Auxiliary & Self Supporting Assessment Tiger Team Summary & Recommendations

Transcription

1 Auxiliary & Self Supporting Assessment Tiger Team Summary & Recommendations June 1, 2009

2 I. EXECUTIVE SUMMARY The Auxiliary & Self Supporting Assessment tiger team was appointed in December 2008 at the request of the campus Financial Officers and Campus Budget Office. Its charge was to review current cost recovery on sales and services by campus Auxiliary and Self Supporting operations to ensure campus overhead costs are fully recovered. Team membership included representatives from several Vice Chancellor units across the campus and is provided at the end of this report. Over a period of four months the team researched, reviewed, and discussed the current campus cost recovery methods and policies for Auxiliary and Self Supporting activities, and surveyed general practices at other UC and non-uc institutions. It is clear that Auxiliary and Self Supporting activities have a significant and growing impact on the campus. For the 2007/08 fiscal year, Auxiliary and Self Supporting activities represented $1.1 billion, or almost 45%, of total campus revenues. These activities have increased by 75% over the last 7 years, from a total of $653 million in 2000/01. There was consensus among team members that the campus should fully recover overhead costs incurred on services provided to Auxiliaries and Self Supporting operations and sales by those entities to the general public. Costing and pricing policies governing Auxiliary and Self Supporting activities require that rates for sales to the general public recover applicable overhead costs; activities are expected to fully self support without institutional subsidy. As a result of the review, preliminary data suggests that the campus may not be fully recovering such overhead costs. In summary, the review indicated that: Current management of the administrative recharge rates can be cumbersome and labor intensive, consequently, the rates have not been updated to reflect the level of services provided by campus administrative units. The administrative cost pool currently used to calculate overhead recovery is too narrow; current practice only includes services provided by select Business Affairs units. Several activities falling under the scope of current policy do not appear to be remitting any campus overhead cost recovery. In fiscal year 2007/08, activities recommended for additional review recorded $88 million in annual revenues. The research and analysis conducted by the team indicates that there is opportunity for additional recovery, however, the team did not have sufficient time to fully review and discuss the recommendations contained in this report. Additional time is needed to comprehensively analyze the impact on the Auxiliary and Self Supporting activities. Several recommendations require further analysis before they can be fully adopted, therefore, it is recommended that sub teams be formed to analyze and/or implement some of the immediate and short term recommendations contained herein. Page 1 of 12 CBO June 1, 2009

3 Immediate Recommendations 1. Implement recalculated administrative recharge amounts effective FY 2009/10 using FY 2008/09 Auxiliary and Self Supporting activity expenditure levels. 2. Conduct a review of activitites classified as quasi-auxiliary units to ensure that their facility costs are not being subsidized by the campus. Activities housed in state supported space must recover campus facilities cost by charging the full differential income rate on sales to the general public and other non-university private entities. 3. Review by the Campus Recharge Rate Review of those activitites not currently remitting overhead recovery. Also, review current procedures to ensure units compliance with existing policy, including proper classification of such activities, confirmation that outside rates include the recovery of applicable overhead costs and the review of exception/exemption categories defined in PPM Conduct periodic audits of select activitites, to ensure that overhead recovery is being collected and remitted according to campus policy. Short-term Recommendations 1. Simplify the calculation of the administrative recharge rate. Leverage campus financial data and process used by the Financial Analysis Office to negotiate research overhead rate to simplify the calculation of the administrative recharge rate. 2. Standardize and automate the administrative recharge process similar to the automated financial process now in place for campus research activity and overhead cost recovery. 3. Consider establishing a differential income rate using our calculated federal components, not the campus negotiated components. 4. Review Other Sources and Tuition and Fee activities to determine whether current policy applies to the collection of overhead recovery. Where current policy does not exist, examine the appropriateness of such recovery and the impact on those activitites. In closing, we want to thank all member participants of the Auxiliary & Self Supporting Assessment tiger team. We recognize that participation in important efforts such as this is in addition to normal daily work requirements. The active participation in researching and interpreting policy, data analysis and participation in team discussions is much appreciated and most critical in arriving at this team report. Page 2 of 12 CBO June 1, 2009

