Stony Brook University Office of Research Services

Cost Accounting Standards

Cost Accounting Standards

Cost Accounting Standards is an outgrowth of what has been applied to private corporations contracting with the Defense Department since the 1970s. Stony Brook, as one of the top 100 research institutions in the country, was required to file a detailed disclosure statement with the federal government by July 1, 1998. The Cost Accounting Standards and Disclosure Statement are the Government's approach to insure that we, as a supported institution, are in full compliance with the Office of Management and Budgets Circular A-21, Cost Principles for Educational Institutions.

The disclosure statement known as a DS-2 is a formal description, prepared and certified by the institution, of a contractor/grantees cost accounting practices. The DS-2 is intended to establish a clear understanding of the practices under generally accepted accounting principles that the educational institution proposes to follow. More importantly, the DS-2 explains the methodology for distinguishing direct from facilities and administrative costs (previously known as indirect costs) and identifies the method and basis for allocating the facilities and administrative costs. In accordance with Public Law 100-679 we will be required to comply with CAS and disclose in writing, and follow consistently our cost accounting practices. These changes have also been incorporated in the May 8,1996 revisions to OMB Circular A-21 and require educational institutions to submit a DS-2 and adhere to the following four standards:

Consistency in Estimating, Accumulating and Reporting Costs: this standard ensures that each educational institutions practices used to estimate costs for a proposal are consistent with the cost accounting practices used by the educational institution in accumulating and reporting costs.

Consistency in Allocating Costs Incurred for the Same Purpose: this standard requires that each type of cost is allocated only once and on only one basis to any contract or other cost objective.

Accounting for Unallowable Costs: the purpose of this standard is to facilitate the negotiation, audit, administration and settlement of contracts by establishing guidelines covering:

(a) Identification of costs specifically described as unallowable, at the time such costs first become defined or authoritatively designated as unallowable.

(b) The cost accounting treatment to be accorded such identified unallowable costs in order to promote the consistent application of sound cost accounting principles covering all incurred costs.

Consistency in Using the Same Cost Accounting Period:  this standard provides criteria for the selection of the time periods to be used as cost accounting periods for contract cost estimating accumulating and reporting.

Policy for Charging Costs - Direct and F&A (Indirect) Costs

Effective January 1, 1999

I. Who Should Know This Policy

  • Provost
  • Principal Investigators
  • Service Center Managers
  • Vice Presidents
  • Unit Administrators and Staff
  • Controller's Office
  • Deans
  • Office of Grants Management
  • Internal Audit 
  • Directors/Department Heads or Chairs
  • Office of Sponsored Programs
  • Accounting Department

II. Related Information

  • Federal Office of Management & Budget - Circular A-21 - Cost Principles for Educational Institutions
  • Federal Office of Management & Budget Circular A-110 - Uniform Administrative Requirements
  • Grant Policy Statement of NIH and NSF Agency guidelines
  • Policy on the Financial Management of University Service Centers

III. Contacts

  • For cost allowability on a specific sponsored project, contact the appropriate Grant Specialist in the Office of Grants Management.
  • For questions relating to the budgeting of direct and indirect costs, contact the appropriate Sponsored Programs Coordinator or Contract and Grant Administrator in the Office of Sponsored Programs.

IV. Policy Statement

This policy establishes consistent practices for defining and charging costs as either direct or facilities and administrative costs (indirect costs). It outlines practices which must be consistently applied, in like circumstances, throughout the institution for both sponsored and institutional accounts. This policy has been established to meet the compliance standards set forth in Office of Management and Budget (OMB) Circular A-21, Cost Principles for Educational Institutions and the Cost Accounting Standards for Educational Institutions. It is the responsibility of all account holders including: vice presidents, deans, chairs, principal investigators, department heads and administrators to understand and comply with this policy.

V. Reason for Policy

As a recipient of federal awards, the University is obliged to comply with numerous rules and regulations promulgated by various federal offices. These organizations include sponsoring agencies such as the National Institutes of Health and the National Science Foundation, and regulatory agencies such as the Office of Management and Budget (OMB). The OMB has adopted regulations from the Cost Accounting Standards Board (CASB) and applied them to educational institutions. Included in these regulations is a requirement for universities to disclose to the federal government their practices regarding charging costs to projects either as direct costs or facilities and administrative (indirect costs) if they receive federal awards in excess of $25 million. The University's practice of charging costs to sponsored and institutional accounts has been disclosed to the federal government as described in this policy. Therefore, adherence to these cost principles and practices by the University is necessary to prevent cost disallowances by the federal government.

