A chargeback occurs when one University unit provides a good
or service to another University unit and seeks to recover the cost of
the good or service. This document describes the policies and procedures
for establishing chargeback rates at Binghamton University (University).
It’s primary objective is to establish a University approved review
and approval process that ensures users pay only their appropriate share
of actual chargeback costs and that proper records are available to support
the chargeback rate.
The process applies to all chargebacks conducted at the University
including the State, Income Fund Reimbursable (IFR), Dormitory Income
Fund (DIFR), SUTRA, Research Foundation (RF) and Binghamton University
Foundation, Inc (BUF).
I. Costing Principles:
It is important that chargeback rates be established in accordance with
applicable costing regulations. The primary guideline for educational
institution rate setting is found in OMB Circular A-21, Principles for
Determining Costs Applicable to Grants, Contracts and Other Agreements
With Educational Institutions and the Cost Accounting Standards (CAS)
Board. Basically these guidelines require that chargeback rates must
conform to the following standards:
- Consistency in estimating, accumulating and reporting costs –
to ensure that the practices used in estimating costs for a chargeback
rate are consistent with those used by the University to accumulate
and report costs.
- Consistency in allocating costs incurred for the same purpose –
to ensure that each type of cost is allocated only once and on only
one basis by the chargeback operation.
- Accounting for unallowable costs – to ensure unallowable costs
are not included in chargeback rates. A sample listing of unallowable
costs is provided in Exhibit 1.
- Cost accounting period – to establish time periods for cost
estimating, accumulating, and reporting.
Chargebacks for goods and services must be charged directly to all
users with no discrimination between federally and non-federally supported
activities.
II. General Policies:
A. Billing rates are designed to recover the direct operating costs of providing the good and service No costs other than those incurred to provide the good or service may be included in the billing rates charged to campus units
B. Billing rates are based on a reasonable estimate of the cost of
providing the good or service for a year and the projected number of
billing units for a year. Actual costs and usage should be reviewed
for reasonableness by the chargeback operation at least annually and
adjusted as necessary. Although it is not expected that the billing
rates will be exactly equal to the cost of providing the services during
any one fiscal year the rate should be reviewed by the chargeback operation
annually to ensure consistency with the long-term plan to operate on
a break-even basis.
C. A Chargeback Rate Development Worksheet (Chargeback Worksheet) will
be prepared for each rate being requested. Supporting materials should
be attached to the Worksheet as needed to support or explain the items
presented. Where a chargeback operation provides different types of
goods or services or a variable rate structure, a separate Chargeback
Worksheet must be developed for each type.
D. A Chargeback Rate Review Team (Chargeback Team) will be composed
of a representative from each Vice President area and chaired by the
Associate Vice President of Administration. The Chargeback Team will
review the purpose of the chargeback program and evaluate the reasonableness
of the rate support information. The Team will review and recommend
final approval of chargeback rates and appropriate chargeback account
to the Vice President for Administration.
E. A separate account must be established in the University, RF or
BUF accounting system for each chargeback operation. All cost components
identified in the Chargeback Worksheet (personnel, fringe benefits,
campus overhead and other than personal service expenses) will be charged
directly to the assigned chargeback account. Likewise, costs not identified
in the Chargeback Worksheet cannot be charged to the account. Accumulating
chargeback cost information in this manner will provide information
to support rate accuracy, allow for accurate monitoring of surpluses
and deficits and provide managers with accurate information relating
to their chargeback operations.
.
F. Charges are to be levied no later than 30 days following the month
in which the service is completed. If not billed within that period,
the billed unit can reject the charge. Departments who believe they
have been charged amounts other than those approved for the good or
service can contact the Business Affairs Office to verify that charges
are appropriate. Errors in billings will be adjusted as necessary.
G. If a chargeback operation provides services to individuals or organizations
outside the University, the billing rates charged may be higher but
cannot be lower than those charged to internal users plus overhead charges. Revenue from outside
parties may have sales tax and Unrelated Business Income Tax (UBIT)
implications and may require a separate account. Questions regarding
sales taxes and UBIT and the need for a separate account should be directed
to the Business Affairs Office.
H. All intrafund charges (for example IFR to IFR) will be done by transferring
expenses between accounts (expenditure transfers). All interfund charges
will be done through the respective fund payment processes. The following
chart illustrates the prescribed chargeback process for each type of
fund :Avoidance of the assessment of campus overhead will not be sufficient
reason to deviate from the established campus payment process.