4 II. INTRODUCTION AND PURPOSE UCSD as a whole is experiencing significant budgetary challenges in the current and upcoming years, as a result of a number of converging factors. Among others, this includes reduced state general fund budgets; reinstatement of contributions to the UC Retirement Plan; growing unfunded mandatory costs for health and welfare benefit costs; unfunded state enrollment, utilities, and facilities maintenance; declining endowment values and operating payouts; and slowing growth in federal basic research funding. As the campus confronts these compounding budgetary problems, it must maintain priority on core academic enterprise, classroom teaching and research laboratories. In so doing, a balanced multi-year approach is critical to the campus ability to emerge from these difficulties and forge a stronger position over the upcoming decades. An important component of the campus planning process is the work of tiger teams, focused on: Identifying and implementing immediate, mid, and longer-term tangible cost containment and reduction measures; Identifying and pursuing options for program consolidation & department restructuring that, over time, results in reduced personnel costs; Identifying opportunities and pursuing alternative revenue strategies. The Auxiliary & Self Supporting Assessment tiger team was appointed in December 2008 at the request of the campus Financial Officers and Campus Budget Office. Its charge was to review current cost recovery on sales and services by campus Auxiliary and Self Supporting operations, to ensure overhead costs are recovered and in alignment with services received without institutional subsidy. The review does not include sales and services to the campus by nonuniversity unaffiliated third party operators, nor internal campus recharge sales from one campus department to another. The team is comprised of representatives from several Vice Chancellor units and departments across the campus and specific membership may be found at the end of this report. UCSD s total revenues for the 2007/08 fiscal year were $2.5 billion, of which, Auxiliary and Self Supporting activities represented $1.1 billion or almost 45% of total campus revenues. These activities have increased by 75% over the last 7years, from a total of $653 million in revenues in 2000/01. Over this same period, total campus revenues increased by 57%, from $1.6 to $2.5 billion. Clearly, Auxiliary and Self Supporting activities on the campus are a significant and growing component of total campus operations. (Appendix A) Over a period of four months the team researched, reviewed, and discussed the current campus cost recovery methods and policies for Auxiliary and Self Supporting activities, while surveying practices at UC and non-uc institutions. To focus the work of the team, the following tasks were identified: Review UCSD s current methods, magnitude of support, and use of funds Page 3 of 12 CBO June 1, 2009

5 Define Auxiliary and Self-Supporting activities as well as campus administrative and institutional support costs Research other UC campuses and other institutions practices Minimize negative consequences to the campus core mission Make recommendations that consider the short and longer-term needs of the campus III. RESEARCH AND FINDINGS Current Overhead Costing Policy Auxiliary and Self-Supporting activities are, by definition, expected to fully self-support and not receive institutional subsidy. Costing and pricing policies governing Auxiliary and Self- Supporting activities require that rates for sales to the general public shall recover applicable overhead costs (PPM V.A.2.d, Appendix B); comparable to direct costing and overhead recovery on federal research activities. For Auxiliaries, campus cost recovery occurs largely by way of an administrative recharge assessed on Auxiliaries expenditures, and for Self- Supporting activity it occurs by way of charging a differential income/recovery rate on Self- Supporting revenues. Administrative Recharge: The Administrative Recharge process is managed by Business Affairs, and attempts to recover central administrative overhead costs from campus auxiliary units. The current process involves calculating an overhead percentage derived by the periodic review of services and transactions supporting auxiliary units. This overhead percentage is applied to Auxiliary expenditures in an attempt to recover costs associated with certain categories of administrative services: Human Resources and Payroll, Purchasing, Disbursements and Receiving, Travel, General Accounting, and Cashier s Office. Auxiliaries by definition should self-fund all direct operating costs including facility and administrative expenses. Unit assessments are processed manually, on a monthly basis, and are calculated on prior year expenditure levels. Funds collected via the administrative recharge process are retained within Business Affairs to offset operating costs. A summary of the methodology and use of these funds is provided in Attachment 1. Differential Income/Recovery Rate: The Differential Income/Recovery process is administered by the department responsible for the revenue producing activity with oversight and reporting provided by General Accounting. Per campus recharge policy, most self-supporting income producing activities (e.g. recharge departments with outside sales and services) must recover campus overhead costs by way of a differential income/recovery rate. This rate is similar in concept to that applied to federal research activity and negotiated with the Department Page 4 of 12 CBO June 1, 2009

6 of Health and Human Services (DHHS). The differential rate is driven by the current negotiated research rate for the campus, less four components that have been determined not to apply: Equipment Depreciation, Sponsored Project Administration, Student Administration and Services, and Library. Differential income is calculated manually with final allocations processed no later than fiscal year end. Income generated by this form of cost recovery is currently distributed as follows: 65% to, or as directed by, the Vice Chancellor responsible for the activity that generates the overhead recovery 25% to, or as directed by, the Vice Chancellor Business Affairs 10% to, or as directed by, the Vice Chancellor Resource Management and Planning The facility and administrative components of the current differential income rate and the allocation of prior year recovery is provided in Attachment 2. According to campus policy (PPM V.A.2.d, Appendix B), exceptions to waive and/or reduce the collection of differential income, while few in number, can be granted by the Recharge Rate Review Committee. In order to obtain approval, one of the following conditions must be met: Off-Campus - If a sales/service activity is located in space that is not owned or maintained by UCSD, an off-campus differential rate will be added to sales to the general public. If a sales service activity is affiliated with the ship-use operation, with no space costs and all departmental support costs factored into the charge rate, a ship use differential rate will be added to sales to the general public. Capacity Considerations - When a sales/service activity needs outside sales to attain/maintain a desirable capacity that in turn keeps the sales/service cost low for University clients, and when the standard overhead rate would price the service out of a competitive position. Quid Pro Quo - When a particular client, or all clients, are providing something of tangible value to UCSD that can be counted in lieu of full overhead on the sales/service charge. Findings Campus procedure for assessing the administrative recharge rates has included select services provided by some Business Affairs units. The recharge rates have not included other General Administration costs such as the Chancellor s Office, Campus Budget Office or Internal Audit. Page 5 of 12 CBO June 1, 2009

