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Handbook of Business Procedures

Date published: 
Last revised: 
Issued by: 

June 19, 2012
September 17, 2014
Federal Reporting


Part 10. Costing - Table of Contents


A. Introduction

Rates can only include expenditures directly related to the operation of the service center and must be designed to recover no more than the operating cost for the services or goods provided.

Costs included in a rate must be reasonable, allocable, and allowable. The cost of one service or product cannot be funded by or included in the rates of another service or product. Failure to mention a particular expense does not imply that it is either allowable or unallowable; rather, determination of allowability in each case is based on the treatment provided for similar or related items of cost.

B. Allowable Costs

Service center managers must exercise due prudence to ensure expenses included in the cost pools are reasonable, consistently treated, and conform to any limitations or exclusions. Service centers may include these costs in their rates:

  • Salaries, longevity, and appropriate fringe rates from employees directly supporting the service center. Salaries must be appointed to the service center account and are verified.   
  • Depreciation on equipment purchased with nonfederal funds.  Depreciation is based on a straight line calculation defined as the acquisition cost divided by useful life.
  • Supplies or materials needed to operate the service center.

C. Unallowable Costs

Service centers must not include these costs in their rates (not all inclusive):

  • All unallowable costs, as defined by the Office of Management and Budget (OMB) Circular A-21 (, must not be included in the rates charged to internal users or charged to the service center operating account, such as: entertainment, official occasions, tuition, scholarships, student aid, gift income, interest, advertising, recruiting, bonding, bad debt, marketing, severance pay, fundraising, housing allowances, personal living expenses, labor relations, lobbying, losses on other sponsored agreements/contracts, deficits from other service centers, proposal costs for agreements or projects, contingencies, fines and penalties from violations or noncompliance of any laws or regulations, and any costs already paid by the federal government.
  • Building depreciation, rent, and operations and maintenance not paid by the service center. Only costs incurred and reimbursed by the service center can be included in the rates.
  • Any cost specifically designated as unallowable within a sponsored agreement.
  • Cost of equipment or depreciation for equipment that has not been acquired.
  • Any type of reserve or contingency (e.g., equipment, supplies, and salaries or wages) amounts.
  • Any costs already reimbursed through the Facilities and Administrative (F&A) indirect cost rate. Contact Federal Reporting at for determination.
  • Utilizing excess revenue to purchase equipment, consumables or other expenses, salary increases, salary supplements, tuition, or to offset losses in another service center.
  • The records, operations, rates, and practices of all service centers are subject to audit by federal, state and internal auditors.

D. Guarantee Account

In order to establish a service center, a guarantee account must be designated in the service center's initial proposal by the unit responsible for the service center. This account is a "guarantee" for the payment of unrecovered service center expense or uncollectible revenue. The guarantee account cannot be a sponsored research 26-account.

E. Unrecovered Costs/Subsidies/Cost Sharing

It Costs to Subsidize. Service centers must all of their costs in the rates.

  • The university, school, or department may elect to subsidize a service center either by charging billing rates lower than actual costs or by choosing not  to make adjustments to future billing rates at year-end for deficits.
  • Subsidies have a  significant financial impact on the department providing the funds and on the university as a whole. Commitments need to be held to a minimum.  
  • Subsidies occurs when any cost pool  expense associated with providing services are not included.
  • Service center deficits caused by intentional subsidies cannot be carried forward as adjustments to future billing rates.
  • The service center department must identify a guarantee account to be used to subsidize any cost pool expenses. The guarantee account cannot be a sponsored research 26-account.
  • By signing the service center forms, the department is certifying that all costs associated with providing services are included. If any costs are subsidized, they must be clearly shown and justified within the service center proposal.   
  • Subsidies are fully documented as part of the submission package and must be approved by the following:
    • Department Chair/Head
    • Vice President’s Office
    • Unit UBOC Officer
  • The records, operations, rates, and practices of all service centers are subject to audit by federal, state and internal auditors.



Part 10. Costing - Table of Contents