FINANCIAL MANAGEMENT OF SERVICE CENTERS
Policy CADS-3
Date Issued: June 19, 1998
I. PURPOSE
This Policy Statement establishes the University of Connecticut's policies and procedures for the financial management of Service Centers.
II. DEFINITIONS
Service Center: An activity that performs specific technical or administrative services, primarily for the internal university operations, and charges users for its services.
Auxiliary Enterprise: An activity that provided goods or services primarily to students, faculty, staff and others for their own personal use, rather than as a service to internal University operations. The general public incidentally may be serviced by some auxiliary enterprises. Examples of auxiliary enterprises include residence halls, dining halls, and bookstores. A full list of auxiliary enterprises at the University is in Exhibit B. Auxiliary enterprises are not subject to this Policy Statement.
Direct Operating Costs: All costs that can be directly identified with a service provided by a Service Center. These costs include the salaries, wages and fringe benefits of University faculty and staff directly involved in providing the service; materials and supplies; purchased services; travel expenses; equipment rental or depreciation; interest associated with equipment acquisitions; etc. See Appendix A for policy on appropriate charging of faculty staff and graduate student time and effort.
Internal Service Center Overhead: All costs that can be specifically identified to a Service Center, but not with a particular service provided by the center, such as the salary and fringe benefits of the center director.
Institutional Indirect Costs: The costs of administrative and supporting functions of the University. Institutional indirect costs consist of general administration and general expenses, such as executive management, payroll, accounting and personnel administration; operations and maintenance expenses, such as utilities, building maintenance and custodial services; building depreciation and interest associated with the financing of buildings and equipment acquisitions; department administration such as administrative
and supporting services costs provided by academic departments; libraries; and special administrative services provided to sponsored projects.
Unallowable Costs: Costs that cannot be charged directly or indirectly to federally-sponsored programs. These costs are specified in Circular A-21 issued by the U.S. Office of Management and Budget. Common examples of unallowable costs include general institutional advertising and public relations, alcoholic beverages, bad debts, charitable contributions, entertainment, fines and penalties, goods and services for personal use, interest (except interest related to the purchase or construction of buildings and equipment)., A complete list of unallowable costs is in Exhibit C.
Applicable Credits: Transactions that offset or reduce costs, such as purchase discounts, rebates, allowances, refunds, etc. For purposes of charging Service Center costs to federally sponsored programs, applicable credits also include any direct federal financing of Service Center assets or operations (e.g., the direct funding of Service Center equipment by a federal program).
Equipment: An item of tangible personal property having a useful life exceeding one year and an acquisition cost of $1,000 or more. Purchases under this amount are considered consumable supplies.
Billing Unit: The unit of service provided by a Service Center. Examples of billing units include hours of service, animal care days, tests performed, machine time used, etc.
Billing Rate: The amount charged to a user for a unit of service. Billing rates are usually computed by dividing the total annual costs of a service by the total number of billing units expected to be provided to users of the service for the year. Examples of billing rate computations are in Exhibit D.
Surplus: The amount that the revenue generated by a service exceeds the costs of providing the service during a fiscal year.
Deficit: The amount that the costs of providing a service exceed the revenue generated by the service during a fiscal year.
III. GENERAL POLICIES
-
A.
Billing rates should be designed to recover the direct operating costs
of
providing the services on an annual basis. No costs other than
the costs incurred in providing the services should be included in the
billing rates. The costs should exclude unallowable costs and be
net of applicable credits.
B. Certain service centers should also include internal service center overhead in their billing rates.
C. Large service centers with annual operating budgets of over $1 million that provide specialized services should also include Institutional Indirect Costs in their billing rates.
D. All service center billing rates used to provide services to outside parties should include direct operating costs, internal service center overhead and institutional indirect costs.
E. Billing rates should be computed annually at the start of each University fiscal year. The rates should be based on a reasonable estimate of the direct operating costs of providing the services for the year and the projected number of billing units for the year.
F. The billing units) should logically represent the type of service provided.
G. The billing rate computation should be documented.
H. All users should be charged for the services they receive and be charged at the same rates. (See VIII for service provided to outside parties.)
I. Separate accounts should be established in the University's accounting system to record the actual direct operating costs of the Service Center, internal Service Center overhead, revenues, billings, collections, and surpluses or deficits. Documentation to support the costs of the service center and records of units of service should also be maintained.
J. The billing rates should be reviewed at least annually and adjusted where necessary. Billing rates for new service centers should be reviewed more frequently.
K. Actual costs and revenues should be compared at the end of each University fiscal year. Deficits or surpluses should be carried forward as an adjustment to the billing rates of the following year or the next succeeding year. Where feasible, the adjustments may be made by increasing or decreasing the actual charges to users for the completed year, rather than through the "carry-forward" adjustment process.