7 The effort involved in maintaining and updating the calculations is labor intensive, and alternative methods should be examined. Consequently, the rates should be updated relative to the level of services provided by campus administrative units. From 2003/04 thru 2008/09, administrative recharge rates were inadvertently assessed on 2000/01 Auxiliary expenditure levels. Beginning 2009/10, the current procedure is to charge recharge rates based on prior year expenditure levels. Assuming year-over-year growth for most of our Auxiliary units, billing in arrears results in lower real time cost recovery for the campus. Medical Center and Medical Compensation (a.k.a. Medical Group) activities have different recharge rates. In recognition that the intent of the administrative recharge is to recover cost of services that the campus provides, and not those services that the unit already funds as part of its operations. Attachment 3 provides a comparison of the Medical Center rates. The differential income rate is derived from the negotiated research rate for the campus. This rate reflects federal reimbursement caps and overall rate negotiations made with the federal government. Using the negotiated components as a starting point for setting the campus differential income/recovery rate has the potential of discounting the campus cost recovery from outside sales. While Vice Chancellors units may elect to keep 65% of the differential income generated, both Health Sciences and Academic Affairs have chosen to remit these funds to their respective departments. Beginning fiscal year 2007/08, Marine Sciences changed their differential income policy to retain 5% at the VC level. Matrix of Income Producing Activities A critical component of the review was to identify and classify the income producing activities that would be impacted by the recommendations contained in this report. While the group compiled an extensive list of activities, time constraints required that it narrow the review to six general types of income producing activities. Attachment 4 defines these activities, provides specific examples for each, and includes the 2007/08 revenue and cost recovery totals. The group also discussed income producing activities classified outside of the Sales/Service category that currently do not contribute to campus administrative costs. While not included in the scope of this report, the following activities are suggested for future review: Other Sources Agency Funds Campus Third Party Vendors Recreation/Sports Programs Other Outside Revenue Producing Activities Page 6 of 12 CBO June 1, 2009

8 Tuition & Fees Activity Self Supporting Educational, Executive Programs SOM Continuing Medical Education Student Health Services Findings For those activities falling under the scope of this review, several do not appear to be contributing to campus administrative overhead costs. Attachment 5 summarizes the 2007/08 Auxiliary, Self-Supporting, and Other Sources of revenue from which currently there is no overhead cost recovery remitted. Certain activities, such as Medical Group related charges, treated as quasi-auxiliary units and charged via the administrative recharge process may not be recovering campus facilities costs. For example, if an activity is housed in state supported space, their facilities costs, such as building depreciation, interest and operations and maintenance of plant (O&MP), are funded by the State O&MP budget. For purposes of overhead recovery, application of the differential income rate would be a way to recover both the administrative and facilities costs from which their activities receive benefit. Auxiliary Direct Administrative Costs Our team included representation from two Auxiliary units on campus: Housing, Dining & Hospitality (Housing) and Transportation Services (Transportation). Both units were asked to provide a multi-year summary of direct administrative charges billed to their operations to explore whether such charges represented a double billing of costs already recovered by the administrative recharge process. Findings Data provided by both Housing and Transportation included all campus recharges billed to their operating funds Attachments 6 and 6A. In certain cases, these costs appear to represent normal operating costs of the activity and might not be treated as additional institutional support (utilities, building maintenance, trash, etc.) Certain services appear to be recovered by both the administrative recharge and direct charges. For example, Purchasing services are recovered via the administrative recharge. In addition, both Housing and Transportation are direct charged for purchasing staff and supply costs for personnel assigned specifically to their organizations. Additional work, performed by a successive sub team, is needed to examine whether these direct charges should be treated as an operating cost of the activity or as institutional support costs recovered by way of recharge. Some costs appear to be partially recovered via the administrative recharge with larger direct charges made to the Auxiliary units. For example, the administrative recharge recovers a portion of administrative and supply/expense costs for the police department. In addition, Page 7 of 12 CBO June 1, 2009

9 both Housing and Transportation are responsible for funding a portion of the police department operating budget. Additional work, performed by a successive sub team, should seek to clarify what each charge is attempting to recover and determine if it makes sense to bill police overhead costs via the administrative recharge while actual staff costs are direct charged? Where direct charges represent normal operating costs of an Auxiliary unit, the following adjustments might need to be made to the administrative recharge calculation: o If the charge is related to services specific to the Auxiliary unit (e.g. purchasing staff), a direct charge could be made, however, it would be appropriate to exclude these costs when calculating the overhead costs of the administrative unit (BFS Procurement & Contracts). o If the charge is related to generic services available to all Auxiliary units, it might be more appropriate to eliminate the direct charge and fund the cost by way of the administrative recharge process. o In some cases, both charges may be appropriate; for example, police services specific to the activity in addition to a general campus police presence. Separate from direct charges for specific services, the Auxiliary units may also be providing support in the form of space, administrative/data support and incidental supplies. Pending additional review, it might be more appropriate to fund these costs via the administrative recharge process by having the administrative units self-fund these costs. Capital costs (e.g. water lines, displaced parking, etc.) and sustainability efforts appear to be large commitments for both Housing and Transportation. Clarification is needed on whether these costs represent campus initiatives or normal operating costs of the organization. Facilities & Administrative Costs: General Administration Component As a way to simplify the current administrative recharge process, the team proposed the development of an auxiliary overhead rate based on the methodology used to negotiate campus recovery with the federal government. Using existing campus financial data, the existing federal overhead process is leveraged in two ways: Development of an auxiliary overhead rate that only includes general administration cost that are applicable to Auxiliary and Other Institutional Activitites. This requires the proration of campus administration costs among various cost pools so that each activity is funding their share of campus overhead. Automating the administrative recharge process by copying the programming used to charge overhead on federal funds. Automation will result in workload savings, additional recovery, and eliminate the need to bill in arrears. Page 8 of 12 CBO June 1, 2009

