Financial Management of Service Centers
This policy provides guidelines for the financial management of
service centers to ensure accurate cost allocation, consistent
billing practices that document costs, charges, and billing rates,
and where applicable, compliance with federal government cost
Service centers may recover the cost of providing services by
charging customers for actual services provided, utilizing service
center billing rates established in accordance with this policy.
Pre-billing in advance of the provision of a service is unallowable
per federal guidelines. Service center billing rates should be
reviewed annually by the service center manager and all changes in
billing rates must be approved by Financial Management.
Rate Development Principles
The service center billing rate is the cost per unit of
output used to recover the costs of the service center:
Budgeted Costs/Budgeted Usage Base =
Service Center Billing Rate
Budgeted costs could be based on prior year costs or an estimate
of the upcoming year’s costs. The budgeted usage base is the
volume of work expected to be performed, expressed in units (e.g.,
labor hours, machine hours, CPU time, or other reasonable
measurement). New service center billing rates should be based on a
reasonable estimate of the costs of providing the services for the
year and the projected number of billing units for the year.
Service center billing rates should be calculated in each
service center based on the university’s fiscal
For each type of service that is "recharged" to
users, the department must maintain documentation detailing how the
rate per unit has been determined.
Service center billing rates should be calculated by service
center management. Actual costs and service center billing rates
should be reviewed for reasonableness by the service center manager
at least annually and adjusted when necessary. Documentation
supporting new service center billing rate calculations and any
adjustments to existing rates must be submitted to Financial
Management for review using the Billing Rate Development
If a service center provides multiple services and uses separate
billing rates, all of the costs related to each service must be
separately identified through a cost allocation process. Cost
allocations should reflect the relative benefits each activity
received from the cost. Categories of cost to be allocated
- direct costs; for example, if an individual is involved with
multiple services, a distribution of his/her salary among the
services can be accomplished by using the proportional amount of
time the individual spends on each service
- costs partially related to the operations of a service center
and partially to other activities of a department
- internal service center overhead allocated on the basis of
space utilized or by using the same proportional amount of direct
costs associated with each service.
Per Uniform Guidance, Subpart E, §200.468(b)(2), service
centers are required to review their rates no less than biennially.
Questions regarding appropriate cost allocation procedures should
be directed to Financial Management.
All of the costs that contribute to the service provided must be
used in the development of service center billing rates and should
reside in a service center account. It is recommended that a
separate account be established to record only service center
expenditures and receipts. Income Fund Reimbursable (IFR), Research
Foundation (RF), and/or University at Buffalo Foundation (UBF)
accounts may be established to record service center activity. The
following cost components are commonly included in service center
Salaries and Wages (Personal
Service Regular (PSR))
The salaries and wages of all
personnel directly related to a service center activity (e.g., lab
technicians, machine operators) should be included in the rate
calculation and charged to the service center operating account. If
an individual works on more than one activity, the costs associated
with that individual should be allocated to the activities based on
the proportional benefit. This proportion may be determined by an
effort or time study.
The salaries and wages of
administrative staff in direct support or management of a service
center may be included in the rate calculation and charged to the
service center operating account as long as the administrative
staff cost is not included in the university’s Facilities and
Administration (F&A) rate charged to the federal government.
Questions regarding costs included in the F&A rate should be
directed to Financial Management. Administration costs benefiting
more than one service center activity should be allocated to the
benefiting services on a reasonable basis.
Fringe benefits related to State IFR,
RF or UBF salaries charged to the service center operating account
should be included in the service center billing rate calculation.
Because the university does not pay fringe benefits for salaries
funded by state operating accounts, fringe benefits for these
salaries may not be included in the service center billing rate
Materials and Supplies
The cost of materials and supplies
needed to operate a service center should be included in the rate
calculation and charged to the service center operating
If a service center sells products
from an inventory or maintains an inventory of parts and supplies
used in providing its services, inventory records must be
maintained. A physical inventory should be taken at least annually
at the end of the fiscal year and reconciled to the inventory
records. Inventory valuations may be based on any generally
recognized inventory valuation method (e.g., first-in-first-out,
average cost). The service center must exclude costs attributable
to inventory growth in calculating billing rates.
Equipment cannot be entirely included
as a cost in the year purchased when calculating service center
billing rates. The cost of the equipment should be included in the
service center billing rate as depreciation, using the
straight-line method. Straight line depreciation is calculated by
dividing the original purchase cost of the equipment by its useful
life. This ensures that users pay only for equipment cost
associated with the usage in a given year. Financial Management can
assist service center management with determining useful lives of
equipment included in service center billing rates.
