Department
of Health and Human Services
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OFFICE
OF INSPECTOR
GENERAL
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SUMMARY
REPORT ON AUDITS OF
RECHARGE CENTERS AT 12
UNIVERSITIES
JANUARY 1994
A-09-92-04020
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TABLE
OF CONTENTS
Surplus
Fund Balances
Duplicate
and Unallowable
Funds Used for Unrelated Purposes
Inequitable
Billing
University
and OIG Comments on Significant Issues
Summary
of Causes
Recommendations
Management and OIG Response
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FINDINGS
AND RECOMMENDATIONS
During our
review, we found that there was a wide variation in the operation of recharge
centers among the 12 universities. Ten universities had formal written
policies and procedures which were generally consistent with OMB Circular
A21, while two had not established any formal policies and procedures
for the financial operation of recharge centers. However, 9 of the 10
universities had adequate policies and procedures, but did not always
analyze and adjust their billing rates as required by OMB Circular A-21.
Although the OIG review at the University of Pennsylvania found that recharge
centers were being operated in accordance with OMB Circular A-21, some
recharge centers at the other 11 universities did not maintain adequate
accounting systems and records to allow for the: (1) development of billing
rates based on actual costs; or (2) identification of surplus or deficit
fund balances. We believe that these weaknesses in the internal control
structure resulted in some university recharge centers: (1) accumulating
surplus fund balances and deficits that were not adjusted for in subsequent
billing rates; (2) including duplicate or unallowable costs in the calculation
of billing rates; (3) including recharge costs in the calculation of indirect
cost rates; (4) using funds of recharge center accounts for unrelated
purposes; and/or (S) billing some users at reduced rates.
These practices
caused billing rates to be overstated, resulting in overcharges of $3.2
million to the Federal Government. We believe that these overcharges primarily
resulted because universities did not: (1) establish or adhere to policies
and procedures for recharge centers; and (2) maintain adequate accounting
systems and records. Specifically, universities did not analyze and adjust
billing rates, conduct annual cost studies, or monitor recharge centers
on a regular basis. Furthermore, OMB Circular A-21 does not provide specific
instructions for when and how to adjust for surpluses and deficits in
fund balances.
Total Overcharges
of $3.2 Million to Federal Projects by Type of
Finding
IMAGE
The OMB Circular
A-21, section J44, "Specialized Service Facilities," contains most of
the requirements applicable to recharge centers; however, other requirements
applicable to recharge centers are also contained in the Compliance
Supplement to OMB Circular A-133. We recommend that HHS' Division of
Cost Policy and Oversight work with OMB to revise OMB Circular A-21
to ensure that criteria related to the financial operation of recharge
centers is clear. We recommend that a separate, comprehensive section
be added to OMB Circular A-21 which promulgates the requirements for
the financial operation of recharge centers. The Division of Cost Policy
and Oversight concurred with all of the recommendations presented in
the report. . The comments are included in their entirety in APPENDIX
D.
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SURPLUS
FUND BALANCES
Our review
disclosed that 6 of the 12 universities accumulated $6.6 million in
surplus fund balances for recharge center accounts. Surplus fund balances
occurred ::'hen amounts billed for services exceeded the cost for providing
such services. The surplus balances accumulated by the six universities
continued as the result of inadequate monitoring of recharge centers
to ensure that user billing rates were analyzed arid adjusted to eliminate
accumulated
surpluses.
As a result, federally sponsored research was overcharged by $1,280,107.
This overcharge consisted of $857,359 in direct costs, $388,524 in related
indirect costs, as well as $34,224 in earned interest on the surplus
fund balances that was not credited to recharge center accounts. Furthermore,
some of the universities incorrectly used surplus fund balances as discussed
in the section of the report RINDS USED FOR UNRELATED PURPOSES.
