Handbook of Business Procedures

10.2. SERVICE CENTER POLICY SUMMARY

Note: For detailed information about service center accounts, see the Handbook of Business Procedures, 2.2.2. Service Center Funds—18-Accounts.

A. Purpose

The Federal Costing section of Accounting and Financial Management works to ensure that service centers (hereinafter referred to as “center or centers”) are operated, monitored, and accounted for in accordance with federal guidelines and sound costing principles.

B. Scope

This policy only applies to centers and specialized service facilities and does not apply to other revenue-generating or cost-transfer activities. In this policy, “center” refers to specialized service facilities and centers unless otherwise noted.

C. Definition

A center provides goods or services at approved rates that are essential in supporting The University of Texas at Austin’s academic and research functions.

The primary purpose for establishing a center is to allow the university to recover costs incurred for goods or services used and required. A center can provide services to internal and external users. A center must meet the following criteria:

• Operate on a break-even basis
• Act as an ongoing activity, not a one-time distribution of expenses
• Comply with university accounting policies and federal guidelines published by the Office of Management and Budget, Part 200 – Uniform Administrative Requirements, Cost Principals, and Audit Requirements for Federal Awards (hereinafter referred to as “Uniform Guidance”).

D. Requirements

1. Establishing a Service Center

To establish a center, the center’s unit must obtain preliminary approval on the concept from the dean or vice president for the prospective proposal.  All center rate proposals must be emailed to Federal Costing for review and coordination of additional reviews by Accounting and Financial Management and the Office of the Executive Vice President and Provost.

2. Rate Guidelines

• Internal center rates must be developed to recover total operating costs. Any subsidies must be clearly documented.
• The university is not allowed to subsidize external customers. External center rates are based on total operating costs, and the rate must include the 26.5 percent institutional surcharge used to cover institutional facilities and administrative expenses.
• All center rates are based on the actual usage of the service or goods acquired by the user.
• All users of the center must be billed at the approved rates and in a timely manner.
• Advanced billing for services or products is not allowed except for billing associated with external customers. Advance billing of external customers does not constitute a priority of external customers over internal customers.

3. Record Retention

• Each center must retain all information used to develop rates and maintain complete billing records to substantiate charges in the event of an open records request and/or audit by federal, state, or internal auditors.
• Records to retain include but are not limited to all iterations of the proposal, feedback forms, and rate approval memos.
• Records should be maintained in accordance with the university’s Records Retention Schedule.

4. Cost Recovery

• All costs directly related to the center's operation are included when determining the rate calculation to recover the cost of providing the goods or services, even if this will cause the center to operate at a deficit.
• All costs incurred by the center must be allowable according to the federal guidelines published by the Office of Management and Budget, Uniform Guidance §200.420 - §200.475, General Provisions for Selected Items of Cost.
• The cost of non-federally purchased equipment must be recovered throughout the life of the asset through depreciation; the full cost must not be recovered in the year in which the equipment is purchased.
• The center must revise its rates to prevent a deficit or surplus if any of the following circumstances occur:
  1. New goods or services will be provided.
  2. Approved goods or services will no longer be provided.
  3. Costs will significantly change.
• A guarantee account must be designated for the payment of unrecovered expenses or uncollected revenues, and the account cannot be a sponsored project account or a different center account.

5. Calculation of Effective Balance

A center must operate on a break-even basis. A center operating on a break-even basis may have an effective balance equivalent to working capital (two months of annual expenditures) and allowable accumulated depreciation-like amount. Working capital provides center managers with some flexibility in dealing with unanticipated income or expense fluctuations. Centers cannot acquire working capital by increasing rates for the express purpose of acquiring a working capital balance.

To determine whether  a center is operating on a break-even basis, calculate the effective balance.

To calculate the current year (CY) effective balance:

Current Year Income, Less current year expenses

Add balance forward, Add transfers

= balance (if negative, center is in deficit)

Less  accumulated equipment maintenance/replacement amount,

Less working capital

= effective balance

If the effective balance is ≥ $0.00 = surplus.  If effective balance < $0.00 = deficit.  Rates may need to be updated to alleviate surplus or deficit balances even if the effective rate period has not ended.

