January 7, 2010 (rewrite)
A. General. The University of Idaho (UI) conducts research under government-funded grants and contracts. Service center activities often result in charges, either directly or indirectly, to these federally sponsored grants and contracts. Therefore, service center policies and practices must reflect government regulatory costing principles. The purpose of this policy is to provide a framework for the fiscal operations of UI service centers that will ensure compliance with state and federal regulations, Board of Regents policies, federal cost principles, consistency in accounting and costs practice, and flexibility to meet the needs of different operations. Although there is a wide variation in size, complexity, and services provided by service centers, they should maintain consistent administrative practices.
The federal government defines the requirements through various regulations (primarily Office of Management and Budget (OMB) Circulars A-21; A-110; and A-133). The government monitors the UI's compliance with these regulations through the Department of Health and Human Services (DHHS) auditors, the Office of Inspector General (OIG), and its negotiators from the Division of Cost Allocation. Non-compliance with federal regulations may result in repayment of funds to the government as well as unfavorable publicity, which could negatively impact future award applications.
A service center is any UI unit or activity providing and charging for a specific service or product, or a group of services or products, to customers primarily within the UI academic and administrative community. A service center may have incidental external customers, but may not exist primarily to serve external customers. The services may range from highly specialized to routine functions. A service center is an ongoing activity; it is not a one-time distribution of expense. Service centers are large and small businesses providing services that are essential to the UI teaching and research functions, and break-even at the end of a twelve month period. Service centers that require longer than one year to recover operating costs operate on a Long Term Agreement. Depending upon the complexity and variation of activities, it may be necessary to establish separate accounts within the service center to support dissimilar services. For example, a unit that is a computer facility, copy center, and a machine shop must be established as three separate service centers.
The cost of running the service center facility or providing the product is charged to users on a “rate” basis. Rates are generally formulated to recover the costs of operations such as salaries, benefits, equipment depreciation, materials, and supplies expense.
B-1. Auxiliary Service. A self-supporting entity that provides non-instructional support in the form of goods and services for a fee to students, alumni, faculty and staff acting in a personal capacity. The general public may be served incidentally. Auxiliary services are not subject to service center policies and will not be reviewed by the Service Center Committee.
Examples: Housing, dining, parking services, and ticket sales
B-2. Local Service Account. Activities established primarily to provide non-instructional service beneficial to individuals and groups external to the institution, although services may be provided to internal clients, i.e., faculty, staff, and students. Included in these types of activities are non-instructional community service programs, broadcasting services, and cooperative extension services. Local service accounts are not subject to service center policies, and will not be reviewed by the Service Center Committee. These activities are however required to prepare and retain annual rate calculation information in the case of an audit.
Examples: Seed sales, Crop sales
B-3. Long Term Agreement (LTA). A service center may operate as a LTA or a Break-Even Agreement service center. Because of its unique nature a LTA center requires longer than one year to recover its operating costs. Examples of circumstances that might require a service center to operate under a LTA include; initial large capital equipment and building costs, volume fluctuations, or market limitations on annual rate increases. Service centers operating under a LTA are not exempt from year-end rate performance review.
B-4. Recharge Center. A type of service center with annual expenditures less than $10,000 that exists principally to provide goods and services to UI units, excluding service centers of any size whose primary customers are sponsored projects. A recharge center may have a limited number of users outside the department. Due to their smaller size of operations recharge centers are not required to obtain rate approval from the Service Center Committee as documented within this policy. However recharge centers are still expected to use the same methodology outlined in this policy to establish their rates as they are subject to internal and external audits. The responsibility for recharge center’s compliance with federal and university regulations falls upon the Director, AVP, or Dean.
Examples: Departmental copier and fax machine services
B-5. Specialized Service Center. A type of service center defined in OMB Circular A-21, Section J.44 as highly complex or specialized facilities. Billing rates for specialized service facilities should include service center costs, institutional overhead costs, and general administrative costs. Specialized service centers should meet all of the following criteria:
a. The facility incurs substantial annual expenditures and charge out volume, approximately $1 million or greater, or has significant charges to federal funds.
b. Treatment of its indirect cost within the service center rate rather than as part of overhead pool, would materially affect the university-wide overhead rate.
c. Its services should not be easily available from external vendors.
