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Policy No.: 6107
Effective Date: 06/27/02
Revised Date: 04/08/10
Reviewed Date: 01/17/13

Service Center Policy

Basis and Purpose of the Policy

The University at Nebraska Medical Center's (UNMC) policy for the financial management of service centers has been established to provide consistent operational practices among the various service center units and to ensure compliance with federal government regulations. This is important because UNMC conducts sponsored programs under federal government grants and contracts. Service center activities result in direct and indirect charges to sponsored grants and contracts. Therefore, Service Center policies and practices must reflect government regulatory costing principles such as those contained in the Office of Management Budget (OMB) Circular A-21, "Cost Principles for Educational Institutions," and those required by the Cost Accounting Standards Board. As a major research university, UNMC cost accounting must be consistent for all operations.

Definitions

Types of Auxiliaries at UNMC

• Service Centers - Service centers are organizational units providing goods or services to users principally within the UNMC academic and administrative community for a calculated fee. All service centers are expected to recover the aggregate costs of their operations through charges to users and are expected to break even over time. Examples of service centers are UNMC printing services and various UNMC Core Facilities, such as the Confocal Microscope Core Facility, the DNA Sequencing Core Facility and the Cell Analysis Facility. Cost centers which purchase inventory and sell it to other departments without any additional mark-up or costs added to it are not a service center and should instead be considered a revolving center (see below).
• Auxiliary Enterprise - An organizational unit that provides goods or services primarily to students, faculty, staff and others for their own personal use, rather than as a service to internal University operations. Examples of auxiliary enterprises include the UNMC Bookstore and the Center for Healthy Living. Auxiliary enterprises are not subject to this policy.
• Revolving Center - A revolving center is an account established to run expenses through it but does not charge for any goods or services. Revolving centers are not subject to this policy.
• Student Fees - Student lab fees collected for lab supplies, technology, etc. Student fees are not subject to this policy.
• Contract Auxiliaries - Auxiliaries that involve negotiated contracts with an internal or external entity. Contract auxiliaries are not subject to this policy.
• Specialized Service Facility (SSF) - A service center that provides services that are highly complex. UNMC does not have a SSF but does have an Animal Research Facility (ARF) which follows the rules and regulations stipulated in the National Institute of Health's Cost Analysis and Rate Setting Manual for Animal Research Facilities.

Users

Purchasers of goods/services can be internal or external to UNMC.

• Internal - All colleges and institutions within UNMC are considered internal users as well as all University of Nebraska's campuses (e.g. University of Nebraska Omaha, Lincoln and Kearney).
• External - External users include the public, students, and any members of faculty or staff acting in a personal capacity.

Components of Costs in Rates

All costs, subsidies and revenue relating to a service center must be accounted for when determining charge rates.

• Direct Costs - All costs that can be specifically identified with a service or good provided by a service center.

• Direct Personnel - The salaries, wages and fringe benefits of all personnel directly related to the service center's activity (e.g. lab technicians or machine operators).
• Materials and Supplies - The costs of materials and supplies needed to operate a service center.
• Other expenses - Other operating expenses include rental and service contracts, equipment operating leases and professional services.

• Institutional Indirect Costs - The costs of administrative and supporting functions of UNMC. Institutional indirect costs consist of general administration and general expenses, such as executive management, payroll, accounting and personnel administration; operations and maintenance expenses, such as utilities, building maintenance and custodial services; building depreciation and interest associated with the financing of buildings; administrative and supporting services provided by academic departments; libraries; and special administrative services provided to sponsored projects.
• Capital Equipment - Capital equipment is an item with a purchase price over $5,000 and a useful life of at least one year.
• Service Center Child Account - A child account cost center is created to collect depreciation charges associated with capital equipment for a service center. Purchases of capital equipment for the service center should be capitalized through this account. Child should only be analyzed in conjunction with the operation cost center. Child accounts CANNOT be created or utilized without the approval of the Department of Financial Compliance and Cost Analysis (FCC). All depreciation entries will be calculated by FCC and booked by General Accounting.
• Depreciation - The depreciation of capital equipment charged to service center operations is based on the straight line method over the useful life of the asset.
• Useful Life - Service center capital equipment must be depreciated using the useful lives outlined in Capitalization Policy and Definitions section of the Accounting Information Manual.
• Unallowable Costs - Costs that cannot be charged directly or indirectly to sponsored programs. These costs are specified in the OMB Circular A-21. Common examples of unallowable costs include advertising, alcoholic beverages, bad debts, charitable contributions, entertainment, fines and penalties, goods and services for personal use, interest (except interest related to the purchase or construction of buildings and equipment), selling and marketing expenses. See Policy 6103, Unallowable Costs, for additional information.

