Recharge Service Center Policy
|POLICY TITLE:||Carnegie Mellon University Recharge Service Center Policy|
|DATE OF ISSUANCE:||This policy was originally approved by the President's Council on June 18, 1999. This version of the Recharge Service Center Policy was approved on November 12, 2020.|
|ACCOUNTABLE DEPARTMENT/UNIT:||Controller’s Office. Specific questions regarding Policy content should be directed to Cost Analysis.|
|ABSTRACT:||This policy provides a framework for the fiscal operations of Carnegie Mellon University's service centers that will ensure compliance with sound business practices, financial accounting and reporting principles and government regulations.|
This statement sets forth policy for the appropriate treatment of salary and non-salary administrative costs incurred in support of sponsored research projects in compliance with the Office of Management and Budget (OMB) 2 CFR Part 200 – Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (Uniform Guidance).
This Policy applies to all recharge service centers regardless of the level of usage by federal sponsored awards.
1.2 General Understandings
This Policy provides a framework for the fiscal operations of Carnegie Mellon University's recharge service centers that will ensure compliance with sound business practices, financial accounting and reporting principles and government regulations.
CMU conducts various sponsored activities with funding received from government-funded grants, contracts and other funding vehicles. Recharge service center activities result in charges, either directly or indirectly, to these federally funded awards. Therefore, policies and practices must adhere to government regulatory cost principles, such as those contained in the Uniform Guidance, as well as internal university accounting policies and practices.
CMU, recognizing its responsibility to sponsors, regulators, the academic community and the public to ensure compliance with sound accounting principles and government regulations, has established the Recharge Service Center Policy contained herein to provide consistent financial and operational practices among the applicable units and to ensure compliance with government regulations.
a. Recharge Service Centers
Recharge service centers are primarily internal cost recovery operations accounted for as designated accounts expected to recover all allowable direct costs, including departmental costs, through the appropriate rate-setting process. Recharge service centers are required to account separately for activities in unique Oracle financials system accounts. However, recharge service centers do not maintain separate balance sheets.
A recharge service center has the following characteristics:
- Provides services or sells goods to academic and research departments and programs. With prior approval, it can also provide services or sell goods to faculty, staff, students and/or other external groups or third parties under certain circumstances.
- The same service might be purchased from commercial sources but, for reasons of convenience, cost or control, it is provided more effectively within the university.
- Charges a fee related to, but not necessarily equal to, the cost of services or goods.
- Managed as a self-supporting, break-even unit.
3.0 Roles and Responsibilities
The following roles and responsibilities have been established to provide reasonable assurance of internal control over compliance requirements. Considerable authority is delegated to academic and administrative units to operate recharge service centers. This requires that employees involved at every step of the process take full responsibility for understanding the related university policies and procedures.
3.1 Department Responsibilities
Ultimate responsibility for the management of recharge service centers rests with the dean, department head or equivalent under whose unit the center operates. The dean or department head will delegate day-to-day responsibility to a department administrator or recharge service center manager who monitors the operation.
Departments are responsible for:
- Approving establishment of a new recharge service center (by associate dean and department head).
Ensuring recharge service center budget is reviewed by and coordinated with the department’s overall budget.
- Ensuring recharge service center personnel charges and expenses are correctly allocated.
- Submitting annual rates and narratives to Cost Analysis in a timely manner and communicating any significant changes in the recharge service center, such as large rate fluctuations or new services when necessary.
- Communicating all services to external customers to Cost Analysis, Office of Sponsored Programs (OSP) and Taxation prior to providing goods or services.
- Providing annual updates to Taxation regarding services, etc. to ensure unrelated business income tax issues are properly addressed/recorded.
- Ensuring all direct and applicable departmental costs are recorded in the recharge service center's account.
- Producing accurate billings on a monthly basis or annually with monthly revenue recognition.
- Ensuring all users are billed at nondiscriminatory rates.
- Maintaining a list of all recharge service center equipment, whether purchased with center funds or department or university subsidy, and inform departmental property officers and/or business managers, Property Accounting Services and Cost Analysis when assets are being used in conjunction with a recharge service center.
- Retaining appropriate documentation to support all recharge service center activity, such as expenditures, billings and capital equipment.
- Keeping records in good order for review and audit.
- Maintaining a file of approved external user contracts, if applicable.
3.2 Cost Analysis
Cost Analysis is responsible for:
- Approving all recharge service center rates.
- Overseeing the formation of recharge service centers and establishment of recharge organization numbers and object codes.
- Assisting recharge service center personnel with policy or procedural matters related to accounting operations.
- Assisting recharge service centers with the preparation of rate schedules and, where applicable, provide general administrative and facility-related overhead expense allocations.
- Reviewing the annual financial statements of the recharge service center for compliance with this Policy prior to preparing the applicable indirect cost proposal for the university.
- Coordinating the financial audits of the respective recharge service center with all external and internal auditors.
3.3 Office of Sponsored Projects (OSP)
OSP is responsible for:
- Creating and executing external user/access contracts with third parties for recharge service centers with rates approved by Cost Analysis.
