Frequently Asked Questions (FAQs)
Internal & External Customers
If you sell to both internal and external customers and your internal revenue is greater than $100,000 in a fiscal year, the activity (both revenue and related cost) must be tracked separately in a recharge/service center account (66) and an auxiliary account (60) respectfully. If your internal revenue is less than $100,000, you are not required to separate the activity but it is strongly recommended that you do so. Please refer to RSOP 2.0 for more details regarding the reporting requirements for recharge activity.
For additional information on the ideal organization structure for a recharge center activity please refer to the Accounts & Organizational Structure section of the FAQs
If both internal and external customers are charged a rate that will result in the activity to breakeven or recover allowable cost then a single rate can be charged. However, even if you charge all customers at a breakeven or allowable cost rate, an activity with anticipated revenue equal to or more than $100,000 per year is required to separate the accounts because of reporting implications at the university level for internal and external activity. Internal activities with anticipated revenue less than $100,000 per year are not required to be segregated into a separate recharge/service center (66) account; however, the use of a recharge/service center (66) account is preferred for internal activity.
Yes. A department/unit that provides goods or services to both internal and external customers can charge external customers a rate with a built in markup (or more than cost). If a department/unit elects to charge external customers a rate higher than cost, the unit will be required to maintain separate accounting for the internal and external activity.
Per federal cost accounting standards, rates charged cannot discriminate against the federal government. All rates charged to internal customers cannot exceed allowable cost or the rate charged to an external customer.
If a department/unit offers a discount to an external customer the department/unit must ensure that the discounted rate is still above or equal to the rate that is charged to an internal customer. For example, if the external rate is $150/widget and the internal rate is $125/widget then the lowest discount that can be offered to an external customer is $25/widget.
For an internal activity with more than $100,000 in annual internal revenue, 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 charge a fee directly related to, and not more than, the cost of the goods or services should record that activity in a recharge/service center account (66).
For an internal activity with less than $100,000 in annual revenue, IBs, SBs and ID Billings should NOT be used unless an exception has been granted by University Cost Accounting. Instead, the Distribution of Income and Expense (DI), General Error Correction (GEC) or Transfer of Funds (TF) documents should be used to move the cost. Please refer to RSOP 2.0 for more details regarding the reporting requirements for recharge activity.
Billings to internal agency (96) accounts are considered internal. Billings to external agency (97) accounts, workstudy agency (98) accounts and other funds (99) accounts are considered external. However, all four of these are excluded from Facilities and Administrative (F&A) Rate Calculation.
Rate at which the federal government reimburses contract and grant recipients for indirect costs associated with a sponsored project.
If any IU account (excluding agency fund accounts) is billed by a recharge/service account, the account/customer billed is classified as an Internal Customer. The funding source used by the customer billed to pay for goods/services is not relevant to determining the classification.
All other customers are considered External Customers. These include IU students, IU faculty, IU staff, IU Foundation, Agency Fund Accounts, other universities, and the general public. External customers are typically invoiced directly and not billed through an IU account.
Internal customers must be billed at a rate that is directly related to, and not more than the cost of the goods or services provided. See FIN-ACC-I-400. External customers may be billed at a rate that exceeds the cost of goods or services provided. Rates charged to external customers can never be less than the rate charged to internal customers.
Customers, both internal and external, should be invoiced immediately after the good or service has been provided and no later than the end of the quarter in which the good or service was provided. If a job takes place over a period of time, progress billings should be done based on the percent of project completion.
Accounts & Organizational Structure
To isolate the recharge activity, the ideal organization structure for a recharge activity should only have 66, 92 and 95 accounts within a single organization. By including a 95 account that is unique to the recharge activity, the assets and the depreciation are easily identifiable. In addition, you can transfer cash from the 66 account into your 92 account, in the amount of annual depreciation each year, for future purchases of capital assets. Organizations with debt service may also have 90 and 91 accounts.
