Back to Top
Business and Financial Policies and Procedures

Section 22.4.2 - Service Activities

Urbana-Champaign Campus Supplement

Policy Statement

A number of storerooms and service facilities have been established at the Urbana-Champaign campus (the University) to provide services and supplies to departments, including sponsored programs administered by the University. Many of these sponsored programs are federally-sponsored; as a result, the University must comply with federal costing principles for service centers. In addition, as a major state-supported research university, state regulations related to service activities must be followed. This policy applies to Storeroom and Service Fund Type 3E, summarizing these regulations and outlining methods service center managers should use when identifying costs, setting rates, and charging users.

Executive Summary

In general, the following costing principles are to be followed for service and storeroom activities:

  • Rates must be established to recover no more than the allowable costs of providing the service or good.
  • Rates must be established for each individual service or good, unless the usage basis for a group of related services/goods is exactly the same.
  • Costs included in the rate calculation are operating costs of the service activity, equipment depreciation expense, inventory-related costs (cost of goods sold), and facility depreciation where applicable. If applicable, the over- or under-recovery of the previous year's costs should also be incorporated into the rate calculation.
  • The usage basis for the service or good is estimated including all users of the service or good, regardless of whether or not a free or discounted rate will be applied.
  • The resulting rate (total costs divided by total users) is the maximum rate to be charged to internal users.
  • External non-Federal users may be charged more than the fully-costed rate, but external non-Federal users should be a minimal component of the user population, or unrelated business income tax (UBIT) may be owed by the University. Note that Sponsored Projects are considered internal users.
  • Rates should be reviewed annually by the department with a formal rate calculation performed at least once every two years.
  • Federal costing principles allow service centers to maintain Adjusted Fund Balances of no more than 60 days of operating expenses at year end. Balances in excess of this amount should be eliminated over a period of time, normally 2 years.
  • Rate calculations are to be submitted at least once every two years to the Office of Government Costing for review (in accordance with OMB Circular A-21 - Federal Cost Principles for Educational Institutions, relocated to Title 2 CFR 220Link opens new window.

This policy is intended to provide as much information as possible to assist service center managers with rate calculations and related accounting procedures. However, since it is not possible for a policy to address every potential situation or nuance, service center managers are encouraged to contact the Office of Government Costing within the Office of Business and Financial Services, Grants & Contracts Office for guidance and assistance with rate calculations. In addition, this office has developed worksheets and reports for service center managers to use (see the Resources section of this policy for more detail).

Definitions

Cost of Goods Sold - the cost of inventory for any products that may be sold by the service facility.

Adjusted Fund Balance - the fiscal year-end "fund balance" adjusted to reflect asset values and depreciation which are not reflected in the service facility's general ledger fund, but are reflected in the University's Investment in Plant fund at a summarized level.

Entity - for purposes of this policy, a category of self-supporting activities that are substantially similar and rationally related; for example, computing centers, storerooms or shops. The various categories have been developed in compliance with State reporting requirements. See Section 12 Property Accounting for a list of entities used by the University.

Entity Code - a four-digit numerical code in the Banner fund code hierarchy representing a specific entity. An appropriate entity code must be assigned to all equipment used in self-supporting activities regardless of the source of funds used to purchase the item. If an item is used in more than one entity, the code representing its primary use must be assigned. This code is critical to exclude assets from the F&A Rate Calculation and to use for State of Illinois reporting purposes. See Section 12 Property Accounting for a list of entities used by the University.

F&A Rate - previously called "Indirect Cost Rate." The Facilities & Administrative Rate is negotiated with the Federal government and charged to sponsored projects. "Facilities and Administrative" costs are included in the University's F&A Rate calculation. Facilities and Administrative costs are costs that are incurred for the common or joint objectives of the University and therefore cannot be readily and specifically identified with a specific sponsored project, function, or activity. Such costs include building and equipment depreciation, building operation and maintenance, general administration and general expense, departmental administration, sponsored projects administration, library, and student services administration expenses.

Markup - Amount added to the unit cost of merchandise for resale to fund operating expenses, depreciation expense, and permissible prior year over/under recovery.

OMB Circular A-21 - Office of Management & Budget - Federal Cost Principles for Educational Institutions (relocated to Code of Federal Regulations - Title 2 CFR 220Link opens new window) - Federal regulations that establish principles for determining costs applicable to grants, contracts, and other agreements with educational institutions. It also outlines the general federal requirements for calculating service center rates.

Operating Costs - Allocable to the service activity, allowable under University, state, and federal regulations, and reasonable in relation to the service provided. All costs in service facilities are operating costs, but only costs exclusive of cost of goods sold are operating costs in storerooms.

Recharge Rate - The amount to be paid by users of the service or product. The maximum recharge rate to be charged to University users includes total costs divided by total users.

Selling Price - Unit inventory cost of the merchandise for resale plus allowable markup.