Although most universities established policies and procedures on
recharge
center billing rates, we found that some did not analyze
year-end
fund balances on an annual basis nor adjust the billing
rates to
eliminate surpluses. Section J44.c of OMB Circular A-21
states that
universities are not allowed to recover more than the
aggregate
costs of recharge center services and requires rates to be
reviewed
periodically and adjusted if necessary. Specifically, OMB
Circular
A-21 states that:
"Charges...
should be designed to recover not more than the aggregatecost of the
services over a long-teen period agreed to by the institution and the
cognizant Federal agency.
"...Ids
not necessary that the rates charged for services be equal to the cost
of providing those services during any one [sic] year as long as rates
are reviewed periodically (emphasis added) for consistency with the
long-teen plan and adjusted if necessary."
We found
some variations regarding the interpretation of
"periodically."
For our purposes, we reported surpluses for recharge centers which were
clearly accumulating excess balances. For example, in a review of three
recharge centers at one university, we analyzed the -ending balances
over a 10-year period. The auditors noted that, for some of the centers,
the fund balances had been relatively stable until 1987. After this
period of time, the fund surplus balances began to increase steadily
without any rate adjustments. Another university stated that it used
a rolling 5-year operating cycle for recharge centers while other universities
with similar costs and services did not operate on a 5-year cycle.
Interest
Earned on Generally, universities earn income on surplus funds by investing
in
Fund Balances
short-term securities. For those recharge centers that maintained
surplus balances,
we found that interest earnings were not always
credited
to the appropriate centers. Two of the 12 universities
earned $34,224
of interest on surplus balances of recharge centers.
Section
J44.b of OMB Circular A-21 states that the cost of each
service shall
consist of direct and related indirect costs with
deductions
for appropriate income as described in section C5.
Section
C5.a
states
that "applicable credits"
refer
to
those receipts
that operate
to offset or reduce cost items.
"Specifically, the concept
of
netting such credit Items against related expenditures should be
applied
by the institution in determining the rates or amounts to be
charged
to sponsored agreements
for services
rendered .... "
Consequently,
the $34,224 in interest earned from investing the surplus fund balances
represented receipts that should have been used to adjust billing rates
charged by recharge centers. By not adjusting the appropriate billing
rate(s), recharge centers overcharged users and Federal research.
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DUPLICATE
AND UNALLOWABLE COSTS
We found
that 9 of the 12 universities included duplicate or unallowable costs
in the calculation of recharge center billing rates. For example, one
university classified $722,179 in year-end purchases as expenditures
rather than inventory, thus reducing surplus cash and the ending fund
balance. We also noted that the nine universities: (1) recovered duplicate
equipment costs; (2) expensed equipment rather than capitalizing and
depreciating it; (3) accumulated reserves for future capital expenditures;
and/or (4) included entertainment, interest and bad debt expenses in
the calculation of billing rates. These practices resulted in overcharges
to Federal agreements of $1,187,804 during the period June 1, 1987 through
June 30, 1991.
A recharge
center at one university reported a deficit balance when it improperly
classified the purchase of $729,406 in inventory as expenditures.. Our
review disclosed that three large purchases of inventory were made at
or near fiscal year (FY) end and resulted in overcharges of $722,179
to the Federal Government. According to university officials, these
purchases were made to take advantage of special discounts and to arrange
for an uninterrupted supply of goods over an extended period of time.
However, the purchases were not needed as part of the normal operation
of the recharge center and were not sold or consumed during the year
of purchase. If the $729,406 in purchases had been properly classified
as inventory, the recharge center would have had a surplus balance at
year-end.
IMAGE
Section C4.a
of OMB Circular A-21 states that an allocable cost should be charged
in accordance with relative benefits received or other equitable relationships.
Accordingly, these purchases should not have been treated as expenses
since they were not sold or consumed during the subject FY. This misclassification
of purchased inventory overstated operating expenses and understated
the fund balance. As a result, Federal agreements were overcharged $722,179,
consisting of
$468,643
in direct costs and
$253,536
in indirect costs.
