System Government Costing gets a lot of questions revolving around self-supporting funds – so here are some of the most common ones for your future reference.
- Q: Do we have to charge the applicable F&A rate to our external customers?
A: Yes – you do. Failing to include F&A in external rates violates University policy and results in subsidizing external customers. F&A is later assessed on service rates charged to sponsored projects; therefore, not manually including F&A in external rates creates an imbalance in cost recovery between internal and external customers. The revenue resulting from the external differential above the internal rate should be placed in account code 307921.
- Q: We have a high expense that isn’t normal to our operations, that is going to occur in the coming year – how should we deal with something like that since it will affect our rates greatly?
A: You should include the cost in your rates. Expected future costs or historical expenses that need to be excluded are what we classify as projections. Projections should be used only for material changes that affect rates and must be supported by appropriate documentation. Common examples of projections include new equipment purchases, staffing changes, and anticipated price increases.
- Q: If we have rates that we’ve always used and customers are happy with, do we have to recalculate?
A: Yes – you must recalculate your rates even if both your unit and customers are satisfied with the current rates. Federal and University policy require rates to be recalculated at least every two years to ensure operations remain on a break-even basis. Our team over here at System Government Costing is happy to help with any questions you may have during your recalculation process.
- Q: We have a piece of equipment we use in our service that wasn’t purchased from our 3E fund. Can we/should we include that expense in our rate calculations?
A: The answer to this question is not a simple yes or no. If there isn’t a desire to include non-3E equipment depreciation within your rate calculations, you simply don’t have to. However, if there is, you will need to review the asset a little deeper.
While the equipment meets the requirement of benefiting the service, non-3E equipment must satisfy additional criteria to be included in the rate calculation. For example, it must comply with the Equipment Fund Type Allowability Table (Scroll to bottom of the page). Not only that, but there are differing allowability rules for internal vs external rates as well.
In order to include the non-3E depreciation expense in the internal rate, the piece of equipment must also have annual depreciation in Banner, as well as be entity coded and excluded from the F&A rate study. Fully depreciated and non-entity coded equipment may be used when fully loading the external rate, assuming the Equipment Allowability Table criteria are satisfied
Q: Why are continuous time tracking/time studies such an important thing?
A: Continuous time tracking and time studies provide real-world data that document how employees spend their time on specific services and tasks. For any expense to qualify for inclusion on a 3E fund, it must meet a key requirement: it must benefit the service. Documenting where employee time is spent is the most effective way to demonstrate that the time directly supports a service, making these analyses critically important.
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We know additional questions may arise during the rate calculation process. Feel free to contact us at any time or sign up for our Service Activity Advanced training to learn more!