Service Facilities or Centers - University-based units which perform specific technical or administrative services primarily for the benefit of other University units. Service centers may also sell goods, but such sales are incidental to the service activity. Service centers may also have external customers, but external sales are minimal.

Storerooms - Sell goods, supplies, and/or equipment primarily to University units.

UBIT - Unrelated Business Income Tax. See Section 8, Payments and Reimbursements.

User Fee - Rate(s) charged for each service, calculated by dividing the aggregate total of estimated fiscal year operating costs, depreciation expense, and permissible prior year over/under recovery divided by estimated relevant user fee base (see the Calculations section of this policy).

Roles and Responsibilities

Executive Assistant Vice President For Business And Finance
The Executive Assistant Vice President for Business and Finance or delegate is responsible for developing service activities policies and for monitoring unit compliance.

Controller - University Accounting & Financial Reporting
The Controller or delegate is responsible for the establishment of service activity funds, addressing state reporting requirements, establishing plant fund reserves, and maintenance of the fixed asset system.

University, Campus, College, and Unit Administrators
Administrative officials are responsible for management and operation of service activities under their organizational jurisdiction in accordance with this section.

Service Activity Unit Business Administrator
Business administrators (or those holding similar positions) are responsible for:

  • Preparation of an annual budget
  • Preparation of year-end fact sheet (See OBFS > Forms > Accounting & Financial Reporting > Fact Sheet RequirementsLink opens PDF file)
  • Calculation of user fees or markups at the operating ledger (OL) level and justification for interim rate adjustments, if any
  • Maintenance of current Banner Fixed Assets records of equipment used in service activities, in accordance with Section 12 Property Accounting
  • Review and reconciliation of monthly Banner financial statements
  • Physical inventory of merchandise for resale and any adjusting entries made to Banner in accordance with Section 5, Receivables
  • Timely billings are recommended on a monthly basis, with adequate documentation
  • Maintenance of records (See the Detailed Requirements section of this policy)

Introduction

A number of storerooms and service facilities have been established at the Urbana-Champaign campus (the University) to provide services and supplies to University departments, including sponsored programs administered by the University. Many of these sponsored programs are federally-sponsored; as a result, the University must comply with federal costing principles for service centers as outlined in the Code of Federal Regulations. Service activities with no charges to federal projects are also subject to federal regulations, since they charge other University funds whose expenditures are part of the indirect costs charged to federal projects. In addition, as a major state-supported research university, state regulations as outlined in the Legislative Audit Commission University Guidelines must be followed. This policy is meant to summarize these regulations and outline methods for service center managers to use when identifying costs, setting rates, and charging users.

Service activities are established primarily to meet the programmatic needs of the academic community, and usually provide goods or services to multiple internal users, State of Illinois agencies, and organizations affiliated with the University. They are associated with entity codes 3100 (Communications and Computing Services) and 3110 (Plant and Service Operations), and are distinguished from auxiliary operations (fund types 3J and 3M) that provide services to students, faculty and staff and departmental activity funds (fund type 3Q) that provide services primarily to non-University users.

Each unit is responsible for the management of its service activities, including the establishment and documentation of each user fee or markup. Rates should be reviewed annually with a formal rate calculation performed at least once every two years. The majority of this policy outlines acceptable ways for determining costs, calculating allowable recharge rates, and maintaining appropriate adjusted fund balances in the associated service center funds.

Federal and State Requirements

OMB Circular A-21, Section J. 47Link opens new window outlines the federal requirements for calculating service center rates. The requirements include the following:

  • Rates should consist of both direct costs and, if appropriate, an allocable share of indirect costs;
  • Rates should be charged based on actual use of the services;
  • Rates should not discriminate against federally-supported activities of the institution (i.e., federal users cannot subsidize non-federal users);
  • Rates should be designed to recover not more than the aggregate cost of the services over a long-term period;
  • Rates should be calculated frequently (at least biennially); and
  • Rates should take into consideration over/under applied costs of the previous period(s).

The State Finance Act restricts the use of these funds to the support, maintenance, and development of the activity generating the revenue in the fund. In other words, expenditures are restricted to those necessary to fund the service or storeroom facilities that generate the revenue. The Legislative Audit Commission University Guidelines allows partial support from state funds for storeroom and service activities, but the costs supported by state funds cannot be recovered in the recharge rate.

Although some differences between federal and state guidelines related to service centers exist, the differences can be managed by utilizing the costing and fund balance maintenance principles outlined in this policy. Federal guidelines outline that, typically, no more than two months' working capital can be accumulated as a "surplus," while the state allows a cash balance sufficient to meet the entity's working capital needs, which simply stated is the entity's high month or average monthly expenditures. In addition, federal regulations (OMB Circular A-21Link opens new window) do not permit the cost of capital asset expenditures as an allowable cost to be included in the rate calculations; instead, only equipment depreciation expense may be included in recharge rates.

