Federal policy requires that costs associated with providing products 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 equipment reserves 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
- 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 Budget & Planning to process the appropriate transactions.
- Surpluses or other monies may not be transferred out of the recharge activity without prior approval.
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, units that carry an unacceptable surplus/deficit are required to establish a plan to rectify the situation and bring the unit within the acceptable levels of tolerance.
Large Deficit - If an activity 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 an activity 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 an activity 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 must be issued.
The provision for equipment replacement shall be included as a cost in the rate development and charged to the Recharge operation fund, unless the equipment is funded by the Federal government or is identified as cost sharing to a federal project.
See Equipment Replacement for more information
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. 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. If the rate was calculated based on the total annual hours (both billable and nonbillable), the rate would be too low and not recover the full cost.
- 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 (with some exceptions), 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
- Capitalized space renovations or improvements
- 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
- Commencement or convocation costs
- Donations and contributions
- Entertainment (alcohol, event tickets, flowers, gifts, etc.)
- Equipment >$5,000
- 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
- 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
- Internet charges
- Leasehold improvements
- Legal proceeding costs
- Lobbying costs
- Memberships/subscriptions in civic, community or social organizations
- Patient Care
- Principal payments of capital leases
- Rent, utilities, custodial or occupancy costs for University owned space
- Short-Term Investment Pool (STIP) expense
- 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.
- 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 services/goods not yet rendered
- 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.
- 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 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.
Pass-through activities are activities in which one unit, without recovering its own costs for providing the service, collects a series of third-party costs and periodically transfers those costs to another unit. No value is added to the product other than convenience. The cost transferred represents only the invoiced or direct cost of the product/service. Pass-through activities, by definition, will always break-even. External users may not be included in pass-through activities.
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.
Pass-through activities must determine a measurable unit of output for the costs of the products it distributes to other account strings. The measurable unit should relate to the invoiced product. Records documenting actual products distributed to account strings should be maintained. These records are subject to audit.
Pass-through activities should allocate costs within the month after the charge is first reflected in the accounting system.
A periodic review of these activities is required and will be fulfilled through the review of the associated Income & Recharge center.