10 Findings While a significant amount of time was spent reviewing the overhead methodology, additional time is needed to develop a rate that clearly and simply captures Auxiliary administrative costs. While there was agreement on the methodology involved, the team needs more time to conduct the in depth analysis necessary to produce a rate that could be applied and compared to our current recovery model. In order to perform a more detailed review, the simplification and calculation of the administrative recharge rate has been listed as a short-term recommendation to be addressed in collaboration with one or more subteams. The team agreed that automating the administrative recharge would result in significant workload savings. While the existing automated federal process recovers campus overhead on a regular basis, as federal expenditures are incurred; there was concern that using a similar process would create hardship for activitites that experience fluctuations in their revenue streams. While the team agreed that the current process of reviewing transactions/services to calculate the current administrative recharge rates would not be utilized under a new model, there is a need to perform such a review to test the appropriateness of any new model. The old, detailed calculation should be performed on 3-4 activitites to ensure that the level of cost recovery resulting from a new model is in alignment with those services the units actually receive. UC and Non-UC Cost Recovery: Institutional Practices Preliminary data gathered from campus financials indicated that UCSD s effective cost recovery from Auxiliary and Self Supporting activities may be low relative to what would be expected per campus policy. In addition to looking at internal campus methods, it was equally important to survey other UC and Non-UC institutions to help inform the review of our own policies and practices. Attachment 7 includes responses to a UC and a non-uc survey recently conducted. Findings From the responses compiled, both the UC and non-uc survey results suggest that UCSD may be under-recovering Auxiliary and/or Self-Supporting administrative costs. Many of the UC campuses include a broader group of revenue producing activities in their administrative cost recovery. For example, assessments are applied to student recreation, student health centers, printing and copying centers, and agency funds. The San Diego recovery process does not assess these activitites. The cost pool of both the UC and non-uc Institutions appear to include a broader category of campus administrative costs. For example, in addition to services provided by Business Affairs, the cost pools also include general administrative costs of the Chancellor s Office, Budget and Analysis and VC Administration. Page 9 of 12 CBO June 1, 2009

11 Several of the non-uc campuses are using rates derived from their F&A rate negotiation proposals as a means of consistently calculating and applying overhead recovery processes across various activities, and in recognition of already accepted federal methods. While both the UC and non-uc surveys provided good background information, they are not a comprehensive review of either the methodologies deployed or the appropriateness of such assessments. Instead, the responses are indicative of a range of practices employed by other institutions. Further, they serve to inform possible improvements and/or changes to local practices. III. RECOMMENDATIONS AND POTENTIAL IMPACT Immediate Recommendations 1. Implement the recalculated administrative recharge amounts effective FY 2009/10. Bookstore, Housing and Transportation were billed for 60% of the 2008/09 recalculated incremental in 2008/09. Because these increases are the result of activity growth, not a recalculation of the administrative recharge, there was consensus to fully implement in FY 2009/10 Attachments 8 and Quasi-Auxiliary activities (e.g. Medical Group related activitites) assessed the administrative recharge rate must demonstrate that the campus is not subsidizing the activity s space usage. Recommend that General Accounting conduct a review of all activitites classified as quasi- Auxiliary units to ensure that their facility costs are not being subsidized by the campus. Activities housed in state supported space must recover campus facility costs by charging the full differential income rate on sales to outside users. Going forward, the location of such quasi-auxiliary activitites should be considered prior to assigning a cost recovery method. 3. Recommend that the Recharge Rate Review Committee direct immediate attention to those activitites which PPM places under their purview and which are not currently remitting overhead recovery. Going forward, enforce existing policy by properly classifying such activitites and confirming that outside rates include the recovery of applicable overhead costs. Based on preliminary data provided in Attachment 5: o Medical Compensation and Other Sources make up 88% of the Auxiliary and Self Supporting activity that does not appear to be collecting/remitting overhead recovery. Specific attention should be directed to these areas. o Specific attention should also be directed to individual activitites within the other categories that generate revenue in excess of $500K annually. o A listing of all remaining activitites should be provided to each respective Vice Chancellor for review and/or comment. Page 10 of 12 CBO June 1, 2009