Examples: Wind tunnels, glassblowing, and analytical testing
B-6. University-Wide Service Center. A type of service center that is larger than a recharge center and that provides a specific service or product, or a group of services or products, to users principally within the UI academic and administrative community. This type of service center generally recovers more than $10,000 in annual operating expenses. However, if the units primary customer is sponsored projects they will be considered University-Wide service centers regardless of annual operating expenses. Operating costs are fully recovered by charges to those departments and entities receiving the goods or services.
Examples: Chemistry storeroom, Animal Care Unit, telephone services
C. Service Center Policies. These policies have been developed to ensure compliance with the federal cost principles for educational institutions contained in OMB Circular A-21. The cost principles establish guidelines as to allowability and allocability of all costs that may be recovered on federal grants and contracts, including costs associated with service center activities.
These policies apply to all service centers at UI. The application of many of these policies will be described in greater detail in “Service Center Practices.”
C-1. Service Center Rates. Service center rates shall be based upon allowable costs charged directly to the service center account. The rates should be stated in measurable units of goods or services and must equitably distribute service center costs related to specific goods and services across all customers. The measurable units of goods or services shall be based on a reasonable annual estimate. When services or products are paid with federal funds and the service center receives direct or indirect federal support, the federal support must not be included in the billing rates. Rates charged to federal funds either directly or indirectly, may not subsidize non-federal users or rates in any way.
C-2. Non-Discriminatory Rates. A service center may not discriminate against any internal group of service center users. The use of special rates, such as for high volume work, peak periods, or less demanding non-scientific applications, is allowed, but equally available to all users who meet the criteria with the approval from the Service Center Committee.
The federal government does not object to charging external users a higher rate than that charged to internal users. However, if your external users are charged higher rates, then the charges should be tracked separately to avoid the perception of overcharging. External customers may not be charged a higher rate to subsidize the rates of internal customers. External users of a center may not be charged at a rate less than that charged to internal UI users.
C-3. Guarantee Account. In order to establish a service center, a “guarantee account” must be designated in the service center’s initial proposal by the unit responsible for the service center. This account is a “guarantee” for the payment of unrecovered service center expense if the service center balance has a loss at fiscal year-end that will not be calculated in the succeeding year’s rate.
C-4. Break-even Rates. "Break-even" is defined as follows: the service center will have a net year-end balance which is within plus or minus (+/-) the break-even % of its total annual expenditures (including any prior year balance carried forward).” That is, the service center’s annual revenues must roughly equal its annual expenditures at the end of each fiscal year. For a Long Term Agreement Service Center, its cumulative revenues must roughly equal its cumulative expenditures at the end of its negotiated multi-year period.
It is a federal requirement that the carry forward balance may not be greater or less than 60 days of working capital. To be consistent with methodologies of other educational institutions, we have calculated 60 days of working capital to be approximately 15%.
Rates shall be adjusted at least annually and shall take into consideration over/under applied costs of the previous period. The policies described below provide strong incentives to manage a service center in conformance with a (+/-) 15% year-end break-even position.
a. >15% (Over – Recovery) – If at fiscal year-end, a service center’s revenues produce a net gain in excess of the (+/-) 15 % break-even requirement, service center rates must be recalculated to compensate for the gain.
b. <15% (Under-Recovery) – If at fiscal year-end, a service center’s expenses produce a net loss the following year’s service center rates are calculated to adjust for the loss, or the loss is offset against the service center’s guarantee account.
C-5. Billing Period. Service centers must handle year-end and other billings consistently each year, in order to ensure that income recorded is properly matched with costs incurred, and that the year-end break-even calculation is accurate.
C-6. External Users. At a minimum, external users will be charged for the full direct costs of the service unit operation. Sales tax, when applicable must be charged to all external users who do not provide tax-exempt certificates. [See APM 20.60]
C-7. Surplus Operating Funds. Service centers, that have accumulated surplus funds, may not move these funds out of the service center operating account to reduce the balance. The balance must be carried forward and used to adjust subsequent billing rates.
C-8. Records Retention. Service centers are subject to periodic revise by the Controller’s Office, UI’s Internal Audit department and by external auditors, to evaluate compliance with established UI policies and accounting practices. Therefore service center activities must be adequately documented and records maintained to support expenditures, billings, and cost transfers. [See APM 65.02]
D. Service Center Practices.
D-1. Establishing a Service Center. Establishment of a new service center begins with completion of the Service Center Application, a rate development worksheet, and the Service Center Checklist by a requesting department or unit. The requestor submits the three completed documents to the Service Center Committee for review and approval. Training will be provided and may be required for all service center personnel.