Duplicate Recoveryof
EquipmentCosts
We found
that 3 of the 12 universities had occasionally recorded the
full cost of purchased
or leased (operating and capital) equipment as
an expense in the year acquired, and a portion of the cost as
depreciation
over the life of the asset. Two of the three universities
recorded both the principal payments on bonds used to finance the
equipment and depreciation
expense for the same equipment to its
recharge center accounts. The third university depreciated
equipment that had already been fully expensed in its recharge
center accounts.
These improper accounting practices resulted in
overcharges
to Federal agreements of $284,068. This amount
consisted of $185,057 in direct costs and $99,011 in indirect costs.
Expensing
of Capital Equipment
We found that 6 of the 12 universities expensed $3,085,296 in
equipment costs which
should have been capitalized and depreciated
over the
useful life of the assets. Since supporting records were
available for only four of the six universities, we were only able to
identify
$136,630 in overcharges to Federal agreements. This
amount consisted
of $92,415 in direct costs and $44,215 in indirect costs.
Expensing
the total cost of equipment is not in accordance with generally accepted
accounting principles (GAAP) which require the cost of an asset to
be spread over its expected useful life. While OMB Circular A-21
allows universities to be compensated for the use of their equipment
through depreciation or use allowance, its related guidelines follow
this basic concept of GAAP.
Capital Equipment
Reserves Recharge
centers at two universities included a markup in billing
rates above
cost to accumulate a total reserve of $2,128,553 for
equipment replacement and additions. The OMB Circular A-21
specifically states that "(c)harges for the use of specialized services
should be
designed to recover not more than the aggregate cost of
the services ...." By including a markup in the billing rates, the two
universities
overstated the amounts charged to users and recovered more
than the actual costs incurred. This resulted in one university overcharging
its Federal projects by $28,302. Excess amounts charged
by the other university had an immaterial effect on
We found
that three universities had included $1,397,803 in
unallowable costs related to entertainment, interest, and bad debt
expenses in their
recharge center operating accounts. Sections 115,
122, and J4 of OMB Circular A-21 state that entertainment
expenses, interest on borrowed capital, and bad debt write-offs
"...are unallowable."
Since supporting records were available for only
two of the universities, we could only identify overcharges of
$16,625 to the Federal Government. This amount consisted of
$10,909 in direct costs and $5,716 in indirect costs.
We realize
that it may be impractical to exclude unallowable costs in the calculation
of billing rates when considering_ that recharge centers also provide
services to nonfederal users. Furthermore, it would not be feasible
to charge different billing rates to Federal and nonfederal users. To
resolve this issue and comply with OMB Circular A-21, universities should
perform periodic reviews to compare amounts charged with actual allowable
costs. The Federal share of differences between billed and actual allowable
costs should be reflected in the subsequent adjustment of amounts charged
to Federal programs.
The OMB Circular
A-133 Compliance Supplement states that over/underrecoveries should
be distributed to the original users. We believe that netting surpluses
and deficits from various recharge centers does not meet this requirement
since billing rates would not be appropriately adjusted. When surpluses
are used to offset costs in indirect cost pools, related credits are
not distributed to the users who were originally billed for the services
which created the surplus. Transferring deficits to indirect cost pools
may result in the duplicate recovery of related costs. If recharge accounts
are not closed (fund balances reduced to zero), deficit balances would
be carried into the subsequent period and recovered through an increase
in both the university's indirect cost rate and recharge center's billing
rate.Costs
Used in Billing Rates Were Also Included in the Indirect Cost Allocation
Three universities
classified costs as expenditures and capitalized
items in recharge center accounts used to-determine recharge center
billing and
indirect cost rates. The recovery of duplicate costs is not
consistent
with the cost principles: Our review found that two of the
universities included $145,819 in depreciation on equipment in their
recharge
center operating accounts and indirect cost rate proposals.
Because there
was a lack of controls to ensure that costs associated
with recharge centers were not included in indirect cost rate
proposals, some of
the recharge centers' costs were recovered twice.
The results
of the third university were immaterial.
