Medical University of South Carolina
Service Centers Policies and Procedures
Revised 6/14/99

These policies and procedures provide a framework for the fiscal operations of the Medical University service centers that will ensure compliance with federal cost principles, consistency in accounting and costing practices, and flexibility to meet the needs of different operations. Although there is a wide variation in size, complexity, and services provided by service centers, they all should maintain common administrative practices. These policies and procedures address those practices and provide examples of billing rate structures and the steps involved in building such rates.

The University must comply with the Federal Government's Office of Management and Budget (OMB) Circular A-21, Cost Principles for Educational Institutions (A-21) and Cost Accounting Standards, as it pertains to service centers in section J.44. Compliance with A-21 is implicit in this policy.

The University's exposure from noncompliance with federal regulations may involve reimbursement to the government as well as adverse publicity which could harm future award applications.

2.0 Definitions

2.1 Minor Service Center

A minor service center is an operating unit which:

exists principally to provide services to internal users and to support research activities and
has more than $25,000, but below $99,000 in annual operating expenses.

Operating costs are supported by recharges to the departments or research activities receiving the services. Service centers develop rates based on incurred cost and should break even over time.

2.2 Major Service Center

A major service center is an operating unit which:

exists principally to provide services to internal users and to support research activities
has more than $100,000 in annual operating expenses or more than $75,000 in annual direct charges to federal grants and contracts.

Major Service centers which provide services to the entire university community (Central Service Centers) must recover all costs, including the costs of utilities, operation and maintenance and rent in the recharge rate. Examples may include the Animal Resource Center and University Telecommunication Services. Service centers which reside in academic departments (Departmental or Research Core Facilities) may decide whether or not to recover indirect costs in the rate.

2.3 Specialized Service Centers

A specialized service center is a service center that has over $1,000,000 in annual operating expenses and involves the use of highly complex or specialized facilities. Specialized service centers must recover all costs, including utilities, operation and maintenance, and rent costs.

2.4 Auxiliary Service

An auxiliary service is a self-supporting entity that

exists principally to furnish goods or services to students, alumni, or faculty and staff acting in a personal capacity, and charges a fee for the use of goods or services.

Auxiliary services generally do not support University departments. The general public may be served incidentally. Examples include parking management, and vending services. Pricing for auxiliary services may be based on market rates, except when charging for service provided to federal awards. Auxiliary services are not subject to this service center guideline.

3.0 Users

3.1 Internal Users

Internal users of service centers are those users whose ultimate source of funds is within the University or flows through the University (i.e., federal awards or patient care performed at affiliated hospitals). These include academic, research, patient care, administrative, and auxiliary areas which purchase services to support their work at the University.

3.2 External Users

External users are organizations or individuals whose ultimate source of funds is outside of the Institution. External users include students, any members of faculty or staff acting in a personal capacity, and affiliated hospitals.

4.0 Rate Components

All costs relating to a service center must reside in the service center account.

4.1 Direct Personnel

The salaries and wages of all personnel directly related to service center activity (e.g., lab technicians or machine operators) should be included in the rate calculation and charged to the service center's operating account. If an individual works on more than one activity, the costs associated with that individual should be allocated to the activities based on the proportional benefit. This proportion may be determined by effort reporting, a periodic time sheet, or by a time study.

4.2 Administrative Staff

The salaries and wages of administrative staff in direct support or management of a service center should be included in the rate calculation and charged to the service center's operating account. Administration costs benefiting more than one service center activity should be allocated to the benefiting services on a reasonable basis.

4.3 Fringe Benefits

Fringe benefits related to all personnel costs directly charged to the service center operating UDAK should be included in the rate calculation.

4.4 Materials and Supplies

The costs of materials and supplies needed to operate a service center should be included in the rate calculation. If inventory is accumulated in a particular year, the service center should not include the costs of accumulated inventory in its rates. Service centers that maintain significant inventory should establish a separate inventory account. A method to value inventory must be described, for example, FIFO.  This is required in MUSC's Disclosure Statement.

4.5 Other Expenses

Other operating expenses to be included in service center rates are rental and service contracts, equipment operating leases, and professional services.

4.6 Capital Equipment

Capital equipment is defined as an item with a purchase price over $5,000 (effective March 25, 1999) and a useful life of at least two years. Federal guidelines do not allow the purchase cost of a capital item to be recovered through service center rates. However, they allow for the recovery of depreciation, external interest, or capital lease costs associated with the asset. Equipment which is not capitalized (under $5,000 effective March 25, 1999) may be treated as an operating expense in calculating rates. The University's accounting policy on Capitalization and Depreciation of Property, Plant and Equipment should be referenced in order to define consistency between the costing practices within the Institution.

