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| SUBJECT: |
FINANCIAL AFFAIRS |
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EFFECTIVE: September 26, 2001 |
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| Procedure: 810.2 Recharge Centers |
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INTRODUCTION
The purpose of this document is to establish definitions and guidelines for Recharge Centers in compliance with Federal Regulations, State Regulations and generally accepted accounting principles.
Each institution within the North Dakota University System (NDUS) is responsible for defining and administering specific campus procedures that are consistent within the framework established by this document.
IMPLEMENTATION
Institutions should design review procedures to occur at least annually. Institutions may adopt an alternative review process for internal service funds that does not encompass a full annual review of all funds provided the process is based on a documented method that establishes materiality thresholds. The goal is to identify those internal service funds that contain the majority of the dollars. These funds should be reviewed annually. The remaining funds should be reviewed on a regular cycle unless excluded based on a materiality threshold.
An example of an acceptable method is use of stratification based on annual internal service fund expenditures. A list would be created including all identified internal service funds and their respective annual expenditures. The list would then be sorted for smallest dollar amount to largest and would include a total. Based on the information, an institutional decision would be made to define the logical groupings into one, two and three year reviews. Using this process, an institution may find that ten funds have activity in excess of $250,000 per year and these funds account for 82% of the internal service fund activity. These would be reviewed annually. The funds between $100,000 and $250,000 account for 12% of the total internal service fund activity. These would be reviewed every two years. The funds between $50,000 - $100,000 (4%) would be reviewed every three years. Funds with activity of less than $50,000 would not be subject to review.
This document is not suggesting a dollar or percentage threshold. Each institution is responsible for developing its own plan and documenting reasons for any established thresholds.
DEFINITIONS AND DESCRIPTIONS:- Auxiliary Enterprise is a unit that charges primarily individuals in the institutional community for its services. It is generally self-supporting, providing goods or services to students, faculty and staff for a fee. Some enterprises may also incidentally serve the general public. Auxiliary enterprises should contribute and relate directly to the mission, goals and objectives of the institution (as opposed to being merely profit centers).
The NDUS procedures in effect for recharge centers does not apply to units that are defined as auxiliary enterprises.
- Clearing Accounts are funds where invoiced costs are merely passed through to other funds. There is no mark-up or charging of administrative costs. The initial cost is charged to a fund and then re-billed to receiving departments.
The clearing activity in a fund should periodically zero out as costs are redistributed. Use of a separate fund for this type of activity is at the discretion of the institution, taking into consideration such factors as volume of transactions, dollar volume, and frequency with which transactions occur.
Proper accounting for this type of transaction includes the initial cost being charged to the clearing account using the appropriate expense TCC. The re-billing is then processed using an Interdepartmental Billing (IDB) or Journal Entry (JE) charging the receiving departmental fund (expense TCC) and crediting the clearing fund (also an expense TCC). Occasional or incidental department to department charges may be accounted for in the same manner as clearing transactions.
- Sales and Services of Educational Activities are primarily related to demonstration of classroom or related educational techniques. The goods and services created by these activities are a by-product of the basic instructional or laboratory experience of students. This may result in occasional or incidental department to department charges. The revenues generated are normally incidental. Examples of such revenues are film rental, scientific and literary publications and testing services. These activities will be handled through current unrestricted funds per generally accepted accounting principles.
- Recharge Centers are those units that provide goods or services primarily to other funds or departments of the institution. These units operate in a manner similar to Internal Service Funds for governmental entities other than colleges and universities. They are also referred to as Service Departments, Service Centers, or Internal Service Centers. They are supported by internal charges (using IDB, JE, or other approved methods) to the using department's operating budget. The IDB is the preferred method of recharging. Recharge Centers must be treated the same for facilities and administrative (F&A) calculation purposes. Options are available in calculating rates, from direct costs only up to fully costed. At the time of each rate review, a decision should be made as to the level of cost recovery.
Multiple funds may be utilized within any recharge center and a recharge center may establish a rate schedule with multiple rates, each of which corresponds to a specific chargeable unit. Multiple funds for one recharge activity are discouraged. All users will be charged the same rate for the same service. All recharge center rates will be developed and charged consistent with the respective institutions federally approved F&A cost rate structure and established NDUS and institutional procedures.
A recharge center will be established or approved for continuation after institutional review.
Recharge Center funds will be classified as current unrestricted funds. A separate function and sub-function has been specifically created for recharge centers. The function available is 07, institutional support. The sub-functions available are 40 and 50, recharge centers and recharge centers - equipment replacement.
Transfers will only be permitted for items related to the core activity of the internal service funds except for: (1) mandatory transfers for servicing related debt; and (2) routine operating expenditures associated with the funds.
