UNIVERSITY POLICY

SUBJECT: FINANCIAL AFFAIRS TITLE: COST ALLOCATION: GENERAL

CODING: 00-01-50-20:00 ADOPTED: 07/01/87 AMENDED: 07/01/87

I. PURPOSE

To establish the mechanism for the allocation of costs among component institutions units of
UMDNJ.

II. ACCOUNTABILITY

         Under the direction of the Senior Vice President for Administration and Finance, the Vice
         President for Financial Affairs and Treasurer is accountable for ensuring compliance with
         this policy.

III. POLICY

        1.     There are three alternative methods of allocating costs in the University. The first is that
                costs may be allocated for budgetary purposes and be part of the annual budget
                preparation process for the University. Secondly, costs may be allocated for financial
                statement purposes and be reflected in the monthly financial report issued for senior
                University management. Lastly, costs may be allocated for the purposes of third party
                cost reports and questionnaires. These allocations are primarily for medical/dental
                education cost studies or for hospital patient care costs which are reported to the
                Hospital Rate Setting Commission and Third Party payors.

        2.     It is the ultimate goal of the University to charge costs incurred in the operation of
                UMDNJ and of is component institutions to the budget of the direct user or recipient
                within the University. When these allocations have been developed and implemented,
                each component institution of the University will have accurate information on its
                operating costs and be accountable for them.

        3.     Funds which are appropriated in one institution's budget for expenditure by another
                institution's cost center are treated as a purchased service transaction. The allocation of
                costs to appropriations does not imply authority by the funding institution to manage or
                direct the individual staff members of the recipient institution whose staff costs are
                represented in the allocation. Instead, the designated services are "purchased" as
                determined by prior agreement, thereby preserving the organizational integrity of the
                provider institution. The scope of this policy does not include hospitals affiliated with the
                University.

        4.     The administration of the University will make such allocations as are desirable for
                providing information necessary for managing the University. Appropriate financial
                records will be maintained for these allocations, even if the records are only done on a
                memorandum or subaccount basis. For budgetary reporting purposes, the University
                will keep such accounting records as are required to document actual vs. budget for
                certain state agencies.

        5.     Costs which are allocated for budgetary purposes must have written agreements in the
                prescribed form prior to the conclusion of the budget preparation cycle for the fiscal
                year in which they are to be effective. Budgetary allocation of costs may not
                become effective during a current fiscal year nor after the conclusion of a future fiscal
                year's budget preparation cycle. For example, cost allocation agreements for a future
                fiscal year must be done on a preliminary basis prior to the submittal of internal budget
                forms to the Budget Office in April. Final cost allocation agreements must be completed
                by one month prior to submission of the budget to the Finance Committee of the
                University Board of Trustees for its approval in July.

        6.     Budgetary cost allocations must be consistent with the University's understanding of the
                guidelines promulgated by the DHE and the State Budget Bureau in regard to which
                kind of costs are to be budgeted in various appropriation categories. As a general rule,
                there will be no allocation of administrative costs from one component institution to
                another where an administrative unit already exists in the latter: i.e. from a medical
                school to a teaching hospital.

        7.     For purposes of third party cost reporting, costs are to be allocated for those functions
                which would exist in a freestanding institution but which, in the University, are located in
                another component institution. These allocated costs are to comply with the guidelines
                for allowable costs for the respective third part cost report.

        8.     The allocation of costs for whatever purpose is to be done only through formal
                prescribed procedures. These procedures are designed to ensure that all parties to the
                allocation have been fully informed, have adequately participated and have concurred in
                the decision establishing the agreement. The prescribed procedures state that an
                allocation of costs must be in the form of a written agreement, must be processed in the
                specified manner and must contain the required authorized signatures before it is
                effective.

        9.     The basis for allocating among the component institutions of UMDNJ is to be reviewed
                by the Deans and unit administrators as parties to each cost allocation agreement,
                subject to review and approval by the Vice President for Financial Affairs and
                Treasurer for consistency throughout UMDNJ.

        10.   The Director of Business Affairs for the two centers of UMDNJ, Newark and
                Piscataway, have primary responsibility for the direct implementation of this policy and
                the associated procedures. They will fulfill their responsibility in coordination with and
                meeting the approval of the appropriate Dean and unit administrator.

        11. Once established, each cost allocation is to be reviewed and revised, if necessary, no
                less than annually by the parties to the written agreement. The review will include the
                propriety and basis for the cost allocation.

        12. A copy of the written cost allocation will serve as the official document from which
                accounting will input the expense charges. These expense charges are to be generated
                monthly on a prorated basis for the annualized cost unless otherwise specified in the
                written agreement.

13. Disagreements between the parties and/or appeals will be reviewed and resolved by the
Senior Vice President for Administration and Finance.

By Direction of the President:

__________________________________________
Senior Vice President for Administration and Finance

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