Service Centers

Service Center Expenses Funded by University of Arkansas Sponsored Programs

Introduction

The purpose of this procedure is to define and outline the processes by which the University of Arkansas will create and maintain service center rates.  This procedure will be following the principles and procedures prescribed in the Uniform Guidance (2 CFR 200) and will create consistent guidelines for all service center facilities in the institution.

OMB Uniform Guidance

OMB Uniform Guidance: “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards"

Section 200.468 Specialized Service Facilities

 “b. The costs of such services, when material, must be charged directly to applicable awards based on actual usage of the services on the basis of a schedule of rates or established methodology that

 (1) Does not discriminate against federally-supported activities of the institution, including usage by the institution for internal purposes, and

 (2) Is designed to recover only the aggregate costs of the services. The costs of each service shall consist normally of both its direct costs and its allocable share of all F&A costs. Rates shall be adjusted at least biennially, and shall take into consideration over/under applied costs of the previous period(s).”

Definitions

  1. Service Center – A separate unit within the University that provides specific technical or administrative services for internal and external users, and charges users for those activities.  Rates are based on the actual use of the services and do not discriminate against federally supported activities of the University.  For purposes of this procedure, activities generating direct operating costs of less than $25,000 annually AND with annual charges to sponsored projects of less than $10,000 are not subject to this procedure except that internal charges from these units cannot be greater than the costs, and federally sponsored projects cannot be charged more than any other customer. 
  2. Direct Operating Costs – Expenses that can be specifically identified with the services provided by the service center.  These types of expenses can include salaries, wages, fringe benefits, supplies, equipment rental or depreciation, or other costs that can be directly linked to the center.  All direct operating costs must be in compliance with 2 CFR 200 (Uniform Guidance).
  3. Institutional F&A Costs – Expenses generated in the support of facilities or administrative support for the institution.  These types of expenses are made up of general administrative payroll costs, operation and maintenance expenses, and other expenses that cannot be directly allocated to a center.
  4. Surplus – The amount of revenue received by the center that exceeds the costs of the center during the fiscal year.
  5. Deficit – The amount of costs paid by the center that exceeds the revenue received during the fiscal year.
  6. Internal User – University of Arkansas department or unit that generates a purchase from the service center.  This includes all externally sponsored awards at the U of A, and any other unit where the U of A holds fiduciary responsibility.
  7. External User – An entity outside of the University of Arkansas, including non-profit grounds, commercial entities, students, or faculty and staff acting outside of their positions.  The U of A holds no fiduciary responsibility for external users.
  8. Depreciation Expense- Depreciation expense is calculated as the historical cost of that equipment over its useful life. Useful life information can be obtained by contacting Property Accounting.  Federal guidelines allow the rate to recover the depreciation expense of equipment not purchased with Federal funds.

General Policies

Billing Rate Creation

When setting up a service center, the department responsible should work with the Cost Accountant in Research Accounting to gather and document the appropriate information to set the rate.  Rates set for internal users can only recover the direct operating costs of the center, and rates set for external users can be set to recover all costs, including institutional F&A costs, but each rate can only be calculated to include allowable costs as determined in the Uniform Guidance, 2 CFR 200

Service centers cannot be set up to charge different rates to federally supported and non-federally supported internal users.  All internal users must be charged the same rate for the same service under the same circumstances.  No user, whether internal or external, should be charged less than a federally supported internal user.  Also, external users may be charged a higher rate than an internal user, but not a lower rate.

Internal service center rates are expected to be set to recover appropriate direct operating costs, including, but not limited to, the following:

  1. Salaries and fringe of service center personnel
  2. Materials and supplies directly allocable to the center
  3. Travel necessary for the center
  4. Equipment repair and maintenance
  5. Equipment depreciation (not the purchase cost)

Some examples of unallowable costs include:

  1. Debt principal payments and internal interest
  2. Fund transfers
  3. Costs identified in 2 CFR 200 as normally F&A costs
  4. Advertising
  5. Alcoholic beverages
  6. Bad debts
  7. Contributions and donations
  8. Entertainment
  9. Fund raising
  10. Public relations
  11. Cost Sharing

External service center rates may include all the above allowable expenses plus the U of A’s negotiated F&A rate to recover other costs associated with the activity.

Service center rates are based on an estimate of the total units of output generated by the service center.  This estimate should consider personnel time away from work, machine downtime for repairs and maintenance, and estimated demand of the service. Examples of billable units include machine hours, number of users, or number of tests ran.

Some service centers may have multiple activities that need separate rates.  In this case, direct operating costs should be allocated to each activity based on a reasonable, documented process created by the department and reviewed by the Research Accounting Cost Accountant. Also, the billable units can be assigned to each specific activity based on the guidance above.

Once the rate is confirmed, the department should set up a separate cost center for the service center to accumulate all costs and revenues.   Costs related to Service Centers should not be co-mingled with expenditures that are unrelated to the Center. Also, costs pertaining to Federally sponsored service centers should have a separate cost center from other service centers.

Rate Review

Service centers are expected to have their rates reviewed at least biennially.  Rates can be reviewed and adjusted mid-year if there is a significant surplus or deficit in the cost center.

Deficits and Surpluses

While rates are only updated biennially, actual costs and revenues should be compared by the service center 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 where feasible, the adjustments may be made by increasing or decreasing the charges made to users for the completed year, rather than through the adjustment process.

Service Center Close-Out

If a service center is no longer needed, written notification must be sent to the appropriate Dean’s Office, Department Head, and Research Accounting.  From the date of the notification, the department will have 90 days to complete any accounting activity in the cost center.  If the cost center ends with a deficit balance, the department will be responsible for covering the excess charges.  If the cost center ends with a surplus balance, Research Accounting will work with the department to determine if any Federal users were charged since the last rate calculation, and if so, calculate the refund and credit it to the appropriate Federal projects.  If no Federal awards were charged, the remaining revenue can be credited to the department.

Responsibilities

The service center department is responsible for:

  1. Reaching out to Research Accounting to start the rate creation process.
  2. Documenting and maintaining records as to the costs and revenues associated with the cost center.
  3. Adhering to this procedure in the costs submitted for rate determination and in the rates charged to internal and external users.
  4. Annually reviewing costs and revenues to determine if an adjustment is needed in the middle of the rate cycle.
  5. Working with Research Accounting on the biennial rate adjustment process.
  6. Providing written communication when a service center close-out is needed, and working with Research Accounting to calculate an accurate surplus or deficit.

Research Accounting is responsible for:

  1. Approving transactions related to service centers and notifying departments when they do not have an appropriate rate set up for the charges.
  2. Assisting the department in determining the allowable costs to be included in the rate determination and reviewing the rate calculation process. 
  3. Monitor the operations of Service Centers to ensure compliance with Federal regulations and University of Arkansas policy and procedures.
  4. Raise issues of non-compliance with appropriate parties and identify solutions.
  5. Hold regular training on Service Center policies and procedures, providing training for any new departmental administrators who will have Service Center responsibilities.
  6. Notifying service centers when it is time for their biennial rate review.
  7. When notified of a service center close out, working with the department to calculate an accurate surplus or deficit.  Once the surplus or deficit is determined, Research Accounting will make the appropriate transfers to the department or the federal awards.

Created March 18, 2019