Frequently Asked Questions (FAQs)


Definitions

What is an Auxiliary Unit?

An Auxiliary unit is an organization that exists to provide a service or a good for a fee. This policy applies to both auxiliary units that are allowed to provide services to external entities and make a profit and recharge (service) centers that are required to break even and only provide services to other university units. In the IU general ledger system these units have the prefix of 60 through 66.

Source: Financial Policy I-600

What is the difference between an auxiliary enterprise fund account and a designated fund account?

An auxiliary activity is one that furnishes goods or services to any non-Indiana University department and charges a fee directly related to, although not necessarily equal to, the cost of the goods or services. This includes sales to students, faculty and staff for non-IU business, or the general public. An auxiliary activity is an entity that is regularly carried on and is managed with the intent to be self-supporting.

Activities that involve Instruction, Research, Public Service, or Student Services are typically not considered auxiliary activity.

A designated fund account has institutional unrestricted funds that have been designated for a specific activity/project. Examples of activity recorded in a designated fund account include: continuing education (20*accounts), public service (21* accounts), internal research/faculty research (22* accounts), unrestricted scholarship and fellowship (24* accounts) and other Indiana University funds that have been designated for a specific activity/project (23* accounts). Auxiliary activity should NOT be recorded in the designated other (23* accounts).

What is considered public service?

Activities established primarily to provide non-instructional services for the benefit of those external to the institution. Examples include: WFIU Public Radio, WTIU Public Television, Dentistry Clinic services (considered both public service and instructional).

What is the difference between a reporting and non-reporting Auxiliary unit?

Please see ASOP 2.0

Recharge/Service Centers

What is a recharge/service center activity?

A recharge/service center activity is 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 cots to provide the goods or services.

As a general rule, any internal transaction that records income to one university account and expense to another, using any KFS document type, effectively creates recharge center activity.

Fundamentally, a recharge/service center is managed as a self-supporting or subsidized activity that is to operate at breakeven.  Recharge/service center rates cannot exceed allowable cost and cannot exceed the rate charged to an external customer for the same product or service.

Recharge/service center (internal) activity should be separated at the account level, from external activity.

All recharge activity in excess of $100,000 must be recorded in a service center account (66).

What is the difference between Auxiliary Accounts and Service Center Accounts?

An auxiliary activity is one that furnishes goods or services to any non-Indiana University department and charges a fee directly related to, although not necessarily equal to, the cost of the goods or services. This includes sales to students, faculty and staff for non-IU business, or the general public. An auxiliary activity is an entity that is regularly carried on and is managed with the intent to be self-supporting. Accounts with a prefix of 60 are auxiliary accounts.

A service center activity is one that furnishes goods or services to another Indiana University department and charges a fee directly related to, and equal to, the cost of the goods or services. Service center rates cannot exceed the rate charged to an external customer. Fundamentally, a service center unit is managed as a self-supporting activity that is to operate at breakeven. Accounts with a prefix of 66 are service center accounts.

Service center (internal) activity should be separated, at the account level, from external activity.

Source: ASOP 1.0

Source: Financial Policy I-370

If I sell to both internal and external customers, should I split the activity into an auxiliary account and a service account?

Yes. If you sell to both internal and external customers, the activity (both revenue and related cost) should be separated in a service center account (66) and an auxiliary account (60) respectfully.

Why is it recommended that internal and external auxiliary activity be segregated into separate service center and auxiliary accounts?

All amounts billed to other IU accounts must be based on actual cost as per university policy Formula for Setting Recharge Center Rates (FIN-ACC-I-400) and to assure compliance with OMB Uniform Guidance and other applicable federal regulations. FMS recommends that service center accounts (66) be used to accumulate actual costs incurred and revenues recognized for providing services that are billed to other IU accounts. In the event that costs and revenues from internal and external customers are comingled in the same account, the dept. must maintain a separate accounting of financial activity for internal and external customers and provide documentation that provides the necessary assurance that only actual costs of the services provided are billed to other IU accounts. This documentation must meet the minimum standards required by OMB Uniform Guidance.

In addition, segregating the internal and external activity into appropriate accounts helps to ensure that internal activity is not double counted for financial reporting purposes per GASB 34.