A proposal to establish a new service center must contain the following information:
a. Service Center Application.
b. Rate Development Worksheet. An explanation as to how the Service Center rates will be determined, including but not limited to:
- A detailed annual expense budget, by expenditure type for the proposed service center;
- A description of the activity base, its appropriateness, and the projected level of activity for the first year of operation;
- The rate calculation using the proposed budget amount and the projected level of activity for the first year of operation;
Download a sample rate sheet here.
c. A guarantee account which has been committed to cover year-end deficits if they occur;
d. A list of capital assets already purchased that will be used in the service center. The list should contain a description of the equipment including the UI asset tag number.
e. A reserve and replacement account, if capital equipment depreciation will be included in the rate calculation.
D-2. Service Center Costs Components. All costs directly associated with the service center’s operation should be charged to the service center. However, costs that are unallowable for government costing purposes may not be included in the cost calculation.
a. Direct Personnel.* The salaries and wages of all non-administrative personnel directly related to service center activity (e.g., lab technicians, machine operators, storeroom clerks) must be included in the rate calculation and charged to the service center's operating account. If an individual performs more than one activity, the costs associated with that individual should be allocated to the activities proportionately.
b. Administrative Staff.* The salaries and wages of administrative staff in direct support or management of a service center must be included in the rate calculation and charged to the service center’s operating account. If an individual performs more than one activity, the costs associated with that individual should be allocated to the activities proportionately.
* NOTE: No more than 100% of any employee’s salary and wages may be recovered through a combination of service center charges and other (e.g. State appropriations) funding. Thus salary and wages provided by other funding must be excluded from the service center rate calculation.
c. Fringe Benefits. Fringe benefits for all personnel costs directly related to the service center activity must be included in the rate calculation and charged to the service center’s operating account.
d. Supplies and Materials. The costs of materials and supplies needed to operate a service center must be included in the rate calculation. Any inventory maintained by the service center should be invoiced at actual cost including applicable discounts. If inventory is accumulated in a particular year the costs of accumulated inventory should not be included in the rate calculation. Supplies or materials that are identifiable with a specific client’s order should be billed directly to that client (e.g. a chemical used for a specific lab test for a particular client).
e. Capital Depreciation and Equipment.
1. Capital Equipment. Capital equipment is defined as an item with a purchase price over $5,000 and a useful life of at least two years. Federal guidelines do not allow the purchase cost of a capital item to be recovered through service center rates. However, it does allow for the recovery of depreciation, external interest, or capital lease costs associated with the asset. Equipment that is not capitalized (purchase price under $5,000) may be treated as an operating expense in calculating the rate.
2. Depreciation. The depreciation of all capital assets will be charged to the service center operating account using the straight-line method over the useful life of the asset. Such treatment ensures that users pay only for equipment cost associated with the usage in the given year. Straight line depreciation is calculated by taking the purchase or acquisition price of an asset subtracted by the salvage value divided by the useful life as defined below.
i. Useful Life - Service center equipment must be depreciated using the UI’s useful life values. For current information on “Useful Life”, contact the Service Center Committee. In certain circumstances, service centers with "specialized" equipment, or equipment which is unique in the nature or extent of its use, may need to estimate a more accurate useful life. Approval to deviate from standard useful lives for specialized equipment unique to the service center activities must be obtained from the Service Center Committee.
3. Federally Funded Equipment. Depreciation of equipment purchased by the federal government, whether or not the title has reverted back to the UI, cannot be included in the user rates. Where the UI has specifically agreed to "cost-share" a piece of equipment in a federal award, the depreciation of the UI-funded portion is also unallowable in the rates. Additionally, it is unallowable for a service center to double charge the government for depreciation through the university’s F&A rate and a user charge. Federal funding of equipment can be identified by contacting the Service Center Committee.
