Service Center Procedures

In order to qualify as a Service Center, the unit:

• Be established primarily to provide goods or services to University departments, sponsored programs, and activities (including the department, program, or activity overseeing the center).
• Operate as a discrete, ongoing entity with control of revenue and expense.
• Charge all internal customers equally for goods or services at a rate that is calculated to recover costs over a fixed period of time (normally, one year).

Why justify internal service center rates

• To secure funding for the University
• To pass a federal audit for charges to contracts and grants
• Required by OMB Circular A-21

Documentation Required for Establishing a Service Center Operation

Service Center Questionnaire
Service Center Operation Rate Development Worksheet

We prefer that you use this standard worksheet, which was created as a guide for rate documentation and applies to most University activities. It is acceptable to substitute a unique form, as long as it contains the same information as the standard worksheet.


Service Center Procedures

The objective of an Internal Service Center is to break even without realizing any surplus or profit. To estimate your rates, you should use:

• Prior year actuals
• Forecasting of future expense and revenue
• Expertise and knowledge

In short, you need to estimate the total annual cost that is directly chargeable by your service center, and divide that total annual cost by the total estimated annual utilization units to arrive at a valid billing rate. You may have more than one billing rate, depending on the services you provide and to whom you provide them.

It is critical to emphasize that you should determine the “total cost” of your service center. By not including the total cost in the rate(s), you risk incurring a negative working capital fund balance (deficit) for the service center.

Worksheet Elements

Expenses

Direct Costs

When you bill a federally funded source, you should use only federally defined allowable and allocable costs (refer to OMB Circular A-21) to determine these rates. For both federal and non-federal client billing rates, use only costs that are directly related to the service center’s day-to-day operations (Policy 2440 (4)), and which will be charged to the service center’s index:                

1. Salaries and Fringe Benefits – each faculty or staff member, or temporary or student employee, who spends part of their time directly engaged in the activities of the service center’s operations and whose salaries are charged to that index should be listed in the Personnel schedule (Salary tab). Indicate the percentage of full-time equivalent (FTE) effort each individual devotes to the center, as well as their annual salary less benefits. Document the fringe benefits for these individuals on the Fringe Benefits schedule (Benefits tab). Note: You can group individuals, rather than list them separately, if you prefer (ex, 5 lab techs). Under the column Rate X %, enter the percentage of usage that pertains to that particular rate you are calculating.
   
   
2. Materials and supplies – (tab M&S). Under the column Rate X %, enter the percentage of usage that pertains to that particular rate you are calculating. Note: If identifiable with a specific customer’s order, materials and supplies should be billed directly to that customer and not included in your rate calculations.
   
   
3. Cost of goods sold – enter on the Summary tab the cost to the service center of any goods charged to the index and sold to customers.
   
   
4. Maintenance contracts – include contracts for maintenance service on copiers, computers, and other equipment (tab R&M). Under the column Rate X %, enter the percentage of usage that pertains to that particular rate you are calculating.
   
5. Other costs, such as repairs, travel, etc. – (Other tab) subcontracts and outside services, equipment lease or rental costs, repairs, anticipated travel, etc. Enter the percentage of usage that pertains to that particular rate you are calculating.

Note: Indirect costs are not allowed in the rate calculations. These costs include expenses that are incurred for more than one cost center or costs that cannot be easily identified with a specific sponsored project or other University activity (Policy 2410 (3.2.2)). Examples include:

1. Chair salary
2. Building depreciation
3. Phone line (unless charged directly to the service center and used solely by them)
4. Alumni activites
5. Entertainment costs

Equipment

Billing rates cannot include the full cost of capital equipment, but should include the allowable depreciation deduction (Policy 2440 (5)). Equipment includes:

1. Computers
2. Vehicles
3. Machinery
4. Instruments

Note: when equipment is paid for with federal funds, you cannot include depreciation on such equipment in your rate calculations.

Depreciation – list the Property Tag numbers for all pieces of equipment used by the service center (Depr tab). You will need to enter the cost of these items in column I. In column K, enter the appropriate useful life from the chart on the form. The next worksheet, Depreciation Allocation, automatically works off the information you enter on the Depreciation worksheet.

Reserves – enter on Summary tab the total dollar amount set aside for large purchases of equipment. Attach supporting documentation to the worksheet.

Note: An equipment replacement reserve is not an allowable cost for a federal billing rate. However, the allowable equipment depreciation that is returned to the center via the billing rates can be set aside into a reserve for future equipment purchases.

Operating Reserve

Three months of operating expenses may be reserved for non-federally funded sources, and is considered prudent business practice. Supporting documentation is required.

Annual Utilization

Annual utilization should be in the form most applicable to the service provided by the service center, and is the basis of the billing rate. Measurement examples include:

1. Machine hours
2. Number of units, such as samples, experiments, etc.
3. Billable hours
4. Number of copies made
5. Hours of service
6. Number of items sold
7. Weight

Revenues

External

External customers may include commercial clients, non-profit organizations, or students. These customers normally pay by cash, check, or credit card. The service center does not charge another University index for transactions with external customers.

Document your external customers on the ExtRev tab. Under the Rate X % column, enter the percentage of usage that pertains to the particular rate you are calculating.

Note that it is not necessary to list individual students’ names or a long list of customers. A line showing the amount of revenue attributable to students or a particular type of customer is sufficient.

Internal

Internal revenue is generated from customers that are a part of the University community. The service center charges a University index for their goods and services, using account code 0610.

Enter internal revenues directly on the Summary tab.

Subsidies

Document any subsidized funds from other departments on the Subs tab. Under the Rate X % column, enter the percentage of usage that pertains to the particular rate you are calculating.

Miscellaneous

Do not include transfers of revenue, expenditures, or fund balances in your Service Center rate calculations because such transfers distort the calculations.

You must substantiate your billing rates with allowable costs and usage calculations.

Billing rates must be applied to all internal users on the same basis, although a higher rate may be charged for sales to external entities (Policy 2440 (5)).

New Internal Service Centers

Once your billing rates are approved by the Controller’s Office, you will need to request a new fund and, optionally, a new organization and/or activity using the COA application. Once these codes are set up, you can then request a new index.

Budgeting

Upon approval of your billing rate(s) by the Controller’s Office, you will need to input the annual budget for the service center.

Rate Maintenance

Rates should be maintained on an annual basis, at a minimum, unless specified otherwise by contract. You may need to periodically adjust your rates:

1. Down to prevent surplus.
2. Up to account for additional costs incurred and to prevent a deficit.

Please contact General Accounting for more information about Internal Service Centers.

Back to top