This Policy Statement provides guidelines for the financial administration of service centers to ensure accurate cost allocation; consistent billing practices among the various service centers; and compliance with the federal government's cost principles.

Service centers are established for the primary purpose of providing goods and/or services to support the internal operating activities of the University. The goods and/or services are typically unique, convenient or not readily available from external sources. They may, on an incidental basis, provide goods and services to external users. The service centers must conduct activities that are consistent with the University's mission and the normal activities of the college/department associated with the organization.

Service centers may recover their cost of providing goods and/or services by charging customers billing rate(s) established in accordance with Section VI of this policy. Those billing rate(s) must be updated annually. This policy is effective October 1, 1997. All service center units must comply with this policy.

Fiscal Operations Cost Accounting Unit will review rate(s) annually for Specialized Service Facilities and service centers with internal credit charge backs from federal sources of $50,000 or more for a fiscal year (refer to Section IV for definitions of Specialized Service Facilities and the other types of service centers). Other service centers with annual internal credits from all sources of $15,000 or more will be reviewed no less frequently than every three years. (If a unit charges for copier services, and charges rate(s) less than or equal to those established annually by Fiscal Operations, the unit's billing rate(s) and related billing system will NOT be subject to review or approval by Fiscal Operations.) Units that wish to establish a new service center and anticipate that it will meet the $15,000 internal credit threshold must submit a written request to Fiscal Operations Cost Accounting Unit for review and approval. This request must be approved by the service center's responsible college/division administrator. In order to continue to operate as a service center and charge customers (or establish a new service center), units must follow the policies and procedures outlined in this document.

Service Center Unit

Accumulate revenue and operating costs in a separate account, maintain user utilization statistics, develop annual billing rates, maintain detailed records supporting charges to internal and external users, and charge users in a consistent manner (see Sections VI and VII).

Responsible Service Center College/Division Administrator

Authorize and submit the request for the establishment of a new service center(Section V), monitor the continued operation of existing ones, approve the service center annual budget, and financial responsibility for any deficits or cost disallowance created by the service centers under their direction.

Fiscal Operations Cost Accounting Unit

Review and approve the rate calculation for all new service centers according to Section X of this policy, and monitor the rates for service centers to determine if total billings for service centers are reasonable compared to the costs of operation. Periodically review rates to determine if all unallowable costs are being excluded, and notify the service center director or appropriate administrator if this review identifies practices inconsistent with applicable policies and procedures.

TYPES OF SERVICE CENTERS:

There are four (4) types of services centers. They are as follows:

SPECIALIZED SERVICE FACILITIES: Specialized Service Facilities typically provide specialized goods and/or services that are charged to user departments and projects. They must have combined annual costs (direct allowable operating and internal service center overhead costs) of $1,000,000 or more, or be considered a highly complex or specialized facility by the U.S. Office & Management Budget (OMB) Circular A-21, "Cost Principles for Educational Institutions". Currently the DLAR, Computer Center and Telecommunications units are considered specialized service centers.

STORES OPERATION: A facility that provides warehouse or stockroom type goods to internal institutional users. These units may charge for the cost of goods sold plus a uniform nominal markup or handling charge on items "sold." The markup or handling charge is intended to recover the direct operating costs of the Stores Operation activities. Examples of Stores Operation are the Science Storeroom and the School of Medicine Stock Supply Inventory.

SERVICE FACILITIES: Service Facilities provide goods and/or services (other than warehouse or stockroom type goods) within the institution and do not fall within the definition of a Specialized Service Facility, Stores Operation, and Recharge Centers. They have combined annual costs (direct allowable operating and internal service center overhead costs) of more than $100,000 and less than $1,000,000. Examples of Service Facilities are Medical Communications, Audio-Visual Communications, and Engineering Machine Shop.

