Procedures for reviewing a recharge center

Preparing recharge center documentation

Depending on the desired rate type, users should gather the appropriate documentation and submit to the appropriate party for review and approval. This will be used to determine the financial impact of establishing a recharge center or external sales.

When ready to begin calculating the recharge center rates, use the current fiscal year Recharge Center Cost Tool developed by the FCT team. This is a spreadsheet designed to capture costs and projected revenue for services and products appropriately and in compliance with federal, state, and university regulations.

 The spreadsheet contains several sections that must have data entered in order to have rates calculated appropriately. Below lists the spreadsheet tab names and special elements to pay attention to:

• Activities
  • Services may be itemized as individual products or grouped to include multiple components with similar costs (i.e. consultation).
  • Determine the most appropriate billing unit base for each activity (service or product) from the drop down menu.
  • Estimate the full capacity of the recharge center.
  • Estimate the anticipated units to be sold to internal and/or external customers for each activity. This should be assessed on the basis of projected activity for one year of operation.
• Personnel
  • Identify all personnel that will be involved in recharge center activities and corresponding pay lines.
  • Determine % effort that participating staff will devote to the recharge center vs. other duties by FTE classification.
  • Do NOT include any personnel time that is already dedicated to sponsored projects, this is considered double-charging.
  • Include administrative staff who are dedicated to support the recharge center. This is considered “center management” and is accounted for as a cost to the recharge center.
• Capital equipment
  • Equipment depreciation will be assessed on assets that have a capital value of at least $5,000 and have an ASU business asset ID (formerly ASU Property Control ID).
  • Do NOT include assets funded by federal sponsors or included in the university F&A rate. This can be confirmed by CAT.
  • Calculate depreciation on acquisition cost, not replacement cost, as recorded by the capital value.
  • Equipment beyond its useful life may not be depreciated but may be included as used in the recharge center.
• Market summary/analysis
  • Include any local (Arizona only) competitors that offer similar services.
  • When inputting the comparison, choose the activity offered by the recharge center that most closely related to the competition’s service (Market Summary).
  • When inputting the comparison rate, choose the rate category, i.e. University External: Non-Profit, that the competition charges for the comparable service (Market Analysis).
• Variable and fixed other costs
  • These include fixed (i.e. service contracts) and variable (i.e. consumables) expenses incurred to provide the services or products.
  • If available, use expense history as a basis for estimating expenditures.
  • Prorate components or parts, not including capital equipment, that are not purchased annually but will eventually need replacement.
  • Be aware to not underestimate costs, especially new centers, consult similar facilities when possible.
• Rate proposal
  • Will generate information showing the maximum or minimum allowable rates for internal and external customers, itemized by each service or product.
  • Will show the unit cost for each service or product.
  • Allows for manual entry of rates for each activity for the current fiscal year. This section will show if the activity will be subsidized based on the entered rates.
  • When considering the rates for the second fiscal year of operation, it is recommended to keep the rate percent increase at 0%. This ensures for consistency but may be reviewed on a case-by-case basis.
• Prior year summary
  • When preparing for renewal, input the previous cost tool’s projections (Budget and Cost Summary tabs) and actuals information.

Reviewing calculations and considerations

When filling out the spreadsheet it important to be aware of the following as they may have significant impact on the calculated rates.

• Internal rates may not exceed or undercut actual unit cost. The spreadsheet will prompt a validation error.
• Internal discounts and incentives are permitted if offered consistently and the subsidy is sufficient to offset imputed revenue. If waivers or discounts are offered to specific groups, be sure to provide detailed justification in addition to the proposed rates.
• Other universities and non-profits are charged at external rates unless a reciprocal memo of agreement/understanding exists.
• Non-profit rates may differ from industrial rates. While neither can be less than internal rates and should, in most cases, meet the minimum internal unit cost plus institutional overhead.
• Services provided to non-ASU customers must adhere to Arizona non-compete statutes.

