policy Service Center modified Thu Mar 26 2020 17:24:32 GMT-0400 (Eastern Daylight Time)
University of Louisville
February 11, 1994
This policy applies to Deans, Vice Presidents, Center Directors, Lead Fiscal Officers, and Unit Business Managers.
Budgets shall be prepared for each Service Center in accordance with established university guidelines. This will be done annually as part of the regular process used in the preparation of the university's annual operating budget. The budgets shall include realistic projections of both revenues and expenditures consistent with the unit's business plan.
Revisions to the approved budget shall be made through the normal budget adjustment process in accordance with established university policies and procedures:
- Service Center managers may transfer funds within the activity as programmatically justified. Intra-departmental transfers between expenditure categories (FRS subcode pools) are authorized.
- Because of their self-supporting nature, interdepartmental transfers for Service Centers would normally not take place. When it is in the best interest of the University, vice presidents may make exceptions where two separate centers function dependently. An example of this is the interdependence of the printing and publications operations.
- Service Centers shall receive no general fund subsidy from the university. All requests to revise the operating budget must be funded internally from realized revenue or interdepartmental charges.
Unencumbered funds remaining at fiscal close will be carried forward into the new fiscal year as unallocated fund balances. Fund balances will not normally be used to support operations, except for special provisions outlined in the business plan. Each Service Center shall have its own general ledger account where fund balances will accrue automatically. The primary purpose of this provision is to allow Service Centers to accumulate funds over time to make major equipment purchases and to fund other capital projects.
Fringe benefit costs for personnel assigned to the Service Center shall be budgeted and expended in accordance with the University's established practices. Unexpended fringe benefits may be re-budgeted and used as programmatically justified.
Service Centers shall be exempted from the University's Lapsed Salary Policy, Vacant Position Policy, and the Financial Management Incentive Policy and Internal Reallocation Policy. The purpose of this exclusion is to give maximum flexibility in financial management and to encourage decentralized decision making by Service Center managers.
REASON FOR POLICY
Application of the policy is needed in order to ensure that goods and services:
- Comply with government requirements. The government monitors, by routine audits, the University's compliance with Federal regulations.
- Are charged at rates that recover the costs of providing the goods and services.
- Are being provided at reasonable rates when compared to external providers.
Service centers must be able to demonstrate compliance with applicable UofL, federal, and other governmental entities’ policies and procedures. The primary federal guidelines and oversight of Service Centers is covered by the Office of Management and Budget’s (OMB) Circular A-21, with added emphasis on Section J.
A. Definitions of Recharge and Service Centers
The following section outlines the basic definitions and characteristics of Service Centers and Recharge Centers at UofL. Though these types of centers share certain attributes, there are significant differences in size, complexity, and operating procedures. However, it is important to note that both Recharge and Service Centers will be assigned a Chart of Accounts program code that begins with an “S” designation.
Recharge Center Definition
Recharge Centers are organizational units or activities that provide goods and services for University departments and the University community. Recharge centers charge a fee to Internal Users that is based upon the expected actual direct costs of providing the good or service. These expected direct costs are used to establish service rates. The service rates are expected to recover sufficient revenue to equal direct costs, i.e. “break-even.” Recharge Centers may be centrally or departmentally supported. Their activities are non-research and non-academic oriented. Printing services and computer support services are examples of a Recharge Center.
In addition to meeting the above definition, the total direct cost of providing the good or service exceeds $10,000 per fiscal year. Recharge centers are expected to break even annually. Recharge activities with operating expenses less than $10,000 per year are exempt from this policy.
Service Center Definition
Service Centers are organizational units or activities that provide goods and services for university departments (internal) and potentially for entities outside of the university (external users). Service Centers are focused on research and academic activities. Service Centers charge to internal users and to external users who pay with federal funds a service rate that is based upon the expected actual and appropriate direct incurred costs for the good or service, and possibly certain allowable types of indirect costs (see below). For example, in many cases, equipment depreciation may be included in the service center rate. This differs from Recharge Centers where equipment depreciation is not allowed to be included in the costs of operation, and therefore, not included in the service rate. In some circumstances, Service Centers may charge external users a service rate that exceeds the service rate for internal users and external users who pay with federal funds. If a Service Center desires to charge an external user a higher service rate, the Service Center should obtain concurrence with that rate from the Office of Budget and Financial Planning (BFP) and the Controller’s Office to ensure proper compliance with unrelated business income tax reporting. Federally funded projects are entitled to the lowest service rate offered by the service center for the same type of service(s). IMPORTANT NOTE: Costs which are included in the University’s applicable Facilities and Administration (F&A) rates are NOT to be included in any service center rate. The University’s F&A rate applicable to Other Sponsored Activity is to be assessed to service rates/total service costs incurred for all External Users, including those paying with federal funds.