12 4. Recommend that the Recharge Rate Review Committee, Financial Analysis Office, and General Accounting review the exceptions/exemptions in PPM for those activitites currently not remitting overhead recovery. 5. Enforce campus policy on the collection and distribution of differential income. Recommend that the Recharge Rate Review Committee, General Accounting and/or Audit and Management Advisory Services (AMAS) conduct an annual audit of select activitites to ensure that overhead recovery is being collected and remitted. 6. Recommend the formation of additional sub teams to address the short-term recommendations identified in this report: o Detailed review of administrative recharge rate o Automation of administrative recharge and/or differential income recovery o Review the current differential income rate with consideration given to the use of calculated versus negotiated component rates. Short-term Recommendations 1. Simplify the calculation of the administrative recharge rate. Leverage campus financial data and process used by the Financial Analysis Office to negotiate research overhead rate with the federal government to develop a rate that includes all campus administration costs applicable to Auxiliary activities. Use similar method to determine rate for Medical Center and Medical Compensation activitites. Resultant rates should reflect services provided by the campus and not already self-funded by the activity. 2. Standardize and automate the administrative recharge process similar to what is now in place for campus research activity and overhead cost recovery. 3. Consider establishing a differential income rate using calculated components, not negotiated components (Attachment 10). Reduced rates as a result of federal negotiations should not be applied to outside, non-federal users. 4. Review Other Sources and Tuition and Fee activities to determine whether policy should also apply to the collection of overhead recovery. Where current policy does not exist, examine the appropriateness of such recovery and the impact on those activitites. Potential Impact The recommendations of this report have primarily focused on the recovery of campus administrative costs. Separate from campus overhead recovery, the impact of such changes on the Auxiliary and Self-Supporting activitites should also be taken into account. While changes to the current administrative recharge and differential income models are not included as immediate recommendations, the following should be noted with the formation of sub-teams: Auxiliary and Self Supporting activities need to be given time to assess the impacts and respond to a new assessment. Page 11 of 12 CBO June 1, 2009

13 Consider the possible impacts on other revenue sources if rates are increased. For example, will increasing the differential income rate force some activitites out of business and indirectly affect the research programs that rely on those same services? Significant changes may require that the incremental increase be implemented over a period of time. For example, Housing rates are approved by student/faculty/staff advisory committees on an annual basis. Significant increases will need to be included in these rate proposals and may need to be phased in over several years. Comprehensive input provided by team members in response to working drafts of this document has been included for reference in Appendix C. Tiger Team Membership Sylvia Lepe-Askari, Campus Budget Office (Chair) Bill Brophy, Financial Analysis Mark Cunningham, Housing and Dining Services Brian d'autremont, Transportation Services Clayton Egan, General Accounting Ron Espiritu, VCHS Debbie McGraw, Academic Affairs Jane Milner-Mares, Family & Preventive Medicine Mercedes Munoz, Campus Budget Office (Lead Staff) Steve Relyea, Business Affairs Deborah Seidle, VCHS Julie Staffiero, General Accounting Nick Webster, Research Other participating staff Alice Chen, General Accounting Cynthia Harrison, Housing, Dining & Hospitality Services Darryl James, Financial Analysis Page 12 of 12 CBO June 1, 2009

14 UNIVERSITY OF CALIFORNIA, SAN DIEGO Auxiliaries & Self Supporting Assessment Tiger Team Administrative Recharge Attachment 1 Central Administrative Services Rate Expenditure Base Human Resources and Payroll 1.28% Salary/Benefits Purchasing, Disbursements and Receiving 0.56% Supplies and Expense General Accounting 0.08% Salary/Benefits, Supplies and Expense and Cost of Goods Sold Travel 0.90% Travel (non-garage) Cashier's Office variable Based on services received (AR processing, returned checks, etc.) Assessment of Cost Recovery 2003/ / / / /08 Academic Support (Educational Activities) $ 46,000 $ 51,000 $ 61,000 $ 70,000 $ 72,000 Auxiliary Enterpise 809, , , , ,000 Medical Center 271, , , , ,000 Medical Compensation 375, , , , ,000 Other Sources 16,000 18,000 19,000 21,000 22,000 Student Tuition & Fees 160, , , , ,000 Assessment Total $ 1,677,000 $ 1,767,000 $ 1,878,000 $ 1,915,000 $ 1,994,000 Allocation of Cost Recovery Business Affairs (1) $ 1,677,000 $ 1,767,000 $ 1,878,000 $ 1,915,000 $ 1,994,000 Allocation Total $ 1,677,000 $ 1,767,000 $ 1,878,000 $ 1,915,000 $ 1,994,000 Notes: 1. Includes allocations to Business & Financial Services, Police and PPO Grounds. CBO June 1, 2009

15 UNIVERSITY OF CALIFORNIA, SAN DIEGO Auxiliaries & Self Supporting Assessment Tiger Team Differential Income Attachment 2 Differential Income Policy Differential Income Rate Components Rate % Rate Administrative Departmental Administration % General Administration % Sponsored Project Administration - - Student Administration & Services - - Facilities Building Depreciation % Building Interest % Equipment Depreciation - - Library - - Operations and Maintenance % Rounding (0.30) -1% Rate % Allocation of Recovery Funds 2003/ / / / /08 Administrative Vice Chancellors Business Affairs $ 495,000 $ 395,000 $ 544,000 $ 792,000 $ 538,000 Resource Management & Planning 197, , , , ,000 Subtotal 692, , ,000 1,108, ,000 VC Responsible for Activity Academic Affairs 309, , , , ,000 Business Affairs 83,000 44,000 37,000 38,000 55,000 Health Sciences 479, , ,000 1,104, ,000 Marine Science 694, , ,000 1,421,000 1,163,000 Student Affairs - 1,000 1,000 2,000 2,000 Subtotal 1,564,000 1,180,000 1,832,000 2,807,000 2,001, Allocation Total $ 2,256,000 $ 1,732,000 $ 2,611,000 $ 3,916,000 $ 2,752,000 Notes: 1. Differential Income is distributed as follows: 65% to, or as directed by, the Vice Chancellor responsible for the activity 25% to, or as directed by, the Vice Chancellor Business Affairs 10% to, or as directed by, the Vice Chancellor Resource Management & Planning 2. For activitites charging an overhead rate in excess of the standard rate, the entire excess is distributed to the Vice Chancellor responsible for the activity. Where approval has been granted to charge a reduced overhead rate, the income will first be distributed to the Administrative Vice Chancellors, with the balance, if any, distributed to the Vice Chancellor responsible for the activity. CBO June 1, 2009