The rate development process can be lengthy, on average 6-8 weeks to complete. This is dependent on unit resourcing, level of recharge center complexity, and frequency of communication. It is recommended that the recharge center calculate services to be sold, appropriate units, and assemble all supporting documentation at the outset. Doing so allows for more accurate accounting that will in turn maximize research use, income to the center, and minimize the internal subsidy.

Roles and reviewers

There are several roles involved in establishing a recharge center, each is interdependent and necessary to complete the rate development process. The following lists key responsibilities of each role.

• Unit Coordinator
  • Each unit should have a designated coordinator to assist with troubleshooting recharge center set-up and high level monitoring. Responsibilities include:
    • Field inquiries and requests for establishing new centers.
      • Ensure center staff complete training prior to rate development and negotiation.
      • Assist center staff with completing the rate development cost tool.
      • Develop rate justification, as necessary.
      • Route rates to appropriate personnel for unit approval.
      • Provide assistance on accounting structure within unit.
    • Monitor rate expiration dates and financial summary information prior to center renewal.
    • Coordinate account set-up and use of billing systems.
      • Determine if an unrestricted account in addition to a standard base account is necessary for the recharge center to bill appropriately.
      • Determine which billing system is most useful to meet center’s needs.
    • Coordinate cost-share commitments involving recharge centers.
    • Serve as custodian of recharge center data.
      • Ensure recharge center is charging only approved rates and informing CAT when center violates compliance.
      • Ensure backup documentation for sales and subsidies is appropriately stored.
      • Assist CAT with regular rate reviews and updates.
    • Assist CAT with gathering recharge related data needed for F&A rate development.
• Fiscal Compliance Team
  • The Fiscal Compliance Team under Fiscal Oversight is responsible for reviewing the official set of rates a center is allowed to charge and providing approval for internal rates and rates that will be charged to both internal and external customers. Other responsibilities include:
    • Develop resources such as unit training materials and rate development cost tool.
    • Maintain the recharge center pages on the Research Administration website.
    • Administer the Recharge Center Process Change Management Board and vet proposed changes to the recharge center administrator portfolio.
    • Review proposed rates for compliance with federal, state, and ASU policies.
    • Complete a bi-annual review of recharge center balances to confirm federal compliance.
    • Engage with Financial Services where appropriate.
• Financial Services
  • Financial Services is responsible for negotiating external sales and maintaining records of internal service centers. Additional responsibilities include:
    • Develop rates, comprehensive business plans, and subsequent documentation for external sales.
    • Coordinates insurance and risk management of external sales.
    • Approve and monitor rates of internal service centers.
• Recharge center staff
  • Members of the recharge center staff are responsible for the day-to-day activity that occurs in the center. As part of their direct involvement, center staff will be instrumental to the rate development and may serve as the primary contact. Primary responsibilities as part of rate development include:
    • Provide detailed descriptions of services or products to be sold, equipment usage, personnel working in the center, etc.
    • Keep detailed records of recharge center expenses and revenue.
    • Monitor the center and submit new rates for review prior to their expiration.
    • Coordinate with unit administration where a subsidy is needed to cover recharge center operations and set a plan to break-even.

Approvals

Recharge centers require university approval before commencing operations, and a routine review at least biennially. Any rate adjustments that fall between biennial reviews warrant a new rate negotiation and must be re-approved in order for the center to continue charging customers.

Only recharge centers that have undergone an official review process and granted approved by FCT or Financial Services are allowed to charge customers. Official notice of approval will be sent via email with listed charges and approved rates. These will include documentation of the approving party and should kept for record retention.

New recharge centers and those requiring a subsidy for continued operation will require VP/Dean/Director level approval in addition to approval from FCT or Financial Services.

Charges to sponsored projects or other internal accounts from department operations that have not been fully vetted may be considered unallowable. Such charges are subject to removal by cost transfer journal or accounting adjustment in Workday. Approved rates may be charged to sponsored projects so long as they are specific, identifiable costs at the spend category level.

