Sent on June 11, 2020 to Chief Financial Managers, RRC Contacts, EFS Cluster Directors, and the Internal/External Sales listserv.
Rate Development and Deficit Guidance Due to COVID-19 Impact
We anticipate that some recharge centers will have shortfalls in sales revenue due to the inability to sell products or services as a result of the lack of demand due to the pandemic or inability to operate due to reduced operations. Recharge Centers are required to review the recharge center financial activity and adjust rates accordingly at least every two years.
In light of the current financial situation, we strongly urge recharge centers to conduct a review and update rates for FY21.
Rates for recharge centers are designed to cover costs and break even based on both revenue and costs estimates from prior years. It is anticipated that recharge centers will have a variety of situations. In most cases, recharge centers will probably continue to incur expenses in the specific chartstring and experience a drop in both internal and external sales revenue.
The guidance below is designed to assist recharge centers with an understanding of the FY20 net operating surplus/deficit with/without COVID-19 impacts. Recharge centers with an operating deficit prior to COVID-19 impacts will have a larger financial challenge to overcome than those with an operating surplus prior to COVID-19 impacts. Typically, at the time of creation of the next year's rates, recharge centers carry forward the surplus/deficit and are incorporated in the next year's rates. Recharge centers should critically review their FY20 activity and work with their department and college financial leadership to determine the best course action. Recharge centers with deficits greater than 15% may need to spread the deficit out over a couple of years, fund their deficit from a subsidy, increase the current subsidy or a combination of several options. Plans for deficits greater than 15% must be approved by the Chief Financial Manager and the Controller.
How to plan for FY21
Access the Internal/External Sales Dashboard to understand FY20 revenue, expenses, and operating margin through period 8 (February). That is a good starting point to understand the financial health of the recharge center prior to the pandemic and reduced operations. Then look at the same information for the fiscal year to date.
Look at a three year revenue trend to see what a normal year looks like and establish an average across three years. For recharge centers that are experiencing a decline in revenue, determine an approximate percent revenue decline based on the three year trend.
Are there planned subsidies or planned external sales revenue that augments internal sales? Will the subsidy still take place? Did the external sales revenue come in as planned?
If not, this will increase your deficit.
What is the likelihood of a planned subsidy for FY21?
If the recharge center typically receives a subsidy greater than 20% of the recharge center budget and the college can’t commit to a subsidy and the recharge center is facing a deficit greater than 15%. Contact the Internal/External Sales Office. The recharge center is in great financial jeopardy.
Has recharge center activities resumed?
If the recharge center activities haven’t resumed what is the expectation. Include assumptions in your financial analysis.
Complete the Year End Deficit Plan Approval Form and share with the Chief Financial Manager for the college. The above financial information should be included as supporting documentation for the plan.
Greater than 50%
Contact I/E Sales
The facts and circumstances of each recharge center might vary and these are very out of the ordinary times. It is important for the University to be consistent in application of the COVID-19 impacts from both a costing methodology and compliance perspectives. The rates charged for the goods or services must comply with the Office of Management and Budget (OMB) Uniform Guidance CFR number 2 CFR 200, be based on actual consumption of the product or service being provided, and fully cover, but not exceed, costs. Planned subsidies must be included in the rate development and the budget. If a recharge center believes they have a unique circumstance, please contact the Internal/External Sales Office for further guidance.
This email was sent to Chief Financial Managers, RRC Contacts, EFS Cluster Directors, and the Internal/External Sales listserv.