Establishing a Center

Prior to implementation of any rates for goods and services the rates must first be approved.

You should establish an Income & Recharge activity if:

  • The service is unique or specialized, as opposed to general administration or other institutional support services
  • A specifically identifiable good or service is provided
  • A demonstrated need for the particular services exists by more than one university or non-university user
  • There will be significant volume of activity, both in dollar amounts and in the number of transactions
  • The service will be provided on a regular and ongoing basis
  • The service is related to the mission of UCSB

Income & Recharge activities should not be set up to provide goods or services that are readily available from outside sources. However, an Income & Recharge center may be established if there are overriding or justifiable programmatic, economic, ethical or other institutional reasons to support the need for the University to provide the goods or services. There must be a sound business case supporting the provision of these services and the manner in which they are provided.

Issues to consider when evaluating setting up a recharge:

  • Why do we want to conduct this recharge activity?
  • Should we be in this business?
  • Is a unique service being provided that is not currently available at UC Santa Barbara?
  • Do we have the expertise to provide this service?
  • What are the risks and how will we manage them (e.g. product/service liability, workers comp, etc.)?
  • Do we have the time to manage/monitor this activity?
  • Is this service covered by our existing budget (e.g. 19900, 69750 fund sources etc.)?
  • How will we determine rates?
  • Who are our customers?
  • How will we budget for this activity?
  • Will we breakeven?
  • How will we cover an unforeseen loss?
  • How will we monitor the financial status?
  • How will we bill?
  • How will we monitor the receivables?
  • How will we handle cash receipts: cash, checks, credit cards etc.?
  • How will we prepare the recharge journals?
  • How will we handle sales tax issues?
  • How will we report unrelated business income tax (UBIT)?
  • Do we have adequate insurance coverage?

 

Funding for start-up costs for any center must be agreed to and provided prior to commencing the activity. Start-up costs are non-recurring costs necessary to prepare a new activity for its normal business purpose. Start-up costs may include both capital expenditures, such as those for equipment, and non-capital expenditures, such as moving expenses. Start-up costs that benefit more than one year must not be charged to the operating fund of the recharge activity. Ideally, start-up funds would be agreed to and provided by the department and control point. This support indicates that the activities are important to the university's mission.

Departments and control points implementing new centers are responsible for any deficits that occur during each of the first three years of operation and must provide an appropriate fund source to cover this. Deficits are common in new recharge operations as accurate usage and expense data are usually not available when rates are initially developed. The future users of the services should not be burdened with higher rates caused by “start-up” deficits.

Process Map for Establishing an Income & Recharge Center

Chart of Accounts

To facilitate the budgetary and compliance review process, recharge centers are to conduct their operations on a single, unique general ledger account established exclusively for the financial operations of the center.

Model of Chart of Accounts

Managing a Center

Annual Review

All rates must be presented at least once per year for review. More than one review in a year will be necessary if mid-cycle rate changes are proposed.

On an annual basis, rate and recharge proposals are to be prepared for review and approval. The chosen method of review will in general depend on the proposal’s “Risk Assessment” as shown in the matrix exhibit below:

RISK ASSESSMENT AND METHOD OF REVIEW

 ANNUAL BUDGET RANGE FEDERAL SHARE OF INCOME AND RECHARGE
Federal Participation Less Than 15% Federal Participation 15% to 50% Federal Participation Greater that 50%
 Less than $100,000

LOW RISK


Budget Office Review

LOW RISK


Budget Office Review

LOW-MEDIUM RISK


Budget Office Review

 $100,000 to $200,000

LOW RISK


Budget Office Review

LOW-MEDIUM RISK


Budget Office Review

MEDIUM RISK


Consent Agenda Item

 $200,000 to $500,000

LOW-MEDIUM RISK


Budget Office Review

MEDIUM RISK


Consent Agenda Item

MEDIUM-HIGH RISK


Committee Review

 Greater than $500,000

MEDIUM-HIGH RISK


Committee Review

MEDIUM-HIGH RISK


Committee Review

HIGH RISK


Committee Review

Centers seeking renewal that fall under committee review may be reviewed by the Office of Budget & Planning if a preliminary analysis shows that they meet each of the following conditions:

