There are several common mistakes associated with recharge centers. These mistakes, whether intentional or not, pose a risk of financial loss not only to the department/center, but to the institution as a whole. Over the years, there have been several audit findings resulting in millions of dollars of overcharges to users and fines to institutions for non-compliance due to these mistakes. If institutions are aware of these common mistakes, they can implement strategies to alleviate the risk of financial loss and negative publicity.
What is a Recharge Center?
A recharge center (a.k.a. service center or charge back center) is a unit within the university that operates as an in-house enterprise and is used to account for, finance, and report the provision of goods and services to other organization units, external clients or individual users. These centers fund operations through fees from users and must function with a net zero gain. Established billing rates and actual services provided are recharged to users and federally sponsored agreements based upon costs incurred for providing such goods and services.
Costs associated with activities of recharge centers are not to be included and are separate from the general indirect cost rate of an institution. This is one of the most common mistakes of recharge centers as you will soon see below. The new Omni Circular, 2 CFR 200.468 , requires billing rates to be based upon actual costs or use of the service and is designed to recover the aggregate cost of a good or service over a given period of time. The rates are not to discriminate between federal and non-federal supported activities, including internal institutional activities.
Most Common Mistakes Associated with Recharge Centers
- Inadequate policy and/or oversight. Some institutions do not have established written policies and procedures for recharge centers. Other institutions may, but they are not being followed. One main reason cited is that some institutions indicate it is difficult to require recharge centers to follow the Office of Management and Budget (OMB) Guidance for Grants and Agreements policy given their internal control structure does not include a governing body designed to monitor recharge centers.
- Including recharge costs in the calculation of indirect cost rates. Recharge center activity costs are not to be included in the general indirect cost rate. Some institutions tend to include the surplus and deficit balances of their recharge centers in their indirect cost rates. If surplus balances are included in the indirect cost rate, the indirect cost rate may be understated and if deficit balances are included, the indirect cost rate may be overstated.
- Surplus balances are not carried forward or are misused. Another common mistake that some institutions make is the failure to adjust user billing rates based upon surplus balances, thus resulting in an overcharge to users. In addition, some institutions tend to use the surplus balances to fund unrelated activities.
- Including duplicate or unallowable costs in the calculation of billing rates. Some institutions make the common mistake of including either duplicate or unallowable costs in their billing rates. This can result in reducing surplus cash and the ending fund balance, which then increases future billing rates, thus creating additional risk by overcharging them yet again.
- Billing some users at reduced rates. Some institutions do not bill all users for services or tend to bill certain users, typically external customers, at a reduced rate. This means that all other users would have to be billed in excess of costs in order to cover the uncollected revenues, thus allowing the possibility of federal projects being overcharged. This not only provides preferential treatment to the users, but violates the OMB Guidance for Grants and Agreements, which requires that the cost of each service be charged directly to users and not discriminate between federally and non-federally supported activities.
How to Mitigate Risk at your Institution
In order to avoid the top common mistakes associated with recharge centers, institutions should:
- Establish policies and procedures for recharge centers. Well written, clearly defined policies and procedures should be developed for recharge centers that are consistent with the OMB Guidance. Also, institutions should establish a governing body such as a recharge committee to oversee the operations of recharge centers.
- Maintain adequate systems. Establish and maintain an adequate accounting software or system for recharge centers such as recharge center management software to track, invoice, and collect regularly.
- Review and adjust user billing rates. Institutions should review and approve their rates at a minimum of every two years. This will help to eliminate deficit and surplus fund balances that could result in over/under charging of users and the federal government.
- Exclude unallowable costs from billing rates. Templates should be created and made available to assist with rate calculations which would provide allowable costs.
- Exclude recharge center costs from indirect costs. Simply avoid including the surplus and deficit balances of your recharge center in your indirect cost rates.
An Adequate System that Works
As noted above, the reason why so many institutions make these common mistakes is the lack of an adequate system for monitoring, invoicing, collecting and tracking. As a result of this, they suffer financially whether from improper invoicing or from fines for non-compliance.
IT Works offers a recharge center management system that does just that. Our recharge center management solutions aid in both the management and billing operations for services provided to users. This includes invoice generation, accounts receivable aging reports, late payment notice preparation, facility management reports, and an automated billing process. For more information regarding this product, please contact the IT Works team.