- Addressing questions related to use of university facilities and services by third parties in partnership with the Office of General Counsel and the Taxation department.
Taxation is responsible for:
- Managing university compliance with tax regulations.
- Conducting annual campus survey for Unrelated Business Income (UBI) Tax.
3.5 Accounts Receivable
Accounts Receivable is responsible for invoicing external customers.
Recharge service centers will calculate billing rates (base rate) either annually or on a set periodic schedule based on total annual activity as determined by Cost Analysis. These rates will provide for the recovery of all direct costs, including recharge administrative costs.
Recharge service centers may carryover an accumulated surplus at the end of each fiscal year from the revenue generated at the base rate. However, this surplus may not exceed 10 percent of total direct costs unless otherwise approved by Cost Analysis. Any surplus generated at the base rate in excess of the 10 percent threshold will require justification through the budget, internal audit and external audit processes. Appropriate justification may entail capital reinvestment plans or adjustment of future rates downward to achieve break-even the following year(s). Recharge service centers may offset losses on one service with surpluses from another similar service only if the services are provided by the same recharge service center and the customers using the services are basically the same. The only exception to the accumulated surplus 10 percent threshold is surplus revenue generated in excess of the base rate from an external customer (see Rate Setting section).
Recharge service centers may carryover an accumulated deficit at the end of each fiscal year from the revenue generated at the base rate. However, this deficit must not exceed 10 percent of the total direct costs. Recharge service centers may carry forward deficits to the subsequent year(s) with justification through the normal budget review process. In such instances, the deficits are expected to be recovered through future price increases in the next fiscal year, or years, with approval by Cost Analysis. If such operating deficits cannot be recovered through future pricing, the deficit must be funded by the respective entity's institutional funds budget in the fiscal year in which the unrecoverable deficit was incurred.
Recharge service centers that are continually in deficit due to inefficiency or non-competitiveness may be discontinued pending review. An annual review of the recharge service center finances will be performed by Cost Analysis. Recharge service centers that require subsidies or run deficits greater than 10 percent of direct costs for three consecutive years will be brought to the attention of the vice president for finance and chief financial officer for further review and action.
4.1.3 Rate Setting
Recharge service centers will bill all federal and internal users at the same base rate. At their discretion, the department or recharge service center may subsidize a portion of either the federal or internal billing charge with excess funds received from non-federal sources. Surpluses generated at the base rate cannot be used to subsidize any other users. External customers can be billed at the base rate plus a premium, F&A rate or a portion thereof when economically viable. The revenue generated above the base amount can be accumulated for future capital expenditures with an approved equipment replacement plan. In addition, this portion of the accumulated surplus will not be part of the 10 percent threshold. However, it is very important to track the additional external revenue in excess of the base rate separately as support for any surplus, so as to not create the impression of a federal overcharge. This excess revenue may be used to reduce future rates; however, this is not a requirement.
4.1.4 Capital Equipment
Capital costs (equipment $5,000 or more with an expected service life of two or more years) will be recorded as an expense to the recharge service center. These costs must be recovered over the useful life of the asset. Therefore, depreciation expense, not total equipment expense, must be included when developing billing rates. The useful life must be at least the useful life recorded in the university Property Accounting System.
Purchases of equipment by recharge service centers for either operations or inventory can be funded through annual surpluses generated from operations (if approved by Cost Analysis), replacement reserves from the recovery of accumulated depreciation, department loans, or other sources deemed appropriate.
4.1.5 Recharge Service Center Accounts
Each recharge service center must establish at least one Oracle financials system account number specifically associated with it in which to record its revenues, expenses and recoveries. No recharge service center activity should be charged to regular departmental account numbers. Similarly, if a recharge service center has an activity for which it does not charge users, that activity must be accounted for via a separate account number associated only with that activity.
4.2 Users of Recharge Service Centers
Users of recharge service centers are those existing within the university community, including those in academic, administrative and auxiliary areas, who purchase services to support their work at CMU. This work may include federally sponsored projects. Users may also include third parties, but additional steps must be followed to ensure no internal users, particularly awards funded by the federal government, are negatively impacted and any potential liabilities are addressed.
4.3 Considerations for Recharge Service Center Cost Components
All expenses in a recharge service center must conform to the rules of allowability, allocability and reasonableness within the Uniform Guidance.
4.3.1 Direct Personnel
Salaries and applicable university fringe benefits of all personnel directly related to the recharge service center activities, including departmental administrators such as directors, professional/technical and clerical employees, must be directly charged to the center's organization number. Charging for such personnel through a fixed "administrative surcharge" is not allowed.
4.3.2 Supplies and Expenses
The cost of materials and supplies needed to operate the center should be included in the rate calculation. University designated preferred suppliers should be utilized at all times and over-accumulation of inventory should be avoided.
4.3.3 Equipment Depreciation
Federal regulations do not allow for the recovery of the purchase price or acquisition cost of a capital item through recharge service center rates in the year acquired. It is appropriate, however, to recover such cost through depreciation over the item's useful life.
