University of Delaware Service Center/Recharge Centers/Core Facilities. June 13, 2017

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Kerry Anis Oliver
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1 University of Delaware Service Center/Recharge Centers/Core Facilities June 13, 2017

2 Agenda 1. Purpose 2. Policy 3. Types 4. Federal Guidelines 5. Accounting for Service Centers 6. Capital Equipment and Related Depreciation 7. Internal/External Customers 8. Rate and Rate Sheets 9. Common Questions

3 Purpose When a University department provides a good/service or groups of goods or services to internal or external users. When these products or services are provided within the University these units function as non-profit businesses. Customers are primarily within the University. The department recovers the costs of providing the goods/services through fees that are based upon actual incurred costs. 3

4 Policy This policy applies to all activities within the University that provides goods and/or services to both internal and external users and charges a fee for the goods or services. It provides a framework for establishing and operating service/recharge centers, and helps ensure compliance with applicable federal regulations related to Federal grants, contracts and cooperative agreements. Service/recharge centers are established when management determines that a service or product is most effectively provided within the University. Services or products may be provided by a department for itself, other University departments, and external customers. The purpose of a service/recharge center is to control the cost of providing internal services or products within the University. The goods and services provided may range from the relatively simple (departmental copying machines, word processing) to the complex (provision of electron microscope services). Some other types of services provided are instrument repair, computing services, stockroom operations, photography, machine shop, glassware services, and lab testing. In the event that the Service Center has a separate agreement with a Federal Agency, the policy and procedures of that agency supersedes this policy.

5 Types Specialized Service Facility Minor Service Center Recharge Center Core Facility 5

6 Specialized Service Facility Service Centers that have a total annual direct costs exceeding $1,000,000. Cost components that may be included in the billing rate are the total direct costs of operations plus all indirect costs for building depreciation, equipment depreciation, administrative, and maintenance and operations. 6

7 Minor Service Center Service Centers that have a total annual direct costs exceeding $20,000 but not greater than $1,000,000. Cost components that may be included in the billing rate are the total direct costs of operations and equipment depreciation (if purchased July 1, 2015 or later). Equipment must be identified in the Service Center. 7

8 Recharge Center Service Centers that have a total annual direct costs less than $20,000. Costs components that may be included in the billing rate are only the total direct costs of operations. 8

9 Core Facilities Core facilities are centralized shared research resources that provide access to instruments, technologies, services, as well as expert consultation and other services to scientific and clinical investigators. Core facilities recover their cost, or a portion of their cost, of providing service in the form of user fees that are charged to an investigator's funds, often to NIH or other federal grants. NIH funds are used to support core research facilities in many different ways. Example: NIH grant provides direct support for the operation of a core facility, which in turn reduces the user fees for all users. Depending on annual direct costs, core facilities can be classified as Specialized Service Facility, Minor Service Center or Recharge Center. 9

10 Federal Guidelines Uniform Guidance 2 CFR 200, section 468 Uniform Guidance 2 CFR 200 DHHS Review Guide for Long-Form University Indirect Cost Proposals Cost Accounting Standards (CAS) DS-2 Audit Guide: Adequacy and Compliance Audits of Disclosure Statements Submitted by Educational Institutions (HHS OIG) Federal Audits of Recharge Centers (HHS OIG) NIH Core Facilities FAQs & Compliance Key Topics provide guidance for Core Facilities

11 Accounting for Service Centers A Service Center must develop rates so that revenues do not exceed expenses for services provided to customers. All service/recharge center charges must be based on actual usage of the services. Billing must be done timely. Usage for each service must be tracked. Rates shall be adjusted at least biennially, and shall take into consideration surpluses/deficits of the previous period(s). Rates must take into account any items of income or federal financing that qualify as applicable credits.

accordingly (b) Effective July 1, 2015 equipment depreciation

12 (a) If total direct costs changes from one threshold to another, the service center or recharge operation designation changes accordingly (b) Effective July 1, 2015 equipment depreciation will be included in the service center and excluded from the F&A proposal.

13 A Service Center's surplus or deficit for a given fiscal year should not exceed 15% of annual operating expenses. To the extent that a surplus or deficit for a fiscal year is within the break-even range of +/- 15%, that surplus or deficit should be carried forward and the rate calculation for the subsequent year should include the adjustment. If a deficit exists beyond the break-even range of +/- 15%, it may be necessary for the department, College or business unit to cover the deficit from unrestricted funds. The rate development process varies with the size and complexity of each Service Center and is often coordinated with the departmental, college or administrative unit, and University budget cycles. When it appears that the operating results will exceed the 15% break-even range at fiscal year-end, the Service Center should adjust its rates. A mid-year review by the Service Center is strongly recommended if, at fiscal year-end, the Service Center s operating results exceed the 15% break-even range: Surpluses beyond the 15% range must be eliminated through future rate adjustments. Deficits beyond the 15% range should be funded by an unrestricted fund; the amount is transferred into the Service Center account as a subsidy. Deferrals of inclusion in future rates, greater than 2 years requires, approval of Vice President for Research, Scholarship & Innovation, College Business Officers, and Vice President for Finance and Deputy Treasurer.

