Recharge Operations

Policy Approval Authority President
Responsible Division Division of Administration and Finance
Responsible Officer(s) Vice President for Administration and Finance
Contact Person Shyree Sanan
Primary Audience Faculty
Staff
Status Active
Effective Adoption Date 12-18-2020
Last Review Date 12-18-2020
Policy Category/Categories Finance / Risk Management
Research Ethics / Intellectual Property
Sponsored Funding/Grants and Contracts

Purpose

To establish the conditions in which NIU must manage internal recharge activities and to ensure core compliance requirements are met.

Reason for this Policy

University departments and researchers use a variety of products and/or services to perform their activities or projects. Sometimes these products or services are not readily available from external sources, or cannot be obtained conveniently or efficiently. As such, NIU may wish to establish a recharge operation to provide these products or services to the internal NIU community. Similarly, as a research and teaching institution the university may have unique capabilities and instrumentation that are of value to the external NIU community.   

Recharge Operation policies and practices must reflect government regulatory costing principles such as those contained in the Office of Management and Budget (OMB) Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR 200), commonly referred to as Uniform Guidance, as well as State and the University Accounting Policies.

Categories of Recharge Operations

The University’s Recharge Operations are divided into three categories:  Recharge Centers, Service Centers, and Specialized Service Facilities. These categories are defined under Policy Definitions.

All Recharge Operations are established to:

  • Provide a good/service (or) groups of goods/services on a recurring
  • Provide a good/service to internal NIU users and on occasion, to external customers.
  • Recover the cost of providing the good/service through charges or fees to users.

            Recharge Operations are NOT established:

  • To generate a profit.
  • To compete with the general public.
  • To provide service to the general public as its primary function.
  • To build a surplus intended for any purpose or discretionary purpose, other than paying for the costs incurred to provide the service or good.

Policy Definitions


Recharge Operations Categories

The categories differ primarily in the scope of goods and services, from individual departments to campus wide.  A more detailed description follows.

Recharge Center: Recharge centers sell goods or services primarily within a university department(s), on a regular, ongoing basis, for a fee that is based upon the actual cost of the goods or services. Recharge centers may also sell to external customers on an incidental basis. Recharge centers may not be expected to be self-supporting and may be subsidized by their parent department or another university unit. These centers are often operated by a department. Examples of goods or services include computing services, copiers, and testing services, and departmental shops and storerooms.

A Core Facility is a type of Recharge Center for which centralized shared research resources are made available within a university department or across departments to provide access to instruments, technologies, services, as well as expert consultation and other services to researchers.   

Certain recharge centers may directly transfer the actual cost of the goods or services to the user, such as copy services and postage. There is no markup involved to recover any cost other than the cost of the good or service initially provided.

Service Center: Service Centers sell goods or services primarily to many university departments, on a regular, ongoing basis, for a fee that is based upon the actual cost of the goods or services. Service centers are expected to be self-supporting by generating income from multiple funding sources, including departments outside the parent department. They operate on a break-even basis. The goal is exactly to recover the costs of the goods or services provided. Examples include motor pool, telephone services, and graphic arts.

Specialized Service Facilities. Specialized Service Facilities (SSF) are recharge operations  that typically require the use of highly complex or specialized facilities or equipment, such as computers, wind tunnels and reactors. A unit that charges a fee for providing one or more specialized services, has an annual operating budget exceeding $1 million and generates significant charges to sponsored projects is a SSF. User rates for these services must recover both direct and allocable indirect costs.

General Definitions

Auxiliary Enterprises. Auxiliary enterprises are not covered by this policy. Auxiliary enterprises are self-supporting entities that exist to furnish goods and services primarily to students, faculty or staff for personal use, and that charge a fee directly related to, although not necessarily equal to, the cost of goods or services. The general public may also be served incidentally by an auxiliary enterprise. These units may generate a profit from the sale of goods and services. Examples include housing, food services, student union, stadium, recreation center and parking facilities.