VI. Definitions

Allocable Costs

Allocable costs are costs of goods or services that are chargeable or assignable to a specific project, function, department, or cost center based on the relative benefits received or other equitable relationship of the goods or services to the specific project, function, department or cost center.

Direct Costs

Direct costs are those costs that can be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy. Costs incurred for the same purpose in like circumstances must be treated consistently as either direct or facilities and administrative costs (indirect costs). Where an institution treats a particular type of cost as a direct cost of sponsored agreements, all costs incurred for the same purpose in like circumstances shall be treated as direct costs for all activities of the institution. A direct cost is one where a specific grant or contract gains explicit benefit from that cost for a specific programmatic purpose.

Facilities and Administrative (Indirect) Costs

Facilities and Administrative costs are infrastructure costs of the university needed to support the programs of the institution. These programs include research and other sponsored programs and are those costs that are incurred for common or joint objectives and therefore cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity. At educational institutions such costs normally are classified under the following facilities and administrative cost categories: depreciation and/or use allowances, general administration, sponsored projects administration, operation and maintenance expenses, library expenses, departmental administration expenses, student services, the cost of electricity and heating, accounting services, personnel services, purchasing, and human subjects administration are examples of indirect costs.

Consistent Treatment of Costs

Consistent treatment of costs is a basic cost accounting principle and is specifically required by Circular A-21 to assure that the same types of costs are not charged to sponsored agreements both as direct costs and as facilities and administrative costs. This concept is reinforced and emphasized in a Cost Accounting Standard (referred to as "CAS 502") that educational institutions are required to follow. Consistency in this context means that costs incurred for the same purpose, in like circumstances, must be treated uniformly as either direct costs or as facilities and administrative costs. Thus, since certain types of costs, such as the salaries of administrative and clerical staff, office supplies, and postage are normally treated as facilities and administrative costs, the same types of costs cannot be charged directly to sponsored agreements, unless the circumstances related to a particular project are clearly different from the normal operations of the institution. For example, although postage is normally treated as a facilities and administrative cost, a particular project may have a special need for postage because of the mailing of hundreds of survey questionnaires. In this case, it would be appropriate to charge the project directly for the postage to mail the questionnaires, since this would constitute "unlike circumstances" compared to routine postage requirements.

Service Centers (SCs)

A University unit that sells goods or services predominately to colleges or departments within the institution. SCs and department recharge accounts (internal department services) must adhere to this policy in the development and billing of their rates. Periodically, rates for SCs must be reviewed by the Controller's Office and approved by the University Controller.

Sponsored Projects

Projects funded by federal and nonfederal agencies with specific time frames, guidelines, expected outcomes and reporting requirements. Sponsored projects include grants, contracts and cooperative agreements for research, training and public activities.

VII. Responsibilities

Principal Investigators

Responsible for ensuring the appropriateness of all charges on sponsored projects. Ensure the consistent application of direct costing practices to their sponsored projects with the assistance of the unit administrator and the Office of Grants Management. Determine, justify and document the circumstances when costs normally charged as facilities and administrative (indirect) are charged as direct.

Unit administrator

Assist principal investigators in determining and justifying circumstances when costs normally charged as facilities and administrative (indirect) are charged as direct. Ensure consistency of charging practices within the unit, review sponsored project proposals for justification of direct costs requested, especially when costs normally charged as facilities and administrative (indirect) are proposed as direct costs.

Dean/Department Head

Establish effective processes and controls that will ensure compliance with this policy. Communicate these practices to all responsible employees within the college and departments.

Office of Sponsored Programs and Office of Grants Management

Interpret the federal regulations, such as OMB Circular A-21. Develop and maintain policies and procedures in accordance with the regulations. In conjunction with the Vice President for Research, provide related training and guidance to the University community. Establish sponsored project accounts in the RF accounting system and assign the appropriate function codes. Review ongoing transactions for appropriateness under federal and campus policies.

Department of Internal Audit

Independently evaluate compliance with the federal costing policies and institutional practices.

VIII. General

Costs incurred for the same purpose in like circumstances must be treated consistently as either direct or facilities and administrative (indirect) costs across all functions or activities of the institution, unless special circumstances exist. For example, general office supplies are considered as facilities and administrative (indirect) costs and included in the indirect cost rate, therefore they generally cannot be charged as direct costs to sponsored projects, or institutional accounts that charge sponsored projects, (i.e., IFR accounts). Refer to Special Circumstances - facilities and administrative (indirect) costs charged direct, for exceptions.

