The declining use of internal service funds: how local governments are changing the allocation of indirect costs

Studies involving the allocation of funds among local governments usually are broad in nature with foci based on a variety of factors ranging from service demand to performance outcomes. The conundrum of indirect costs allocation associated with service demand continues to confront local governments. The internal service fund (ISF) has been the primary device used in this endeavor, but over the past two decades, its utilization has decreased. County finance officers in the southeastern United States were surveyed to determine why the ISF is not as prevalently used as in previous years and what has happened to indirect costs as a result of these changes. Findings suggest many reasons for ISF's usage decline including limited usefulness and reallocation of indirect costs to departments. In addition, county governments with a cost allocation plan and larger budget sizes continue to use the ISF as an accounting device