NDUS Guidelines for Internal
Service Funds/Recharge Centers
INTRODUCTION
The purpose of this document is to establish definitions, policies 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. Target date for full
compliance is 6/30/99. Compliance will be met by full review and corrective
action or establishment of materiality thresholds and review/corrective
action on the first year group (most material funds) as discussed under
policy implementation.
POLICY IMPLEMENTATION
Whenever possible, institutions should design review procedures to occur
at least annually. Institutions may adopt and alternative review process
for internal service fund 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 of two to three years.
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 remaining
funds (5%) would be reviewed every three years.
The policy is not suggesting a dollar or percentage threshold. Each institution
is responsible for developing its own plan and documenting reasons for
any established thresholds.
>>The NDUS recharge policy is scheduled to be fully implemented on
each campus by June 30, 1999. After this date, a subcommittee will review
this policy. The subcommittee will review policy for necessary
revisions at this time.
DEFINITIONS AND DESCRIPTIONS:
1) 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 policies in effect for recharge centers do not apply to units
that are defined as auxiliary enterprises.
2) 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.
3) 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.
4) 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. Based on evaluation of criteria established in this
policy, recharge centers will be categorized as follows:
- Recharge Center (Direct Cost only)
- Recharge Center (Direct Cost plus Depreciation)
- Recharge Center (Fully Costed)
These categories describe the level of cost recovery for each recharge
center. All three must be treated the same for indirect cost calculation
purposes.
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 indirect
cost rate structure, NDUS policy and established institutional procedure.
A recharge center will be established or approved for continuation after
institutional review of criteria for establishing/continuing recharge
centers.
Recharge Center funds will be classified as current unrestricted funds
for financial statement purposes. <<A
separate function and sub-function has been specifically created for recharge
centers. The function available os 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. A scheduled review of the rate and viability
of recharge center must be completed. The following criteria, at a minimum,
should be evaluated:
- Centrality to institutional mission
- Relationship to departmental mission
- Dollar volume/volume of transactions
- Nature of product or service (unique or specialized)
- Demand exists
- Regular and continuing basis
- Defined unit of measurement possible
- Clearly defined financial plan (identify start up costs as well
as ongoing operating costs and method of recovery)
- Identity of users known who will be charged and will there be
users who are not charged (i.e., subsidy... are any users federal)
- Review mix of users (internal versus external) to evaluate the
accounting classification
OVERVIEW OF RECHARGE CENTER CATEGORIES:
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 Recharge Center categories
are based on the components of cost that are included in the rate calculation
(see Appendix 4 for Examples of Typical Costs).
A) 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.
B) Recharge Center (direct cost and equipment depreciation or replacement
cost) - 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
or replacement cost for equipment specific to the recharge center. This
assumes consistent treatment with the institution's federally approved
indirect 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.
C) 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 indirect costs based on the institution's existing
rates. If an institution does not have a negotiated indirect cost rate,
the "fully costed recharge center" will not be used. This assumes consistent
treatment with the institution's federally approved indirect cost rate
structure. An increment for replacement cost of equipment may also be
added to the rate, if appropriate.
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 indirect cost should be charged to the recharge center
fund(s) with a corresponding credit to the institutional indirect 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
indirect 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:
The following costs are considered as unallowable when calculating rates
for goods or services that are to be charges against federal funds. (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.)
Advertising and public relations
Alcoholic Beverages
Alumni Activities
Bad Debt Expense
Institution furnished automobiles
Contingency provisions
Donations and Contributions
Entertainment Costs
Executive Lobbying Costs
Fines and Penalties Goods and Services for Personal Use
Housing and Personal Living Expenses
Insurance Against Defects
Interest on Capital purchases
Fund Raising and Investment Management Costs
Memberships and Professional Activity Costs
Student Activity Costs
Trustees
The definitions and allowability for the above items of cost are contained
in OMB Circular A-21, Section J (1 through 50). Please refer to A-21 when
evaluating the allowability of specific items of cost.
Appendix 1
RATE DEVELOPMENT GUIDELINES:
Recharge Center Budget Worksheet:
The attached form outlines a basic rate development tool for use in
calculating a recharge center rate. The format is optional, however,
alternative formats must include at a minimum the same information for
documentation purposes. Expanded formats may be necessary for recharge
centers that need to establish rate schedules with multiple rates, each
of which corresponds to a chargeable unit. All users will be charged
the same rate for the same service. The rate will be reviewed on a scheduled
basis and depending upon accumulated balance, the rate will be adjusted
either up or down. <>
Expanded formats may also be necessary for recharge centers that operate
using multiple fund numbers.
Calculation of depreciation should only be included for those recharge
centers that are defined under recharge center (direct cost and equipment
depreciation). Assets included in this calculation must be directly
assigned to the recharge center and used in delivery of the good/service
for which the rate is being charged. Appendix 2 (Depreciation Calculation
Reference Table) identifies the method for calculation and useful life
of the various types of assets. Batch reports run off the fixed asset
system are available to assist for use in this process.
Minimum documentation for recharge centers that calculate depreciation
includes: annual depreciation schedule (include fixed asset inventory
tag number of each asset) summary of accumulated depreciation (prepared
annually)
Based on specific institutional procedures, depreciation may be recorded
against the recharge center fund for management reporting purposes.
In addition, it may be desirable to set up a separate equipment fund
into which the dollars attributable to depreciation are set aside (actually
funding depreciation). Subsequent equipment purchases related to the
recharge center would then be made from the equipment fund. Prior to
establishing institutional procedures for accounting for equipment depreciation
and funding, consideration must be given to requirements for financial
statement reporting in compliance with GAAP. Funded depreciation must
be spent on items related to recharge activity.
Some of the recharge centers may involve more complex calculations than
provided for in the basic format. As institutions move through the implementation
phase it is understood that various models (alternatives) will be developed
to accommodate these complexities. These may result in subsequent modifications
to this document and related institutional procedure. One example of a
potential issue is the need for differential rates to provide for recovery
of either equipment depreciation or equipment replacement cost. The rate
will be the same for the same service. Another is resolving how to deal
with appropriated dollars as they relate to supporting (subsidizing) recharge
centers. As each institution establishes procedure to deal with recharge
centers and conducts an initial review, these and any other issues that
surface will be researched and resolved.
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