Depreciation of recharge service center equipment purchased or paid for by the federal government, whether or not title has reverted to the university, cannot be included in the rate calculation.
4.3.4 Unallowable Costs
Unallowable costs are defined in the Uniform Guidance and are expressly prohibited for inclusion in billings to university-sponsored research and administrative operations by recharge service centers.
4.3.5 Recharge Service Center Subsidies
Schools or departments may decide for valid business reasons to subsidize a portion of a recharge service center's expenses (e.g., financing of initial capital requirements, ensuring quality goods or services are available when needed). Since all recharge service center accounts must contain all applicable direct expenses, subsidies must be recorded as an income transfer from the subsidizing organization to the recharge service center.
4.3.6 Recharge Service Center Record Retention
To demonstrate compliance with federal regulations and established university policies and procedures, adequate documentation must be maintained by the recharge service center at all times in accordance with the university Financial Records Retention Policy. This documentation will be subject to periodic audit by federal and other external audits as well as by the university’s Internal Audit Services department.
Each recharge service center must maintain, at a minimum, the following documentation for each fiscal year’s activity:
- Documentation of the proposal for the establishment and approval of a new service center.
- Detailed rate calculation.
- Rate approval letter from Cost Analysis.
- Records supporting the level of recharge service center activity/usage.
- Records supporting the basis of user billings.
- List of all external users with signed user agreements.
- Records supporting external revenue in excess of base rate, if applicable.
4.3.7 Federal Regulations/Government Oversight
Recharge service center activities can result in either direct or indirect charges to federal grants and contracts. To receive these federal funds, the university must comply with the Uniform Guidance. Two key concepts are dealt with specifically in the Uniform Guidance: recipients of federal funds are not to recover more than cost and are not to discriminate in the price charged to governmental users from non-governmental users. The government monitors CMU’s compliance with these regulations through the Department of Defense (DOD), its auditors and its negotiators from the Office of Naval Research (ONR).
4.4 Requirements for Regulatory Compliance
4.4.1 Nondiscriminatory Rates
Rates established by recharge service centers must be nondiscriminatory and all users must be billed for services received. Nondiscriminatory means that all users are charged the same base rate for the same level of goods or services purchased under similar circumstances. Therefore, base rates should not be different for different users within the university community nor for federal and non-federal sponsors. The use of special rates, such as for high-volume work and for less demanding, non-scientific applications, is allowed but such rates must be equally available to all users.
4.4.2 Year-End Billing
Recharge service centers should handle year-end billings consistently from year to year to assure that twelve months of cost recovery are associated with the twelve months of incurred cost.
4.4.3 Unallowable Costs
Unallowable costs, as outlined in the Uniform Guidance, may not be included in user rate calculations.
4.4.4 Capital Equipment
Capital equipment costs will be charged directly to a recharge service center. However, the depreciation of capital equipment (not the acquisition cost) is included in the recharge service center rate calculations and in determining net surplus or deficit from operations.
4.4.5 Break-Even Concept
Most recharge service centers operate on a fiscal year basis, with rates based on budgeted projections of operating expenses and projected levels of activity or demand for its goods or services. Generally, the financial goal of a center is to establish rates that will ensure that revenues reasonably offset expenses over the long term. Operating at break-even means there is no significant profit or loss resulting from charging users for goods or services in any particular period, and no profit or loss over the long-term. This allows recharge service centers to carry financial surpluses and recoverable deficits forward to the following fiscal year.
Although recharge service centers target a break-even state through the capital planning budget process and rate setting, expenses may not exactly match revenues. The surplus or deficit must be calculated based on actual revenues and expenses.
Sections 4.1.1 and 4.1.2 provide further guidance regarding treatment of surplus or deficit situations.
4.4.7 Request for Rate Change during the Fiscal Year
Recharge service center managers should evaluate their financial position and rates periodically throughout the year to assess their position with respect to break-even and, if necessary, adjust rates accordingly. The review should also try to ensure cost types are clearly identified by object code, and that all costs are allowable as described in the Uniform Guidance.
Recharge service center rates should only be adjusted when it is evident that a center will not fall within break-even range using the calculated rate. In such cases, centers must submit the new rate(s) to Cost Analysis for review and approval.
4.4.8 Pricing of Multiple Services
When a recharge service center provides different types of services to different users, separate billing rates should be established for each service that represents a significant activity within the center. The costs, revenues, surpluses and deficits should be separately identified for each service. However, combining the results of various services is acceptable if the mix of users of each service is approximately the same, so that higher prices charged to one set of users are subsidizing only those losses charged to approximately the same group of users.
4.5 Non-Compliance with Policy
Failure to fully comply with this Policy will result in escalation to the associate vice president for finance, controller and appropriate Administrative Leadership Group (ALG) member(s). Actions taken to bring a recharge service center into compliance will be based on the nature of non-compliance. Any unbilled revenue resulting from delays in addressing the non-compliance will be the responsibility of the department and cannot be recovered through future recharge service center rates.