Auxiliary Activities FAQ

In accordance with Business and Finance Bulletin A-59, “Costing and Working Capital for Auxiliary and Service Enterprises," federal costing regulations define certain costs as unallowable as a charge to federal funds. Inclusion of interest as a direct cost (except for capital equipment lease purchases), funds accumulated for capital asset replacement in excess of depreciation on current equipment, and accumulated surpluses will require refunds to the federal government. The federal government will not accept any markup above cost, even if the purpose of that markup is to accumulate funds for equipment replacement or addition or for inventory expansion. Therefore, at the end of each fiscal year, those activities which provided services to federally-funded contract and grant activities will notify BFS-GA of any interest expenses (except for capital equipment lease purchases), accumulation of funds for capital asset replacement in excess of depreciation expense for currently used assets, and accumulated surplus balance in excess of one month of the recharging unit’s activity. These items are considered excess pricing by the federal government. The portion of the differential which can be attributed to federal contract and grant activities will be refunded to individual active contracts and grants or in lump sum to the U.S. Treasury by BFS-GA. There are two alternate ways to comply with federal costing regulations:

1. Establish dual-pricing structures for federal and non-federal activities (this can be accomplished by rebating the federal users); or
2. Instruct federally-funded activities not to make use of certain auxiliary  enterprise activities. 

Examples of auxiliary enterprise activities are housing and dining operations, non-housing food service operations, parking operations, bookstores, student centers and child care centers.

Following is a summary of the types of auxiliary enterprise activities that are subject to the approval process covered in this document:

• Student and staff facilities include recreational facilities, student stores and child care
• Student centers
• Intercollegiate athletics (if substantial receipts are generated through the sales to the general public)
• Physicians’ offices and museum stores
• Student Health Centers

The following are also considered auxiliary enterprise activities, but they are not subject to the approval process covered. They are, however, subject to the administrative overhead cost.

• Hospitals
• University Extension and Office of Continuing Medical Education course fees
• University of California Housing System
• Parking Operations

Before the establishment of an auxiliary enterprise activity, the need for such goods or services must be identified which, if provided at a reasonable cost and at a convenient location, would enhance and support the University’s instructional, research or public service programs. 

There must be a regular and continuing demand by students, faculty or staff for the goods or services to be provided by the activity. The demand must be significant, both in dollar amounts and number of transactions. 

Goods or services will not be sold to the general public unless the goods or services are unique or sales will not compete with commercial sources. 

If it is anticipated that the activity may generate unrelated business income, i.e., related to the sale of goods and services to the general public, the potential tax liability also must be considered in planning and budgeting for the activity.

In addition to the department Chair or Administrative Unit Head approval, the activity’s Vice-Chancellor or designee should review and approve. 

After the required departmental approvals, Vice-Chancellor External and Business Affairs or designee will approve. Some auxiliary enterprise activities, such as Early Childhood Education Center, Parking and UCHS, are approved by campus committees with final approval by the Chancellor or designee and may have different requirements.

Prices are to be established at a level that will provide revenue to cover all direct costs and all indirect costs, including consideration of prior year losses or excess income. Also, prices may be set at a level sufficient to accumulate funds (net worth) required to meet working capital and capital expansion needs. However, federal costing regulations do not allow interest costs (except for capital equipment lease purchases), working capital or capital costs to be charged to federal users. There are two alternate ways to comply with federal costing regulations:

1. Establish dual-pricing structures for federal and non-federal activities (this can be accomplished by rebating the federal users); or
2. Instruct federally-funded activities not to make use of certain auxiliary enterprise activities. 

In establishing the pricing structure, the activities should take into account any non-operating revenues (subsidy appropriations) which may be available to cover costs.

Auxiliary enterprise activities will be charged for all overhead costs that are determined to benefit them, including costs of operation and maintenance of plant and, in addition, central campus administrative services.

For bond indentured auxiliary enterprise activities, prices must also cover debt service and other bond indenture requirements.

Rates of activities will be stated in measurable units of goods or services and a separate rate will be established for each class of goods or services provided. 

