If your service center were to have a surplus or deficit, would you know how it was created and what to do with it going forward?
Expenditures, salaries, and base usage data service centers use can fluctuate over several years, and using outdated rates can lead to surpluses and deficits.
Surpluses can accumulate over time because of the following:
- When a service center includes a deficit in their rates over a 2-year period, as allowed by policy, but then does not recalculate their rates as the deficit decreases, it can lead to a surplus.
- If salaries and wages or other large expenditures are included in the rate calculation but then are moved off the fund with no adjustments to the rates, the service center might be over-recovering with their rates.
- Surpluses can also be created when a service center has seen a large increase in its usage but has not done a new calculation to take that growth into consideration.
- External revenue can also lead to a surplus. External revenue should be identified and coded to account 307921. The amount in account 307921 may be moved to a plant fund or used to support the service through funding expenses or paying for an unexpected expense. This will help the service center fund avoid accumulating a surplus.
Deficits can accumulate over time because of the following:
- Rates are not updated to account for the inflation of expenditures and salaries.
- When a service center includes a surplus in their rates over a 2-year period, as allowed by policy, but then does not recalculate their rates as the surplus decreases, it can lead to a deficit.
- A service center has a large expenditure that they did not project into their rates, and they did not recalculate rates after the purchase was made.
- The Covid pandemic may have led many service centers to recognize a deficit as their usage base may have dropped significantly, but they did not recalculate rates to account for the change in usage.
- A service center calculates rates but decides to charge its customers a lower rate and does not utilize a subsidy to account for the difference between their calculated rate and the rate they charge customers.
The best way to avoid surpluses and deficits is to recalculate your rates every two years (as required by Federal Uniform Guidance and University policy) or when there are significant changes to your service center, such as large purchases or large swings in your usage base. Once you determine the amount that needs to be charged to customers to break even, those rates either need to be charged, or your department should work with Government Costing to appropriately subsidize. An important part of the rate calculation that is often overlooked is the over or under-recovery. The over or under-recovery must be included in your rates to ensure you are operating on a break-even basis.
Contact
If you have questions about Facilities & 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.