IX. Charging Direct Costs

Determining Direct Costs

For an expenditure to be considered as a direct cost it must be:

  • Reasonable and necessary for the performance of the project.
  • Allowable - Costs that are specifically allowed under the terms and conditions of sponsored projects and by OMB Circular A-21.
  • Allocable and easily identifiable - The cost must have a direct benefit and be directly attributable to the project or activity being performed.

Costs incurred for multiple projects/activities must be identified as follows:

If the cost is specific and benefits more than one project, the cost can only be assigned or allocated to the project(s) based on that portion of the expense that represents the direct benefit to the project. If the cost benefits both a sponsored project and a non-sponsored project, only the proportion of the cost that benefits the sponsored project may be charged to that project. For example, a computer is purchased specifically for two projects. Project A consumed 40% of the computer's usage and Project B 60%. The cost of the computer would be charged to the projects based on the proportionate benefit to each project. The proportionate benefit is based on the actual usage. Therefore, 40% of the cost is allocated and directly charged to Project A, and 60% is allocated and directly charged to Project B.

If the benefit is spread over multiple projects to serve common shared activities and it is difficult to identify a direct benefit to each activity or project, the cost must be considered an indirect cost. For example, a $400 refrigerator frequently used in a laboratory for six projects makes it difficult to accurately assign a direct benefit to each project. The cost should be considered an indirect cost and charged to a non-sponsored account.

The basis used for allocating direct costs to projects/activities must bear a direct relationship to those projects/activities. This allocation of costs should be made at the time of purchase. If an appropriate basis such as actual usage cannot be identified to allocate the costs with relative ease and with a high degree of accuracy, such costs must be considered as facilities and administrative (indirect) costs.

Unacceptable Direct Cost Charging Practices

The following example is an unacceptable practice of direct charging on sponsored projects or any other institutional activity affecting sponsored projects: · Rotating charges among projects without establishing that the rotation schedule accurately reflects the relative benefit to each project during that specified period of time

Common Direct Costs

Items normally charged as direct costs of sponsored projects include salaries of project director and project staff and related fringe benefits (based on certifiable effort), materials and supplies, travel, consulting, equipment, long distance telephone charges and sub-awards. Refer to Appendix A for a typical list of items normally charged as direct costs of sponsored projects.

Charging Facilities and Administrative (Indirect) Costs

Costs incurred and identified in certain institutional accounts and thus included in the development of the University's indirect cost rate must be:

  • Allowable - Costs that are allowed by OMB Circular A-21.
  • Allocable - The cost must have an associated benefit to the indirect cost function(s) being performed (general administration, departmental administration, operations and maintenance, etc.).
  • Reasonable and necessary for the general administration and/or operations of the unit(s), projects or activities.

Clerical and administrative salaries, postage, local phone, office and general supplies are normally treated as facilities and administrative (indirect) costs as defined in Section F6b of OMB Circular A-21. Costs usually included in the indirect cost rate cannot be charged to a sponsored project as a direct cost. However, costs normally charged as facilities and administrative (indirect) may be charged as direct in special situations.

Refer to the section, Special Circumstances (indirect charged direct), for more information. Refer to Appendix A for a typical list of items normally charged as facilities and administrative (indirect) costs.

Unallowable Costs

In accordance with OMB Circulars A-21 and A-110, the federal government will not reimburse universities for certain costs that it considers unallowable. These costs cannot be included in the development of the indirect cost rate, charged as a direct cost to sponsored projects, nor included in service center/departmental recharge rates. These circulars require the University to establish screens for potentially unallowable costs, and to certify that unallowable costs are excluded from the University's rates. Such costs include: Alumni activities, development and fund raising, entertainment, lobbying, defense or prosecution of criminal or civil proceedings, selling/marketing. Refer to Appendix B, A-21 Unallowable Costs for a complete list.

All A-21 unallowable costs must be charged to an appropriate object code, or to a unique account that clearly identifies through the account's function code that the account records A-21 unallowable expenditures. The University is responsible for establishing procedures to correctly identify and record any of the A-21 unallowables for both labor and nonlabor unallowable costs to ensure that unallowable costs are not charged directly to sponsored projects or included in indirect cost pools.