It is recommended that the funds recovered by depreciation included
in the service center billing rate be set aside in a separate
account as an equipment replacement reserve to fund the purchase of
new equipment. Upon request of the service center manager,
Financial Management will establish an account to accumulate
depreciation dollars. If additional funds are necessary to cover
the cost of replacement equipment, other sources may be used.
Surplus balances in the service center operating account must be
used as carry forward adjustments and may not be used to purchase
Equipment Purchased With
The depreciation of equipment purchased by federally sponsored
programs, whether or not title has reverted to the university,
cannot be included in the service center billing rates. Where the
university has agreed to cost-share a piece of equipment on a
federal award, depreciation of the university-funded portion is
also unallowable in the service center billing rates.
Equipment Included In the
University’s F&A Rate
The federal government cannot be charged for the
depreciation of a piece of equipment both through a service center
billing rate and through the university's F&A rate. Financial
Management will review any equipment items included in the service
center billing rate to confirm that the equipment is excluded from
the university’s F&A rate charged to federally sponsored
Other expenses that may be included
in the service center billing rate include:
· rental and service contracts
· equipment operating leases
· software and equipment maintenance
· professional services.
Variable Billing Rates
Internal university users should normally be charged the same
rate for services provided. Alternate pricing structures based on
time-of-day, volume discounts, turn-around time, etc. are
acceptable, provided that they have a sound management basis, do
not discriminate among users, and do not result in recovering more
than the cost of providing the services.
If some users are not charged or are charged at reduced rates
for the services, the non-subsidized or standard rate must be
imputed in calculating the service center’s annual surplus or
deficit. This is necessary to avoid having some users pay higher
rates to make up for the reduced rates charged to other users.
Rates for External Users
The federal government does not object to charging external
users a rate higher than the rate charged to internal users.
However, revenues and costs associated with external users should
be tracked separately to avoid the perception of overcharging.
Rates charged to external users may include:
- the full direct costs of the service center operation including
direct costs not charged to internal users
- facilities and administration (F&A) costs of the service
- the General University Service Fee (GUSF)
- sales tax, where applicable.
External rates should not be significantly different than the
prevailing rate for identical services provided by commercial
organizations in the area.
Revenue from external users may have Unrelated Business Income
Tax (UBIT) implications. Questions regarding UBIT should be
directed to Financial Management.
Surplus and Deficit (Break-Even Concept)
All service centers must develop service center billing rates so
that revenues offset costs over a reasonable period of time. The
service center surplus or deficit for a given fiscal year generally
should be carried forward as an adjustment to the service center
billing rates for the following year or the next succeeding year.
Adjustments to service center billing rates for the completed
fiscal year should be made only when material and reasonable.
Amounts charged to external users in excess of the internal
service center billing rate should be excluded when calculating the
service center surplus or deficit.
Service centers must bill all customers for all services
provided. The service center may choose to provide a service to an
internal group of users at no charge or at a lower rate than other
users, however, the service center billing rate must be calculated
for all internal users based on total service center
expenses and total units of output. The cost of the services used
by the subsidized user group must be recorded to ensure that they
are not inappropriately charged to other users. The service center
must ensure that the rate charged to this user group is consistent
with that charged to others, including accounts ultimately charged
to federal awards.
Subsidies to Service Centers
The university may choose to subsidize the operations of a
service center. When billing rates are lower than cost, the
resulting deficit cannot be carried forward as an adjustment to
future billing rates.
The Office of Management and Budget’s (OMB) Uniform
Guidance includes a list of considerations for selected items of
cost. The list is not all-inclusive and failure to mention a
particular item of cost is not intended imply that it is either
allowable or unallowable. Unallowable costs must be excluded
from service center billing rates. The following list contains some
of the costs that have been specifically identified in OMB’s
Uniform Guidance as unallowable:
- §200.421 Advertising costs that are not for (1) the
recruitment of personnel required by the award; (2) the procurement
of goods and services required to perform the award; and (3) the
disposal of scrap or surplus materials acquired in the performance
of the award.
- §200.421 Advertising and public relations costs (1) of
meetings, conventions, convocations, or other events related to
other activities of the University; (2) of promotional items and
memorabilia; and (3) designed solely to promote the
- §200.423 Alcoholic beverages.
- §200.424 Alumni activities
- §200.426 Bad debts.
