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I. REFERENCES Accounting Manual chapter U-538-23, University Extension Concurrent Courses Business and Finance Bulletins: A-56,
Academic Support Unit Costing and Billing Guidelines Planning and Budget Manual Chapter 4010, Operating Budget Amendments II. INTRODUCTION This bulletin sets forth
general procedures for direct costing. University documents which provide
costing procedures for specific areas are listed in Direct costs (or expenses) are recorded in the general ledger by authorized transactions for initial payments (e.g., invoices, payrolls), recharges from University administrative and service units, and adjustments of expenditures (cost transfers). These costing procedures are issued to improve uniformity and consistency in the recording of direct costs throughout the University. Within the context of this bulletin, an accounting entity refers to a department, unit, office, project, or activity which is identified by a unique account/fund designation. Where a recognized organizational unit has several accounts all within the same function and associated with the same fund, expenditure adjustments and recharges among those accounts are not subject to the procedures set forth in this bulletin. Examples of such units are hospitals, student housing and food service operations, and large research projects. This bulletin does not apply to the major Department of Energy Laboratories. III. BASIC DIRECT COSTING GUIDELINES A. NATURE AND EXTENT Each accounting entity shall charge its budget with all the readily identifiable direct costs associated with the conduct of the operations of that entity. Examples of such charges are salaries and wages (when the effort devoted and the benefit derived are directly identifiable with a specific entity); associated employee benefits costs; supplies and other general expenditures (such as travel, storehouse purchases, and garage and telephone charges); equipment purchases; and, for self-sustaining operations, equipment depreciation, operation and maintenance of plant, and campus general administrative support recharges. B. TYPES OF DIRECT COSTS OR CHARGES There are three types of financial transactions by means of which an accounting entity is charged direct costs. These transactions are: 1. a direct charge or payment of an original transaction (for example, payrolls or vendor invoices); 2. an expenditure adjustment from an account originally charged; and 3. a recharge from an activity providing goods or services. IV. DIRECT CHARGES OR PAYMENTS Generally, costs shall be charged directly to the account to which they pertain. Direct charges of original transactions are effected through personnel action forms or time reporting forms for salary and wage expenses. For purchases from vendors and for other external payments, such as travel and honoraria, direct charges are effected through an invoice, travel, or other cash disbursement document. V. EXPENDITURE ADJUSTMENTS A. CONDITIONS Once an expense entry has been recorded in an account in the general ledger, it is appropriate to make expenditure adjustments only in the following situations: 1. To correct an erroneous recording, such as when the original source documents(s) (e.g., invoice, payroll, purchase order) cited an incorrect account, fund, sub-budget, or object. 2. To record a change in the decisions made originally as to the use of goods or services (e.g., a case of beakers originally ordered for and charged to a teaching program may be subsequently transferred to a research project). In requesting expenditure adjustments, a unit administrator is certifying that the original (direct charge) recording was a proper and legitimate charge against the account/fund cited; that the original charge is now being invalidated; and that the second account/fund is the correct one to charge. 3. To redistribute certain high numerical but small individual and/or minor charges (e.g., copy machine rental and paper costs, telephone charges, mailing charges, or charges for office supplies) which are billed to departmental accounts(s)/fund(s), but a portion of which may apply to other accounts under the jurisdiction of the department. While this type of expenditure adjustment is exempt from the requirement of section V.B.2. of this bulletin, which requires reference to the original source document(s), departments must maintain internal records/logs of such usage to support the adjustment. B. CRITERIA A request for adjustment of expenditures shall meet the following tests when the adjustment is to transfer a cost to a restricted fund provided by an external agency for a specific purpose (e.g., funds provided under a gift, endowment, grant, or contract for a specific purpose): 1. It must relate to individual items of expenditures (e.g., a cylinder of oxygen or fraction thereof, two hours of secretarial time) incurred by the unit requesting the adjustment. 2. It must contain a reference to the invoice, payroll, or other disbursement document(s) which initiated the original direct charge. 3. It must be in the same amount originally recorded in the University general ledger (i.e., the whole amount or the appropriate fraction charged to and/or paid by the unit requesting the adjustment) 4. It must be fully explained, justified, and approved by the unit administrator(s) involved in the transaction. (An explanation which merely states that the adjustment being made is "to correct an error," "to transfer to correct project," or "expenditure inadvertently charged to incorrect account/fund" is not sufficient.) In the case of adjustments which involve Federal grants and contracts, the certification and approval signatures must include that of the principal investigator, department head, or other academic official. 5. It must be recorded via the appropriate form (such as the payroll expenditure adjustment request, the non-payroll expenditure adjustment request, or the financial journal). 6. It must be reviewed and approved by the Accounting Officer of the given campus for compliance with applicable campus and University policies and terms of funding source agreements. The Accounting Officer may delegate this authority to the accountant responsible for the accounts/funds involved. 