Standardizing Internal Billing Processes

Transcription

1 UNIVERSITY BUSINESS EXECUTIVE ROUNDTABLE Standardizing Internal Billing Processes Custom Research Brief January 22, 2010 RESEARCH ASSOCIATE Jessica Weiss RESEARCH DIRECTOR Christine Enyeart TABLE OF CONTENTS I. Research Methodology II. Executive Overview III. Defining the Internal Billing Process IV. Establishing Recharge Rates V. Implementing Internal Billing Tools and Policies THE ADVISORY BOARD COMPANY WASHINGTON, D.C.

2 I. RESEARCH METHODOLOGY Project Challenge: A member university approached the Roundtable with the following questions: How do other institutions define internal billing? What are examples of services that are billed among units? How is internal billing handled? Does this process differ between centralized and decentralized universities? Is there a central office to oversee the internal billing process? Is there an expectation of timing in the billing process? Do institutions base the billing process on a software package, or was software selected based on a preexisting process? Has internal billing surfaced in any audits, particularly in the area of grants administration? Sources: Education Advisory Board s internal research library The Chronicle of Higher Education Educational Resources Information Center (ERIC) Web sites and documents from contact institutions 1

3 I. RESEARCH METHODOLOGY (CONT.) Research Parameters: The Roundtable reached out to controllers at other large research institutions. For the purposes of this brief service unit is defined as a department that is providing a good or service to another institutional department whereas the receiving or requesting unit refers to the department that orders the good or service. A recharge center is a department that is organized to provide goods and/or services to another unit and charge for those goods and services. Recharges are not equivalent to pass-through costs. A Guide to the Universities Profiled in this Brief Institution Geographic Location Classification Approximate Enrollment (Total / Undergraduate), Fall 2007 University A South High Research Activity 25,000 / 20,000 University B Northeast 25,000 / 10,000 University C High Research Activity 22,500 / 20,000 University D* 20,000 / 10,000 University E High Research Activity 22,500 / 17,500 University F 40,000 / 32,500 University G 40,000 / 25,000 University H* Northeast 12,500 / 5,000 Source: National Center for Education Statistics * Please note that the Roundtable was unable to conduct interviews with these institutions; however, secondary research provided useful information which merited the inclusion of these institutions in this brief. 2

4 II. EXECUTIVE OVERVIEW Key Observations: The definition of internal billing as the billing of goods and services between individual units is relatively standard across institutions. At the majority of institutions, internal billing extends to include the billing of personnel or labor hours. Internal billing is generally decentralized across contact institutions, often with minimal oversight from the controller. Individual units are responsible for communicating with each other regarding billing questions; however, the controller often reviews bills on the surface-level to ensure prices and quantities are reasonable. The majority of contact institutions rely on a centralized and standardized rate schedule to ensure consistency of bills across units and time. Rate schedules are generally set by the controller in conjunction with individual service units and are reviewed and modified on an annual basis. Several institutions use formalized templates to assist service units in the cost accounting process. Most contacts state that internal incentives motivate proper and timely billing; therefore, few institutions have formalized billing procedures. Among the few institutions with standard policies, the majority requires the service unit to submit bills on a monthly basis, while others grant up to 120 days from the time of service. The majority of contact institutions report using simple spreadsheets to manage billing; however, a few institutions link billing systems to the Banner system or maintain a proprietary technology system. Contacts state that establishing a standardized billing process encourages communication between the service and receiving units and helps avoid the need for a truly centralized billing process. 3