Considerations for new centers

Where do I start?

When establishing a new recharge center it is helpful to consider the purpose of the facility and if it will be beneficial to the responsible unit. Prior to developing rates, center staff should consider the following questions:

• Has the dean or unit head acknowledged a need for the center or a new recharge account?
• Is the unit administration willing to provide a subsidy to cover operational expenses, if necessary?
• Is a unique service being provided that is not currently available elsewhere at ASU?
• Are there any local competitors, outside of ASU, that offer similar services or products?
• Will the service(s) be available equally to ASU users?
• Will the service(s) be provided mainly to internal or external customers?

Answers to the above questions will help to define both the scope of services the center will provide and the center’s business model.

Considerations for renewing centers

Renewal

For recharge centers that are preparing to renew their rates, the following should be taken into consideration to best prepare for the new rate review:

• What has prompted the rate review? i.e. standard biennial review, changes in key personnel, new activities, etc.
• Has the recharge center been able to recoup sufficient revenue from services or removed the need for a unit-sponsored subsidy?
• Has the customer base of the recharge center significantly shifted since the last rate review?
• For centers that include internal rates, will the center continue to charge sponsored projects?
• For external sales, will the center require internal rates as part of this rate review?
• If the center is not planning to charge either sponsored projects or external parties, will the center charge non-sponsored internal accounts?
• Will the unit elect to retire the center as part of this rate review?

Answers to the above questions will be used to determine if it is appropriate to continue with renewing rates or retire the recharge center.

Transfers of responsibility

For recharge centers that are transferring financial and administrative responsibility to another unit (i.e. Core Facilities), the following should be considered:

• What is the justification for this decision?
• Has an MOU been established with the transfer-to unit to determine parameters for this move?
• How will this move impact the personnel listed on the recharge center?
• Will the prior year summary information impact the transfer-to unit’s ability to provide a subsidy to the recharge center, as needed?
• What are the plans to reduce risk and break-even on the recharge center?

Retirement

For recharge centers that elect to retire the center, the following should be considered:

• What is the justification for this decision?
• Has the center been able to break-even?
• If the center has not broken even, what steps are being taken to reduce financial risk to the unit?
• If the center has a positive net income position, what steps are being taken to address this?
• Has the recharge center submitted the appropriate documentation to close the PG account in Workday?

Implementation procedures

What happens next?

Once a center has received the appropriate approvals, the center is considered eligible to begin charging customers. Before doing so, the recharge center must complete the following tasks in order to fully implement the center and begin charging customers.

•  Apply for a local program account to track expenditures, revenue, and invoice for services.
• Inform CAT of billing and accounting structure to be added to recharge center information repository.
• Set up billing interface within Workday or chose billing mechanism.
• Inform Research Facilities and Infrastructure group of projected subsidy and account sources.

Cost accounting standards

Guidance for preparing documentation

Recharge centers must follow sound cost accounting practices, including rate setting methodology and billing practices. The guidelines below are intended to help recharge centers optimize productivity and comply with federal, state, and university policies.