IV. SERVICE CENTERS THAT PROVIDE MULTIPLE SERVICES
Where a Service Center provides different types of services to users, separate billing rates should be established for each service that represents a significant activity of the Service Center. The costs, revenues, surpluses and deficits should also be separately identified for each service. The surplus or deficit related to each service should be carried forward as an adjustment to the billing rate for that service in the following year or the next succeeding year. The surplus from one service may be used to offset the deficit from another service only if the mix of users and level of services provided to each group of users is approximately the same.
V. COST ALLOCATION
Where separate billing rates are used for different services provided by a Service Center, the costs related to each service must be separately identified through a cost allocation process. Cost allocations will also be needed where a cost partially relates to the operations of a Service Center and partially to other activities of a department or other organizational unit.
Depending on the specific circumstances involved, there may be three categories of cost that need to be allocated: (a) costs that are directly related to providing the services, such as the salaries of staff performing multiple services, (b) internal Service Center overhead, and (c) in the case of service centers expecting to have over $1 million in direct operating costs, institutional indirect costs.
When cost allocations are necessary, they should be made on an equitable basis that reflects the relative benefits each activity receives from the cost. For example, if an individual provides multiple services, an equitable distribution of his or her salary among the services can usually be accomplished by using the proportional amount of time the individual spends on each service. Other cost allocation techniques may be used for internal Service Center overhead and institutional indirect costs, 'such as the proportional amount of direct costs associated with each service, space utilized, etc. Questions concerning appropriate cost allocation procedures should be directed to the Office of Cost Analysis. The Office of Cost Analysis is also responsible for determining the amount of institutional indirect costs that is allocable to each specialized service facility.
VI. EQUIPMENT PURCHASES
Expenditures for equipment purchases should not be included in the costs used to establish Service Center billing rates. The costs should, however, include depreciation of the equipment. Including equipment depreciation in the billing rates will generate funds that will enable Service Centers to purchase equipment needed in the future. The funds represented by the depreciation should be set aside in an equipment replacement reserve account. When a Service Center needs to purchase a new item of equipment the purchase may be made from the Service Center's equipment relacement reserve account. If the amount in the equipment replacement reserve account is not sufficient to cover the cost of the new equipment, a request for funds to purchase the equipment should be submitted in accordance with normal University procedures.
A list of equipment used in Service Centers, with inventory identification numbers, should be provided at the end of each fiscal year to the Office of Cost Analysis. This information is needed to assure that the equipment is excluded from the depreciation portion of the University's indirect cost rates charged to federally sponsored programs.
VII. STANDARD BILLING RATES
All users within the University should normally be charged the published rates for a Service Center's services. This requirement does not apply to alternative pricing structures related to the timeliness or quality of services. Pricing structures based on time-of-day, volume discounts, turn-around time, etc. are acceptable, provided that they have a sound management basis and do not result in recovering more than the costs of providing the services.
VIII. SERVICES PROVIDED TO OUTSIDE PARTIES
If a service center provides services to individuals or organizations outside of the University, the billing rates must include institutional indirect costs even though these costs are not included in the rates for internal University users. (As indicated in section III.B.1., the billing rates for Facilities with over $1 million in direct operating costs include indirect costs for all users.) Additionally, outside users may be charged a surcharge or a higher rate than that charged to internal users. Where applicable, sales tax must also be charged to outside parties. Any amounts charged to outside parties in excess of the regular internal University billing rates should be excluded from the computation of a Service Center's surpluses and deficits for purposes of making carry-forward adjustments to future billing rates.
Since revenue from outside parties may have Unrelated Business Income Tax (UBIT) implications, these arrangements must be- approved by the University's Service Center Committee described in section XIV.
Contracts with outside parties that severely limit or prohibit the University's ability to retain rights to intellectual property and/or allows an outside party's employees to continually occupy space in a University facility, can impact on the status of a tax exempt bond. Contact the Office of Sponsored Programs prior to beginning contract negotiations with any outside party.
IX. TRANSFERS OF FUNDS OUT OF SERVICE CENTERS
Except for transfers to the equipment replacement reserve account discussed in section VI., it is normally not appropriate to transfer funds out of a Service Center account to the University's general funds or other accounts. If a transfer involves funds that have accumulated in a Service Center account because of prior or current year surpluses, an adjustment to user charges to compensate for the surpluses may be necessary. Any transfers (other than those to the equipment replacement reserve account discussed in section VI.) must be approved in advance by the Office of Cost Analysis, in cooperation with the Office of Sponsored Programs.
