University of Washington Policy Directory

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*Formerly part of the University Handbook
Administrative Policy Statement
33.2



Institutional Overhead Policy

(Approved by the Provost by authority of Executive Order No. 4)



1.  Overview

Operating costs can be broken down into two categories: direct, and indirect or overhead. Direct costs are those charged to the benefiting function or organization. Costs generally applicable to a function but not charged directly to that function are referred to as indirect or overhead costs. Typically these are costs which benefit more than one function or organization and for which there is no convenient unit of measure to allocate the cost to the benefiting functions or organizations.

Overhead costs are legitimate costs of conducting the business of the University. Failure to recognize and properly apportion overhead costs results in hidden subsidies to some programs or users. While the University may wish to subsidize certain programs as a matter of policy, these subsidy decisions should be explicit and considered in the biennial budget process. This policy applies to overhead charges on cash income from sales of supplies and services and rental income. Grants Information Memoranda 13 and 22 (GIM 13 and GIM 22) apply to overhead charges on sponsored agreements.

2.  Overhead Costs to Be Recovered

The University intends to recover the following types of overhead costs:

a.   Building Use

The costs to be recovered are: building construction and major renovation, and alteration costs which are centrally funded. Minor renovation and alteration costs paid by departments are not included. Note: This category excludes buildings purchased from other than General Capital funds.

b.   Physical Plant Operations and Maintenance

This category includes the following:

  • Maintenance of buildings, roads, and grounds.

  • Custodial services.

  • Utilities.

  • Support services such as facilities planning, energy management, environmental health, and security services.

c.   Institutional Support

This category includes the following:

  • Executive management.

  • Fiscal services.

  • Support services such as data processing, risk management, and human resources.

  • Logistical services such as communications, purchasing, and equipment inventory control.

  • Community relations.

3.  Method of Recovering Overhead Costs

The standard method of recovering overhead costs is by charging a campuswide average rate to the unit's revenue from sales of goods and services to cash customers. Overhead is not charged on internal billing transactions between campus units using the Cost Transfer Invoice (CTI) form or the Internal Sales Document (ISD) form. In special cases, an alternative method may be considered by determining a fixed amount of overhead to charge or by direct charging for specific overhead services.

4.  Overhead Rates

Overhead rates are calculated by the Budget Office based on the proportion that the costs to be recovered bear to total University costs. The calculation produces a University-wide rate which will apply to revenue received by all campus units unless specific exemptions are provided. Special rates will be calculated for those units which provide their own overhead services or reimburse the University for those services. Campus units whose principal facilities were not constructed from General Capital funds (e.g. the Parking Division) will have the building use component excluded from the overall rate.

5.  Overhead Exemptions

The Budget Office will determine the appropriate rate for self-sustaining enterprises when the budgets are established. The full overhead rate will apply to each self-sustaining budget unless the Budget Office approves a formal request for an exemption that meets the exemption requirements of the overhead policy. The burden of proof is on campus units to show that they should be granted an exception. Exceptions will be considered in the following areas:

a.   Impact to University's Instruction Program

When charging overhead costs results in an unacceptable impact to the University's state-funded instruction program.

b.   Impact on Students

When charging overhead results in an unacceptable impact on students receiving instruction in the University's state-funded instruction program. The University subsidizes the instructional expenses for regular enrolled students and, therefore, should likewise subsidize, at least partially, instructionally related expenses.

c.   Passthrough or Convenience Accounts

For passthrough or convenience accounts to the extent that cash revenue is collected and passed to a non-University service or product provider. However, an overhead charge may be collected for use of campus services.

d.   Restrictions Prevent Imposition of Overhead Charges

Under this exception a general overhead charge would not be assessed if clearly legally prohibited. Temporary exemptions may be granted to units which have rates fixed by contract or agreements with external parties. Where legal or other conditions constrain overhead charging, the option of charging specific transaction and/or service fees (e.g., an amount charged per payroll check) may be considered.

6.  Partial Exemptions for Passthroughs

Under the passthrough exemption mentioned in Section 5.c., overhead is not charged on certain revenue received and expended for the convenience of the individual making the payment, if that revenue is merely passed through the University's records to a commercial supplier or service provider. Generally a transaction is considered a passthrough if the individual customers could have purchased the product or service themselves but, as a convenience, the University purchased it for them. In effect, the revenue and expenses are "passed through" the University but are treated as transactions between the individuals and the off-campus supplier. Since the University provides very little in the way of services to the customer in these transactions, no overhead is charged. The most common partial passthroughs are lodging, meals, and textbooks purchased by continuing education programs for, and included in the fees charged to, participants. This provision does not apply to situations in which the item or service provided to the customer is the major purpose of the transaction. This would be the case with film processing sold to the campus community by a campus unit but subcontracted to a commercial photographic laboratory, or supplies purchased by a campus unit for resale.

Annually, in May, the Budget Office will request passthrough information from schools and colleges. The amount of passthrough expenditures for the prior year will be compared with the revenue in each of the affected budgets for the same period. Overhead rates for the forthcoming year will be reduced by that proportion.

7.  Overhead Application

Schools and colleges are notified of the applicable overhead rate by the Budget Office at the time a budget is established and thereafter when changes occur. That rate is to be added to the unit's costs in determining fees charged to users or customers.

Overhead will be charged on cash income from sales of supplies and services, and rental property. The following revenue classes contain this type of cash income:

  • 9402—Income from property.
  • 9420—Sales of supplies, materials, and services.
  • 9424—Tuition and fees.
  • 9430—Dedicated student fees.
  • 9431—Miscellaneous student fees.
  • 9499—Other revenue.

Quarterly, the Budget Office will provide the Financial Accounting Office with a current list of the budgets to be charged overhead and the applicable rates. The Financial Accounting Office then charges the appropriate budgets, via a Journal Voucher (JV) form, an amount based on the revenue received by that budget in the previous quarter.

8.  Overhead on Agency Accounts

The full University-wide overhead rate is charged on expenditures in agency accounts. Student-, faculty-, and staff-related agency accounts may request an exemption from overhead charges. Exemptions are normally granted for scientific and professional journal editorship accounts.

April 1993.