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Service Activities Resource Page

Rates

Internal vs External Users

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, and the general public. 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.

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 Facilities & Administrative (F&A) rate, also called indirect cost rate, appropriate to the activity.

Internal Users

The rate to be charged to internal users must be based on actual historical expenditures and usage. In addition, the internal rate must exclude the following:

  • Salaries and wages not recorded in the service fund
  • Unallowable costs
  • Federal equipment depreciation
  • Fringe benefits
  • F&A rate appropriate to the activity

Not only is the University a non-profit institution, policies and regulations require the service center to break-even over a period of time. It is not appropriate to generate profit from internal users.

External Users

The rate to be charged to external users is the higher of either the rate that approximates the comparable commercial rate (market rate) or the "internal" University rate increased by the following:

  • All salaries, wages, and non-personnel expenditures related to providing the service or good
  • Unallowable costs
  • Federal equipment depreciation
  • Fringe benefits
  • F&A rate appropriate to the activity

External rates which exclude F&A indirect cost rates results in University sponsored projects (including federal sponsors) subsidizing external users because F&A is later assessed on service rates charged to sponsored projects.

Over/Under Recovery Identification Process

Costing policies require that stores and services are to operate on a break-even basis. Over- or under-recovery of the service activity adjusted fund balance must be incorporated into the rate calculation. This is accomplished as part of a three step process as outlined in the next three topics:

  • Adjusted Fund Balance
  • Working Capital Reserve
  • Over/Under Recovery

STEP 1 - Adjusted Fund Balance

Service centers must calculate and monitor their "Adjusted Fund Balances", which factor asset value and equipment depreciation into the calculation.

  • 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, the "Adjusted" Fund Balance must be calculated and used in calculating and monitoring fund balances and over/under recoveries.
  • For assets purchased on the service center fund, the "net asset value" of the asset must be calculated and included in the service center fund balance. Since the net asset value is normally a debit balance, the fund balance will be "credited" or increased to arrive at an adjusted fund balance.
  • For assets used in the service center and purchased with other funds (State, ICR, or Gift), please contact your University Costing Office for assistance with the adjusted fund balance calculation.

To calculate the service center’s “Adjusted Fund Balance”, you must perform the process outlined below:

  1. Identify end of year accumulative Fund Balance in Banner system (typically balance at end of fiscal year).
  2. Identify Net Asset Value (NAV) of Equipment Purchased on 3E fund (purchase price less accumulated depreciation).
  3. Calculate Adjusted Fund Balance by adjusting fund balance for NAV of equipment.
    1. If the fund balance is a surplus (credit), the fund balance will be “credited” or increased for the NAV of the equipment to arrive at Adjusted Fund Balance.
    2. If the fund balance is a deficit (debit), the fund balance will be “credited” or decreased for the NAV of the equipment to arrive at Adjusted Fund Balance.

STEP 2 - Working Capital Reserve

Costing policies allow service centers to maintain a working capital reserve of up to 60 calendar days "cash expenses" for "normal" operating purposes. Balances in excess of this amount should be eliminated over a period of time, normally 2 years. Once the limitation is calculated it is compared to the service center’s adjusted fund balance to calculate and monitor over/under recoveries.

  1. Identify “cash expenditures” for the year (excludes depreciation and capital asset purchases).
  2. Calculate 60 Day Working Capital Reserve by taking the last 12 months of cash expenditures for normal operations divided by 6 months.

STEP 3 - Over/Under Recovery

Service centers that accumulate an adjusted fund balance surplus in excess of working capital reserve limitation must adjust future rate calculations in order to meet costing policy break-even requirements. It is important to note that the over or under recovery balance identified and included in the rate calculation must be the "accumulated" balance incurred whether over one year or multiple years.

  • System policies including Federal regulations indicate a service center must take into consideration over/under applied costs of the previous period(s).
  • The adjusted fund balance must be compared to the 60 day working capital reserve limitation to calculate the amount of over or under recovery to be included in a rate calculation.

To calculate the service center’s “Over/ Under Recovery”, you must perform the process outlined below:

  1. Identify the “Adjusted Fund Balance”.
  2. Identify the “Working Capital Reserve”.
  3. Calculate the Over/Under Recovery by comparing the adjusted fund balance to the working capital reserve.
    1. If the adjusted fund balance is more than the working capital reserve, the fund has an over-recovery. The difference represents the amount to include in next year’s rate calculation.
    2. If the adjusted fund balance is less than the working capital reserve, the fund has an under-recovery. The difference represents the amount to include in next year’s rate calculation.

Example of a fund balance calculation for fund with a starting deficit fund balance (debit):

Deficit fund balance example

Example of a fund balance calculation for fund with a starting surplus fund balance (credit):

Surplus fund balance example

Last Updated: October 10, 2017

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