X. INVENTORY ACCOUNTS FOR PRODUCTS HELD FOR SALE
If a Service Center sells products and has a significant amount of stock on hand, inventory records must be maintained. [State Property Control Manual (rev. 7/ 1/95) requires a perpetual inventory be maintained if stock on hand is over $1,000.] If the value of the inventory is expected to exceed $50,000 at any point in the year, a formal inventory account should be established. If the inventory is not expected to exceed $50,000, internal inventory records may be used in lieu of a formal account. A physical inventory should be taken at least annually at the end of the fiscal year and be reconciled to the inventory records. Inventory valuations may be based on any generally recognized inventory valuation method (e.g., first-in-first-out, last-infirst-out, average cost, etc.).
XI. SUBSIDIZED SERVICE CENTERS
In some instances, the University, or a school or department, may elect to subsidize the operations of a Service Center. The Service Center may waive or reduce its published rate for services to internal users; however, the amount of waivers or rate reductions granted is limited to the amount of the subsidy the Service Center receives from all sources. Service Center deficits caused by subsidies cannot be carried forward. Since subsidies can result in a loss of funds to the University, they should be provided only when there is a sound programmatic reason. Subsidies involving facilities charging both direct and internal service center overhead and facilities with over $1 million in direct operating costs must be approved by the University's Service Center Committee described in section XIV.
XII. RECORDS RETENTION
Financial, statistical and other records related to the operations of a Service Center must be retained for three years from the end of the fiscal year to which the records relate. Records supporting billing rate computations must be retained for three years from the end of the fiscal year covered by the computations. For example, if a billing rate computation covers the University fiscal year ending June 30, 1997, the records supporting the computation must be retained until June 30, 2000.
XIII. ESTABLISHMENT OF NEW SERVICE CENTERS
The establishment of new service centers must be approved by the dean and department head of the school or department where the center will be located and the Center for Cost Analysis. The establishment of new service centers with expected direct operating costs exceeding $50,000 must be approved by the University's Service Center Committee described in section XIV. The requests for approval must contain the following information:
1. A description of the services to be provided and the users of the services.
2. The reasons why the services can best be provided by an internal Service Center, rather than by an external service provider.
3. A projection of the costs and utilization of the services.
4. A billing rate calculation and, where possible, a comparison of the internal rates with the rates charged by external service providers.
XIV. REVIEW OF SERVICE CENTERS
The University has established a Service Center Committee to oversee implementation of this policy and to consider future changes to the policy. The Committee will also consider and approve or disapprove establishment of all service centers with annual direct operating costs of over $50,000. The Committee will be responsible for review and approval of:
1. Establishment
of new service centers with expected annual direct operating costs exceeding
$50,000;
2.Arrangements
to provide services to outside parties;
3.
Subsidies to
facilities charging both direct and internal service center overhead and
facilities with over $1 million in direct operating costs; and
4. Address
exceptional situations.
The Office
of Cost Analysis-will make periodic reviews of the financial, operations
of Service Centers. These reviews will focus on the development of billing
rates, the handling of surpluses and deficits, and the adequacy of the
Service Center's record keeping procedures. Any major problems or disagreements
that arise in these reviews will be referred to the Service Center Committee
for resolution.
XV. TECHNICAL ASSISTANCE
The Office
of Cost Analysis_is available to provide technical assistance and advice
on the financial management of Service Centers. This assistance may be
requested in connection with the development of billing rates, cost allocation
procedures, equipment depreciation, record keeping, etc.
EXHIBIT
A
CLASSIFICATION OF SERVICE CENTERS:
-
· Direct
Cost only
· Direct costs plus internal service center overhead
· Direct costs plus internal service center overhead plus institutional indirect costs
EXHIBIT B AUXILIARY ENTERPRISES
EXHIBIT C UNALLOWABLE COSTS
EXHIBIT D EXAMPLES OF BILLING RATE COMPUTATIONS
EXHIBIT A
CLASSIFICATION OF ACTIVITIES:
Below are listed some representative examples of Service Centers:
Direct Costs Only:
Departmental Copying Services
Science Illustrator- Biology
Direct Costs and Internal Service Center
Connecticut Veterinary Diagnostic Laboratory
Center for Survey Research and Analysis
Center for Marital and Family Therapy,
Direct Costs, Internal Service Center Overhead, and InstitutionalIndirect
Costs:
Animal Care Per Diem Charges
Environmental Research Institute
Institute of Materials Science
Note: With the exception of facilities over $1 million, the classification of service centers are for discussion purposes only, nor are all listed. Additionally; categorization of "Essential Services" central facilities in one of the Service Centers categories does not conflict with the Resource Allocation Committee's recommendations; but should prompt a discussion and resolution of what constitutes a "charge-back system that is appropriate to the resources consumed," as stated in the Resource Allocation Committee's report. This issue should be referred to the University Service Center Committee for discussion and resolution.
