Date Established: 7/1/1999
Date Last Updated: 7/17/2015
Vice President for Finance and Administration
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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 principles.
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.
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 year.
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 Worksheet.
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 include:
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 billing rates:
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 calculation.
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 account.
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.
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 programs.
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.
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.
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:
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.
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.
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:
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 irregularities.
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 organization.
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 used.
The amount determined when the service center costs exceed revenues for a given fiscal year.
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 life.
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 interest.
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 the director.
User whose ultimate source of funds is within UB (State IFR, RF, UBF, and Faculty Student Association (FSA)).
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 regulatory policies.
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 to users.
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 Management Office).
Additional funding provided by a department that assists in covering the costs of a service center.
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 year.
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 purpose.
The period of time over which a piece of equipment is expected to provide service.
418 Crofts Hall
Buffalo, NY 14260
|July 2015||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.|
|May 2011||Updated the policy statement to include "actual services provided" as a criteria for invoicing and to include a definition of service center management.|