Although
it was beyond the scope of the individual audits of
recharge centers to determine the extent of this problem at each
university, we determined
that one university received a duplicate
recovery
of $39,501 from Federal projects. Information regarding
the Federal share of duplicate equipment casts was not available for
the other
two universities. However, we did ask the second
university
to determine the amount of duplicate overcharges and to
resolve any issues with DCA. An OIG auditor determined that
identified overcharges
for the third university were immaterial.
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FUNDS
USED FOR UNRELATED PURPOSES
We found that
four universities used $3.5 million in surplus recharge center funds for
unrelated purposes. This was accomplished by either transferring a fund
balance from a recharge center to another fund or using recharge center
funds to purchase unrelated goods or services. For example, recharge center
funds were used to: (1) develop a universitywide accounting system; (2)
increase general and capital improvement funds; (3) renovate academic offices;
(4). purchase cables for a Federal project; and (5) supplement an athletic
department's funds. For example:
- Three service
centers at one university were charged $200,000 for the partial funding
of developing, acquiring and implementing a universitywide financial
accounting system (FAS). The FAS benefited the entire university and
its cost should have been recovered through the indirect cost rate as
a general and administrative cost charged to all risers. By recovering
the cost through service center billing rates, the Federal Government
paid a disproportionate share of FAS.
- Occasionally, excess
funds from recharge centers at another university were routinely used
for projects not related to the operation of the recharge center which
accumulated the funds. During FYs 1990 and 1991, the university transferred
$225,000 in excess funds from its recharge center for telephone services
to the Director of Finance for Athletics, and used an additional $75,000
to renovate academic offices. Clearly, Federal funds provided for sponsored
research projects should not be used to fund athletics or instruction.
None of these
expenditures or transfers were for purposes directly related to the
operation of the recharge centers. Because these funds were not used
to adjust the appropriate billing rates, Federal agreements were overcharged
by $167,191 by three of the universities. This amount consisted of $115,273
in direct costs and $51,918 in indirect costs. We could not calculate
the effect on Federal agreements for the fourth university since supporting
records were not available.
An OMB Circular
A-133 audit should detect such issues of noncompliance since one of
many objectives of OMB Circular A-133 Compliance Supplement is to determine
"...whether a refund has been made to the Federal Government for its
fair share of any amounts thereof which have been removed, transferred
out, or borrowed from the recharge center fund."
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INEQUITABLE BILLING
We found that
some universities did not bill all users for services or billed certain
users at a reduced rate. Section J44.c of OMB Circular A-21 requires that
the cost of each service be charged directly to users based on actual
use of the service and that rates do not discriminate between federally
and nonfederally supported activities, including university internal activities.
We found that
two universities either did not bill all users for
services provided by recharge centers or billed certain users at lower
rates. If recharge
centers provided preferential treatment to a
subset of users,
either by billing them at a reduced rate or not at all,
other users would have to be billed in excess of costs to cover
uncollected revenues.
In this way, Federal projects could be
overcharged
even though a recharge center did not accumulate a
surplus balance. For example, university staff and students at one
university were not
billed for $23,247,203 of services provided by the
computer center during the period July 1, 1988, through June 30,
1991. This practice
resulted in overcharges to the Federal
Government of $ 111,962, which consisted of direct costs of $69,742
and indirect
costs of $42,220.
Recharge centers providing multiple services may subsidize the cost
of certain services
by charging excessive rates for other services.
Consideration should be given to size, complexity and equity in
setting multiple
rates for a recharge center. Users of services
provided in a more efficient manner may pay higher rates than
necessary in order
to subsidize less efficiently provided services.
Although we
did not find this problem at the 12 universities
summarized in this report, we did perform a special review of a
computer center at
another university where inequitable pricing
occurred.
We also found
that recharge centers at some of the universities we
reviewed did not have adequate accounting records to track
revenues and expenditures related to specific goods and services. In
these instances,
billing rates may not reflect actual costs due to
inadequate accounting records.