EXHIBIT B
AUXILIARY ENTERPRISES:
Athletics
Dining Services
Health Services
Jonathan's
Jorgensen Auditorium
Rental Properties
Residential Life
Student Activities and Union Programs
EXHIBIT C
UNALLOWABLE COSTS:
This is a quick reference; Section J of OMB Circular A-21 should be consulted for more details.
Institutional Advertising (Promotional) & Public Relations
Alcoholic Beverages Alumnae Activities
Bad Debt Contingency provisions
Commencement & Convocation Donations/ Contributions
Entertainment Fines & Penalties
Goods & Services for Personal Use Lobbying
Losses on Sponsored Programs Organized Fund Raising
Memberships in Civic & Social Organizations Travel - First Class Air Fare
Selling & Marketing of Any Product Outside of the University
06/19/98
EXHIBIT D
EXAMPLES OF BILLING RATE COMPUTATIONS:
Direct Costs Only - Departmental Copier:t
| Total Cost | |
| Copier
Supplies |
$600 |
| Copier
Maintenance |
600 |
| Depreciation/
Lease Rental |
1800 |
| Total Annual Direct Operating Costs | 3000 |
| Total
Annual
Copies Made |
30000 |
| User Rate | .10 |
Direct Costs plus Internal Service Center Overhead - Multi-Services:
| Total Cost | Service A | ServiceB | |
| Direct Labor (Salary + Fringe) | $ 500,000 | $200,000 | $300,000 |
| Contractuals/Supplies | 400,000 | 280,000 | 120,000 |
| Depreciation/ Lease Rental | 350,000 | 192,500 | 157,500 |
| Total Annual Direct Operating Costs | $1,250,000 | $672,500 | $577,500 |
| Internal Service Center Overhead | 216,000 | 115,200 | 100,800 |
| Total Annual Operating Costs | $1,466,000 | $787,700 | $678,300 |
| Total Number of Annual Service Units | 46,334 | 8,212 | |
| User Rates | $17.0 | $82.6 | |
Direct Costs plus Internal Service Center Overhead plus Institutional Indirect costs - Multi-Services:
| Total Cost | Service A | Service
B |
|
Direct Labor (Salary + Fringe) |
$1,000,000 | $750,000 | $250,000 |
| Contractuals/ Supplies | 200,000 | 75,000 | 125,000 |
| Depreciation/ Lease Rental | 150,000 | 100,000 | 50,000 |
| Total Annual Direct Operating Costs | $ 1,350,000 |
925,000 | $425,000 |
| Internal Service Center Overhead | 50,000 | 35,000 | 15,000 |
| Institutional Indirect Costs | 375,000 | 258,000 | 117,000 |
| Total Annual Operating Costs | $1,775,000 | $1,218,000 |
$557,000 |
| Total Number of Annual Service Units | 30,000 | 10,000 | |
| User Rates | $40.60 | $55.70 |
APPENDIX
A
Faculty,
Staff, and Graduate Student Time and Effort
The fundamental principle is that a federal sponsored agreement may be
charged only for that portion of a graduate student's or faculty's (or
any employee's) effort which directly benefits the sponsored agreement.
Section J.8.a. and J.8.b.(2) of OMB Circular A-21 speak to the principles
and the documentation required for these charges. The rules are the same
for graduate students as for all other employees.
In addition,
Section J.41.b. stipulates that student salaries, tuition remission and
other forms of compensation are subject to time and effort reporting and
'shall be treated as direct or indirect cost in accordance with the actual
work being performed.
If
the sponsored agreement is solely to support the maintenance of a service
center, then only that portion of effort directly benefiting those activities
may be charged to the sponsored agreement. If the sponsored agreement
is solely to support research, then the appropriate portion of the graduate
student's effort should be directly charged to the sponsored agreement.
If
a service center is used for the research, then an appropriate portion
of the graduate student's effort that directly benefited the specialized
service facility's operation is built into the facility's use rate and
a separate budget line for the use of the facility is included in the
sponsored agreements proposal.
It is
what the graduate student are working on and for whom and not where that
determines to what account their effort i.e., salaries and related fringe
benefits are charged. The for whom may be either the service center's
director or the principal investigator depending on who hires the graduate
student and controls their work. If the graduate student is employed by
the service center, and the principal investigator contracts with the
service center to perform some task related to his research, then the
graduate student's effort should be built into the billing rate of the
service center in the same manner as any other service center employee.-
If the graduate student is employed by the principal investigator and
uses the center's facilities for work directly related to their research
project then his effort should be direct
charged
to the sponsored agreement. The service center should only charge the
sponsored agreement for use of its facility.
FINANCIAL
MANAGEMENT OF SERVICE CENTERS
Policy CADS-3
(Effective July 1, 1998)