1 Service Center FY2006 Billing Rate Proposal Preparation

2 Policy Statement The University of Houston’s policy statement on service centers and specialized service centers is contained in MAPP Units within the University of Houston may establish and run service centers to provide unique and specialized goods or services to university faculty, staff, and students, as well as other academic and administrative units. All activities related to service centers must be carried out pursuant to OMB Circular No. A-21, all applicable UH System Administrative Memoranda, and other applicable UH MAPPs.

3 Policy Statement (Continued) Goods or services shall not be sold to the general public if the sales will compete with commercial sources. For service centers other than auxiliary enterprises, the Associate Vice President for Administration and Finance must approve sales to the general public.

4 Policy Statement (Continued) Service centers shall charge all users of goods or services at established, approved rates. Billing rates shall be developed, updated, and approved at least once a year. Rates established by service centers must be non-discriminatory.

5 Policy Statement (Continued) All goods or services provided shall be equally billed unless subsidized from other fund sources. Volume discounts or other special pricing mechanisms must be equally available to all users who meet the criteria. Rates charged for external customers must be equal to those charged to university customers plus the university IDC rate.

6 Policy Statement (Continued) Service centers shall operate on a break- even basis, rather than a profit basis. A year-end surplus should not exceed an amount equivalent to two months of operating costs. A surplus or deficit occurring in any year shall be included in the calculation of the subsequent year rates.

7 Policy Statement (Continued) Service centers should not transfer revenues, expenditures or fund balances between cost centers without prior approval by the Associate Vice President for Administration and Finance.

8 Service Centers VS. Specialized Service Centers  A Service Center is an entity that offers goods and/or services to other university departments, that does not receive a material portion of their funding from federally supported activities or sponsored agreements, and that charges a fee directly related (although not necessarily equal) to the cost of the goods or services delivered.

9 Service Centers VS. Specialized Service Centers A Specialized Service Center is an entity that offers goods and/or services involving the use of highly complex or specialized facilities primarily to other university departments and whose total recovered costs from federally sponsored activities exceeds $100,000 for two or more consecutive fiscal years. Specialized service center costs will be charged directly to users, including sponsored agreements, based on actual use of the goods and/or services and a schedule of rates that does not discriminate between federally and non-federally supported activities of the institution, including use by the institution for internal purposes.

10 Service Centers VS. Specialized Service Centers Both Service Centers and Specialized Service Centers are governed by the same policies and procedures, except where otherwise indicated in MAPP Specialized Service Centers are also subject to oversight by the Specialized Service Center Committee (SSCC).

11 Service Centers VS. Specialized Service Centers Request to establish service center will be reviewed by the Division of Finance and approved by the Associate Vice President for Finance. The total recovered costs from federally sponsored activities do not exceed $100,000. Requests to establish a specialized service center (i.e., a service center that anticipates recovering more than $100,000 of costs from federally sponsored activities for two, or more, consecutive fiscal years) will be reviewed by the Division of Finance and the SSCC and then forwarded to the Associate Vice President for approval.

12 Billing Rate Proposals It is important to include all operating costs of the service center. Although many service centers operate primarily as a service to the university community and there is no intent to recover all actual costs, it is still necessary to document all of the operating costs of the center. In addition to the primary service center operating cost center(s), all other funding sources should be identified (i.e., state-paid salaries, IDC funding). Match revenues and expenditures.

13 Billing Rate Proposals (Continued) All expenses that are included in a billing rate must be charged to the service center operating cost center. Expenses that are charged to the service center cost center must directly relate to the specific good(s) or service(s) provided. Unrelated expenses must be charged to other cost centers. All revenue related to the provision of goods or services must be recorded in the service center cost center. Forms are provided for use with this procedure.

14 Billing Rate Proposals (Continued) Fiscal Years To Be Included: Provide actual costs for the prior year (FY2004 –Form 1). Provide current year activity (FY2005) with estimated over- or under-recovery of costs by completing Form 1A (FY2005 billing rate proposal). Provide estimated costs (i.e., budgeted costs) for the next fiscal year (the year the rate is to be established or FYE2006- Form 2). Provide Form 3 (S&W), Form 4 (M&O) and Form 5 (Depreciation Schedule) for each fiscal year listed above as a supporting schedule.

15 Billing Rate Proposals (Continued) Compiling a Cost Study: Service centers should adapt Cost Study Form 1 to their operations. If specific PeopleSoft cost center accurately reflect all expenditures of the service center and there are no costs unrelated to the service center recorded in the cost center(s), expenditure amounts for salaries and wages and M&O used in the calculation of actual costs should come directly from PeopleSoft. If service center costs are commingled with costs that are unrelated to the service center operation, it is necessary to identify those costs separately for the calculation of actual costs.

16 Billing Rate Proposals (Continued) Developing a Budget: Service centers should adapt Salaries, Wages, and Benefits Budget Proposal Form 3 and Maintenance and Operations Budget Proposal Form 4 to their operations.

17 Billing Rate Proposals (Continued) Developing Billing Rates: When charging university accounts, billing rates must be based on the actual cost of providing the goods or service. Auditors require documentation that proves that each rate or price charged is based on cost. Service centers should adapt Billing Rate Proposal Form 2 to their operations.

18 Billing Rate Proposals (Continued) Depreciation: Capital equipment used in service center rate calculations is removed from the IDC calculation to avoid double charging. Equipment that is used in more than one activity (i.e., shared use), determine the percentage of usage by the service center when the asset is shared with another area. Allocate the cost of the asset by the percentage of use and depreciate only that cost applicable to the service center.

19 Billing Rate Proposals (Continued) Depreciation (continued): Good record keeping is the only way to remain consistent between equipment classes and between years, especially if a different method is adopted other than is recommended. Keep a record of assets used in the rate calculation, the cost, life, UH Tag number, location, fund source, (see Form 5) and methods applied. If equipment purchased with Federal funds or used for cost sharing on Federal awards, it cannot be depreciated Equipment with cost less than $5, should not be included in depreciation schedule, it should be treated as an operating expense.

20 Billing Rate Proposals (Continued) Approval for Rates: Service center forms are submitted for review and approval to the department chairman, college dean or division head. After approval by the department chair/administrative unit head, they are forwarded to the Division of Finance for review and then they are forwarded to the Associate Vice President for Finance for final review and approval. Specialized service center forms are submitted for review and approval to the department chairman, college dean or division head. After approval by the department chair/administrative unit head, they are forwarded to the Division of Finance. The proposed billing rates will be reviewed by the Division of Finance and the SSCC and then forwarded to the Associate Vice President for Finance for final review and approval.

21 Billing Rate Proposals (Continued) Form 1 - Compiling a Prior Year Cost Study Form 1A - Compiling Current Year Cost Study Forms 3 & 4 - Developing a Budget Form 2 - Developing Billing Rates Form 5 – Depreciation Additional Forms Need To Be Completed: Location Summary Pricing Policy and Price List Certification Copy of Price List to Public

22 Billing Rate Proposal Preparation Example