16 UNIVERSITY OF CALIFORNIA, SAN DIEGO Auxiliaries & Self Supporting Assessment Tiger Team Medical Center/Medical Compensation Negotiated Rates Attachment 3 Campus Medical Center Medical Center Assessment Rate Rate Difference Human Resources 0.04% 1.28% Payroll 0.10% -1.15% Purchasing, Disbursements and Receiving 0.56% 0.00% -0.56% General Accounting 0.08% 0.01% -0.07% Travel 0.90% 3.76% 2.86% Cashier's Office variable 0.00% n/a Campus Medical Comp Medical Compensation Assessment Rate Rate Difference Human Resources 0.06% 1.28% Payroll 0.17% -1.06% Purchasing, Disbursements and Receiving 0.56% 0.56% 0.00% General Accounting 0.08% 0.07% -0.01% Travel 0.90% 0.52% -0.38% Cashier's Office variable variable n/a Notes: 1. Human Resources and Payroll rates are calculated separately. 2. Human Resources rates based on flat negotiated charge. For comparison purposes, amount has been converted to percentage of payroll/benefit costs. 3. Payroll rates based on average historical payroll percentages for payroll recharges from FY 1992/93 thru 1994/ Travel rates based on average historical travel percentages for travel recharges from FY 1992/93 thru 1994/95. Source Data: FY 2003/04 Calculations for Medical Center and Medical Group Recharge - General Accounting Calculations CBO June 1, 2009

17 UNIVERSITY OF CALIFORNIA, SAN DIEGO Auxiliaries & Self Supporting Assessment Tiger Team Matrix of Sales/Service and Other Income Producing Activities Attachment 4 Activity Type General Definition Some Examples Types of Income I. Auxiliary An activity which provides, at approved University Bookstore, Primarily Enterprise rates and on a regular and continuing Housing and Dining revenue; basis, goods or services primarily to Services, and Parking incidental individual students, faculty, staff and, Services recharge income incidentally, to the general public. II. Medical Centers Hospital-based and ambulatory patient care services, teaching and clinical research. Urgent Care, surgical facilities, and patient beds Revenue Applicable Administrative Recovery Policy Administrative Recharge Administrative Recharge (negotiated rate) 2007/08 Revenue 2007/08 Recovery % Recovery $144 M $951 K.66% $732 M $326 K.04% III. IV. Medical Compensation Service Enterprise V. Academic Support (aka Educational Activities) Patient Care and Clinical Services (aka Medical Group). Patient fees generated by faculty physicians. An activity which provides, at approved rates and on a regular and continuing basis, goods or services to a wide variety of campus departments. Typically a service enterprise will have only incidental sales to individuals. Any activity organized within an academic department which provides, at approved rates and on a regular and continuing basis, goods and/or services primarily to that and other academic departments on the campus. Patient visits and in/out patient services Imprints, Storehouse, and Telecom Services Testing services, computer services and illustration services Revenue Primarily recharge; incidental revenue Combination of revenue and recharge Administrative Recharge (negotiated rate) Differential Income Differential Income or administrative cost recovery $195 M $372 K.19% $556 K $12 K 2.08% $29 M $2.7 M 9.15% VI. Other Sources Any recharge or other income producing activity which does not fall naturally into any of the other classifications. Facility rentals, services offered at student health centers, and departmental conference programs. Combination of revenue and recharge Differential Income or administrative cost recovery $30 M $180 K.59% CBO June 1, 2009

18 UNIVERSITY OF CALIFORNIA, SAN DIEGO Auxiliaries & Self Supporting Assessment Tiger Team Activitites Without Overhead Contributions Attachment /08 Revenue % Total Major Activitites (Revenue > $500K) Academic Support Student Affairs $ 4,271,000 Recreation Income Academic Affairs 2,492,000 Business Affairs 133,000 Health Sciences 2,271,000 Marine Sciences 42,000 9,209, % Auxiliary Enterprises Student Affairs 432,000 Business Affairs 48, , % Medical Compensation Health Sciences 51,593, % Other Service Agreements Other Sources Director Of Medical Center 115,000 External Relations 2,764,000 Student Affairs 6,540,000 Student Health Services Resource Management & Planning 7,235,000 Property Income Academic Affairs 2,572,000 Business Affairs 5,265,000 Parking Fines Health Sciences 1,321,000 Marine Sciences 434,000 26,246, % Services Enterprises External Relations 6,000 Business Affairs 442, , % Total Revenue $ 87,976,000 Notes: 1. Above revenues did not record allocation of overhead recovery either by way of the Administrative Recharge or Differential Income. 2. The Other Sources category appears to include both revenue subject to and exempt from overhead recovery. Additional research will need to be done to properly classify these activitites. CBO June 1, 2009

