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About This FAM

Responsible Agency: Office of the Comptroller General
Issued: Feb 1988
Last Updated: Aug 2009

Approval Announcements

1. Introduction

In order to reflect more accurately the cost of common services in the total cost of program delivery, certain service groups may be funded completely on a revenue dependency or a full cost recovery basis.

The chargeback principle is intended to allow client departments to manage more effectively all costs of program delivery. Chargeback also encourages a more responsive and business-like attitude by managers of common service organizations.

This policy is not intended to restrict the normal transfer of charges from one group to another where neither group is operating on a full chargeback basis.

 

2. Definitions

"chargeback"

A method of allocating the cost of a service to the user of the service.

"common service group"

A specialized or centralized agency within the Government providing a service to other units within the Government.

"fund control"

A free balance checking to prevent over expenditure.
 

3. Policy

3.1

The Financial Management Board (FMB) may designate certain common service groups within the Government which will be funded through a system of revenue dependency on a full cost recovery basis.

3.2

A common service group operating on chargeback must have a written agreement with a client department before providing services to the department. Such an agreement must be approved and committed within the client department according to the normal signing authorities in effect within the department.
 

4. Directives

4.1

General

The FMB may designate a complete department or any complete division or section within a department as a chargeback group.
4.2

O&M Funding

4.2.1

A chargeback group must recover the direct cost (excluding overhead) of its operations through fees for services rendered. The management of the chargeback group is responsible to ensure that the net surplus or deficit at year-end is approximately zero.
4.2.2

The budget of a chargeback group must be equal to the total revenue generated as a result of executing signed agreements with client departments.
4.2.3 Fund control for a chargeback group must be at a level that must differentiate between each chargeback operation within a department.
4.2.4

When a group first implements chargeback, previous appropriations must be distributed equitably among the annual estimates of their client departments. This distribution must be approved by the FMB.
4.2.5

At the end of a fiscal year, any surplus from a chargeback group must be pro-rated back to client departments and any deficit remaining must be chargeable to an appropriation of the department responsible for the chargeback group. Deficits may not be prorated back to client departments nor carried forward.
4.3

Capital Funding

Capital acquisitions for a chargeback group must be submitted for approval in the normal way and must be a charge to the capital vote of the department responsible for the chargeback group.
4.4

Rates

4.4.1 A chargeback group shall offer its services on a unit price basis.
4.4.2 Rates must be determined by the direct cost (excluding overhead) of operation of the chargeback group among the various services offered. Chargeback groups may not recover the cost of any goods or services which are free to them.
4.4.3 Rates must be proposed annually and must be submitted to the FMB for approval. These rates, once approved, must not be varied or amended without the FMB's approval
4.4.4 The FMB shall annually conduct a review of the fees charged by various chargeback groups.
4.4.5 Client departments may make FMB submissions at the rate review. Submissions may concern the quality of past service, the computation of rates, or other relevant matters.
4.4.6 On the basis of the review, the FMB shall either approve, or request revision of the proposed rate structure.
4.5

Accounting

4.5.1 Chargeback groups shall appear on a balance sheet, separate from other standard Government accounts.
4.5.2

Chargeback groups shall use income, capital, revenue, and balance sheet votes as required to account for their operation in accordance with FAM 1501 - Accounting Policy for Departments and Public Agencies.
4.5.3 Chargeback groups shall use accrual accounting methods in order to produce accurate monthly statements of income and expense.
4.5.4

Chargeback groups shall establish their accounting systems in accordance with FAM 1601 - Accounting Systems .
4.6 Chargeback Agreements
4.6.1

Chargeback groups may not charge for their services unless they have previously entered into a written agreement with the client department.
4.6.2 A chargeback agreement shall state the basic terms of the provision of service and the maximum amount payable for the service under the agreement.
4.6.3 A chargeback agreement shall be signed by a manager of the client department who has signing authority for the amount of the agreement.
4.6.4 A chargeback agreement shall be committed by the client department for its full amount and shall not be de-committed without the agreement of the chargeback group or upon completion of the project.
4.6.5 Normal delegation and approval authorities must apply in accordance with FAM 1801 and 1802.
4.7

Chargeback Vouchers

4.7.1 A chargeback group shall prepare a monthly chargeback voucher for each client department stating the unit cost of each service, the number of units used, and the total charge.
4.7.2 The chargeback group shall prepare sufficient backup or explanatory documentation for the charges which the client department may require to assess properly the value it is receiving for the dollars spent or to evaluate its own utilization of the chargeback resource.
4.7.3 If the charges are accepted by the client department, then the chargeback voucher must be signed by a manager of the client department who has sufficient signing authority.
4.7.4 Signed chargeback vouchers must be returned to the chargeback group for processing through the financial system.
4.7.5 Any dispute arising from chargeback vouchers which cannot be settled at lower levels must be presented to the department heads involved for resolution. If no agreement is reached, the FMB shall rule on the matter.
4.8

Accountabilities

4.8.1 The management of a chargeback group is accountable to provide value for money and for achieving a level of efficiency comparable to external private organizations in the use of manpower and financial resources in delivering their services.
4.8.2 A chargeback group is accountable to provide information and advice to client departments regarding the particular services offered.
4.8.3 The management of a client department has complete accountability for its own program delivery. They must be the final judge of the applicability and cost effectiveness of any purchased services in program delivery.
 

5. Authorities and References

 

6. Consequences from Failure to Comply

Failure to comply with policies and directives of the Financial Administration Manual may result in actions under Part X of the Financial Administration Act . The Government of the Northwest Territories may seek legal remedy in the Territorial Courts.