OBFS System Government Costing Anne Marshall – Assistant Director Richelle Lu – Coordinator André Britten – Coordinator OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Agenda Overview of System Government Costing Internal Service Activities Policy and Compliance Best Practices Resources OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Overview of System Government Costing OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Who are we? OBFS System Office Support all 3 universities Staff 6 – located in Urbana 3 – located in Chicago OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Organizational Chart OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Our Responsibilities We do the following: Federal Facilities and Administrative (F&A) rate calculations and proposals Fringe benefit rate calculations and proposals Tuition remission rate calculations and proposals Rate negotiation with the federal government State F&A reporting and rate calculations Higher Education Research & Development Survey (HERD) – UIUC & UIS only Service activity rate reviews and training (Banner 3E fund types) OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Internal Service Activities OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Internal Service Activities Specialized institutional operation established to meet the instructional or research needs of the University Adds value and recovers costs of providing a service or good to customers Services are provided to internal University units, and federally and non-federally funded sponsored projects Internal service activities are coded as a Banner fund type 3E Service activity charges often become direct costs of sponsored projects, many of which are federally funded OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Internal Service Activities OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Internal Service Activities Service center’s responsibilities include, but not limited to: Calculating service rates at least once every two years Complying with University, Federal, and State policies Exercising good business practices to run a breakeven service Timely billings SGC’s responsibilities include, but not limited to: Training Guidance to service centers Service rate/fund reviews as determined necessary Monitoring compliance OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Policy and Compliance OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Why Do You Care? Potential consequences of NOT being compliant Negative audit findings (Internal/External) Refunds to the federal government False Claims repercussions Negative publicity for the institution Increased scrutiny of other institutional service activities OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Why Do You Care? Under Uniform Guidance, Service Centers are required to be reported in our Federal Disclosure Statement (DS-2) The DS-2 must be submitted to our F&A cognizant agency (ONR) for audit and approval Auditors and agencies often request a copy of our DS-2 for their review OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Federal Government Requirements Related to Service Activities Federal Uniform Guidance 2CFR200 – include but not limited to: Rates must be calculated at least once every two years Costs of services must be charged to awards based on “actual usage” Consistent charging (treatment) of rates to all users Rates must be based on the costs of providing the services Surplus/deficits must be considered when calculating rates OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

University of Illinois’ Policies and Procedures for Service Activities Based on Federal Uniform Guidance 2CFR200 OBFS Self-Supporting/Revenue Generating Activities – Section 22 – “Service and Storeroom Activities”   OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