Please refer to RSOP #3: Including Annual Depreciation Expense in Recoverable Rate and RSOP #4: Recharge/Service Center Capital Purchases for additional information.
All account series numbers 60, 61, 63, and 66 are auxiliary fund accounts. The 66 series are specifically recharge/service center accounts.
Recharge/service centers that bill other IU accounts using an IB, SB or IDXX must use a 66 account and charge a fee directly related to, and not more than the allowable cost to provide the goods or services.
Please refer to RSOP #1: Definition of a Recharge/Service Activity and RSOP 2: Reporting Requirements for Recharge/Service Centers for additional information.
66 accounts must be used to isolate the activity of a recharge/service center in order to satisfy external compliance requirements including:
- To eliminate the duplication of revenue and expense related to internal activity on the University consolidated financial statements.
- To eliminate the duplication of cost from the Facilities and Administrative rate calculation; which could result in double billing to the federal government.
(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 email@example.com.
Allowable & Unallowable Expenses
If your organization is responsible for debt service, please contact cost accounting to discuss your options.
The department or unit responsible for the activity has the burden to prove that they are only recovering allowable costs. If unallowable expenses or external activity is commingled with the recharge activity, the likelihood of errors is much higher and would need to be manually tracked in all subsequent years.
KFS Document Transactions
- Recharge/service centers should bill other IU accounts within a reasonable time after the service and/or goods have been provided.
- Progress billings may be used for long term projects, but these billings must be based on actual cost for units of service or product provided.
- Advance billings for services not rendered or goods not delivered are not allowed. FIN-ACC-I-380 Historical Data Only in the Official Accounting Records states the “All transactions, either cash or accrual basis, should be recorded at historical costs,” which implies that advance billing cannot be made.
Asset & Depreciation
Cost share provides required non-federal match for federal contract and grant funds. Assets used as cost share cannot be billed to the federal government.
The ideal organization structure for a recharge activity is to have a 66, 92 and 95 account within a single organization. When this structure exists, the funds should be transferred to the 92 account within the recharge activity organization and the capital asset should be purchased from the 92 account. Once purchased, the capital assets will then automatically be created in the 95 account in the correct organization.
In the event that a campus or another account outside of the recharge activity organization would like to fund/help pay for an asset on behalf of the recharge activity, they should initiate a transfer of funds to the recharge/service center 92 account.
For additional details, please refer to RSOP #4: Recharge/Service Center Capital Purchases.
The cost of capital assets cannot be recovered in the rate. If a recharge/service center needs to purchase a capital asset, it needs to be purchased out of a 92 account. If the capital asset is purchased out of the 66 account, cash will need to be transferred into the 66 account to fund the capital purchase.
No, the loss reflected in object code 4998 on the 95 account is considered an unallowable expense and should not be included in the recoverable rate.
It depends. If the asset has been fully depreciated, the proceeds should be deposited in the 66 account and the proceeds would reduce the recoverable cost.
If the asset has not been fully depreciated and the proceeds are less than the remaining book value of the asset (cost less accumulated depreciation), the proceeds should NOT be deposited in the 66 account unless the unit wants to use the proceeds to lower their rate. Instead, the proceeds may be deposited into a 92 account to fund future purchases or into a non-66 operating account.
If the asset has not been fully depreciated and the proceeds are more than the remaining book value of the asset (cost less accumulated depreciation), the proceeds may all be deposited in the 66 account or must be split between the 66 account and the 92 account so that the amount exceeding the remaining book value of the asset is reflected in the 66 account. The portion of the proceeds up to the book value may be deposited into the 92 account.
Example: the asset had a cost of $30,000 and accumulated depreciation of $20,000 when it was sold which results in a remaining book value of $10,000.
- If the asset was sold for $5,000, the entire amount may be deposited to the 92 account to fund future purchases since this is less than the remaining book value of $10,000.
