Office of Internal Audit

Recharge Centers

1. Is the official rate schedule complete and current? Is it easily accessible to your users? Are users aware of price changes in advance?
  • Ideal Answer: YES. To help ensure the recharge center is used to its full extent, new and existing users need to be aware of all the services provided and be able to plan ahead in their budgets for any rate changes. Please refer to Financial Accounting and Reporting Services’ (FARS) Recharge Centers webpage for additional information.
2. Are rates set to break even?
  • Ideal Answer: YES. Recharge centers should not attempt to realize a profit on their operation. The recharge center should reduce their billing rates if their account has accumulated a fund balance larger than the standard set by FARS. This can be done by factoring in any excess or deficit into the annual rate calculation. Please refer to FARS’ Recharge Centers webpage for additional information.
3. Are the rates reviewed before the end of the fiscal year?
  • Ideal Answer: YES. Rate reviews and adjustments can take place at any point during the year. Performing at least an informal review during the fiscal year will identify the need for rate adjustments early and help avoid large, end of year deficits or surpluses. Rate adjustments should be timed to allow your most active customers to incorporate potential rate increases into their budgets. Please refer to FARS’ Recharge Centers webpage for additional information.
4. Is the rate schedule supported by cost study?
  • Ideal Answer: YES. Federal cost principles require recharge center to provide adequate documentation to support costs charged to sponsored agreements. A cost study provides that documentation by showing how the rates are calculated. Guidance for developing a cost study can be obtained from FARS’ Recharge Centers webpage.
5. Is the cost study complete, organized and clear?
  • Ideal Answer: YES. Cost study documentation provides the support for costs charged to sponsored agreements. It serves as a basis for any cost review conducted by outside parties. Consequently, the cost study needs to be presented in a manner which clearly shows or explains how the rates are calculated, how common costs are allocated, and the source of the data used. Supporting schedules and source documentation should remain filed with the final cost study. Please refer to FARS’ Recharge Centers webpage for additional information.

6. Is the cost study based on direct costs?

  • Ideal Answer: YES. Billing rates should include all direct costs of operating the recharge center. This includes expenses for personnel, materials, supplies, maintenance contracts, equipment depreciation and other operating expenses. Unallowable costs and other expenses unrelated to recharge center operations should be excluded in rate calculations for internal customers. Amounts anticipated for administrative subsidies should be factored in as a reduction or offset of total expenses before calculating the billing rate. Revenue should not be used as the basis for a rate calculation. Revenue will always correlate closely with the rate charged, even when actual costs are significantly higher or lower. Consequently, unless the actual revenue is equal to actual costs, the resulting rates could be significantly inaccurate. Please refer to FARS’ Recharge Centers webpage for additional information.
7. Do the rates calculated in the cost study agree with the official rate schedule?
  • Ideal Answer: YES. Calculated rates do not necessarily have to equal actual rates. However, the cost study should include notes to explain the reason for significant differences. The recharge center should be careful to avoid the appearance of or actual discriminatory pricing against Federal customers. One type of discriminatory pricing can occur if the recharge center subsidizes one product or service, used predominately by non-Federal users, and makes up the difference by charging a higher rate for a product or service used predominately by Federal users. Deliberate lower pricing for Federal customers is discriminatory against non-Federal customers, thus discriminatory pricing should not occur in any situation.

    Unallowable, unrelated, administrative subsidies, and excess or deficit fund balances should not cause the rates calculated in the cost study to differ with the official rate schedule. When practicable, these items should be excluded (unallowable and unrelated) or offset (subsidies and fund balances) in the cost study before arriving at the final billing rate. Recharge centers should also avoid shortcuts by calculating rates only for major services, or calculating an average billing rate for a group of services that are billed at different rates. Please refer to FARS’ Recharge Centers webpage for additional information.