What are the OIG Auditors Finding? Universities did not: Establish and/or adhere to policies and procedures Maintain adequate accounting records Analyze and adjust billing rates or monitor recharge centers on a regular basis Biennial reviews were not performed to adjust rates based on actual costs Failure to revise and appropriately set billing rate structure resulted in submission of numerous false claims Billing rates were not adjusted for accumulated surplus and deficit fund balances Surplus from recharge centers used to fund unrelated activities Included administrative fees in rate calculations that were not part of the cost of providing the service Included duplicate or unallowable costs in the calculation of billing rates Did not charge based on actual usage of the service provided Billed some users at reduced rates Computed rates by averaging rates that other universities charged   OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Real Life Scenario at UIUC NSF OIG Audit Findings FY14 Auditors reviewed a total of $435.2 million in costs charged to NSF projects between 1/1/10-12/31/12 They were reviewing for: Unallowable, unallocable, and unreasonable costs Noncompliance with regulations, requirements, and terms Findings included unsupported expenses of $39,296, a significant portion of which was related to service center rates OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Best Practices OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Rate Calculation Overview OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Best Practices Services Usage base Services with different usage bases are calculated independently, cross-subsidy is not allowed between unrelated services Usage base Unit of measurement/customers. For example: machine hour, person hour, per sample, number of units, miles, etc. Track actual usage for base (denominator) Existing services must use an actual historical year’s usage New services estimate usage (recalculating in one year using actual) All users (internal and external) must be included in the base whether or not charged OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Best Practices Expenditures Only costs that directly relate to the service are charged to the fund Costs should be allowable per university and state policy, and Federal Uniform Guidance Determine best method for identifying, allocating, and tracking expenditures across multiple related lines of service in a C-FOP Using activity codes and/or program codes are recommended for multiple services in one fund Expenditures and any allocations must be allowable, reasonable, and well documented OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Best Practices Equipment Annual depreciation may be included in the rate calculation, not the purchase price or replacement cost Federally funded purchases are NEVER allowable in internal rates Equipment purchased using 3E should be included in rate calculation Equipment purchased with funds other than 3E (non-3E) may be allowable for the rate calculation Contact Government Costing for assistance Make sure to ENTITY CODE equipment used in a 3E service and depreciation will be recovered as part of rates UPAR assists with entity code assignment OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Best Practices Fund Balance Service centers must operate on a break-even basis Cumulative fund balance must be used and incorporated into rate calculation Fund balance is “adjusted” for net asset value of equipment due to the way the Banner System records fixed asset/depreciation data Fixed assets are tracked in the Banner system by the CFOP which purchased the equipment Fixed asset data feeds into the GL and OL at a high control organization and fund level Departments adjust their service center fund balance for the net asset value (purchase price less accumulated depreciation) of assets purchased on 3E fund Required as part of Section 22 Self-Supporting/Revenue Generating Activities (over-arching policy) Audit by Federal Defense Contract Audit Agency (DCAA) in 1994 required us to begin adjusting service centers’ fund balances to include the net asset value of the 3E assets OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Best Practices Over/Under Recovery Identification The over/under recovery of the service activity adjusted fund balance must be included in the rate calculation Working capital reserve of up to 60 calendar days of “cash” expenses for “normal” operating purposes can be maintained in the fund Balances in excess of this amount must be eliminated over a period of time, normally 2 years 3 step process to identify the over/under recovery: Step 1: Compute adjusted fund balance Step 2: Compute working capital reserve Step 3: Compute over/under recovery OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Best Practices Monitor service activity fund Review rate annually Check for variances that could affect the break-even rate Check estimates used in setting rate and determining usage base for accuracy Review rate annually Must recalculate at least every two years, annual review is recommended Adjust next year’s rate for surplus or deficit carryover The over or under recovery balance is the accumulated fund balance, not just balance from the previous year Maintain documentation of calculation and rates Publish current rates and maintain historical rates for prior years OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Best Practices Bill on a timely basis Billing is recommended on a monthly basis, REQUIRED for sponsored projects Internal customers charged same rate for same level of service All customers are to be charged JV FOATEXT must list the following, at a minimum: Service provided Date(s) of service/sale Unit cost Total dollars charged to the user Revenue should be recorded using a revenue account code Negative expenditures are not an appropriate way to record revenue OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Resources OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Resources and Training SGC Website https://www.obfs.uillinois.edu/government-costing/ Service Activities Resource Page Job aids, Business Objects/Webi templates, Excel spreadsheet rate calculation templates, and training materials https://www.obfs.uillinois.edu/service-activities-resource-page Self Supporting Funds Training Government Costing provides instructor led training for 3E funds OBFS UAFR provides training that covers entire Banner “3” fund group OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Training Opportunities Service Activity Basics Certification Program Service Centers Accounting Practices Identify Risks Allowable/Unallowable Expenses Depreciation Internal/External Rates Over/Under Recovery Determine Base Service Activity Advanced Certification Program Coming in near future! Case studies Hands on calculations Hot topics Visit the OBFS Certification Program website “Get Started” page: https://www.obfs.uillinois.edu/certification/get-started/ OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Workshop Summary Overview of System Government Costing Internal Service Activities Policy and Compliance Best Practices Resources OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Contact Information System Government Costing Who To Ask https://www.obfs.uillinois.edu/government-costing/who-to-ask/ OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019

Questions? OFFICE OF BUSINESS AND FINANCIAL SERVICES – System Government Costing 2/25/2019