Special Circumstances (facilities and administrative costs charged direct)

Similar costs incurred in like circumstances must be consistently treated as either direct or indirect. Size, nature, and complexity of sponsored projects, although not the final determining factors, are important considerations in determining circumstances where exceptions are justified. Due to the unique requirements of each sponsored project or institutional accounts that charge sponsored projects such as service centers, the existence of special circumstances must be evaluated on a case-by-case basis using the criteria outlined below. The principal investigator must determine if the following indirect-type costs are necessary for sponsored projects. If so, they must be documented and justified in the budget narrative at the proposal stage or during the term of an existing award when extenuating circumstances have arisen requiring indirect-type costs to be charged as direct costs. Office of Sponsored Programs will review the proposal budget narrative to verify that the request meets the criteria for an exception to the policy on indirect charging. If the sponsoring agency accepts the costs in the approved budget then it can be considered an appropriate direct cost. The Office of Grants Management will confirm at the point of actual expenditure that the conditions described at the application stage have been met.

Clerical and Administrative Personnel

Although it is recognized that there are differences in staffing among the various academic units, a core of clerical and administrative personnel exists within each department to support the various missions of the unit. These personnel provide a broad range of general support services, including secretarial assistance, the procurement of materials and services, accounting and bookkeeping, proposal preparation, payroll and human resource tasks. The cost of these activities are generally recovered through indirect cost rate recoveries. Therefore, the salaries of personnel engaged in providing this type of baseline departmental service cannot be normally charged as direct costs on sponsored projects.

However, clerical and administrative personnel may be considered as direct costs and appropriately charged to sponsored projects, or institutional accounts that charge sponsored projects such as service centers under the following circumstances:

  • Large, complex programs such as General Clinical Research Centers, Primate Centers, Program Projects, Environmental Research Centers, Engineering Research Centers, and other grants and contracts that entail assembling and managing teams of investigators from a number of institutions.
  • Projects which involve extensive data accumulations, analysis and entry, surveying, tabulation, cataloging, searching literature, and retrospective clinical records studies.
  • Projects that require making travel and meeting arrangements for a large number of participants, such as conferences and seminars.
  • Projects whose principal focus is the preparation and production of manuals and large reports, books and monographs (excluding routine progress and technical reports).
  • Projects that are geographically inaccessible to normal departmental administrative services, such as seagoing research vessels, radio astronomy projects, and other research field sites that are remote from the campus.
  • Individual projects requiring project-specific database management, individualized graphics or manuscript preparation, human or animal protocol, IRB preparations and/or specific regulatory protocols, and multiple project-related investigator coordination and communications.

These examples are not exhaustive nor are they intended to imply that direct charging of administrative or clerical salaries would always be appropriate for the situations illustrated in the examples. Where direct charges for administrative and clerical salaries are made, care must be exercised to assume that costs incurred for the same purpose in like circumstances are consistently treated as direct costs for all activities.

APPENDIX A:

The following chart provides a summary for charging typical direct and indirect costs:

DIRECT
INDIRECT
  • Salaries & Wages/Fringe Benefits:
    Faculty, technicians, scientists, research assistants, postdoctoral associates, or other technical and programmatic personnel who are necessary to meet the goals of the project
  • Scientific & Technical Equipment Computer costs (Software, supplies and services)
  • Long-Distance Telephone charges
  • Maintenance agreements related to scientific and technical equipment Materials (including non-capitalized equipment)
  • Participant Expenses (NSF, Army)
  • Supplies (Project Supplies) (items solely consumed by the project)
  • Services obtained:
    • Animal Care
    • Outside Consultant/Professional
  • Internal Service Organization
  • Sub-grants/subcontracts
  • Subject costs
  • Travel
  • Tools, uniforms
  • Conference fees
  • Chemicals, glassware
  • Photographic Supplies
  • Consulting/lecturer costs
  • Publication and Page costs
  • Sub awards
  •  Salaries & Wages/Fringe Benefits:
    Clerical and administrative positions such as fiscal officers, accountants, secretaries, directors, vice presidents, president, office personnel, executive assistants, and administrators
  • Memberships Subscriptions, library books, periodicals, etc.
  • Office Supplies Equipment (office and general)
  • Janitorial Services Photocopy (for general business use)
  • Postage Repair & Maintenance (buildings, ground, equipment, remodeling, etc.)
  • Sanitation services including hazardous waste
  • Telephone (recurring, installation and maintenance)
  • Utilities
  • Departmental Administration
  • Student Services
  • General Administration

APPENDIX B: A-21 UNALLOWABLE COSTS

Costs that are specifically designated as unallowable costs by OMB Circular A-21 include:

