State Practice of Overhead Rate Process

Process

This overview describes the State Practice of Overhead Rate Process.

Overhead / Indirect Cost Recovery

Previous Practice in CORE: Users were system-generating the 1-sided postings into the Cost Accounting Journal via CH documents. The posting has the calculated amount for indirect recovery; however, the CH entry did not post to any general accounting journal or ledgers as an expense to the grant/program or update any expense budget buckets.

Recommended Practice in CORE: The Cost Allocation process (Charge Back Method) allows calculated indirect costs to post as an expense and revenue in the general ledger which the State requires. Expense and Revenue budget buckets reflect the allocation/postings. Most importantly, the Cost Allocation process creates an audit trail for grantors/reporting and reduces the risk of user-entry errors.

Current Practice in CORE: The State has decided to run the Overhead Rate job in “Report Mode Only” instead of “Generate Report and Transactions”.  

When running the Overhead Rate process in “Report Mode Only” records will be selected from the Cost Accounting journal based on the last time the Overhead Rate Process was last successfully run, picking up all expenses with Major Program awards that are eligible for overhead.  

The rate job takes the final set of selected journal records and applies a user-defined overhead rate. A default rate is defined by the administering government entity for each Major Program. This rate is applied unless exception rates have been defined on the Overhead rate Exception table for specified Chart of Account combinations.

In the run mode “Report Mode Only”, no Charge transaction lines are generated, but a view of the Charge transaction accounting lines that would have been generated if the run mode was set to “Generate Report and Transactions” or “Generate Transactions Only” is available in the Report Journal (BATJOBS) under Catalog Name Overhead Rate.

Important: “Report Mode Only” will not generate any transaction and departmental users become responsible for manually creating the expenditure and revenue entries that should be posted using the Cost Accounting Journal Voucher (JVC) document with GA01 (Expenditure Allocation) and GA05 (Revenue Allocation) event types.

Best Practice / Recommendation: Using the Charge Back method (Cost Allocation Process) will post the indirect recovery cost as expenditures and revenues to the user defined pools and bases into the general accounting journals and ledgers. It is the best practice to generate expense and allocating revenue for indirect cost. Ultimately all departments that need the specific functionality that the Cost Allocation process provides need to move to the Cost Allocation module for overhead/indirect recovery. Cost Allocation set up is not cumbersome and can be run as needed. The Cost Allocation process creates an audit trail for grantors and reduces the risk of user-entry errors and is highly suggested.