19 UNIVERSITY OF CALIFORNIA, SAN DIEGO Auxiliaries & Self Supporting Assessment Tiger Team Auxiliary Enterprises - Direct Administrative Costs Attachment 6 Administrative Recharges & TS Funded Items with Campus Benefit Transportation & Parking Operations 6/30/06 6/30/07 6/30/08 6/30/09 Benefits 1,096, ,316, ,482, Telcom 176, , , Utility Services-Gen 226, , , Utilities-Electricity 81, , , , , , Bursar's-Id Cd.Recharge BKS Cameras 24, , , Campus Adm Recharge 217, , , Systemwide Adm Recharge 11, , , Med Ctr Other-Purch Service(Security) 217, , , Media Serv Recharge 4, , , UNEX Recharge-Class Fee ACT Misc Recharge Serv , , Department Cost Dist Recharg , , Publications-Art Work Recharge 6, , Cr.Cd.& Bk Charges 2, , , HR Backround Ch Recharge 3, , , Personnel Recharge-Job Adv 12, , , Adv-Guardian Recharge , , Personnel Training Class Recharge , , SBS Billing Stmt Proc Charge ACT Misc Network Recharge , Computer Output Services , , ACS Net OPS Misc Network SVCS , ACS Software SVCS Recharge Bldg. Maint.-Fac.Mgmt Rechar 1,055, ,537, , Purchased Maint.Bldg. 3, , , Repairs & Maint-Bldgs & Grounds 111, , , Alterations-Bldg 30, , , AVC A&PS Admin Serv. Recharge 455, , , Fleet 1,247, ,491, ,792, Campus Police 403, , , Purchased Sec.Serv. 95, , Police-Alarm Recharge 1, , , UCSD Police-Cash Del Recharge 1, , , , , , EH&S (636506, , ) 10, , , Insurance 72, , , Imprints 34, , , Human Res.-Temp Employment Services 149, , , Telecomm Offnet Recharges 1, Tel Equip-Ericsson-Hosp 7, , , Tel Install - Order Charges , Tel-Med Ctr Network Sup Svc , , Tel Recharge-Toll-Hosp Telephone Message Units , , , Acctg.Recharges-General Acctg Mail 7, , , Other: Flex Car 5, , , MTS & NCTD ,187, ADA(net) , , Transit Pass Subsidy 363, , , TBD Campus Capital Projects-Road Work , Campus Capital Projects-Town Center , Campus Capital Projects-Shuttle Turn-outs , , Campus Capital Projects-Gilman Transit Hub , Campus Capital Projects-East Campus Signage , Source: Data provided and presented to Auxiliary & Self-Supporting Assessment Tiger Team by Transportation Services March 13, 2009 June 1, 2009

20 UNIVERSITY OF CALIFORNIA, SAN DIEGO Auxiliaries & Self Supporting Assessment Tiger Team Auxiliary Enterprises - Direct Administrative Costs Attachment 6A HDH Financial Commitments/Impacts that do not show up as Actual Admin Recharges Department Item /08-01/31/ Total Reimbursement for displaced parking spaces - North Parking Campus 1 1,817, ,817, Reimbursement for displaced parking spaces - Health Parking Sciences 1,315, ,315, Parking Reimbrusement for displaced parking spaces - NC Campus 1,575, ,575, ACT Agreement with ACT to do annual Data upgrades 500, , , ,500, Colleges/ Staff Assoc. Collect and distribute all vending income annual 89, , , , , Campus Wedge IV Funding 285, , , Campus Upgrade to North Campus Pump Station (originally installed by HDH) to meet neighborhood needs 350, , Extending campus recycled water loop to north campus Campus properties 780, , Campus Value of providing paid for existing HDH building for ECEC program growth at current site 340, , Value of providing paid for additonal existing 2 buildings Campus for ECEC program growth at current site 740, , VCSA/Colleges Residence Life Program Funding (95% of total costs) 3,571, ,751, ,081, ,006, ,411, TOTAL 3,661, ,826, ,743, ,556, ,090, ,878, FOUR YEAR ANALYSIS CAMPUS RECHARGES: FY2005 TO FY2009 FY05_06 FY06_07 FY07_08 07/08-01/31/09 TOTAL TRASH 286, , , , ,229, UTILITIES 4,279, ,228, ,635, ,148, ,291, GROUNDS 1,187, ,083, ,083, , ,942, EH&S 280, , , , ,030, BUS 102, , , , , CONNECTIONS-DATA 460, , ,463, , ,837, CONNECTION-CABLE 470, , , , ,693, PURCHASING 223, , , , , SECURITY 947, , ,128, ,091, ,083, POST OFFICE 311, , , , ,290, ACT RECHARGES 28, , , , , INFO SYS ASSESSMENT 85, , , , , GRAND TOTAL: 8,663, ,087, ,494, ,203, ,448, Source: Data provided and presented to Auxiliary & Self-Supporting Assessment Tiger Team by Housing, Dining & Hospitality March 13, 2009 CBO June 1, 2009