Goods sold to the general public may be subject to California sales tax. 

All auxiliary enterprise activities must be able to provide a schedule of rates and prices.

All auxiliary enterprise activities and similar self supporting activities will be charged for all direct and indirect costs involved in producing their goods and services. 

Direct costs are those costs that can be identified specifically with a particular service or product, or that can be easily assigned with a high degree of accuracy. Examples of services and products that may be provided and directly charged to auxiliary units for services include, but are not limited to, interest expense, utilities, custodial services, building maintenance, hazardous waste removal, telecommunications and data services. Federal costing regulations place some limitations on interest expense. 

Indirect costs, or overhead, are those costs that cannot be easily or accurately assigned to a particular service or product or that are incurred for a common or joint objective. Examples include executive management from the chancellor’s office, resource management & planning and university relations; staff and faculty resource offices such as the cross cultural center, women’s center, LGBTQ, and Office of the Ombuds and central business offices such as accounting, payroll, human resources, university communications and planning. The campus recovers indirect costs through a 6.5 percent overhead rate on current year revenues.

Some activities buy capital equipment using an APPROVED installment contract/lease which must be processed through BFS-Procurement and Contracts and in accordance with UCOP policy, Business and Finance Bulletin BUS-43, Materiel Management, Part 6. 

Interest expense is considered to be a direct cost of the operation and is recorded in the operating fund except when federal users are involved. However, principal payments must be paid from Renewal and Replacement (R&R) funds or from some other funding source, such as campus discretionary funds

Once the Vice Chancellor has approved an activity, an email with all the supporting documentation will be sent to BFS-GA at SelfSupportAct@ucsd.edu. BFS-GA will establish the appropriate COA elements.

Each auxiliary enterprise activity will be assigned a unique fund number in the appropriate COA series. The fund number is often referred to as the “operating fund”.

A revenue/income account code will be established. 

A new organization code will be established. 

A program code of xxx030 for operating activity and xxx070 for cost of goods sold are established. 

In addition to the operating fund, an R&R fund (76xxxx) will be established if inventorial equipment is acquired. An equipment plant fund will also be established which is the operating fund with a 9 as the last character, e.g., 730009.

A working capital fund (75xxxx) may also be established.

An index code will be associated with the COA elements, a.k.a. IFOAP =  Index, Fund, Organization, Account and Program. 

Reserves for replacement of equipment are funded from the activity’s operations by charging the operating fund and crediting the R&R fund for depreciation expense. The following are the financial entries to record depreciation expense:

Debit (-): index, operating fund, organization, transfer account code 720500

Credit (+): index, R&R fund, organization, transfer account code 723050

Rule class FB08

Auxiliary enterprise activities are allowed to accumulate funds aside in reserve funds (75xxxx) for working capital. The entries are as follows:

 Debit (-): index, operating fund, organization, transfer account code 720701

Credit (+): index, reserve fund, organization, transfer account code 720701

UC and Federal Policies:

• UCOP Contract and Grant Manual
• Business and Finance Bulletin A-47, University Direct Costing Procedures
• Business and Finance Bulletin A-59, Costing and Working Capital for Auxiliary and Service Enterprises
• Business and Finance Bulletin A-60, Short-Term Investment Pool Distribution of Income
• Business and Finance Bulletin A-61, Procedures for Determining Unrelated Business Income and Expenses
• Business and Finance Bulletin BUS-29, Management and Control of University Equipment
• Business and Finance Bulletin BUS-43, Materiel Management, Part 6
• Business and Finance Bulletin BUS-72, Establishment and Review of Auxiliary Enterprises
• Office of Management and Budget (OMB) Federal Register CFR Part 200 (Uniform Guidance)

UCSD Information:

• Account Code Overview
• Cash Handling Overview
• Sales Tax Overview
• UCSD Cost Accounting Standards Board Disclosure Statement (CASB DS-2)

The responsibilities include but are not limited to:

• Submit to activity’s Department Chair or Administrative Unit Head an auxiliary enterprise activity proposal.
• Submit requests for administrative overhead recovery exemption
• Provide documentation that the external entity prohibits payments for overhead if submitting an administrative overhead recovery exemption request
• Participate in resolution of comments, questions, and objections.
• Assure costing and pricing policies are followed.
• Ensure that only the auxiliary enterprise activity’s own revenues/recharge income and expenses are recorded in the operating fund.
• Ensure activities maintain records to substantiate recharge and other billing transactions, including requisitions, purchase orders, or similar written verification of individual user requests for goods or services.
• Ensure activities provide users with a receipt or similar written confirmation for each sale of goods or services at the time the sale is made. In addition, recharge users will be provided a detailed monthly statement for each index number recharged.
• Ensure activities initiate recharge or other billing transactions when goods and services are provided. Activities will not initiate recharge or other billing transactions in advance of providing goods and services. Progress recharges or billings may be made for jobs in process. 
• Ensure that activity will charge all users of goods or services at established, approved rates.
• Conform to approved cash-handling, credit card compliance, billing and recharge procedures.
• Ensure that identical goods or services provided to University users must have identical rates.
• Obtain a discrete custodial code for the activity if any equipment depreciation is included in the charge rates
• Process CAMS interdepartmental transfer form to transfer existing equipment to the new custodial code
• Maintain acceptable surplus balance

The responsibilities include but are not limited to:

• Review and approve proposal from originating office.
• Forward proposal and supporting documentation to the activity’s Vice Chancellor’s Office.
• Participate in resolution of comments, questions, and objections to proposal.
• Review and approve request for administrative overhead recovery exemptions
• Forward requests for administrative overhead recovery exemptions to the department’s Vice-Chancellor
• Notify any activities with an unacceptable surplus or deficit balance in three consecutive years that they are required to revise their charge rates. 
• Responsible for the business management functions, such as budget control and the receipt, custody, and disbursement of revenues, accounting and financial reporting; and procurement of supplies, equipment, and services.
• Responsible for any unfunded deficits of the activity

The responsibilities include but are not limited to:

• Review and approve proposal from originating office.
• Final approval of campus committee approved activities, such as Early Childhood Education Center, Parking and UCHS.
• Forward proposal and supporting documentation to the BFS-GA at SelfSupportAct@ucsd.edu
• Review and approve request for administrative overhead recovery exemptions
• Forward requests for administrative overhead recovery exemptions to the Recharge Rate Review Committee Chair or Designee

The responsibilities include but are not limited to:

• Establish discrete custodial codes for new activities that include equipment depreciation expense in their charge rates.
• Associate the activity's custodial code with the activity's organization code and operating fund. 

The responsibilities include but are not limited:

• Review and approve detail codes for billings to non-UC users.
• Review and approve category codes for billing to non-UC users.

The responsibilities include but are not limited to:

• Upon approval by the activity's Vice Chancellor's office, BFS-GA review and approve recharge procedures and methodology.
• Submit the proposal for final approval to the Vice-Chancellor External and Business Affairs or designee. 
• Send notification to auxiliary enterprise activities of final approval. Provide COA accounting distribution for new activity.
• Produce an annual listing of auxiliary enterprise activities with surplus or deficit balances to the Vice Chancellor-External and Business Affairs or designee.
• Ascertain whether activities are subject to unrelated business income tax and if applicable, submit financial worksheets to UCOP for inclusion in the consolidated income tax return.      

The responsibilities include but are not limited:

• Review and final approve the proposal.
• At least once every five years, reviews  each auxiliary enterprise activity to assure that it continues to serve an important University need, is cost-effective considering alternative commercial sources, and only incidentally serves the general public and campus departments.

Responsibilities include but are not limited to:

• Review and approve administrative overhead recovery exemptions
• Submit recommendation for administrative overhead recovery exemptions to the Vice-Chancellor Chief Financial Officer for review and approval

Responsibilities include but are not limited to:

• Provide final approval of administrative overhead recovery exemptions