  1. The department proposes no change in costing methodology.
  2. Any policy compliance issues that are present, such as surpluses or deficits that exceed tolerance levels, have been addressed in the proposal.
  3. Any change in income and/or revenue sources represent a minor percentage of the overall recharge budget (less than 10%).
  4. The proposed rates have been reviewed by the Income and Recharge Advisory Committee — either as a Consent Agenda item or a Meeting Agenda item — at least once within the prior 5 years.
  5. A rate and recharge proposal was submitted to the Office of Budget & Planning for review in the prior year.

Extended Approval

Centers may request an extended approval to increase rates for services/goods based on one of the following reasons:

  1. Salary/benefits – UCOP approved adjustments for merits, COLA, range/equity adjustments and UCRP
  2. Differential income – Increases to NUD amount and adjustments due to revised federal overhead cost recovery rates

Extended approvals are only available to centers who have satisfied the following compliance areas:

  1. Received approval of rates in prior fiscal year
  2. Center is not carrying a deficit/surplus balance in excess of 3 months operating expense
  3. No unallowable expenses are charged to recharge fund in prior fiscal year
  4. NUD is allocated appropriately to NUD fund (if applicable)
  5. Completed transfer to move provision for equipment replacement to reserve fund (if applicable)

Billing

  • A recharge center may only bill customers using the approved posted rates for goods and services.
  • Recharge centers must bill all customers in a consistent, accurate and timely manner. It is highly recommended billings be processed within 45 days of when the services were provided; or no longer than 45 days after the center has been billed by a third party providing the goods or services. If this schedule cannot be met, it is the responsibility of the recharge center to notify the billed department of any delays. Recharge centers must not bill in advance of providing the goods or services to a customer.
  • Untimely billings processed against terminated and closed sponsored project budgets may need to be absorbed by the recharge center using other discretionary funding (i.e., cannot be charged to the recharge operation)
  • The recharge center assumes any risk associated with nonpayment of goods and services when goods and services are provided in advance of receiving valid customer billing. 
  • Recharge center shall maintain records to substantiate all billing transactions, including requisitions, purchase orders, or similar written verification of individual user requests for goods or services. Recharge procedures, including billing statements provided users, shall be subject to campus approval and periodic review.  (Note: The recharge center must also retain the original signed copy of the income and recharge rate proposal and the proposed billing rates.)

Statement (or invoice) Format and Content Requirements

Statement (or invoice if appropriate) must be available online or sent to the department within 5 working days of the billing period.

Statement or invoices must contain the following information:

  1. Name of unit
  2. Full chartstring – All fields should be shown even if blank. Each field should be clearly defined in a separate block.
  3. Period posted to General Ledger
  4. Description in the General Ledger
  5. Order number/work order number/reference number
  6. Detailed description of the goods or services, including the units of measure and billing rate
  7. Date of service
  8. Amount charged/liened to the ledger
  9. Recharge contact name, phone number, e-mail address. (Recommended but not required: contact name in the department that requested service)

Internal Customers

  • An internal charging mechanism, referred to as “recharge”, is used to redistribute expenses for products or services provided by the Income & Recharge Unit. This mechanism is accomplished using a Financial Journal.
    • Other UC campuses are considered to be directly affiliated with the university. These entities are defined as internal customers for recharge purposes, and hence, are not subject to a surcharge. When recharging another campus, departments should complete an Interdepartmental Order and/or Charge (IOC) form and submit it to General Accounting for processing. Accounting will complete the corresponding Financial Journal. The Interdepartmental Order and/or Charge form and instructions can be located here: https://www.bfs.ucsb.edu/general-accounting/intercampus-transactions.
  • The recharge unit must use the correct account/fund/sub for the transaction as provided by the customer, and the correct object code. Recharge debits (object code 3905) and credits (object code 3900) must match.
    • In the future, every Income & Recharge center will have its own identifiable debit and credit object code.