5 III. DEFINING THE INTERNAL BILLING PROCESS Across contact institutions, internal billing is defined as the billing of goods and services between individual campus units. Common examples of units that engage in internal billing include copy services, catering, and academic departments that allow other departments or researchers access to specific equipment. The following graphic highlights some common processes and procedures for structuring internal billing within an institution Internal unit formally applies to become a recharge center for internal clients Recharge rates are established by the unit and preapproved by a centralized finance committee Staff within the service unit is trained on proper use of internal billing tools Unit implements applicable policies and procedures and initiates service Explanation Institutions have a wide array of departments that are eligible to provide goods and services, ranging from facilities and catering services to equipment and software rental. These units are generally required to apply to become an official service provider for the campus and therefore must adhere to strict guidelines that govern allowable services and charges. Service units that bill internally are not permitted to generate a profit over time; therefore, rate calculations must adhere to strict cost accounting procedures. (These guidelines will be examined more closely in the following section.) Several institutions have a formal process for centrally establishing and approving rates on an annual basis. A formalized training process hosted by the financial administration team may be required before a service unit is eligible to engage in internal billing activities. This training focuses on instructing users how to properly submit bills through the institutional system and opens a line of communication for future inquiries. Some institutions have centralized guidelines or policies that outline specific billing standards used by the institution. While many components of internal billing are decentralized on campuses, several institutions maintain specific policies regarding timing of billing and record keeping. Contact Institutions with Practice All contact institutions University A University B University D University E University F University G University H University G University B University E University F University H 4

6 IV. ESTABLISHING RECHARGE RATES Due to federal the procedures outlined in the Office of Management and Budget Circular A-21, several institutions have a centralized and standardized process for determining the rates for goods and services. University A, University B, University D, University E, University F, University G, and University H all require that the service units get approval from the appropriate central finance body for the rates they charge, and that this rate be reviewed on an annual basis. Across institutions, service units have the ability to apply for a mid-year rate adjustment if concrete evidence shows that the cost accounting procedures used to calculate the rate were inaccurate or have changed. Maintaining preapproved and published rates allows an institution to ensure that individual units are abiding by federal policies and can help avoid audits related to cost accounting. Rates are also standardized for all internal users across time. Furthermore, by posting rates in a central database departments or individuals that request service can have an idea of what the charges will be before contracting the service. Internal billing rate calculations should consider all costs associated with delivering a specific good or service; however, contacts report that isolating the exact cost of producing a good or service can be difficult. Rates cannot be set above actual cost and ideally should be set for the break-even point. The general standard across institutions is to calculate a rate that falls within five-percent of actual cost for the year. If a service unit realizes a profit in a given year, rates should be adjusted downward for the following year. The box below provides an overview of factors that should be considered when determining rates. Factors to Consider when Determining Internal Billing Rates Below is a list of the most common permitted costs that should be factored into the rate calculation for goods and services: 1. Direct personnel costs. The portion of salary associated with performing a service can be factored into the rate calculation. 2. Fringe benefits. The fringe benefits of personnel associated with providing the good or service should be accounted for in the rate calculation. 3. Materials and supplies. The cost of raw materials that are used to create a good or perform a service factor in to the rate calculation. 4. Equipment depreciation. While the purchase cost of new equipment cannot contribute to the rate calculation, a depreciation factor can be accounted for in overall cost in some circumstances. 5. Miscellaneous operating expenses. Additional operating costs that are directly related to producing a good or performing service should be considered in the rate calculation. It is important to note that a standard measurement of usage is necessary to complete the calculation. Such units include but are not limited to: labor hour, tests performed, lab runs, etc. Institutions such as University B, University D, and University G have formal templates that service units can use to make the appropriate rate calculations. 5