• Maintain separate billing and accounting
  • Recharge centers must be separately budgeted and accounted for, apart from other activities (i.e. teaching, research). This is especially important for those that operate within academic, research, and academic or institutional support departments.
  • For recharge centers that are funded by non-recharge center accounts (i.e. state or general operating funds, F&A costs) to subsidize the cost of providing services or products, the following rules apply:
    • Separate accounting should be established for individual recharge centers, i.e. separate accounts and reporting categories.
    • Accounts must contain only revenues and expenditures directly related to the provision of services or products for that center. Funds in these accounts cannot be expended for activities unrelated to recharge center operations such as teaching.
    • Subsidized expenses paid from non-recharge accounts must be identifiable at the time of review and accounted for separately. Managing units may choose to subsidize a portion of the center’s operating costs in one of the following forms:
      • Transfer of funds to the center’s recharge account
      • Funding expenses on non-recharge center account(s)
    • Annual budgeting of all revenue and expenditures must conform to applicable university and Arizona Board of Regents budgeting procedures.
• Maintain distinct billing rates
  • Services or products with similar costs may be grouped together for the purpose of determining appropriate rates.
  • Recharge centers should differentiate between services or products when the annual dollar volume becomes significant and the cost of production varies significantly from other services.
• Demonstrate costs included in internal billing rates
  • Costs included in rates should be necessary for operation and are consistent with established university, Board of Regents, state, and/or federal policy or regulations.
    • Costs eligible to be included in the billing rate are salaries/wages, employee related expenses (ERE), operations, travel, and qualified depreciation of capital equipment.
  • Costs must be consistently applied according to generally accepted accounting principles.
  • Costs must be properly allocated to the recharge center’s services based on actual or projected use/effort.
    • One service should not substantially subsidize another within the recharge center.
    • New centers or centers adding new services or products in the current fiscal year, may allocate projected costs in lieu of actual costs. The following year’s approved operating budget would be acceptable.
  • Costs must be allowable as presented in 2 CFR 200 (Uniform Guidance). Below are common examples of unallowable costs in relation to recharge centers:
    • Salaries of administrators or staff who support general university or departmental financial processes. These salaries are captured in the university’s administrative cost pool (part of institutional F&A costs), which is capped at 26% of the research base. Charging departmental administrative/clerical personnel as direct costs to federal projects will be viewed by federal auditors as circumventing this cap. NOTE: recharge rates may include the cost of administrative or support staff whose duties support processes specific to the recharge center.
    • Advertising of services or products.
    • Capital assets and equipment purchased by federal agencies.
    • Alcoholic beverages.
    • Entertainment such as but not limited to amusement, social activities, food and beverage outside of travel.
    • Fines and penalties.
    • Goods or services not related to the recharge center.
    • Tuition. This is allowed as a direct charge to sponsored projects but exempt from F&A so this must be excluded from recharge rates.
    • Unallowable costs may not be included in rates or charged directly to a recharge account. However, other sources of funds i.e. revenue resulting from external sales premiums, may be used to pay for federally unallowable costs.
    • The university’s treatment of both Administrative Services Charge (ASC) and Risk Management and inclusion in the institutional F&A rate, these charged are not eligible to be included in recharge rates.
      • Financial Services will determine the portion of these costs that would assessed and will charge them at the college level. It should be determined what accounts the charges will be posted to as a means of offsetting the amount that would have been charged to the recharge center.
  • Demonstrate basis for direct charges
    • The billing rate may vary by type of customer and/or by services or products sold. Rates charged to federal funds, either directly or indirectly, may not subsidize other users. Rates are normally established for each user class, generally determined as internal or external.
      • ASU/Internal: Rates for customers paying with ASU-controlled funds including, but not limited to, federally derived sponsored accounts.
        • No costs paid directly by federal sources may be included in ASU billing rate calculations such as costs of a federally purchased instrument may not be charged to a user paying with federal grant monies.
        • Unallowable costs may not be passed onto federal customers.
        • ASU rates may be set no higher than the unsubsidized billing rate or unit cost.
        • No customer may be charged a lower rate than a customer paying with a federally derived sponsored account.
      • Non-ASU/External: Rates for external customers should be set with the purpose to optimize recovery of all costs.
        • This includes institutional overhead at either the non-profit or for-profit F&A rate, depreciation, unallowable costs, and subsidies.
