Administrative Overhead Fee

As of July 1, 2010, the University of Northern Iowa will expand the application of the 2.5 percent administrative overhead fee to include self-supported accounts in the “Other Funds Unrestricted” and “Auxiliary Enterprises” blocks of accounts.

Currently, four auxiliary enterprise units, the Residence System, Intercollegiate Athletics, J.W. Maucker Student Union and the Field House Enterprise pay the administrative overhead fee. The current administrative full costing process is incomplete and inconsistent. It does not recover administrative and facility costs from a large number of units, particularly self-supporting units, and units with multiple income streams.

These units do not reimburse the campus for the added administrative load which results from the resulting revenue and expense.

Other compelling reasons for expanding the application of the administrative overhead fee include:

The self-supporting, “stand-alone,” business-like operations that provide specialized services, support, and/or products for students, faculty, staff and the general public should help fund the university-wide support services they receive,
Full costing of goods or services will enable management to recognize the true costs of operating an enterprise,
Better resource allocation decisions will be made by management when the actual costs of doing business are known, and
Better pricing decisions will be made by unit managers when the actual costs of doing business are known.

The following is a series of common questions about the new administrative overhead fee. Answers were provided by Financial Accounting and Reporting Services.

Why an “administrative overhead” fee? What will it pay for?

The administrative overhead fee will allow the University to recover part of the cost of providing institution-wide support services. These include administrative costs such as accounting, accounts payable, accounts receivable, cash management, financial reporting, human resources, payroll, purchasing, public safety, and facilities costs such as custodial services, repairs and maintenance, space costs, and utilities. The new fee will generate additional General Educational Fund income in the amount of $700,000.

What accounts will be charged?

Accounts in the “Other Funds Unrestricted” and “Auxiliary Enterprises” blocks of accounts, will be charged the administrative overhead fee, with certain exceptions. Exceptions include all accounts associated with grants and contracts, including fixed priced contract residual funds, incentive funds, matching funds, and program income funds; clearing accounts; inventory and stores accounts; lab fee accounts; investment accounts; state appropriation accounts; student fee accounts; and student activities accounts. The accounts listed as exceptions are not considered to be “self-supporting.”

How can I recognize an account in the “Other Funds Unrestricted” and “Auxiliary Enterprises” blocks of accounts?

The relevant fund number range is 0200 through 2999 and 3010 through 3999.

Will sponsored program accounts be charged?

No, sponsored program accounts are in the fund range of 4000 through 5999. Sponsored program accounts are subject to F & A Costs (Indirect Costs).

How is the fee calculated?

An automated process will sum year-to-date expenses on object codes 50000 through 89999, subtract administrative overhead previously assessed (expenses on object code 66610), subtract General Educational Fund support (of four major auxiliary enterprises only), and multiply the resulting net expenditures by 2.5 percent.

How frequently will the administrative overhead fee be calculated?

The administrative overhead fee will be calculated and posted monthly as an integral part of the month-end closing process.

How will I recognize the administrative overhead fee on my Statement of Account?

An entry on the last day of the month with the description “Administrative Overhead” will be posted. Object code 66610 will be used.

Do I have to pay administrative overhead on an account that has been eliminated during the year?

The fee will be charged each month until the account has a zero balance. No fee will be charged to a closed account.

Will there be an administrative overhead charge during the “Adj period”?

No.

What happens if the sum of expenses is negative?

The charge for administrative overhead will be negative.

Can we bill our customers what these fees will cost us?

Unit managers are expected to consider ways to improve efficiency and control costs. Passing the charge on to customers should be considered after improving efficiency and controlling costs.

Why is the administrative overhead fee being implemented?

The major auxiliary enterprises have paid the administrative overhead fee for many years. The General Educational Fund pays for most administrative and facilities costs. Under the “matching principle,” it is not appropriate for the GEF to pay for the facilities and administrative costs of self-supporting activities that are not accounted for as an integral part of the GEF. The fee is being expanded to treat all self-supported funds uniformly. Expanding the administrative overhead fee accomplishes the objective of applying full costing uniformly and fairly across the university. The new revenue will provide support to the core facilities and administrative functions of the University.

Administrative overhead fees exist on many university campuses, including the University of Iowa and Iowa State University. Some universities assess the fee as a percentage of revenue or as a percentage of expenses. Others base administrative overhead on FTE employees or on methods requiring cost studies. The University has determined assessing self-supporting accounts based on a percentage of expenses is an appropriate assessment method.

When is the new administrative overhead fee effective?

The University of Northern Iowa will begin applying an administrative overhead charge to self-supporting accounts beginning July 1, 2010.

Can I get my account exempted from paying the Administrative Overhead Fee?

The short answer is no; the administrative overhead fee will be applied uniformly to self-supporting accounts.

Units with budgetary concerns about the implementation of the administrative overhead fee and how it is being applied should bring these concerns to their vice president.

Can I appeal the assessment of the Administrative Overhead Fee to my account?

It is the University’s desire to treat self-supporting accounts in a uniform manner. If you do not believe your account is a self-supporting account, you may appeal the assessment of the administrative overhead fee by writing the Controller.

Who can I talk to about the Administrative Overhead Fee?

You may contact the Controller (3-6520) or the Assistant Controller (3-4458).