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UNIVERSITY
AND OIG COMMENTS ON SIGNIFICANT ISSUES
Generally,
most universities were receptive to our proposed recommendations to
improve internal controls over recharge centers. Many welcomed OIG's
recommendations as a way to strengthen current university policies and
procedures. However, some universities disagreed with our recommendations
and believed that: (1) overcharges to Federal projects in one cost center
should be offset against undercharges by other recharge centers; (2)
recharge centers should not have to conduct cost studies or treat surplus
balances as overcharges to the Federal Government if the billing rates
are competitive, with market prices charged by outside vendors; and
(3) indirect costs should be allocated to recharge centers which
would reduce
surpluses prior to calculating refunds. We discuss
these areas
in the following section of the report.
Some of the
universities believed that overcharges to Federal
projects in one recharge center should be offset against
undercharges by other centers. Generally, the universities believed
that if the
net surplus balance of all recharge centers was
reasonable, no financial adjustment should be made based on the
findings of individual
recharge centers.
We disagree.
Each recharge center is organized to provide a
specialized service to a set of users. As such, each center operates
independently,
and its surpluses and deficits should accrue to users
through either
adjusted rates or individual adjustments to all Federal
users. The OMB Circular A-133 Compliance Supplement states that
the methods used
to adjust for accumulated over/underrecoveries
should distribute
these amounts in reasonable proportion to the
same users as were originally billed for the services which created
the accumulation.
We believe that netting surpluses and deficits will
not meet
this requirement because not all sponsored projects use all
recharge centers
and some use certain recharge services more than
others. In addition, section C4.b of OMB Circular A-21 states that:
'Any costs
allocable to a particular sponsored agreement
under
the standards provided in this Circular may not be
shed
to other sponsored agreements in order to meet
deficiencies
caused by overruns or other fund
considerations,
to avoid restrictions imposed by law or by
terms
of the sponsored agreement, or for other reasons of
convenience.
'
Some of the
universities believed that they should not have to
conduct cost studies or treat surplus balances as overcharges to the
Federal Government
when recharge center billing rates were
comparable
to market prices of outside vendors.
We disagree.
Federally sponsored projects for research are
generally awarded on a cost reimbursable basis whereby costs should
be based
on actual charges to such agreements. Section J44.c of
OMB Circular
A-21 states that billing rates should be designed to
recover not more than the aggregate cost of the services over a
long-term period
agreed to by the institution and the cognizant
Federal agency.
In order to calculate the appropriate billing rates in
accordance with this section, studies must be performed to
determine the recharge centers' actual costs of operation and the
volume of
services provided. In addition, the use of market prices of outside
vendors to establish recharge center billing rates would not
be
appropriate to the extent that market prices include a profit margin.
Therefore, the use of market prices would result in the universities'
recovering vendor profit margins as well as recovering costs.
Some of the
universities wanted to reduce financial adjustments
recommended by OIG by indirect costs they believed were not
included in recharge
center billing rates for recharge centers. The
universities
claimed that indirect costs would have been charged to
the appropriate recharge centers' accounts. This would have
reduced the related
fund balances and the repayment to the Federal
Government
would be smaller.
Although
OMB Circular A-21 allows universities to allocate their
indirect costs to recharge centers, most universities do not. Rather,
the billing
rates for recharge centers were typically based on direct
costs. Amounts
billed to federally sponsored projects were included
in total direct costs whereby a university would apply its negotiated
indirect
cost rate to determine total indirect costs for Federal
research.
Whether a university chooses to allocate its indirect costs
to recharge centers
or not, the development of recharge center
billing rates and the development of the indirect cost rate should be
consistent
and prevent duplicate charges for indirect costs. Thus,
our-,determination of whether unallocated indirect costs could be
used to reduce fund
balances at individual universities was made
relative
to the method used to develop the indirect cost rate.
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SUMMARY
OF CAUSES
Our review disclosed that 10 of the 12 universities had formal written policies
and procedures generally consistent with OMB Circular A-21. However, 9 of
the 10 universities did not always follow their policies and procedures.
