UNL Service Center Policy

Purpose
The University of Nebraska-Lincoln's (UNL) 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 essential since UNL 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 Colleges and Universities," and those required by the Cost Accounting Standards Board. As a major research university, UNL cost accounting must be consistent for all operations.

Identification of a 22 or 23 Cost Center
The following categories outline the various options that may be used to properly set up a University of Nebraska-Lincoln 22 or 23 cost center:

Definition of Service Center (SAP Flag USR, SRC, or SSC)
The Office of Management and Budget Circular A-21 defines service centers (recharge centers) as organizational units, or activities within units, that charge for goods or services provided primarily to other internal university operations or units, but also potentially to users external to the University. Any unit or activity established for the purpose of, or participating in, supporting internal or external research objectives through billing to federal or federal flow-though funds for goods or services provided may be a service center. Examples include, but are not limited to, computer services, copy services, lab analysis services, research animal care services, etc.

Definition of an Auxiliary Unit (SAP Flag AUX)
An auxiliary unit is a self-supporting entity that exists principally to furnish goods or services to students, alumni, or faculty and staff acting in a personal capacity, and charges a fee for the delivery of goods or services. Auxiliary units generally do not support UNL departments. The general public may be served incidentally. Examples include residence halls, food services, intercollegiate athletics, university unions, university stores, alumni travel, parking, and shuttle services. Auxiliary units are not subject to this service center policy.

Definition of a Revolving Center (SAP Flag REV)
A Revolving Center is an account established to run expenses through but does not charge for any goods or services.

Definition of a Student Fees Cost Center (SAP Flag STU)
Student Lab fees are collected from the students for lab supplies, technology fees, etc.

Definition of a Contracts/Donations Cost Center (SAP Flag CON)
Money received in a contract with an outside vendor similar to a Grant that is to be used for a project that is not part of a service center. Therefore not "charging" this outside vendor but rather received money in exchange for a report on an issue. May also be money received from an outside source with no conditions of use placed on the funds.

Definition of an Indirect Funds Cost Center (SAP Flag IND)
Portion of indirect funds given back to the departments.

Cost Center Classification
Answer the following questions to properly classify your cost center:

1. Is your cost center a direct pass through for expenses?
   1. If yes, classify as revolving.
   2. If no, go to number 2.
2. Are you charging for goods or services?
   1. If yes, go to number 3.
   2. If no, where does revenue come from?
      Classify as student fees, contracts/donations or indirect funds.
3. Who are you charging?
   1. If grants, UNL departments and related parties, classify as a Service Center.
   2. If outside parties, classify as Auxiliary.

1. Are federal grants charged more than $10,000?
   1. If yes, classify as a Service Center.
   2. If no, go to number 2.
2. Are UNL department/grant charges more than 70% of the total charges?
   1. If yes, classify as a Service Center.
   2. If no, classify as Auxiliary.

Responsibility for Monitoring Changes
It is the UNL department's responsibility to monitor all 22 and 23 cost centers to ensure that the activity running through these accounts relates to the category it is classified. If it is found that this activity changes, Accounting should be notified immediately so that the classification can be changed.

Establishing a Service Center Cost Center Account
Units requesting a new service center revolving account must complete a New Cost Center Request Form, available on SAPPHIRE. Service centers with charges less than $10,000 to federal grants do not need to submit budget information requested in this policy to Accounting unless specifically requested. Any other centers charging UNL departments or grants are still expected to follow Service Center Policy guidelines but are not required to submit their rates. If you are requesting a revolving account for non-service center activity, please submit a statement that the new revolving account will not be used for service center activity.

Requests for new service centers with estimated revenue greater than $10,000 to federal grants must provide the following information:

1. Detailed description of the proposed goods or services offered.
2. General users of the goods or services and the types of funding sources (i.e., general funds, grants, clinical fees, general public) they use to make the purchase.
3. Justification for the service (i.e., convenience, cost, control, or lack of other providers).
4. Rate Schedule including:
   • Documentation as to how the rates were developed.
   • Rate period (e.g., semi-annual, annual, multi-year, etc).
   • Explanations for items included in this calculation.
   • Do you charge depreciation of actual cost on items greater than $5,000?
   • Are you charged rent?
   • Do you receive indirect cost funds (departmental funds) to help cover costs?
   • If you charge different rates for internal/governmental groups vs. third-party groups, please describe your rate setting methodology for each group.
5. Provide a Detailed Budget Schedule for the first accounting cycle (usually a fiscal year).
6. How will over charges be detected and corrected on a yearly basis?
7. List of capital assets and the associated depreciation incorporated in user rates.

This information will be reviewed by Accounting and the Director of Post-Award Administration. Upon review and approval the service center revolving cost center will be established.

Annual Review. Service centers with revenue exceeding $10,000 from federal grants must also submit information requested in items 4 – 7 above on an annual basis to the Accounting department for review. Information must be provided for each rate the service center charges if they charge for multiple services.

Cost Centers. All service centers must maintain a separate account. If a service center has several services that generate significant revenue, child cost centers should be established to keep track of each service. Additionally, if a service center recovers depreciation in its user rates and/or surcharges from higher rates charged to third-party users, a child cost center will be established as a reserve account for these funds.

Budget Guidelines
Break Even Rates. Service centers must develop rates so that revenues offset expenses over the budget period (usually a fiscal year). All users should be charged for the services they receive. UNL departments, grants and related parties (i.e. Nebraska Educational Telecommunications Commission, Central Administration, University of Nebraska-Kearney, University of Nebraska-Omaha, University of Nebraska-Medical Center, etc.) should all be charged a break even rate. Federal grants and contracts cannot be charged a higher rate for goods and/or services than any other user.