Basic Costing Principles for Service Activities

In general, rates must be established to recover no more than the allowable costs of providing the good or service. Costs typically include:

  • Operating costs of the service activity
  • Equipment depreciation expense
  • Inventory-related costs (cost of goods sold)
  • Adjustments for over/under recovery of costs

More detail on each of these categories of cost is included in the next section.

Total allowable costs are divided by the estimated number of users in order to determine the maximum recharge rate for University customers. Typically, established rates must be uniformly charged to all University users. Where preferential rates or free services are provided to some users, rate calculations are based on billing at the full cost, and the resulting under recovery must be subsidized by unit funds and not otherwise recovered through increased rates.

Service centers should operate under the break even principle. Variances beyond break even limitations within a two-year period must be reviewed and resolved as prescribed in the Federal and State Requirements section of this policy. Costs and users must be segregated by service or product line, so that the revenues related to one activity are not subsidizing another activity. Costs and revenues as well as adjusted fund balances should be analyzed on a per-service basis.

Departments should review and adjust rates as necessary on an annual basis. Biennial formal rate calculation documentation of user fee or markup calculations must be available for review upon request by University administrators, as well as University, state, and federal auditors.

Any exceptions must be approved in advance by the Executive Assistant Vice President for Business and Finance and the relevant responsible administrator under whose jurisdiction the service activity operates.

Detailed Requirements

A. Establishing Banner Funds
Units are required to establish a Banner general ledger fund for each distinct service activity. One or more operating ledger program code(s) may be established under each general ledger fund.

Units request a storeroom or service fund by submitting to the Office of Business and Financial Services, University Accounting and Financial Reporting the following forms:

  • Request to Create Banner Fund and Program Segments
  • Supplemental Information Required to Request a Self-Supporting Fund (Fund Type 3E)
  • Pro-forma Statement of Revenue and Expenditures. The costing methodology outlined in the next several sub-sections is used to complete this form.

The above forms and associated instructions can be obtained from OBFS > Forms > Accounting & Financial Reporting.

B. Identifying Costs
Costs recovered by a service activity may include only those costs which are directly allocable to the activity, allowable under applicable regulations, and reasonable in relation to the service performed. These costs must be expenditures of the service activity fund, except for equipment and subsidies as explained below. Note that costs must be segregated by individual service provided, and cannot be aggregated.

Typical costs include:

  • Salaries and wages of individuals providing the service, or those administering the service center
  • Materials and supplies used in providing the service, or in administering the service center
  • Maintenance and repair of equipment assigned to the service activity
  • Equipment depreciation expense
  • Over- or under-recovery of the previous year's costs

Other costs may include:

  • Cost of goods sold
  • Other inventory-related costs
  • Improvements such as site preparation for equipment installation which are not capitalized in the Banner Fixed Assets system. (See Section 12 Property Accounting)

All of these categories of cost are explained in more detail below.

  1. Operating expenses (salaries, supplies and other direct expenses) Personnel-related expenses, such as salaries and wages, are included for those individuals directly providing the service (e.g., equipment operators), or those individuals who are involved in administering the service (e.g., service center managers). As with other service center costs, the expense must be allocable to each individual service line or product, and not aggregated across a group of services or products. For those individuals involved in the administration of the service or multiple services, the costs can be determined through methods such as estimates of effort associated with administering each service line.

    Likewise, materials and supplies must be directly identified with each service line or product, or easily allocated based on a reasonable, documentable method.

  2. Equipment depreciation expense
    1. General Federal regulations prohibit the inclusion of capital equipment purchase expense in recharge rates. In addition, including equipment purchases in the recharge rates could result in extreme variability of costs and rates from one year to the next. Instead, equipment depreciation expense is included as a cost in the rate calculation. This reflects the cost of the equipment allocated over its estimated useful life. In order to be consistent with University accounting records, equipment depreciation expense used in service center rate calculations must be based upon amounts in the Banner Fixed Asset system.

      Service activity equipment is non-expendable, on-consumable, tangible property with an estimated useful life of more than one year and a cost of $5,000 or more, purchased through the funding sources listed below. Equipment and upgrades with an acquisition cost of less than $5,000 is expensed in the year of acquisition.

      Equipment also includes additions, improvements, or modifications to existing equipment which increase the productivity or useful life of such equipment and cost $5,000 or more. Replacement parts which do not extend the useful life of the equipment and upgrades that cost less than $5,000 are defined as operational expenses, and are not capitalized. The equipment must benefit multiple users. Otherwise, it is to be funded by the individual user, and not included in a recharge rate calculation. If a piece of equipment is used by more than one service facility, its acquisition cost and related depreciation is allocated to the various service facilities based upon usage.

    2. Funding service center equipment acquisitions
      The following sources of funds may be used for acquisition of service activity equipment when an entity code has been assigned to the asset:

      Fund Source

      Fund Types

      State appropriations

      1A through 1Y

      Institutional funds

      2A through 2E

      Gift funds

      2G, 4M

      Non-federal external funds

      4C, 4E, 4G

      Service activity funds

      3E

      Non-federal plant funds*

      8A through 8N

      Donations of equipment

      Not funded

      *NOTE: Plant fund type 8C may include federal funds and may not be used for equipment acquisitions.

