Recharge Standard Operating Procedures

 

SUBJECT:

Allocating Cost to Internal Activity

SOURCE:

Cost Accounting, Financial Management Services

DATE ISSUED:

January 2016

DATE OF LAST REVISION:

 

N/A

RSOP NO:

5.0 

RATIONALE:

To aid fiscal officers, account managers and account supervisors in allocating allowable costs to recharge/service center activity.         

RSOP:

A recharge/service center can only recover allowable costs (see RSOP 6.0) when billing other university accounts.  When recharge/service activity is co-mingled with external activity, the total cost of the activity must be analyzed and allocated between external (60) and internal (66) accounts.  Any unallowable costs must be completely funded by an account other than the internal (66) account even if it is a cost incurred by the recharge/service activity.       

 

Any allowable direct costs that are specifically identifiable and are associated entirely with the internal activity should be fully funded by the recharge/service (66) account. 

 

Costs that are shared by both external and recharge/service activity must be allocated.  The allocation method used must be based on the benefits received or other such equitable or logical association.   The allocation method should be determined by the department and well documented. Below are some examples of acceptable allocation methods.   The allocation should not be made based on percentage of revenue.

 

Examples of allocation methods:

 

All allocation methods and percentages should be reviewed by the department at least annually and modified for significant changes.

 

 

1. Square Footage

 

A unit rents space to other university departments as well as some external customers. The square footage rented to each customer is listed below:

 

Rented to Campus Department A:            35,000 square feet

Rented to Campus Department B:              5,000 square feet

Rented to Campus Department C:            70,000 square feet

Rented to External Customer 1:                 26,000 square feet

Rented to External Customer 2:                60,000 square feet

Internally used space                                       4,000 square feet

 

 

Total square feet rented                           200,000 square feet

Square feet rented to campus                 110,000 square feet

 

55% of the square feet is rented to other campus departments.  This percentage could be used to allocate expenses (ex: utilities, security, repairs and maintenance, etc.) to the recharge/service center (66) account.  These expenses should be moved via KFS Distribution of Income/Expense (DI) document.  Another option would be to split fund purchase orders for the expenses based on the allocation percentage (55% to the 66 account and 45% to the 60 account).

 

 

If there is debt service associated with the rented building, please contact FMS Cost Accounting for further guidance.   

 


2. Hours Worked

 

Example #1:

A unit provides maintenance services to other university departments as well as some external customers.  The hours worked in the previous fiscal year, by service, are listed below:

 

Plumbing services internal:           4500 hours (97%)

Plumbing services external:             150 hours (3%)

 

Electrical services internal:            6000 hours (96%)

Electrical services external:              300 hours (4%)

 

Janitorial services internal:            7500 hours (84%)

Janitorial services external:           1500 hours (16%)

 

Since the majority of the work is done for internal customers, the salaries could be funded by the recharge/service center account (66).  Salary transfers can then be done to the external (60) account for the external portion. 

 

Another option is to split-fund the positions between the 60 and 66 accounts based on the above percentages. 

 

Example #2:

 

A unit provides catering services to other university departments as well as some external customers.  There is one catering manager and two assistant caterers.  Hours of work required for each event can vary.  The hours per event are tracked by external and internal events.

 

  • For the prior year, 80% of the hours were for internal events and 20% of the hours were for external events.  The wages for all personnel could be split funded between the 60 and 66 accounts based on these percentages.
  • These percentages could also be broken down by person if the split between internal and external for each person was significantly different.
  • If the food purchased is specific for each event, it should be paid by the appropriate account (60 for external events and 66 for internal events).  
  • Other non-event specific expenses incurred by the catering operation can be split between the 60 and 66 account based on the hours allocation above (20% external and 80% internal).
  • The amount billed to the internal customer would be at the  recoverable rate multiplied by the number of hours worked for the event.  The recoverable rate would include the wages and other non-event specific expenses in the 66 account.
  • If the food is specific to each event, it would be a direct cost and billed at cost directly to the internal customer.  An invoice for the food purchase should be attached to the internal billing.
  • The amount charged to the external customer would include all of the costs in the 60 account plus any markup the department deemed appropriate. No markup is allowed for internal activity.

 

 

 

Number of Jobs

                                   

A unit provides survey services for other colleges and universities and other Indiana University departments.  Each survey requires the same amount of effort and resources.  For the prior year, there were 800 total surveys and 80 surveys (10%) were for other Indiana University departments.  10% of the wages and other expenses required to produce the surveys should be allocated to the 66 account.  The salaries can either be split funded between the 60 and 66 account or salary transfers can be done monthly.  The other expenses can be split funded when purchased based on this percentage or a distribution of income/expense (DI) document can be done to move 10% the expenses to the 66 account assuming they were purchased entirely out of the 60 account. 

 

                                   

All allocation methods must be substantiated in case of an audit.  Exceptions to this standard operating procedure require the approval of the Chief Accountant.

 

DEFINITIONS:

Debt Service:  Cash that is required to cover the repayment of principal and interest on bonds and notes issued by the University.

 

Recharge/Service Center Activity: An activity that furnishes goods or services to another Indiana University department for the convenience of the university and charges a fee directly related to, and not more than the allowable cost to provide the goods or services.

 

Recoverable Rate Calculation: The process that recharge/service center account goes through to determine the amount charged for goods or services to other Indiana University accounts.

 

Unallowable Expense: Per OMB Uniform Guidance, certain expenses cannot be included in the recoverable rate for a recharge/service center.  See RSOP 6.0 – Unallowable Expenses for Recharge Centers.  These unallowable costs cannot be funded by a recharge/service center account (66).

CROSS

REFERENCE:

 

OMB Uniform Guidance (PDF) "Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards"

 

RESPONSIBLE

ORGANIZATION:

 

Organizations that bill other Indiana University departments for goods or services