NCURA Region III
Introduction to Recharge Centers
– How to identify
– Rate Base
Best Practice Suggestions
Past OIG Audit Findings
Service Centers – Recharge Centers
Described in the DS-2, Part III, item 3.2.0 as
Described as “departments or functional units
which perform specific technical or
administrative services for the benefit of other
units within a reporting unit.”
Service centers include “specialized service
facilities”and “recharge centers”.
Financial Objective: A business operating within
the University to break-even.
Specialized Service Facilities
OMB A-21, Section J.47 addresses
Specialized Service Facilities (SSF)
– The costs of services provided by highly
complex or specialized facilities operated by
the institution, such as computers, wind-
tunnels, and reactors are allowable, provided
the charges…meet the conditions of
subsections b. or c.…and include applicable
University-wide Recharge Centers
These service centers are not SSF, but are
operated by the university to provide support
to both the university and possibly the non-
university community. Might include:
– Mail distribution
– Central stores
– Facilities repair and maintenance
What is A Recharge Center?
An operating unit within the University that
--a service or group of services or
--product or group of products
--predominate users are within the
--a fee is charged for the service or product
HHS Review Guide for Long Form University
Audit Guide: Adequacy and Compliance Audits of
Disclosure Statements Submitted by Educational
Institutions (HHS OIG)
Federal Audits of Recharge Centers (HHS OIG)
A-133 Compliance Supplement (Part 3,
University Service Center
Can you define what are you going to sell?
A measurable unit of output can be readily
Can you measure usage?
The amount of a product or service can be
measured easily and accurately.
Can you bill on a regular basis?
Individual accounts can be billed for products or
services based upon their actual usage
An operation may not qualify as a service
center if it cannot
determine an actual usage in measurable
units of output
if monthly (periodic) billing cannot be
Starting the Process
– What are the products or service provided?
– Who will be the primary users?
– What portion of income will be from federal sources?
– Will equipment costing more than $5,000 be used in
– How much in start up funding will be needed?
– Who will provide the funds?
– Is there similar services/products available in the area
that will meet the needs?
Developing the Rate
It’s just a fraction right?
Cost / Usage = Rate
Define Good or Service to Sell
Microscope Lab – Use of Microscope
Zebra Fish Facility – Fish
Super Computing Facility – Excess CPU
Technical Rate – Rack Space; 24 Hour
Service; Connectivity Charge; Technical
Stores Facility – Chemicals, Lab Supplies &
Evaluate Customer Base
University Sponsored Program Areas
Those who do not have a University account number
Students, faculty or staff acting in a personal capacity
Estimate How Many Customers (Rate is a function of the
Operating Costs/Users (Use) of the Service)
Use the measurement which allocates costs
equitably among all users
For example, a center that performs tests on
samples has two possible units of measure; it
could charge per test, or per hour. If some
tests take twice as long as others, and labor
is a large portion of the cost of performing a
test it is not equitable to charge each user on
a per test basis. In such circumstances, the
user rate will be on a per hour basis.
Examples of Measurable Units
Page Labor hour
Test Machine hour
Sequence CPU Unit
Cup Per Rack Slot per
The best method for costing out the
service may be to use job costing.
Direct labor + Direct supplies + Percent of
Administration of the Recharge Center =
Developing the Budget
All allowable costs of a center that will be
used in establishing user rates must be
budgeted in and expended through one
The budget will be determined using the
standard guidelines established by
University policy and procedures and the
Cost Accounting Standard guidelines.
Developing the Budget
Generally these costs include:
Salaries and Wages
Supplies and Materials
Subcontractors and Other Outside Services
Repairs and Maintenance
Carry-Forward Surpluses or Deficits
A service center may have different measurable
units for the different types and classes of
products it offers.
External users may be charged a higher rate.
Ideally the less rates the easier to administer.
User rates consisting of flat fees that charge per
range of actual use such as light, moderate or
heavy use are not in compliance with CAS. High
volume discounts are not permissible.
Off peak rates are permissible.
Annual Rate =
Annual Costs / Total Annual
Funds that are accumulated in excess of actual
cost in order to fund future operating
A recharge center surplus fund should not
exceed 60 days working capital.
Service centers can acquire working capital by
using an existing surplus, adding approved
surcharges to external users, or transferring
funds from non-federal sources.
Who can I charge and what can I
Section J47 of OMB Circular A-21
requires the cost of each service be
charged directly to users based on
actual use of the service and that
rates do not discriminate between
federally and non-federally supported
activities, including university
The use of market prices to establish
billing rates for internal customers
would not be appropriate to the
extent that market prices include a
It may be appropriate for external,
non-federal, users of the center.
Partial versus full cost rates:
– Institutions sometimes charge only the cost of the
materials and supplies through the billing rates. The
salaries of the personnel that operate the center or
provide the service are not included in the billing rate.
They are allocated as either GA or DA.
– Government views this as CAS 502 violation, similar
costs in like circumstances as both direct and indirect.
Recharge centers may charge additional
rate to external users and the “profit”
will be retained by the center.
This additional income is not used in
the carry forward balances but should
be recovered in a separate account that
can be used to replenish equipment.
Recharge centers providing multiple
services may not subsidize the cost of
certain services by charging excessive
rates for other services.
