Purpose of Policy

The purpose of the policy is to provide information about the procedures for establishing use rates for service centers, recharge centers and specialized service facilities.

Background

Events of recent years have emphasized the need for clearer understanding of all research-university accounting methods and operating procedures, including those related to service centers. Establishment of service center policies and procedures enhances consistent operational practices among the various centers and assures compliance with government cost principles.

At a typical university, there may be hundreds of departments and other units that charge university accounts through interdepartmental invoices. In addition to the larger campus wide service centers like printing, telecommunications, and data processing, many departments have established accounts to which costs are charged initially, before they are allocated to users, such as the monthly allocation of the copier or postage charges.

All service and recharge centers, no matter how small, are subject to the basic cost principles set forth in OMB Circular A-21.

OMB Circular A-21 sets forth the cost principles for universities. The regulations address the questions of service center pricing, both specifically and in general. In general, the principles are designed to provide recognition of the fully allocated costs of such research work under generally accepted accounting principles. No provision for profit or other increment above cost for internal users is provided for in OMB Circular A-21. The rules set forth in OMB Circular A-21 do allow that break-even may be achieved over a long-term basis, if agreed to by the recipient and the cognizant governmental agency, and they provide for the mutual agreement on alternative costing arrangements. Section D, OMB Circular A-21 stresses the need for consistency in treatment of costs as either direct or indirect.

Section J.44, OMB Circular A-21 deals specifically with service centers. Its specific provisions are somewhat vague; in fact only the principles for specialized service facilities, of which most universities have one or only a few, are discussed there. This section addresses two concepts:

1. Charges to internal users should not exceed costs, and
2. The rate development process should not discriminate with respect to services charged to all internal users including governmental users.

A specialized service center must include in its rate, if the center is material, not only the direct costs of the center but also its allocated indirect costs, such as space and utilities. The reason for this requirement is set forth in the U.S. Department of Health and Human Services' Departmental Review Guide For Long Form Universities Indirect Cost Proposals:

The allocation of indirect costs to a specialized service center is necessary to assure that these costs are assigned to the users of the services rather than to general overhead.

Permitting the indirect costs applicable to the services to be included in general overhead would shift these costs from users of the services to non-users, and from heavy users to minimal users, which would be clearly inequitable to programs that do not use the services or use them only to a limited degree. Although the allocation of indirect costs to these services may not have a significant impact on the overall charges to the Government, in some cases it could have a significant impact on charges to individual sponsored agreements.

Definitions

Service Centers/Recharge Centers

Operating units established for the primary purpose of providing specific services, such as photocopying, to the university community although services may be provided on an incidental basis to external users. Recharge practices provide a department, which has a single type of expense in a relatively simple costing environment, with an efficient method of recovering costs.

Specialized Service Centers

Operating units which provide specialized services, such as electronic computer centers, animal care facilities, motor pools, reactors, graphics and printing, telecommunications, to the university community although services may be provided on an incidental basis to external users.

Policy Issues

Departments must have their center classified as either a recharge center or a service center/specialized service center by the Auxiliary Oversight Committee.

1. For recharge centers the following rules apply:

1. The effective date of this policy is July 1, 1996.
2. For the purpose of charging cost or recording credits resulting from recharge operations, each recharge center does not have to set up a single account or a series of accounts.
3. Expenses will be allocated to the users monthly.
4. Annual surpluses or deficits may be charged to the departmental account.
5. Departments must submit a new plan in any year that the products/services provided change or that the rates charged change.

2. For service centers and specialized service centers the following rules apply:

1. The effective date of this policy is July 1, 1996. It appears that some service centers may have built up surpluses or deficits in the past or otherwise charged rates that would be inappropriate under this new policy. It is also not clear what the effect of these practices has been on charges to federal and non-federal sponsored agreements. To avoid a lengthy analysis of past activities and to limit retroactive adjustments, the effective date will begin at the start of the next fiscal year.
   
2. Functional responsibilities:
   1. Approval to set up a service center must be obtained from the Vice-President of Administrative Affairs or his or her appointed designee.
   2. Approval of the use rates must be obtained annually from the Auxiliary Oversight Committee.
   3. Any pricing arrangements that are out of the ordinary must also be approved by the cognizant agency.
      
3. For the purpose of charging costs or recording credits resulting from operations, each service center will use a single account or a series of accounts. OMB Circular A-21 states that service center rates for internal users recover no more than actual costs.
   
   In order to eliminate the risk that costs reimbursed through service center charges are also recovered by other means, all service center costs are to be accumulated on the annual review. An example of how this could occur includes when a service center charges one of its users the time of an individual whose salary is also included in an indirect cost pool. Another example is if the service center was applying an "administrative surcharge" to its costs, when the administrative costs included therein are already recovered through one of the indirect cost pools.
   
   A separate account or a series of accounts will be set up to allow service centers to separately identify their costs and rates and to analyze the appropriateness of each on an annual basis. This will also help assure that these costs are not included in the overall indirect cost pool.
   