7 V. IMPLEMENTING INTERNAL BILLING TOOLS AND POLICIES In general, service units at contact institutions are highly decentralized and have the freedom to perform billing activities in the manner most appropriate; however, University G has converted to a centralized framework for processing internal billing recharges. Additionally, most institutions delegate some administrative responsibility to the office of financial operations or to the controller, who can implement policies and procedures and oversee charges. Institutions including University B, University E, University F, and University H all maintain standardized policies and procedures for internal billing. The following sections address these three aspects of standardization and centralization in more detail. Standardizing Technology across Service Units University G has established a centralized framework for internal billing that individual service units are encouraged to implement. The process relies on specific excel templates which can then be uploaded to a central ledger. Accounts are then automatically debited for the billed amount. Specifically, the template requires the service unit to fill in their vendor identification number, the invoice date, and the merchandise amount; furthermore, it is suggested that service units include contact information for the bill preparer, quantity of items and the specific unit price. The template is then uploaded via the web or through an FTP process to the general ledger. This process creates a real-time view of finances, as charges are automatically deducted in the ledger. Training Service Units in Billing Procedures University G encourages all service units to convert to the standardized billing process and requires potential users to participate in a one hour training course before access is granted to the system. The training walks users step-by-step through the billing process including filling in the template and uploading a sample file to the system. Session facilitators from the financial operations team use the brief training as an opportunity to encourage best practices in billing, such as timeliness and including detailed billing information on the invoice, and to open lines of communication between the service unit and the central administration. Both the billing unit and the requesting unit are encouraged to closely monitor charges to communicate with one another regarding billing questions or issues. The standardized process has also opened lines of communication between individual units and the central administration. Contacts stress that the standardized process has increased billing efficiency within the institution. Monitoring Charges through a Central Administrative Office While many institutions do not require service units to comply with centralized internal billing processes or standards, a central body has responsibility for overseeing internal billing activities and responding to billing questions or disputes. At many institutions, the office of financial operations or the controller reviews all charges that are submitted. If the charge is determined to be reasonable, the service unit can file the bill. Service units are largely responsible for monitoring their own finances and for approaching the central office with questions or concerns. The business office at University F disperses roughly 60 staff members throughout its departments; this figure includes a director of financial affairs located in each college. Some of these staff members handle billing for departments while others serve as a resource for the service units and help control billing expectations across the campus. 6

8 V. IMPLEMENTING INTERNAL BILLING TOOLS AND POLICIES (CONT.) Standardizing Billing Policies and Procedures Half of contact institutions have implemented centralized policies and procedures related to internal billing. The majority of these policies address the formal establishment of a service unit and the timing of billing transactions. Establishment of a Service Unit Many institutions maintain formal procedures for establishing a new recharge center on campus. Potential service units are generally required to submit specific documentation and forms that establish the services that will be provided and displaying the need for those services. University D requires a formal business plan to be submitted, including target customers and sample budget. This plan is then approved by the appropriate supervisory unit; for example, in the case of a departmental service provider, the dean of the college would approve the plan. Across institutions with documented policies, the next step generally involves rate calculation and the creation of an account. Timing of Bill Submission Many institutions realize the problems with delayed billing, though it is difficult to implement a practice across the institution regarding the timing of the billing process. Several institutions maintain concrete policies that dictate the timeframe in which a service provider should bill for services already rendered: University E gives departments a maximum of 60 days from the time of service University F requires bills to be submitted within 30 days of service University H requires service providers must submit bills on a monthly basis and states that goods and services must be billed in the fiscal month in which they are provided, where practical. The majority of institutions suggest that the service units engage in timely billing and believe that there is enough internal incentive to bill soon after service is rendered to make a policy superfluous. Furthermore, most institutions find it impractical to commit the resources that would be necessary to enforce timing policies. In all cases, individual departments are urged to take responsibility for their finances and receiving units should contact service providers if they have not received an expected bill in a reasonable amount of time. Promising Practices The following suggestions were derived from conversations with contact institutions. However, in general contact institutions have no formal policies related to these broader guidelines: 1. Implement pre-bill invoicing. In most systems once the bill is submitted to the central system, funds are automatically deducted from the recipient account. In such cases, contacts suggest that service units provide recipients with invoices before submitting the actual bill so that errors may be corrected in advance of the funds being deducted. 2. Encourage communication. If units across an institution have open lines of communication, the need to have a central oversight body is reduced. 3. Monitor accounts constantly. Departments should not wait until close of fiscal year to review finances. Service units and receiving units alike should keep track of financial information and address discrepancies before the end of the billing cycle. 7

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