Service Activity Checklist. See section Service Activities of the OBFS Policies and Procedures Manual

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1 Service Activity Checklist See section Service Activities of the OBFS Policies and Procedures Manual This document is intended to assist Departments in service center rate calculation and is not intended to replace the above referenced official policies and procedures. It is the Department s responsibility to read and understand Policy Types of Rate Calculations Service Rate: University Departments or functional units which perform specific technical or administrative services primarily for the benefits of said unit or other University units. The rate consists of the combined total of all operating costs, depreciation expenses, and permissible prior year over/under recovery divide by the total number of users or customers. Storeroom Mark-up: Sell goods, supplies, and/or equipment primarily to University Departments. The mark-up is the amount added to the unit cost of merchandise for resale, this mark-up includes storeroom operating expenses, depreciation expenses, and permissible prior year over/under recovery. Discounted Rate/Subsidy: A financial contribution made to a Service Center in order to create a benefit to users of that Service Center, typically in terms of a reduced/discounted rate. The difference between the reduced rate and full cost is the amount of the subsidy. See subsidies/general support section below. Equipment Rate: Rate established for equipment usage only. The rate consists of the equipment depreciation expenses and permissible prior year over/under recovery divide by the total number of users or customers. Rate Structure Rates represent the amount that is charged for a particular item of goods sold or level of services provided. Expenditures included in the rate calculation must be directly related to the generation of the revenue for the service being provided Rates should consist of both direct costs and, if appropriate, an allocable share of indirect costs. Rates should not discriminate against federally-supported activities of the institution Rates should be designed to recover not more than the aggregate cost of the services provided Rates must take into consideration the over/under recovery of the previous fiscal year Initial year service activity rate calculations will be based on estimates. Subsequent year rates must be based on actual expenditures and modified for anticipated changes in activity. The numerator of your rate is the amount of expenditures required to provide the service and the denominator of your rate is your base number (actual use of the services). Depending on the service being provided, your base could be different things, such as: number of users, customers, hours, computer cycles, purchases of goods for resale if a storeroom, etc. All customers must be included in the base calculation regardless if they are charged or not charged. It is possible to have multiple rates in one service activity fund as long as the services are like and similar. If that is the case, the expenses and bases must be allocated to the particular service being provided. We recommend you use activity codes to track the different lines of service being provided. There are certain situations where you would exclude portions from the base. For example, common area square footage, equipment maintenance downtime, leakage of elements through

2 pipelines, inventory shrinkage/obsolescence, inventory returned. This provides for a rate calculation to be performed based on billable units. Operating Expenses Expenses must be directly related to the generation of service activity revenue Purchase of Goods for Resale (normally for storerooms) Salaries and wages paid to staff to provide the service, including reasonable salary increases Non-capitalized equipment purchases Maintenance and repair Materials, supplies, travel related to the service activity It is possible to project in expenditures that are above and beyond normal yearly operating costs. (e.g. large increase in helium costs, unusual purchases of non-capitalized equipment, etc. However, you must be able to document that these costs will be incurred within the next fiscal year. Operating expenses also include non-federal equipment depreciation (See Depreciation Section below) External customers All of the above operating expenses are to be included in the rate, In addition, if you have an external rate, you may fully load the rate which means including, federal equipment depreciation, fully depreciated equipment, fringe benefits, unallowable expenditures and the applicable University Other Sponsored Activities Facilities and Administrate Rate. Unallowable Expenses Must be transferred off of 3E and excluded from internal rate calculations (The list below is not all inclusive) Bad debt Meals Receptions/entertainment/alcoholic beverages Public relations Donated materials or supplies Unrelated travel Unrelated subscriptions Unrelated foliage/flower upkeep Adjustments/Exclusions from Rate Calculation Expenditures transferred off in the current fiscal year that were for previous fiscal years operations, must be added back into the rate. Exclude revenue recorded using an expense account code which results in a negative expenditure. Exclude federal equipment depreciation (internal rate only) Equipment Depreciation The purchase price of capitalized equipment cannot be brought into the rate; instead the annual equipment depreciation can be included. If you have any internal rate, you must exclude federal equipment depreciation. If you have an external rate, you must include federal equipment depreciation. You must check to see if the federal project is still active. If active, you need to check with GCO Post Award to determine if any program income exists. Equipment depreciation must match the banner fixed asset system.

