Rate Components and Development

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 time (normally 2-3 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, the projected surplus or deficit from the prior year, in excess of any allowed working capital surplus or provision for equipment reserve, must be included as a reduction from or an addition to expenses in the 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.
• 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 longer 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 3 years.  If the deficit is not reduced to acceptable limits in that timeframe, the department and control point may need to 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 3 years. Rates must be downwardly adjusted or else refunds may need to be issued.

Non-inventorial equipment may be purchased on the recharge fund. However, if the cost is significant and it benefits more than one year of service, then the cost may be amortized.

Repair and replacement costs for “like” items that do not add a significant amount of value or extend the useful life may also be purchased on the recharge fund.

Maintenance and repair costs keep machinery and other property in an efficient operating condition. Costs for maintenance agreements should be counted as maintenance. Replacement of a broken part with a comparable new part is considered as the purchase of an item of supply or equipment. To be allowable as a repair cost charged to federal awards, the repair may not appreciably prolong the repaired item's intended life nor add to its permanent value.

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. Note that when employees are identified as part of an Income & Recharge Center their payroll distribution should reflect that assignment and their payroll expenses will need to be funded from the Income & Recharge Center account/fund. 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.

See B&FS General Accounting website for more information, including when an inventory account must be established.

Business meeting expenses 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 good/service being provided.