Creighton University

Accounting Policies

POLICY TITLE:

Service Center Operations

POLICY NUMBER:

GAPL 01

DATE ISSUED: 

July 1, 1998

DATE REVISED:


PURPOSE

The purpose of the Service Center policy is to provide a framework for the fiscal operations of Creighton University service centers that will assure compliance with sound accounting principles and government regulations. Service centers can result in charges, directly or indirectly, to Federal grants and contracts. As a recipient of Federal funds, the University must comply with cost principles and cost accounting standards promulgated by the U.S. government. An important element in compliance is ensuring that everyone involved has a basic understanding of the standards and what they require. Because non-compliance could jeopardize the University's eligibility for Federal funds, all departmental administrators and/or directors, personnel directly involved in University and grant budget administration, and all Sponsored Programs Administration personnel are required to be familiar with these policies.

University organizations which sell to other departments are expected to offer goods or services that are unique, convenient, or not readily available from external sources. An organization which charges a rate designed to recover the full allowable cost of the goods or services provided is classified as a service center. Reallocating the specific cost of goods or services only, with no recovery other than the billed cost of the goods or services, is classified as a recharge activity. This policy outlines the guidelines and procedures to be followed in the establishment and operations of a service center. For information relating to recharge activity, see the Recharge Activity policy.

Sale of goods or services by a service center must be consistent with good business practice and the mission of Creighton University, and must also comply with all applicable regulatory and legal requirements, including those outlined in OMB Circular A-21 and the Governmental Cost Accounting Standards. In addition, Federal grants and contracts may not be charged a higher rate for goods and/or services than any other internal or external customers.

Service Center billing rates are to be computed so that the service center breaks even on an annual basis. Variances greater than + or - 5% of total annual costs require specific action on the part of the service center administrator (see Interim Reviews - p. 6). Rates are to be determined annually, prior to budget preparation and may not be adjusted mid-year without prior approval from the Budget Committee. The computations involved in calculating the over- or under-recovery are to be reviewed with the Controller's Office prior to establishing a new rate.

POLICY

A. Non Discriminatory Rates - all internal and Federal customers must be charged the same rates. External users may be charged for costs which are unallowable for internal and Federal users. No discounts or free service may be given to any customer.

B. Break-even - Service center rates are to be established so that the total revenues from internal and external customers equal the total operating expenses of the service center over each fiscal year. Interim reviews ("current year estimates") are to be done by the service center manager after the December closing to project whether the service center will break even or incur a surplus or deficit by the end of the fiscal year. Projected surpluses or deficits greater than 5% of the total annual operating costs require rate revisions for the upcoming year. (See Procedures Section of Policy).

C. Unallowable Costs - costs which are unallowable, as defined in the Direct/Indirect Costing Policies, may not be included in the computation of the Internal Customer billing rates. Unallowable costs may be recovered in rates for external customers.

D. External Customers - Because the main purpose for the existence of service centers is to fulfill the needs of departments of Creighton University, and to avoid issues related to Unrelated Business Income, it is expected that service center business with external customers would be limited.

E. Service Center Revenues and Expenses - All direct costs of service center operations, actually incurred and documented, must be charged to the service center organization. Expenses not recorded in the service center organization are not to be used in the computation of the billing rate. All service center internal and external revenues must be credited to the service center using the appropriate account codes. In general, revenues from external customers will be in the form of checks or cash, and revenues from internal organizations will be recorded by way of journal entry.

F. Subsidies of Service Centers - occasionally, subsidization of a service center is necessary because the product or service is very unique but setting the rate to cost would make the price prohibitive. If the cost makes the computed rate prohibitive, the sponsoring organization must transfer in an amount computed as the difference between the annual revenues and the annual cost of operations for the service center in question.

G. Records retention - Because different grants require that supporting documentation be kept for varying amounts of time, documentation regarding rate computation and specific charges should be kept for at least seven years.

SCOPE

A. Who should know this policy:

  • Vice Presidents
  • Deans
  • Department Chairs
  • Department Directors/Administrators
  • Principal Investigators
  • Other Internal Clients
  • Sponsored Programs Administration Personnel
  • Controller's Office Personnel
  • Internal Audit Department

B. To what activities does this policy apply:

The operations of any University organization which provides goods and/or services, primarily to University internal customers, for a fee designed to recover total operating costs.

C. To what activities does this policy not apply:

The policy is not designed to apply to recharge activities; that is, those situations in which a University organization allocates the specific direct cost of goods or services among two or more departments.

D. Sources for questions regarding applicability of this policy:

  • Specific Service Center department administrator
  • Controller's Office - Assistant Controller

DEFINITIONS

Adjusted Cost - the total cost less the cost of any equipment purchased, less any unallowable costs.

Billing Rate - the fee per unit of activity charged to customers to recover the costs associated with producing the goods or providing the services.

Break-even - the situation where actual internal and external revenues equal operating costs.

Deficit - the amount by which a service center's net loss exceeds 5% of operating expenses. A deficit must be subsidized by non-Federal sources.

External Customers - customers outside of the organizational/administrative structure of the University. This category includes faculty, staff, or students acting in a personal capacity.

External Rates - may include a portion designed to recover costs defined as unallowable for computing internal rates. External rates may be higher than or equal to internal rates, but may never be lower.

Internal Customers - customers who are part of the organizational/administrative structure of the University, including academic, research, and administrative departments, as well as the University clinics and auxiliary units.

Net Gain - the excess of total internal and external revenues over total expenses.