   A separate account or a series of accounts also will allow the individuals who prepare the facilities and administrative rate proposal to properly allocate all costs and to remove any profit or loss from the rate calculation. Service center losses will not be included in the facilities and administrative cost rate in order to ensure that government projects are not charged for the same costs through both an indirect and direct method.
   
4. Each service center should analyze its user rates annually and recalculate them if material changes occur.
   
   Use rates are subject to OMB Circular A-21. The Auxiliary Oversight Committee is responsible for reviewing and approving all user rates charged. The Cost Accounting Coordinator with Finance & Accounting is responsible for accumulating and presenting the information to the Auxiliary Committee. The use rate charges must be approved annually. Rates charged must be designed to recover not more than the aggregate costs of the services charged to internal users over a long-term period.
   
   Occasionally a service center provides more than one service, and makes a surplus on some services, and a loss on others. Combining the results of various services is acceptable, so long as the users of each service are not significantly different. Therefore, losses may offset surpluses, so long as the mix of users is not significantly different between the activities that gain and those that lose.
   
5. Direct costs included in the rate calculations are those expenses which are readily identifiable and are related directly to the center, such as salaries, wages, and fringe benefits for the personnel associated with the facility; equipment repair and maintenance costs; repairs and renovations to the space occupied by the center; supplies and materials; travel and outside service.
   
6. Indirect costs included in the rate calculations are those expenses which are incurred for common or joint purposes and are not readily assignable to the center. These costs include, building use charges, equipment use allowance or depreciation, operation and maintenance charges, departmental administration, and general administration. Contact the Office of Contracts and Grants for this information.
   
   1. Equipment - OMB Circular A-21 considers equipment as a capital cost and permits only annual depreciation be allowed in costs charged to users. The university has disclosed its depreciation policy as part of the CAS DS-2 statement. All depreciation calculations for recharge/service centers must adhere to the depreciation policy. The acquisition cost may not be included in the facilities and administrative rate calculations. It is recommended that the service center should establish as part of their series of accounts an account from which equipment would be funded. All equipment must be allocated properly between functions.
   2. Consistency between coding space and the treatment of the costs associated with the space is necessary. Service centers declaring space as particular to the service center must code that space as "Other Institutional Activities".
   3. Interest - Service centers that fund equipment purchases with internal loans and include as an expense the principle and interest repayment on the debt violate OMB Circular A-21. OMB Circular A-21 provides for the recovery of interest on external debt, and only on equipment purchases over $10,000, which have been agreed to by the cognizant agency.
   4. Interest penalties and fines cannot be included in the service center rate calculations.
   5. Administrative Surcharges - If a surcharge is added to service center rate charges, each center must recalculate the surcharge annually. Personnel in non-academic units whose salaries are included in the administrative surcharge will be required to maintain time and effort reporting unless their sole function is for the administration of the service center. Salaries of individuals whose sole function is not the administration of the service center will be allocated among the functions based on time and effort. This will make the user rates accurately reflect incurred costs of providing the service.
      
7. Each service center with a significant inventory will establish an inventory account for items for resale and exclude any growth in the inventory from the year's service center rate calculations.
   For example: A service center will base its operations on an inventory, such as a chemical stockroom, or will maintain an inventory of parts and supplies used in providing the service.
   
8. Each service center providing services to external users should have the Office of the General Counsel or University Purchasing review the purchase orders and contracts with external users.
   
9. Proceeds from all sales of service will be recorded as revenue.
   Credits for expenses are normally recorded as a reduction to the original expense category/object codes and processed as an expense refund transaction.
   
10. Each service center will exclude all unallowable costs from the rate calculations as set forth by OMB Circular A-21. A list of such costs is included in the Service Center worksheet at http://fa.ufl.edu/cg/docs/rfitempl.xls. 
    
11. Each service center must adequately document its activities and maintain records to support expenditures, revenue, billings and cost transfers. Documents that must be maintained include but are not limited to:
    
    1. Workpapers showing how the chargeout rate(s) were calculated;
    2. Approval of rate;
    3. Records supporting utilization or level of activity;
    4. Billing records that identify the service provided to each user
    5. Effort reports of service center personnel; and
    6. Any other document required by University rules and regulations.
       
12. No service center will establish discriminatory pricing.
    Section J.44, OMB Circular A-21 states: The cost of such institutional services when material in amount will be charged directly to users, including sponsored agreements based on the actual use of the service and a schedule of rates that does not discriminate between federally and non-federally supported activities of the institution, including use by the institution for internal purposes. Charges to internal users for the use of specialized facilities should be designed to recover not more than the aggregate cost of the services over a long-term period agreed to by the institution and the cognizant Federal agency. Accordingly, it is not necessary that the rates charged for services be equal to the cost of providing those services during any one fiscal year as long as rates are reviewed periodically for consistency with the long-term plan and adjusted if necessary.
    
13. To limit the University's liability for Florida Sales and Use Tax and Unrelated Business Income Taxes (UBIT), each service center will generally limit the number of sales to external users. Service centers which have external sales must notify University Tax Services (352-392-1324) of their activity.