1. Service Center Billing Rates Becca Fedewa, CPA Senior Financial Analyst, Financial and Cost Analysis fedewar@ctlr.msu.edu 517-884-8193 Evonne Pedawi Assistant Director, Contract and Grant Administration pedawiev@cga.msu.edu 517-884-4272 1

2. Service Center Billing Rates What is a Service Center Calculating a Billing Rate (or Fee) Requesting/Renewing a Rate Responsibilities Resources Questions 2

3. What is a Service Center?  An operating unit within the University that provides a service or group of services, or product or group of products to users principally within the University for a fee on a regular and continuing basis.  “Regularly makes stuff or does stuff for $.” 3

4. What is a Service Center?  Recharge Center  Specialized Service Facility  Fee for Service  Testing Center  Entrepreneurial Operation  Internal Service 4

5. What is a Service Center?  “Regularly makes stuff or does stuff for $.” An operating unit within the University that provides a service or group of services, or product or group of products to users principally within the University for a fee on a regular and continuing basis.  More than once per year, or recurring annually  Even though the deliverable product or service can vary widely, if the center is regularly producing or doing “stuff” it is probably considered a service center  Unique, one-time products or services are generally not service centers and the fee will be determined on a case by case basis 5

6. What is a Service Center?  “Regularly makes stuff or does stuff for $.” An operating unit within the University that provides a service or group of services, or product or group of products to users principally within the University for a fee on a regular and continuing basis.  Typically considered a service center even if all products are always different.  Examples of Service Centers: Physical Plant (IPF Services), University Stores, MSU Press, Copy Centers and Print Centers, Noncredit Instruction, Telecommunication Services, Event Planning, etc. 6

7. What is a Service Center?  “Regularly makes stuff or does stuff for $.” An operating unit within the University that provides a service or group of services, or product or group of products to users principally within the University for a fee on a regular and continuing basis.  Fee, surcharge, price, bill, commission, cost, pay, cut, stipend, cost share, revenue, consideration, remuneration, toll, slice, take, piece, ante……they’re all considered goods or services for a fee, and the rates to be charged need to be approved by Financial and Cost Analysis (and CGA if customers include Federal Grant Accounts) Let’s talk about how to calculate the rate… 7

8. Calculating Billing Rates  Five Step Process 1.Identify all of the services provided 2.Identify your user groups (customers) 3.Determine how much it costs to produce the goods or provide the services 4.Determine price points for external customers (i.e. markups) 5.Send rates and cost calculations to Financial and Cost Analysis for renewal every 2 years (minimum ) Pretty simple, right? Well, maybe not yet…. 8

9. Calculating Billing Rates 1.Identify all of the services provided  A separate rate schedule should be calculated for each category of service.  Typically costs for all the services are in one revolving account. In order to determine how much it costs to produce each good or service, you need to know which services or goods are provided so you can allocate total costs accordingly. Costs incurred on General Fund or Grant accounts cannot be included.  Tip: Sub accounting or setting up new accounts for various service lines may be helpful. 9

10. Calculating Billing Rates 2.Identify your user groups (customers)  Off-campus/External (ex: individuals, businesses, external entities) This includes students and other universities  On-campus/Internal (ex: departmental billings)  Grants (ex: federal/state grants administered by Contract and Grant Administration in RC accounts) Why does it matter? Campus and Grant rates are held to more restrictive rules. You can’t make a profit on these rates, but you can profit from Off-campus/External customers! 10

11. Calculating Billing Rates 3.Determine how much it costs to produce the goods or provide the service  Direct Costs – Specifically identifiable to the product or service with relative ease and high degree of accuracy.  Indirect Costs – Costs that are incurred for providing multiple goods or services. Overhead/admin costs.  Only costs incurred on revolving accounts (starting with D or X) may be included in the calculation of costs of providing a service. Costs incurred on grant accounts or general fund accounts cannot. 11

12. Calculating Billing Rates 3.Determine how much it costs to produce the goods or provide the service  Direct Costs – Specifically identifiable with relative ease and high degree of accuracy.  Salaries and fringes of staff directly providing the service  Material costs  Equipment lease or rental  Consumables  Contracted services  Other directly related expenses 12

13. Calculating Billing Rates 3.Determine how much it costs to produce the goods or provide the service  Indirect Costs – Costs that are incurred for providing multiple goods or services.  Salaries of administrative support staff (directors, clerical, and accounting/business office staff)  Supplies not directly attributable to the service (office supplies)  Equipment lease or rental  Contracted services  Other costs incurred that can’t be traced to the final product with a high degree of accuracy But wait, some things are on both lists. Why? It depends on the service. Paper may be an indirect office cost in for most service centers, but at a copy center it would be a direct cost since we know exactly how many pages a customer is paying for. 13

14. Calculating Billing Rates 3.Determine how much it costs to produce the goods or provide the service  Allocate Indirect Costs  Develop a method to allocate the indirect costs to each service offered  Allocations should be based on a causal and beneficial relationship i.e. percentage of effort, time usage, costs, space (sq. footage), etc. We’ll go through an example shortly… 14

15. Calculating Billing Rates 3.Determine how much it costs to produce the goods or provide the service  Quantify or estimate usage (number of units) for each service.  What pricing structure will you use to charge customers? (What is your “per”) Time (per hour, per minute, per day, per week) Units (per credit, per attendee or attendee-hour, per test) Price (similar to units, except consists of a product list with a markup rate applied to cost of goods) 15

