OPERATING PROCEDURE
Service Centers
GENERAL PURPOSE
This document provides guidance and procedures covering the financial
operation
of service centers in order to ensure compliance with generally
accepted
accounting practices, applicable laws and regulations, and requirements
of
sponsored agreements.
DEFINITION
Service Centers are established primarily as a means to capture costs
associated with providing goods and services. Some, if not all,
of the
costs of providing the goods or services are then recovered
from
customers via a calculated billing rate. The three types of service
centers are:
1. Recharge Centers - A service center within a department that provides goods or services that do not represent the major purpose of the generating department. The goods or services are intended as a convenience to a limited group of internal users primarily within the department. A separate fund is not required to account for costs and revenues associated with a recharge center
2.
Service Facilities - A service center that provides goods and/or
services primarily to internal users throughout the academic community.
The
goods and/or services provided are readily available from external
sources,
however, they are offered via a service facility predominantly as a
convenience
to users. A separate 24XXXX fund
must be established to account for and
document
all costs and revenues associated with a Service Facility.
3. Specialized Service Facilities – A service center that offers highly complex and technical services that are not readily available from outside vendors. A separate 24XXXX fund must be established to account for and document all costs and revenues associated with a Specialized Service Facility.
RESPONSIBILITIES
·
Service Center Director ‑ Manage the daily
operations of the service center. Provide competitive rates and
services while
maintaining break‑even margins and necessary fund balances. Prepare an
annual budget and financial statements for the center, plus other
intermittent
financial reports as requested. Perform an annual review and rate
analysis in
time for customers to include rate adjustments in their next year’s
budgets.
Maintain detailed records supporting charges to all users. Bill
customers for
goods and/or services in a timely manner. Maintain documentation
of user rate
calculations.
· Department Executive Officer\Dean\Vice President ‑ Approve the establishment of new service center and the continued operation of existing ones. Approve the center’s annual budget. Fund any deficit or disallowance’s created by service centers under their direction.
· Property Control ‑ Identify items of equipment that were purchased with federal funds.
· Controller’s Office ‑ Review and approve the rate calculation for all new service centers to ensure accuracy and consistency with applicable policies and procedures. Monitor billing rates to determine if total billings for services are reasonable compared to the costs of operation. Review rates periodically to determine if all unallowable costs are being excluded. Notify the service center and appropriate administrators if the review identifies practices inconsistent with applicable policies and procedures.
PROCEDURES
A. Service Center Establishment
In order to operate a service center, there must be an existing demand
for a
particular service and there must be a significant anticipated volume
of
recharging, both in dollar amounts and in number of transactions. In
addition, it
should be anticipated that the service will be needed on a long-term,
continual
basis.
A
form for establishing a new service center may be obtained from the
Cost Accounting
Department. To establish and substantiate a service center, the
following
information is required:
· Service Name ‑ Brief title to give service name recognition.
· Description ‑ Brief description of the service to be provided.
· Users ‑ List expected users and their relative percentage to the total estimated usage.
· Estimated Operating Costs ‑ Attach Budget.
· Unit of Measurement ‑ Describe how service usage will be measured.
· Estimated Rate ‑ See billing rate below.
· Primary and secondary contact person.
· Approval of appropriate Unit Head, Dean or Director, Vice President.
Once completed and properly approved, the form should be submitted to the Records & Reporting Manager at Mail Stop 9602. Records & Reporting will establish a fund and advise the primary contact person of the new fund number. A copy of the request should also be forwarded to the Cost Accounting Department, which will maintain a comprehensive listing of all service centers and rates on the MSU web site.
Billing rates for internal users of Recharge Centers are based on direct costs only and are calculated using the following formula:
Projected Billing Units expected to be
provided during
the year
Billing rates for
internal users of Service Facilities and Specialized Service
Facilities are calculated to recover total direct costs plus any
internal service center overhead charged to the Service Facility
fund.
Projected Billing Units expected to be provided during the year
Projected Billing Units expected to be provided during the year
C. Over/Under
Recovery
A service center should not operate for extended periods of time with
either a
deficit or a surplus fund balance.
In the event of a deficit, it may be necessary to increase the user fee
rate to
recover the deficit within the next annual operating cycle. However, it
may be
necessary to cover the deficit from departmental discretionary funds.
This
would be the case if the operating deficit was so significant that it
would not
be reasonable to expect that rates could be adjusted within reasonable
levels
for recovery from users within the next annual operating cycle. That
is, the
rate would have to be set so high that potential users would not be
willing to
utilize the service.
In the event a surplus is generated, the user fee should be adjusted
down as a
method to return surplus to users. Surpluses 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.
Surpluses
should not be transferred out of service center accounts to subsidize
other
University operations. However, excess funds may be returned to a fund
which
has provided a subsidy, limited to the amount of clearly documented
subsidy.