6. Rate Package Submission

The center manager must submit a rate package to Federal Costing for review and approval based on the designation of the center as described below in Section F Service Center Types and Review Basis. The rate package must be prepared and submitted in accordance with the Service Center Manual.

E. Restrictions

The following activities cannot be included in a center account:

• Reserves or contingencies
• Costs already reimbursed through the Facilities and Administrative (F&A) cost Rates (e.g., capital renovations or leasehold improvements)
• Expenses or losses from other centers
• Unnecessary or unrelated purchases for the purpose of reducing fiscal year-end balances to meet balance requirements
• Activities and expenses described in the Handbook of Business Procedures, 9.1.1 Entertainment and Official Occasion Expenses

F. Service Center Types and Review Basis

The type of activity the center provides in conjunction with the annual revenue generated determines the review basis. Units can identify an account's review basis for existing centers by locating the report code within the *DEFINE CA3 screen. The table below shows the annual revenue thresholds per center type and the *DEFINE CA3 report codes for each review basis.

		Review Rate by Annual Revenue Threshold and Associated *DEFINE CA3 Report Code
Type	Definition	Department Self-Certification	Biennial Rate Review	Triennial Rate Review
Analytical	Ongoing activity providing goods or services to internal or external users. Services provided are analytical and support research projects.	Up to $50,000 (ANL)	$50,000.01 - $250,000 (ANL-2)	Greater than $250,000 (ANL-3)
Administrative	Ongoing activity providing goods or services to internal or external users. Services provided are administrative in nature.	Up to $50,000 (ADM)	$50,000.01 - $250,000 (ADM-2)	Greater than $250,000 (ADM-3)
Institutional	Ongoing activity providing goods or services to internal and external users. University departments generally are not able to decline services, such as telecom services. Services are differentiated between core and noncore (billable) services.	Not Applicable	Up to $250,000 (INS-2)	Greater than $250,000 (INS-3)
Specialized Service Facility	Ongoing activity providing goods and services to internal and external users. Involves the use of highly complex or specialized facilities not readily available from a for-profit entity. Rates are loaded with applicable expenses (fully burdened).	Not Applicable	Greater than $1,000,000 (SSF-2)	Not Applicable

Clearing (CLEAR) and Pass-Through (PSTHR) account types are included in the 18-account fund group, but are not considered centers and are not subject to the same revenue thresholds or rate review requirements. These accounts are still subject to annual balance and budget reviews.

G. Transfers

Balances cannot be transferred to other accounts while the center is active.

H. Overdrafts

Overdrafts are used to provide temporary spending authority for an account for various reasons. Overdrafts are not approved to increase spending authority due to an approved center proposal. Instead, the center must process a transfer document to increase spending authority. Generally, overdrafts do not automatically carry over to the new fiscal year. 

The guarantee account associated with the center must be used to cover deficits prior to requesting an overdraft. An authorized signer on the budget group should send a written request via email to Federal Costing.

Overdraft approval requests must include the following information:

• Approval by the unit’s department head/chair and CSU business officer
• Forecast for remaining fiscal year income and expenses
• If center rates will be adjusted to prevent future overdrafts
• Account number
• Amount requested
• Proposed expiration date
• Reason for the overdraft
• Date the overdraft will be covered
• How the overdraft will be covered (e.g. new income, transfer from another account, commitment from institutional funds, etc.)

Federal Costing will review requests and notify the requestor of whether the request is approved or denied. Approved overdraft amounts are added to the pool balance of an account by Financial Accounting and Reporting (FAR).

For more information, see the Handbook of Business Procedures, 2.6. Overdraft Approval.

I. Resources

• Federal Costing
• Service Center Closure Form 
• Annual center budget review process (in addition to the rate package review): Collaborative Budget Office and Accounting and Financial Management 18 – Service Center Reviews
• Office of Management and Budget (OMB) Part 200 - Uniform Administrative Requirement, Cost Principals, and Audit Requirements for Federal Awards
• Service Center Request Forms.

Part 10. Costing - Table of Contents