SOUTH DAKOTA STATE UNIVERSITY

Transcription

1 SOUTH DAKOTA STATE UNIVERSITY SERVICE CENTERS POLICIES AND PROCEDURES Contents Page No. Section I- Overview and Purpose 2 Section II- Functional Responsibilities 2-3 Section III- What is a Service Center? 3-5 Section IV - Definitions and Key Terms 5-7 Section V - Service Center Policies 7-10 Section VI- Service Center Procedures Section VII- Use of Service Centers by External Users Appendix I - SDSU Service Centers 17 Exhibit A - Request for Establishing a New Service Center 18 Exhibit B - Examples of +5% or -5% Break-even Calculations Exhibit C - Examples of Accounting Entries 21 Exhibit D - Example of Testing Lab Rate Calculations Exhibit E - Example of Copy Center Rate Calculation 24 Exhibit F - Example of Calculation of Storeroom Markups 24 ORSP/GAC Document Nov 11 1

2 SOUTH DAKOTA STATE UNIVERSITY Service Centers -Policies and Procedures Section I - Overview and Purpose Service centers are operating units established for the primary purpose of providing services to the SDSU community, research sponsors, university clientele, and to the State of South Dakota. They provide services, which are essential to support the University's instruction, research and public service missions. These units incur costs in the form of salaries, benefits, materials and supplies. When services centers sell goods or services to others, the total costs must be recovered from the purchaser. Examples of service centers are Print Lab, Facilities and Services, and Diagnostic Revolving. This document provides policies and procedures to assist service center managers; to provide consistent operational practices among the various centers; and to ensure compliance with government regulations. Service center activities may result in charges, to federally sponsored grants and contracts. Therefore, SDSU's policies and procedures encompass government regulatory costing principles such as those contained in the Office of Management and Budget (OMB) 2CFR 220 (Circular A-21), "Costing Principles for Educational Institutions", as well as internal University accounting policies and procedures. In addition to 2CFR 220, the Cost Accounting Standards Board issued a ruling requiring the application of certain costing standards to colleges and universities. The standards require SDSU to have specified cost accounting procedures in place and to apply them consistently to all service center users, including charges to federal grants and contracts. This document is a resource for policies and procedures related specifically to service centers. Its purpose is to cover matters considered in the development of a service center operation, pricing structures, annual reporting requirements, and other important issues. Section II -Functional Responsibilities The Department of Finance and Business is responsible for the establishment, adoption, and periodic revision of service center policies. Various business/accounting office personnel, internal audit, the service centers, and college or department administrators may provide input as requested. This department, or its delegated representative, is also responsible for: Resolution of recurring variances greater than 5% incurred by a center. Approval for a center to provide services to external users. Approval for a center to operate under a breakeven period longer than one fiscal year. 2

3 The Department of Finance and Business, Grants Administration Office and Internal Auditor share responsibility for the development, implementation, and monitoring of practices considered necessary to carry out the intent of the service center policy. These responsibilities include monitoring service center operations periodically during a fiscal year, being no less than once annually. The Finance and Business office, Grants Administration Office, and Internal Auditor will provide assistance as needed to assure compliance with policies. College and department administrative offices have responsibility for day-to-day operations of their centers. Service centers must comply with University payroll, accounting, and personnel policies and practices. Responsibility for day-to-day operations is normally delegated to a department administrator or service center manager who monitor operations and breakeven position. The administrator or manager should review their center's income, expenses, and rates periodically and take corrective actions as needed to achieve breakeven. The administrator/manager should also assure that: Service Center annual report is prepared and submitted timely, no later than August 15. User billings are sent out timely (at least monthly), and must be adequately documented. The appropriate rate schedule is used for billings. Expenditures are consistent with the center's mission and must be adequately documented. Service center records are kept in compliance with University policies and procedures, for review and/or audit. Section III - What is a Service Center? A service center is a University organizational unit that provides a specific product or service, or multiple products or services, to the SDSU academic and administrative communities and, in certain instances, to entities external of the University. The costs of operating a service center are charged to users on a rate basis. Centers selling goods should structure their rates to recover cost of goods sold plus allowable operating expenses. Centers selling services should structure rates to recover the costs incurred in providing their services. Dissimilar classifications of services operated by the same center must be operated as separate entities with separate accounts, budgets and rates. Rates should be designed so a center operates on a breakeven basis, i.e., revenues should be equal to expenses. In addition, rates cannot be discriminatory. All on-campus users and federally sponsored grants, contracts and agreements must be charged the same, cost-based rates except as noted below for equipment acquired with federal funds. If volume discounts or other pricing mechanisms are used, they must be offered to all on-campus users. External users can be charged at higher rates. 3