Chargeback |
Expenditure Transfer |
Cash Payments |
IFR
DIFR
SUTRA
STATE |
IFR
DIFR
SUTRA
STATE |
RF
BUF
|
RF
|
RF
|
BUF
IFR
DIFR
SUTRA
STATE |
BUF
|
BUF
|
RF
IFR
DIFR
SUTRA
STATE |
I. It is not appropriate to transfer chargeback operation revenues
to other accounts to support unrelated activities. If funds have accumulated
in a chargeback operation account because of prior or current year surpluses,
an adjustment to future rates is necessary.
J. In some instances, a chargeback operation may elect to subsidize
its goods or services by charging rates that are lower than actual cost.
Chargeback operation deficits caused by intentional subsidies may not
be carried forward as adjustments to future billing rates. The amount
and funding source of subsidies must be identified in the Chargeback
Worksheet.
K. Auditable financial, statistical and other records related to chargeback
operations are the responsibility of the chargeback operation manager
and must be retained for three years from the end of the fiscal year
to which the records relate. Records are subject to audit by federal
and other sponsors as well as internal and external auditors and University
administrators.
III. Rate Development:
A. Cost Identification
Care should be given to identifying all costs on the Chargeback Worksheet,
as this will be the basis upon which chargeback rates will be established.
Where possible actual costs for the good and service should be documented
and presented. Often it will be necessary to estimate activity and costs
and the basis for such estimates should be clearly identified and explained.
B. Variable Billing Rates
All internal users must be charged the same rate for a good or service
provided by a chargeback operation. There are two user designations
for the purposes of billing rate development and assessment:
• Internal users, those using State, IFR, DIFR, SUTRA, RF or BUF
funds.
• External users, those who do not pay through the above funding
sources
While the base rate for a good or service for all users will remain
the same, external users may be charged higher rates. A separate account must be established when there are a significant number of internal and external users of the good or service. External users must be charged at least the initial cost plus 10% overhead.
Alternate pricing structures based on time of day, volume discounts,
turn-around time, etc. are acceptable, provided that they have a sound
allocating basis, do not discriminate among users and do not result
in recovering more than the cost of providing the services. Alternate
pricing structures should be clearly identified and explained in the
Chargeback Worksheet. Alternate pricing structures will be published
so users are able to consider the least costly means to obtain a good
or service.
C. Cost Allocation
There are generally three categories of cost that need to be allocated:
(a) salaries of staff to provide the good or service (b)supplies and
materials associated with the good or service and (c) depreciation associated
with equipment used in the process.
In addition to the direct costs associated with providing the good
or service significant deficits or surpluses accumulations will be considered
as adjustments to future billing rates.
Where a chargeback operation provides multiple services and uses separate
billing rates, the costs related to each service must be separately
identified using a cost allocation process.
When cost allocations are necessary, they should be made on an equitable
basis that reflect the relative costs associated with providing the
good or service. For example, if an individual is involved with multiple
services, an equitable distribution of his or her salary among the various
services would be accomplished by assigning the proportional amount
of time the individual spends on each service. Other costing techniques
such as the proportional amount of direct costs associated with each
service, space used, may also be applied. Questions concerning appropriate
cost allocation procedures should be directed to the Budget
Office.
D. Equipment Costs Included in Billing Rates
The cost of the equipment that will be used to provide the good or
service should be recovered through assignment of a depreciation rate
over its estimated life. Standard useful lives for various categories
of equipment are included in Exhibit 2. The established rates will provide
the chargeback operation with funds to replace the equipment in the
future. The funds recovered by the depreciation charge should be set
aside as an equipment replacement reserve to be drawn upon as needed.
If additional funds are necessary to cover the cost of the new equipment,
other sources may also be used.
Equipment purchased either wholly or partially through federally funded
sponsored programs may not be included in billing rates.
E. Inventory Accounts for Products Held for Sale
If a chargeback operation sells products from an inventory or maintains
an inventory of parts and supplies used in providing its services and
the amount of stock on hand is significant, inventory records must be
maintained. Although first-in-first-out is most common inventory method
valuations may be based on other methods (e.g., last-in-first-out, average
cost, etc.). Once the inventory method has been chosen, the valuation
method may not be changed.
A physical inventory at cost must be taken at least annually at the
end of the fiscal year and be reconciled to the inventory records. The
inventory must be reported to the Business Affairs Office.
IV. Rate Review, Notification and Monitoring:
Completed Chargeback Worksheets should be submitted to the Chargeback
Team through that area’s Vice President appointed representative.
Thirty days should be afforded the Chargeback Team to complete its analysis
of the proposal. In addition, all approved rates will be posted on the
Business Affairs website 30 days before they are effective. Chargeback
areas should provide adequate lead-time to receive Review Team approval
and posting of the rate. It is strongly recommended that chargeback
areas recommend adjustments before the annual budget development process
so operations can properly budget for any changes in chargeback rates.
