Expenses

Allowable Expenses

All expenses included in the service activity fund and rate development must be “directly related” to the operations of the service activity and allowable costs under University of Illinois System policy and federal regulations.

Service center expenses must be clearly identifiable and be under the control of the center’s staff. In addition, expenses must be directly identifiable for each service line or product where possible, or easily allocated based on a reasonable, justifiable, and documentable method. Expenses cannot be aggregated across a group of services or products and cannot be allocated based on revenue.

Typical normal operating expenses are:

• Salaries and wages (base salary) of individuals providing the service, producing the goods, or those administering the service center (including raises if anticipated for the upcoming year and vacant positions to be filled in the immediate future)
• Materials and supplies
• Maintenance and repair of equipment assigned to the service activity
• Full cost of “non-capitalized” equipment in year incurred
• Annual depreciation expense of “capitalized” equipment
• Service contracts (e.g. maintenance agreement)
• Professional services
• Special conferences or training including related travel, etc., must be specifically related to the operation of the service center
• Inventory-related costs where applicable (cost of goods sold)
• Over- or under-recovery of the service activity adjusted fund balance

Unallowable Expenses

There are costs which may be allowable for the University of Illinois System to incur, but are considered unallowable to include in the service fund and rate calculations. The U of I System maintains policy Section 16: Grants and Research Contracts – Sponsored Projects Cost Principles (incorporates Federal and State regulations), which indicates selected items of costs and whether they are allowable or unallowable.

Units are prohibited from charging the following costs to their self-supporting funds:

• Expenses which do not benefit the service activity
• Expenses unallowable under U of I System policy, federal regulations, or state regulations
• Indirect expenses included in the Facilities & Administrative Rate Calculation, such as the state paid salaries of administrative staff (e.g., department business office) and Operations and Maintenance Division expenses paid by the system, may not be recovered as a component of the service fee or markup rate charged to internal users because these costs are recovered as a component of the system's F&A rate. Including such expenses in both service rates and F&A would result in double charging.

Some unallowable expenditures can remain on the fund but must be excluded from the internal rates. Any expenditures that are unallowable for internal rates but are allowed to remain on the fund, should be included in the external rates. Some examples are:

• Bad debts
• Credit card fees

Depreciation Expenses

Policy and regulations state that only the annual depreciation expense of capitalized assets can be included in service rate calculations, not the full cost of the equipment in the year purchased.

In addition, the following guidelines apply:

• The cost of capitalized assets must be depreciated over the asset’s useful life based on the assigned commodity code. Visit the Equipment Management Glossary page for a definition of commodity codes.
• The depreciation expense included in the rate calculation must be consistent with depreciation used in the U of I System's financial statements. The system uses the straight-line depreciation method with the half-year convention in the year of purchase and final year
• For a department to include depreciation expense in a rate calculation, an entity code must be assigned to the equipment in the Banner Fixed Asset system.
  • Failure to assign this code may result in improperly including the depreciation expense in the system's F&A Rate calculations.
  • Each unit is responsible for contacting the University Property Accounting and Reporting office when entity codes need assigned or updated in the Fixed Asset system.
• Depreciation related to assets purchased on “federal” sponsored projects is applicable as follows:
  • Internal rates - Can never be included
  • External rates - Can be included in external rates once the sponsored project period has ended. As value is still being derived from the item even though it has no remaining book value.
• Depreciation related to assets purchased on “non-federal” sponsored projects is applicable as follows:
  • Internal rates - Can be included once the sponsored project period has ended. There must be remaining depreciation available for inclusion in service rates.
  • External rates - Can be included once the sponsored project period has ended. Value is still being derived from the item even though it has no remaining book value.