CRITERIA FOR ESTABLISHING/CONTINUING RECHARGE CENTERS:
In evaluating whether a business unit should be authorized to function as a recharge center, identified criteria should be reviewed using established institutional procedures. Examples of criteria include:
| Centrality to institutional mission | | Dollar volume/volume of transactions | | Nature of product or service (unique or specialized) | | Demand exists | | Defined unit of measurement possible | | Clearly defined financial plan (identify start up costs as well as ongoing operating costs and method of recovery) |
OVERVIEW OF RECHARGE CENTER COST RECOVERY
In general, the purpose of a recharge center is to create a mechanism for recovering some or all of the costs associated with providing a particular good or service. This cost recovery is accomplished through a rate charged to the users/recipients of the good/service. The level of cost recovery ranges from direct cost only to full cost and is based on the components of cost that are included in the rate calculation (see Appendix 4 for Examples of Typical Costs). Concurrent with each rate review, Institutions will have the flexibility to determine which components of cost will be charged to the users/recipients.
- Recharge Center (direct cost only) - Salaries and operating expenses of the recharge center will be charged to an identified fund or funds and will be recovered through a rate billed to customer departments who purchase the goods/services of the defined center. Note that capital expenditures and depreciation is not included in the rate.
The costs of the center are charged to the applicable center fund(s) using established TCCs. Customer departments are charged using an operating expense TCC with the credit to the applicable center fund(s) and a recovery of expense TCC 575. Appendix 3, Recharge Reference Table summarizes accounting transactions for all types of Service Centers.
- Recharge Center (direct cost and equipment depreciation) - Salaries and operating expenses of the recharge center will be charged to an identified fund or funds and will be recovered through a rate billed to customer departments who purchase the goods/services of the defined center. The rate will also include a factor for depreciation for equipment specific to the recharge center. This assumes consistent treatment with the institution's federally approved facilities and administrative (F&A) cost rate structure.
The costs of the center are charged to the applicable center fund(s) using established TCCs. Customer departments are charged using an operating expense TCC with the credit to the applicable center fund(s) and a recovery of expense TCC 575. Appendix 3, Recharge Reference Table summarizes accounting transactions for all types of Service Centers.
The depreciation calculation will be based on an approved methodology (see Appendix 2 for approved options). Periodically, but no less frequently than annually, the accumulated depreciation for each recharge center will be calculated/documented. Each institution will establish a written procedure identifying the accounting treatment for depreciation and the process for funding subsequent equipment purchases. A summary of options for handling this is included in Appendix 1.
- Recharge Center (fully costed) - Salaries and operating expenses of the recharge center will be charged to an identified fund or funds and will be recovered through a rate billed to customer departments who purchase the goods/services of the defined center. The rate will also include a factor for all F&A costs based on the institution's existing rates. If an institution does not have a negotiated F&A cost rate, the "fully costed recharge center" will not be used. This assumes consistent treatment with the institution's federally approved F&A cost rate structure.
The costs of the center are charged to the applicable center fund(s) using established TCCs. Customer departments are charged using an operating expense TCC with the credit to the applicable center fund(s) and a recovery of expense TCC 575. Appendix 3, Recharge Reference Table summarizes accounting transactions for all types of Service Centers.
Periodically, the F&A cost should be charged to the recharge center fund(s) with a corresponding credit to the institutional F&A cost recovery pool.
Periodically, but no less frequently than annually, the accumulated depreciation for each recharge center will be calculated/documented. In the case of a fully costed recharge center, this amount would be a component of the F&A cost that has already been charged to the recharge center fund(s). Each institution will establish a written procedure identifying accounting treatment for depreciation and process for funding subsequent equipment purchases. A summary of options for handling this is included in Appendix 1.
RATE DEVELOPMENT GUIDELINES:
The approval of recharge centers and recharge center rates should rest with the Chief Financial Officer or designee within each institution. Written institutional procedures shall clearly define the approval process and responsible individual(s).
Establishment of a recharge center implies that certain minimum standards will be met:
| review, rate development (see Appendix 1) and approval will be documented for all recharge centers (per institutional policy) | | all users will be billed at current rates | | all rates will be reviewed and revised if necessary on a scheduled basis |
Appendix 1 outlines a format for recharge center review and basic rate development. The specific format is optional, however, the same information must be obtained and retained as part of each institution's specific process.
UNALLOWABLE COSTS:
Unallowable costs defined in OMB Circular A-21, Section J are not eligible for reimbursement from the federal government and may not be recorded in recharge centers. (Please note that some of these costs may be allowable costs under existing institutional procedure; however, they are not allowable to be included as charges against federal funds.) Please refer to A-21 (http://www.whitehouse.gov/omb/circulars/a021/a021.html) when evaluating the allowability of specific items of cost. |
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| HISTORY: |
Chancellor's Cabinet Meeting, September 2001 |
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| Recharge Centers Appendices 26 Kb |
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