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NCURA Region III Recharge Centers

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									   NCURA Region III
      May 2008

Introduction to Recharge Centers
            Recharge Centers
 Overview
 Characteristics
    – How to identify
   Rate Development
    – Costs/Budget
    – 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
    “Service Centers”

   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:

      – Copy/duplicating

      – 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
            Federal Guidance
   HHS Review Guide for Long Form University
    Indirect Proposals

   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,
    Compliance Requirements
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
  the center?
– 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 &
  Purchasing Services
        Evaluate Customer Base
 University Sponsored Program Areas
 University Departments

 Those who do not have a University account number
 Industry
 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
   Slide
   Sequence         CPU Unit
   Cup              Per Rack Slot per
                     Daily Rate
                Job Costing
   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 =
    Job Cost
     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
  operating account.
 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
 Fringe Benefits
 Supplies and Materials
 Subcontractors and Other Outside Services
 Repairs and Maintenance
 Carry-Forward Surpluses or Deficits
Rate Calculation
              Rate Calculation
   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.
     Rate Calculation

      Annual Rate =
Annual Costs / Total Annual
Operating Principles
     Working Capital
              Working Capital
   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.
Costing Considerations

 Who can I charge and what can I
       Costing Considerations

 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
 internal activities.
        Costing Considerations

 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.
             Costing Considerations

   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.
     Costing Considerations

 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.
        Costing Considerations
Multiple Services
 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.
            Reserve Account
   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
    reserve budget.
          Reserve Account
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.
         Costing Considerations
   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).
        Costing Considerations
   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
       Costing Considerations
 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
  intervening factors.
        Costing Considerations
 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
  external users.
 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
  Proposal purposes).
 Space which is occupied by the center
  equipment must be assigned as center
  space, rather than department space.
Operating Principles
   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
   rate charged
    This information is used to generate the billing
    and can be used to make usage estimates for
    future rate proposals.
             Best Practices
 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
   service levels.
  An adjustment for known or anticipated
   changes in service levels or services should be
   clearly documented.
  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
        Goods/Services Provided
 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
  false claims.
   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).
   08/23/05
       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
    unrelated purposes;
   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)
Service/Recharge Centers


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