We also noted that some university recharge centers did not maintain adequate
accounting systems and records to allow for the: (1) development of billing
rates based on actual costs; or (2) identification of surplus or deficit
fund balances. We believe that DCA should require universities to implement
policies and procedures consistent with OMB Circular A-21, and the Circular
should be revised to provide specific instructions for when and how recharge
centers should adjust for surpluses and deficits in fund balances.
University Oversight
Clearly, universities
are in the best position to implement policies and procedures -for the operation
of institutional recharge. centers. However, we found that some universities
did not establish written policies and procedures for recharge centers
and some of the universities had adequate policies which were not
being followed. Section
A2.e of OMB Circular A-21
states that:
"The application
should
require no significant
changes in the generally accepted accounting practices of colleges and universities.
However, the accounting practices of individual colleges and universities
must support the accumulation of costs as required by the principles, and
must provide for adequate documentation to support costs charged to sponsored
agreements. "
Some universities
indicated that it was difficult to require recharge centers to follow OMB
Circular A-21 requirements since their internal control structure did not
include a governing body designed to monitor all recharge centers. They
believe that unallowable practices would continue unless Federal auditors
took exception to them. Many of the universities welcomed our reports and
viewed them as a means for enforcing existing policies and procedures.
Section J44.c of OMB Circular A-21 requires billing rates to be
reviewed periodically
and adjusted if necessary. Although several of
the universities had implemented policies and procedures to analyze
and adjust billing
rates to prevent accumulation of excess funds,
some universities had not implemented the policies effectively and
others had deficiencies
such as expensing equipment or using costs
from recharge
centers to calculate indirect cost rates. We also
found that two universities had no formal policies and procedures to
govern the financial
operation of recharge centers. Although .
recharge centers
at one university established their own policies, they
varied from center to canter. In view of this, section CZ.c of OMB
Circular A-21 requires
the consistent treatment of costs through the
application of GAAP.
Some universities
clearly provided less oversight of recharge centers
than others. At two universities, internal and external auditors had
reported problems at
recharge centers, however, the universities did
not take corrective
action. Some
university officials indicated that it was difficult to get recharge
centers to prepare
annual cost studies even when it was required by
university policy. Thus, many universities monitored recharge
followed the
concepts of GAAP and believed that it was necessary and proper for recharge
centers to maintain a working capital reserve. Many universities were also
aware that OMB Circular A-87 was being revised, allowing for the maintenance
of a working capital reserve for internal service funds at State and local
governments. When coupling the provisions of OMB Circular A-87 with the
ambiguities of OMB Circular A-21, universities had the means
to continue using rates which accumulated excess funds. Although we
did not perform extensive testing of recharge centers with deficits, officials
at many universities informed us that recharge centers were much more likely
to adjust billing rates if a fund balance was operating at a deficit rather
than a surplus.
While OMB Circular
A-21 requires the accounting practices of universities to support the accumulation
of costs and to provide adequate documentation to support costs charged
to sponsored agreements, it is not as specific as the proposed revisions
of OMB Circular A-87 which establishes cost principles for State and local
governments. In support of claims made against the Federal Government in
the form of recharge billing rates, governmental units under the proposed
revisions of OMB Circular A-87 must provide: (1) fund balance sheets based
on individual accounts contained in the accounting system; (2) revenue and
expenditure statements with revenues summarized by type of user (e.g.,Federal
and nonfederal programs); (3) listings of transfers into and out of funds;
(4) descriptions of the procedures (methodologies) used to charge the costs
of each service to users and how billing rates were determined; and (5)
schedules of current rates.
We believe
that it would be helpful to use OMB Circular A-21 to require university
management to improve the financial operation of recharge centers. For
example, one university had a centralized recharge committee which effectively
monitored all of its recharge centers. The university's recharge center
policy required that each center submit a rate proposal to the centralized
rate committee for review and approval annually.
