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You are here: Home Research Handbook CHAPTER TEN: Service Centers

CHAPTER TEN: Service Centers

10.1 Definition

Service centers are organizational units or activities that perform specific technical or administrative services for internal University operations and potentially external users, and charges the users for these services. The three basic types of service centers, Recharge Centers, Service Facilities, and Specialized Service Facilities, are described below:

      · Recharge Center: A service center providing goods and/or services that do not represent the major purpose of the generating department. The services are intended as a convenience to faculty, staff, and students. Rates are based on direct costs only, and will include the internal service center support costs. These operations will generate less than $50,000 of revenue per fiscal year.

      · Service Facility: Also providing goods and/or services as a convenience to faculty, staff, and students, but generating between $50,000 and $499,999 of revenue per fiscal year.

      · Specialized Service Facility: A service center providing highly complex and technical services, not usually available from outside vendors. The service may be available to a select group of users or to the University in general. Annual revenue will exceed $500,000, and the cost may include both internal service center support costs and institutional facilities and administrative costs.

10.2 Regulations and Rates

As part of the normal operation of the University, certain departments will provide goods or services to other departments on a recurring basis in the form of a service center. They are established primarily as a means to capture costs associated with providing goods and services to the University customers through the use of a calculated rate structure. The centers are expected to offer goods and services that are unique, convenient or not readily available from external sources. For the University to remain in compliance with federal guidelines, service centers must ensure that the rates being charged do not recover more than the actual cost of operation. The federal regulations are found in OMB Circular A-21, Section J.44.

To make certain that University service centers are charging appropriate rates, each service center will prepare an annual cost analysis and rate proposal that will be submitted to the Office of Budget and Financial Planning (BFP) for review and approval. This rate proposal will include all appropriate direct costs related to the service center. Any application of F&A costs must be consistent with the rates currently approved by the governing federal agency (DHHS) and will be added to the rate in order to reflect the full cost of the service. Currently, the University does not include F&A costs in the rates charged by its service centers.

Service centers are designed to operate as non-profit activities and will charge rates that will recover no more than the costs of providing their product or service. Rates must be based upon a reasonable unit of service, such as volume, labor, hours, etc. In addition, since service center charges may be allocated to federal programs either directly or indirectly, all service center costs must be allowable, reasonable, and consistently treated. This will ensure compliance with the Cost Accounting Standards of the federal government.

10.3 Responsibilities

The following are the personnel involved with a service center and their responsibilities:

Service Center Director

      · Manage the daily operations of the service center

      · Provide competitive rates and service while maintaining break-even margins and necessary account balances

      · Prepare an annual budget and rate analysis for the center

      · Maintain detailed records supporting charges to internal and external users

      · Process charges for services provided to University customers and bill for services provided to external customers

Department Head/Dean/Vice President

      · Approve the establishment of new service centers and the continued operation of existing ones

      · Approve the center's annual budget

      · Cover any deficit or disallowance created by service centers under their direction

      · Note that any deficits or disallowances covered by the department in which the service center is located must be specifically identified in order to be treated appropriately within the F&A rate

      · Work with the Office of the Controller to ensure that this is treated appropriately.

      · Provide a schedule of items of equipment being depreciated by the service center

      · Identify items of equipment purchased from federal accounts.

Office of Budget and Financial Planning

      · Review and approve the rate calculation for all new service centers for accuracy and consistency with applicable policies and procedures

      · Monitor rates for the centers to determine if total billings for services are reasonable compared to the costs of operation

      · Review rates periodically to determine if costs are allowable, reasonable, and consistently treated

      · Notify the service center and appropriate administrators if the review identifies practices inconsistent with applicable policies and procedures

10.4 Establishment Procedure

A request for a new service center program may be obtained from the Vice President for Finance’s Office of Budget and Financial Planning. A template for developing the pro-forma operating budget and service center rates may be obtained from Budget and Financial Planning.  The annual operating budget and rate proposal must be approved by the Controllers Office for submission to the Office of Budget and Financial Planning for establishment of the service center program speed type and budget. The Vice President for Finance will maintain a listing of all approved service centers on the University web site .

To establish and substantiate a service center, the following information is required:

      · Service Name: Brief title to give service name recognition

      · Description: Brief description of the service to be provided

      · Users: List of expected users (students, faculty, University units, external users, etc.) and their relative percentage to the total estimated usage

      · Estimated Operating Costs/Budget

      · Unit of Measurement: Describe how service usage will be measured

      · Estimated Rate: User fee as explained below

      · Primary and secondary contact person

      · Approval of appropriate Unit Head, Dean or Director, Vice President

10.5 User Fee

Costs are recovered by the service center through revenue generated from the established billing rate. The billing rates should be calculated annually by the service center Director prior to the start of each University fiscal year and submitted to the Office of Budget and Financial Planning for review. The Office of Budget and Financial Planning will establish the annual budget based upon the Controllers Office approved annual operating plan and rates. Billing rates should be based on a reasonable estimate of direct operating costs and projected billing units for the year.