4 Service Centers at SDSU Appendix I provides an alphabetical listing of approved service centers at SDSU. This listing will be revised and updated as needed. Service Centers are classified as: Class I Primarily Internal Users. [See Appendix I] Centers whose services are provided primarily to on-campus users. There may be usage by external users from time-to-time but the majority of usage is consistently on campus. Rates are structured to recover: a. Cost of goods sold, if applicable. b. Salaries. c. Fringe benefits. d. Operating supplies and services. e. Contractual services f. Equipment depreciation charge, except for services provided to Federal sponsored grants Class II Primarily External Users. [See Appendix I] Primarily labs that provide services, but in some instances goods, to external users. There may also be oncampus usage but the majority of usage is consistently off-campus. Rates to off campus users cannot be less than are charged to on campus users but they can be higher. Rates may be structured to recover: a. Cost of goods sold, if applicable. b. Salaries. c. Fringe benefits. d. Operating supplies and services. e. Contractual services f. Equipment depreciation charge, except for services provided to Federal sponsored grants. Low Volume Center Activities These are small-scale activities with less than $20,000 in transactions per fiscal year with little or no growth projected. They are allowed to operate but are not required to operate as service centers. They will not be subject to the requirements of this document but should structure rates so that financial operations are conducted on a breakeven basis. If there are unanticipated changes in operations or as special circumstances arise, they may be required to comply with the provisions of this document. Periodic audits may be made by external or internal auditors to evaluate operations. Breakeven Service centers should operate on a breakeven basis. Rates are based on detailed projections of operating expenses and projected levels of activity (demand for the goods 4

5 or services in measurable units) estimated to be provided during the fiscal period. It is intended that fiscal period revenues are equal to fiscal period expenses. Surpluses or deficits require special handling. Section IV - Definitions and Key Terms Service Center Administrative Cost Recovery - A transaction or process whereby service center accounts are assessed for institutional administrative support functions. Billing rate - The rate that service center users pay, per measurable unit, for the goods and/or services they purchase. Breakeven - The requirement that service centers structure rates that will result in revenues being equal to expenses. At the end of a center's fiscal period, if any surplus or deficit is within + or -5% of total expenses, plus or minus any prior period carryforward, it is defined as being reconciled to breakeven. Breakeven period - The fiscal period over which a center should break even. This will normally be the University's fiscal year Carry-forward - The difference between total revenues and total expenses for a center's fiscal period that is carried forward to the next period. The carry-forward amount becomes a component of the next period's rate calculation. 2CFR 220 (Circular A-21) -The federal Office of Management and Budget (OMB) 2CFR 220 (Circular A-21), "Cost Principles for Educational Institutions", establishes principles for determining costs applicable to federal grants, contracts and other agreements with educational institutions. Cost Accounting Standards (CAS) - Standards issued by the Cost Accounting Standards Board (CASB) that require educational institutions to maintain consistency in their accounting practices. The four standards applicable to educational institutions are: CAS The purpose of this standard is to ensure that each educational institution's practices used in estimating costs for a proposal are consistent with cost accounting practices used by the educational institution in accumulating and reporting costs. CAS This standard provides for consistency in allocating costs incurred for the same purpose by educational institutions. It requires that each type of cost is allocated only once and on only one basis to any sponsored agreement or other cost objective. CAS The purpose of this standard is to facilitate the negotiation, audit, administration and settlement of sponsored agreements by establishing guidelines covering: 5

6 (1) identification of costs specifically described as unallowable, at the time such costs first become defined or authoritatively designated as unallowable, and, (2) The cost accounting treatment to be afforded such identified unallowable costs in order to promote the consistent application of sound cost accounting principles covering all incurred costs. CAS The purpose of this standard is to provide criteria for the selection of the time periods to be used as cost accounting periods for sponsored agreement cost estimating, accumulating, and reporting. It will also enhance objectivity, verifiability, and promote uniformity and comparability in sponsored agreement cost measurements. Cost of goods sold -The amount paid for goods that have been resold. Depreciation - A systematic, rational accounting process that allocates the cost of capitalized assets over their expected useful life. External users - Individuals, groups and organizations that are not part of the University community but are users of service centers' goods or services. Students, faculty and staff making cash purchases from service centers are included as external users. Facilities and Administrative (F&A) costs - Facilities and Administrative costs are defined by OMB 2CFR 220 (Circular A-21) as "-----those that are incurred for common or joint objectives and therefore cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity." F&A costs are allocated to the major functions of the institution in proportions reasonably consistent with the extent of their use of the institution's resources. Internal users - University colleges and all the entities that comprise the college, administrative departments, auxiliary enterprises and federally or other sponsored grants, contracts and agreements. The phrase on-campus users may be used synonymously with the phrase internal users. Over/(Under) Recovery - The difference that results when breakeven period expenses, including a prior period over or under recovery, are less than revenues. Calculated as follows: a) Prior Period Over/(Under) $ (1,000) Revenues $ 200,000 Expenses $ (191,000) (over/under recovery) Carry-forward $ 8,000 Plus or minus 5% - Service centers are to determine cost rates that produce revenues equal to costs. To provide flexibility, ±5% rule provides that if cost recovery (total revenues) are within ±5% of total expenses, including any prior period carry-forward, a center is considered to have reached breakeven. 6