Billing Rate: The fee per unit of activity charged to customers to recover the costs associated with producing goods or providing services. The billing rate may vary by types of customers and/or goods/services. However, rates charged to Federal funds, either directly or indirectly, may not subsidize non-Federal users or rates in any way.

Break-even: The point at which revenues equal expenses. The policy establishes that recharge operations should break-even over a reasonable period of time.

Carry-forward: The amount of over – or under-recovery of current operating expenses due to varying or incorrect billing rates that can be adjusted as part of the subsequent year’s billing rate determination.

Cost Principles: The principles set forth by the U.S. Office of Management and Budget (OMB) for determining the costs applicable to research and development, instructional activities, and other sponsored work performed by colleges and universities under grants, contracts, and other agreements with the Federal Government. These principles are commonly referred to as Uniform Guidance.

Deficit: A deficit occurs when the recharge operation’s expenses exceed revenues for a given fiscal year. Deficits must be carried forward and built into future billing rates or subsidized with internal funds.

Depreciation:  An allocation of capital equipment over its useful life. Annual depreciation is calculated by dividing the purchase cost by the number of years of useful life (straight-line depreciation). If the federal government has provided any funding for a piece of equipment or building, the depreciation cannot be used in the rate calculation.

Direct Operating Costs: Outflows or charges relating to the rendering of services and related support undertakings (i.e., administrative activities) that can be identified specifically with the recharge activity. Direct operating expenses include salaries and wages, supplies and non-capital equipment, and equipment depreciation and interest expenses. These costs do not include institutional Facilities & Administration or “indirect costs” such as building depreciation and general administration.

Indirect Costs: As defined by federal costing principles, indirect costs are those 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.

Revenue: User fees recovered from both internal and external users.  This is also referred to as income.

Subsidy: Other non-federal funding sources provided by university departments to cover a deficit caused by charging user fees less than necessary to recover the total operating costs of a service center.

Surplus: A surplus occurs when the recharge activity’s revenues exceed expenses for a given fiscal year. Surpluses not generated solely from external revenue must be eliminated through future rate adjustments.

Unallowable Costs: The federal Cost Principles establishes guidelines for the allowability of costs in 2 CFR, Part 200, Subpart E. Costs that are "unallowable" may not be included in the recharge rates. Typical unallowable costs include, but are not limited to

  • Advertising and public relations costs
  • Alcoholic beverages
  • Bad debts
  • Contingency provisions
  • Entertainment costs
  • Fines and penalties
  • Insurance and indemnification
  • Memberships, subscriptions, and professional activity costs of a social or individual nature
  • Selling and marketing cost

Policy

All university Recharge Operations that charge federal awards are subject to the cost principles outlined in 2 CFR 200 Uniform Guidance, State of Illinois regulations, and University policy. As such, recharges must be based on actual costs, be consistently applied, and based on actual use.

Recharge Centers are generally funded entirely from user fees, but may be subsidized with institutional funds.  Service Centers must operate on a “break-even” basis over time.                                 

Internal and External Users

Internal users are those who are part of the organizational structure of the university.  Internal users have university account numbers (e.g., a 41 indirect account or an Investigator’s 44 grant account) that are billed through the Interdepartmental Sales Journal (ISJ) process. Rates budgeted and charged to sponsored awards must be at the internal user rate (i.e. no profit/markup) and for actual use only.  Such costs will be subject to normal indirect costs for the award. Internal rates do not include the applicable university negotiated indirect cost rate because indirect costs are charged on grant expenses, including charges to service centers.  To recover indirect or administrative charges in the internal user rate would result in a double charge to the Federal government.

A Recharge Center that charges internal users and federal grants may also have external users. External users are those outside the organizational structure of the university, including faculty, staff and students acting in a personal capacity.  External users do not have university account numbers and are billed using a standard invoicing process through Commercial Accounts Receivable.  External users may be charged a higher rate than internal users. In no event, shall the higher rate be charged to the university’s sponsored awards.  Generally, the market rate for a particular good or service will be set for external users.  A surplus generated by higher external billing rates will not need to be included in future billing rates.  Detailed accounting records for internal and external rates and billing must be maintained to support the surplus.