Break even rates should include amounts for:

1. Direct Personnel
   The salaries, wages, and fringe benefits of all personnel directly related to service center activity (e.g. lab technicians or machine operators, administrative staff) should be included in the rate calculation and charged to the service center's operating account unless charged as a direct cost to federal award. When an individual has multiple duties, an equitable distribution of his or her salary among the duties can usually be accomplished by using the proportional amount of time the individual spends on each service. To adequately reflect an individual's duties, PAFs should be processed to split his or her funding among departmental (state-aided), grant, and service center (revolving) cost objects as appropriate.
2. Direct operating costs (supplies, materials, etc.)
   The costs of materials, supplies, and equipment costing less than $5,000 needed to operate a service center should be included in the rate calculation. Other operating expenses to be included in service center rates are rental and service contracts, equipment operating leases, and professional services. Items less than $5,000 (ex: software) that do not meet the University capitalization policy may be depreciated to help stabilize rates. The service center should work with the Accounting Department to approve depreciation for non-capital items and to determine the correct depreciation rate. Depreciation may not be charged unless it is held in a separate child cost center.
   
   If inventory is accumulated in a particular year, the service center should not include the costs of accumulated inventory in its rates. Service centers that maintain significant inventory should establish a separate inventory account.
3. Capital Equipment
   Capital equipment is defined as an item with a purchase price of $5,000 or more, with an estimated useful life greater than one year. Items that are expected to be used and remain within the service center should be capitalized according to the University Capitalization Policy. A service center must notify Accounting of any items that will incorporate depreciation in user rates. Federal guidelines do not allow the purchase price of a capital item to be recovered through service center rates. The rates should, however, include depreciation of the equipment as calculated by the University to allow for recovery of its purchase cost over its useful life. Depreciation may not be charged unless it is held in a separate child cost center. Depreciation for capital equipment purchased with federal funds, whether or not title has reverted back to the University, cannot be included in the user rates.
4. Unallowable Costs
   Unallowable costs must be excluded from the internal/governmental user rate calculation. Such expenses (e.g. bad debt expense, internal interest, etc.) may be recovered only through charges to external users. Refer to Section J, OMB Circular A-21 for a list of unallowable expenses.

Third-Party Billing Rates. External (third-party) users may be charged a higher rate than UNL departments, grants and related parties. Third-party service center rates follow the same guidelines as internal/governmental rates with a few adjustments:

1. Depreciation on all equipment, regardless of funding source used for initial purchase, may be included in external billing rates.
2. Section J, OMB Circular A-21 expenses may be included in external billing rates.
3. Any amounts charged to outside parties in excess of the regular break even billing rates must be held in a separate child cost center. Third-party surcharges 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.
4. Any charges to external users may be subject to the unrelated business income tax (UBIT) reporting requirements.
5. At no time will an external customer be charged less than UNL departments, grants or related parties for the same service.

Surplus/Deficit. A service center's surplus or deficit for a given fiscal year should not exceed 10% of annual operating expenses. Any surplus/deficit within your operating budget will be carried forward to the following period. If the surplus or deficit is within the break-even range of +/- 10%, the rate does not need to be adjusted for the following period. However, if the surplus or deficit is greater than +/-10%, the rate needs to be adjusted for the following period to more accurately reflect the cost of running your operation, taking the existing surplus/deficit into account when calculating the new rate.

Rate Development. Rates should be reviewed periodically and adjusted where necessary. A complete rate review and re-computation shall occur no less than annually. A service center rate is used to recover the expenses of the service center by charging per unit of output. To compute this rate, use the following equation:

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 any other reasonable measurement).

Service centers should evaluate their financial position and rates periodically throughout the year to assess their position with respect to break-even. Under special circumstances, rates will be adjusted through a mid-year reduction/increase provided that mid-year rate adjustments are subject to review by the Accounting department.

Billing rates cannot be based on “market rates” or what others charge for the same service.

Capital Equipment Considerations. Separate “child” cost centers will be established for service centers to collect depreciation charges and surcharges to third party users in excess of the internal/governmental billing rate. All capital equipment purchases must be made from this reserve account or another source, not the service center's general operating cost center. Accounting must have information on all capital equipment for which a service center will charge depreciation. This will ensure the equipment is appropriately accounted for and is not included in the F&A rate proposal. Proceeds from a sale of surplus equipment should also be held in this reserve account.

Pricing of Multiple Services. When a service center provides different types of services to different 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 (within +/- 10%) related to each service should be carried forward as an adjustment to the billing rate for that service in the following period. Child cost centers should be established for all major services.

A service center providing more than one service may sometimes have a surplus on some services and a loss on others. Service centers must ensure that there is no cross-subsidization between user groups. Combining the results of various services is not acceptable if the mix of users of each service is different; that is, if higher prices charged to one set of users are subsidizing losses charged to a different group of users.

Free service. No discounts or free service may be given to any user unless the value of such services is imputed in the rate calculation. If some users are not charged for the services or are charged at reduced rates, the full amount of revenue related to their use of the services must be imputed in computing 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. This requirement does not apply to alternative pricing structures related to the timeliness or quality of services. Pricing structures based on time-of-day, volume discounts, turn-around time, etc., are acceptable, provided that they have a sound management basis and do not result in recovering more than the costs of providing the services.

Transfers. Normally, service centers should not be a conduit to transfer revenues, expenditures or fund balances (for example, cash) between cost objects since such transfers can distort billing rate calculations or alter the break-even plan. However, 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. Surpluses due to premiums charged to external users should be set aside in a child cost center designated as a reserve account.

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