7 Federal sponsored agreement - Any grant, contract or other agreement between the federal government and an educational institution. Straight-line depreciation - A depreciation method whereby periodic depreciation expense is determined by dividing a capitalized asset's depreciable value by the number of months or years of its expected useful life. Under recovery - The difference that results when fiscal (breakeven) period expenses, including any prior period carry forward, are more than revenues. Calculated as follows: Prior period over recovery $6,000 Revenues $191,000; Expenses $(200,000); Under Recovery $( 3,000) Section V SDSU Service Center Policies The federal cost principles in OMB 2CFR 220 (Circular A-21) establish firm guidelines regarding allowable and allocable costs recovered from sponsored agreements, including costs attributed to service center activities. Exclusions from the Service Center Policy and Procedure includes activities fully funded by a federally funded grant, and the income is considered Program Income. These policies apply to all SDSU service centers unless otherwise noted. Their application is described in Section VI, Service Center Procedures. A. Sales of Goods and/or Services The sale of goods and/or services must be consistent with the University's mission and the normal activities of the college/department of which the service center is a part. Billings to users should be issued as soon as the service is rendered, or goods delivered, or at least monthly. B. Non-discriminatory Rates Rates established by service centers must be non-discriminatory and all users must be billed for the goods or services they receive. Non-discriminatory means that all internal users must be charged the same rate for the same level of goods or services received; however, depreciation cannot be charged to Federal sponsored grants. All other internal users may have depreciation or an equipment usage factor included in the rate. 7

8 Volume discounts or other special pricing mechanisms must be equally available to all users who meet the pricing criteria. External clients of a service center may not be charged at a rate less than that charged to internal users but they may be charged at a higher rate. A separate rate should be established for each distinctly different classification of goods or services sold. C. Breakeven can be within ±5% Service centers rates are structured to breakeven, whereby revenues are equal to the expenses incurred to produce the revenues. For purposes of this policy, breakeven is defined as follows: If the difference between a center's total revenues and total expenses, plus or minus any prior period carry forward, is within + or -5% of its total expenses (adjusted for prior period carry forward) it is considered to have broken even. That difference is then carried forward to the next fiscal period as a component of the rate calculation. The ±5% rule provides center managers with some flexibility in dealing with unanticipated income or expenses. (Exhibit B provides examples of breakeven calculations.) Recurring variances, either surplus or deficit, greater than 5% must be resolved with the Department of Finance and Business. The Accounting Office will monitor each center's breakeven calculation on an annual basis to determine compliance with the breakeven requirement. Centers experiencing deficits greater than 5% on a recurring basis may be required to bill all users during the fiscal period proportionately to eliminate the deficit, providing they do not violate the cost transfer policy, or transfer the deficit to another account which cannot be another service center account. Centers experiencing surpluses greater than 5% on a recurring basis may be required to refund the entire surplus proportionately to all users during the fiscal period. D. Breakeven Period The breakeven period will normally be the University's July 1 -June 30 fiscal year, but in some cases a longer breakeven period may be justified. Extraordinary circumstances where a breakeven period longer than one year may be appropriate includes a center whose usage or costs might vary widely from one year to the next due to reasons beyond the control of the center. A longer breakeven period must be determined and approved in advance on a case-by-case basis. In instances where a longer breakeven period is approved, rates should be designed to comply with the breakeven requirement over a period not longer than two years. 8

