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Business and Financial Policies and Procedures

Setting Rates

Service center managers must determine the total cost of the individual service line or product (numerator) and the appropriate base (denominator) to be utilized when calculating rates. For new activities in their first year of service, projections can be used to estimate the service center’s operating costs and anticipated utilization. For continuing activities, costs and usage should be based on actual historical data, adjusted as appropriate only for significant anticipated changes in cost or utilization. Any anticipated changes in cost or utilization incorporated in service rates must be significant and reasonable, well substantiated, and documented accordingly. Routine fluctuation in costs and utilization should not be included in projections. Prior year(s) surplus or deficits must also be considered when resetting annual rates. All users, including those who pay a discounted rate (or not charged), must be included in the base. Total costs (numerator) divided by total users (base/denominator) 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. The center must use the measurement which considers the cost/benefit of the product or service being provided, in other words, use the measurable units which allocate costs equitably among all customers or usage base.

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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. 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. 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 attribute code of "SNS" (Stores and Services) assigned by System Government Costing. 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-System users; this can be accomplished with appropriate accounting procedures and assistance from System Government Costing.

Internal and External Customers

Internal users of service centers are those users whose ultimate source of funds are internal to the System. These include academic, research, administrative, and auxiliary areas which purchase services to support their work at the System. Federal grants and contracts administered by the universities are considered internal customers.

External users are organizations or individuals whose ultimate source of funds is outside of the System. 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 System has subcontracted with them as part of a grant or contract or the System has entered into a formal written agreement (i.e. testing agreements, facilities use agreements, etc.). 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 System; 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 System being subject to UBIT (unrelated business income tax); see 22 Self-Supporting/Revenue Generating Activities - Report Unrelated Business Income (UBI).

At a minimum, external users must be charged the fully-costed rate, increased by the facilities and administrative (F&A) rate appropriate to the activity. In addition, external rates should consider the pricing of such items in the public market, however, rates charged to external customers cannot be lower than the rates charged to internal customers, including the appropriate F&A overhead rate.

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

Where the external party is foreign or commercial, the System 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 System users of the facility. Sales should be processed in accordance with 5 Receivables.

Last Updated: May 15, 2019

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