  • advertising expenses except for employee and subject recruitment
  • alcoholic beverages
  • alumni activities
  • automobiles for personal use
  • bad debts
  • commencement and convocation costs
  • contingency provision costs
  • certain defense and prosecution of criminal and civil proceedings
  • donations and contributions
  • entertainment and social activities
  • fines and penalties
  • goods and services for personal use
  • housing and personal living expenses for officers of the institution
  • insurance against defective work
  • interest, fund raising and investment costs (excluding third party interest expense)
  • lobbying costs
  • malpractice insurance that does not involve human subjects
  • membership in any civic or community organization, country club, social or dining club
  • proposal costs (costs of preparing bids or proposals on potential federally sponsored projects, including the development of data to support the institution's proposal)
  • public relations costs
  • selling and marketing costs
  • severance costs incurred in excess of the institutions normal policy
  • student activity costs
  • travel airfare costs in excess of standard coach fees

Policy on Financial Management of Service Centers

Effective January 1, 1999

I. PURPOSE

This Policy Statement establishes The University at Stony Brook's (USB) policies and procedures for the financial management of service centers. It provides guidelines for establishing, costing, pricing and administering Service Centers (SC) and other operations regularly selling goods/services to University departments or activities. SC policies and practices have been established to provide consistent operational practices among the various SC units and to ensure compliance with federal government regulations. This is important because the University at Stony Brook conducts sponsored programs under federal government grants and contracts. SC activities result in direct and indirect charges to sponsored grants and contracts. Therefore, SC policies and practices must reflect government regulatory costing principles such as those contained in the Office of Management Budget (OMB) Circular A-21, "Cost Principles for Colleges and Universities", and those required by the Cost Accounting Standards Board. As a major research University, USB cost accounting must be consistent for all operations. Any exceptions to this policy must be approved by the SC Oversight Committee. Goods/Services may be provided by a department for itself or for other University departments. SCs are established when management determines that a good or service is most effectively provided within the University, although the same good or service may be available commercially. The purpose of SC accounts is to control the cost of providing goods/services within the University. The costs of providing the goods/services shall be distributed through a charge schedule that is uniformly applied to all users.

II. REGULATIONS

Service centers and recharge operations can result in charges, directly or indirectly, to sponsored programs at USB. As a recipient of federal grants and contracts, the University at Stony Brook must comply with cost principles and cost accounting standards promulgated by the federal government.

A. OMB Circular A-21:

The Cost Principles for Universities are set forth in Office of Management and Budget Circular A-21. Section J.44 of OMB Circular A-21 deals specifically with service centers and is explicit in two concepts.

• recipients of federal funds are not to recover more than cost, and • recipients are not to discriminate in the price of services charged to governmental and non-governmental users.

The principles provide for recognition of the full allocated costs of federal grants and contracts with no provision for profit or other increment above actual incurred, documented costs.

B. Cost Accounting Standards:

Cost accounting standards are designed to achieve uniformity and consistency in the cost accounting practices governing measurement, assignment and allocation of costs to sponsored programs.

The Cost Accounting Standards Board (CASB) requires universities to comply with the four standards below:

  • CAS 501 - Consistency in Estimating, Accumulating, and Reporting Costs for Educational Institutions.
  • CAS 502 - Consistency in Allocating Costs for the Same Purpose for Educational Institutions
  • CAS 505 - Accounting for Unallowable Costs - Educational Institutions
  • CAS 506 - Cost Accounting Period - Educational Institutions

C. Oversight:

The federal government monitors the University at Stony Brook's compliance with these regulations through oversight and audits by the Department of Health and Human Services (DHHS) and the Office of the Inspector General (OIG).

III. DEFINITIONS

Recharge Activity

Recharge operations are departmental units which provide goods and/or services, primarily to University departments, for a fee and have total annual direct costs of providing those goods and/or services of less than $50,000. Billing rates may include direct costs only.

Service Center (SC)

A Service Center is an organizational unit which provides a specific type of good or service to USB departments, rather than to individuals or the general public, and is supported by interdepartmental charges to the user department's operating accounts. The users typically determine the amount of goods/services they obtain. Such a good/service might be purchased from commercial sources, but for reasons of convenience, cost, or control is often provided more effectively through a USB service center. The rates charged by a SC are generally formulated to recover operating costs. SCs provide activities for which a Rate Schedule is required and:

  1. are established primarily to provide goods/services to other USB departments, sponsored programs, or activities
  2. operate as a discrete unit having control of revenues and expenses
  3. are ongoing activities
  4. charges all INTERNAL users equally for services at a rate calculated to recover their costs over a fixed period of time
  5. sales to external entities, if any, usually are incidental. There are two general categories of Service Centers.

Specialized Service Facility (SSF)

This facility provides the services of a highly complex or specialized facility such as electronic computer centers, animal care facilities, wind tunnels, reactors, mass spectrometers, or MRI facilities.

