LSU Health New Orleans

Career Opportunities | Contact | Donate

Friday, October 31, 2014   10:57 AM    |   68°F
 
 

Service Center

 


GENERAL INFORMATION

This policy provides guidelines for establishing, costing, pricing, and administering Service Centers (SC) and other operations regularly selling goods and/or services to Louisiana State University Health Sciences Center New Orleans (LSUHSC-NO or the University) departments or activities. SC policies and practices have been established to provide consistent operational practices among the various SC units and to ensure compliance with federal government regulations. LSUHSC-NO conducts sponsored programs under federal government grants and contracts. SC activities may make charges, either directly or indirectly, to federally sponsored grants and contracts. Therefore, SC policies and practices must reflect government regulatory costing principles such as those contained in the Office of Management and Budget (OMB) Circular A‑2 1, "Cost Principles for Colleges and Universities", and those required by the Cost Accounting Standards Board. The Controller must approve any exceptions to this policy.

A department may provide goods or services for itself or for other University departments. SCs are established when management determines that a good or service is most effectively provided within the University even if the same good or service may be available commercially. The purpose of SC accounts is to control the cost of providing goods or services within the University. The costs of providing the goods and services shall be distributed through a charge schedule that is uniformly applied to all users.


DEFINITIONS

Depreciation ‑ depreciation accounting is a system of allocating the acquisition cost of an asset (equipment, building, parking lot, etc.) over the estimated useful life of the asset. The life of an asset is normally measured in years but it could also be based on volume of usage. Each accounting period is charged a depreciation expense based on the estimated useful life (or volume of use) of the asset rather than charging the full cost of the asset as an expense in the year in which it was acquired.

Direct costs ‑ direct costs are those costs that can be identified specifically with a particular sponsored project, an instructional activity, or any other LSUHSC-NO activity, or that can be assigned to such activities relatively easily with a high degree of accuracy. Costs incurred for the same purpose in like circumstances must be treated consistently as either direct or indirect costs.  Where LSUHSC-NO treats a particular type of cost as a direct cost of sponsored agreements, all costs incurred for the same purpose in like circumstances shall be treated as direct costs of all activities of LSUHSC-NO. The University's cost accounting practices are documented in the federal disclosure statement DS‑2.

Equipment ‑ an article of non‑expendable, tangible personal property having a useful life of more than two years and an acquisition cost of $5,000 or more. This includes donated equipment, and equipment being constructed whose component parts may be less than $5,000 each but whose total cost will be $5,000 or more.

External customers ‑ any customer other than one paying for the goods/services by charging an PeopleSoft LSU account number.

Facilities ‑ the physical space occupied by the SC including utilities and routine maintenance such as custodial services.

Indirect costs ‑ indirect costs are 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 LSUHSC-NO activity. Costs incurred for the same purpose in like circumstances must be treated consistently as either direct or indirect costs.  Where LSUHSC-NO treats a particular type of cost as an indirect cost of sponsored agreements, all costs incurred for the same purpose in like circumstances shall be treated as indirect costs of all activities of LSUHSC-NO. The University's cost accounting practices for indirect costs are documented in the federal disclosure statement DS‑2.

Service Center  (SC) ‑ a SC is an organizational unit that provides a specific type of good or service to LSUHSC-NO departments, rather than to individuals or the general public, and is supported by internal charges to the user department's operating accounts. The users typically determine the amount of goods and services they obtain. Such a good or service might be purchased from commercial sources, but for reasons of convenience, cost, or control, it is often provided more effectively through a LSUHSC-NO service center. The rates charged by a SC are generally formulated to recover operating costs, which would include, but not be limited to:

  • Cost of materials and supplies

  • Travel

  • Occupancy (space) costs ‑ rent

  • Transfer of cash for provision for renewal and replacement of equipment and facilities (depreciation)

  • Allowable interest

  • A share of administrative charges

SCs provide activities for which a Rate Schedule is required and

  • Are established primarily to provide goods/services to other LSUHSC-NO departments, sponsored programs, or activities.

