Federal policy requires that costs associated with providing goods and services are allowable and recovered through direct charges to users based on actual usage at a pre-established per unit price.
Costs associated with the direct administration of a recharge activity are allowable expenses on a recharge plan and should be included. Such costs include salaries and wages, benefits, supplies, services, depreciation, etc., associated with the accounting, billing, purchasing, personnel, supervision, and other general support functions of the recharge activity.
It is common for recharge activities to have a surplus or deficit at the end of any specific fiscal year because the actual revenues received and costs incurred during that year differ from the budgeted amounts used to calculate the recharge rate. However, over a period of several fiscal years it is expected that recharge activities will operate close to break-even. An exception is allowed for a working capital and equipment reserves.
Although, surpluses and deficits are common in any one fiscal year. The goal is to have a recharge activity that operates close to break-even. Every effort should be made to ensure that year-end surpluses or deficits do not exceed three months of the recharging unit's activity.
During the rate review process for a subsequent fiscal year, the projected surplus or deficit, in excess of any allowed working capital surplus or provision for equipment replacement from the current year, must be included as a reduction from or an addition to expenses in the subsequent fiscal year's budget and rate computation.
- Actual (or projected) surplus or deficit must be included in the following year's rate calculation.
- A year-end surplus will reduce the following year's cost pool and, therefore, the rate
- A year-end deficit will increase the following year's cost pool and, therefore, the rate
- Over/under allocation methods for I&R Centers with more than one line of service:
- Allocate using prior year net income/loss
- Find the net profit/loss for each line of service by determining the total revenue and the total associated expenditure.
- Using the total net profit/loss, calculate a percent of total net profit/loss and use those percentages to allocate the over/under recovery to the various lines of service.
- Best practice: Tracking the actual balance for each line of service by matching actual revenue with actual expenses using cost centers and/or project codes.
- Allocate using percent of total prior year expenditures
- Determine total expenditures for each service line.
- Based on total expenditures, find the percent of the grand total expenditures and use those percentages to allocate the over/under recovery to various lines of service.
- Allocate using prior year net income/loss
- Surpluses from one recharge fund may not be used to offset deficits from another.
- Deficit balances may be covered using a departmental discretionary fund. Please work with the Office of Budget & Planning to process the appropriate transactions.
- Surpluses or other monies may not be transferred out of the recharge activity without prior approval from the Office of Budget & Planning.
In exceptional cases where inclusion of a surplus or deficit in the subsequent year would cause a severe fluctuation in the rates from one year to the next, approval may be granted to amortize the surplus or deficit over a 2-3 year period to lessen the impact on the following year’s rates.
As part of the annual recharge rate review, Income & Recharge Centers that carry an unacceptable surplus/deficit are required to establish a plan to rectify the situation and bring the center within the acceptable levels of tolerance.
Large Deficit - If a center has a large deficit, where the year-end general ledger deficit is defined as more than three month’s operating expense, it must develop a deficit reduction plan explaining the situation and corrective action that will be taken to clear the deficit. The plan should eliminate the deficit in as short a time as possible, not to exceed three (3) years. If the deficit is not reduced to acceptable limits in that timeframe, the control point must cover the deficit.
Large Surplus - If a center has a large surplus, where the year-end general ledger surplus is defined as more than three month’s operating expense, the unit cannot raise its rates. If a center has a large surplus, it must develop a plan to amortize the surplus in as short a time as possible, not to exceed three (3) years. Rates must be downwardly adjusted or else refunds may need to be issued.
The position being advertised must be necessary for the recharge operations. Recruitment advertising should be appropriately allocated to all accounts/activities benefited, including departmental research/teaching.
Salaries and wages of personnel associated with providing the service items, maintenance of equipment used in the recharge activity, or directly administering the recharge activity should be included. Salaries and wages are to be funded using Sub 2. Associated fringe benefit costs should also be included.
When the rate calculation is based on a per hour labor service unit the rate per hour should only reflect the employee’s billable time. Hourly rates should be calculated based on total costs divided by annual billable hours in order to recover the full cost of providing service. Billable hours are the total time available, less non-billable time such as time for vacation, sick leave, holiday, other forms of leave, breaks, equipment downtime, machine repairs, education/certification and meetings. If the rate was calculated based on the total annual hours (both billable and non-billable), the rate would be too low and not recover the full cost.
Typical departmental Facilities and Administrative costs that are included in UCSB’s negotiated federal indirect cost recovery rates should not be included in recharge budgets and rates, in order to prevent double-charging of these costs to federal agencies. In addition, costs not allowable to charge to federal funds should not be charged to recharge budgets or included in recharge rates.
Please refer to 2 CFR 200 for further information.
- Administrative costs not related to the recharge activity are unallowable. Also, incidental administrative costs related to the activity are unallowable. Incidental administrative effort is when an individual contributes less than 5% of his/her annual effort in support of an activity.