21 UNIVERSITY OF CALIFORNIA, SAN DIEGO Auxiliaries Self Supporting Assessment Tiger Team Administrative Cost Recovery Survey - UC Institutions Attachment 7 Campus Who is being assessed? What is the methodology? What Admin Units/ Services are What happens to the funds Are changes being planned or underway? included? collected? Berkeley Units w/ external sources of revenue 4% of revenue collected Chancellorial funds that maybe allocated in budget process Davis Any self-supporting activity 3% of revenue Assist with budget reductions Yes, potential extension to Hospital currently not included. Irvine Auxiliaries & Service Enterprises: Bookstore, housing & dining, hospital/clinics, parking/transportation, student recreation, University Ctr, Food Svs, Events Ctr, Conference Svcs, Garage/Fleet Svcs, Mail Div, Network & Computing Svcs, University Extension, Summer Session, Executive Degree programs. Cost to be recovered divided by total campus expenditures times adjusted expenditures of assessed units Generally include: Accounting, purchasing, payroll, HR, benefits, equipment management, Chanc Office, EVC office, Acad Senate, all Vice Chancellor Offices, OEOD/Ombuds, Envir Plnng, Budget Office, Asset mgmt, Capital Plnng, C&G Admin, Audit, Controls, Cashier, Collections, Adcom Svcs, Central Records, EH&S, Employee Assistance, Receiving, Police, Contract Svcs -- some modification for the Med Ctr. Budget reductions and budget process Looking at optional methodologies primarily assessing income rather that expenses and also looking at the land value approach Los Angeles Entities with an annual income of $100K+ (generally excluding academic depts). Have over 600 activities. Looking to expand recovery 7/09 to outside sales -- going to Recharge Committee this Spring. Methodology is based on the individual Admin Units service (ie. EH&S = hours, Accounting = transactions, etc.) Rent is included in certain recharges EH&S, Receiving, Procurement, HR, Mail Svcs, Ombuds Office, Legal Affairs, Corp Financial Svcs are charging (authorized Collections, Audit, Property Mgmt, Cashier, Business Svcs, Staff Personnel, Insurance/Risk Mgmt, Police, AIS & Financial Training) Recharge income is retained by the Administrative Vice Chancellor. Recharge income and its proposed usage is reported to the Chancellor during the budget process. Yes, policy was created over 30 years ago and thresholds need to be updated and possible expansion to a internal/ external dual-rate structure to allow market-based pricing to outside customers. Riverside Entities with an annual income of $50K+ Methodology varies based on the individual Admin units service San Diego All large Auxiliaries Methodology in place for many years, and attempts to assign costs based on level of effort provided by some Admin Units Santa Barbara Most self-supporting units with annual income of $50K+ Currently 1% of revenue plus separate MOUs for other services Select ABP units and select VCA units Payroll, HR, Disbursements, Purchasing, Receivables, Travel, Accounting, Cashier, Student Billing Svcs Accounting, Equipment Management, HR, Procurement, Risk Mgmt, Cashiers, Receiving, Safety.. Discretionary funds for Chancellor that may be utilized to provide support to the central Admin units Admin Units get the recharge income Chancellor receives a set amount and the rest goes back to Admin units Yes, different methodologies are being explored Yes, but have not decided on a new methodology. Will explore assessment rates based on revenue levels, total campus Admin costs, and type & level of support auxiliary units are receiving. Yes, looking at increasing the assessment rate to 4% and expanding the fund sources to include campus based fee. On hold til 4/15/09; and delay inclusion of campus based fees. Santa Cruz Auxiliary Services Bookstore, Parking, Housing & Dining, Guest Suites, Summer Session, Coffee Shops, Conf Office*, UNEX*, MBEST* Assessment Rate = Based Exp of Central Svcs/Total Campus Exp (less financial aid and Central Service totals) Assessment Rate (* 1/3 rate) is multiplied by Auxiliary Adj. Expenditures Institutional Support Administrative Services and other support services Budget Cuts, budget process CBO June 1, 2009

22 UNIVERSITY OF CALIFORNIA, SAN DIEGO Auxiliaries & Self Supporting Assessment Tiger Team Administrative Cost Recovery Survey - Non UC Institutions Attachment 7A Our campus is trying to mitigate the budget cuts we expect from our state, by ensuring that all fund sources contribute proportionately to campus core institutional support functions from which they derive benefit. Our Approach includes the review of current administrative recharges and other assessments on auxiliary and self-supporting activities, to ensure that costs recovered are proportional to services received. We are also reviewing charge rates for sales or services to the general public, to ensure that they recover campus overhead costs. We want to learn about and benefit from the efforts in this area at other institutions. I would appreciate it if you will complete and return the brief survey below. I will share the combined results with all respondents. 1. Are your Auxiliary/Other Self Supporting functions (like hospital if relevant) an integral part of campus? a. Yes b. No 2. If not, what is their legal and financial structure? a. 501c(3) b. Other (Please list) 3. If not, do they contribute financially to the main campus? a. Yes b. No. c. If yes, how? 4. What campus auxiliaries, departments or activities do you assess for university administrative and/or infrastructure? Check all that apply: a. bookstore b. housing & dining c. hospital/clinics d. parking/transportation e. student recreation f. administrative computing/telecommunications g. other (list) 5. What methodology is used for the assessment? Please provide order of magnitude where possible (i.e. X% of total campus expenditures or revenues, or contribute $Y million per year) CBO June 1, 2009