NCURA Region V

1. NCURA Region V University Service Centers – A Primer

2. University Service Centers - Primer • Overview • Characteristics • Information to determine • Rate Development • Rate Base • Budget • Tips from the Association of College & University Auditors • OIG Audits that Provide Guidance

3. University Service Centers - Primer • Within the campus, departments use a variety of products or services to perform their activities. • When these products or services are provided within the university these units function as non-profit businesses.

4. What is a University Service Center? An operating unit within the University that provides: --a service or group of services or --product or group of products --to users – principally within the university --for a fee. • A business operating within the University at break-even.

5. Can Everyone Be a Service Center? Determine if the operation is viable as a service center under applicable: • University criteria (policies) • OMB Circular A-21 • University’s Cost Disclosure Statement

6. Federal Guidance • HHS Review Guide for Long Form University Indirect Proposals • Audit Guide: Adequacy and Compliance Audits of Disclosure Statements Submitted by Educational Institutions (HHS OIG) • Federal Audits of Recharge Centers (HHS OIG) • A-133 Compliance Supplement (Part 3, Compliance Requirements): April 1999 • Internal service, central service, pension, or similar activities

7. Summary of Key Compliance Issues • Rates should recover no more than the cost of the good or service. • Rates must break-even over time, not each year. • Rates don’t discriminate between users, especially Feds • Surplus from recharge centers shouldn’t be used to fund unrelated activities • Must maintain published price list • Rates may include depreciation expense only, not the full cost of the equipment • Depreciation included in rates can’t also be in the F&A rate • Service center subsidies should NOT be included in the F&A rate (i.e.. NOT as a Departmental Administration cost)

8. University Service Center Characteristics

9. Characteristics A measurable unit of output can be readily determined. Can you define what are you going to sell?

10. Characteristics The amount of a product or service can be measured easily and accurately. Can you measure usage?

11. Characteristics Individual accounts can be billed for products or services based upon their actual usage recommendation-monthly. Can you bill on a regular basis to recover costs?

12. Characteristics An operation may not function as a service center if it cannot --determine an actual usage in measurable units of output or --if monthly (periodic) billing cannot be made.

13. Questions to Answer to Start the Process • What are the products or service provided? • Who will be the primary users? • What portion of income will be from federal sources? • Will equipment costing more than $5,000 be used in the center? • How much in start up funding will be needed? • Who will provide the funds?

14. Developing the Rate Determine what you are going to sell.

15. Define Good or Service to Sell • Microscope Lab – Use of Microscope • Zebra Fish Facility – Fish • Super Computing Facility – Excess CPU • Technical Rate – Rack Space; 24 Hour Service; Connectivity Charge; Technical Labor • Stores Facility – Chemicals, Lab Supplies & Purchasing Services

16. Example • Federal training program provide lemonade daily to participants and employees for June through August. • 3 programs with 25 participants and 5 OU employees each • Purchase Lemonade Machine • Possible use of machine during remainder of year

17. Example-Lemonade Stand What could we sell? Cups of Lemonade (to participants) Cups of Lemonade (to non-participants) Rental of Lemonade Machine (machine is available nights and week-ends)

18. Developing the Rate Determine who your customers will be.

19. Evaluate Customer Base Internal • University Sponsored Program Areas • University Departments External • Those who do not have a University account number • Industry • Students, faculty or staff acting in a personal capacity Estimate How Many Customers (Rate is a function of the Operating Costs/Users (Use) of the Service)

20. Example • Who are the potential customers for product and services? • Will they be internal or external? • Participants • Employees • Student Groups

21. Customer Base • Non-university users may be charged a higher user rate than University users if they are purchasing the service or product with non-federal funds.

22. Developing the Rate Determine how the usage will be measured.

23. Goal • Use the measurement which allocates costs equitably among all users • For example, a center that performs tests on samples has two possible units of measure; it could charge per test, or per hour. If some tests take twice as long as others, and labor is a large portion of the cost of performing a test it is not equitable to charge each user on a per test basis. In such circumstances, the user rate will be on a per hour basis.

24. Page Test Slide Sequence Cup Labor hour Machine hour CPU Unit Per Rack Slot per Month Daily Rate Examples of Measurable Units

25. Example – Base to Use

26. Cup Daily Rate Measurable Units for Lemonade Center

27. Developing the Budget Operating Budget

28. Developing the Budget • All allowable costs of a center that will be used in establishing user rates will be budgeted in and expended through one operating account. • The budget will be determined using the standard guidelines established by University policy and procedures and the Cost Accounting Standard guidelines.

29. Developing the Budget Generally these costs include: • Salaries and Wages • Fringe Benefits • Supplies and Materials • Subcontractors and Other Outside Services • Repairs and Maintenance • Carry-Forward Surpluses or Deficits

30. Budget Components Salaries & Wages

31. Salaries & Wages • Base salary and fringe benefits of employees working in the center. • Anticipated raises for employees in the upcoming year. • For open positions that will be filled in the upcoming year, salaries and benefits can be estimated by using an average salary for the position.

32. Salaries & Wages • If faculty salaries are to be included in user rates they will be budgeted and paid from the service center operating account.

33. Example • Lemonade will be provided to participants daily June-August; Machine will be rented during remainder of year. Technician is needed to maintain and clean machine all year.

34. Budget Components Supplies and Materials

35. Supplies and Materials • Supplies and materials costs necessary for the operation of the service center. • Office supplies if consumed solely for the operation of the center in deliverance of its product or service. • All supplies and materials charged to the service center need to be clearly identifiable and be under the control of the center’s staff.

36. Example

37. Budget Components Other Expenses

38. Other Expenses Actual expenses for items such as • Travel • Equipment service contracts • Long distance telephone calls

39. Example

40. Budget Components Equipment

41. Equipment • Rates include the depreciation expense only, not the full cost of the equipment. • GAAP requires that cost of the asset to be spread over its useful life. • OMB A-21 mandates the calculation of depreciation expenses for Federal costing purposes in a manner consistent with that used for accounting for depreciation on its financial statements.

42. Example

43. Operating Principles Working Capital

44. Working Capital • Funds that are accumulated in excess of actual cost in order to fund future operating expenditures. • A recharge center surplus fund should not exceed 60 days working capital.

45. Acquiring Working Capital • Service centers can acquire working capital by using an existing surplus, adding approved surcharges to external users, or transferring funds from non-federal sources.

46. Surpluses and Deficits • The fund balance in the operating account less working capital is used in determining the surplus or deficit at year end. • Any surplus resulting from the prior year(s) operations must be included in the center’s budget.

47. Interest • Interest earned on fund balances must be credited to the appropriate center and used in the determination of rates.

48. Unallowable Costs • Costs such as entertainment and bad debt expense.

49. Rate Calculation Allocate Costs Identified Above to Individual Services or Products (in Budget)

50. Allocation of Salaries to Rates