Billing Rate

The amount charged to a user for a unit of service. Billing rates are usually computed by dividing the total annual costs of a service by the total number of billing units expected to be provided to users of the service for the year. (See Rate Setting Procedure for further explanation).

• Billing Unit - The unit of service provided by a service center. Examples of billing units include hours of service, animal care days, tests performed, machine time used, etc.
• Break-even Concept - A rate development theory where revenues offset expenses over a reasonable period of time.
• Surplus - The amount of revenue generated by a service center that exceeds the cost of providing services during a fiscal year.
• Allowable Surplus - A surplus (including both the annual surplus and the carry forward surplus/deficit from prior years) equal to or less than 60 days worth of operating expenditures for a fiscal year.
• Deficit - The amount that the costs of providing services exceeds the revenue generated by the service center during a fiscal year.

Policy

Service centers can result in charges, directly or indirectly, to sponsored programs at UNMC. As a recipient of federal grants and contracts, UNMC must comply with cost principles and cost accounting standards promulgated by the federal government. OMB Circular A-21: The Cost Principles for Educational Institutions are set forth in the Office of Management and Budget Circular A-21. Section J.47 of OMB Circular A-21 deals specifically with service centers and is explicit in the following two concepts:

• recipients of federal funds are not to recover more than cost.
• recipients are not to discriminate in the price of services charged to governmental and non-governmental users.

The principles provide for recognition of the full allocated costs of federal grants and contracts with no provision for profit or other increment above actual incurred, documented costs.

Service centers also must follow three additional regulations stated in the A-133 Compliance Supplement (document page 3-B-39 & 3-B-40):

• capital reserves (cash balance at fiscal year end) are not to be in excess of 60 days of annual expenses.
• billing rates must exclude unallowable costs (see Policy 6103).
• billing rates are to be developed based on actual costs and adjusted annually.

Responsibilities

The Department of Financial Compliance and Cost Analysis (FCC) is responsible for reviewing service centers when there are more than $10,000 in federal charges within a fiscal year by a particular service center. FCC also must approve the use of depreciation in rate calculations for all service center that includes depreciation expense in their billing rate.

Guidelines

Service Center Billing Rates

Billing rates should be designed to recover the direct operating costs of providing the goods/services on an annual basis excluding all unallowable costs. Billing rates should be computed annually by the service center. The 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 one year period. The billing rate computation should be documented and maintained on file. Deficits or surpluses should be carried forward as an adjustment to the billing rates in the next fiscal year. Surpluses cannot exceed more than 60 days worth of operating expenses for the service center.

Service Center Billing

All billing must be processed on a timely basis at established service center rates. Billing must not occur until the service has been rendered. Prepayments are not allowed. The service center must retain documentation supporting the charges, including documentation of the expenses and usage.

Service Centers that Provide Multiple Services

Where a service center provides different types of services to users, separate billing rates should be established for each service that represents a significant activity within the service center. The costs, revenues, surpluses and deficits should also be separately identified for each service. The surplus or deficit related to each service should be carried forward as an adjustment to the billing rate for that service in the following period. The surplus from one service may be used to offset the deficit from another service only if the mix of users and level of services provided to each group of users is approximately the same.

Cost Allocation

Where separate billing rates are used for different services provided by a service center, the costs related to each service must be separately identified through a cost allocation process. Cost allocations will also be needed where a cost partially relates to the operations of a service center and partially to other activities of a department or other organizational unit.