- §200.430 Compensation for personal services (1) that is
not reasonable for the services rendered and (2) does not conform
to the established written policy of the University, consistently
applied to all activities.
- §200.431 Compensation for automobile costs that relate to
personal use by employees (including transportation to and from
work), regardless of whether the cost is reported as taxable income
to the employees.
- §200.432 Conferences that (1) do not have the primary
purpose of disseminating technical information beyond the
University and (2) are not reasonable for successful performance of
the award. Conferences can also mean meetings, retreats, seminars,
symposiums, and workshops.
- §200.434 Contributions and donations made by the
University to other entities, including cash, property, and
- §200.438 Entertainment costs, including amusement,
diversion, and social activities and any associated costs that
don’t have a programmatic purpose and/or are not authorized
by the awarding agency.
- §200.445 Goods or services for personal use by
- §200.454 Membership in any country club or social or
dining club or organization, as well as membership in any
organization whose primary purpose is lobbying.
- §200.459 Professional and consultant services rendered by
persons who are officers of the University.
- §200.466 Scholarships and student aid costs, in lieu of
wages, that (1) are not for necessary activities of the award; (2)
are not in accordance with established policies of the University;
(3) are not consistently provided in a like manner to students in
return for similar work conducted in other University activities;
(4) are not for students enrolled in an advanced degree program
that is related to the award; (5) are not reasonable compensation
for the work performed; (6) are not conditioned explicitly upon
performance of the necessary work; and (7) occur when it is not the
University’s practice to similarly compensate students under
awards as well as other activities.
- §200.467 Selling and marketing costs of any products and
services of the University, without prior approval of the awarding
- §200.469 Student activity costs incurred for intramural
activities, student publications, and student clubs, unless
specifically provided for in the award.
- §200.474 Travel costs for lodging and subsistence (1) that
are not reasonable and consistent with the University’s
established travel policy and (2) are for dependents, unless the
travel is for a duration of six months or more and have been
approved by the awarding agency.
- §200.474 Travel costs for commercial air travel that are
in excess of the basic least expensive unrestricted class offered,
except when such accommodations would require circuitous routing,
travel during unreasonable hours, excessively prolonged travel,
additional costs that would offset savings, or are not reasonably
adequate for the traveler’s medical needs.
It is the responsibility of the service center to monitor
collections on accounts receivable.
Service centers receiving cash payments should ensure that the
appropriate segregation of duties are maintained to safeguard the
funds and the university’s reputation. For instance, a person
who receives cash should not be the person who deposits cash or
reconciles the account. When the number of staff make such
segregation difficult, other compensating controls should be
instituted that provide the appropriate checks and balances to
detect errors, deter fraud, and prevent concealment of
Rate development documentation must be maintained by the service
center manager to document the actual costs of providing the
service, units of service provided, billings, collections, and the
annual surplus or deficit.
In accordance with OMB’s Uniform Guidance, original
rate development documents must be retained for three years from
the end of the fiscal year covered by the calculations. These
documents are subject to external audit (federal, state, RF, and
other sponsors) and internal review.
Service centers are established for the primary purpose of
providing specific technical or administrative services to support
the internal operating activities of the University at Buffalo (UB,
university). Service centers must provide services that are
consistent with the university’s mission and the normal
activities of the college/department associated with the
The cost of services provided by a service center must be
charged directly to all users based upon actual use through a
schedule of rates that recovers costs. Service center billing rates
should not differentiate among internal users (including federally
sponsored activities) and must not exceed the actual cost of
providing the service.
Educational institutions must follow the requirements imposed by
the federal Office of Management and Budget's (OMB) Part
200-Uniform Administrative Requirements, Cost Principles, and Audit
Requirements for Federal Awards when developing service center
billing rates and charging sponsored program accounts.
This policy applies to service center activities conducted
through university accounts including State, RF, and UBF.
The unit of service provided by a
service center. Examples of billing units include hours of service,
animal care days, number of tests performed or machine time
The amount determined when the
service center costs exceed revenues for a given fiscal
An allocation of the cost of
equipment over its useful life. Straight-line depreciation is used
for service centers and is calculated by dividing the original cost
of the equipment by the number of years of useful
Direct Operating Costs
Costs that can be specifically
identified with a service including salaries, wages, and fringe
benefits of university faculty and staff directly involved in
providing the service, materials and supplies, purchased services,
travel expenses, equipment rental, depreciation, and interest
associated with equipment acquisitions.
An item of tangible personal property
having a useful life exceeding one year.
The amount of funds accumulated and
set aside to cover the cost of purchasing replacement equipment for
the service center.
