ncura region iii may 2008

NCURA Region IIINCURA Region IIIMay 2008May 2008

Introduction to Recharge Introduction to Recharge CentersCenters

Recharge Centers Recharge Centers

Overview Overview CharacteristicsCharacteristics

– How to identifyHow to identify Rate DevelopmentRate Development

– Costs/BudgetCosts/Budget– Rate BaseRate Base

Best Practice SuggestionsBest Practice Suggestions Past OIG Audit FindingsPast OIG Audit Findings

Service Centers – Recharge Service Centers – Recharge CentersCenters

Described in the DS-2, Part III, item 3.2.0 as “Service Described in the DS-2, Part III, item 3.2.0 as “Service Centers”Centers”

Described as “departments or functional units which Described as “departments or functional units which perform specific technical or administrative services perform specific technical or administrative services for the benefit of other units within a reporting unit.”for the benefit of other units within a reporting unit.”

Service centers include “specialized service Service centers include “specialized service facilities”and “recharge centers”.facilities”and “recharge centers”.

Financial Objective: A business operating within the Financial Objective: A business operating within the University to break-even.University to break-even.

Specialized Service Specialized Service FacilitiesFacilities

OMB A-21, Section J.47 addresses OMB A-21, Section J.47 addresses Specialized Service Facilities (SSF)Specialized Service Facilities (SSF)

– The costs of services provided by highly The costs of services provided by highly complex or specialized facilities operated complex or specialized facilities operated by the institution, such as computers, by the institution, such as computers, wind-tunnels, and reactors are allowable, wind-tunnels, and reactors are allowable, provided the charges…meet the conditions provided the charges…meet the conditions of subsections b. or c.…and include of subsections b. or c.…and include applicable credits.applicable credits.

University-wide Recharge University-wide Recharge CentersCenters

These service centers are not SSF, but are These service centers are not SSF, but are operated by the university to provide support operated by the university to provide support to both the university and possibly the non-to both the university and possibly the non-university community. Might include:university community. Might include:

– Copy/duplicatingCopy/duplicating

– Mail distributionMail distribution

– Central storesCentral stores

– Facilities repair and maintenanceFacilities repair and maintenance

What is A Recharge Center?What is A Recharge Center?

An operating unit within the University An operating unit within the University that provides: that provides:

--a service or group of services or--a service or group of services or

--product or group of products --product or group of products

--predominate users are within the --predominate users are within the University University

--a fee is charged for the service or --a fee is charged for the service or productproduct

Federal GuidanceFederal Guidance HHS Review Guide for Long Form University HHS Review Guide for Long Form University

Indirect ProposalsIndirect Proposals

Audit Guide: Adequacy and Compliance Audit Guide: Adequacy and Compliance Audits of Disclosure Statements Submitted Audits of Disclosure Statements Submitted by Educational Institutions (HHS OIG)by Educational Institutions (HHS OIG)

Federal Audits of Recharge Centers (HHS Federal Audits of Recharge Centers (HHS OIG)OIG)

A-133 Compliance Supplement (Part 3, A-133 Compliance Supplement (Part 3, Compliance RequirementsCompliance Requirements

University Service University Service CenterCenter

CharacteristicsCharacteristics


Can you define what are you going to sell?Can you define what are you going to sell? A measurable unit of output can be readily A measurable unit of output can be readily

determined.determined.Can you measure usage?Can you measure usage? The amount of a product or service can be The amount of a product or service can be

measured easily and accurately.measured easily and accurately.Can you bill on a regular basis?Can you bill on a regular basis? Individual accounts can be billed for Individual accounts can be billed for

products or services based upon their products or services based upon their actual usage recommendation-monthly.actual usage recommendation-monthly.


An operation may not qualify as a An operation may not qualify as a service center if it cannot service center if it cannot

determine an actual usage in determine an actual usage in measurable units of output measurable units of output

if monthly (periodic) billing cannot be if monthly (periodic) billing cannot be made. made.

Starting the ProcessStarting the Process

– What are the products or service provided?What are the products or service provided?– Who will be the primary users?Who will be the primary users?– What portion of income will be from federal What portion of income will be from federal

sources?sources?– Will equipment costing more than $5,000 be Will equipment costing more than $5,000 be

used in the center?used in the center?– How much in start up funding will be needed?How much in start up funding will be needed?– Who will provide the funds?Who will provide the funds?– Is there similar services/products available in the Is there similar services/products available in the

area that will meet the needs?area that will meet the needs?

