Policy states that rates must be recalculated every two years for 3E funds, but there are times when rates should be recalculated sooner. Do you know what circumstances lead to rates needing to be recalculated sooner than two years?
Rates must be recalculated at least every two years, using actual expenditures and actual usage. While a biennial review is required by university and federal policy, it is a good business practice to review rates annually.
Below are situations where recalculating more often than every two years is either required or would be beneficial:
Part of Your Calculation is Based on an Estimate
You will need to recalculate your rates after a full year of data is available when any part of your rates are based on estimates. Estimates might be used when there is a new line of service or the service center is new, and there is no historical data. Service centers that had not previously tracked staff time may have estimated their salary allocations to the different lines of service. In this case, time tracking should commence, and rates would be recalculated using this actual data.
There is a Large Change in Expenditures, Salaries, Equipment, or Usage Base
Departments enter into new contracts, purchase large pieces of equipment, enter into large maintenance agreements, add additional staff, or have to suspend their operations occasionally. In these cases, the expenditures or usage base may change significantly. The rates being charged would not accurately reflect the nature of the fund. Recalculating rates once one of these factors has been identified can prevent a fund from going into deficit or creating a surplus.
The Fund Balance Has Drastically Changed
If a service center fund has gone from being in deficit to being in surplus or vice versa, it might be time to recalculate the service rates. Any deficit/surplus carryforward must be included in rate calculations and will impact your rates, so the service center wants to ensure it is recovering an appropriate amount.
Government Costing Has Requested That You Resubmit Your Rates Sooner
Sometimes, during the rate approval process, Government Costing will request that a department resubmit its rates after a year. This can be because of a large over or under-recovery, any items listed above, or another unique situation.
Contact
If you have questions about facilities and administrative rates and how they are calculated, feel free to consult System Government Costing's "Who to Ask" list to find an expert who can help.