1) Equipment Inventory

It is important that the government not be charged for the depreciation of a piece of equipment through a user charge and again through the University's Facilities and Administrative (indirect) cost rate. To avoid this, service center capital equipment must be flagged in the University's equipment inventory system. Service centers should     reconcile their equipment inventory to the system biennially as specified in OMB Circular A-21.

4.7 Depreciation

The depreciation of all capital assets will be charged to the service center operating account using the straight-line method over the useful life of the asset. Such treatment ensures that users pay only for equipment cost associated with the usage in the given year. Each year, service centers will need to budget depreciation amounts to be used in establishing rates for the following year.

1) Useful Lives
Service center equipment must be depreciated using the useful lives outlined in the accounting policy for Capitalization and Depreciation of Property, Plant, and Equipment. In certain circumstances, service centers with "specialized" equipment, or equipment which is unique in the nature or extent of its use, may need to estimate a more accurate useful life. Specialized equipment is unique to the specific service center activity and not common to other University departments. Approval to deviate from standard useful lives must be obtained from the Office of Grants and Contracts Accounting and a special asset class should be established for each specialized asset.

2) Federally-Funded Equipment
Depreciation of equipment purchased by the federal government, whether or not title has reverted back to the University, cannot be included in the user rates. Where the University has specifically agreed to "cost-share" a piece of equipment in a federal award, the depreciation of the University-funded portion is also unallowable in the rates. Federal funding of equipment will be identified through the Fixed Asset Management System.

3) Debt Funded Equipment
Federal regulations do not allow for principle payments on debt to be recovered through service center rates. However, service centers may recover the external interest associated with the debt if all three of the following criteria are satisfied:

• an external financing source was used
• equipment costs are over $25,000
• the arrangement is agreed to by the cognizant agency.

4.8 Operation & Maintenance and Utility Costs

O&M and utility costs are assigned to all University departments.  Specialized service centers are required to recover these costs; departmental service centers may decide whether or not to include these costs in the rates. If the costs are not included in the service center rates, the University will recover the costs through the Facilities and Administrative (Indirect) cost rate.

4.9 Unallowable Costs

Unallowable costs must be excluded from the internal user rate calculation. These costs include: bad debt expense, interest, alcohol, and many advertising activities.  A complete listing of unallowable costs from OMB Circular A-21 (Section J) may be obtained directly from the OMB Website at http://www.whitehouse.gov/WH/EOP/omb.

5.0 Rate Development

A service center rate is the cost per unit of output used to recover the expenses of the service center. To compute this rate, departments should use the following equation:

Budgeted Expenses +/-Prior Year Under/Over Recoveries (with +/-10%)
                                        Budget Usage Base

The budgeted usage base is the volume of work expected to be performed, expressed in units (e.g., labor hours, machine hours, CPU time or any other reasonable measurement). This rate, based on budgeted activity, is applied to the actual activity when charging users.

For example: a computer costs approximately $100,000 per year to operate (total allowable costs) and has an estimated activity level of 1,500 hours per year. This would result in a rate of $100,000/1,500 hours = $66.67 per hour. If a researcher uses the computer for four hours for a sponsored project, his or her award should be charged 4 x $66.67 or $266.68.

Service center rates should be calculated by the business manager in each service center for a fiscal year. When a service center is established in mid-year, rates may be set for longer than twelve months so that the end of the first break-even period coincides with a fiscal year-end.

5.1 Nondiscriminatory Rates

A service center must charge all internal users at the same rate for the same level of services or products purchased in the same circumstances. Rates should not differentiate among internal users. (Refer to subsidized users below). The use of special rates, such as for high volume work or less demanding non-scientific applications, are allowed, but they must be equally available to all users who meet the criteria.

The federal government does not object to charging external users a higher rate than that charged to internal users. However, revenues and costs associated with external users should be tracked separately to avoid the perception of overcharging.

5.2 Subsidized Users

All users must be billed for services received. If the University chooses to provide a service to a particular internal group of users at no charge or at a lower rate than other users (e.g., faculty who require audio visual services as part of an instructional program), the service center billing rate must be calculated for all internal users based on total service center expenses and total units of output. The services used by the subsidized user group must be billed out at this rate, but to an account representing the appropriate direct cost activity (e.g., the instructional budget.) The service center must ensure that the rate charged to this user group is consistent with that charged to others, including accounts ultimately charged to federal awards.

( Research Cores like Cancer Center or P-30's or P-50's that subsidize Federal research project would need to be defined separately )

5.3 Break-Even Concept

A service center must develop rates so that revenues offset expenses over a reasonable period of time. A service center's surplus or deficit for a given fiscal year should not exceed 10% of annual operating expenses.