RECHARGE CENTERS: Recharge Centers provide goods and/or services (other than warehouse or stockroom type goods) to departmental users and a limited number of users outside the department. In addition, they do not fall within the definition of a Specialized Service Facility, Stores Operation and Service Facility and have annual direct allowable operating costs of less than $100,000. Examples of Recharge Centers are the Physics Shop - Cryogenic Liquids and Liberals Arts Computer Repair Center.

Note: Auxiliary Enterprises that charge units for goods and/or services should be classified in one of the above appropriate categories.

DIRECT ALLOWABLE OPERATING COSTS

All costs that can be specifically identified and related to the provision of the service center goods and/or services. These would include the related costs for salaries and fringe benefits of University faculty and staff directly involved in providing the service, materials and supplies, purchased services, travel expenses, subcontracts and equipment rental.

APPLICABLE CREDITS

Applicable credits refer to expenditure abatements that operate to offset or reduce direct or indirect cost items. Examples are purchase discounts, rebates, allowances, refunds, erroneous charges, etc.

UNIVERSITY INDIRECT COSTS

Costs for the administrative and supporting functions of the entire University. The University's indirect costs consist of general administration (such as executive management, payroll, accounting and personnel administration); operations and maintenance expenses (such as utilities, building maintenance and custodial services); building depreciation; equipment depreciation; administrative and supporting services provided by academic departments; libraries; and special administrative services provided to sponsored projects. University indirect costs that are part of the billing rate are recovered annually by the University except as noted in Section VI, Item #5 of this policy.

INTERNAL SERVICE CENTER OVERHEAD

Costs that are recorded in a different operating account than the service center account, but yet can be specifically identified to a service center's activities, such as the salary and fringe benefits of a department manager.

UNALLOWABLE COSTS

Costs that cannot be charged directly or indirectly to federally sponsored programs. These costs are specified in Circular A-21. Common examples of unallowable costs include non-personnel advertising, alcoholic beverages, bad debts, charitable contributions, entertainment, fines and penalties, goods and services for personal use, public relations, selling and marketing costs.

EQUIPMENT

An item of tangible personal property having a useful life exceeding two years and an acquisition cost of $2500 or more. Purchases of less than this amount are considered consumable supplies.

BILLING UNIT

The measurement unit of utilization for the goods or services 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 a good and/or service. Billing rates are usually computed by dividing the total annual costs of providing a good and/or service by the total number of billing units (actual or expected) to be provided to users of the good and/or service for the fiscal year.

UTILIZATION STATISTICS

A record of the quantity/units of goods and/or services provided to units, by category of goods and/or services.

SURPLUS

The net amount of revenue/internal credits in excess of allowable costs from providing the goods and/or services during a fiscal year

DEFICIT

The net amount of allowable costs in excess of revenue/internal credits from providing the goods and/or services during a fiscal year.

A written request to establish a service center must be submitted to Fiscal Operations Cost Accounting Unit for all service centers with anticipated internal credits of $15,000 or more (except for units thatcharge for copier services, and charges rate(s) less than or equal to those established annually by Fiscal Operations). The request should be submitted for review and approval four months before the service center plans on using the rate. New service centers cannot bill or provide goods and/or services prior to obtaining Cost Accounting's approval for rates. The written request to Fiscal Operations must be authorized by the responsible service center college/division administrator of the unit prior to submission. Requests to establish a new service center will require: (1) a description of the services to be provided to customers, (2) a listing of the types of potential customers (University or non-university, grant/contract), (3) total projected costs by category of expenditures, (4) projected utilization statistics by type of goods and/or services, (5) proposed billing rates and calculations supporting these rates (refer to Section VI for detail regarding development of billing rates), and (6) name and phone number of the person responsible for financial administration of the service center.