Types of Service Centers
There are two administrative classifications of Service Centers at UofL; Minor, and Major. The costs for each type are accounted for in the same manner. The definition of each is set forth below:
Minor Service Center
A Minor Service Center provides goods and/or services to other university departments, and External Users. Rates are based on direct costs and with approval from the Office of Budget and Financial Planning (BFP), allowable indirect costs for depreciation on equipment. These operations generate between approximately $10,000 - $500,000 of revenue and/or interdepartmental credits per fiscal year, and are expected to break even annually.
Major Service Center
A Major Service Center provides goods and/or services to other university departments (Internal Users), and External Users. The services are not always available from outside vendors. Services provided usually involve highly complex and specialized facilities. Rates are based on direct costs, and with approval from the Office of Budget and Financial Planning, allowable indirect cost. These operations generate approximately over $500,000 of revenue and/or interdepartmental credits per fiscal year.
Allowable Indirect Costs
For purposes of rate determination, “allowable indirect costs” are indirect costs incurred within the service center for multiple goods or services, but do not include costs incurred on a general university wide basis or in support of federal programs. These allowable indirect costs may be allocated on a per unit basis or other reasonable method to projects within the service center.
Examples of such costs include: 1) salaries and benefits of service center administrative support, 2) supplies utilized within the service center not directly attributable to a service or project, and 3) current year depreciation on service center equipment.
B. Terminology and Key Rules for Minor and Major Service Centers
The following presents the major terms utilized for Service Centers at UofL. Where appropriate, the key rules associated with the term are also included.
This includes, colleges, schools, departments, and entities that are accounted for in any of the following UofL Annual Financial Statements; 1. University of Louisville and Affiliated Corporations; 2. University of Louisville Research Foundation, Inc.; 3. University of Louisville Athletic Association; and 4. University of Louisville Foundation Inc. and its nonprofit Affiliates.
The rate charged to Internal Users should be based solely on direct costs and should not include any indirect (Facilities & Administrative, or F&A) costs or any “mark-up”. The rate should be enough to cover allowable direct costs, but not generate a residual. Service Centers must breakeven (revenues = expenditures) over time.
This user group excludes internal users but includes users from outside of UofL, including but not limited to other educational institutions, companies, the general public, students, and any members of faculty or staff acting in a personal capacity. At a minimum, external users will be charged for the full costs (approved service rate plus applicable institutional Facilities & Administration, or F&A, costs) of the services performed (see “Indirect Costs and F&A Costs” section below). The rate charged to certain external users (e.g. non-federal external users) may be higher than total costs (i.e., may include a “markup”), provided the Service Center has obtained approval of that rate from the Office of Budget and Financial Planning (BFP) and the Controller’s Office to ensure proper compliance with unrelated business income tax reporting. Users which are utilizing federal funds (including federal flow through) to pay for their service projects are not to be charged any additional “markup” and are entitled to the lowest approved service rate offered, plus applicable F&A costs. When the expenses for an external user are processed as part of a sponsored program speedtype, the F&A cost will be automatically posted when the expenses are posted in the University’s accounting system. If the external user is directly invoiced by the Service Center, the Service Center is responsible for ensuring the applicable F&A cost is included in the billing.
*Know Your Customer - There may be occasions when an entity normally accounted for in the above financial statements is classified as an External User (e.g. – a UofL entity acts as an agent for an external party to gain a favorable Internal User rate), or an Internal User is classified as an External User (e.g. – Dr. X has a business that is separate from UofL, if she wishes to engage the Service Center to perform a project related to her business, the external rate should be charged). Service Center managers should exercise care in determining the funding source and purpose of a given business transaction.
*Billing Your Customer – It is required that the Service Center knows and documents how the user intends to pay for service(s) prior to performing the service(s). This documentation determines the rate eligibility of the user (e.g. – a user paying with federal funds shall receive the lowest service rate).
Costs specifically assignable to the operations of a service center. All direct costs must be budgeted and charged directly to service center operating accounts. Direct costs include, but may not be limited to:
- Salaries and fringe benefits
- Travel – costs are limited; check with Office of Budget & Financial Planning
- Non-capitalized equipment (<$5,000)
- Repairs and Maintenance on Equipment
- Rental and Service Contracts
Indirect Costs and F&A Costs
Are not usually included in development of service rates for Internal Users or for External Users which pay for services with federal funds. Service Centers should discuss such costs with their BFP analyst before they calculate proposed rates. This will save time and effort. Service rates potentially could include certain indirect costs incurred by the Service Center for multiple goods or services or campus-wide indirect costs only if inclusion of such costs is consistent with OMB Circular A-21 and if such indirect costs are NOT included in the institutional Facilities & Administration (F&A) Rate calculation. F&A costs should not be included in service center rates; instead, F&A costs are to be assessed separately on the total amount charged for performance of the specified services based on applicable service rate. The University’s applicable F&A rate for Other Sponsored Activities (which includes service) is available at http://louisville.edu/research/common/f-a-indirect-cost. A lower F&A rate may be assessed to certain non-profit external users only as allowed by university policy/standard practice.