Building a surplus in these funds could result in violations of the OMB
A‑21
Cost Principles. In addition, generating revenues in excess of cost
could
create unrelated business income tax issues with the Internal Revenue
Service.
The University, or a school, or a department, may elect to subsidize a
service
center either by charging billing rates lower than actual cost or by
not making
adjustments to future billing rates at year end for deficit. However,
the
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
sound programmatic rationale and with the approval of the Department
Head,
Dean, or appropriate Vice President. Any subsidies will be identified
as a
separate item in the billing rate schedules provided to the
Controller’s
Office.
D. Cost and Revenue Segregation and Allocation
Costs and revenues should be segregated into cost centers for each
service that
is provided. Depending on the type of service center, there may be as
many as
three categories of cost that need to be allocated: (1) costs that are
directly
related to providing the product or service (i.e. staff salaries
providing
multiple services) (2) internal support costs (i.e. equipment
maintenance
costs) (3) institutional F&A costs (i.e. O&M, Building Use). In
each
instance, the costs should be allocated to the services on an equitable
basis
that reflects the relative benefit each service receives from the cost.
The Controller
Office’s Cost Accounting Department is responsible for calculating the
institutional F&A rate and can provide that component to the
service center
billing rate calculation.
E. Equipment (revised
2/8/06)
The total acquisition cost of
non-capital equipment (<$5,000) is
considered
a current expenditure and should be included in the annual operating
costs of a
service center when calculating billing rates. The cost of
capital equipment (>$5,000), however, is recovered
via the
university's F&A rate rather than via service center billing
rates.
F. Transfer of Institutional Indirect
Costs Recovered via Service
Center Billing Rates
Typically, the
F&A component of service center rates recovered from external users
should be transferred, at least annually, from the service center fund
to the fund that provided the indirect support. However, if
agreeable to both parties, the F&A component can be retained by the
Service Center to subsidize future billing rates. Generally, the
overhead recovered through a service center should be allocated per the
distribution of
facilites and administrative cost policy.
G. Service Center Inventory
If a service center sells
products
and has a significant amount of stock on hand, inventory records must
be
maintained. A physical inventory should be taken annually and
reconciled to the
inventory account. Inventory valuations may be based on any
generally
recognized inventory valuation method (i.e. FIFO, LIFO, average cost,
etc.)
H. Record
Retention
Service Centers must keep records of rate calculations, billings,
collections,
units of service provided, costs and revenues, surpluses and deficits
(including
all worksheets and detailed backup) for a period of five (5) years from
the end
of the fiscal year in which information was used.
I. Technical Assistance
The Controller’s Cost Accounting Department is available to provide
assistance
as necessary to facilitate development of a Service Center.
Contacts:
Cedric Henson, Cost Analyst 662-325‑0511
cedric@controller.msstate.edu
Definitions:
| Direct Costs |
Costs specifically
assignable to goods/services provided by a service center. These
costs must be charged to the service
center operating fund and will
include, but are not limited to, salaries, wages, and fringe
benefits of
faculty and staff involved in providing the goods/services; consumable
supplies and
materials; telephone charges; non-capital (<$5,000) equipment costs;
travel
expenses, etc. |
| External User | Private individuals or entities. |
| F&A Rate | Institutional overhead rate
negotiated with the federal government for reimbursement of facilities
and administrative costs associated with sponsored programs.
Administration is capped at 26%. |
| Full F&A Rate | Overhead rate applied to service center billing rates charged to external users to recover institutional facilities and administrative costs. Administration is not capped. Contact Cost Accounting for current rate. |
| Internal Service Center Overhead | Costs charged to a service center fund that can be specifically assigned to the service center but not to a particular product/service, such as utilities, maintenance, and custodial costs. Service center indirect costs should be allocated to each product/service in a logical manner. |
| Internal User | University departments or entities, Federal agencies. |
| Operating Costs | The total direct costs and internal service center overhead charged to the service center fund. |
| Prior year carry-forward | Gain/loss brought forward from the prior fiscal year. Carry-forwards are allowable cost adjustments to subsequent billing rate computations. Prior year gains should be subtracted from current year costs to determine billing rates; prior year losses should be added.. |
| Projected Billing Units | The number of units of output the service center expects to provide througout the year. |
| Recharge Center |
A service center within a
department that provides goods/services that do not represent the major
purpose of the generating department. The goods/services
are provided as a convenience to a limited group of internal users
primarily within the department. A separate operating fund is not
required. |
| Service Facility |
A service center that provides
goods/services primarily to internal users throughout the academic
community. The goods/services are often readily available from
external soures, however, they are offered via a service facility
predominantly as a convenience to customers. A separate 24XXXX
fund is required to account for and document costs. |
| Specialized Service Facility |
A service center that offers
highly complex and technical services that are not readily available
from outside vendors. A separate 24XXXX fund is required to
account for and document costs. |