SYS 316 Appendix 4: Methodology for Charging Institutional Support Costs to Auxiliaries

I. Introduction

The UW-System will charge institutional support services to the auxiliaries using a modified form of the federal methodology for reimbursing universities for indirect costs. The methodology is a somewhat complex process of gathering actual cost data, establishing institutional support cost pools, calculating auxiliary specific rates, and applying those rates to cost pools by auxiliary (detailed explanation provided below). The purpose of the modification is to recognize differing organization structures (for providing services), differing operating practices (for charging services to the auxiliaries), and the need to avoid costly and disruptive changes in organizations and/or operating practices.

Essentially, the modification makes allowance for those institutional support services charged directly to the auxiliaries as a direct charge for specific services received, and/or for support services carried out by auxiliary staff. The adjustment is made by selecting from one of five prescribed percentages (the selected percent is intended to represent the level of service closest to the actual service received). For example, if all accounting services are performed by the central business office and specific services are not direct charged, accounting costs are included in the methodology as a 100% cost recovery item; if, however, auxiliary staff performs the accounting service or if accounting services are direct charged as a fee for services provided, accounting is included as a 0% cost recovery item.

The primary features of the methodology are shown below. Section II provides detailed instructions, and Example #1 provides a simulation of the methodology.

• Yearend expenditures from the most recent UWS Financial Report (not operating budget expenditures) are used to calculate the assessment.
• All institutional support services other than executive management, and all costs other than capital, are charged to the auxiliaries.
• One of five percentages is chosen to reflect: the level of support services received; the level of service provided from within the auxiliary organization; and/or the amount paid by the auxiliaries for specific services received.
• Institutional support costs are divided by a salary, wage and fringe benefit distribution base to arrive at the rate for chargeback. Separate rates are computed for each auxiliary.
• The charge is computed at by applying the rate to the direct salary, wage and fringe benefit costs of the auxiliary receiving the service.

II. Methodology

1. Establish an indirect cost pool consisting of institutional support expenditures (exclusive of capital).
   1. Using the Unit, Division, Department, Sub-department (UDDS) designation, assign each institutional support cost to one of the following cost groupings.
      (Appendix 2):
      1. Executive management
      2. Fiscal operations
      3. General administration and logistical services
      4. Administrative computing
      5. Public relations/development

      Institutional support service costs are separately identified in the accounting records in Activity (01); if similar costs are assigned to Activity (08), Auxiliaries, those costs must be added and included here.
      Using expenditures from the most recent yearend financial report, accumulate General Program Operation (GPO funds 101, 102, 103, 104, and 150) salaries, wages and fringe benefits [Ex.1 – $1,568,477], and operating expenses (travel, services and supplies) for each institutional support service. If auxiliaries provide 128 funds separate from the charges computed using this methodology, the amount should be added to GPO support here, and removed as a credit against the charge in Section G.

   2.  Assign a percentage (from the options below) to represent the level of institutional support services received as a centrally provided service, and the proportion of expenditures to be charged back to the auxiliaries in Appendix 1.
      Chargeback costs are not to include institutional support services performed by auxiliary staff, or services direct charged to the auxiliaries. Percentage assignments of less than 100% reflect services provided from within the auxiliary organization, services that are paid for as a charge for specific services received, or services that are available to the auxiliaries but not used. Institutions will report all exceptions to centrally provided services to System Administration.
      If an executive oversight function (which is not charged to the auxiliaries) is combined organizationally with a support service function (which is charged to the auxiliaries), the support service must be separately identified and an appropriate charge made to the auxiliaries for services received. For example, if the institution’s budget function is part of the vice-chancellor’s office and that office provides budget services to the auxiliaries, the cost associated with providing that service must be identified and charged.
      The following five percentage groups are used to determine the level of a particular service provided to each auxiliary:
      1. 100% – The entire service is provided to the auxiliary by the centralized unit. The auxiliary does not perform any part of the service nor does it pay for the service through a direct charge.
      2. 75% – Most of the service is provided centrally. The auxiliary either pays for or maintains some staff to perform minor related functions and/or keep independent records that support the main service.
      3. 50% – the auxiliary employs sufficient staff to perform services to the same extent as those provided by the centralized service. These services, in addition to those provided centrally, can also be direct charged to the auxiliary.
      4. 25% – Most of the service is performed by the auxiliary either by its own staff or by contracting for the service. For the most part, the auxiliary operates the service independently with centralized involvement being maintained primarily for regulatory purposes.
      5. 0% – very little or no service is provided to the auxiliary by the centralized unit. The auxiliary operates the service operation independently, pays directly for all of the services, or has no need for the services. Reports between the auxiliary and the central unit may be exchanged for regulatory and informational purposes only.
   3. Multiply the GPO expenses, for each institutional support service listed in A.1., by the applicable percentage determined in A.2. for each auxiliary to arrive at the amounts representing the cost pools. [Ex.1 – Vice Chancellor – Budget Office – $77,000 x Residence Halls 25% = $19,250]
      The cost pool amounts [Example 1, Residence Halls – $621,300] are used to reflect proportionate levels of support received by an auxiliary, and not to reflect actual institutional support costs assigned to the auxiliaries. For each auxiliary, the cost pool is divided by the institutional distribution base, to arrive at the institution-wide rate applicable to a particular auxiliary. Applying the rate to the auxiliary’s salaries and fringe benefits base produces the costs to be assigned to an auxiliary.
2. Accumulate the GPO salaries, wages and fringe benefits for Physical Plant (see reference in paragraph D.). [Ex.1 – Physical Plant – $1,805,821]
3. Accumulate the total amount (all fund sources) of salaries, wages and fringe benefits for the institution.[Ex.1 – $21,148,973]
4. Establish a salary, wages and fringe benefit distribution base by deducting from the total of salaries and fringe benefits established in C. the amount of salaries, wages and fringe benefits included in A.1. and B.
   [Ex.1 – $21,148,973 – 3,374,298 = $17,774,675]. For costing purposes, institutional support and physical plant are indirect costs as opposed to the direct costs in the distribution base. Institutional support is not applicable to itself (A.1.) or to physical plant costs (B.).
5. Calculate the rate for each auxiliary by totaling the respective service amounts determined in A.3. and dividing that total by the distribution base determined in D.
   [Ex.1 – Residence Halls – $621,300 – 17,774,675 = 3.50%]
6. For each auxiliary, apply the calculated rate to the auxiliary’s direct salaries and fringe benefits to determine the charge for institutional support services. When auxiliary programs are combined with student service programs (e.g., programs housed in student centers/unions) apply the rate only to the auxiliary portion of salaries and fringe benefits.
7. If a Fund 128 allocation is made to Activity 01, institutional support services, for centralized services (included in A.1.), a credit for that amount shall be made to the charge computed in F.