To the extent that a surplus or deficit is within the break-even range of +/-10%, that surplus or deficit must be carried forward and the rates adjusted in the following period.

For example, the rates submitted for approval by March 1, 1996, for fiscal year beginning July 1, 1997, would be based on the 1997 projected volume and expenses plus/minus under/over recoveries carried forward from the fiscal year ending June 30, 1995.

Example 1: Service Center XYZ

	FY 1995 Actual		FY 1997 Budgeted
Total revenues Total expenses Surplus	$230,000 (220,000) 10,000	Budgeted Expense Less P/Y Surplus Total budgeted expense	$250,000 (10,000) 240,000

Since the surplus for FY 1995 is within +/-10% [(230-220)/220=4.5%], it will be subtracted from budgeted expenses in FY 1997, thereby reducing the rate.

Example 2: Service Center XYZ

	FY 1995 Actual		FY 1997 Budgeted
Total revenues Total expenses Deficit	$230,000 (250,000) 20,000	Budgeted Expense Less P/Y Deficit Total budgeted expense	$250,000 20,000 270,000

Since the deficit for FY 1995 is within +/-10% [(230-250)/250=8%], it will be added to the budgeted expenses in FY 1997, thereby increasing the rate.

5.4 Working Capital

In addition to full recovery of actual costs, service centers may establish and maintain through its charges a fund balance for working capital needs. The working capital allowance should not exceed 60 days, excluding accumulated depreciation.

5.5 Transfers

Service centers which have accumulated surplus funds through billing to internal users may not transfer these funds out of the service center operating account. The balance must be carried forward and used to adjust subsequent billing rates.

5.6 Pricing of Multiple Services

A service center providing more than one service may sometimes make a surplus on some services and a loss on others. Service centers 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 losses charged to a different group of users.

6.0 Internal Controls & Responsibilities

6.1 Responsibilities

Rates will be calculated annually by the Business Manager of each service center, and submitted for review to the Director of Grants and Contracts Accounting.  The Business Manager will also review the rates periodically to ensure that costs are recovered within the 10% break-even described in Section E.3.

The Director of Grants and Contracts Accounting will be responsible for reviewing the rates and ensuring compliance with this policy.

The Director of Grants and Contracts Accounting will be responsible for training and overall monitoring of service centers.

6.2 Mid-year Review

Service Center Managers should evaluate their financial position and rates periodically throughout the year to assess their position with respect to break-even. Under special circumstances, rates will be adjusted through a mid-year reduction/increase in rates provided that midyear rate adjustments are subject to review by the Business Managers and the Office of Grants and Contracts Accounting. Mid-year rate adjustments will be treated as exceptions.

6.3 Year-End Rate Performance Review

At fiscal year end, all service centers will be required to submit their actual financial results.

6.4 Establishing Service Center Accounts

All service centers must maintain a separate UDAK. The Business Managers are responsible for ensuring that all service centers have established a separate account. Likewise, the establishment of new service center UDAK's should be reviewed by the Business Managers for desirability, feasibility, and to ensure they will operate in accordance with the University's policy manual.

6.5 Billing Procedures and Record Retention

Billings must be based upon measured and documented utilization which is properly authorized for the account charged. All billings should be processed on a timely basis and will be at established service center rates. The support for the charges, including documentation of expense and usage, should be retained by the service center for seven years to answer any user inquiries or in case of an audit. All invoices must provide the following information:

• the nature of the services rendered (e.g., photocopying)
• the number of units (e.g., pounds, hours, # of items)
• amount charged per unit

A service should not be billed for until the service has been rendered; that is, prepayments are not appropriate. Each service center must operate in accordance with the University's fiscal year. Service centers should handle each year-end billing consistently, to ensure that twelve months of cost recovery are associated with twelve months of incurred cost, and thereby provide a more accurate break-even calculation at year-end.

6.6 Billing External Users

At a minimum, external users will be charged for the full direct costs of the service center operation. An allocable share of the University's Facilities and Administrative (indirect) cost to the service center operation may be charged to external users. At no time will an external customer be charged less than the federal government and internal users for the same service. The federal government will always be treated as the most favored customer. Sales tax, when applicable, must be charged to all external users who do not provide their tax exempt certificates.

6.7 Credits to Expenditure Accounts

Credits to expenditure accounts are normally used to record amounts received for returned goods and other expense-related adjustments. Service center revenues should not be recorded as credits to expenditure accounts. Such treatment would misstate both revenues and expenses and effect calculation of service center rates in the following periods.

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