- Advertising, marketing, and public relations (this includes travel for the purpose of these activities)
- Alumni activities
- Bad debts, fines or penalties
- Banking and credit card fees
- Commencement or convocation costs
- Contingency or expansion reserves
- Costs of goods and services for employees’ personal use or the cost of providing services for free or a discounted rate
- Cost of items funded by the Federal Government
- Donations and contributions
- Entertainment (alcohol, event tickets, flowers, gifts, etc.)
- Equipment (>$5,000). Direct purchases of inventorial equipment are prohibited on the recharge operating fund. However, a Provision for Equipment Replacement shall be included as a cost in the rate development and charged to the recharge operation fund, unless the inventorial equipment is funded by the Federal government or is identified as cost sharing to a federal project.
See Equipment Replacement for more information.
- Equipment (including consumer electronics) or services that are able to transmit or route data or include video surveillance equipment and produced or managed by the following companies and their subsidiaries: Huawei Technologies Company, ZTE Corporation Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, and Dahua Technology Company
- ETS Support Assessment
- Exceptional charges that did not occur through the normal course of business; e.g. additional costs incurred to recover “uncollected” income due to the department not billing users accordingly
- Fees and stipends for undergraduate and graduate students
- Fundraising and investment costs
- General, Automobile and Employment Liability (GAEL)
- Housing and personal expense to campus officers
- Interest costs for internal loans
- Leasehold improvements
- Legal proceeding costs
- Lobbying costs
- Memberships/subscriptions in civic, community or social organizations
- Non-cash awards/gifts
- Patient Care
- Principal payments of capital leases
- Rent, utilities, custodial or occupancy costs for University owned space
- Scholarship Allowance Credit
- Short-Term Investment Pool (STIP) expense
- Capitalized space renovations or improvements, including renovation costs or significant alterations or structural changes to plant assets which increase the usefulness, enhance the efficiency, or prolong the life of the property
- Operations and maintenance of space that is eligible for state OMP support, including building depreciation and utilities
- An activity should not include charges for its use of centrally supported space (i.e., building depreciation cost component, utilities) nor the University’s general and administrative costs as these are funded from other sources. However, if the unit incurs additional specialized that are not funded from other University resources, these can be included in the rate and costs of the unit.
- Student activities
- Travel unless directly related to services necessary to support the recharge activity
- Training costs to create new goods/services are not allowed in the recharge account, because to do so would be charging users for goods/services not yet rendered
- UCOP Assessment
- UCRP Supplemental Interest Assessment
Generally Unallowable Costs
Costs that are generally unallowable, unless directly related to, exclusively benefitting and required to provide the recharge services. These costs require approval in order to be considered allowable.
Business meeting expenses for morale or entertainment purposes are unallowable.
Food or beverage products purchased for morale or entertainment purposes are unallowable.
Requires additional justification. Honorariums for services provided by non-UCSB employees must be necessary for the services or commodity being provided, and must be consistently applied to all eligible individuals with supporting documentation justifying the amounts being paid.
- Interest associated with the purchase of capital equipment is allowable when it satisfies the following criteria:
- Interest must be paid to outside third party.
- The equipment must have been acquired on May 8, 1996 or after.
- For acquisitions prior to May 8, 1996, the purchase price of capitalized equipment must be $10,000 or greater.
- A letter must be on file with the University’s cognizant agency (DHHS) requesting approval to charge these interest costs to the Income & Recharge Center. If the agency subsequently denies this request, all interest charged to the recharge unit must be transferred to other allowable funding sources.
Parking passes should never be used by employees, vendors, or recharge operation customers. They may be included if they are for participants or like individuals whom are necessary for the service/commodity being provided.
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. Non-capital start-up costs that benefit more than one year should not be charged to the operating fund without prior approval from the Office of Budget & Planning.
Pass-through activities are activities where goods or services are purchased from one university account with the intention to transfer the expense to another university account strictly at invoice cost, without markup for recovery of other costs. Pass-through activities, by definition, will always break-even.
It is never permissible to “pass-through” University expenditures to non-University users at invoice cost. A non-university differential (NUD) must always be applied to “pass-through” (i.e., pure invoice based) transactions with non-University users.
To establish a pass-through activity, departments must include a statement in the Income & Recharge proposal describing why the activity is needed and how they will manage it.
Standard pass-through activities are to be administered in a separate fund linked to the recharge account. See Chart of Accounts for more information.
Records documenting actual products distributed to account strings should be maintained. These records are subject to audit.
Pass-through expenditures should be transferred within the month after the charge is first reflected in the accounting system. It is best practice to use the Transfer of Expense (TOE) system to transfer the expense with appropriate documentation. While the TOE system should be used to transfer pass-through expenses to another fund, transfer via the Non-Payroll Cost Transfers (UFIN-120) form may be permitted. All transfers to restricted funds provided by external agencies for a specific purpose (e.g., funds provided under a gift, endowment, grant, or contract for a specific purpose) must comply with the criteria outlined in UCOP Direct Costing Procedure policy (BFB-A-47). Please consult the Extramural Funds website for more information on Cost Transfers.
A periodic review of these activities is required and will be fulfilled either through the review of the associated Income & Recharge Center or submission of a financial statement..