8. Are supporting schedules available for allocated costs in the cost study?
  • Ideal Answer: YES. Most recharge centers will have direct costs which cannot be reasonably assigned to a specific service or product. In such cases, the common costs are pooled together and allocated to services based on an acceptable and consistent methodology supported by FARS. The recharge center should ensure that supporting schedules or other documentation is prepared which describes the allocation methodology, identifies which costs are included in the pool, service units used (e.g. machine hours, billable hours, production runs, etc.), shows the allocation amounts and the service or products the costs are allocated to. Detailed records should support the service units totals. Please refer to FARS’ Recharge Centers webpage for additional information.
9. Are all costs included in the cost study?
  • Ideal Answer: YES. All costs recovered through the billing rates should be paid from the recharge center’s operating accounts. These costs should be net of any applicable credits such as rebates, refunds, trade-ins, and purchase discounts. Please  refer to FARS’ Recharge Centers webpage for additional information.
10. Does the recharge center allow discounts?
  • Ideal Answer: NO. Federal cost principles require that rates be developed in a consistent manner and applied uniformly to Federal and non-federal activities of the university. The intention is to avoid billing practices that would charge Federal users more than comparable non-federal users or vice-versa. Although discounts are not prohibited, by providing discounts, the University will trigger increased scrutiny during any audit to ensure it is not violating these cost principles.

    Discounts are defined as any differential pricing practice which deviates from the standard billing rate. This may include discounts for volume, for use during off-peak hours, for users who provide subsidies to or purchase equipment for the recharge center, for users associated with the recharge center’s department, free service, etc. For sheer efficiency and reduced risk during an audit, it is recommended recharge centers charge customers a uniform rate at all times. If any differential pricing is given, the recharge center should be prepared to defend the practice by showing quantitatively that the recharge center’s costs are indeed less for the users receiving discounts. Other requirements include ensuring the discounts cannot be construed to discriminate against federal customers, are widely known, available to all users and disclosed to and approved by FARS. It is suggested any recharge center contemplating establishing a differential pricing practice to contact FARS to discuss the proposed practice. FARS can determine if the practice is defensible and, if so, what documentation should be prepared or retained to justify the practice. Please  refer to FARS’ Recharge Centers webpage for additional information.

11. Does the recharge center allow prepayment of services?
  • Ideal Answer: NO. Federal cost principles require that costs charged to Federal customers be based on when goods or services are actually provided. Recharge centers should refuse any internal customer requesting that the center bill an account for services not yet performed. Please refer to FARS’ Recharge Centers webpage for additional information.
12. Does the recharge center provide a significant amount of services to the private sector?
  • Ideal Answer: NO. State law, Regent’s policy, and University policy all restrict competition with the private sector. Because recharge center goods and services are subsidized and the University enjoys non-profit status, the University has a definite pricing advantage over a comparable private sector company. Consequently, to avoid allegations of competition from private sector companies, goods and services provided to the private sector should not be occurring. If they do, transactions with external customers should generally be isolated, infrequent, and rare.

    The University establishes and subsidizes recharge centers solely for the benefit of University users. Significant business with external customers can trigger an unrelated business income tax. Consequently, external customers using the center should have a documented affiliation with the University or directly support the University’s mission. Please contact FARS to discuss whether an external customer qualifies as having a documented affiliation with the University. Please  refer to FARS’ Recharge Centers webpage for additional information.

13. Is capital equipment paid from the recharge center’s operating account?

  • Ideal Answer: NO. Capital equipment should be paid from the recharge center’s depreciation account. Federal cost principles require that recharge centers recover the cost of capital equipment through depreciation or use allowances. Consequently, cost principles will only allow charging depreciation expense to the center’s operating account over the equipment’s useful life, as opposed to charging the full cost of the equipment in the year acquired. Please refer to FARS’ Recharge Centers webpage for additional information.
14. Does the equipment depreciation schedule include equipment paid for from Federal sources?
  • Ideal Answer: NO. Depreciation cannot be charged to the recharge center’s operating account if the equipment was originally paid for with Federal funding. This would result in a double recovery of costs, once through depreciation and once through the original outlay by the Federal source. In situations where equipment is paid for with Federal and non-federal funds, the recharge center can recover those costs paid for with non-federal funds. Please  refer to FARS’ Recharge Centers webpage for additional information.

15. Is the recharge center’s depreciation (equipment) account used only for capital equipment?

  • Ideal Answer: YES. University policy restricts this fund for capital equipment purchases. The recharge center’s depreciation account is funded by monthly transfers from the center’s operating account in amounts equal to the depreciation recorded in the operating account. The purpose of these transfers is to provide replacement funding for the equipment being depreciated. If recharge centers use this funding to pay for other operating costs, the pool of funds in the depreciation account will be eroded and not be sufficient to purchase the replacement equipment when needed. Recharge centers lacking funding in their depreciation account for the purchase of new equipment must either identify other funding sources or request an equipment loan from FARS. Please  refer to FARS’ Recharge Centers webpage for additional information.