Rates
Internal vs External Users
Internal Users
The rate to be charged to internal users must be based on actual historical expenditures and usage. In addition, the internal rate must exclude the following:
- Salaries and wages not recorded in the service fund
- Unallowable costs
- Federal equipment depreciation
- Fringe benefits
- F&A rate appropriate to the activity
Not only is the U of I System a non-profit institution, policies, and regulations require the service center to break-even over a period of time. It is not appropriate to generate profit from internal users.
External Users
The rate to be charged to external users is the higher of either the rate that approximates the comparable commercial rate (market rate) or the fully costed rate, which is the internal system rate increased by the following:
- All salaries, wages, and non-personnel expenditures related to providing the service or good
- Unallowable costs
- Federal equipment depreciation
- Fringe Benefits
- F&A rate appropriate to the activity
External rates which exclude F&A indirect cost rates results in U of I System sponsored projects (including federal sponsors) subsidizing external users because F&A is later assessed on service rates charged to sponsored projects.
Over/Under Recovery Identification Process
Costing policies require that stores and services operate on a break-even basis. Over-or-under recovery of the service activity adjusted fund balance must be incorporated into the rate calculation.
This is accomplished as part of a three-step process as outlined in the next three topics:
- Adjusted Fund Balance
- Working Capital Reserve
- Over/Under Recovery
Step 1 - Adjusted Fund Balance
Service centers must calculate and monitor their Adjusted Fund Balances. The Banner fixed assets system does not directly interface with the general ledger and operating ledger. In addition, depreciation is only calculated and booked in the general ledger at a highly summarized level during the year end close process. Therefore, the Adjusted Fund Balance must be calculated and used in calculating and monitoring fund balances and over/under recoveries.
For assets purchased on the service center fund, the net asset value of the asset must be calculated and included in the service center fund balance. Since the net asset value is normally a debit balance, the fund balance will be credited or increased to arrive at an adjusted fund balance.
For assets used in the service center and purchased with other funds (ICR or Gift), the accumulated depreciation may be removed from the fund balance. The fund balance will be debited or decreased to arrive at an adjusted fund balance. However, please contact System Government Costing for assistance with the adjusted fund balance calculation.
The fund balance will be adjusted to include the NAV of the 3E equipment and adjusted to remove the non-3E accumulated depreciation along with any adjustments for unallowable or unrelated expenditures.
The adjustments will have the following impact when calculating the Adjusted Fund Balance. The end of year fund balance should be adjusted to:
- Include the NAV of the equipment, causing a surplus amount to increase or a deficit amount to decrease.
- Remove the non-3E accumulated depreciation, causing a surplus amount to decrease or a deficit amount to increase.
- Remove any expenditures that were unallowable for the internal rate (i.e. bad debt and credit card fees).
- Account for certain unallowable or unrelated expenditures. This adjustment is necessary for any expenditures that were transferred off the fund unless the transfers were completed in the same fiscal year as the original expense.
If you have questions, please contact System Government Costing for assistance.
Step 2 - Working Capital Reserve
Costing policies allow service centers to maintain a working capital reserve of up to 60 calendar days cash expenses for normal operating purposes. Balances in excess of this amount should be eliminated over a period of time, normally 2 years. Once the limitation is calculated it is compared to the service center’s adjusted fund balance to calculate and monitor over recoveries. Note that the limitation applies to over recoveries only.
- Identify cash expenditures for the year (excludes depreciation and capital asset purchases).
- Calculate 60 Day Working Capital Reserve by taking the last 12 months of cash expenditures for normal operations divided by 6 months.
Step 3 - Over/Under Recovery
Service centers that accumulate an adjusted fund balance surplus in excess of working capital reserve limitation must adjust future rate calculations in order to meet costing policy break-even requirements. It is important to note that the over or under recovery balance identified and included in the rate calculation must be the accumulated balance incurred whether over one year or multiple years.
- System policies including federal regulations indicate a service center must take into consideration over/under applied costs of the previous period(s).
- The adjusted fund balance must be compared to the 60-day working capital reserve limitation to calculate the amount of over recovery to be included in a rate calculation.
To calculate the service center’s Over/Under Recovery, you must perform the process outlined below:
- Identify the Adjusted Fund Balance.
- Identify the Working Capital Reserve.
- Calculate the Over/Under Recovery by comparing the adjusted fund balance to the working capital reserve.
- If the adjusted fund balance is a surplus but more than the working capital reserve, the fund has an over-recovery. The difference represents the amount to include in next year’s rate calculation.
- If the adjusted fund balance is a surplus but less than the working capital reserve, the fund has neither an over nor under-recovery. The difference represents the amount to include in next year’s rate calculation.
- If the adjusted fund balance is a deficit, the fund has an under-recovery. The difference represents the amount to include in next year’s rate calculation.