Developing the RateDeveloping the Rate

It’s just a fraction right?It’s just a fraction right?

Cost / Usage = RateCost / Usage = Rate

Define Good or Service to Define Good or Service to SellSell

Microscope Lab – Use of MicroscopeMicroscope Lab – Use of Microscope Zebra Fish Facility – FishZebra Fish Facility – Fish Super Computing Facility – Excess CPUSuper Computing Facility – Excess CPU Technical Rate – Rack Space; 24 Hour Technical Rate – Rack Space; 24 Hour

Service; Connectivity Charge; Technical Service; Connectivity Charge; Technical LaborLabor

Stores Facility – Chemicals, Lab Stores Facility – Chemicals, Lab Supplies & Purchasing ServicesSupplies & Purchasing Services

Evaluate Customer BaseEvaluate Customer Base

InternalInternal University Sponsored Program AreasUniversity Sponsored Program Areas University DepartmentsUniversity Departments

ExternalExternal Those who do not have a University account number Those who do not have a University account number IndustryIndustry Students, faculty or staff acting in a personal Students, faculty or staff acting in a personal

capacitycapacity

Estimate How Many Customers (Rate is a function of Estimate How Many Customers (Rate is a function of the Operating Costs/Users (Use) of the Service)the Operating Costs/Users (Use) of the Service)

GoalGoal

Use the measurement which allocates Use the measurement which allocates costs equitably among all userscosts equitably among all users

For example, a center that performs tests For example, a center that performs tests on samples has two possible units of on samples has two possible units of measure; it could charge per test, or per measure; it could charge per test, or per hour. If some tests take twice as long as hour. If some tests take twice as long as others, and labor is a large portion of the others, and labor is a large portion of the cost of performing a test it is not equitable cost of performing a test it is not equitable to charge each user on a per test basis. In to charge each user on a per test basis. In such circumstances, the user rate will be such circumstances, the user rate will be on a per hour basis.on a per hour basis.

Examples of Measurable Examples of Measurable UnitsUnits

PagePage TestTest SlideSlide SequenceSequence CupCup

Labor hourLabor hour Machine hourMachine hour

CPU UnitCPU Unit Per Rack Slot per Per Rack Slot per

MonthMonth Daily RateDaily Rate

Job CostingJob Costing

The best method for costing out the The best method for costing out the service may be to use job costing.service may be to use job costing.

Direct labor + Direct supplies + Direct labor + Direct supplies + Percent of Administration of the Percent of Administration of the Recharge Center = Job Cost Recharge Center = Job Cost

Developing the BudgetDeveloping the Budget

All allowable costs of a center that All allowable costs of a center that will be used in establishing user rates will be used in establishing user rates must be budgeted in and expended must be budgeted in and expended through one operating account. through one operating account.

The budget will be determined using The budget will be determined using the standard guidelines established the standard guidelines established by University policy and procedures by University policy and procedures and the Cost Accounting Standard and the Cost Accounting Standard guidelines.guidelines.

Developing the BudgetDeveloping the Budget

Generally these costs include:Generally these costs include: Salaries and WagesSalaries and Wages Fringe BenefitsFringe Benefits Supplies and MaterialsSupplies and Materials Subcontractors and Other Outside Subcontractors and Other Outside

ServicesServices Repairs and MaintenanceRepairs and Maintenance Carry-Forward Surpluses or DeficitsCarry-Forward Surpluses or Deficits

Rate CalculationRate Calculation

Rate CalculationRate Calculation A service center may have different A service center may have different

measurable units for the different types and measurable units for the different types and classes of products it offers.classes of products it offers.

External users may be charged a higher rate.External users may be charged a higher rate. Ideally the less rates the easier to administer.Ideally the less rates the easier to administer. User rates consisting of flat fees that charge User rates consisting of flat fees that charge

per range of actual use such as light, moderate per range of actual use such as light, moderate or heavy use are not in compliance with CAS. or heavy use are not in compliance with CAS. High volume discounts are not permissible.High volume discounts are not permissible.

Off peak rates are permissible.Off peak rates are permissible.