9 E. Unallowable Costs Expenses that are listed in 2CFR 220 (Circular A-21) as unallowable such as bad debt, entertainment and fundraising shall not be budgeted or included in a center's calculation of rates to be charged to the service center. Reimbursement cannot be made from another service center account. F. Capital Equipment Purchases of capital items are classified as either capitalized or non-capitalized transactions as follows: Capitalized transactions - Capital outlay items have a unit value of $5,000 or greater. When coding requisitions and vouchers use the appropriate capital outlay account code. Capitalized transaction requiring a Purchasing Assessment should end with a 2 (77XXX2). Capitalized transactions not requiring a Purchasing Assessment should end with a 7 (77XXX7). Example: A Capitalized transaction requiring a Purchasing Assessment for Shop Equipment would have the account code , whereas a Capitalized transaction not requiring a Purchasing Assessment would have the account code Non-capitalized transactions - Capital outlay items having a unit value of less than $5,000. When coding requisitions and vouchers use the appropriate capital outlay account code. Non-capitalized transactions requiring a Purchasing Assessment should end with a 0 (77XXX0). Non-capitalized transactions not requiring a Purchasing Assessment should end with a 9 (77XXX9). Example: A Non-capitalized transaction requiring a Purchasing Assessment for Shop Equipment would have the account code , whereas a Noncapitalized transaction not requiring a Purchasing Assessment would have the account code Component purchases are defined as the acquisition of various items with the intent to formulate or construct a single functional unit for use over relatively long periods of time. The total cost of the various assembled parts determines if the item is a capitalized or non-capitalized transaction. Accessory purchases are the addition of a component to an existing capitalized asset. Accessories should be included in the capitalized value of the original asset. To capture that information, the property tag number of the original item must be placed on the purchase requisition or payment voucher when submitted. The same account code of the original purchase must be used even if the dollar value of the accessory is less than the capitalized dollar limit. 9

10 Capitalized transactions are not included in service center operating expenses at the time of purchase. Centers that use such equipment in their operations recover its value through inclusion of depreciation when calculating rates. Rates charged to Federal sponsors cannot include depreciation on equipment furnished by the Federal government. Non-capitalized equipment is classified as an expense item and should be included at full value in a center's rate calculations. Proceeds from the sale of surplus capital equipment should be coded as revenue to the service center s fund/index (account). G. External Users Each new service center that provides services will be required to obtain written approval for services provided to external users. The written approval will be from the Department of Finance and Business. Records of such approval and the rationale for providing these services must be maintained by the service center for audit purposes for as long as the service is being provided to external users. Class II centers in operation at the time of adoption of this document need only provide the Accounting Office with a listing of the goods/services provided and a description of their primary users. H. Records Retention Revenues that a center receives in providing its goods or services could come from federally sponsored grants, contracts or agreements. As long as the potential for federally- derived revenue exists, records are subject to federal audit. They are also subject to audit by the University internal auditor and by external auditors other than the federal government. Therefore, center activities must be adequately documented and records maintained to support user billings and center expenditures. Each center must, at a minimum, maintain the following documents for audit purposes: Detailed documentation showing how the billing rate(s) were calculated. Rate approval letter from the Department of Finance and Business. Supporting documents for expenses incurred. Records supporting user utilization levels (quantities sold, services rendered). Records supporting the amount and basis of user billings (total revenues). Financial records, supporting documents, statistical records and all records pertinent to a center's activity must be retained by the service center for at least five years unless a litigation claim or audit is started before expiration of this period. In such case, records need to be maintained until five years after all litigation, claims or audit findings are resolved. 10

11 SECTION VI SERVICE CENTER PROCEDURES This section describes the primary steps necessary to establish and operate a service center. A. Establishing a Service Center A proposal to establish a new service center should be directed to the Department of Finance and Business. A proposal to establish a new service center must contain the following information: The name of the service center. A detailed description of all goods or services to be provided. A list of potential users. An explanation as to how the center's rates will be structured including: a. A detailed annual budget showing anticipated revenues for each category of sales, and individual items of expense. b. The projected level of activity (quantity of sales in measurable units) for the first fiscal period of operation. c. The rate calculation(s) for the first fiscal period of operation, which must be based on the anticipated revenues, expenses, and quantity of sales provided in a. and b. An explanation as to how deficits outside the + or - 5% guideline will be cleared if they occur in the centers operating account. The name, title and telephone number of the individual delegated the responsibility for the center's financial affairs. The signatures of the department head and college dean, or their administrative equivalents, indicating the department's acceptance of financial and operational responsibility for the center. Exhibit A is a form, which may be used to submit the initial service center proposal for review and approval. A new center cannot be established until signed proposals are received, reviewed and approved by the Department of Finance and Business. Core research facilities need approval by the VP of Research. After the center has been approved, the department manager must send a copy of the proposal to the Accounting Office along with a request to set up a new fund and index, if needed. The Accounting Office will assign an index and notify the manager of the new number(s). B. Service Center Cost Components Generally, all costs directly associated with a center's operations should be charged to the operating account. However, costs, which are unallowable for government costing 11