      For a listing of Fund Types and descriptions, go to OBFS > Accounting & Financial Reporting > Reference Materials > Fund Type DescriptionsLink opens PDF file.

      Any projected cash deficit in a storeroom or service facility resulting from an acquisition of equipment must have the prior written approval of the Executive Assistant Vice President for Business and Finance before the new equipment is acquired.

    3. Capital Lease equipment acquisitions
      Units may acquire equipment through a capital lease arrangement if processed in accordance with Section 7.2, Purchase of Goods and Services. For the interest on the capital lease contract to be a component of the rate, both the following conditions must be met:
      • The cost of equipment (lease payments less imputed interest) is $10,000 or more
      • Prior written approval is obtained from the federal government through the Grants and Contracts Office
    4. Equipment and the Banner Fixed Asset system
      The University's Banner Fixed Asset system maintains both asset detail and depreciation for capitalized equipment.

      The asset cost is the acquisition price plus net book value of traded-in equipment for purchased equipment. Interest paid in connection with equipment acquisition is charged to an interest expense account code, and is not included in the asset value of equipment. For donated equipment, cost is defined as the fair market value when received. (For additional information concerning the determination of asset cost, see Section 12 Property Accounting.)

      All service activity equipment included in recharge rates, regardless of funding source, must be identified by recording the "entity code" in the Banner Fixed Asset system. Failure to assign this code may result in improperly including the depreciation expense in the University's F&A Rate calculations. Each unit is responsible for contacting the University Property Accounting and Reporting office when entity codes need updating in the Fixed Asset system. (See Section 12 Property Accounting for a listing of entity codes.)

      The condition codes for service activity equipment are recorded in the Banner Fixed Asset system and updated as necessary by each unit. Depreciation expense must be supported by Banner Fixed Asset records with condition codes which document that the equipment is usable, in use, and needed.

    5. Equipment Depreciation
      Equipment depreciation is maintained in the Banner Fixed Asset system. Depreciation is calculated in fixed assets only once a year during the year-end close process.

      Fund Type 3E: Service centers may include equipment depreciation for equipment purchased with Fund Type 3E funds in their recharge rate calculations. Equipment purchased with 3E funds are automatically assigned an entity code by the University Property Accounting and Reporting office.

      Non-Fund Type 3E: Depreciation expense for equipment purchased with funds other than Fund Type 3E can also be part of the operating costs of a facility and included in recharge rates if "the equipment is used in support of the service activity," and "an entity code has been assigned to the asset."

      Entity Code: Units are required to review and report entity codes in the Banner Fixed Asset records associated with all equipment used in self-supporting activities, regardless of the source of funds used to purchase the item to University Property Accounting & Reporting (UPAR). If the service center wants to include non-fund type 3E assets in their service activities re-charge rate, they must first contact UPAR. This can be done by completing the "Entity Code Change Request Form" and submitting it to UPAR. To obtain this form see Section 12 Property Accounting.

      If service centers want to include depreciation in their recharge rate for an "established" asset that does not already have an entity code assigned to it, they are required to complete the "Entity Code Change Request Form" located in Section 12 Property Accounting. The form must then be sent to University Property Accounting and Reporting and the Office of Government Costing. This is critical because depreciation expense is included in the F&A Rate Calculations. The F&A Rate is generally a set rate established for a four year period. In order to ensure the University is not double charging the Federal government, service centers must coordinate the inclusion of this depreciation expense in their recharge rates with the Office of Government Costing.

      Commodity Code/Useful Life: The assignment of a commodity code to an asset by University Property Accounting and Reporting classifies the asset into various categories (e.g., trucks, incinerators, computers, etc.) and determines the useful life for depreciation purposes. Service centers are required to use the same depreciation calculations based on the assigned useful lives.

      For assistance in obtaining depreciation information from the Banner Fixed Asset system, units may contact the Office of Government Costing. The Office of Government Costing has made available a Business Objects report for use in compiling depreciation information for rate calculations. The Fixed Assets Report (Deski)Link opens new window and Fixed Assets Report (Webi)Link opens new window compile fixed asset details of moveable equipment or software by "responsible organization" code.

    6. Disposition or transfers of equipment
      Net asset value, if any, at time of disposal is considered depreciation in the year of disposition unless it is a trade-in. The net book value of a traded asset is reflected in the new asset.

      Any transfer of equipment involving service activities must be reported to University Property Accounting and Reporting to assure that appropriate Banner updates are made.

