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Recharge Guidelines

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					THE UNIVERSITY OF MICHIGAN Office of Financial Analysis GUIDELINES FOR SERVICE UNITS BACKGROUND: (Why is this process necessary?) 1. OMB Circular A21 requires that “charges for service operations may be included as direct costs of sponsored agreements, provided such items are consistently treated …and charged under a recognized method of computing actual costs, and conform to the generally accepted accounting practices consistently followed by the University.” A process must be in place to ensure that as an institution we are in compliance with A21. 2. This process also is intended to review rate charges to outside markets to make sure that the University is not unfairly competing due to its tax exempt status. 3. This process aids in the determination of whether any revenue from outside the University, which is in excess of costs, is taxable by the Federal government as unrelated business income. DEFINITION: A service unit provides services or goods to other University units or to various activities within its own unit. The costs for providing the services or goods can be easily and accurately identified and can be billed to the benefiting user using an approved rate per unit. This will normally involve recording the costs and rebillings in Auxiliary Activities Fund. Approvals: The rates used by the service unit must be reviewed and approved by the Office of Financial Analysis. I. SUBMIT A REQUEST TO ESTABLISH A SERVICE UNIT OR RATE REVISION A. A written request to establish a service unit must be submitted to Office of Financial Analysis. Examples of budget sheets (guidtemplate.xls) for providing the needed data may be obtained from our website at http://www.umich.edu/~ofa/ or by calling the Office of Financial Analysis at 764-9272. The request must be signed by the director of the service activity and the department chairman or director. Rates charged to Federal programs must not exceed actual costs and may not be burdened with unrecoverable costs. The request must include the following information: 1. 2. 3. 4. 5. 6. Description of the goods or services to be provided. List of anticipated customers, both University and non-University. Projected costs for providing the goods and services. (include chartfield) Projected volume of transactions and associated dollar volume Chartfield combination for funding of deficit, if one occurs. Name, title and phone number of the individual responsible for the financial management of the service unit.

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B. As part of the description of the recharge activity, the unit must: 1. Demonstrate that services are consistent with the mission of the University. 2. Demonstrate that services do not inappropriately or unfairly compete with private enterprises. 3. Provide supporting costing information. C. Unallowable (Unreimburseable) Costs – Certain types of costs are considered not allowable for recovery by the federal government under current cost accounting guidelines. These costs are enumerated in the document prepared by the Joint Administrative and Faculty Task Force on Indirect Cost (JAFTIC). These costs include advertising, alcoholic beverages, entertainment, fund raising, hosting, meals, travel, memberships, and marketing A complete list can be viewed at: http://www.research.umich.edu/research/policies/um/jaftic/jaftic-toc.html. This type of cost must not be charged to any rebilling operation. Copies of this document are included in the Cost Accounting Standards Reference Booklet, which may be obtained by calling the Office of Financial Analysis. D. Facility and Administrative (Indirect) Costs – The University typically recovers facility and administrative costs through the indirect cost rate. These costs are always excluded from a recharge rate that would involve billing a federal project. Indirect Costs include costs such as depreciation of equipment, facilities related costs, administrative salaries, and others. E. Non-University Charges – Service units should only directly charge University users. If significant service is provided to parties external to the University of Michigan, the unit should use a separate chartfield combination to use for charging of actual costs and receipt of revenue from the external party. Rates to external parties are not governed by the cost recovery federal restrictions. Departments should charge external users a “market rate” to prevent potential claims of unfair competition from local businesses. The Other Sponsored Activities indirect cost rate will be charged on the cost recovery portion of the billing to external parties. Unrelated Business Income Activities: The University, through the Tax Department of Financial Operations, reports taxable Unrelated Business Income (UBI) as required by the Internal Revenue Service Code and Regulations. Service Units that will be charging non-University customers for their services should check with the Tax Department to ensure that there is no liability for UBI. Visit the Tax Department’s website at http://www.umich.edu/~finops/index_js.htm or call them at 764-4284.

F.

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II. APPROVALS A. The Office of Financial Analysis will review the request and determine if: 1. The request is complete and understandable. 2. The department chair or comparable administrator signs the request. 3. Procedures are consistent with University policy. 4. Services are consistent with federal regulations. 5. Rate computations are complete and relate to actual costs. 6. The rate is reasonable. It may be necessary to contact the unit for more information. Include information on prior rate approvals. If approved, the Office of Financial Analysis will: 1. Notify the unit with an approval memorandum. 2. Provide Financial Operations with a copy of the approval memorandum. The service unit should coordinate their billing process with Financial Operations. 3. Advise the requesting unit to obtain an Auxiliary Fund chartfield combination that will be used for charging the operating costs and receiving the cost recovery revenue. The request should be submitted to Financial Operations in writing.