12 purposes, may not be charged to the account. Following are some general guidelines for the various types of costs, which can be charged to a center's operating account to support its activities: 1. Personnel costs The salaries and fringe benefits of center employees and other personnel directly involved the activity of the center should be budgeted and charged to the center. Administrative staff that supports service center operations should be charged to the center if such support represents 20% or more of the individuals' time. The rate charged to Federal sponsored grants must be adjusted to exclude the administrative staff costs. The department should be prepared to provide documentation of staff support to satisfy audit requirements. 2. Supplies and Materials Purchases will be used in the breakeven calculation under supplies. Provide beginning and ending inventory, as well as Cost of Goods Sold (COGS), to the Department of Finance and Business, if service center is outside of the 5% breakeven amount. The cost of supplies and materials needed for operations should be charged to the center's operating account. Quantity purchases of supplies and materials should be matched as closely as possible with estimated usage during a center's fiscal operating period so large quantities are not accumulated. 3. Contractual Services Equipment rentals and repairs, maintenance contracts, insurance premiums, dues and subscriptions (business, professional, technical), computer services and repairs and other services essential to a center's operation should be paid from the operating account. 4. Depreciation Expense/Capital Equipment Service centers should include depreciation expense on capital equipment as an expense component in calculating user rates. However, depreciation cannot be charged to Federal sponsored grants. Service centers do not need to maintain their own records regarding depreciation expense and the purchase of capital equipment. That information can be obtained from Property Management. Centers should, however, have a record of the depreciation component of its rates. Depreciation should not be recovered through rates charged once the asset is fully depreciated. 5. Facilities and Administrative (F&A) Costs 12

13 A service center will normally not be charged for its campus-provided Operating Expenses or for its utility consumption. These are F&A costs. However, if a center is an extraordinarily large user of a utility, it may be charged for such consumption so that the cost of its above normal usage can be passed directly on to its users through billing rates. C. Revenue Receipt Coding - See Exhibit C for sample entries D. Breakeven Period The breakeven period will be the University's July 1-June 30 fiscal year. Requests to operate under year-long basis other than the University's fiscal year should be submitted to and approved by the Department of Finance and Business along with information demonstrating the extraordinary or unpredictable circumstances. E. Breakeven Period Surplus/Deficit If at the end of a center's breakeven period there is a surplus or deficit, including any prior period carry-forward, this amount is automatically carried forward to the next fiscal period and is factored into the rate calculation for that period. An over recovery will reduce the next period's expenditure level. An under-recovery will increase the next period's expenditure level. Recurring variances greater than 5%, either surplus or deficit, must be resolved with the Department of Finance and Business. F. Centers Providing Multiple Services There may be instances when a center provides more than one classification of service and ends a fiscal period showing a surplus for one type of service and a deficit for another. Combining the results for purposes of calculating breakeven is permissible so long as the mix of users is not different between those activities that gain and those that lose. For instance, if the users of a service that showed a surplus were substantially the same users of the service that showed a deficit, they would have overpaid for one service but underpaid for the other. G. Rate Determination Most service centers will be cost-based for each specific service or product, per the rate calculation as shown below. A center offering multiple services or products may establish rates for a variety of dissimilar goods or services that, in aggregate, recover total costs of the center. It is paramount that in establishing rates, a center does not discriminate against any internal group of service center users, including federally sponsored projects. A center's sales documents should substantiate the fact that rates are not discriminatory. It is the responsibility of the manager to specify and review the assumptions used in the rate determination process. Following is the standard rate calculation formula: 13

14 Total Expenditures & Carry-forward = (Internal User Price X Projected # of services) + (External User Price x Projected # of services) Exhibit D shows a sample computation that might be used by a testing service to calculate rates for laboratory tests for the next fiscal year. Exhibit E shows a sample computation that might be used by a copy center to calculate rates for copying services for the next fiscal year. Exhibit F is an example of the calculation of storeroom markups. Rates are normally calculated on an annual basis for each fiscal period. Adjustments are made, as needed, during the year to accommodate changing circumstances and to ensure breakeven. If a center is established mid-year, its rates may be set for a period longer than twelve months so that the end of the first breakeven period coincides with the next fiscal period end. All Service Centers are encouraged to base rates on the standard rate calculation. If unusual circumstances exist that warrant an alternative rate calculation, the center manager should contact the Department of Business and Finance to discuss the unusual circumstances. External users of a service center may not be charged at a rate less than that charged to internal users, but they may be charged at a higher rate. A separate rate should be established for each distinctly different classification of goods or services sold. For example, Print Lab's rate for copying would be different than for printing since they are distinct and separate services. H. Managerial Requirements 1. An annual report should be submitted to the Department of Finance and Business, no later than August 15 th. This report will include the Service Center Breakeven Worksheet. Supporting documents must be available to substantiate the annual report. Managers are required to provide supporting documents and a written explanation if the center is expected to be outside the 5% breakeven amount. If a center is not changing its rates, the report must still be submitted, along with information supporting continued use of the same rates. Rate approvals are normally specified on a July 1-June 30 fiscal year. If there is any delay in reporting to the center that it s new rates have been approved, the old rates should be used until the new rates have been approved. 2. Status review - Managers are expected to evaluate their center's activity periodically to review and evaluate projected breakeven and actual activity. If periodic evaluations disclose that a rate adjustment is needed to achieve breakeven, such adjustment may be made at the discretion of the center manager. The Department of Business and Finance must be sent a memo describing the rate 14