16. Calculating Billing Rates 3.Determine how much it costs to produce the goods or provide the service  Calculate the rate for each service: Annual Estimated Costs (Direct and Indirect) + or - Prior Period Cumulative Carry Forward (Deficit) Expected Units of Activity (“per”) 16

17. Calculating Billing Rates 3.Determine how much it costs to produce the goods or provide the service  Noncredit Instruction Ex: Indirect Costs Basket Weaving 102 (30 ppl) Basket Weaving 101 (50 ppl) Basket Weaving 103 (20 ppl) Direct Costs Admin Labor Management Labor Office Supplies Phone Bill 2 Instructors Facility Rental Course Materials Refreshments 1 Instructor, 1 Aide Course Materials Refreshments Audiovisual 50% 30% 20% 1 Instructor Course Materials Beverages/Snacks Audiovisual Hint: People-hours is a good, flexible NCI unit of measure! 17

18. Calculating Billing Rates 3.Determine how much it costs to produce the goods or provide the service  When calculating labor costs, group people who do the same kind of work together and calculate an average rate. 18 Note: 100% effort is approx. 1600 billable hours due to admin time, vacations, etc. (A x B)

19. Calculating Billing Rates 3.Determine how much it costs to produce the goods or provide the service 19

20. Calculating Billing Rates 4.Determine price points for external customers (i.e. markups)  Must be greater than or equal to the On-campus and Federal rate  External Rate should be at least 2% higher to cover the Administrative Fee  Watch out for Unrelated Business Income Tax (UBIT) Beth Powers, Financial and Cost Analysis 884-4279  Other than that, there aren’t really any restrictions 20

21. Calculating Billing Rates 5.Send rates and cost calculations to Financial and Cost Analysis for renewal every 2 years (minimum)  Send more frequently if cost components change (which is annually for many service centers due to pay changes)  Keep in mind that service center operations should break even over time so changing rates doesn’t need to happen when costs fluctuate minimally, but should when there is a significant change in costs.  billing.rates@ctlr.msu.edu Avoid being on “the list” by sending in updated rates on time. 21

22. Calculating Billing Rates That was the hard part!  Questions so far? 22

23. Requesting/Renewing a Rate  Send rates and cost calculations to Financial and Cost Analysis for renewal every 2 years (minimum)  Send more frequently if cost components change  Always include the following information in your request: Revolving account number for the Service Center User groups/customers (on-campus, off-campus/external, and/or federal grants) Effective date for the rates to be implemented or “upon approval” Rate calculation and explanation of methodology (if needed) 23

24. Requesting/Renewing a Rate  Send rates and cost calculations to Financial and Cost Analysis for renewal every 2 years (minimum)  When renewing a rate, calculate the prior period (the time since the last rate was reviewed) surplus or shortage, and factor that into your upcoming rates. Subtract a surplus from total costs, and add a deficit. This is the “Cumulative Carry Forward” referenced on Slide 16  NEW: A 10% Working Capital (Cumulative Carry Forward) balance may be maintained without adjusting rates. 10% of annual service center operating expenses. 24

25. Responsibilities  Financial and Cost Analysis  Review submitted rates in a timely manner. Target turnaround 4-6 weeks, but may be much sooner if the rate calculations submitted are self-explanatory Hint: Use the provided templates or something similar to calculate rates!  If user groups include federal grants, route to CGA  Email rate approval memo and attach to account in KFS  Provide guidance and assistance with rate development to departments  Maintain and update the billing rate policy at: http://ctlr.msu.edu/COFA/ServiceCtrBillingRatePolicy.aspx 25

26. Responsibilities  Service Center (department)  Revisit the billing rate policy before submitting rates to FCA for review. http://ctlr.msu.edu/COFA/ServiceCtrBillingRatePolicy.aspx  Obtain appropriate departmental/college reviews before sending rates to FCA  Send rate calculations to FCA every 2 years (minimum) for review/approval  Maintain supporting documentation of the calculations (i.e. operating statements, supporting schedules, labor distribution, etc.) and provide this support in the event of an agency audit 26

27. Responsibilities  Contract and Grant Analysis  Review submitted rates for compliance with federal regulations and cost circulars in a timely manner (as part of the 4-6 week target turnaround)  Provide guidance and assistance with rate development to departments (when user groups include federal grants)  Provide audit support. Act as liaison between federal auditors and the department responsible for maintaining the supporting schedules for rates  Assist with updating the Service Center Billing Rate policy to ensure federal compliance 27

28. Resources  Service Center Billing Rates policy  http://ctlr.msu.edu/COFA/ServiceCtrBillingRatePolicy.aspx (link in Section 5 of the MBP)  Templates for calculating rates (under Quick Links) Price Lists - Cost of Goods Sold + markup % Noncredit Instruction – Direct and Indirect costs per participant hour or course Testing per Unit and per Hour – Direct and Indirect costs per test Services – Direct and Indirect costs per hour where primary cost is labor  Quick Links – OMB Circular A-21, Sample letter, MBP, etc 28

29. Resources  Financial and Cost Analysis  Becca Fedewa billing.rates@ctlr.msu.edu (517) 884-4193  Contract and Grant Administration  Evonne Pedawi pedawiev@cga.msu.edu (517) 884-4272 29

30. Questions? 30