Research organizations have to manage a lot of compliance risks to ensure research operations are ethical and any audits go smoothly. One of the many areas to manage is the organization or university’s recharge center.
What is a recharge center?
A recharge center, also called a service center or charge-back center, is a subset of the organization that provides services or goods to other parts of the organization, like a printing office. Grant award recipients can pay the recharge center for services and then charge that against the grant. The goal of the recharge center isn’t necessarily to make money–in fact, most try to stay as close to break-even as possible. Recharge centers mostly focus on serving internal clients, but they can serve external clients as well, as long as pricing is the same.
Costs associated with activities of recharge centers have to be 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. Billing rates must be based upon actual costs or use of the service and are 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.
Common mistakes associated with recharge centers
Inadequate policy and/or oversight
Some institutions don’t have written policies and procedures for recharge centers–or they do, but the policies aren’t being followed. One reason is because sometimes it’s hard to require recharge centers to follow the Office of Management and Budget (OMB) Guidance for Grants and Agreements policy, because their internal control structure doesn’t include a governing body designed to monitor recharge centers.
Including recharge costs in the calculation of indirect cost rates
Recharge center activity costs shouldn’t be included in the general indirect cost rate. Some organizations 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; if deficit balances are included, the indirect cost rate may be overstated.
Surplus balances are not carried forward or are misused
Another common mistake is the failure to adjust user billing rates based upon surplus balances, which results in an overcharge to users. In addition, some institutions use surplus balances to fund unrelated activities.
Including duplicate or unallowable costs in the calculation of billing rates
Some institutions include 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 don’t bill all users for services, or they bill 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
Here’s how you can avoid common mistakes associated with recharge centers:
- Establish policies and procedures for recharge centers. Develop well-written, clearly defined policies and procedures for recharge centers that are consistent with the OMB Guidance. Also 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 solution for recharge centers to track, invoice, and collect regularly.
- Review and adjust user billing rates. Review and approve your rates every two years at the very least. 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. Create templates and make them available to help 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.
A 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. For a better way to track and manage research funding, check out Cayuse Fund Manager.