Organizations or individuals whose
ultimate source of funds is outside of UB. External users include
faculty, staff, and students acting in a personal capacity.
Affiliated hospitals and other individuals are also considered
external users unless UB has subcontracted with them as part of a
grant or contract.
Facilities and Administration (F&A) Costs
The costs of administrative and
support functions of the university including general
administration and general expense, operations and maintenance,
building and equipment depreciation, library expenses, and
The 12 month period used for
accounting purposes; the university’s fiscal year is July 1
to June 30.
General University Service Fee (GUSF)
Fee charged against external revenue.
The service fee is a flat rate charged across all entities on funds
generated through the use of university faculty or staff time
and/or use of university facilities.
Internal Service Center Overhead
All costs that can be specifically
identified to a service center, but not with a particular service
provided by the center, such as the salary and fringe benefits of
User whose ultimate source of funds
is within UB (State IFR, RF, UBF, and Faculty Student Association
Office of Management and Budget (OMB)
The part of the executive branch of
the federal government that assists the President in the
development and implementation of budget, program, management, and
An organization that provides a
specific technical or administrative service that supports the
internal operating activities of the university. Examples include
but are not limited to lab analysis services, print and mail
services, instrumentation shops, and animal care services. A
service center recovers the cost of its operations through charges
Service Center Billing Rate
The amount charged to a user for a
unit of service calculated by dividing the total annual costs of
the service center by the total number of billing units expected to
be provided to users of the service for the year. See the Billing
Rate Development Worksheet.
Service Center Management
Faculty/staff within a department
that manage the financial and/or day-to-day operations of a service
center, including the items listed in the responsibility portion of
this policy (this does not include staff from the Financial
Additional funding provided by a
department that assists in covering the costs of a service
Users of a service center that are
either charged at a lower rate or not charged at all.
Personal property that is expendable
and cannot be classified as equipment with a useful life of less
than a year.
The amount determined when the
service center revenues exceed costs for a given fiscal
Costs that cannot be charged directly
or indirectly to federally sponsored programs.
Document issued by the Office of
Management and Budget that establishes uniform administrative
requirements, cost principles, and audit requirements for federal
awards to non-federal entities.
Unrelated Business Income Tax (UBIT)
Taxes that result from income
produced by the sale of goods or services to external users not
substantially related to the university’s tax exempt
The period of time over which a piece
of equipment is expected to provide service.
Departmental Service Center Management
- Service center billing rates should be calculated by service
- Actual costs and billing rates should be reviewed for
reasonableness by the service center manager at least annually and
adjusted when necessary.
- Documentation supporting new billing rate calculations and
adjustments to existing rates must be submitted to Financial
Management for review using the Billing Rate Development
- A separate account should be requested in the university's
accounting systems to record the actual direct operating costs of
the service center, internal service center overhead, revenues,
billings, collections, and surpluses or deficits.
- Records must be maintained by the service center manager to
document the actual costs of providing the service, units of
service provided, revenues, billings, collections, and the annual
surplus or deficit.
- An annual physical inventory should be performed (if necessary)
and reconciled to the inventory records.
- Invoice only for actual services provided. Charging users in
advance is unallowable per federal regulations.
- Review and recommend approval of new rates and changes to
existing rates for service centers.
- Forward a copy of all approved rates to the Provost Office for
- Perform periodic reviews of service center financial management
to ensure consistency with this policy and federal guidelines.
- Review all equipment included in the service center billing
rate to ensure that the equipment is excluded from the
university’s facility and administration (indirect) cost rate
charged to federally sponsored projects.
- Upon request by the Service Center, establish a separate
equipment depreciation account and annually transfer the
appropriate amount of depreciation dollars to the reserve
- Review and if appropriate, approve all rates that have first
been reviewed and approved by Financial Management.
418 Crofts Hall
Buffalo, NY 14260
Related Documents, Forms, Links
||Upated OMB Circular A-21 and A-110 references to reflect OMB Uniform Guidance references and requirements; the OMB Uniform Guidance has superseded these circulars.
- Removal of mandatory biennial (every two years) submission of the Billing Rate Worksheet.
- Updated email addresses and office names.
- Addition of clause stating pre-billing in advance of a service is allowable.
- Mandatory biennial (every two years) submission of the Billing Rate Development Worksheet.
- Required Academic Planning and Budget (APB) review of all rates after Financial Management approval.
||Updated the policy statement to include "actual services provided" as a criteria for invoicing and to include a definition of service center management.