External Customers

  • Sales and services provided to external entities are not achieved by the internal recharge mechanism. Instead charges and revenue are processed by a billing invoice and a cash receipt or credit card transaction.
  • Cash payments should be processed to record any split between external revenue (credited to the recharge revenue account of the recharge fund) and Non-University Differential (NUD) (credited to the NUD fund linked to the recharge revenue account) on the deposit slip or requested through Financial Control so that the ledger is correctly stated.

Financial Journal Requirements

  • In order to avoid duplicate journals processed, the department receiving the credit should prepare the financial journal.
  • The financial journal should only include recharge transactions and pass-through activity for a single center. Please limit financial journal submissions to one per month per center.
  • Recharge debits (object code 3905) and credits (object code 3900) must match
    • Other specific object codes can be used but require prior approval from General Accounting since they must be mapped to object code 3900 or 3905. Several object codes are already mapped to roll up to these object codes, please consult with General Accounting for additional information.
    • In the future, every Income & Recharge center will have its own identifiable debit and credit object code.

Financial Journal Procedure

  1. Complete the Financial Journal form (see instructions)
  2. Submit the completed Financial Journal to Business & Financial Services for processing
    1. Send one email to Data Control (gldata@bfs.ucsb.edu) with your completed Docusign approved journal and your excel document by the ledger cutoff dates.
      1. Subject: Dept Code, # Journals for GL Month/period
        For example, Subject: CNSI, 1 journal for April/Period 10
      2. Body of email: List the filenames & the debit/credit totals
        For example, Filename # 1 $110.00
  3. File the form & supporting documentation in the department

Mediation – Handling Disputes Between Units and Campus Departments

Both parties agree to mediation by the Budget Office for items in dispute where the department and the recharge unit and respective control authorities (Vice Chancellor or Dean) cannot come to an agreement. Items in dispute will be forwarded to the Budget Office for resolution.

Equipment Replacement

Inventorial Equipment

Inventorial (capital) equipment is a stand-alone item with a useful life of greater than one year and a value greater than $5,000. Inventorial equipment used in support of the recharge center shall be included in the recharge rates proposal; however, it cannot be charged directly to the recharge operating fund* [BFB-56]. Instead, a Provision for Equipment Replacement, based on the straight-line depreciation methodology, should be included as a direct cost in the rate development, and a Reserve for Equipment Replacement should be established in a separate fund (fund range: 76000-76999) linked to the recharge account, to segregate equipment cost recovery funds from the operating fund. The Provision for Equipment Replacement will be budgeted annually by the recharge center from the appropriate operating fund (6XXXX fund) Sub 8 with an offsetting budget credit to the associated Reserve for Equipment Replacement via a Transfer of Funds (TOF); once submitted, the Budget Office works with General Accounting to financially transfer these budgeted provisions via financial journals on the balance sheet. 

*Purchases of inventorial equipment must be funded from other sources including equipment reserves, gift funds or other allowable fund sources.

Capitalization Threshold

As of July 1, 2004 equipment with an acquisition cost of less than $5,000 is not considered inventorial equipment and must be charged directly to recharge center operating funds. 

Provision for Equipment Replacement

The Provision for Equipment Replacement Schedule (Sheet F in Excel Workbook) is included with the recharge proposal form and must be submitted with all recharge proposals. This schedule is an inventory of the equipment that is used for the production of rechargeable goods and/or services and will be included in the provision calculation. 

The following equipment costs cannot be included in the Provision for Equipment Replacement calculation:

  • Equipment funded by the Federal government or is identified as cost sharing to a federal project. [BFB-56]

Donated equipment is considered to be the financial equivalent of a cash donation that is subsequently used to purchase equipment.  When a recharge center receives an equipment donation, the equipment may be included in the Provision for Equipment Replacement.

The Provision for Equipment Replacement is calculated using the straight-line method of depreciation with no salvage value. Alternatives to the depreciation methodology may be approved when the unit can clearly demonstrate that the alternative method more accurately represents the actual usage, consumption or life. [BFB-56].

Provision for Equipment Replacement = (Asset Value - Federal Amount)/Useful life 

In other words, the total cost of the asset less the amount that was purchased with federal funds or is identified as cost sharing to a federal project. You take that total and divide by the asset's useful life (# of years) to get your annual provision amount.

