September 15, 2011
USC schools, academic departments and other university divisions (units) may establish a recharge center (RC) to provide goods and/or services to university activities, programs and organizations. This policy provides university-wide direction for the financial operations of an RC and establishes principles and procedures to help ensure that RCs are compliant with university policies and government regulations.
Section I: Definitions
A. Recharge center (RC)
A department or functional unit which performs specific technical or administrative service primarily for the benefit of other units within a reporting unit. The services should be provided to our researchers at reasonable costs when compared to costs of services obtained through external organizations. The following requirements should apply:
- There is a demand for goods and/or services by multiple users
- The goods and/or services are provided on a regular basis
- The cost of goods and/or services can be clearly identified
- Usage by customers can be reasonably measured
- Billing rates can be established that measure the cost of the goods and services provided
Recharge centers are also commonly known as service centers, research core facilities, and animal research facilities.
See Appendix A for university activities that do not qualify as an RC.
B. Oversight unit (OU)
The unit of the university (school, department/division, center/institute or center administrative unit) that provides the financial oversight for the RC.
C. Billing rate
The amount that is quantified and applied to the service(s) to determine the total amount to charge a customer.
D. Allowable costs
A cost is allowable if it is reasonable and necessary for the operations of the RC and compliant with governmental cost principles in the Office of Management and Budget (OMB) Circular A-21 (2 CFR Parts 215 and 220).
E. Unallowable costs
Costs that are not reasonable or necessary for operations of the RC, including specific items of costs cited in OMB Circular A-21. Examples of unallowable costs are listed in Appendix B.
F. Applicable credits
- Receipts or negative expenditures that operate to offset or reduce direct cost items – typical examples include purchase discounts, rebates or allowances, educational discounts, and subsidies from equipment grants, and core grants
- Amounts received from the federal government to finance institutional activities, facilities, and equipment as well as other receipts from government funds
Section II: Principles
RCs are created by units of the university that have the capability to provide financial oversight over their operations. The oversight unit (OU) may be a school, department/division, center/institute or a central administrative unit. The OU is responsible for ensuring that the RC has established written operating procedures that implement the following costing principles to assure that the billings to university accounts and federal programs are reasonable and allowable:
A. Billing rates must be designed to recover no more than the allowable cost of goods and services provided.
Billing rates should be developed based on the direct cost of operations, including the cost of labor, goods, supplies, and other identifiable operating costs. See section D for a discussion on allowable costs. Billing rates should not include unallowable costs as defined in OMB Circular A-21 (see examples in Appendix B). The RC operations should strive to “break even” annually by calculating billing rates based on anticipated expenditures (the numerator) divided by estimated usage (the denominator).
Due to variances in actual usage and/or actual expenditures, a cost surplus or deficit may occur. The Office of Financial Analysis (OFA) should be notified if a year-end surplus or deficit occurs that is greater than 20 percent of the cost of operations. The OFA and the RC director will (a) review reasons for the variance and develop a plan to reduce or eliminate the deficit or surplus in future periods and (b) decide on the disposition of the current deficit or surplus, which could include the following:
- The surplus or deficit may be carried forward to the following year to be included in calculating the billing rate(s). However, if the deficit or surplus is significant, above the 30% mark, it may be spread over a reasonable period of time, generally, not more than three years; or,
- A deficit may be eliminated by the provision of university non-sponsored funds. If billings have been made to government-sponsored projects, a surplus may be eliminated only by (a) making a refund to each government-sponsored project of its share of the surplus; or (b) making a single refund to the government by contacting the HHS Division of Cost Allocation for assistance (see section E).
B. Federal regulations require that RC rates do not discriminate against activities (direct or indirect) that are supported by federal awards.
To comply with the above, RC billings should be recorded in the revenue/income accounts at their full (authorized) billing rates, exclusive of any premiums charged or discounts offered.
- When an RC charges a premium, the premium should be recorded in the accounting system separately so as to be able to identify the premium at the time of annual review. This will enable the OU to identify these revenues. The OU may then use the premiums to offset any losses incurred or to transfer into a non-sponsored account.
- When an RC provides a discount (or free usage), the discount should be clearly identified in the invoice as well as recorded as such in the accounting system. This will enable the OU to properly track all activity and costs associated with these reductions.