The depreciation of capital assets charged to Service Center operations is based on the straight line method over the useful life of the asset. Such treatment ensures that users pay only for depreciation expense associated with the usage in a given year. UofL capitalizes equipment of $5,000 and higher. The Controller’s Office will provide guidance on the service life for specific types of equipment, and will also provide an accounting mechanism to track eligible depreciation.
Note: Depreciation of equipment purchased by the federal government, whether or not title has reverted to the University, cannot be included in the user rates. Where the University has specifically agreed to "cost share" equipment in a federal award, depreciation of the University-funded portion is also unallowable in the rates.
Establishing and adjusting rates
Service Centers are required to formally review and present their rates every 24 months to BFP, and if operating results exceed, or are expected to exceed the +/-10% threshold, the rates should be adjusted at that point. However, Service Center personnel should monitor their financial performance on a regular basis and at least every six months. Rates should be revised as appropriate prior to the end of the formal 24 month review period in order to minimize the possibility of over and under recoveries. The rate review and modification process will be part of the program budget process which is coordinated by BFP (typically in January and February).
Note: The “establishment” date for a Service Center begins when the UofL Service Center Committee approves the establishment of the new Service Center.
Over and Under Recovery
Reasonable efforts must be taken to avoid the accumulation of residuals and deficits greater than or less than 10% of the revenues less expenses. The policy governing such actions is as follows:
- The calculation and determination of over and under recoveries greater than 10% shall be on a two year (biennial) basis beginning with July 1, 2013.
- At the end of the two year period (June 30, 2015) the over or under recovery will be determined.
- Service Centers are required to break-even over time.
- Any residuals greater than 10% must be used for the benefit of users via reduced rates. Residuals greater than 10% may not be used to fund Service Center operations.
- Any deficits greater than 10% must be written off with funds from outside the Service Center. The write off amount may be from unrestricted funds or applicable restricted funds.
- SC9999 had a 9% over recovery in FY13, and a 2% over recovery in FY14. – The SC must adjust rates to lower the surplus, and may only budget 10% of the surplus (the 1% left over may not be budgeted or used).
- SC8888 had a 20% over recovery in FY13, and a 15% under recovery in FY14. –The 10% policy does not apply.
Subsidies are non-Service Center funds that are applied/ supplied (either centrally or at the school, unit or departmental level) from non-federal sources to offset the cost of the Service Center services for the Internal User. The respective unit head, Dean or VP for a Service Center may approve a subsidy for services performed for specific internal users or for specific services used by internal users. All internal users should be offered the same subsidy for comparable services.
The Service Center must keep track of all the subsidies that were allowed during a year. Records must include the rate(s) charged for the service, the date, the actual cost of the service, and what would this service cost if charged at un-subsidized, actual rate. This will help identify imputed revenue issues.
In addition to full recovery of actual costs, Service Centers may have a financial need for increased operational liquidity. UofL allows Service Centers to have a working capital reserve of up to 60 days’ worth of operating expenditures.
Costs defined in OMB Circular A-21, Section J that are not eligible for reimbursement from the federal government and must not be recorded in Service Center accounts. These include but are not limited to:
- Alcoholic beverages
- Bad debts
- Commencement or convocation costs
- Contingency provisions
- Contributions, donations, remembrances
- Fines and penalties
- Goods or services for personal use of employees
- Personal use of an institution-furnished vehicle
- Public relations
- Student activity costs
- Travel - first-class
The manager of a designated Service Center shall prepare an annual business plan outlining yearly objectives, annual projections of revenue and expenditures, pricing schedules for services, as outlined above. Generally, the business plan shall mirror the management philosophies and operating parameters outlined in the unit's Priorities for Action (strategic plan). The business plan will be forwarded to the respective vice president for review and approval. Once approved, informational copies will be sent to the Vice President for Administration, the Controller's Office and the Office of the VP for Finance for reference.
It will be the responsibility of the Service Center manager to prepare an annual progress report to the respective vice president. Informational copies of these reports should also be sent to the Vice President for Administration, Controller's Office and the Office of the VP for Finance.
Vice President for Finance and Chief Financial Officer
RESPONSIBLE UNIVERSITY DEPARTMENT/DIVISION
Budget and Financial Planning
2301 S. Third Street
Grawemeyer Hall, Room LL20
Revision Date(s): February 2014
Reviewed Date(s): July 1, 2016; February 2014; December 11, 2008
The University Policy and Procedure Library is updated regularly. In order to ensure a printed copy of this document is current, please access it online at http://louisville.edu/policies.