The Budget Office will maintain a web site that will contain
all proposed and approved University chargeback rates. Chargeback units
may only charge internal users the rates approved for providing the
good and service.
The Budget Office will do periodic reviews of the financial
records of chargeback operations focusing on the appropriateness of
revenue and expense activity, surplus and deficits accumulation, and
the adequacy of the chargeback operation’s record keeping practices.
Questions and concerns related to the campus chargeback process and
procedure should be directed to the Budget Office.
VI. Definitions:
Billing Rate: The amount charged to a user for a unit of service. Billing
rates are usually computed by dividing the total annual costs of the
chargeback operation by the total annual number of billing units expected
to be provided to users of the service.
Billing Unit: The unit of service provided by a chargeback operation.
Examples of billing units include hours of service, animal care days,
tests performed or machine time used.
Campus Overhead: An assessment to chargeback operations and other activities
to support the administrative and support functions of the campus.
Chargeback: Financial transaction to charge for a good or service.
Chargeback Operation: An organizational unit that provides a good or
service and charges for the good or service.
Chargeback Team: Individuals identified by the vice presidents to review
and recommend chargeback rates to the Vice President for Administration
for approval and implementation.
Deficit: The amount by which costs of providing a good or service exceed
the revenue generated during a fiscal year.
Direct Operating Costs: Costs that can be specifically identified with
a good or service provided by a chargeback operation. These costs include
the salaries, wages and fringe benefits of University faculty and staff
directly involved in providing the good or service (i.e: materials and
supplies, services, equipment rental or depreciation).
Equipment: An item of tangible property having a useful life exceeding
one year and an acquisition cost as specified in Exhibit 2.
Fiscal Year: The 12-month period used for accounting purposes (July
1 to June 30).
Fringe Benefits: An assessment for costs associated with most personal
and temporary service positions.
Internal User: A customer that will pay for the good or service through
a State, IFR, DIFR, SUTRA, RF or BUF account.
Subsidy: Subsidized costs are identified as expenses that will be incurred
by the chargeback operation but will not be recouped through the chargeback
mechanism. The chargeback operation or University administration may
choose to subsidize a service by paying a portion of its costs from
another funding source.
Surplus: The amount by which revenue generated exceeds the cost of
providing the good or service during a fiscal year.
Unallowable Costs: Costs that may not be charged as part of a chargeback
fee. Examples of unallowable costs are provided in Exhibit 1.
Exhibit 1: Examples of Unallowable Costs
This list is based on the Federal Office of Management and Budget (OMB)
(Circular A-21). The list is not all-inclusive and failure to mention
a particular item of cost does not imply the cost is allowable or unallowable.
• Alcoholic beverages unless directly related to the program
being provided.
• Cost of membership in any social, dining, civic or community
organization.
• Unreasonable reimbursements for travel expenses; those which
are outside the established travel policy of the institution
• Bad debts or uncollectable accounts.
• Donations or contributions.
• Costs of entertainment, including amusement, diversion and social
activities and any costs directly associated with such activities.
• Advertising costs which are not used for (1) recruitment of
personnel, (2) the procurement of goods and services required for the
performance of the sponsored agreement.
Exhibit 2: Equipment Useful Life
Depreciation provides a method to recognize that the value of an item
of equipment is consumed over an extended period of time, typically
several years. This period is called the useful life of the asset. The
following asset categories and useful lives are for use for chargeback
operation equipment.
Equipment Designation:
• Assets Purchased with State & IFR Funds $1,500.00
• Assets Purchased with Research Foundation Funds $ 5,000.00
• Assets Purchased with Foundation Funds $1,500.00
Asset Description Recovery Period in Years --Useful Years
• Computer Equipment/Printers
(including software purchased with equipment) 5 years
• Furniture 10 years
• Scientific/Technical Equipment 5 years
• Vehicles (cars and light trucks) 5 years
• Trucks (heavy duty) 6 years
• Shop Machinery/Tools 10 years
• Audio/Visual 5 years
Annual Depreciation is determined by dividing the cost of the asset
by the number of useful years indicated above.
Notes
1. This is a general guideline table. Exceptions will require written
justification for an alternative recovery period. The justification
should be submitted with the Chargeback Worksheet
2. Salvage value shall not be considered to calculate depreciation.
3. Once the recovery period has been set and depreciation has begun,
it cannot be changed.
4. No depreciation is allowed on assets that have outlived their depreciable
life (recovery period).
