|COST ACCOUNTING STANDARDS POLICY
FINANCIAL MANAGEMENT OF SERVICE
CENTERS (Issued December 18, 1998)
Service centers That Provide Multiple Services
Variable Billing Rates
Services Provided to Outside Parties
transfers of Funds Out of Service centers
Inventory Accounts for Products Held for Sale
Subsidized Service centers
Return to CAS Policies
To establish Brandeis University's policies and procedures for the financial management of service centers.
II. EFFECTIVE DATE
This policy is effective on July 1, 1999. The policy applies to all costs incurred (or sponsored agreement budget periods beginning) on or after that date.
An activity that performs specific technical
or administrative services primarily for the internal operations of the
University and charges users for its services.
An activity that provided goods or services primarily to students, faculty, staff and others for their own personal use, rather than as a service to internal University operations. Examples of auxiliary enterprises include residence halls, dining halls, and bookstores. Auxiliary enterprises are not subject to this Policy Statement.
Direct Operating Costs
All costs that can be specifically identified with a service provided by a service center. These costs include the salaries, wages and fringe benefits of University faculty and staff directly involved in providing the service; materials and supplies; purchased services; travel expenses; equipment rental; interest associated with equipment acquisitions; etc. Note that for capital expenses (equipment, software and furniture ~$500), the depreciation should be charged as a direct expense, not the acquisition cost.
Internal Service center Support Costs
All costs that can be identified to a
service center, but are not specific to a particular product or service
offered by the center. For example, the salary and fringe benefits of the
service center director are considered internal support costs.
Institutional Indirect Costs
The costs of administrative and supporting functions of the University. Institutional indirect costs consist of general administration and general expenses, such as executive management, payroll, accounting and personnel administration; operations and maintenance expenses, such as utilities, building maintenance and custodial services; building depreciation and interest associated with the financing of buildings; libraries; and special administrative services provided to sponsored projects.
Costs that can not be charged directly or indirectly to federally-sponsored programs. These costs are specified in Circular A-21 issued by the U.S. Office of Management and Budget. Common examples of unallowable costs include institutional advertising, alcoholic beverages, bad debts, charitable contributions, entertainment, fines and penalties, goods and services for personal use, interest (except interest related to the purchase or construction of buildings and equipment), selling and marketing expenses. Please refer to the University's "Policy on Unallowable Costs" for further information of these costs.
transactions that offset or reduce costs, such as purchase discounts, rebates, allowances, refunds, etc. For purposes of charging service center costs to federally-sponsored programs, applicable credits also include any direct federal financing of service center assets or operations (e.g., the direct funding of service center equipment by a federal program).
An item of tangible personal property having a useful life exceeding one year and an acquisition cost of $500 or more. Purchases under this amount are considered consumable supplies.
The unit of service provided by a service center. Examples of billing units include hours of service, tests performed, machine time used, etc.
The amount charged to a user for a unit of service. Billing rates are usually computed by dividing the total annual costs of a service by the total number of billing units expected to be provided to users of the service for the year.
The amount that the revenue generated
by a service exceeds the costs of providing the service during a fiscal
The amount that the costs of providing
a service exceed the revenue generated by the service during a fiscal year.
IV. GENERAL POLICIES
All service centers are required to comply
with the following:
Billing rates should be designed to recover the direct operating costs of providing the services on an annual basis. For service center with direct operating costs in excess of $100,000 annually, the billing rates should also recover institutional indirect costs. No costs other than the costs incurred in providing the services should be included in the billing rates. The costs should exclude unallowable costs and be net of applicable credits.
- To segregate costs in an account
- Calculate rates annually
- Charge rate for services as noted / defined
- Submit a copy of their semi-annual rate
analysis to the Office of Cost Analysis in the Controller's Office on (date)
(or time after rate defined)
Billing rates should be computed annually at the start of each University fiscal year. The rates should be based on the direct operating costs of providing the services for the fiscal year just ending and, where applicable, service center support costs and the number of billing units for the fiscal year, or an estimate of the costs and billing units of the new fiscal year.
- The billing unit(s) should logically represent the type of service provided.
- The billing rate computation should be documented.
- All users should be charged for the services
they receive and be charged at the same rates.
- Separate accounts should be established in the University's accounting system to record the actual direct operating costs of the service center, internal service center overhead, revenues, billings, collections, and surpluses or deficits. Documentation to support the costs of the service center and records of units of service should also be maintained.
The billing rates should be reviewed at least every six months and adjusted where necessary.
Actual costs and revenues should be compared at the end of each University fiscal year. Deficits or surpluses should be carried forward as an adjustment to the billing rates of the following year or the next succeeding year. Where feasible, the adjustments may be made by increasing or decreasing the charges made to users for the completed year, rather than through the ìcarry-forwardî adjustment process.
