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Handbook of Business Procedures

Date published: 
Last revised: 
Issued by: 

July 12, 2011
September 1, 2014
Federal Reporting

 

Part 10. Costing - Table of Contents


10.2. SERVICE CENTER POLICY SUMMARY

Note: For detailed information about service center accounts, see the Handbook of Business Procedures, 2.2.2. Service Center Funds—18-Accounts.

A. Purpose

The Federal Reporting section of the Office of Accounting works to ensure that service centers are operated, monitored, and accounted for in accordance with federal guidelines and sound costing principles.

B. Scope

This policy only applies to service centers and specialized service facilities and does not apply to other revenue generating or cost transfer activities. In this policy, the term "service center" refers to both specialized service facilities and service centers, unless otherwise noted.

C. Definition

A service center provides goods or services at approved rates that are essential in supporting The University of Texas at Austin’s teaching and research functions.

The primary purpose for establishing a service center is to allow the university to recover costs incurred for goods or services required to support sponsored research programs or academic needs. A service center can provide services to internal and external users. A service center must meet the following criteria:

D. Requirements

1. Establishing a Service Center
To establish a service center, the unit administrator must submit a proposal and obtain approvals from the following:

  • department chair/head
  • dean or vice president’s Office
  • Office of Accounting

2. Rate Guidelines

  • Internal service center rates must be developed to recover total operating costs. Any subsidies must be clearly documented.
  • The university is not allowed to subsidize external customers. External service center rates are based on total operating costs, and the rate must include the 26.5 percent institutional surcharge used to cover institutional facilities and administrative expenses.
  • All service center rates are based on actual usage of the service or good acquired by the user.
  • All users of the service center must be billed at the approved rates and in a timely manner.
  • Advanced billing for services or products is not allowed.

3. Record Retention

  • Each service center must maintain complete billing records to substantiate charges in the event of an audit by federal, state, or internal auditors.
  • Records should be maintained in accordance with the university’s Records Retention Schedule.

4. Cost Recovery

  • All costs directly related to the operation of the service center are included when determining the rate calculation in order to recover the cost of providing the goods or services, even if this will cause the service center to operate at a deficit.
  • All costs incurred by the service center must be allowable according to the federal guidelines published by the Office of Management and Budget, Circular A-21, Section J., General provisions for selected items of cost.
  • The cost of nonfederally purchased equipment must be recovered throughout the life of the asset through depreciation; the full cost must not be recovered in the year in which the equipment is purchased.
  • The service center must revise its rates to prevent a deficit or surplus if any of these circumstances occur:
    1. new goods or services will be provided
    2. approved goods or services will no longer be provided
    3. costs will significantly change
  • A guarantee account must be designated for the payment of unrecovered expense or uncollected revenues, and the account cannot be a sponsored project 26-account.

5. Calculation of Effective Balance
A service center must operate on a break-even basis; no surplus balance is allowed. A service center operating on a break-even basis may have an effective balance equivalent to working capital (lesser of 60 days or 20 percent of annual expenditures). The breakeven policy is designed to provide service center managers with some flexibility in dealing with unanticipated income or expense fluctuations. Service centers cannot acquire working capital by increasing rates.

To determine whether the service center is operating on a break-even basis, calculate the effective balance and the tolerable breakeven amount and compare them.

To calculate effective balance:
   current year income
-  current year expenses
+ balance forward
-   accumulated depreciation for equipment maintenance or replacement
=  effective balance

Tolerable breakeven amount = lesser of 20 percent × current year (CY) expenses, or CY expenses ÷ 12 x 2 months

If the effective balance is greater than the tolerable breakeven amount, the service center is deemed to have a surplus. If this occurs, Federal Reporting will contact the department and schedule a rate review.

6. Rate Package Submission
The service center manager must submit a rate package to Federal Reporting for review and approval based on the designation of the service center as described in Section F Service Center Types and Review Basis. The rate package must be prepared and submitted in accordance with the Service Center Manual.

E. Restrictions

The following activities cannot be included in a service center account:

  • reserves or contingencies
  • costs already reimbursed through the Facilities and Administrative (FandA) cost rates (e.g., capital renovations or leasehold improvements)
  • expenses or losses from other service centers
  • unnecessary or unrelated purchases for the purpose of reducing fiscal year-end balances to meet balance requirements
  • activities and expenses described in with the Handbook of Business Procedures, 9.1.1 Entertainment and Official Occasion Expenses

F.Service Center Types and Review Basis

The type of activity the service center provides in conjunction with the annual revenue generated determines the review basis.  For existing service centers, units can identify an account’s review basis by locating the report code within the *DEFINE CA3 screen. The table below shows the annual revenue thresholds per service center type and the *DEFINE CA3 report codes for each review basis.

Review Rate by Annual Revenue Threshold and
Associated *DEFINE CA3 Report Code

Type

Definition

Department Self-Certification

Biennial Rate Review

Triennial Rate Review

Analytical

Ongoing activity providing goods or services to internal or external users. The services provided are analytical and help in supporting research projects. 

Up to $50,000
(ANL)

$50,000.01 - $250,000
(ANL-2)

Greater than $250,000
(ANL-3)

Administrative

Ongoing activity providing goods or services to internal or external users.  The services provided are administrative in nature.

Up to $50,000
(ADM)

$50,000.01 - $250,000
(ADM-2)

Greater than $250,000
(ADM-3)

Institutional

Ongoing activity providing goods or services to internal and external users. University departments generally are not able to decline services, such as telecom services. Services are differentiated between core (institutionally paid with 14-, 19-, or 20-account funds) and noncore (billable) services.

Not Applicable

Up to $250,000
(INS-2)

Greater than $250,000
(INS-3)

Specialized Service Facility

Ongoing activity providing goods and services to internal and external users. Involves the use of highly complex or specialized facilities not readily available from an outside vendor. Rates are loaded with applicable expenses (fully burdened).

Not Applicable

Greater than $1,000,000
(SSF-2)

Not Applicable

Clearing (CLEAR) and Pass-Through (PSTHR) account types are included in the 18-account fund group, but are not considered service centers and are not subject to the same revenue thresholds or rate review requirements. These accounts are still subject to annual balance and budget reviews.

G. Transfers

Balances cannot be transferred to other accounts while the service center is active.

H. Overdrafts

Overdrafts are used to provide temporary spending authority for an account for various reasons. Generally, overdrafts do not automatically carry over to the new fiscal year. Note: If the increase in spending authority is due to a permanent change to an approved service center proposal, a transfer document must be processed in the FRMS Transfer System to increase the department’s budget. An overdraft should not be requested.

The guarantee account associated with the service center must be used to cover deficits prior to requesting an overdraft. An authorized signer on the budget group (*DEFINE GG5 command) should send a written request via email to Federal Reporting at oa.sc@austin.utexas.edu.

Overdraft approval requests must include the following information:

  • approval by the unit’s department head or chair
  • forecast for remaining fiscal year income and expenses
  • statement as to whether service center rates will be adjusted to prevent future overdrafts
  • account number
  • amount requested
  • proposed expiration date
  • reason for the overdraft
  • date the overdraft will be covered
  • how the overdraft will be covered (e.g. new income, transfer from another account, commitment from institutional funds, etc.)

Requests are reviewed by Federal Reporting with final approval granted by the director of financial services and the associate vice president. Federal Reporting will send an email to notify the requestor of whether the request is approved or denied. Approved overdraft amounts are added to the pool balance of an account by Financial Accounting Services (FAS).

For more information, see the Handbook of Business Procedures, 2.6. Overdraft Approval.

I. Resources

 

 

Part 10. Costing - Table of Contents