15 methodology, any schedules supporting the new methodology, and a brief explanation as to why the original rate-setting process did not result in breakeven rates. As an aid to center managers, the University Internal Auditor may review service center revenues and expenses on a selective basis at any time during the fiscal period. The results of any such reviews will be discussed with center managers along with any suggested corrective measures. 3. Breakeven calculation -The breakeven position is calculated as follows: Breakeven % = (Total Revenue Total Expenditures & Carryforward) Total Expenditures & Carryforward A prior period carry forward may be zero, or there may be an over recovery, or an under recovery. If an over recovery occurs, it will result in a reduction to current period expenses. If an under recovery occurs, it will result in an increase to current period expenses. Exhibit B illustrates examples of breakeven calculations. There may be instances when a center unexpectedly ends a fiscal period outside the + or -5% breakeven position. The reasons must be made known to the Department of Finance and Business in written documentation. The lack of regular, departmental managerial oversight is not an acceptable reason for not having achieved breakeven. SECTION VII -USE OF SERVICE CENTERS BY EXTERNAL USERS Inappropriate outside use of these facilities could jeopardize SDSU's tax-exempt status; give rise to claims of warranty and other liabilities; or, appear to involve unfair pricing relative to private providers in the local business community. While most centers may provide no, or very limited services to external users, there are specific exceptions at SDSU. Primarily the State of South Dakota, the Federal Government, and the South Dakota agricultural community use various testing and research services. Certain services are used to a lesser extent by various agriculture related businesses, and individual South Dakota citizens. Examples of the subject services are Seed Testing, and Diagnostic Revolving, whose tests help curb the spread of animal diseases. Services such as these are considered unique and otherwise not readily available. External usage is permissible because such activities are consistent with the University's public service mission and directly relate to the tax-exempt purpose. They 15

16 are subject to all other requirements of this document including the + or -5% breakeven requirement. External usage of the more standard services such as copying and central stores should be limited. A. Approval process External use of a center's services must receive written approval from the Department of Finance and Business. The center must submit the following information with each request to provide services to external users: Detailed description of the nature of services that will be provided. A list of anticipated users of the services. A list of names of external entities that provide similar services. Reasons why SDSU should provide the goods or services. Anticipated amount of external revenue based on the center's current approved rates. The Vice President of Research will review the request with regard to the following: Intellectual property rights. Conflict of interest. The Department of the Finance and Business will review the request with regard to the following: Whether this is a one-time request or a request to provide a continuing service to external users. Academic benefits. Unrelated business income tax implications. Unfair pricing practices. Potential liability. Appropriateness of F&A cost recovery. B. Rates charged to external users Service centers whose usage is primarily external may charge rates higher than that charged to internal users but their rates cannot be lower than is charged to internal users. The minimum rate is the rate charged to internal users for the same services. The external rate may also include the appropriate F&A cost rate, costs that are deemed as unallowable by CFR 220, and sales tax, if applicable. Center managers can obtain the current F&A rate by contacting the Grants Administration Office. C. Invoices to external users All billing to external users should be sent out as an invoice, issued by the center. Invoices should provide complete information regarding the sale including full name and address, date of sale, terms of sale, accurate description of the goods or services 16