Service Facility

Provides services of a less specialized nature than SSF's, such as motor pools, stockrooms, educational facilities and biotechnical services (such as graphics, printing, and equipment rental), etc.

Auxiliary Enterprise

An activity that provides goods or services primarily to students, faculty, staff and others for their own personal use, rather than as a service to internal University operations. Examples of auxiliary enterprises include residence halls, dining halls, and bookstores. Auxiliary enterprises are not subject to this Policy Statement.

Direct Operating Costs

All costs that can be specifically identified with a service provided by a service center. All direct costs must be budgeted and charged directly to service center. These costs include the salaries, wages and fringe benefits of University faculty and staff directly involved in providing the service, materials and supplies, purchased services, travel expenses, equipment rental or depreciation, interest associated with equipment acquisitions (if over $10,000 and preapproved), etc.

Internal Service Center Overhead

All costs that can be specifically identified to a service center, but not with a particular service provided by the center, such as the salary and fringe benefits of the service center director.

Institutional Indirect Costs

The costs of administrative and supporting functions of the University. Institutional indirect costs consist of general administration and general expenses, such as executive management, payroll, accounting and personnel administration; operations and maintenance expenses, such as utilities, building maintenance and custodial services; building depreciation and interest associated with the financing of buildings; administrative and supporting services provided by academic departments; libraries; and special administrative services provided to sponsored projects.

Unallowable Costs

Costs that can not be charged directly or indirectly to sponsored programs. These costs are specified in Circular A-21 issued by the Federal Office of Management and Budget. Common examples of unallowable costs include advertising, alcoholic beverages, bad debts, charitable contributions, entertainment, fines and penalties, goods and services for personal use, interest (except interest related to the purchase or construction of buildings and equipment), selling and marketing expenses. A typical list of unallowable costs is in Exhibit A.

Applicable Credit

Transactions that offset or reduce costs, such as purchase discounts, rebates, allowances, refunds, etc. For purposes of charging service center costs to federally-sponsored programs, applicable credits also include any direct federal financing of service center assets or operations (e.g., the direct funding of service center equipment by a federal program).

Equipment

An item of tangible property having a useful life exceeding one year and an acquisition cost of $5,000 or more. Purchases under this amount are considered consumable supplies.

Useful Life

The estimated time period over which capital equipment and buildings will provide useful service.

Billing Unit

The unit of service provided by a service center. Examples of billing units include hours of service, animal care days, tests performed, machine time used, etc.

Billing Rate

The amount charged to a user for a unit of service. Billing rates are usually computed by dividing the total annual costs of a service by the total number of billing units expected to be provided to users of the service for the year.

Surplus

The amount that the revenue generated by a service exceeds the costs of providing the service during a fiscal year.

Deficit

The amount that the costs of providing a service exceed the revenue generated by the service during a fiscal year.

IV. GENERAL POLICIES

Recharge Centers are established for the purpose of providing goods and services to University customers. The Centers are expected to offer goods or services that are unique, convenient or not readily available from external sources. The sale of goods and/or services must be consistent with the University's mission and the normal activities of the college/department associated with the organization.

A. Recharge Activities

  1.  Billing rates should be designed to recover the direct operating costs of providing the services on an annual basis. All direct costs of recharge activity operations, actually incurred and documented, must be charged to the recharge activity account and included in the billing rates. No costs other than the costs incurred in providing the services should be included in the billing rates. The costs should exclude unallowable costs and be net of applicable credits.
  2.  Billing rates should be computed no less than bi-annually. The rates should be based on a reasonable estimate of the direct operating costs of providing the services for the period and the projected number of billing units for the period.
  3. The billing unit(s) should logically represent the type of service provided.
  4. The billing rate computation should be documented.
  5. All users should be charged for the services they receive and all internal users should be charged at the same rates. Federal grants and contracts cannot be charged a higher rate for goods and/or services than any other internal or external users. No discounts or free service may be given to any user unless the value of such services is imputed in the rate calculation (see section VIII variable billing rates). External users may be charged a higher rate than internal users.
  6. Records must be maintained to document the actual direct operating costs of providing the service, revenues, units of service provided, billings, collections, and the annual surplus or deficit.
  7. The account status and billing rates should be reviewed no less than bi-annually and adjusted where necessary. A complete rate review and re-computation shall be conducted no less than bi-annually.
  8. Actual costs and revenues should be compared at the end of the period. Deficits or surpluses should be calculated as an adjustment to the billing rates of the following year.