Rate CalculationRate Calculation

Annual Rate = Annual Rate =

Annual Costs / Total Annual Annual Costs / Total Annual UsageUsage

Operating PrinciplesOperating Principles

Working CapitalWorking Capital

Working CapitalWorking Capital

Funds that are accumulated in excess of Funds that are accumulated in excess of actual cost in order to fund future actual cost in order to fund future operating expenditures/expansion.operating expenditures/expansion.

A recharge center surplus fund should not A recharge center surplus fund should not exceed 60 days working capital.exceed 60 days working capital.

Service centers can acquire working Service centers can acquire working capital by using an existing surplus, capital by using an existing surplus, adding approved surcharges to external adding approved surcharges to external users, or transferring funds from non-users, or transferring funds from non-federal sources.federal sources.

Costing Costing ConsiderationsConsiderations

Who can I charge and what Who can I charge and what can I charge?can I charge?

Costing ConsiderationsCosting Considerations

Section Section J47 of OMB Circular A-21J47 of OMB Circular A-21 requires the cost of each service be requires the cost of each service be charged directly to users based on charged directly to users based on actual useactual use of the service and that of the service and that rates do not discriminaterates do not discriminate between federally and non-federally between federally and non-federally supported activities, supported activities, including including university internal activities.university internal activities.


The use of market prices to The use of market prices to establish billing rates for internal establish billing rates for internal customers would not be customers would not be appropriate to the extent that appropriate to the extent that market prices include a profit.market prices include a profit.

It may be appropriate for It may be appropriate for external, non-federal, users of external, non-federal, users of the center.the center.


Partial versus full cost rates:Partial versus full cost rates:

– Institutions sometimes charge only the cost of the Institutions sometimes charge only the cost of the materials and supplies through the billing rates. The materials and supplies through the billing rates. The salaries of the personnel that operate the center or salaries of the personnel that operate the center or provide the service are not included in the billing rate. provide the service are not included in the billing rate. They are allocated as either GA or DA.They are allocated as either GA or DA.

– Government views this as CAS 502 violation, similar Government views this as CAS 502 violation, similar costs in like circumstances as both direct and indirect.costs in like circumstances as both direct and indirect.


Recharge centers may charge additional Recharge centers may charge additional rate to external users and the “profit” rate to external users and the “profit” will be retained by the center. will be retained by the center.

This additional income is not used in the This additional income is not used in the carry forward balances but should be carry forward balances but should be recovered in a separate account that recovered in a separate account that can be used to replenish equipment.can be used to replenish equipment.


Multiple ServicesMultiple Services Recharge centers providing multiple Recharge centers providing multiple

services may not subsidize the cost services may not subsidize the cost of certain services by charging of certain services by charging excessive rates for other services. excessive rates for other services.

Consideration should be given to Consideration should be given to size, complexity and equity in setting size, complexity and equity in setting multiple rates for a recharge center.multiple rates for a recharge center.

Reserve AccountReserve Account

A reserve account is used to hold A reserve account is used to hold balances and record transactions balances and record transactions that don’t directly affect the rate that don’t directly affect the rate charged to recharge center charged to recharge center customers.customers.

If recharge or cost centers want to If recharge or cost centers want to include equipment depreciation in include equipment depreciation in the recharge rates, they should the recharge rates, they should have a reserve budget.have a reserve budget.

Reserve AccountReserve Account

Activities the Account is Used ForActivities the Account is Used For Purchase of EquipmentPurchase of Equipment Recapture of DepreciationRecapture of Depreciation Additional charges for external Additional charges for external

customers “profit” can be recorded in customers “profit” can be recorded in this account.this account.

***Not used in the calculation of ***Not used in the calculation of surplus/deficit at year end.surplus/deficit at year end.


Recharge centers have the option of Recharge centers have the option of not including all costs in the rates not including all costs in the rates (should not be included in account, (should not be included in account, should be paid from departmental should be paid from departmental account).account).


Any partial subsidy of a center either Any partial subsidy of a center either included as part of the budget or included as part of the budget or absorbed as a deficit at the end of absorbed as a deficit at the end of the year, needs to be identified as an the year, needs to be identified as an unallowable cost for F&A rate unallowable cost for F&A rate calculation purposescalculation purposes


In order to estimate usage, prior In order to estimate usage, prior year(s) numbers can be used as a year(s) numbers can be used as a starting point and adjusted for starting point and adjusted for anticipated changes. anticipated changes.