17 provided number of units sold, unit value, and total amount of billing. Billings to agencies of the State of South Dakota should also contain this detailed information but non-cash voucher billing may be used unless an agency pays by check. Billing to external users whose payment will be by check must be by invoice. APPENDIX I SOUTH DAKOTA STATE UNIVERSITY SERVICE CENTERS Following is a listing of SDSU service centers showing classification, account name and index: CLASS I CENTERS - PRIMARILY INTERNAL USAGE Name Index Central Mailing Phys Pit -General Reimburse Farm Dept 3A6536 Reimburse Printing Reimburse Cent. Feed 3A6535 Computer OIT CLASS II CENTERS - PRIMARILY EXTERNAL USAGE Name Index Animal & Range Science-AES 3A6484 Civil & Environmental Eng Crop Perform Test - AES 3A8571 Dairy Plant Sales 3U6255 Diagnostic Revolving Eng Tech & Mgmt Extension Educ. Mtrls 3C7295 J. Lohr Structures Lab Library Photocopy NGP WRRC Lab Reimb Pharmacy Reimburse Seed Test 3A6546 Reimburse Soil Test 3A6547 Seed Certification 3A6560 Station BioChem-AES 3A6698 Student Meat Lab 3U6700 Sunflower Hyb Test 3A6306 Wellness Program (Listing as of February 23, 2011) 17

18 EXHIBIT A - REQUEST FOR ESTABLISHING A NEW SERVICE CENTER A. Service center official name B. Description of products and/or services to be provided. C. Listing of potential users both internal and external users. D. Projected level of activity (quantity sales in measurable units) Estimated level of service center activity (volume) for the budget period, such as hours of usage, estimated number of copies, etc. Describe your assumptions. E. Budget summary Forward the completed request to the Finance and Business for review and approval. For the period from / to budget guidelines: Use Service Center Breakeven Worksheet to provide details of budgeted amounts for salaries, equipment depreciation, and all other costs by account code. Contact the Property Management Office for assistance if there are numerous equipment items to be identified. Provide sufficient detail in the list of other costs to allow the reviewer to verify that projected expenses are both reasonable and complete. No unallowable costs may be budgeted for a service center account. Health and life insurance (*** The current fringe benefit rate should be obtained from the Payroll Office) F. Rate methodology & projected level of activity G. Responsible persons Service center manager: Name Title/Position Telephone No. Mailing address Other responsible person: Name Title/Position Telephone No. Mailing address Service Center Class (1 or 2): H. Department and college approval Signatures required approving the service center and accepting operating and financial responsibility: Department head Date Dean Date University approval 18

19 EXHIBIT B - ±5% BREAKEVEN CALCULATION EXAMPLES Year-to-date (YTD) revenues, minus YTD expenses, plus or minus the prior year balance carry forward equals the service center's Net Balance. The + or -5% breakeven calculation equals the Net Balance divided by YTD expenses plus or minus any prior period balance carry forward. Breakeven % = (Total Revenue Total Expenditures & Carryforward) Total Expenditures & Carryforward **Please use the Service Center Breakeven Worksheet when calculating Breakeven** Examples 1. Assume a service center's first year of operation so there is no prior period balance carry forward. Revenues equal $191,000 and expenses equal $200,000. YTD revenues $191,000 Minus YTD expenses $(200,000) Net balance ($-9,000) under recovery Breakeven % = (191, ,000) 200,000 = -4.5% 4.5 % under recovered The center is within + or -5%. The $9.000 under recovery would be carried forward to the next fiscal period. No other action is necessary. 2. Next year for the same service center. Assume the same revenues and expenses. YTD revenues $-191,000 Minus YTD expenses $(200,000) Plus: Prior period under recovery $(-9000) Net balance $ (-18,000) under recovery Breakeven % = (191, ,000) 209,000 = -8.6% 8.6% under recovered The center is outside the + or -5% breakeven requirement. The center manager should meet with the Accounting Office to discuss the reasons for not achieving breakeven. If there are valid reasons why breakeven could not be accomplished the center may be allowed to carry forward the entire 8.6% under recovery. Alternatively, it may be required to transfer the deficit to another account which cannot be a service center account, or bill all users during the fiscal period proportionately for the total amount of the under recovery. Recurring variances of greater than 5% are not allowed. 19

20 3. Assume a service center has revenues of $200,000 and expenses of $191,000 during its first year of operation resulting in an over recovery. YTD revenues $200,000 Minus YTD expenses $(191,000) Net balance $9,000 over recovery Breakeven % = (200, ,000) 191,000 = 4.7% 4.7% over recovered The center is within + or -5%. The $9,000 over recovery would be carried forward to the next fiscal period. No other action is necessary. 4. Assume year 2 of operations for the same center as in 3. Revenues in year 2 were $195,000 and expenses stayed the same at $191,000. YTD revenues $195,000 Minus YTD expenses $-(191,000) Prior period over recovery $9,000 Net balance $13,000 over recovery Breakeven % = (195, ,000) 182,000 = 7.1% 7.1% over recovered The over recovery of $13,000 is outside the + or -5% breakeven requirement. The center manager should meet with the Accounting Office to discuss the reasons for not achieving breakeven. If there are valid reasons why breakeven could not be accomplished, the center may be allowed to carry forward the 7.1% over recovery. Alternatively, the center may be required to refund the entire $ over recovery proportionately to all users during the fiscal period. Recurring variances greater than 5% are not allowed. 20