What is internal activity?

An activity that furnishes goods or services to another Indiana University department. Goods and services are billed to another IU general ledger account with Internal Billing (IB), Service Billing (SB) and ID Billing documents.

What is external activity?

An activity that furnishes goods or services to a non-Indiana University department. This includes sales to students, faculty and staff for non-IU business, or the general public.

Are Indiana University Foundation, Alumni Association or Student Organization Accounts considered internal or external customers?

Indiana University Foundation, Alumni Association or Student Organization Accounts are all external customers to Indiana University.

Are external agencies considered internal or external customers?

Funds held in External Agency accounts are funds held by the institution as custodians or fiscal agents for others such as student organizations, individual student, or faculty members. These are not reported as university resources. External agencies should be considered external customers for purposes of billing.

If I sell to both internal and external customers, can I charge one rate?

Cost accounting standards require that all recharge centers only recover costs. If both internal and external customers are charged a rate that will result in the activity to breakeven or recover cost then a single rate can be charged. If a unit is charging external customers a rate with a built in markup, the unit will be required to charge internal and external customers different rates. Per federal cost accounting standards rates charged to internal customers cannot exceed the rate charged to an external customer.

If my department processes Internal Billings, Service Billings or ID Billings should that activity be in a service account?

Yes. The Internal Billing (IB), Service Billing (SB) and ID Billing documents are used to bill for goods or services provided by one university department to another university department, reflecting income to the provider and expense to the customer. Departments that furnish goods or services to another Indiana University department and charges a fee directly related to, and equal to, the cost of the goods or services should record that activity in a service center account (66)

If you are not billing another university department for a good or service, a different document is likely more appropriate.

 

How should recharge rates for Service Center accounts be set?

Cost Accounting Standards require the University to disclose the process of establishing rates and to establish university-wide guidelines for establishing rate formulas for the recharge centers.

Recharge center rates should be set to recover no more than actual costs. The formula below should be used to determine the proper amount to charge a university account for service or product. This formula will provide documentation of the rate calculation and identify the costs used in computing the rate. The costs used to compute the rate should include only actual costs.

The University-wide rate formula should include the following components, where each component is distinctly identified:

  1. All direct costs to the service center for supplying that product or service.
  2. All indirect costs to the service center for supplying that product or service.
  3. A variable or projected increment for the anticipated increase in costs for the year in which the rate will be applied.
  4. A carry forward component equal to the profit or loss from the previous year.
  5. The amount of any subsidy provided and the source of funds.
  6. Any unallowable should be identified as not recoverable in the rate.
  7. Volume discount used and the basis for the reduction.
  8. The components should be summed and then divided by the budgeted units (whether service or product) for the year the rate is being determined.

If the prior year component is greater than 5% of total allowable costs, then an analysis should be completed explaining the reasons and sent to the office of the campus business officer with a copy sent to the Chief Accountant of Indiana University.

The costs of the recharge center should be analyzed each year. This analysis should compare actual costs to the estimates that were created the prior year. Costs to recover should be adjusted for prior year profit or loss in order to break-even over the long-term.

Source: Financial Policy I-400

If I am not allowed to include unallowable expenses in my rate, how do I pay for them?

Unallowable expenses per cost accounting standards can be funded by another type of account (general fund, auxiliary, IU Foundations, etc.)

When is a 67 account appropriate?

 (67) accounts may be used for:

  • Advertising – recharge activity for advertising and promotion. 
  • Hospitality Providers - recharge activities which provide meals, (including training table), refreshments, ticket sales, entertainment or expenses incurred for promotional purposes.
  • Medical Billings – recharge activity for medical billings charged at or below “usual, customary and reasonable” rates.
  • Parking – recharge activity for parking related activities such as departmental parking passes, guest parking passes and parking space rental.
  • Space Rental – recharge activity for space utilization including building rent, meeting room rental, hotel room rental, apartment rental, and faculty start-up space rental.  This can also include incidental rentals that are included with the space such as tables, chairs, AV equipment, etc.