Centers without sufficient usage Centers without sufficient usage history can use available units as a history can use available units as a starting point and adjust for starting point and adjust for downtime and other intervening downtime and other intervening factors.factors.


Recharge centers should use the Recharge centers should use the same account for all of their revenue same account for all of their revenue and expenses to aid in reconciliation and expenses to aid in reconciliation and documentation.and documentation.

Reconciliation should be done at Reconciliation should be done at least annually.least annually.

Sales Tax & UBITSales Tax & UBIT

Sales tax will be collected in certain Sales tax will be collected in certain circumstances for some types of sales circumstances for some types of sales to external users.to external users.

Unrelated Business Income Tax (UBIT) Unrelated Business Income Tax (UBIT) is a tax that is charged on external is a tax that is charged on external sales that do not meet certain sales that do not meet certain prescribed exemptions. Discuss this prescribed exemptions. Discuss this with the appropriate office at your with the appropriate office at your institution.institution.

SpaceSpace

Space occupied by all service centers Space occupied by all service centers must be identified and designated as must be identified and designated as such during the space survey (e.g, for such during the space survey (e.g, for F&A Proposal purposes). F&A Proposal purposes).

Space which is occupied by the center Space which is occupied by the center equipment must be assigned as equipment must be assigned as center space, rather than department center space, rather than department space.space.

Operating PrinciplesOperating Principles

Billing and ReceivablesBilling and Receivables


Recharge and cost centers should bill Recharge and cost centers should bill their users in a timely manner based their users in a timely manner based on actual usage. on actual usage.

Centers that have significant revenue Centers that have significant revenue are recommended to bill more are recommended to bill more frequently. frequently.

The billing process may depend on The billing process may depend on whether the customer is an internal whether the customer is an internal user or an external user.user or an external user.


Usage logs may be used to generate the Usage logs may be used to generate the billing they should track:billing they should track:

account numbers or customers charged, account numbers or customers charged, service performed or product sold service performed or product sold rate charged rate charged

This information is used to generate the This information is used to generate the billing and can be used to make usage billing and can be used to make usage estimates for future rate proposals.estimates for future rate proposals.

Best PracticesBest Practices

Over the years a pattern of audit Over the years a pattern of audit findings at Universities has emerged findings at Universities has emerged that highlights potential accounting that highlights potential accounting problems encountered by Recharge problems encountered by Recharge Centers. Centers.

These problems pose the risk of These problems pose the risk of financial loss to the both individual financial loss to the both individual Departments and their Universities.Departments and their Universities.

Inadequate Rate Inadequate Rate DocumentationDocumentation

Results from user rates being set arbitrarily Results from user rates being set arbitrarily without regard to the actual costs of without regard to the actual costs of providing the goods or services.providing the goods or services.

User rates must be supported by cost User rates must be supported by cost calculations based on historical costs and calculations based on historical costs and service levels. service levels.

An adjustment for known or anticipated An adjustment for known or anticipated changes in service levels or services changes in service levels or services should be clearly documented.should be clearly documented.

Estimated rates may only be used in the Estimated rates may only be used in the first year of operation.first year of operation.

Failing to Maintain Current Failing to Maintain Current Equipment Depreciation Equipment Depreciation

SchedulesSchedules

Problems have also arisen when the Problems have also arisen when the University did not ensure the items University did not ensure the items recovered in the user rate are recovered in the user rate are removed from the indirect cost pool removed from the indirect cost pool used to calculate the equipment use used to calculate the equipment use charge.charge.

Failing to Separately Identify Failing to Separately Identify Expenses Included in the User Expenses Included in the User

rates from Departmental rates from Departmental ExpensesExpenses

If you can’t demonstrate that the cost If you can’t demonstrate that the cost was incurred, you can’t include it in the was incurred, you can’t include it in the user rates. user rates.

Additionally, if you include costs in the Additionally, if you include costs in the user rates, you must be able to show user rates, you must be able to show they were paid by the Recharge Center they were paid by the Recharge Center and not included in one of the indirect and not included in one of the indirect cost pools or from other Federal cost pools or from other Federal extramural funds.extramural funds.

Failing to Document Clearly the Failing to Document Clearly the Goods/Services ProvidedGoods/Services Provided

User bills that don’t carry sufficient User bills that don’t carry sufficient detail to identify the services provided detail to identify the services provided are subject to disallowance, are subject to disallowance,

----- it is important the customer ----- it is important the customer gets a detailed bill for services gets a detailed bill for services provided. provided.

