Rate Calculation Requirements for Service Centers

Below is a list of Service Center Rate Calculation requirements:

• Formal rate calculations must be performed at least once every two years.
• Federal costing policies require that stores and services are to operate on a break-even basis.
• Rates should be designed to recover no more than the aggregate cost of the services.
  • User rates must be supported by cost calculations based on a year of actual historical expenditures and usage (i.e., normally based on fiscal year end data).
  • Estimated rates are generally used only in the first year of operation.
  • Rates cannot be based on generating a specific amount of revenue.
  • Rates cannot include reserves or contingencies.
• 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.
• Rates should be charged based on actual use of the services.
• The usage basis for the service or good includes all users of the service or good.
• Rates should not discriminate against federally-supported activities of the institution (i.e. federal users cannot subsidize non-federal users).
• Federal costing principles allow a working capital reserve of up to 60 days "cash expenses" for normal operating purposes.
• Over- or under recovery of the service activity adjusted fund balance must be incorporated into the rate calculation.
• Each unit is responsible for the management of its stores and service activities, including the establishment and documentation for each service rate.

Frequency of Rate Reviews and Calculations

Formal rate calculations must be performed at least once every two years and rates adjusted accordingly. Best practices indicate rates should be reviewed annually by the department. In addition, between typical rate calculation time frames, if there is a significant change in user base or costs to provide the services, the department should re-calculate rates and implement new rates as soon as possible. This should be done to ensure users are being billed fairly for the services/goods they are receiving and to ensure the service center is not incurring an unexpected large surplus or deficit.

Charging Established Rates to All Users

• 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.
• Rates should not discriminate against federally-supported activities of the institution (i.e., federal users cannot subsidize non-federal users).
• All users must be billed.
• All internal users must be charged at the same rate for the same level of service or product purchased.
• User rates consisting of flat fees are not appropriate and do not comply with costing principles (i.e., flat monthly fee).
• Users may not be billed until services have been rendered or goods received. In other words, prepayment of services/goods by a customer is not allowed.
• When preferential rates or free services are provided to some users (students and departments) rate calculations must be based on billing at the full cost.
  • In this instance, the customer is charged a portion of the rate and the remainder must be charged to departmental unrestricted funds. Also, the portion of the rate funded by other university funds 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 System Government Costing in coordination with University Accounting & Financial Reporting. This is necessary to allow for proper treatment in the F&A Rate Calculation.
• External users may be charged a higher billing rate than internal users to recover F&A costs or other related expenses. At a minimum, service activities must charge external customers the fully-costed rate plus the applicable Facilities and Administrative (F&A) rate. The fully-costed rate is the internal rate, plus additional costs that support the service but are unallowable for internal rates.

Key Elements of Proper Accounting

Only services/goods that are “like and similar” should be combined in a service fund. This aids with the proper calculation of rates and the allocation of over/under recoveries by line of service. Accurate accounting for service center expenses and revenues is critical for tracking of accurate over/under recoveries and proper rate calculations. The following accounting practices assist in ensuring this is accomplished.

Expenditures to Revenue Match

Service centers should “match” revenue with expenditures so that a true financial picture can be obtained for the fund.

Identify Expenditures and Revenue by Line of Services

When multiple lines of similar services are maintained in one service fund, the department must be able to identify expenditures and revenue by line of service. This is necessary for accurate tracking of net income, over/under recoveries, and compliant rate calculations. A best practice is to utilize separate “activity” or “program” codes.

Billing

Billings should be issued to users as soon as the service is rendered or the goods delivered. Any self-supporting activity that provides goods or services to a sponsored project must bill the related project fund monthly. When providing goods or services to non-sponsored project customers, quarterly billing is required. However, it is best practice to issue billings on a monthly basis.

Journal Voucher and Sales Invoice Requirements

The journal voucher or sales invoice is to indicate the service provided, date of service or sale (date range if applicable), unit cost (i.e., the rate and number of units sold), and total dollars charged to the user. A best practice is to utilize the FOATEXT for detail regarding the service or good provided.

Record Revenue Properly as a Credit in Revenue Account Code

Revenue should be properly recorded as a credit in a revenue account code, not incorrectly booked under an expense account code. The practice of recording revenue as a negative expense distorts the financial statements and results in unnecessary analysis of the service account/funds to identify these entries and eliminate them from the rate calculation. Use the detailed revenue account code that most closely aligns with the service provided by the service activity.

External revenue must be recorded in account code 307921

The difference in the rate charged to the internal customers and external customers represents the increment of revenue to be recorded in 307921.

Track Base Usage

The department must track usage (base) including at a minimum, the date of the sale or service, unit cost, and total dollars charged to the user. Service activities must use a measurable unit which allocates costs equitably among all customers based on their usage. The usage base selected must represent the cost/benefit each customer receives.

Rate Calculations and Supporting Documents on File

Rate calculations and supporting documentation (including detailed base support) must be maintained on-file by the department and made available for review upon request by system administrators, as well as system, state, and federal auditors.

Published Rates Readily Available

The department must have published rates readily available upon request. This can be accomplished by publishing rates on-line, posting a rate sheet, or maintaining a hard copy rate sheet on-site. Auditors expect rates to be readily available and often request rate sheets during audits.