FMS Cost Accounting must approve the creation of the new 67 account in advance.  The activity must solely be comprised of one or more of the activities listed above.   Please contact your Auxiliary Consultant to begin the process of if you have any questions at auxacct@iu.edu.

Policies

Where do I find accounting policies for Auxiliaries?
Do all auxiliary units have to use accrual accounting?

Yes. University policy states that "All University operations should be maintained and compliance reports prepared on the accrual basis of accounting at the end of the fiscal year." The university’s policy is based on AICPA Audit Guidelines 2.09. Furthermore, reporting auxiliary units are required to submit auxiliary vouchers on a quarterly basis although monthly entries are preferred to ensure proper accrual accounting throughout the fiscal year.

Source: Financial Policy I-350

What is accrual accounting and why is it important?

At the heart of the Accrual Accounting concept is the Matching Principle, which simply dictates that revenues be matched with expenses in the same period whenever reasonably and practically possible to facilitate accurate and meaningful financial reporting. (This is in contrast to Cash basis accounting, where income and expenses are determined as cash is received and disbursed.)

The accrual method provides a more accurate picture of the organization’s financial situation because income is recorded on the books when it is truly earned regardless of when it is received. Likewise, expenses are recorded when they are incurred regardless of when they are paid. Income earned in one period is accurately matched against the expenses that correspond to that period. This provides a better picture of the organization's net profits for each period. It simply provides a clearer picture of the financial status of the organization for a given fiscal period.

Source: ASOP 3.0

What are the responsibilities of a Fiscal Officer?

The duties and responsibilities of the Fiscal Officer include providing daily oversight on how the funds are spent and managed. This oversight includes ensuring funds are budgeted, where appropriate, that they are spent according to fiscal policy, that funds are spent in alignment with the account purpose, that processes and controls are in place, that assets are safeguarded, that transactions are recorded and reported properly, that the account is reconciled on a monthly basis, and that either the expenditures are in conformity with the budget, or appropriate budget changes have been made to reflect a change in the original budget.

Signature authority on all financial transactions rests with the Fiscal Officer, and the Fiscal Officer is the only person who can delegate signature authority on an account. Because of signature authority, Fiscal Officers are required to utilize IU's Kuali Financial System (KFS).

Source: Financial Policy I-1

Miscellaneous

What is the deadline to submit Auxiliary Vouchers?

Auxiliary Vouchers must be submitted and approved by 5:00pm on the 10th day of the month following the end of the fiscal period. If the 10th falls on a weekend or a holiday, the due date will move to the following working day. If you need AV's approved after 5:00pm on a particular day, please e-mail auxacct@iu.edu before 5:00pm on that day.

All dates for the current calendar year may be found on our Calendar.

Source: ASOP 14.0

How often must a physical inventory be taken?

Indiana University policy states that a "physical inventory of items maintained in inventory should be taken at least once every fiscal year."

Source: Financial Policy I-390

Who is my Auxiliary Consultant?

Please see the consultant list here.

Who do I contact regarding questions about Sales Tax, Unrelated Business Income Tax, etc.?

The Financial Management Services University Tax Services website contains information on Sales & Use Tax and Unrelated Business Income Tax. If you have specific questions, please send an email to University Tax Services directly at taxpayer@indiana.edu.

What do I do with unclaimed property (outstanding checks, dormant customer balances, unused prepaid meal card or campus cards, or security deposits)?

Any amount that has been held or owed in the ordinary course of business for three years should be transferred to the State of Indiana. Please refer to the Unclaimed Property Guideline established by FMS Cash Control for details and instructions.

What is non-cash compensation and how is it reported?

There are certain items of non-cash compensation which are defined as taxable income under current tax laws and regulations. These include the value of employer provided automobiles, housing allowances, tip income and certain other personal expenses that are paid for the employee's benefit. The fair market value of any non-cash compensation, as defined by IRS valuation methods, will be added to the employee's gross wages and tax will be withheld accordingly.

Source: Payroll Tax Withholding FIN-PAY-IV-90

If I have an auxiliary organization that has assets, does that organization need to have its own 95 account?

If an auxiliary or service organization is considered a reporting auxiliary or service center then the organization is required to have its own plant fund account (95 account).  A reporting auxiliary is defined in ASOP 2.0.