  • Operate as a discrete unit having control of revenues and expenses.

  • Are ongoing activities.

  • Charge all users equally for services at a rate calculated to recover their costs over a fixed period of time.

  • May have incidental sales to external entities.

SCs range in size from small departmental copy machine operations to the Division of Animal Care.

Support units ‑ as used in this policy, these are departments or activities which were established primarily to provide goods/services to students, faculty, staff and/or the general public but which also regularly provides goods/services to LSUHSC-NO departments, sponsored programs or other activities,e.g.. For example, the Bookstore.


INTERNAL CONTROLS

SCs are operated as essentially self‑funded business units. Their business activity consists of interdepartmental sales and may include inventory for resale and occasional cash or credit sales to the general public. SCs shall follow the appropriate internal controls for cash, inventory and accounts receivable as prescribed in this manual.


ACCOUNTING, BUDGETING AND COSTING

As self‑funded business operations, SCs shall be budgeted and accounted for separately from other departmental activities. Discrete PS chartfields are created for current operating expenses, equipment and facility purchase, and renewal and replacement funds.

SCs shall have accounts and budgets established in accordance with existing policy and procedure. Annual budgets shall reflect the SC expected revenue and expenses. Since the annual budget for a SC account is normally prepared several months in advance of the beginning of the fiscal year, the new budget must reflect the projected expenses, revenues, and surplus/deficit to the end of the fiscal year.

SC accounts shall contain all the costs and only the costs of operating the SC. This includes all direct costs ‑ salaries, wages, benefits, supplies, travel, utilities, occupancy (space) cost ‑ rent, etc. The salaries, wages and benefits of staff whose efforts only support the SC shall be charged to the SC accounts. Please review with the Accounting Office your proposed cost allocation before charging departmental general administrative salaries, wages and benefits to a SC. The costs of operating a SC shall not be commingled with the costs of other operations.

 

ESTABLISHING A SERVICE CENTER

Normally, Deans, Directors or Department Chairs shall authorize the creation of a SC, as required by the administering department's policy. The creation of a large SC such as the Division of Animal Care may require the authorization of your Vice Chancellor. Start up costs, e.g. purchasing initial equipment, supplies or inventory, shall be funded by the administering department.

The Controller is responsible for approving creation of the Center, creating an account, and assigning a PeopleSoft chart string number.

The benefits, including relative prices and quality, of the proposed SC providing the goods/services must be weighed against the benefits of obtaining similar goods/services from commercial sources or other University sources. In contemplating the creation of a SC, departmental management shall consider the following.

A.    Determine that a valid need exists by reviewing the following criteria:

  • A demand exists for the goods/services to be provided. This demand should be by more than one department/unit/activity.

  • A significant volume of recharging (sales), both in dollar amount and number of transactions, will occur.

  • The goods/services are provided on a regular and continuing basis.

  • If services are to be provided, they shall be unique or specialized, as opposed to general administration or other LSUHSC-NO support services.

  • The SC will establish a budget separate from any other activity. This budget will be entered in a unique People Soft chartfield.Consider the issue of competition with the private sector.

B.    Determine that the following guidelines can be met:

  • All elements, and only the elements, of cost incurred in providing the goods/services will be recharged to the customers.

  • Costs of other activities may not be charged to the SC accounts except to the extent that the other activities are charging for goods/services provided.

  • Recharged amounts must be based on approved, predetermined rates applied to the actual quantities of goods/services provided.

  • SCs must calculate and publish a rate schedule during the annual budget process.

  • The rate must be reviewed and approved by the responsible departmental person.

     

BILLING RATES

 

SCs (annual sales over $100,000) must have their rate schedule reviewed and approved by Accounting Services. Publication consists of any means of informing customers of the rates. SCs must review their rates at least annually and adjust them if necessary to eliminate (1) surpluses in excess of allowable reserves, or (2) deficits. Recharge rates must be related to the cost of the goods/services furnished and provide for recovery of allowable costs.

