Introduction:
In May, 2013, in response to stewards' requests, Stewardship Ontario introduced what was hoped to be an improvement for the quarterly billing process for stewards of the MHSW program -- using the annual true-up percentage as the basis of each quarterly invoice. Stewards have told us that the revised process has not yielded those anticipated improvements and therefore we are returning to the original method of calculating the Steward Share Assessment (SSA) each quarter.
This communique provides the background and rationale for this change.
Background
The Regulation
In February 2012, the Ontario Ministry of Environment approved Regulation 11/12 requiring Stewardship Ontario to implement a quarterly cost-recovery methodology for MHSW stewards beginning April 1, 2012. This methodology was designed to recover each quarter's actual operating costs on a steward share basis (what is referred to as the Steward Share Assessment or SSA) rather than on the fee per unit/volume basis with which stewards were familiar.
The Steward Share Assessment
In accordance with the regulation, this SSA invoicing method was implemented by Stewardship Ontario in April 2012. As MHSW stewards know, your SSA is calculated by dividing the quantity of a material that you supplied by the quantity supplied by all stewards of that material during that quarter. The quarterly costs incurred in the prior quarter are multiplied by your SSA to arrive at your quarterly invoice.
Annual Reconciliation
The quarterly calculation of the SSA could result in large swings in stewards' quarterly invoices due to fluctuating material management costs and variations in individual stewards' sales cycles from quarter to quarter. To address these fluctuations, Stewardship Ontario calculated what each steward's share was over the four quarters and conducted a reconciliation (a true-up) to achieve a fair apportioning across the entire year - assigning debits and credits as appropriate.
Address the Volatility
Over the course of that first year of operating under Regulation 11/12 our stewards struggled with the volatility of their quarterly invoices, concerned that they were unable to accurately forecast or budget for their costs. Nor were they able to easily explain internally within their own companies why their invoice would be very high in one quarter and relatively low in the next.
The Annual True-Up Percentage "Solution"
To address the invoice volatility issue Stewardship Ontario announced in April 2013 that for the upcoming year it would apply each steward's annual true-up percentage to their upcoming year of quarterly invoices. Given that the annual true-up percentage did not change quarter to quarter, it was thought that this would provide stewards with some measure of predictability in their quarterly invoices. For example, if you had an SSA for Q1 in 2012 of 8%, then it grew to 13% for Q2, 17% for Q3, and went down to 14% for Q4, and after the annual reconciliation (true up) you ended up with an annual true-up percentage of 13%, then for each quarter in 2013 you were billed for 13% of the costs to manage your materials.
The Current Challenge
Despite best efforts, applying the 2012 annual true-up percentage to each quarterly invoice throughout the 2013 obligation year did not provide the predictability of costs for stewards as hoped. There was continued volatility in invoices caused by steward billing adjustments, stewards entering and exiting material categories in mid-year and quarter-over-quarter material management cost differences. In fact, we have heard from stewards that the use of the ATU% for their quarterly SSAs has actually resulted in an unacceptable level of volatility in their invoicing making it difficult for stewards to budget appropriately, reconcile their quarterly material reports with their invoices and explain these invoices to their own staff and senior management.
Going Forward
In response to these concerns Stewardship Ontario will revert back to the previous original method of calculating stewards SSA each quarter. This approach takes effect beginning with the next invoice which will be calculated in April 2014.
This means that your next MHSW invoice will reflect your quarterly SSA and will no longer be based on the annual true-up percentage.
We believe that this change in invoicing methodology will address the recent concerns expressed by stewards of the MHSW program. For additional background information including previous presentations and communiques please click below:
Please let us know if you have any questions or comments on this change and we ask that you submit any questions to [email protected] by Wednesday April 16, 2014. Please put "Annual True-Up" in the subject line. We will consolidate your questions and comments, along with our responses into a single Q&A document.