The proposed
revisions of OMB Circular A-87 also provide State and local governments
more specific guidance with regard to the need - to bill all users than
is provided by OMB Circular A-21. The proposed revisions of Circular A-87
state that:
"...
revenues should consist of all revenue generated by the service, including
unbilled and uncollected revenue. If some users were not billed for the
services (or were not billed at the
full rates),
a schedule showing the
fill
'imputed'
revenue associated
with these users should be
provided.
The recommendation
section of the report includes aspects of OMB Circular A-87 related
to recharge centers that we believe should be adopted within OMB
Circular A-21 and applied to universities.
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RECOMMENDATIONS
Our recommendations
relate to two issues: (1) improved university oversight; and (2) recommended
changes to OMB Circular A-21.
1. To provide
more effective oversight to recharge centers, DCA
should require
universities to:
Develop and
implement policies and procedures for the operation of recharge centers
consistent with OMB Circular A-21;
Establish and maintain adequate accounting and recordkeeping procedures
for recharge centers; and
Analyze and adjust billing rates to eliminate deficit and surplus fund
balances.
2. Without
definitive guidance in OMB Circular A-21,
universities' interpretations of section J44 resulted in charges to
Federal projects using billing rates which were not based
on actual costs.
To provide clear and definitive guidance for
operating recharge
centers, we
recommend
that HHS'
Division of
Cost Policy and Oversight work with OMB to
revise OMB
Circular A-21 to ensure that criteria related to
the financial
operation of recharge centers is clear. We
recommend that
a separate, comprehensive section be added
to OMB Circular
A-21 which promulgates the requirements
for the financial
operation of recharge centers. These
requirements
should cover the following points:
Permit a reserve
for working capital similar to that
proposed for
OMB Circular A-87 by stipulating th recharge center surplus fund should
not exceed 60 days in working capital;
Credit recharge
center accounts
with
interest earned on fund balances;
at a
Require all Federal
projects to be credited or refund
the
Federal share of funds transferred or used for purposes unrelated to operation
of the center;
Specify that
interest, as well as principal,
should be
considered as a cost, when funds are transferred out of
the
recharge center accounts;
Require all
users to
be billed
at full rates or establish a procedure to assure that
billed
users are not subsidizing unbilled users;
Specify that
indirect costs of centers should be included in billing rates;
Specify that
costs cannot be used in the computation of both indirect cost rates and.
recharge center billing rates except for minor variances between billed
and actual costs;
Develop specific
criteria for establishing recharge centers;
Require cost
studies as a basis for establishing billing rates and ensure all users
are billed;
Require periodic
reviews to compare amounts charged with actual allowable costs. The Federal
share of differences between billed and actual allowable costs should
be reflected in the subsequent adjustment of amounts charged to Federal
programs;
Define ambiguous
terms such as materiality and periodically; and
Require universities
to retain supporting documentation similar to that required of State and
local governments under the proposed revision of OMB Circular A-87.
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MANAGEMENT
AND OIG RESPONSE
In written
comments dated October 7, 1993, the DASGAM concurred that OMB Circular
A-21 should be revised to provide clearer and more definitive guidance
on the financial operations of recharge centers. The DASGAM also agreed
that institutions should comply with certain standards in the financial
management of their recharge centers. However, it was stressed that
this area should be evaluated by nonfederal auditors as part of an institution's
OMB Circular A-133 audit. The role of DCA would be to resolve any deficiencies
reported by the auditors. The DASGAM's comments are included in their
entirety in APPENDIX D.
We agree
that it would be appropriate for nonfederal auditors to evaluate the
financial management of recharge centers as part of an institution's
OMB Circular A-133 audit. In addition, the OIG is planning a nationwide
review that will encourage schools to self assess their controls to
determine if the financial management of recharge centers is in compliance
with OMB Circular A-21. We will refer any deficiencies identified to
DCA for resolution.
To facilitate
identification, please refer to Common Identification Number A09-92-04020
in all correspondence relating to this report. We request that you respond
to the HHS action official within 30 days from the date of this letter.
Your response should present any comments or additional information
that you believe may have a bearing on the final determination.
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