 

A.    Billing Rate Development Considerations

       All SCs, no matter how small, must have approved billing rates for goods/services which:

  • can be substantiated with SC cost and usage (sales) calculations

  • are reviewed and updated on a regular basis, no less than annually during the budget process

  • shall be stated in measurable units of goods/services, e.g., hours of services, number of items bought, weight of items bought, etc.

  • are separately developed for distinctive types of goods/services when sales volume is significant and the cost of providing the goods/services is unique. Surpluses or deficits on a type of good/service cannot be shifted to another type of goods/services unless it can be demonstrated that the mix of users is not different between sales activities that gain and those that lose.

  • are not based on prorating or other indirect methods of cost allocations

  • are not based on the rate structure of external businesses.

  • are non‑discriminatory. "Non‑discriminatory" means that all internal users must be charged the same rate(s) for the same level of goods/services purchased. Refer to section VII.B. for alternative rate structures. Volume discounts or other special pricing mechanisms must be equally available to all users  who meet the criteria.

  • External users of a SC may not be charged at a rate less than that charged to  internal users. However, external users may be charged a higher rate. Students are considered external users for purposes of charging for goods/services.

  • are established at levels sufficient to cover all direct costs involved in the operation of the SC, as well as indirect costs which are applied at a rate to be set each year.

  • on average over the fiscal year plan to not have a month end fund balance surplus adjusted for internal contributions, in excess of 60 days of operating expenses. SCs will be considered to have broken even if their month end fund balance, on average for the fiscal year, does not exceed 60 days of operating expenses.

  • are designed to recover not more or less than the aggregate cost of providing the goods/services over a defined break‑even period. The break‑even period for most operations should be the fiscal year, although a longer break‑even  period not to exceed five years may be established when necessary. (For example, high "start‑up" costs may exceed revenue during the first few years of operation.) Carry‑forward adjustments to future year billing rates may be necessary to achieve break‑even in certain situations.

Although a break‑even position is desirable at the end of the fiscal year, it is not practical to expect SCs to exactly break even. Rate schedules are estimates of costs and utilization, and SCs may show a fund balance surplus or deficit at year‑end. This surplus (over-recovery) or deficit (under-recovery) must be incorporated into the next year's billing rate calculation, and prices for the subsequent year must be adjusted to balance any over‑ or under‑ recovery. This satisfies the long‑run break‑even requirement with no net effect to the service center. All efforts should be made to develop pricing strategies that will minimize such balance carry forward adjustments. Under no circumstances can a SC deficit be funded by another SC which has a surplus. Under no circumstances can a SC surplus be directed to other LSUHSC-NO activities.

B.    Unallowable Costs

Office of Management and Budget circular A‑21 section J identifies the allowable and unallowable expenses charged to federal programs. Therefore, SCs may not include the following costs in their internal customer billing rates. These costs must be funded by other resources (for example, unrestricted budgets or other auxiliary/restricted funds) provided by the SC's department or administrative unit. SC managers are responsible for ensuring that these charges are not included in the billing rates charged to federal agreements either directly or indirectly.

Advertising ‑ only advertising for recruitment of personnel and procurement of goods or services, e.g., position vacancies and request for bids is allowable. All other advertising is unallowable.

Alcoholic beverages

Alumni activity ‑ costs incurred for, or in support of, alumni activities and similar services.

Bad debts

Commencement and convocation costs

Contingency provisions - contributions to a contingency reserve or any similar provisions made for events, the occurrence of which cannot be foretold with certainty as to time, intensity, or with an assurance of their happening.

Defense and prosecution of criminal and civil proceedings. claims appeals and patent infringement

Donations and Contributions

Entertainment costs (typically official functions) costs of entertainment, including amusement, diversion, and social activities and any costs directly associated with such costs (such as tickets to shows or sports events, meals, lodging, rentals, transportation, and gratuities). Staff appreciation functions are allowable.