    7. Plant fund reserve establishment
      Units that elect to establish a plant fund reserve (Type 8N with a level three hierarchy of 7650 or 7651) for service activity equipment replacement must submit a request to create a plant fund, using the established fund create mechanism (form). This request will be reviewed by the Director of University Accounting Services (UAS), who acts as the delegate of the Controller, and the unit will be notified of the decision. Units may create plant funds to establish reserves for future equipment acquisitions and replacements. The funds retain their identity as associated with the storeroom and service fund that originated the funding for the reserve. No storeroom or service operating activity may be charged to these funds.
  3. Purchases of Goods for Resale
    1. General
      Service centers (e.g., storerooms) that sell products to users are responsible for determining an accurate CPurchases of Goods for Resale amount, which includes not only the accurate cost of the product itself, but any associated inventory costs such as freight and inventory adjustments.
    2. Inventory management
      Storeroom managers must maintain perpetual inventory records of each item of merchandise for resale, in order to compute the value of the inventory. Efficient management of the inventory of merchandise for resale to maximize resources is the unit's responsibility. When deciding upon the appropriate level of inventory, the following and/or other items appropriate to the operation should be considered:
      • Cost of storage
      • Cost of shortages (including operational shutdowns because of lack of inventory, additional shipping expense resulting from expediting orders)
      • Lead time (time between order and receipt of item)
      • Obsolescence or shelf life
      • Opportunity cost of capital (investment income which could be realized if cost of inventory were invested)
      • Quantity discounts available

      State purchasing regulations require that no more than one year's inventory be on hand, except for lifesaving medications, mechanical spare parts, and items for which the supplier stipulates a minimum order.

      The service center manager is responsible for ensuring that physical inventory is properly performed, and inventory records are adequately maintained and adjusted. More detailed requirements are outlined in Section 5, Receivables. Inventory of merchandise for resale should be costed in accordance with acceptable accounting practices consistently followed by the service center. The unit may not change inventory valuation procedures from one year to the next without approval from University Accounting and Financial Reporting. Moving average or "First In First Out" (FIFO) is recommended for valuing inventory of merchandise for resale. (See Section 5, Receivables, for an explanation of moving average inventory valuation calculations.)

    3. Inventory accounting
      Activities that purchase merchandise for resale generally record purchases as a debit to purchase of goods for resale (OL account code 187100). Periodically these purchases should be debited to Inventory for Resale (GL account code 55000) and credited to Purchase of Goods for Resale (OL account code 187100).

      These adjustments should be made at least annually, preferably monthly for high volume activities. The entries may be made manually, by an automated billing system (if one exists), by the Banner Allocation and Assessments (ALAS) application, or by a combination of these methods. Service activities should consult with University Accounting and Financial Reporting to determine which method is best for their activity.

  4. Facilities costs
    Depreciation of buildings is not generally allowed except under rare circumstances when the facility funding is from fund type 3E operations. Any inclusion of facility depreciation in rate calculations must be approved by the Office of Government Costing.
  5. Unallowable costs
    Units are prohibited from charging the following costs to their self-supporting funds: (1) unallowable under University policy and state law; (2) unallowable by OMB Circular A-21, such as entertainment, bad debt, alcohol, and public relations - see Section 16: Grants and Research Contracts - Cost Principles (OMB Circular A-21 relocated to Title 2 CFR 220); (3) do not benefit any of the products/services of the service activity or the purpose of the individual fund they are in; or (4) costs included in the University F&A Rate Calculation, and are, therefore, not allowed in the development service activity recharge rates.

    Costs not allocable to service activities, such as the State paid salaries of administrative staff (e.g., department business office) and Operations and Maintenance Division expenses paid by the campus, may not be recovered as a component of the user fee or markup charged to internal users because these costs are recovered as a component of the University's F&A rate.

C. Setting Rates

  1. General
    In addition to determining total cost of the individual service line or product, service center managers must estimate usage in order to determine appropriate recharge rates. All users, including those who pay a discounted rate (or not charged), must be included. Total costs divided by total users equates to the maximum rate that can be charged to University users (including sponsored grants and contracts).

    Service center managers 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 the lower rates charged to a different group of users.

  2. Subsidies
    Service Centers can choose one of two methods to subsidize service activity operations. It is important to remember that subsidies cannot be charged to sponsored funds nor can a deficit or surplus be transferred to another service activity.

    The first method for subsidizing is for the service center to use unrestricted funds (e.g. State, ICR, or gift) to fund a portion of the service center’s operating expenses that would normally be incurred on the service fund. Using this method, the subsidies cannot be recovered in the internal user fee or internal storeroom markup assessed by the service activity.

    The second method for subsidizing is for the service center to incur all operating expenses on the service fund to calculate a service rate. In this instance, the customer is charged a portion of the rate and the remainder (subsidy) must be charged to departmental unrestricted funds (e.g. State, ICR, or gift).

    In both of these instances the subsidies need to be separately identifiable in Banner. A best practice is to utilize a separate program code with an A-21 attribute code of "SNS" (Stores and Services) assigned by your campus Costing Office. This is necessary to allow for proper treatment in the F&A Rate Calculation.