3 If equipment was paid for on a state or ICR cfoap and it is being used in the service activity, you need to notify the Government Costing Office and contact Jeff Weaver in Property Accounting to ensure that it is properly coded with a non 3E entity code (3100, 3110). Department should document the methodology in deriving the allocations across service rates/funds. Projections Equipment Depreciation on Capitalized Equipment Department must document department and/or campus approval that the equipment will be purchased in next few months, such as a completed purchase order. Depreciation must be consistent with Banner Fixed Asset system (Financial Statements). Verify with department and Property Accounting what useful life will be assigned to the equipment. Use of ½ year convention for depreciation or a full year of depreciation depends on timing of purchase. If including depreciation in rates to be charged for FY2013 and the asset was purchased at the end of FY2012, then ½ year convention would be taken in FY2012, so for FY2013 you can include a full year of depreciation in the rate calculation. If including depreciation in rates to be charged for FY2013 and the asset was purchased at the beginning of FY2013, then must use ½ year convention for depreciation for the rate calculation. Subsidies/General Support If less than the fully costed rate is being charged to all users, general support must be provided by the department, generally using State or ICR funds. If a discounted rate is being charged to a certain group of users (generally internal department users) and the full rate is charged to other departments, a subsidy exists and is generally provided using State or ICR funds. Subsidies must follow appropriate accounting procedures and be approved by the Office of Government Costing. If one of your cfoaps is being used as a subsidy for a service activity, you must contact our office so we can assign the proper code to the program code. Subsidy funds must be tracked in a separate program code for each service activity for which a subsidy is provided. Each program code should be named so that the individual service fund it relates to can be easily identified. Customers Internal customers are any University Departments or tenants in the incubator. External customers are organizations, corporations, other educational institutions, or individuals whose ultimate source of funds is outside the University. Your customer base determines if you have an external and/or internal rate. External revenue must be recorded in account code The difference in the rate charged to the internal customers and external customers represents the increment of revenue to be recorded in

4 Service Center managers must calculate and monitor their Adjusted Fund Balances, which factors asset value and equipment depreciation into the calculation. The Adjusted Fund Balance must then be compared to the 60 Day Working Capital Reserve Limitation to calculate and monitor Over/Under Recoveries. We have a template and business object reports to assist you in performing these calculations. The next three sections address this process. Maintaining Adjusted Fund Balances The formula for calculating the adjust fund balances is included in the rate calculation spreadsheets. Adjusted Fund Balance factors asset value and equipment depreciation into the calculation. The Banner Fixed Assets system does not directly interface with the General Ledger and Operating Ledger. Depreciation is only calculated and booked in the General Ledger at a highly summarized level during the year end close process. Therefore, to reflect "correct" fund balances, the "Adjusted" Fund Balance must be calculated and used in calculating and monitoring fund balances and over/under recoveries. For assets purchased with services unit 3E funds, the "net asset value" must be calculated. Since the net asset value is normally a debit balance, the fund balance will be "credited" or increased to arrive at the adjusted fund balance. For assets purchased with other (Non-3E) funds, only the "accumulated depreciation" must be calculated. Since the accumulated depreciation is normally a credit balance, the fund balance will be "debited" or decreased to arrive at the adjusted fund balance. Working Capital Reserve Limitation The formula for calculating the working capital reserve is included in the rate calculation spreadsheets. Working capital reserve is not specifically defined in OMB Circular A-21; however, related Circular A-87 - Section G.2 states that, "A working capital reserve as part of retained earnings of up to 60 days cash expenses for normal operating purposes is considered reasonable." If you have a storeroom, make sure you add Purchase of Goods for Resale into the cash expenditures before calculating your 60 Day Working Capital Reserve. Unusual transactions/variances should be excluded from normal operating expenses for purposes of the limitation calculation. The 60-Day Working Capital Reserve Limitation is calculated by taking the last 12 months of cash expenditures divided by 6. This limitation is then compared to the service center's adjusted fund balance to calculate and monitor over/under recoveries. Note that the limitation is an absolute amount and applies to both over and under recoveries. The adjusted fund balance of individual service activities must meet these limitations, unless an exception has been granted by the Executive Assistant Vice President for Business and Finance or delegate. Over/Under Recoveries Service activities that accumulate an adjusted fund balance surplus (overrecovery) in excess of specified limits (60 days of average cash operating expenses) must adjust future rates in order to meet the Federal break even requirements over a reasonable period of time.

5 Service activities that accumulate an adjusted fund balance deficit (underrecovery) in excess of specified limits (60 days of average cash operating expenses) must adjust future rates in order to meet the Federal break even requirements over a reasonable period of time Plant Fund Reserves Units are allowed to transfer up to 20% of the historical cost of all the equipment used in a service activity fund or the cost to replace one piece of equipment for the service activity, whichever is greater. This money is transferred to a plant fund and you need to contact the UAFR to perform the transfer. Please notify the Government Costing Office as well.