C. Billing to users must be based on their actual usage of the goods and/or services that is measurable and based on benefits received.
RC management must develop and maintain a method of accurately estimating the volume of future usage and the tracking of actual usage. Only usage that is measurable with a good degree of accuracy should be used in calculating the rate and the billings to users. There should be a direct, identifiable, and measurable benefit to the user of the goods and services provided.
D. Only costs that are allowable and necessary for the effective and efficient operations of the RC should be included.
OMB Circular A-21, section C.2, states that, to be allowable, costs must: (a) be reasonable, (b) be allocable to users, (c) be given consistent treatment, and (d) comply with limitations and exclusions set forth in sponsored agreements and the Circular.
Allowable costs for RC’s may include direct salaries and wages, supplies and materials, and equipment and other direct costs that are required for and directly identifiable to their operations. In addition, allowable costs for RCs may include their allocable share of facility costs, such as depreciation related to space they occupy, and operations and maintenance costs of the facility.
Allowable costs must be reduced by applicable credits (section C5 of OMB Circular A-21).
E. When a unit operates in dual mode – there are some units that will have a portion of their activities operate as a RC and the other portion of their activities used for direct research functions.
In order to be consistent with cost accounting standards, the unit must assure that costs (effort, materials and supplies) be properly allocated to each role (RC vs. direct research) so that RC rates are allowable and equitable. It is the OU’s responsibility to ensure that staff effort and other costs are kept separate between the RC and the direct research activities. As such, at inception and during annual review of the rate(s), an estimate must be performed by the OU that would assist in setting rates for the following year.
F. Transfers of any surplus out of the RC operations may be made only if approved by the Senior Vice President, Finance. However, federal awards must be credited for their share of the transferred surplus.
RCs should not accrue a significant surplus because it is expected that they will break even or carry forward the surplus to the following year(s). However, if a large surplus occurs and the Senior Vice President, Finance approves of (a) the transfer of the surplus out of the RC, or (b) the use of the surplus for non-RC operating purposes, the university’s Office of Financial Analysis will compute the federal share of the surplus and ensure that it is rebated to the government. The OFA will also report the transfer to the cognizant federal agency, the HHS Division of Cost Allocation.
G. Types of accounts to be used.
In order to properly track and account for the costs/revenues of the RC, the following will serve as a guide into which type of account(s) to use:
- 56xx—if the RC is being funded primarily (over 50%) by sponsored grants and contracts. Once approved by the Office of Financial Analysis, OFA will coordinate with the Department of Grants and Contracts to create the account. Sponsored Projects Accounting and/or OFA will monitor these accounts.
- 12xx—if RC is not being funded primarily by sponsored grants and contracts. The OU itself will monitor these accounts.
Section III: Responsibilities
A. Establishment of RCs
The OU leader is responsible for authorizing establishment, in accordance with the criteria provided in Appendix C of this policy, of any RC with an initial expected annual expense budget under $100,000.
However, if the RC’s budget is expected to be $100,000 or greater in any of the first three years of operation, then the OU leader must submit a written proposal to the Office of Financial Analysis for review and approval.
B. Management of RCs
The management structure may vary by recharge center. However, at minimum, one individual should be designated responsible for day-to-day operation of the RC.
Oversight of RCs and compliance
- Office of Financial Analysis (OFA) is responsible for reviewing and approving the establishment of any new RC with an annual expense budget of $100,000 or more, proposed by an OU leader. In addition, OFA is responsible for providing costing assistance to university units in establishing and operating RCs. OFA will also, on an annual basis, assess compliance by reviewing a representative number of RCs. These reviews may result in corrective recommendations to be completed by the RC.
- OU leader is responsible for:
- Authorizing the establishment of new RC with an initial expected annual expense budget of under $100,000 in each of the first three years of operation.
- Submitting a written proposal to the Office of Financial Analysis for the establishment of new RC with an expected annual expense budget of $100,000 or greater in any of the first three years of operations, for OFA’s review and approval.
- Appointing an individual responsible for the management of RC’s day-to-day operations.
- Establishing written operating procedures for the management of RC and monitoring management’s operations.