To determine the useful life, use the Useful Life Schedules issued by the Office of the President (http://eulid.ucop.edu). If there is a significant difference between the asset life reflected in the tables and the unit’s experience of the useful life of the equipment, then the unit’s experience of the asset life should be used to reflect the actual life of the asset. If the tables are not used, this should be disclosed in the rate proposal.

Reserve for Equipment Replacement

The Reserve for Equipment Replacement may only be used to purchase equipment for the recharge center, or to repay the original fund that provided the monies to purchase the equipment and cannot be used for operating costs.

A decommissioned recharge center may use the balance in their Reserve for Equipment Replacement to offset any operational deficit for that center. Balances in the reserve fund beyond deficit coverage may be retained by the department with Budget Office approval.

Transfer Process (instructions)

Disposal of Equipment

  1. Record any gain or loss from the sale of the equipment in the equipment reserve budget. There is no impact on the operating budget.
  2. Remove equipment from the Provision for Equipment Replacement schedule in your rate proposal and stop including the provision in the rates. 

Subsidy

  • Subsidies must be disclosed in the rate proposal, including amount, purpose, and funding source.
  • Subsidized rates must be consistently charged to all internal university users. All internal users must benefit proportionately from any subsidy.
  • University funds may never subsidize external users.
  • Multiple subsidies are allowed.
  • The center must record the full costs (including the subsidy) for the activity in an identifiable account. See Chart of Accounts for more information.
  • Centers may subsidize rates, but centers must apply the subsidy against the full direct costs of the rate. No subsidies should be included in the calculation of the recharge rate. 
  • If a subsidy is used, the center should first calculate a fully costed rate. The full rate is billed, but a portion of the rate is charged to the user and a portion is charged to the subsidy. This is referred to as a “billing subsidy”. The billing subsidy application is preferred in order to maintain fund integrity, and for federal subsidies, avoid center income reporting requirements to a federal award.
    • Billing Subsidy – to reduce the rate charged to the users for recharge products or services by charging a portion of the billing rate directly to a subsidy LAFS.
      • Example: The fully costed rate of a recharge service is $100 per unit. Users receive a 20 % billing subsidy from a subsidy LAF. The subsidy LAF pays $20 by charging the subsidized portion of the rate directly to the subsidy fund and the users are charged $80
    • When preparing a recharge journal with a billing subsidy, only two additional journal lines are needed to recharge the billing subsidy fund source (one line to debit the subsidy fund and one line to credit the recharge operating fund). The subsidy object codes are to remain the same as the ones used to charge clients. Financial Journal (example).
    • General Subsidy – prior year deficit balances may be covered using a departmental discretionary fund. These transactions require special processing and must not be completed on the recharge journal. Please consult with the Income & Recharge Analyst for more information.

Discontinuing a Center

If a recharge center decides that a service activity is no longer going to be provided, please email the Income & Recharge Analyst with the following information:

  • When will the operation close?
  • A final reconciliation of the activity (net position)
  • A financial reconciliation of all associated reserve funds (net position)
  • The proposed disposition of recharge net position(s))

Also, the center should notify its customers at least 30 days in advance. Notification via the departmental website should also follow. 

DEFICIT BALANCES:
If a recharge center wishes to close a recharge activity but the account/fund is in deficit, the owner department should make arrangements with the Income & Recharge Analyst to transfer the deficit to an appropriate chart string within the department.

SURPLUS BALANCES:
If a recharge center wishes to close a recharge activity, but the account/fund has a surplus, the owner department should make every effort to refund their customers using one of the two methods described below. If a surplus of less than one month’s operating cost remains, the balance may be retained by the department and transferred to the department’s operational account (same fund).

Method # 1

  • Segregate the recharge income surplus to a different account (same fund)
  • Continue providing services to internal users but re-direct the recharge to the new surplus account until the surplus is exhausted. Users will still be invoiced but show a credit equal to the charges for net zero charge. 

Method # 2

  • Center must review its recharges over the past “X” number of months and provide proportionate refunds to each fund that received recharge (to the extent that those funds were still open).