Financial aid

Fines and penalties

Fund raising

Goods or services for personal use

Interest costs ‑ exception: interest cost is allowed when paid to an external party and associated with the following assets, provided that the total cost (including depreciation, operation and maintenance, interest, etc.) does not exceed the rental cost of comparable assets in the same locality. Buildings acquired or completed on or after July 1, 1982 Major reconstruction and remodeling of existing buildings completed on or after July 1, 1982. Acquisition or fabrication of equipment completed on or after July 1, 1982, costing $ 10,000 or more, if agreed to by the Government. Contact the Accounting Office before incurring any equipment or facility interest costs.

Lobbying ‑ costs incurred in attempting to improperly influence either directly or indirectly, an employee or officer of the executive branch of the Federal Government to give consideration or to act regarding a sponsored agreement or a regulatory matter. Improper influence means any influence that induces or tends to induce a Government employee or office to give consideration or to act regarding a Government‑sponsored agreement or regulatory matter on any basis other than the merits of the matter.

Memberships, subscriptions and professional activity costs are unallowable in any civic or community organization, country club, social or dining club.

Promotional items and memorabilia including models, gifts, and souvenirs.

Public relations costs ‑ includes community relations and means those activities dedicated to maintaining the image of the institution or maintaining or promoting understanding and favorable relations with the community or public at large or any segment of the public.

Rental costs under "less‑than‑arms‑length" leases are allowable only up to the amount that would be allowed if the institution owned the property. For this purpose, a less‑than-arms‑length lease is one under which one party to the lease agreement is able to control or substantially influence the actions of the other.

Student activity costs ‑ costs incurred for intramural activities, student publications, student clubs, and other student activities.

Transfers of cash to a renewal and replacement account in excess of that equal to the depreciation expense calculated on existing equipment and facilities. 

C.    Interim Rate Reviews

Since rate schedules are estimates, adjustments to them should be expected and made as frequently as practical, e.g. quarterly, semi‑annually or following year‑end closing. The SC management shall review the business operations, including the billing rates, if during the fiscal year it appears a substantial fund balance deficit or significant surplus is developing. It may be necessary to adjust rates up or down in response to such a situation. Revised rate schedules must be reviewed and approved by the responsible departmental person. Large SCs (annual sales over $100,000) are required to have their revised rate schedule reviewed and approved by Accounting Services.

D.    Operational Considerations

When applying charge rates to users SCs shall take care to:

  • charge all users of goods/services at the established, approved rates.

  • not provide any subsidy to any user or class of users.

  • maintain documentation supporting each charge. This shall identify the customer, the date of the sale, the goods/services provided and the rate charged for the goods/services.

  • initiate billing transactions when goods/services are provided, but no later than for end‑of‑month closing. SCs shall not initiate billing transactions in advance of providing the goods/services. Progress billings may be made for jobs in progress.

  • charge the cost of goods/services directly to users, including sponsored programs based on actual use of the goods/services and a schedule of rates that does not discriminate between federally and non‑federally supported activities of LSUHSC-NO, including use by LSUHSC-NO for internal purposes.

E.    Equipment Considerations in Billing Rates

Capital equipment expense may not be included in the billing rate for recovery in the year of acquisition. In its place depreciation expense may be included in the billing rate calculation.  The depreciation expense is to be calculated using the straight‑line method over the estimated useful life of the equipment.

SC equipment depreciation is calculated on a monthly straight‑line basis assuming no salvage value, and begins the month after the asset is put into service. The cost of the equipment is divided by the useful life to determine each month's or year's depreciation expense.  An equipment allowance charge may be used if it is less than the calculated depreciation expense.

Contact the Accounting Office to find appropriate useful life information in calculating depreciation. SCs may use other useful lives if they can document that they retrain equipment for a longer or shorter period.