Billing Rates

Billing rates are generally computed by dividing the total annual allowable cost of a service by the total number of billing units expected to be provided to users of the service for the year.  Examples of billing units include: hours of service, animal care days, tests performed, machine time used, pages printed, samples analyzed etc.  Rates must be calculated using total units of activity.

If a service center provides different types of products and services to users, separate billing rates must be established for each service that represents a significant activity.   A surplus from one service may be used to offset a deficit for another service only if the mix of users is the same. This is to ensure that higher prices charges to one set of users are not subsidizing the lower rates charged to a different group of users.

The calculated rate is then applied to the actual level of activity when charging users.  

Billing Rate Components

Personnel: Salaries and wages of all personnel directly related to the recharge operation activity (operational and administrative) must be included in the rate calculation and charged to the Recharge Center or Service Center’s operating account.  Salaries for individuals working on more than one activity should be allocated to the rate based on percentage of effort, FTE or other reasonable time allocation method.

Materials and Supplies:  The costs of materials and supplies needed to operate the recharge operation must be included in the financial analysis for the fiscal year in which the material is used. If excess materials or supplies are purchased during a fiscal year, the Recharge Center or Service Center must not include the costs of the excess material or supplies in the closing fiscal year's financial analysis. Service centers that maintain significant inventory must establish an inventory account within the general ledger and separate from operating expenses.

Other Costs: Other costs associated with a recharge operation include but are not limited to, minor/non-capital equipment, software, service/maintenance contracts, rental contracts, travel specifically related to the activity, and other costs not specifically identified as unallowable through Federal regulations.

Capital Equipment and Depreciation: Capital equipment is defined as an item with a purchase price over $5,000 and a useful life of at least two years. Federal guidelines do not allow the purchase cost of a capital item to be recovered through recharge rates or to be included in the calculation of the annual surplus or deficit. However, federal guidelines do allow for the recovery of depreciation, external interest, or capital lease costs associated with non federally funded assets. Equipment that's not capitalized (purchase price under $5000) must be treated as an operating expense (i.e. materials and supplies) in calculating rates.

If the federal government has provided any portion of the funding for a piece of capital equipment, whether or not title has reverted back to the university, the depreciation for that particular equipment cannot be included in the billing rates.

Billing

All billings must be established at the approved rates.  At no time will an external user be charged less than federal and other internal users. Recharge Centers and Service Centers shall bill at least monthly and billing activity will be reconciled to the accounting ledger.  Advance billing for goods and/or services is not allowed.  At a minimum, billing invoices must include dates of service, units consumed, rate charged, and description of goods/services provided.  Documentation to support the billing must be maintained by the department or unit responsible for the recharge activity.   

Record Retention

Detailed accounting records must be maintained to document rate development, costs associated with the recharge operation, services provided, revenues, and billing information.  Usage logs for services that involve use of equipment must be maintained and available for audit purposes.

All recharge operation records must be retained per University policy.  Additionally, records that support federally sponsored projects must be retained for a period of at least three years.

            Rate Development Illustration

User Fee Rate Calculation

  • Determine direct operating costs associated with each service/good provided:

 

Salaries (2 lab technicians)                    $100,000

Benefits                                                $  30,000

Supplies                                               $    9,000

Repairs and Maintenance                       $    5,000

Non-Federally funded Equipment

Depreciation                                         $    7,000

Prior Year Deficit/Surplus                      $  (1,000)

  Total Operating Cost                          $150,000

 

  • Determine units of activity/usage:

 

 40 hours/week x 52 weeks/year                   2,080

Less 10 holidays/year                                     (80)

  Less vacation hours/year                             (120)

  Less sick hours/year                                     (40)

  Less down time (breaks, meetings)               (440)

      Total available hours per technician           1,400

  Total hours for 2 technicians                   2,800

 

  • Calculate cost-based rate:

                         Billing Rate = Operating Costs/Available Hours

                              $53.57/hr = $150,000/2,800hrs
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