    Units may elect to include subsidies in differential (higher) rates for “external” non-University users; this can be accomplished with appropriate accounting procedures and assistance from your campus Costing Office.

  3. Internal and External customers
    Internal users of service centers are those users whose ultimate source of funds is within the University, or whose funds flow through the University (i.e., sponsored programs). These include academic, research, administrative and auxiliary areas which purchase services to support their work at the University. External users are organizations or individuals whose ultimate source of funds is outside of the University. External users include students and any members of faculty or staff acting in a personal capacity. Affiliated hospitals or other universities are considered external users unless the University has subcontracted with them as part of a grant or contract. Although service activities are established principally to serve the internal users, services are occasionally requested by external entities.

    Service centers should recognize that their primary purpose is to provide services or goods for the University community; therefore, sales to external entities should not be a primary focus and should remain a minimal proportion of total sales. In addition, service center managers need to understand that the provision of sales to external entities increases the likelihood of the University being subject to UBIT (unrelated business income tax); see Section 8, Payments and Reimbursements.

    The rate to be charged to external users is the rate that approximates the comparable commercial rate, or the University rate (increased by the indirect cost rate appropriate to the activity), whichever is higher.

    Where the external party is foreign or commercial, the University cannot provide services unless the services are not readily available from a commercial firm in the region, and the services can be provided without disadvantage to the University users of the facility. Sales should be processed in accordance with Section 5, Receivables.

    Where the external party is another educational institution, the service may be provided if doing so does not disadvantage University users of the facility. The University rate is charged, increased by the indirect cost rate appropriate to the activity.

D. Billings
Billings should be issued to users as soon as the service is rendered or the goods delivered, recommended on a monthly basis. Income from user fees and storeroom sales are recorded using a revenue account code. The journal voucher or sales invoice is to indicate the service provided, date of service or sale, unit cost, and total dollars charged to the user. Any services provided to external users should be billed through the Banner Accounts Receivable System or obtain approval from the Executive Assistant Vice President for Business and Finance; see Section 5, Receivables.

E. Maintaining Adjusted Fund Balances and Monitoring Over/Under Recoveries

  1. General
    Service center managers must calculate and monitor their "Adjusted Fund Balances," which factors asset value and equipment depreciation into the calculation. The Adjusted Fund Balance must then be compared to the 60 Day Working Capital Reserve Limitation to calculate and monitor Over/Under Recoveries. The Office of Government Costing is available to assist service centers with these calculations. Please see the Resources section of this policy for more detail.
  2. Adjusted Fund Balance
    The Banner Fixed Assets system does not directly interface with the General Ledger and Operating Ledger. In addition, depreciation is only calculated and booked in the General Ledger at a highly summarized level during the year end close process. Therefore, to reflect "correct" fund balances, the "Adjusted" Fund Balance must be calculated and used in calculating and monitoring fund balances and over/under recoveries. This is accomplished by completing the following adjustments:
    • For assets purchased with services unit 3E funds, the "net asset value" must be calculated. Since the net asset value is normally a debit balance, the fund balance will be "credited" or increased to arrive at the adjusted fund balance.
    • For assets purchased with other (Non-3E) funds, only the "accumulated depreciation" must be calculated. Since the accumulated depreciation is normally a credit balance, the fund balance will be "debited" or decreased to arrive at the adjusted fund balance.
  3. Working Capital Reserve Limitation
    Working capital reserve is not specifically defined in OMB Circular A-21; however, related Circular A-87 - Section G.2 states that, "A working capital reserve as part of retained earnings of up to 60 days cash expenses for normal operating purposes is considered reasonable." Unusual transactions/variances should be excluded from normal operating expenses for purposes of the limitation calculation.

    The 60-Day Working Capital Reserve Limitation is calculated by taking the last 12 months of cash expenditures divided by 6. This limitation is then compared to the service center's adjusted fund balance to calculate and monitor over/under recoveries. Note that the limitation is an absolute amount and applies to both over and under recoveries. The adjusted fund balance of individual service activities must meet these limitations, unless an exception has been granted by the Executive Assistant Vice President for Business and Finance or delegate. See the Calculations section of this policy.

  4. Over Recovery of Costs
    Service activities that accumulate an adjusted fund balance surplus in excess of specified limits (60 days of average cash operating expenses) must adjust future rates in order to meet the Federal break even requirements over a reasonable period of time. See the Calculations section of this policy for a sample analysis of over recovery of costs.
  5. Under Recovery of Costs
    Service activities that accumulate an adjusted fund balance deficit in excess of specified limits (60 days of average cash operating expenses) must adjust future rates in order to meet the Federal break even requirements over a reasonable period of time. See the Calculations section of this policy for a sample analysis of under recovery of costs.
  6. State Fund Balance Requirements
    This policy is specific to Federal fund balance requirements. However, the State reporting requirements outlined in Section 5, Receivables must also be considered. To comply with State regulations, self-supporting funds are reviewed annually by University Accounting and Financial Reporting to determine if excess funds exist. This review is completed at fiscal year-end by accounting entity, which is a classification of self-supporting funds into similar and related groups defined by the University. Excess cash in self-supporting funds cannot be retained by units and must be lapsed to the University Income Fund. A general guideline is that units may retain enough cash in their self-supporting fund to cover their average monthly expenditures; however, the excess funds calculation is done on an entity-wide basis so an individual fund may have excess funds, but the entity may not. No funds are lapsed to the University Income Fund if the entity does not have excess funds.