 

 

RATE CALCULATIONS

 

A.    General Rate Calculation

 

The purpose of calculating a rate to determine price is to assess users an allocated share of service center costs based on their relative use of SC products or services. A single rate (cost per unit of output) is used to recover the expense of providing a product or service. This rate is calculated by dividing the total estimated cost for providing the goods/services by the total projected level of activity for the budget period: 

Total Estimated Cost
Rate =     ------------------------------------------              
  Total Projected Level of Activity
 for the Budget Period
                             

Store SCs which sell inventory will use a slightly different calculation to determine an average markup over the cost of their goods sold. The rate is determined by dividing its administrative or operating costs by its projected cost‑of‑goods sold. Its rate is, therefore, a markup percentage on the cost‑of‑goods sold which should generate sufficient revenue to cover the cost‑of‑goods sold plus the administrative costs.

       Total Estimated Expense
                                                       Rate =        ----------------------------------------------------                                                                    
         Total Projected Cost‑of‑Goods Sold

The billing price of the goods sold is then the cost increased by the rate percentage calculated above.

A SC offering multiple related goods/services may establish rates for a variety of services that, in aggregate, recover the total costs of the SC. It is paramount that in establishing its rates, a SC does not discriminate against any internal group of users. Click here for a template for establishing SC rates.

B.    Alternative Rate Structures

Some SCs may experience special circumstances which call for rates utilizing an approach different from the general rate calculation. Tailored rate structures or pricing mechanism may be used as described below, so long as the resulting rate(s) are non­discriminatory with respect to classes of users, e.g. Federally Sponsored Programs.

1.  Time‑of‑day  - SCs that have wide fluctuation in usage during the day, or between Monday-Friday verses weekends and holidays, may establish a 'time‑of‑day' rate structure. Higher rates may be charged during hours of peak use, "prime time," to provide incentives to reduce the demand for services during peak times. This structure helps all users by improving performance during peak hours and encouraging the utilization of off‑peak hours, thereby reducing the cost for additional equipment.

SCs utilizing a 'time‑of‑day' rate structure must show that all users have an opportunity to use the center during non‑peak hours; that no particular user, especially federally sponsored programs, is disadvantaged by the proposed rate structure. This type of rate structure is used most frequently in computer and communication SCs.

2.  Volume discounting - economies of scale may dictate that a large quantity of a product or service provided to a customer will result in a lower overall cost than the standard per unit rate. A volume discount is allowed as long as it is 1) disclosed and justified in the SC's proposed rates; and 2) its effect is not discriminatory to a single type of customer, other than by amount of product or service provided.

 

INVENTORY ACQUISITIONS

Inventory for resale by SCs should be acquired in such a manner that costs are minimized. Since bulk purchasing can result in significant price reductions, the quantity to purchase should be carefully evaluated using historical sales activity. Quantities expected to be in inventory in excessive amount of time should be evaluated using an economic order quantity model that takes into account the costs to acquire and to carry the inventory. Bulk purchases may be made when the evaluation indicates that they are cost effective.

 

 

INTERNAL SUPPORT

Some SCs may not be able to always generate sufficient revenue to cover all its costs and funding demands. When this occurs the administering department must decide what action is required. Examples of such actions include, but are not limited to:

  • Reduce costs / Increase charge rates

  • Provide additional resources

  • Terminate the activity

  • Change service levels

Additional resources shall not be provided by booking direct costs of the SC in a non‑SC account.
 



RECORD KEEPING

SCs must establish and maintain record keeping procedures and systems to capture all financial and statistical data necessary for internal control and for the development and maintenance of billing rates. Records of all sales and services provided to customers shall also be maintained to document the goods/services sold and the pricing of each. Records of equipment acquisition and the calculated depreciation factor must be retained to support the billing rate calculation.

Each SC must, at a minimum, retain the following:

  •  Documentation as to how the billing rate(s) were calculated.

  • Records supporting the amount and basis of user billings (revenue).

  • Documentation on the life of equipment.