The service center rates should be designed to recover all direct operating costs, which might include consumable supplies, equipment maintenance costs, technician time, operator’s time, equipment deprecation expense (as opposed to equipment purchases), etc. The rate should exclude unallowable costs as defined by OMB Circular A-21, Section J and be net of applicable credits. Billings to external users must include institutional F&A costs for Specialized Service Facilities. Recovery of facilities and administrative costs will be distributed to the account group, which provides F&A cost support. This will be defined by the Office of the Controller based on the F&A rate negotiation documentation. The billing rate calculation must be documented. A service center is allowed to maintain a reserve equal to two months operating capital.

For services provided by animal-care facilities, industry-sponsored program research accounts will be billed at the same rate as federally sponsored program accounts. A completed sponsored program contract will be required prior to initiation of studies.

The industry fee for service programs will be billed on a real cost basis. A completed service program contract will be required prior to initiation of studies. If billed in excess of real costs, unrelated business income reports will be made to the attention of the Tax Accountant in the Office of the Controller.

If a service center provides multiple services, separate billing rates should be established for each significant service whose cost and revenues can be segregated. If the users of each service are significantly different in terms of the nature and cost of services provided to them, the costs and revenue must be segregated.

Costs and revenues should be segregated into cost centers for each service that is provided. Depending on the type of service center, there may be as many as three categories of cost that need to be allocated:

      · Costs that are directly related to providing the product or service such as the salaries of staff providing multiple services

      · Internal support costs such as equipment maintenance costs

      · Institutional F&A costs such as O&M or Building Use

In each instance, the costs should be allocated to the services on an equitable basis that reflects the relative benefit each service receives from the cost. The Office of the Controller is responsible for verifying the institutional F&A rate and can provide that component to the service center billing rate calculation, if applicable.

10.7 Equipment

As a general rule, the capital cost of equipment utilized in a service center should be recovered through the service facility rate rather than the F&A cost recovery rates. Elements of this system include the following:

      · Equipment inventory tracking to insure that we are not double costing any equipment through both user fees and facilities and administrative cost recovery.

      · Depreciation expense and replacement reserve accounting.

Only the depreciation costs of capitalized equipment should be included in the costs to determine billing rates An equipment reserve may be established to enable service centers to purchase equipment needed in the future. This is accomplished by setting aside the amounts represented by the depreciation component of the billing rate in the equipment reserve account. When equipment is needed, an amount equal to its cost will be charged to the replacement reserve account. Depreciation costs will be calculated based on the acquisition cost of the equipment divided by its estimated useful life. Useful lives must be consistent with those used by the Office of the Controller.

10.8 Over/Under Recovery

A service center should not operate for extended periods of time with either a deficit or surplus account balance. In the event of a deficit, it may be necessary to increase the user fee rate to recover the deficit within the next annual operating cycle, or to cover the deficit from departmental discretionary accounts. The department should provide funds if the operating deficit was so significant that it would not be reasonable to expect that rates could be adjusted within reasonable levels for recovery from users within the next annual operating cycle. That is, the rate would have to be set so high that potential users would not be willing to utilize the service. Any subsidy provided by the department should be communicated to the Office of the Controller to ensure that the subsidy is appropriately excluded from F&A rate calculations.

In the event a surplus is generated, the user fee should be adjusted downward as a method to return surplus to users. Surpluses 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. Surpluses should not be transferred out of service center accounts to subsidize other University operations. However, excess amounts may be returned to an account that has provided a subsidy, limited to the amount of a clearly documented subsidy. Building a surplus in these accounts could result in violations of the OMB A-21 Cost Principles. In addition, generating revenues in excess of cost could create unrelated business income tax issues with the Internal Revenue Service.

The University, individual school or department may elect to subsidize a service center either by charging billing rates lower than actual cost or by not making adjustments to future billing rates at year end for deficit. However, the service center deficits caused by intentional subsidies cannot be carried forward as adjustments to future billing rates. Since subsidies can result in a loss of funds to the University, they should be provided only when there is sound programmatic rationale and with the approval of the Department Head, Dean, or appropriate Vice President. Any subsidies will be identified as a separate item in the billing rate schedules provided to the Office of Budget and Financial Planning.

10.9 External Users

Charges for the use of service facilities by external users may be priced at higher levels than actual costs and therefore a surplus from charging external users is allowable. However, there are two factors to consider. First, the Internal Revenue Service may consider any billings to external users Unrelated Business Income, and the appropriate tax will have to be paid by the service center. Second, revenue in excess of the standard rate must be placed in a separate revenue account so that this revenue will not distort future calculations.

Use of the University resources by external entities shall in no way interfere with the University's instruction, research, and service activities and shall be consistent with those activities and with the mission of the University. All external agreements must include a statement agreeing to indemnify and hold the University harmless against any claims or damages resulting from the use of the resource.

10.10 Service Center Inventory

If a service center sells products and has a significant amount of stock on hand, it must maintain inventory records. It should have a physical inventory annually and reconcile this to the inventory account. Inventory valuations may be based on any generally recognized inventory valuation method (i.e. FIFO, LIFO, average cost, etc.)

10.11 Record Retention

Service centers must keep records of rate calculations, billings, collections, units of service provided, cost and revenues, surpluses and deficits including all worksheet and detailed backup for a period of five (5) years from the end of the fiscal year in which information were used.




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