B.

III. RESPONSIBILITIES OF APPROVED SERVICE UNITS A. Obtain the internal service fund chartfield combination for the recharge activities. If the service unit will be performing services directly for outside parties, contact the Division of Research Development and Administration (DRDA) at 764-7250 to establish an expendable restricted fund chartfield combination for documenting the rebilled costs and revenue received from outside parties. All costs and cost recovery rebillings associated with the recharge activity must be charged to the auxiliary fund chartfield combination. If deficits occur that cannot be covered by rate adjustments, the responsible school, department, or unit is responsible for funding the deficit. Any costs determined to be unreimburseable are the responsibility of the school, college, or unit. A chartfield combination to which the unreimburseable costs or subsidy must be provided at the time the rate is established. B. Maintain detailed records supporting the rebilling. These records should include: 1. Description of the goods provided or services performed. 2. The chartfield combination billed for the services. 3. Person(s) requesting the good or service – must be an authorized signer for the chartfield combination billed. 4. Detail records of the expenses of the recharge operation – normally done by establishing a separate auxiliary fund chartfield combination to which expenses are charged and cost recovery rebillings credited. 5. Maintain records for seven years, unless a litigation claim or audit is started before the expiration date of this period, and are subject to audit at any time.

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C.

All funds derived from parties external to the University of Michigan must be received into an expendable restricted fund chartfield combination established by the responsible school, college, or unit through DRDA. Revenue derived from nonfederal programs and sources outside the University that exceed actual costs plus indirect cost recovery may be used for discretionary purposes by the department. Revenue received in excess of costs must be segregated to demonstrate that rates used to bill federal activities during a billing cycle do not exceed actual and reasonable costs. The discretionary revenue should be transferred to another chartfield combination before it is spent on any legitimate academic activity. For example: Non-Federal External Amount billed to customer $100.00 Direct Cost recovery rebilling from internal service Fund chartfield combination 52.00 Indirect Cost @ Other Sponsored Activities Rate (30% of $52.00) 15.60 Revenue in excess of cost (discretionary revenue to department $ 32.40

D. Rate review should occur at least annually and a formal analysis of costs, cost recovery rebillings, and rates must be submitted to the Office of Financial Analysis. When it is apparent that actual rates vary significantly from the billing rate, a request for revision of rates must be submitted with the cost and rate analysis study. Rate revisions should be considered when it is apparent that annual rebillings vary from actual costs by more than 5 percent. E. Advise the Office of Financial Analysis when changes in services are anticipated or when a need for a procedural change in accounting for the goods or services provided is anticipated. Notify the Office of Financial Analysis to terminate approval and Financial Operations to close the chartfield combination when goods or services are no longer provided.

F.

G. Provide Financial Analysis with a listing of the space used in the recharge activity and record it properly in the annual inventory of space usage. H. When external UM customers are being billed, check with the Tax Department to ensure that Unrelated Business Income Tax will not be due. IV. DRDA RESPONSIBILITIES A. Review purchase orders or other source documents from outside organization requesting goods or services from the recharge unit to protect the University from unreasonable terms and conditions associated with the request to supply goods or services from the recharge unit. Review requests from outside organization to ensure consistency with University policies and procedures. Page 4 of 5

B.

V. FINANCIAL OPERATIONS RESPONSIBILITIES A. Quarterly, the Office of Financial Analysis will provide Financial Operations with a listing identifying all approved service units and their approved rates. Financial Operations will process rebilling only for units that appear on the approved list and only at the approved rate(s). Financial Operations will notify the Office of Financial Analysis if requested rebilling amounts differ from approved rates. Prohibit transfer of recharge center funds to other chartfield combinations. The mechanism used to adjust chartfield balances is done through the recharge rate itself. However, transfers to fund actual depreciation on equipment used exclusively for the recharge operation are not considered transfers and will be allowed. Exclude equipment purchased with Auxiliary Funds from the Facilities and Administrative Cost proposal.

B.

C.

VI. OFFICE OF FINANCIAL ANALYSIS RESPONSIBILITIES A. Monitor rates periodically to determine if rebilling recoveries are reasonable (within 5% of actual costs). Monitor activity to identify deviations from approved budget or procedures. Contact service unit if review identified costs or procedures inconsistent with approved budget, procedures or rates. Advise Financial Operations of new or revised rates through copy of the memorandum approving service unit rates. Provide Financial Operations with a list of all approved service units quarterly. Notify Financial Operations to stop processing of rebillings, if necessary. Verify classification of space used in major recharge units is classified properly to eliminate the possibility of any double recovery of costs.

B. C.

D.

E. F. G.

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