14 A Service Center with various operations may occasionally incur a surplus on some services and a loss on others. Higher prices may not be charged for one cost center in order to subsidize losses on another cost center. During preparation and submission of the biennial operating budget and rates, revenue and expense information must be presented in total for the center as well as by each rate charged, whether to internal or external users. For example, if the center has five services and charges a different rate for each service to internal and external users, then revenues and expenses for each of the ten rates must be presented, as well as the overall total. The Service Center Director must provide information on all capital equipment used by the center as part of the rate and budget submission. Questions should be directed to the Cost Accounting Department.

15 Capital Equipment and Related Depreciation All capital equipment used by a Service Center must be identified by the Service Center Director when submitting both the initial request to establish the Service Center and the biennial budget and rate submission. This will help ensure that the equipment is properly identified and tracked in the University s plant asset system and records. Unless approved in writing by the government or contractor, federally owned, contractor owned, federally furnished, and contractor furnished equipment cannot be used in a Service Center. Depreciation on Minor Service Center equipment purchased prior to July 1, 2015, is not included in the rates of the services provided. Rather, equipment depreciation is recorded and recovered as part of the University s facilities and administrative (F&A) rates. As such, it cannot also be charged as a direct cost as part of the user rates. Depreciation is incorporated in the Service Center rates for Specialized Service Facilities. The rate for Minor Service Center may include equipment depreciation only for items purchased on and after July 1, 2015.

16 Internal Customers Customer whose funds flow thru the University Financial System. University Sponsored Awards. University Departments. Academic, research, administrative and auxiliary areas which purchase services to support their work at the University.

17 External Customers Organizations or individuals whose source of funds is outside of the University s accounting system. Do not have a University purpose code. Industry, general public. Students, faculty or staff acting in a personal capacity. Other Universities are considered external users unless the University has subcontracted with UD as part of a grant or contract.

18 Sales to External Parties As stated above, Service Centers are primarily created to support the sponsored research of the University and typically will operate at or near break-even. The University does realize that for a Service Center to operate efficiently and keep costs down they may offer their services to external users, especially where there is excess capacity. However, it is important for the Service Center to have a mechanism in place to track costs to ensure that the federal government does not get charged rates that exceed costs. The Service Center can charge rates in excess of their approved rates to non-federal - external users, provided that the revenue and any surplus stays in the Service Center and is factored into the future rates. This additional surcharge should only be used to offset the additional costs that the Service Center incurs as a result of dealing with external parties. The Service Center should continue to operate at a break-even point. If sales to external parties are expected to become a substantial part of the Service Center business, then they should account for it separately from the Service Center. In this case, the Service Center will be required to demonstrate to the Office of the Vice President for Finance and Deputy Treasurer that they have the systems in place to properly divide expenses between the two accounts. If the University, as a tax exempt entity, carries on a trade or business that is not substantially related to the mission, then the University may be subject to UBI. Service Centers should be aware that sales to external parties may trigger this tax. Questions regarding UBI and sales tax can be directed to the Director of Tax Compliance. Service Centers that intend to sell services to external parties must also comply with University policies concerning billings and cash receipts. The Service Center business manager should contact the University Cashier s Office for additional information and obtain that Office's approval for external billings and cash receipts processing. Such approval is required prior to receiving general ledger accounts for use.

19 Rates Rates must be Non-discriminatory Rates. A service/recharge 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 be designed to recover only the aggregate costs of the services. Rates for the same service provided must not differentiate among internal users. The use of special rates, such as for high volume work or off hour usage, is allowed, but the special rates must be equally available to all users. External users, however, may be charged a higher rate that may include administrative and other costs incurred to support the external users. The billing rate should be computed using the following formula: Budgeted operating costs +/- prior year (surplus/deficit) Expected units of activity

23 A. RATE CALCULATION FOR PROVIDING SERVICES 1. Calculation of Direct Operating Costs Salaries and Fringe Benefits (5 technicians) $270,002 Communications 2,800 Training and Development 300 Repairs and Maintenance 4,350 Supplies 5,500 Equipment Depreciation 6,345 Total Direct Operating Cost $289, Internal Service Center Support Costs Center Director Salary and Fringe Benefits $38, Prior Year Operating Surplus/Deficit (1,000) Total Operating Costs & Service Center Support Costs $326, Calculation of Units of Output 39 hours per week X 52 weeks 2,028.0 Less holiday hours (11 days X 7.8 hours) (85.8) Less average vacation hours (39 hrs/week X 3 weeks) (117.0) Less average sick leave (12 days X 7.8 hours/day) (93.6) Less breaks (1731.6/7.8 = 222 X.5 hours) (111.0) Less down time (average 1.75 hours/day = 222 X 1.75) (388.5) Total average available hours per technician. 1, ,232.1 X 5 technicians = 6,160 total productive hours (units of output) 5. Calculation of Rate Total Cost = $326,354 = $52.98/hour Units of Output 6,160

24 Common Questions What type of expenses are considered unallowable? Can we include a reserve amount in the rate to purchase new equipment? Can I set aside reserves to purchase or replace equipment? Can I have a capped rate? Can we include equipment purchased on federal funds in the service center rate? If we earn a surplus, do we have to give a refund to users?

25 Common Questions Can I charge my internal department users less than other U of D department users? Can the service center allow prepayment of services? What is subsidizing? How do we develop rates and account for the subsidy?

26 Next Steps

Service Centers: Financial Compliance

Service Centers: Financial Compliance What You Need to Know Jennifer (Wei) Mitchell Director of Cost Studies Northwestern University Wendy Meister Director, Education & Life Sciences Huron Consulting Group