F. Documentation Requirements
The unit is responsible for maintaining the following documentation, which is to be available for review upon request. Paper copies or computer files may be used for documentation. General documentation must be maintained for four years by the service facility.

General documentation includes:

  • Documentation of calculation of user fees and markups (including any facilities or equipment depreciation)
  • Documentation that the goods or services were requested and provided (see Recommended Documentation Procedures section below)
  • Journal vouchers documenting the customers billed
  • Calculation of over/under recovery of costs

Equipment documentation must be maintained for four years after disposition of the equipment item(s). This documentation includes:

  • Banner Ptag Code (Property Control Tag number)
  • Description
  • Disposition Date and Method (traded-in, scrapped, or cannibalized for parts)
  • Amount of gain or loss on disposition

The following information is recorded in Fixed Assets by the unit and should be kept current:

  • Condition/code
  • Responsible Organization code

Updates to the following attributes must be reported to University Property Accounting and Reporting for review and update:

  • Entity code
  • Disposal code

For further equipment documentation requirements see Section 12 Property Accounting.

Recommended Documentation Procedures
An authorized requisition (or its equivalent) is required before providing goods or services. The requisition should include the goods or services provided, the date, the name of the user, the unit, and the accounting string charged. This documentation may be in the form of a paper or electronic work order, requisition, or stores/services voucher authorized by appropriate unit official, principal investigator, or delegate.

Goods should be issued upon one of the following:

  • Submission of an authorized requisition (or equivalent) which includes the goods requested, the date, the name of the purchasing unit, and the accounting string charged.

    OR

  • Signature or authorization of the user or messenger receiving the goods.

Either a form or a log may be used as documentation that the goods or services were provided. The form or log may be a hard copy or electronic media.

No signature is required by the seller on campus stores/services vouchers between units. In submitting stores or services transactions to OBFS, the selling unit is certifying that the goods or services have been delivered, the purchasing unit's approval to charge the accounting string is on file, and the source of funds charged is appropriate for the expense.

Review and Error Corrections
The unit receiving the goods or services is responsible for a timely review of the charge, including the amount and accounting string charged. The unit charged is responsible for notifying the storeroom or service facility of any billing errors in a timely manner. The storeroom or service facility is responsible for promptly providing the unit with copies of the documentation supporting the charge and promptly crediting any improperly billed amounts.

G. Reviews & Approvals
As outlined in Section A, in order to establish a fund for a service activity, departments are required to submit service activity information to OBFS University Accounting and Financial Reporting.

On an annual basis the Office of Government Costing identifies select service funds for rate reviews and approvals. Federal and University policies indicate that the department must perform a formal rate calculation at least once every two years. In addition, these rate calculations and supporting documentation must be maintained on-file by the department and made available for review upon request by University administrators, as well as University, state, and federal auditors.

Resources

The OBFS Office of Government Costing provides three Business Objects reports and an Excel spreadsheet to use to calculate adjusted fund balances and their allowable limits, in addition to over/under recoveries:

  • "Service Activity Fund Balance.rep"
  • "Service Activity Cash Expenditures.rep"
  • "Service Activity Fixed Assets.rep"
  • "SA Calculation of Adjusted Fund Balance Over Under Recoveries.xls"

Business Objects reports are available at Government Costing - Service Activities. In addition, the Business Objects reports and the Excel spreadsheet can be obtained by contacting the Office of Government Costing.

Calculations

Cost of Goods Sold

The cost of goods sold (CGS) is the cost of all merchandise sold in a storeroom. It is calculated as follows and is excluded from operating costs for storerooms in the markup calculation:

How to Calculate the Cost of Goods Sold

+

Beginning inventory

+

Purchases for resale (net of purchase discounts and allowances)

+

Freight (if not included in purchase price of items for resale)

-

Items removed because of obsolescence, spoilage, etc.

-

Purchase returns

-

Ending inventory (net of any inventory)

Overages (+) or shortages (-)

=

Cost of goods sold

Calculations of 60-Day Working Capital Reserve Limitation
The amount of adjusted fund balance should be compared to the 60-Day Working Capital Reserve limitation to determine if adjustments need be made to avoid an over/under recovery in excess of specified limits. See "Working Capital Reserve Limitation" section above.