Net Loss - the excess of total expenses over total internal and external revenues.

Operating Cost - see Total Cost

Service Center Direct Costs - costs that can be identified directly to each service or product and could include labor, materials, and other allowable costs.

Service Center Indirect Costs - costs that are not readily identiable to a particular service or good; they are collected in a separate cost pool and allocated to each abilling unit.

Surplus - the amount by which a service center's net gain exceeds 5% of total expenses.

Total Cost (Operating Cost) - the total of direct and indirect costs.

Unit of Activity - a specific quantity of a service center's product such as a copy, an hour of machine time, an hour of labor, or any other reasonable measurement that is the basis for the computation of the billing rate.

University (Internal Customer) Rates - the adjusted costs are divided by the usage (hours, units, etc.) to determine the University rates.

Unrelated Business Income - revenues produced by the regular sales of goods or services to external customers, which is not substantially related to the University's tax-exempt purpose. Unrelated Business Income is subject to taxation by the IRS. Activity carried on for the convenience of the University community, including the students, is not subject to taxation. Contact the General Accounting Manager for specific information.

PROCEDURES

Establishing a New Service Center

When an organization determines that the need for a new service center exists, it must submit a written request through the administrator to the area vice-president for approval. The request must include all of the following completed forms (copies of these forms are included at the end of this policy):

A. Purpose and Justification for a Service Center

B. Service Center Annual Budget

C. Computation of Billing Rate

Approval Sequence

Following is the sequence of approval requirements for a request to establish a new service center at Creighton University:

  • Department manager/chair submits all completed forms to the Controller's Office for review of the computations.
  • If approved, the department manager/chair submits the completed forms to the Dean/Director for approval.
  • If approved, the Dean/Director forwards the forms to the area Vice-President.
  • If the budgeted annual operating expenses for the new service center are less than $50,000, the area Vice-President has final approval authority.
  • If the budgeted annual operating expenses for the new service center exceed $50,000, the area Vice-President submits the forms to the Budget Committee for final approval.
  • Upon obtaining final approval at the appropriate levels, the manager of the service center sends copies of the approved forms to:
  1. Sponsored Programs Administration
  2. Budget Office
  3. Grant Accountant in the Controller's Office
  4. Area Vice President
  5. Dean/Department Chair/Administrator/Director

Annual Service Center Review and Approval

Once a new service center has received initial approval, the three forms must be completed and approved annually by the end of February each year, in order for all service center internal customers to include the revised rates in their current year budgets. A copy of the service center price list will be sent to the Budget Office and Sponsored Programs Administration Office at that time and will also be available from the service center on request.

Interim Reviews (Current Year Estimates) by Service Center Manager

Interim reviews are to be done by the service center manager immediately after the December month-end close. The purpose of these reviews is to determine whether the service center will break even, incur a surplus (annual revenues exceed annual expenses by an amount greater than 5% of the annual operating expenses) or incur a deficit (annual expenses exceed annual revenues by an amount greater than 5% of the annual operating expenses) by the end of the fiscal year.

1. December current year estimate - If it is determined that the service center will incur a deficit (net loss greater than 5% of the total annual operating expenses), or a surplus (net gain is greater than 5% of the total annual operating expenses), by the end of the fiscal year, the manager will notify the area Vice-President, and review the computation of the rates for the upcoming year with the Controller's Office, the area Vice-President, and the department administrator to assure that the projected rates for the upcoming year will sufficiently recover costs. No specific action is required at this time if the service center is projected to break even (within the +/- 5% of annual operating expenses threshold) by the end of the fiscal year.

ADMINISTRATION and INTERPRETATION

A. Responsibilities of Service Center Administrators:

  • Submit request to establish new service center.
  • Manage the daily operations of the service center.
  • Prepare the annual budget and justification forms for the service center.
  • Provide competitive rates and services while maintaining break-even margin.
  • Perform an annual review and rate analysis and have revised rates submitted by the end of February, (in time for customers to include any rate adjustments in their next year's budget).
  • Maintain detail records supporting charges to internal and external customers.
  • Coordinate the interdepartmental charge mechanism (normally a periodic journal entry) with Controller's Office, and bill for services to external customers.
  • If service center has outside customers, assure staff compliance with cash handling policies of the University.
  • Monitor operations of service center to assure compliance with this and other University policies.
  • Assure that all charges are processed within the month incurred.
  • Provide all internal customers with a monthly itemized report of their charges.

B. Responsibilities of Controller's Office:

  • Review rate computations for all service centers to assure accuracy and consistency with applicable policies and regulations.
  • Monitor rates charged by service centers to determine if total billings for services are reasonable compared to the costs of operation.
  • Review internal rate computations periodically to assure that unallowable costs are being properly excluded from billing rates.

C. Responsibilities of Area Vice President/Dean/Director:

  • Review and approve applications to establish a new service center, and the continuation of existing service centers.
  • Review and approve service center's annual budget, rate computation, and justification.

Fund any deficits or disallowances created by service centers under their direction.

  • Purpose and Justification for a Service Center (Example 1)
  • Purpose and Justification for a Service Center (Form 1)
  • Service Center Annual Budget (Example 2)
  • Service Center Annual Budget (Form 2)
  • Computation of Service Center Billing Rate (Example 3)
  • Computation of Service Center Billing Rate (Form 3)
  • Computation of Projected Surplus or Deficit (Example 4)
  • Computation of Projected Surplus or Deficit (Form 4)