B. Service Centers - Service Facilities and Specialized Service Facilities

  1. Billing rates should be designed to recover the direct operating costs of providing the services and internal service center overhead, on an annual basis. All direct costs of service center operations, actually incurred and documented, must be charged to the service center account and included in the billing rates. No costs other than the costs incurred in providing the services should be included in the billing rates. The costs should exclude unallowable costs and be net of applicable credits.
  2. Billing rates should be computed bi-annually. The rates should be based on a reasonable estimate of the costs of providing the services for the year and the projected number of billing units for the one year period.
  3. The billing unit(s) should logically represent the type of service provided.
  4. The billing rate computation should be documented.
  5. All users should be charged for the services they receive and all internal users should be charged at the same rates. Federal grants and contracts cannot be charged a higher rate for goods and/or services than any other internal or external users. No discounts or free service may be given to any user unless the value of such services is imputed in the rate calculation (see section VIII variable billing rates). External users may be charged a higher rate than internal users.
  6. Separate accounts should be established in the University's accounting system to record the actual direct operating costs of the service center, internal service center overhead, revenues, billings, collections, and surpluses or deficits. Documentation to support the costs of the service center and records of units of service should also be maintained.
  7. The account status and billing rates should be reviewed no less than annually and adjusted where necessary. A complete rate review and re-computation shall be conducted no less than biannually.
  8. Actual costs and revenues should be compared at the end of the period. Deficits or surpluses should be carried forward as an adjustment to the billing rates of the following year.

V. SERVICE CENTERS THAT PROVIDE MULTIPLE SERVICES

Where a service center provides different types of services to users, separate billing rates should be established for each service that represents a significant activity within the service center. The costs, revenues, surpluses and deficits should also be separately identified for each service. The surplus or deficit related to each service should be carried forward as an adjustment to the billing rate for that service in the following period. The surplus from one service may be used to offset the deficit from another service only if the mix of users and level of services provided to each group of users is approximately the same.

VI. COST ALLOCATION

Where separate billing rates are used for different services provided by a service center, the costs related to each service must be separately identified through a cost allocation process. Cost allocations will also be needed where a cost partially relates to the operations of a service center and partially to other activities of a department or other organizational unit. Depending on the specific circumstances involved, there may be three categories of cost that need to be allocated: (a) costs that are directly related to providing the services, such as the salaries of staff performing multiple services, (b) internal service center overhead. When cost allocations are necessary, they should be made on an equitable basis that reflects the relative benefits each activity receives from the cost. For example, if an individual provides multiple services, an equitable distribution of his or her salary among the services can usually be accomplished by using the proportional amount of time the individual spends on each service. Other cost allocation techniques may be used for service center overhead and institutional indirect costs, such as the proportional amount of direct costs associated with each service, etc. Questions concerning appropriate cost allocation procedures should be directed to the Accounting Office.

VII. EQUIPMENT PURCHASES

Expenditures for equipment purchases should not to be included in the costs used to establish service center billing rates. The costs should, however, include depreciation of the equipment. Including equipment depreciation in the billing rates allows for recovery of the purchase cost of the equipment. A list of equipment used in service centers, with inventory identification numbers, should be provided at the end of each fiscal year to the Accounting Office. This information is needed to assure that the equipment is excluded from the depreciation portion of the University's indirect cost rates charged to federally sponsored programs.

VIII. VARIABLE BILLING RATES

All users within the University should normally be charged the same rates for a service center's services. If some users are not charged for the services or are charged at reduced rates, the full amount of revenue related to their use of the services must be imputed in computing the service center's annual surplus or deficit. This is necessary to avoid having some users pay higher rates to make up for the reduced rates charged to other users. This requirement does not apply to alternative pricing structures related to the timeliness or quality of services. Pricing structures based on time-of-day, volume discounts, turn-around time, etc. are acceptable, provided that they have a sound management basis and do not result in recovering more than the costs of providing the services.

IX. SERVICES PROVIDED TO OUTSIDE PARTIES

If a recharge activity or service facility provides services to individuals or organizations outside of the University, the billing rates may include institutional indirect costs even though these costs are not included in the rates for internal University users. Any amounts charged to outside parties in excess of the regular internal University billing rates should be excluded from the computation of a service center's surpluses and deficits for purposes of making carry-forward adjustments to future billing rates.

X. TRANSFERS OF FUNDS OUT OF SERVICE CENTERS

It is normally not appropriate to transfer funds out of a service center account to the University's general funds or other accounts. If a transfer involves funds that have accumulated in a service center account because of prior or current year activity, an adjustment to user charges to compensate for the surpluses may be necessary. Any transfers must be approved in advance by the Office of Grants Management. In the case of surpluses due to premiums charged to external users, these funds, once identified, may be transferred out to other accounts.