V. SERVICE CENTERS THAT PROVIDE MULTIPLE SERVICES
Where a service center provides different types of services to users, separate billing rates should be established for each service that represents a significant activity of the service center. The costs, revenues, surpluses and deficits should also be separately identified for each service. The surplus or deficit related to each service should be carried forward as an adjustment to the billing rate for that service in the following year or the next succeeding year. The surplus from one service may be used to offset the deficit from another service only if the mix of users and level of services provided to each group of users is approximately the same.
VI. COST ALLOCATION
Where separate billing rates are used for different services provided by a service center, the costs related to each service must be separately identified through a cost allocation process. Cost allocations will also be needed where a cost partially relates to the operations of a service center and partially to other activities of a department or other organizational unit.
Depending on the specific circumstances
involved, there may be three categories of cost that need to be allocated:
(a) costs that are directly related to providing the services, such as
the salaries of staff performing multiple services, and (b) internal service
center support costs.
When cost allocations are necessary, they should be made on an equitable basis that reflects the relative benefits each activity receives from the cost. For example, if an individual provides multiple services, an equitable distribution of his or her salary among the services can usually be accomplished by using the proportional amount of time the individual spends on each service. Other cost allocation techniques may be used for internal service center support costs, such as the proportional amount of direct costs associated with each service, space utilized, etc. Questions concerning appropriate cost allocation procedures should be directed to the Office of Cost Analysis.
VII. EQUIPMENT PURCHASES
Expenditures for equipment purchases should not to be included in the costs used to establish service center billing rates. The costs should, however, include depreciation of the equipment.
A list of equipment used in service centers, with inventory property control (tag) numbers, should be provided at the end of each fiscal year to the Office of Cost Analysis. This information is needed to assure that the equipment is excluded from the depreciation portion of the University's indirect cost rates charged to federally sponsored programs.
VIII. VARIABLE BILLING RATES
All users within the University should normally be charged the same rates for a service center's services. 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.
IX. SERVICES PROVIDED TO OUTSIDE PARTIES
If a service center provides services to individuals or organizations outside of the University, the billing rates charged to these users may be higher than the rates for internal University users. Where applicable, sales tax must also be charged to outside parties. Any amounts charged to outside parties in excess of the regular internal University billing rates 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. Since revenue from outside parties may have Unrelated Business Income Tax (UBIT) implications, the Office of Cost Analysis should be consulted before arrangements for the services are made.
X. TRANSFERS OF FUNDS OUT OF SERVICE CENTERS
It is normally not appropriate to transfer
funds out of a service center account to the University's general funds
or other accounts. If a transfer involves funds that have accumulated in
a service center account because of prior or current year surpluses, an
adjustment to user charges to compensate for the surpluses may be necessary.
The Office of Cost Analysis should be consulted before the transfer is
XI. INVENTORY ACCOUNTS FOR PRODUCTS HELD FOR SALE
If a service center sells products and has a significant amount of stock on hand, inventory records must be maintained. If the value of the inventory is expected to exceed $50,000 at any point in the year, a formal inventory account should be established. If the inventory is not expected to exceed $50,000, internal inventory records may be used in lieu of a formal account. A physical inventory should be taken at least annually at the end of the fiscal year and be reconciled to the inventory records. Inventory valuations may be based on any generally recognized inventory valuation method (e.g., first-in-first-out, last-in-first-out, average cost, etc.).
XII. SUBSIDIZED SERVICE CENTERS
In some instances, the University, or a school or department, may elect to subsidize the operations of a service center, either by charging billing rates that are intended to be lower than costs or by not making adjustments to future rates for a service center's deficits. Service center deficits caused by intentional subsidies cannot be carried forward as adjustments to future billing rates. Since subsidies can result in a loss of funds to the University, they should be provided only when there is a sound programmatic reason and the reason is sufficiently documented.
XIII. RECORD RETENTION
Financial, statistical and other records related to the operations of a service center must be retained for three years from the end of the fiscal year to which the records relate. Records supporting billing rate computations must be retained for three years from the end of the fiscal year covered by the computations. For example, if a billing rate computation covers the University fiscal year ending June 30, 1999, the records supporting the computation must be retained until June 30, 2002.
If you have any questions about this policy, how to treat a specific cost, or need information, please contact the Associate Controller for Sponsored Programs at x6-4423, the Assistant Controller of Cost Accounting at x6-4535, or the Internal Auditor at x6-4516.
XV. TECHNICAL ASSISTANCE
The Office of Cost Analysis (x6-4535) is available to provide technical assistance and advice on the financial management of service centers. This assistance may be requested in connection with the development of billing rates, cost allocation procedures, equipment depreciation, record keeping, etc.