The following is an example of the limitation calculation:

How to Calculate 60-Day Working Capital Reserve Limitation

 

FYxx Cash Expenditures per service activity fund per operating ledger (12 months)

$56,000

 

Plus: Non-3E FYxx Cash Expenditures used in support of the specific service activity (only when coded with "SNS" A-21 Code coordinated through the Office of Government Costing)

$10,000

 

Total YTD expenditures

$66,000

=

60-Day Working Capital Reserve Limitation (Total YTD expenditures divided by 6); an absolute value

$11,000

The limitation is an absolute amount and applies to both over and under recoveries. The adjusted fund balance of individual service activities must meet these limitations.

Calculations of Adjusted Fund Balance and Over/Under Recoveries
The amount of adjusted fund balance should be compared to the 60 Day Working Capital Reserve limitation to determine if adjustments need be made to avoid an over/under recovery in excess of specified limits. See the "Working Capital Reserve Limitation" section above. The following is an example of over recovery:

How to Calculate Adjusted Fund Balance and Over Recoveries

 

Fund Balance, End of Year (or YTD) has a credit (surplus) balance

($41,200)

-

Accumulated depreciation of Non-Fund Type 3E equipment (normally a credit balance for accounting purposes)

Note: Subtracting the credit results in a debit adjustment to the Fund Balance.

$6,000

+

Net asset value of Fund Type 3E equipment/facilities -- a credit adjustment to fund balance

($12,000)

=

Adjusted fund balance (surplus)

($47,200)

 

Compared to 60-Day Working Capital Reserve Limitation (see above calculation)

$11,000

 

Over recovery (surplus)

($36,200)

The ($36,200) surplus balance should be considered in calculating the recharge rate.

The following is an example of under recovery:

How to Calculate Adjusted Fund Balance and Under Recoveries

 

Fund Balance, End of Year (or YTD) has a debit -- deficit balance

$20,000

-

Accumulated depreciation of Non-Fund Type 3E equipment -- normally a credit balance for accounting purposes

Note: Subtracting the credit results in a debit adjustment to the fund balance.

$2,000

+

Net asset value of Fund Type 3E equipment/facilities -- a credit adjustment to fund balance

($6,000)

=

Adjusted fund balance -- deficit

$16,000

 

Compared to 60-Day Working Capital Reserve Limitation (see calculation above)

$11,000

 

Under recovery -- deficit

$5,000

The $5,000 deficit should be considered in calculating the recharge rate.

User Fees For Service Facilities
User fees are derived by dividing the aggregate total of estimated fiscal year operating expenses, equipment depreciation, and prior year over/under recovery by the expected user fee base:

How to Calculate User Fees

Total costs

+

Estimated fiscal year operating expenses

 

+

Annual depreciation expense for all equipment assigned and used by the service activity

 

+/-

Prior year under/over recovery (within limit specified for level of revenue)

 

=

Total costs

User Fee Base

=

Projected number of service units which result in a reasonable allocation of costs to the various users; for example, labor hours, machine hours, CPU time, and computer network connect fees

User Fee (or Recharge Rate)

=

Total costs / User Fee Base

Markup Percentage For Storerooms
The markup percentage is derived by dividing the aggregate total of estimated fiscal year operating expenses, equipment depreciation, and prior year over/under recovery by estimated cost of goods sold:

How to Calculate Storeroom Markups

Total costs

+

Estimated fiscal year operating expenses

 

+

Annual depreciation expense for all equipment assigned and used by the service activity

 

+/-

Prior year under/over recovery (within limit specified for level of revenue)

 

=

Total costs

Markup Percentage

 

Estimated "Total Costs" excluding cost of goods sold [a]

   

Estimated cost of goods sold [b]

 

=

Markup percentage [a] /[b] x 100%

Markup for storeroom merchandise

+

Unit cost of merchandise for resale

 

x

Markup percentage

 

=

Markup

Selling price for storeroom merchandise

+

Unit cost of merchandise for resale

 

+

Markup

 

=

Selling Price

Storeroom Inventory
The following chart shows accounting entries for recording storeroom inventory:

How to Record Storeroom Inventory

Action

Entry

Account Number

To record storeroom purchases as inventory

Debit GL account code
Credit OL account code

55000 - Inventories
187100 - Purchase of Goods for Resale

To adjust Banner inventory to physical inventory on the Fact Sheet

If physical inventory is greater than Banner Inventory:
Debit GL account code
Credit OL account code


55000 - Inventories
187100 – Purchase of Goods for Resale

 

If physical inventory is less than Banner inventory:
Debit OL account code

Credit GL account code


187100 – Purchase of Goods for Resale
55000 - Inventories

To adjust Banner inventory to reflect removal of obsolete inventory

Debit OL account code

Credit GL account code

187103 – Obsolete Inventory for Resale
55000 - Inventories

Contacts

 

Please send questions regarding this policy manual to OBFSPolicies@uillinois.edu.

Last Updated: March 9, 2016 | Approved: Senior Associate Vice President for Business and Finance | Effective: October 2008

Give us feedback about this page Submit Feedback