1. The costs generated in conducting service center activities must be accumulated within a unique, separate account. They should not be co-mingled with costs for other activities. (Please note: if a unit charges for copier services, and charges rate(s) less than or equal to those established annually by Fiscal Operations, the unit does not have to accumulate the activity within a unique, separate account.) Utilization statistics must be maintained. Where a service center provides different types of services to users, separate billing rates (along with separate utilization statistics for each of these rates) should be maintained for each service that represents a significant activity of the service center. The costs, revenues and internal billings must also be separately identified for each category of goods/services provided.
2. Revenues from goods and/or services provided to external users should be recorded in a revenue object code in this service center account.
3. The billing rates must not discriminate between federally and non-federally supported activities of the University. Service centers normally shall charge the same billing rate to all users for the same goods and/or services under the same circumstances (refer to Section VII).
4. The billing rates to be charged should be documented. For each billing rate, documentation to support the costs of the service center and records of the billing units of goods and/or services sold should also be maintained (refer to Section IX). No costs, other than the costs incurred in providing the goods and/or services, should be included in the billing rates.
5. Expenditures for equipment purchases should not be included in the costs used to establish service center billing rates. In certain circumstances, however, equipment depreciation costs other than general purpose type equipment, (i.e., xeroxing/copying machines) may be included in billing rates when the service center has annual internal credits from all sources of $15,000 or more. Specialized Service Facilities and Service Facilities equipment depreciation costs, other than general purpose equipment, may be included in the billing rate. Recharge Centers may include equipment depreciation costs for selected specialized equipment which is necessary for the center to provide its goods and/or services, when the equipment has a cost greater than $50,000 and it is not general purpose equipment. Equipment purchased from federal funds cannot be depreciated and included in the billing rate.

Including equipment depreciation in the billing rate willgenerate funds that will enable service centers to purchase replacement equipment needed in the future to the extent that the service center has a surplus (units responsible for deficits). At the end of the fiscal year, the funds related tothe equipment depreciation cost that are included in the billing rate will be transferred to a plant fund equipment replacement reserve account. This reserve account is restricted to related equipment expenditures for the service center. If the amount in the equipment replacement reserve account is not sufficient to cover the cost of the new equipment, it is the service center unit's responsibility to obtain any additional funds necessary.

A list of equipment used in service centers, with related inventory tag numbers, should be provided annually to Fiscal Operations Cost Accounting Unit to insure that any equipment depreciation cost charged in the billing rates is excluded from the University's research indirect cost rates computed by Fiscal Operations.

6. It is not appropriate to transfer surplus funds out of a service center account to the University's general fund or other accounts, except for the equipment replacement funds as discussed in Item 5.
7. Billing rates should be computed from the fiscal year data two years prior to the year when the rates will take effect (i.e., - rates for FY 1998 will be based on actual allowable costs and actual utilization statistics from FY 1996) except when establishing a new service center (refer to Section V). General fund service center accounts with internal credits from all sources of $15,000 or more may have a 100% budgetary carry forward for the amount of the annual operating surplus, but this amount may be no greater than the surplus from the current year and the cumulative unrecovered surplus from the prior year(s).
8. Service centers' deficits/surpluses should be accounted for as an adjustment to the fiscal year's billing rate(s) in the manner described in Item #7 of this section.
9. The billing rate(s) should represent the type of goods and/or service provided.
10. Billing rate(s) for all of the service centers should include actual direct operating costs excluding unallowable costs, equipment purchases, applicable credits, and any adjustment for the over/under recovery of prior year costs in the manner described in Item #7. In addition to the above costs, the following additional cost items should be included for the types of service centers listed below:

Specialized Service Facilities: Billing rates should also include internal service center overhead and may include the facility's allocable share of University indirect costs. Any University indirect costs recovered, other than those related to equipment reserves (Section VI, Part 5), will be transferred to the Central Administration General Fund overhead account.
Service Facilities: Billing rates should also include internal service center overhead.
Stores Operation: Billing rates should be designed to recover the direct allowable operating costs of the store's operation and the goods sold. These former costs are normally added as a markup to the items "sold."