        • Rates may include reasonable external sales premiums in an effort to maximize revenue and comply with competition laws in the State of Arizona.
        • Premiums may be applied to both non-profit and for-profit rates at the same or different levels unless bound by an agreement that dictates otherwise.
          • Net income resulting from such premiums may be subject unrelated business income tax, consult Financial Services for more information.
        • Non-profit customers and ASU customers paying for services with Non-ASU funds are to be billed at a rate no less than the internal rates plus institutional overhead at the current non-profit F&A rate. This is equivalent to the total cost (direct + F&A) charged to federal sponsors.
        • For-profit customers are to be billed at a rate no less than the minimum external billing rate, including industry F&A. Rates should be set to optimize revenue and minimize center subsidy. If similar services or products are available commercially, rates must minimize competition with private enterprise. Private entities that use federal flow-through funds to pay for services should be charged no more than the non-profit rate.
  • Use of discounts and fee waivers
    • With the approval of the unit(s) providing a subsidy, specific users or groups of users may be charged at less than the listed rate if a sufficient institutional subsidy is available to compensate for the reduction.
    • Reduced or waived charges must be tracked as imputed revenue. Total annual imputed revenue may not exceed the total annual subsidy.
  • Depreciation and uses
    • Internal billing rates cannot include the cost of anticipated capital expenditures. Instead, rates may include the cost of “depreciation” related to the use of existing recharge center equipment, provided the asset(s) are used by the parties to be charged for use.
      • The computation of depreciation must be based on the acquisition of the capital assets involved.
      • Billing rates for federal customers must exclude any portion of capital costs borne or donated by the federal government as well as any portion of the cost prohibited from recovery by law or agreement. This refers to equipment purchased with federal grants.
      • Equipment must be coded accordingly in property control database so that it will not be included in future F&A calculations.
    • Depreciation will be calculated based on straight-line depreciation. No depreciation will be calculated or charged on equipment that has outlived its useful life.
    • Complete physical inventories must be taken at least every two years to ensure that the assets exist and are used and needed. Inventory is tracked in Workday and coded specifically to the recharge center as appropriate.
    • A separate capital replacement account may be set up to collect the depreciation portion of recharge annually. This is not subject to the 2-3 year break-even rule and is excluded from the 60-day reserve total.
  • Use of transfers to/from recharge accounts
    • Transfers to/from are generally considered unallowable. This is because of the impact to billing rate computations and break-even. Exceptions are listed below:
      • An amount less than or equal to the center’s annual capital equipment depreciation documented on the approved depreciation schedule may be transferred from the recharge account to a non-recharge account.
      • Net income resulting from external sales premiums may be transferred from the recharge account to a non-recharge account provided the recharge center can demonstrate the net revenue resulted from services or products sold to non-ASU customers.
      • Transfers-in of institutional subsidy to eliminate recharge account deficits.
  • Break-even operation
    • Generally, the billing rates must be set so that there is no over-recovery/overcharge to federal projects. This is accomplished by properly allocating costs to services/products and by monitoring for break-even operation.
    • The break-even period for most services or products should be one year although a longer period may be established when necessary to accommodate expenses that are not incurred annually.
    • The following formula is used to assess break-even operation over a defined period:
      • (Collected revenue + imputed revenue + subsidy + ASC assessed on recharge account)
      • – cash expenditures on recharge account and subsidy accounts less applicable credits and refunds
      • – depreciation (regardless of whether transferred from a recharge account)
      • – revenue resulting from external sales premiums
      • = break-even over/under amount
  • Understanding carryforward/cash reserve limit
    • The federal government allows recharge centers to maintain a recharge account carryforward balance or cash reserve, no greater than the 60 day equivalent of the center’s total annual cash expenditures, including subsidized expenses.
    • Subsidies and/or recharge rates should be adjusted to maintain carry-forward balance within allowable limits. This includes qualified transfers out which may be used to reduce the balance.
  • Understanding account deficits
    • ASU financial policy requires account manager to “control spending so that the account does not go into deficit status” and to “determine timely funding sources for any account deficits” (see FIN 203).
    • As a cash-basis institution, ASU displays current account balance as shown in Workday represents the previous year’s carryforward balance, plus collected revenue, less actual current year expenses.
  • Exceptions to consider
    • Recharge centers may request specific exceptions to cost accounting standards. These must include detailed justification and sent in writing to the Costing Analysis Team.