Depending on the specific circumstances involved, there may be two categories of cost that need to be allocated: (a) costs that are directly related to providing the services, such as the salaries of staff performing multiple services, (b) internal service center overhead.

When cost allocations are necessary, they should be made on an equitable basis that reflects the relative benefits each activity receives from the cost. For example, if an individual provides multiple services, an equitable distribution of his or her salary among the services can usually be accomplished by using the proportional amount of time the individual spends on each service. Other cost allocation techniques may be used for service center overhead and institutional indirect costs, such as the proportional amount of direct costs associated with each service, etc. Questions concerning appropriate cost allocation procedures should be directed to Financial Controls and Compliance.

Service Center Accounting

To comply with the UNMC Accounting Policy, 3000, it is important that service centers use the correct general ledger account when recording revenue and expenditures. The complete list of general ledger accounts is located on Sapphire. For internal revenue transactions, general ledger account 481100, Sale Material & Service - Interdepartmental, should be utilized. External revenue transactions should use general ledger account 452100, Sale Material & Service.

Equipment Purchases

Federal guidelines do not allow the purchase cost of capital equipment to be included in the calculation of the annual surplus or deficit. Also the equipment purchase cost may not be used in the rate setting calculation.

Depreciation Expense

Federal guidelines allow for the recovery of depreciation associated with the capital assets. If the service center has been approved by FCC to include depreciation in the rate calculation, separate child accounts will be established for service centers to collect depreciation charges. All capital equipment purchases must be made from this child account or another funding source, not the service center's general operating cost center. Depreciation of equipment purchased by the federal government cannot be included in the user rates.

Service center equipment must be depreciated using the useful lives outlined in the General Accounting Policy, 3000.

Service centers which include depreciation in their rates must have funds or activities associated with the equipment to capture depreciation. It is important that the government not be charged for the depreciation of a piece of equipment through a user charge and again through UNMC's federally negotiated Facilities & Administration rate. To avoid this duplicate charge, FCC will review and approve rates for any service center that includes depreciation in their rates.

Non-discriminatory Rates

A service center must charge all internal users the same rate for the same level of services or products purchased in the same circumstances. The use of special rates, such as for high volume work, is allowed, but the special rates must be equally available to all users.

Services Provided to Outside Parties

If a service center activity provides services to individuals or organizations outside of the University, the billing rates may include institutional indirect costs even though these costs are not included in the rates for internal University users. Any amounts charged to outside parties in excess of the regular internal University billing rates should be excluded from the computation of a service center's surpluses and deficits for purposes of making carry-forward adjustments to future billing rates.

Transfers of Funds Out of Service Centers

It is normally not appropriate to transfer funds out of a service center account to the University's general funds or other accounts. If a transfer involves funds that have accumulated in a service center account because of prior or current year activity, an adjustment to user charges to compensate for the surpluses may be necessary. In the case of surpluses due to premiums charged to external users, these funds, once identified, may be transferred out to other accounts.

Subsidized Service Centers

In some instances, the University, or a school or department, may elect to subsidize the operations of a service center, either by charging billing rates that are intended to be lower than costs or by not making adjustments to future rates for a service center's deficits. Service center deficits caused by intentional subsidies cannot be carried forward as adjustments to future billing rates. Since subsidies can result in a loss of funds to the University, they should be provided only when there is a sound programmatic reason.

Additional Information

• Any questions about this policy should be referred to Financial Compliance and Cost Analysis.
• OMB Circular A-21
• Cost Accounting Standards Board
• National Institute of Health's Cost Analysis and Rate Setting Manual for Animal Research Facilities
• General Accounting Policy, UNMC Policy No. 3000
• Accounting Information Manual
• Unallowable Costs Policy, UNMC Policy No. 6103
• A-133 Compliance Supplement
• General Ledger Account Listings
• Rate Setting Procedure
• NIH FAQs to Explain Costing Issues for Core Facilities
  

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