11. Cost allocations 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. Questions concerning the appropriate cost allocation procedures should be directed to Fiscal Operations Cost Accounting Unit.
12. Existing (i.e., established prior to October 1, 1997) Specialized Service Facilities and service centers that charged the federal government $50,000 or more during a fiscal year must annually submit to Fiscal Operations Cost Accounting Unit the proposed billing rate(s) for review and approval, at least four months prior to the new fiscal year that the billing rates will take effect. Other service centers with internal credits from all sources of $15,000 or more will be reviewed at least every three years, andmust submit their proposed billing rate(s) as described in Section VI when notified by Fiscal Operations Cost Accounting Unit. The remainder of the service centers will be reviewed as deemed necessary by Fiscal Operations Cost Accounting Unit. Beginning October 1, 1998, service centers that do not comply with the review procedures will not be able to bill for their goods and/or services.

In some instances, the University, or a school/college or department, may elect to subsidize the billing charges to a selected customer(s). A subsidy is a billing rate used to charge selected customers, which is less than the billing rate approved by Fiscal Operations. Service centers must account for such subsidies in either of the following ways:

CHARGING DIFFERENT BILLING RATES FOR THE SAME GOODS AND/OR SERVICES

All users within the University should normally be charged the same rates for a service center's services. If some users are not charged for the service center's goods and/or services or are charged at reduced rates, the full amount of revenue not billed must be identified, accumulated and factored into the service center's computation of the annual operating surplus or deficit.

CHARGING THE SUBSIDIZED AMOUNT TO AN ACCOUNT OTHER THAN THE SERVICE CENTER ACCOUNT

The service center unit should charge the approved billing rate differential to an account other than the service center account.

A service center can only use one of these subsidy methodologies at any one time. Prior to implementing either of these procedures, they should advise Fiscal Operations Cost Accounting Unit.

If a service center provides goods and/or services to individuals or organizations outside the University, the billing rates should be no less than those used to charge internal users. In the development of future year rate(s), the total revenue received from external parties will be deducted from the service center costs in computing the over or under recovery for the fiscal year.

Each service center is responsible for retaining sufficient records to document and answer inquiries regarding service center costs/cost transfers, billing rate calculations, utilization statistics for goods and/or services, and billed charges by billing rate(s). Service center charges are subject to audit as long as the grants or contracts they charge remain subject to audit. These records must be retained for at least seven years or until closure of any outstanding audit or litigation, whichever time period is longer.

The Fiscal Operations Cost Accounting Unit will make annual reviews of the billing rate(s) for Specialized Service Facilities and service centers that charged the federal government for $50,000 or more during a fiscal year. Other service centers with internal credits from all sources of $15,000 or more, will be reviewed no less frequently than every three years. The remainder of the service centers will be reviewed as deemed necessary by Fiscal Operations Cost Accounting Unit. (Units providing copier services to other units that consistently charge the rate(s) [or less than the rate(s)] provided annually by Fiscal Operations will not be subject to review by Fiscal Operations Cost Accounting Unit.) Those service centers that are not subject to an annual review will be notified by Fiscal Operations Cost Accounting Unit when a review of their rate(s) and related systems will be conducted. Each of these service centers must provide the following supporting documents: (1) the financial schedules showing the actual annual expenses and revenue, (2) the actual total utilization statistics, (3) the actual amount billed to Federal grants and contracts for the fiscal year, and (4) the calculation of proposed billing rate(s) for the upcoming fiscal year. The financial and statistical fiscal year data used to develop the rate(s) should be from the fiscal year two years prior to the year when the rates will take effect as stated in Section VI, Item #7.

Fiscal Operations' review will focus on the manner in which billing rates were developed, the handling of surpluses and deficits, and the adequacy of the service center's record-keeping procedures. Questions regarding allowableness of costs should be directed to Fiscal Operations Cost Accounting Unit (577-8897). Questions regarding the appropriate use of object codes should be directed to General Accounting (577-6606) for General, Designated and Auxiliary Funds, and Grant Accounting (577-3726) for Expendable Restricted Funds.

The Fiscal Operations Cost Accounting Unit is available to provide technical assistance and advice regarding the development and implementation of service center charge back systems and rates.