4. Debt Funded Equipment. Federal regulations do not allow for principle payments on debt to be recovered through service center rates. However, the interest associated with the debt for externally financed equipment which costs $10,000.00 or more is allowable per revised OMB Circular A-21. The UI has decreed that although the interest on assets financed from FY10 forward is automatically allowable, interest on asset financed prior to FY10 are not.
f. Prior Year Balance. Any surplus or deficit balance at the fiscal year end automatically becomes a component in the calculation of the rate for the next fiscal year.
g. Other Expenses. Other operating expenses to be included in service center rates are rental and service contracts, equipment operating leases, and professional services.
h. Facilities & Administrative (F&A)- Indirect costs. A service center may not include F&A, G&A (general and administrative), or other indirect costs when determining their rates as indirect costs are charged directly to grants and contracts. To charge indirect or administrative charges would be double charging the federal funds. A specialized service center is an exception and may recover indirect costs from its users.
Examples of indirect costs include depreciation on buildings and operation and maintenance of buildings, administrative operations, utilities.
i. Unallowable Costs. Unallowable costs may not be budgeted or expensed by service centers. This is because service centers often charge a significant part of their business to federally sponsored grants/contracts. Items explicitly disallowed by Section J of OMB Circular A-21 may not be included in the rates. Examples of such items include but are not limited to:
- Entertainment costs
- Bad Debts
- Public relations
- Donations and contributions
- Alcoholic beverages
- Goods or services for personal use
- Fines and penalties resulting from violations of federal, state, or local laws and regulations
- Debt Services such as principle and interest payments
D-3. Rate Development.
a. General Rate Calculation. The rate development process varies with the size and complexity of each service center. In its simplest form, a service center’s rate is cost-based. A service center rate is the cost per unit of output used to recover the expenses of the service center. This rate is calculated by dividing the total budgeted expense for providing the product service by the total projected level of activity for the budget period.
Total Budgeted Expense
(Plus Prior Year Underrecovery,
or minus Prior Year Overrecovery
Unit Rate = ------------------------------------------------
Total Projected Level of Activity
for the Budget Period
In this equation the “total budgeted expense” refers to all allowable costs directly associated with a service center’s operations. The “projected level of activity” is the total estimated volume of work to be performed in a service center, expressed as labor or machine hours, CPU time, or units of products or services to be provided.
Example 1: A computer costs approximately $100,000 per year to operate (total allowable costs) and has a projected activity level of 1,500 hours per year. This example would result in a rate of $100,000/1,500=$66.67 per hour. If a researcher uses the computer for four hours for a sponsored project, his or her award would be charged 4×$66.67=$266.68.
Rates are calculated on an annual basis for each fiscal year. In some instances, rates based on considerations other than costs may be used where warranted and approved by the Service Center Committee.
b. Alternative Rate Structures. Occasionally service centers may have special circumstances that call for rates calculated using a different approach. In such cases, policies regarding full costing, overall break-even, and non-discriminatory pricing must still be adhered to and rates must be approved by the Service Center Committee. Below are examples:
1. Subsidized Rates. For various reasons, a department may wish to have a service center charge its users less than fully costed rates; and may choose to subsidize center operations with an operating budget or unrestricted funds. In these circumstances, a center should first calculate a fully costed rate in accordance with the “General Rate Calculation” discussed above. A percentage discount can then be applied to the fully costed rate to derive the desired subsidized rate to be used throughout the year. Subsidized rates must be consistently charged to all internal UI center users. External users must be charged the fully costed rate(s).
2. Time of Day. Service centers that have a wide fluctuation in usage during the day may establish a time of day rate structure. Higher rates may be charged during hours of peak use to provide incentives to reduce the demand for services during these times. This structure should encourage an increase in volume and reduce cost of additional equipment. Service centers operating in this manner must show that all customers have the same opportunity to use the facility during non-peak hours and that no customer is disadvantaged by the proposed rate structure.
3. Market-based Pricing. In some instances, products and services are sold to both UI users and the general public. In such cases, federal regulations permit the use of established catalog or market prices, if approved by the Service Center Committee and the cognizant government agency. In other cases, stores or copy centers may provide services similar to external providers. A service center may be able to charge only what a market will bear for one or more of its services. When using this method to calculate rates, it is important to remain compliant with non-discriminatory and overall break-even requirements. Also the market-based prices cannot exceed the actual cost of providing the service(s) in total.
4. Volume Discounting. Some economies of scale dictate that a large quantity of a product or service can be provided to a customer at a lower overall cost than the normal per unit rate. Such a discount is allowable only if it is disclosed and justified in the Service Center’s proposed budget and rates, and is non-discriminatory.