21 EXHIBIT C - EXAMPLES OF ACCOUNTING ENTRIES FOR SERVICE CENTERS Per the SDSU chart of accounts, the following account codes should be used to record revenues: Internal users: 7IXXXX External users: 5XXXXX. Following are examples of different types of sales entries for both internal and external users: C-1 -Sale of services or goods to an internal user. Debit User's Index Index 3XXXXX Account Code 7XXXXX (This should NOT be a 7IXXXX account code). Credit Center Index Index 3XXXXX Account Code 7IXXXX C-2 Sale of services or goods to an external user: Credit Centers Index Index 3XXXXX Account Code 5XXXXX 21

22 EXHIBIT D - EXAMPLE OF TESTING LAB RATE CALCULATIONS 1. Projected chargeable hours for the current year. Please use the Service Center Breakeven Worksheet to figure out the salary, benefits, and insurance for each person in the Service Center. Please enter the Name of the person, Base Salary, and % of time on the project. The calculator will figure your total salary and benefits for the service center. FY 2011 PROJECTIONS Expenditure Projection Total Salaries 7, Fringe Benefits 3, Total Salary & Benefits 10, Travel 10, Contractual Services 10, Supplies 80, Grants and Subsidies Non Capitalized Capital Outlay Total OE 110, TOTAL EXPENDITURES 110, Direct Payments for services (cash transfers) 0 Negative cash balance recover plan amount (Year 1 of 4) 0 Annual Depreciation amount on capitalized equipment (excluded for charges to Federal sponsored grant see Section VI,B.4) 10, Facilities and Administrative costs 0.00 Over / Under (+/-) recovery from prior Fiscal Year Total Expenditures and Carry Forward 120, Total costs for the current Year. Test A Test B Personnel costs Personal Costs Fringe benefits Fringe Benefits Travel Travel Contractual services Contractual Services Supplies Supplies Grants and Subsides Grants and Subsidies Non Capitalized Outlay Non Capitalized Outlay Depreciation Depreciation 22

23 Negative cash balance recovery plan (if applicable) Facilities and Administrative Costs (if Class II Center) Over (+)/ Under (-) recovery from prior Fiscal year **This is an example of the total cost for the Center for the rate distribution it would have to be split out by projects, see below Test A Personal Service $5,000 Travel $10,000 Contractual $10,000 Supplies $60,000 Depreciation $10,000 Total Cost of Test A $95,000 Test B Personal Services $5,000 Supplies $20,000 Total Cost of Test B $25, RATE CALCULATION Test A 9,500 tests Costs of Test A = 95,000 9,500 = $10 per tests Test B 1,000 tests Costs of Test B = 25,000 1,000 = $25 per tests 23

24 EXHIBIT E - EXAMPLE OF COPY CENTER RATE CALCULATION 1. Total actual number of copies in the previous year: 273, Estimated operating costs for the current year: Salaries and benefits $2,100 Copier lease costs $5,300 Maintenance agreement $4,400 Paper: Legal size (50 $ 3.25) $162 Letter size (525 $ 2.60) $1,365 Toner: 12 $37.50 $450 Developer: 1 $55.00 $55 Fuser lubricant: 2 $16.50 $33 Total estimated operating costs $13,865 Less: Over recovery from prior year $(2,500) Total costs to be recovered $11,365 Total estimated copies for the current year $ 287,300 Total costs / total copies = $.0396 per copy EXHIBIT F -EXAMPLE OF CALCULATION OF STOREROOM MARKUPS Estimated fiscal period operating expenses $ 75,400 Add: Annual equipment depreciation expense for all equipment assigned to and used by the center $ 1,100 Plus or (minus) prior period (over) or under recovery $ 1,600 Total costs $ 78,100 Markup Percentage: Estimated total costs excluding cost of goods sold $ 74,900 Divided by estimated cost of goods sold $416,100 Markup percentage 18.00% Dollar Amount of Markup: Assumed cost of a unit of resale merchandise $6.95 Times markup percentage X 0.18 Dollar amount of markup $1.25 Selling Price: Unit cost of merchandise for resale $6.95 Plus dollar amount of markup $1.25 Selling price $8.20 * The above calculation method is recommended for use by centers that maintain an inventory of merchandise for resale. 24