standardized cost allocation methodology that clearly identifies direct and indirect costs associated with providing fire prevention services and is consistent with cost accounting principles promulgated by State and Federal agencies with expertise in this area, such as the State Controller"s Office and the Federal Office of Management and Budget. The BFP should also improve the documentation of its cost allocation methodology and fee-setting methodology. Each category of the cost allocation plan should clearly identify which fire prevention services it covers. A clear explanation of how each fee was calculated should also be provided.

3.1.3 Direct the CFO to prepare the cost allocation plan and the fee rates, based on data provided by BFP operational personnel. The final work product should then be jointly reviewed by the CFO and BFP management.

3.1.4 Use actual productive hours, as opposed to total hours for which employees are paid, when determining hourly rates that form the basis for hourly fees.

3.1.5 Ensure that the hourly rates that form the basis for the fees are appropriately weighted to reflect time spent by given classifications of employees. Ensure that pre-and post-meeting time spent on inspections or meetings is accounted for in the fee setting.

3.1.6 Provide a written report annually to the Controller as specified in the San Francisco Fire Code. The BFP should review its costs, fees, and collections annually, as allowed by the Fire Code, and propose adjustments accordingly.

3.1.7 Review the categories of fire prevention service for which fees are not currently charged, and seek policy input from the Board of Supervisors to determine whether it might be appropriate and fiscally responsible to charge for some of the services which currently receive fee waivers.

Costs and Benefits

There would be no cost to implement these recommendations.

The Fire Department would have a more accurate, legally defensible fee setting methodology, that would receive appropriate review and approvals, in accordance with the San Francisco Fire Code. Based on information collected for this analysis, the City could realize additional revenue to offset costs related to plan review, inspection and other fire prevention activities.