D. Operations and Controls.
D-1. Directors, AVP, Deans. The ultimate responsibility for review of desirability and feasibility of service centers falls upon the Director, AVP, or Dean who will:
- Review and approve of all new service center requests prior to submission to Service Center Committee
- Review and approve of billing rate calculations
- Ensure all financial activity associated with the service center is in compliance with all state and federal cost accounting regulations and UI policies and procedures
- Research and resolve all audit findings related to the service center
- Monitor financial position with respect to break-even policy
D-2. Service Center Manager. The service center manager is responsible for the day to day operations of the service center. The manager assures that:
- An annual billing rate proposal with all supporting documentation is submitted to the Service Center Committee and is available upon request
- Periodic review of the service center financial position in respect to break-even status is performed to allow for the adjusting of billing rates
- All equipment for which depreciation costs are built-in to the billing rates is identified as service center equipment for Asset Accounting
- All building space is identified as service center space during the annual space survey performed by Facilities/Office of Sponsored Programs
- The approved billing rate schedule is applied uniformly to all customers
- Billings are timely and adequately documented
- Receivables are controlled and reconciled
- Records and supporting documentation are maintained as long as the grants and/or contracts that they charge remain subject to audit,
- Each service center must maintain records supporting expenditures, billings, and cost transfers in accordance with the UI’s record retention policies [see APM 65.02].
D-3. Service Center Committee. A committee whose purpose is to identify, review, and assist UI service centers to insure compliance with university and federal policy. The membership and staff of the Service Center Committee shall be appointed by the Controller. Members should possess knowledge of state and government regulatory costing principles and accounting practices. Committee members shall serve a term of three years, and may be appointed to consecutive terms. Their responsibilities include:
- Performing an annual review and recommend approval or disapproval of billings rates for those service centers that are required to submit all financial documents to the Controller.
- Reviewing annual performance of service centers in regards to the break-even financial policy at fiscal year-end.
- Providing assistance and guidance to service center personnel.
- Interpreting and applying this policy and exercising all committee authority designated herein
D-4. Controller. Provides final approval/disapproval of rates.
D-5. Asset Accounting. Asset Accounting staff maintains depreciation calculations and provides depreciation information to service centers for incorporation in the billing rate development.
D-6. Separate Accounting. All service centers are required to maintain accounts that are segregated and detailed to facilitate the financial reviews required by this policy.
D-7. Billing Procedures. . Billing must be based upon measured and documented utilization which is properly authorized for the account charged. All billing must be processed on a timely basis at established service center rates. The service center must retain documentation to support all charges, including documentation of expenses and usage.
D-8. Repair and Replacement Accounts. Separate repair and replacement accounts must be established to account for all capital related additions and expenditures being recovered by service center and specialized service centers. Additions to these accounts will be made by cost transfers from appropriate service center accounts. Transfers will be based on the amount of revenue directly related to capital depreciation. Although repair and replacement accounts will belong to the service centers they must be used solely for service center related capital acquisitions. Contact general accounting at Accounting Email or view their website for assistance in establishing capital repair and replacement accounts. [ed. 7-10]
D-9. Year-End Rate Performance Review. At fiscal year end, all service centers will be required to submit their actual financial results to the Service Center Committee. The operating statement should include any adjustments necessary to reconcile to the UI’s accounting statements.
All rate adjustments must be submitted to the Service Center Committee by the end of March each year (see F below). If the Service Center Committee’s review and approval has not been completed, the proposed rate may be used for the new fiscal year billings. If any problems which affect the rate are uncovered in the review process, the billings must be adjusted, to reflect the actual rates approved.
E-1. Office of Management and Budget (OMB) Circular A-21, "Cost Principles for Colleges and Universities."
E-2. Cost Accounting Standards Board (CASB) regulations. These standards require the UI to follow consistent cost accounting practices throughout the institution. The Cost Accounting Standards imposed are summarized below. They require that institutions do the following:
a. CAS 501- Estimate (propose) costs, accumulate (account for) costs, and report costs consistently.
b. CAS 502 - Allocate costs incurred for the same purpose in like circumstances consistently as either direct or indirect costs.
c. CAS 503 - Identify unallowable costs and exclude these from proposals and claims. Allocate a fair proportion of indirect costs to unallowable activities.
d. CAS 506 - Consistently use the same cost accounting period for purposes of estimating, accumulating, and reporting costs.
F. Contact Information. The Service Center Committee is housed in the Controller’s office, phone 885-2719 or campus zip 3168.