- Reviewing RC annual Statement of Operations & Budget for compliance.
- Reviewing, at least biennially, the goods and/or services provided by RC to establish that they are necessary to support the university and cannot be effectively or reasonably obtained from outside sources, or that it makes more sense to provide the goods and/or services in-house.
- RC director/manager is responsible for the overall management of RC operations, including:
- Approving and maintaining the annual Statement of Operations & Budget for each RC, regardless of size of operations. Providing statements to the Office of Audit Services, Office of Financial Analysis or other university officials upon request.
- Working with OFA as it reviews and approves and/or adjusts billing rates, at least annually.
- Maintaining records showing:
- requesters’ authorization for services and/or materials,
- customer’s usage data such as service hours and/or quantity of materials used,
- timely (usually monthly) billings to user accounts, and
- control of receipts and collection of receivables.
- Managing revenues and expenditures during the year to assure effective and efficient operations.
- Retaining records of operations for a minimum of four years for charges to non-sponsored accounts, and four years after the final payment and completion of final audit for charges to sponsored project accounts (i.e. university general ledger account number series that begin with “5”). These records should include revenues, expenditures, the disposition of deficits and surpluses, and billing rates and usage data.
- Vice President, Office of Research is responsible for reviewing and approving the creation of RCs that are core research laboratories. The Office of Research is also responsible for reviewing and approving annual budgets for those RCs that have received financial support from the Office of Research.
Appendix A—Activities that do not qualify as a RC
Activities or units of the university that do not qualify as RC include those that:
- Normally are part of the facilities & administrative (indirect cost) rate process, such as general or departmental administration, operations and maintenance, student services, libraries, etc.
- Provide a one-time distribution of expenses, or an activity that shares the cost of a service or product on an ad-hoc, non-recurring basis.
- Have costs that are minor and are shared by a small number of users on a pro-rata basis, such as a departmental photocopy machine (also known as common cost allocations).
Appendix B—Unallowable costs
Generally, reasonable and necessary cost directly associated with the operations of the RC is allowable. However, certain costs, regardless of purpose, identified in OMB Circular A-21 (see section J of Circular for a complete description) are unallowable as a charge to federal awards. Examples include:
- Advertising and public relations
- Alcoholic beverages
- Alumni activities
- Bad debts
- Contingency reserves not identifiable to any foreseeable event or measurable value
- Defense and prosecution of criminal and civil proceedings
- Donations and contributions rendered
- Entertainment costs
- Fines and penalties
- Fundraising and investment costs
- Costs of goods and services for employees’ personal use
- Actual losses which could have been covered by permissible insurance
- Internal interest expense
- Lobbying costs
Appendix C—Information required when establishing a new RC
Core recharge centers
A written request (proposal) to establish a new RC is to be submitted by the OU leader to the Office of the Vice President of Research for approval (when initial expected annual expense budget is $100,000 or greater in any of the first three years of operation—otherwise OU leader can establish RC without proposal submission). This proposal should include at a minimum the following information:
- Statement of purpose consistent with mission of the school, department or division and aligning with all other university policies
- Description of the goods and/or services to be provided and a list of potential customers (internal, external and federal)
- Justification of why the goods or services cannot or should not be obtained from external organizations
- Budget of operations for at least three years, including income, expenditures and billing rate calculations
- Anticipated start-up date
- Names and phone numbers of individuals responsible for RC management
Non-core recharge centers
All of the above requirements for core recharge centers apply, with the only exception being that the request must be made to the Office of Financial Analysis for approval.
Appendix D—Checklist for how to set up an RC
- Familiarize yourself with this policy and make sure you meet requirements for an RC
- Complete the Recharge Center Request form plus additional forms as stated below:
- Projected expense budget
- Projection of revenue by service
- Fee schedule
- Attach additional information you feel is necessary or helpful
- Obtain signatures on request form from faculty RC director and department chair
- If RC is a core lab
- Forward documents to the Vice Provost of Research for approval
- Office of the Vice Provost will forward to OFA to complete the process
- If RC is a non-core lab
- Forward documents to OFA for approval
Financial and Business Services, Office of Financial Analysis
Robert Abeles, Senior Vice President, Finance, and Chief Financial Officer
University of Southern California