The type of “ bill” would depend on The type of “ bill” would depend on the service. Users must be provided the service. Users must be provided with detailed bill in a timely fashion.with detailed bill in a timely fashion.

Failing to Identify the User’s Failing to Identify the User’s Source of Funds at the Point of Source of Funds at the Point of

PurchasePurchase

It is important from the standpoint of It is important from the standpoint of the Federal auditors that a customer the Federal auditors that a customer identify what project(s) are to be identify what project(s) are to be charged at the time of purchase.charged at the time of purchase.

DOJ - DOJ - University of University of Connecticut Connecticut

$2.5 Million Whistleblower; False Claims $2.5 Million Whistleblower; False Claims Investigation SettlementInvestigation Settlement

Specialized Service Centers: Overstated Specialized Service Centers: Overstated anticipated expenses, overcharged the anticipated expenses, overcharged the government and billed for items not covered by government and billed for items not covered by the grants.the grants.

Billing Rates – Failure to revise and Billing Rates – Failure to revise and appropriately set its rate structure resulted in appropriately set its rate structure resulted in submission of numerous false claims.submission of numerous false claims.

Newsday, January 9, 2006 ( Associated Press); Newsday, January 9, 2006 ( Associated Press); Hartford Current, January 10, 2006Hartford Current, January 10, 2006

OIG Audit - OIG Audit - University of University of Massachusetts Medical SchoolMassachusetts Medical School

Recharge & Laboratory Supply Center Recharge & Laboratory Supply Center ChargesCharges

OIG could not determine who requested OIG could not determine who requested the recharge center services or laboratory the recharge center services or laboratory supply charges and whether these costs supply charges and whether these costs were allocable to the NIH Grant. Records were allocable to the NIH Grant. Records were not retained (Records should be were not retained (Records should be retained for 3 years after the dated of the retained for 3 years after the dated of the final financial status report).final financial status report).

08/23/05 08/23/05

OIG Audit 06/03- OIG Audit 06/03- Northeastern Northeastern University University

Animal care costs – Animal care Animal care costs – Animal care facility set up as a recharge center, facility set up as a recharge center, in proposal PI put direct salary in in proposal PI put direct salary in budget for animal care technician budget for animal care technician instead of rate. OIG determined that instead of rate. OIG determined that this made it a direct cost and this made it a direct cost and required time and effort report.required time and effort report.

OIG Audit 1994- OIG Audit 1994- Review of Review of service centers at 12 service centers at 12

Universities Universities Summary Report of Audits of Recharge Centers Summary Report of Audits of Recharge Centers at 12 Universities - Findingsat 12 Universities - Findings

billing rates were not adjusted for accumulated billing rates were not adjusted for accumulated surplus and deficit fund balances;surplus and deficit fund balances;

included duplicate or unallowable costs in the included duplicate or unallowable costs in the calculation of billing rates;calculation of billing rates;

included recharge costs in the calculation of included recharge costs in the calculation of indirect cost rates;indirect cost rates;

used funds of recharge center account for used funds of recharge center account for unrelated purposes;unrelated purposes;

billed some users at reduced rates.billed some users at reduced rates.

Summary of Key Compliance Summary of Key Compliance IssuesIssues Rates should recover no more than the cost of the good or service.Rates should recover no more than the cost of the good or service.

Rates must break-even over time, not each year.Rates must break-even over time, not each year.

Rates don’t discriminate between users, especially FedsRates don’t discriminate between users, especially Feds

Surplus from recharge centers shouldn’t be used to fund unrelated Surplus from recharge centers shouldn’t be used to fund unrelated activitiesactivities

Must maintain published price listMust maintain published price list

Rates may include depreciation expense only, not the full cost of the Rates may include depreciation expense only, not the full cost of the equipmentequipment

Depreciation included in rates can’t also be in the F&A rateDepreciation 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.. Service center subsidies should NOT be included in the F&A rate (i.e.. NOT as a Departmental Administration cost)NOT as a Departmental Administration cost)

Service/Recharge CentersService/Recharge Centers

Questions?Questions?

ncura region iii may 2008

Documents

service centersdescribed

university criteria

nonuniversity community

specialized facilities

group of services

cost usage

administrative services

operating unit