HD17 - Developing an Activity Based Costing System at the Department of Motor Vehicles


Executive Summary:
Background

DMV is a regulatory agency that is responsible for the granting, suspension, revocation and reinstatement of driver and vehicle licenses; regulation of motor carriers; transportation safety programs; and revenue collection. This is accomplished by approximately 1800 classified employees located across the state in 88 locations including DMV Headquarters in Richmond. Customers conduct approximately ten million transactions annually which yield $2.1 billion dollars in revenue that funds the Commonwealth's transportation system.

DMV has made great strides in developing alternative service delivery methods using technologies such as the Internet, interactive voice response telephone systems, and self-service centers. At the same time, the agency has been very conscious of maintaining an acceptable level of service for customers that require a face-to-face transaction. The agency plans to launch a pilot campaign to increase customer use of alternative service outlets. This modest pilot campaign will test the effectiveness of direct mail in changing customer behavior and will provide a cost/benefit model that shows the amount of investment required to increase alternative service use. To measurably steer customers out of our CSCs and to alternative services, the agency must invest in promotional activities such as direct mail campaigns and other forms of paid advertising.

Direction

In the 2003 Acts of Assembly, Chapter 1042 (Appropriation Act), the Auditor of Public Accounts (APA) was directed to "...develop a cost accounting system which will accurately and completely document the true total costs, both direct and indirect, of the activities and services provided by the Department of Motor Vehicles." It was also stated that the APA was to have the assistance of the Secretary of Transportation and DMV. By the time the Act was approved in May 2003, work had already begun between the APA and DMV. An exhaustive review of activities was carried out utilizing staff from all levels of each operational area of DMV. In addition, the APA was given transaction counts and revenue totals by source to assist in the development of the cost accounting system.

In November 2003, the Auditor of Public Accounts issued a Special Report that described DMV's financial structure and provided a cost allocation model based on Activity Based Costing (ABC). The intent was that this model would provide DMV with a tool to calculate the cost of its various products and activities. This, in turn, would allow comparisons to be made as to which service delivery methods are more cost beneficial and effective. For example, is it less expensive to renew a vehicle registration using the Internet versus a face-to-face transaction in a customer service center? This tool will also provide an analysis of the agency's fees and help determine if they are sufficient to cover the cost of providing services.