7. It must be recorded in the general ledger within 120 days of the original charge. (For example, the deadline for adjusting a charge which appears in the January ledger will be the May ledger.) If because of unavoidable circumstances an adjustment has to be made beyond the 120-day period, a full explanation, including a well-documented account of all the events leading to the tardy adjustment, must be provided. Campuses have the option to establish their own criteria when the adjustment is to transfer a cost between unrestricted University funds, as long as the requirements listed in items 5. and 6., above, are met. C. EXCEPTION Expenditure adjustments/transfers for the University Extension concurrent courses are exempted from the procedures set forth in this section. Refer to Accounting Manual chapter U-538-23, University Extension Concurrent Courses. VI. RECHARGES A. DEFINITION A recharge as a direct cost within the context of this bulletin falls within one of the following three categories: Category 1. The cost charged to a University department for specific goods or services provided by another University department. Included in this category are goods and services provided by auxiliary and service enterprises, academic department support units, plant services departments, and other departments-other than central campus administrative offices-with approved recharge budgets. Category 2. The cost charged to self-supporting activities which are primarily funded from external income for identifiable services provided by central campus administrative offices. Category 3. The cost charged to University departments for special services and abnormal levels of services provided by central campus administrative offices which are beyond the normal services provided by those offices. B. ESTABLISHMENT OF ACCOUNT-GENERAL Recharge transactions may be initiated only by those units with approved recharge accounts (sub-account 9). Proposals to establish recharge accounts are submitted on Form UFIN 1520, Transfer of Funds Request, for approval by the Office of the President in accordance with procedures outlined in Planning and Budget Manual Chapter 4010, Operating Budget Amendments. C. ESTABLISHMENT CRITERIA-RECHARGE CATEGORY 1 Proposals to establish recharge accounts for goods and services to be provided by the activities described in category 1, above, shall be based on the following criteria: 1. There exists a demand for the particular service by more than one University department. 2. There will be a significant volume of recharging, both in dollar amounts and in the number of transactions. 3. Service will be provided on a regular and continuing basis. 4. Service will be unique or specialized (for example, a glassblowing shop or a machine shop) as opposed to general administration or other institutional support services. A separate budget for the recharge service function will normally be required. If the predominant volume of the product or service is to be provided to the general campus, the recharge unit will be classified within the Institutional Support function. D. COSTING AND PRICING GUIDELINES-RECHARGE CATEGORY 1 The amount to be charged for goods and services provided by the activities described in category 1, above, shall be governed by the following general guidelines: 1. All elements of cost resulting from the goods or services provided shall be recharged to users based upon a previously authorized established price or standard pricing method uniformly applied to all users. In complex pricing situations, such as for custom work, price computations shall be based on established wage rates and costs of materials and equipment used. Identical goods and services must carry identical prices for any and all customers, with the exception of dual-pricing structures for Federal and non-Federal activities. 2. Recharges shall not be based on prorations or other indirect methods of cost allocations. 3. Recharges shall be related to the cost of goods or services furnished and must provide for the recovery of actual costs, including depreciation. Prices shall be adjusted at least annually to eliminate any surpluses or deficits. Every effort should be made to ensure that year-end surpluses or deficits do not exceed one month of the recharging unit's activity. 4. All recharge activities shall publish a schedule of rates and prices which shall be reviewed and approved by the Chancellor or his/her delegate. These reviews shall give consideration to alternative methods and costs of accomplishing the objectives, such as purchasing goods or services from vendors outside the University. Additional guidelines for costing and pricing procedures for auxiliary and service enterprises and academic support units are set forth in Business and Finance Bulletins A-59, Costing and Working Capital for Auxiliary and Service Enterprises, and A-56, Academic Support Unit Costing and Billing Guidelines, respectively. E. ESTABLISHMENT CRITERIA--RECHARGE CATEGORIES 2 AND 3 Services to be charged by central campus administrative offices to self-supporting activities and other departments, as described in Section VI. A, categories 2 and 3 above, shall be based on the following criteria: 1. Specifically identifiable services will be provided to the activities. 2. Funds to provide for the services are not provided in the budgets of the administrative offices. F. COSTING AND PRICING GUIDELINES--RECHARGE CATEGORIES 2 AND 3 The amount to be charged for services provided by the activities described in Section VI. A, categories 2 and 3 above shall be governed by the following guidelines: 1. Recharges shall be related to the cost of providing the services. 2. Recharges may be based on an acceptable cost allocation basis. 3. Recharges for these services shall be reviewed and approved by the Chancellor or his/her delegate. G. RECHARGES TO SELF-SUPPORTING ACTIVITIES Present policy requires that the following activities must be charged for the services provided by central campus administrative offices: 1. Teaching Hospitals 2. Dental Clinics and Neuropsychiatric Institutes 3. Auxiliary Enterprises 4. Summer Sessions Other self-supporting activities may be charged for the above services at the option of the campus. VII. REAPPORTIONMENTS AND FUNDING ADJUSTMENTS Under certain circumstances, a use of the recharge transaction mechanism is authorized which is not considered a direct cost transaction within the context of this bulletin. These types of recharge transactions are reapportionments or funding adjustments. They are limited to the following: 1. recharges assessing University Opportunity funds for replacement of medical tuition initially charged to General Funds budgets; 2. recharges (Administrative Support Supplement) assessing Federal Contract and Grant Administration funds for contract and grant related costs initially charged to General Funds budgets; 3. recharges assessing Educational Fee funds for institutional support and operation and maintenance of plant services to student service activities; 4. recharges assessing construction projects for costs initially charged to Building Program Clearing accounts; 5. recharges for station land and labor of Agriculture Field Stations as reviewed annually by the Field Station Research Advisory Committee; 6. recharges of administrative and supervisory costs of University Extension, Residence Halls, and the Physical Plant Department to the benefiting units within the function; and 7. recharges (Clinical Teaching Support) assessing General Funds for teaching patient care initially charged to hospital or clinic funds. Any other use of the recharge transaction mechanism must have the approval of the Associate Vice President-Business and Finance and the Director of Budget.
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