- If the asset was sold for $12,000, $2,000 must be deposited to the 66 account since that is the amount in excess of the remaining book value of $10,000. The remaining $10,000 may be deposited to the 92 account to fund future purchases.
In both scenarios above, all proceeds may be deposited into the 66 account to reduce future rates.
A GEC would need to be done to move the proceeds from the 66 account to the 92 account using object code 4995 (Proceeds from the Sale of an Asset).
Rates & Fund Balance
University policy Financial Accounting I-400 and Title 2: Grants and Agreements PART 200—UNIFORM ADMINISTRATIVE REQUIREMENTS, COST PRINCIPLES, AND AUDIT REQUIREMENTS FOR FEDERAL AWARDS Section (UG) 200.468 requires recharge/service center accounts be designed to recover only the aggregate costs of the services. The costs of each service must consist normally of both its direct costs and its allocable share of all indirect costs. Rates must be adjusted at least biennially, and must take into consideration over/under applied costs of the previous period(s).
No. The only expenses that can be included in your recoverable rate calculation are those that are recorded in your recharge/service center account. The only exception to this rule is annual depreciation expense. If a unit would like to include annual depreciation expense in the recoverable rate calculation, please refer to RSOP 3.0 --Including Annual Depreciation in Recoverable Rate.
Yes. The federal regulations and university policy require that all recharge/service centers submit rates at least on a biennial basis.
A GEC would need to be done to move the proceeds from the 66 account to the 92 account using object code 4995 (Proceeds from the Sale of an Asset).
- Activities that have $100,000 or more in anticipated internal revenue are required to update and submit formulas/ rate calculations either annually or biennially depending on anticipated internal revenue and direct contract and grant billing. Activities that have less than $100,000 in anticipated internal revenue will not be required to submit rates to University Costs Accounting if they are using Distribution of Income and Expense, General Error Corrections or Transfer of Funds to complete transactions between university accounts. Please see the Reporting Requirements Decision Tree and RSOP 2.0 to determine your reporting frequency. Explanations for component variances greater than 5% of total allowable cost over prior year component must accompany the rate calculations for review.
- If departmental monitoring of the recharge/service center activity during the year indicates a material change in the business activity or cost, formulas/ calculations should be updated on an interim basis and routed for review as per above.
The rate must be submitted using a template that has been approved by cost accounting. A standard template and instructions can be found on the cost website (Rate Setting Instructions & Template).
If the recharge/service center account is within a Reporting Auxiliary Organization, the rate should be electronically submitted to Auxiliary Accounting (firstname.lastname@example.org). Rates for other accounts should be submitted to Cost Accounting.
Each campus or RC may specify additional levels of review prior to submitting the rates to Auxiliary or Cost Accounting.
A review of prior year financial activity must be performed to determine the proportion of cost incurred and revenues recognized that relate to external customers in prior years. Logical and reasonable allocation methods applied on a consistent basis may be used in the determination of external financial activity. Please see RSOP 5.0 – Allocating Cost to Internal Activity or contact Auxiliary Accounting (email@example.com) to help you work through this process.
Should completion of this analysis not be practicable or possible, an exception should be requested from the Campus Fiscal Officer and the Chief Accountant to retain the fund balance in the recharge/service center. The request should include a plan for the use of the excess fund balance by activities of the recharge/service center over a period of time until the excessive fund balance is consumed.
Federal regulations indicate that you have two years to eliminate the excessive fund balance in your recharge/service center account. However, FIN ACC-I-400 requires an annual adjustment.
Yes. The rate calculation is based on the expenses that are recorded in your recharge/service center account. If you choose not to record all of your expenses in the recharge/service center account, you will need to reduce your rates if you have a positive fund balance.
The fund balance at year end will be used to adjust the subsequent year’s rate. If the ending fund balance is too large to adjust the rate, please contact Cost Accounting for guidance.
A department may appeal instructions provided or rate calculation disapproval for recharge/service center accounts. Request for appeal should be submitted to the Chief Accountant of Indiana University.