Consideration should be given to size,
complexity and equity in setting multiple
rates for a recharge center.
A reserve account is used to hold
balances and record transactions that
don’t directly affect the rate charged to
recharge center customers.
If recharge or cost centers want to
include equipment depreciation in the
recharge rates, they should have a
Activities the Account is Used For
Purchase of Equipment
Recapture of Depreciation
Additional charges for external customers
“profit” can be recorded in this account.
***Not used in the calculation of
surplus/deficit at year end.
Recharge centers have the option of not
including all costs in the rates (should not
be included in account, should be paid
from departmental account).
Any partial subsidy of a center either
included as part of the budget or absorbed
as a deficit at the end of the year, needs
to be identified as an unallowable cost for
F&A rate calculation purposes
In order to estimate usage, prior year(s)
numbers can be used as a starting point
and adjusted for anticipated changes.
Centers without sufficient usage history
can use available units as a starting point
and adjust for downtime and other
Recharge centers should use the same
account for all of their revenue and
expenses to aid in reconciliation and
Reconciliation should be done at least
Sales Tax & UBIT
Sales tax will be collected in certain
circumstances for some types of sales to
Unrelated Business Income Tax (UBIT) is
a tax that is charged on external sales that
do not meet certain prescribed
exemptions. Discuss this with the
appropriate office at your institution.
Space occupied by all service centers must
be identified and designated as such
during the space survey (e.g, for F&A
Space which is occupied by the center
equipment must be assigned as center
space, rather than department space.
Billing and Receivables
Billing and Receivables
Recharge and cost centers should bill their
users in a timely manner based on actual
Centers that have significant revenue are
recommended to bill more frequently.
The billing process may depend on
whether the customer is an internal user
or an external user.
Billing and Receivables
Usage logs may be used to generate the billing
they should track:
account numbers or customers charged,
service performed or product sold
This information is used to generate the billing
and can be used to make usage estimates for
future rate proposals.
Over the years a pattern of audit findings
at Universities has emerged that highlights
potential accounting problems
encountered by Recharge Centers.
These problems pose the risk of financial
loss to the both individual Departments
and their Universities.
Inadequate Rate Documentation
Results from user rates being set arbitrarily
without regard to the actual costs of providing
the goods or services.
User rates must be supported by cost
calculations based on historical costs and
An adjustment for known or anticipated
changes in service levels or services should be
Estimated rates may only be used in the first
year of operation.
Failing to Maintain Current
Equipment Depreciation Schedules
Problems have also arisen when the
University did not ensure the items
recovered in the user rate are removed
from the indirect cost pool used to
calculate the equipment use charge.
Failing to Separately Identify
Expenses Included in the User rates
from Departmental Expenses
If you can’t demonstrate that the cost was
incurred, you can’t include it in the user rates.
Additionally, if you include costs in the user
rates, you must be able to show they were
paid by the Recharge Center and not included
in one of the indirect cost pools or from other
Federal extramural funds.
Failing to Document Clearly the
User bills that don’t carry sufficient detail
to identify the services provided are
subject to disallowance,
----- it is important the customer
gets a detailed bill for services provided.
The type of “ bill” would depend on the
service. Users must be provided with
detailed bill in a timely fashion.
Failing to Identify the User’s Source
of Funds at the Point of Purchase
It is important from the standpoint of the
Federal auditors that a customer identify
what project(s) are to be charged at the
time of purchase.
DOJ - University of Connecticut
$2.5 Million Whistleblower; False Claims Investigation
Specialized Service Centers: Overstated anticipated
expenses, overcharged the government and billed for
items not covered by the grants.
Billing Rates – Failure to revise and appropriately set
its rate structure resulted in submission of numerous
Newsday, January 9, 2006 ( Associated Press);
Hartford Current, January 10, 2006
OIG Audit - University of
Massachusetts Medical School
Recharge & Laboratory Supply Center Charges
OIG could not determine who requested the
recharge center services or laboratory supply
charges and whether these costs were allocable
to the NIH Grant. Records were not retained
(Records should be retained for 3 years after the
dated of the final financial status report).
OIG Audit 06/03- Northeastern
Animal care costs – Animal care facility set
up as a recharge center, in proposal PI
put direct salary in budget for animal care
technician instead of rate. OIG
determined that this made it a direct cost
and required time and effort report.
OIG Audit 1994- Review of service
centers at 12 Universities
Summary Report of Audits of Recharge Centers at
12 Universities - Findings
billing rates were not adjusted for accumulated
surplus and deficit fund balances;
included duplicate or unallowable costs in the
calculation of billing rates;
included recharge costs in the calculation of
indirect cost rates;
used funds of recharge center account for
billed some users at reduced rates.
Summary of Key Compliance Issues
Rates should recover no more than the cost of the good or service.
Rates must break-even over time, not each year.
Rates don’t discriminate between users, especially Feds
Surplus from recharge centers shouldn’t be used to fund unrelated
Must maintain published price list
Rates may include depreciation expense only, not the full cost of the
Depreciation included in rates can’t also be in the F&A rate
Service center subsidies should NOT be included in the F&A rate
(i.e.. NOT as a Departmental Administration cost)