XI. INVENTORY ACCOUNTS FOR PRODUCTS HELD FOR SALE

If a service center sells products and has a significant amount of stock on hand, inventory records must be maintained. If the value of the inventory is expected to exceed $50,000 at any point in the year, a formal inventory account should be established. If the inventory is not expected to exceed $50,000, internal inventory records may be used in lieu of a formal account. A physical inventory should be taken at least annually at the end of the fiscal year and be reconciled to the inventory records. Inventory valuations should be based on the first-in-first-out inventory valuation method.

XII. SUBSIDIZED SERVICE CENTERS

In some instances, the University, or a school or department, may elect to subsidize the operations of a service center, either by charging billing rates that are intended to be lower than costs or by not making adjustments to future rates for a service center's deficits. Service center deficits caused by intentional subsidies cannot be carried forward as adjustments to future billing rates. Since subsidies can result in a loss of funds to the University, they should be provided only when there is a sound programmatic reason. Subsidies involving service facilities and specialized service facilities must be reviewed by the University's Service Center Committee and approved by senior management.

XIII. RECORDS RETENTION

Financial, statistical and other records related to the operations of a service center must be retained for three years from the end of the fiscal year to which the records relate. Records supporting billing rate computations must be retained for three years from the end of the fiscal year covered by the computations. For example, if a billing rate computation covers the University fiscal year ending June 30, 1997, the records supporting the computation must be retained until June 30, 2000.

XIV. ESTABLISHMENT OF NEW SERVICE CENTERS

The establishment of new recharge or service center activities must be approved by the dean of the school and chair of the department where the center will be located. The Dean must, on an annual basis, agree to cover from IDC allocations any losses or operating deficits incurred by the Service Center. The establishment of new service facilities or specialized service facilities must be approved by the University's Service Center Oversight Committee. The requests for approval must contain the following information:

  1. A description of the services to be provided and the users of the services.
  2. The reasons why the services can best be provided by an internal service center, rather than by an external service provider.
  3. A projection of the costs and utilization of the services.
  4. A business plan for operating the Service Center which explains how billing and collection activities will be conducted.

XV. TECHNICAL ASSISTANCE

The Office of Grants Management and the Accounting Department are available to provide technical assistance and advice on the financial management of service centers. This assistance may be requested in connection with the development of billing rates, cost allocation procedures, equipment depreciation, record keeping, etc.

EXHIBIT A

A-21 UNALLOWABLE COSTS

Costs that are specifically designated as unallowable costs by OMB Circular A-21 include:

  • advertising expenses except for employee and subject recruitment
  • alcoholic beverages
  • alumni activities
  • automobiles for personal use
  • bad debts
  • commencement and convocation costs
  • contingency provision costs
  • certain defense and prosecution of criminal and civil proceedings
  • donations and contributions
  • entertainment and social activities
  • fines and penalties
  • goods and services for personal use
  • housing and personal living expenses for officers of the institution
  • insurance against defective work
  • interest, fund raising and investment costs (excluding third party interest expense)
  • lobbying costs
  • malpractice insurance that does not involve human subjects
  • membership in any civic or community organization, country club, social or dining club
  • proposal costs (costs of preparing bids or proposals on potential federally sponsored projects, including the development of data to support the  institution's proposal)
  • public relations costs
  • selling and marketing costs
  • severance costs incurred in excess of the institutions normal policy
  • student activity costs
  • travel airfare costs in excess of standard coach fees

Policy on Office Supplies

Items such as folders, paper, ink cartridges, pens, etc. which are used exclusively for project purposes, will be treated as research supplies and will be permitted as direct charges on the project that consumes them. Since OMB Circular A-21 regards office supplies as items that should normally be treated as indirect expenses it is necessary that two criteria be met for an item to qualify as a research supply:

  • The items must be used exclusively for the scientific or programmatic objectives of a sponsored project within the project period, and
  • The items must be charged to the project that consumes them and not dispersed among several projects or used for departmental administrative purposes.

There is a notation on the RF Purchase Requisition (just below the Authorized Signatures area) that states, "Note: Signature also certifies scientific and programmatic use for the project charged, Office Supplies Certification." This certification should only be signed when the conditions described in the bullets above pertain to the purchase being made.

Any questions with regard to this matter should be directed to Aaron Rosenblatt, AVP (2-1953) or Stephanie Ammann, Manager of Sponsored Project Expenditures (2-9071) in the Office of Grants Management.

Quickguide on Recharge/Service Centers

Quickguide on Recharge/Service Centers
PDF, 8 pages, 572KB