Internal Service Center Policy - Cost Accounting Guidelines

A. Accounting practices. An Internal Service Center must consistently follow sound cost accounting practices/standards, including rate setting methodology and billing/charge-out practices. Cost accounting practices must not be changed merely for budgetary or administrative convenience. On an overall basis, the billing rates need to be set at a level that results in the Internal Service Center breaking even over a two to three year period.

B. Cost centers. Within an Internal Service Center only similar types of services/products should be grouped together in a unique cost center.

C. Costs included in billing rates. Billing rates should only include costs that are:

1. Reasonable. Reasonable costs are those necessary for the operation of an Internal Service Center or cost center and which are consistent with established University and/or Board of Regents, State, and Federal policy or regulations. This will usually include salaries & wages, employee related expenses, operations, travel, and associated administrative service charges. Capital depreciation, institutional overhead and surcharges may also be included in the billing rate if appropriate.

2. Consistently applied according to generally accepted accounting principles.

3. Properly allocable to services/products in accordance with relative benefits received or other equitable relationship. The following should be observed:

a. Properly allocable costs are those that:

1. Solely benefit the service/product.

2. Benefit the service/product and other services/products in proportions that can be reasonably approximated (for example, compressed gas).

3. Are necessary to the overall operation of the Internal Service Center and are partly allocable to the service/product (for example, an allocation of Internal Service Center overhead).

b. Any costs (or revenue) allocable to a service/product may not be shifted to other services/products if the shift will transfer the over or under-recovery of expenses (revenues) between services/products (see Section IV.J.) or the shift will circumvent restrictions imposed by law or policy.

4. Allowable. Unallowable costs (see definition for Unallowable Costs) cannot be included in billing rates charged to institutional funds. [Note: Internal Service Centers should not incur unallowable costs unless other sources of funds (for example, public customers) are available to cover them.].

5. All Internal Service Center rates are subject to a rate review when being initially established, changed, or at a minimum every two years, by the University Budget Planning and Management Office. When submitting a rate establishment or review to Budget Planning and Management, if no action occurs for 60 days, the Internal Service Department may then implement the new rate on an interim basis until the rate is reviewed, as long as the rate meets the rate setting guidelines of this policy.

D. Basis for direct charges. The costs of a service/product will be charged directly to customers based on:

1. Actual consumption or use of the service/product times the billing unit.

2. A schedule of billing rates that does not arbitrarily discriminate between the University's Federal and non-Federal supported activities (including use by the institution for internal purposes).

3. Actual costs less applicable credits. Examples of applicable credits include:

a. Purchase discounts, rebates, or allowances (including "educational discounts" where the arrangement is not clearly and specifically identified as a gift by the vendor),

b. Recoveries or indemnities on losses,

c. Adjustments for overpayments on erroneous charges

Projected current operating costs may be considered in lieu of actual costs to the extent they are based on known facts and not speculation. For example, the following year's approved operating budget would be acceptable.

E. Separate billing rates. In most situations separate billing rates must be developed for services/products that meet any of the following criteria (exceptions must be approved in advance by the Executive Vice President for Business & Finance:

1. Costs associated with a particular service/product require substantially different levels of resources and are therefore significantly different than the costs of other services/products offered by that Internal Service Center (e.g., Facilities Management, journeymen are more specialized than non-journeymen therefore increasing the level of service and the rate charged).

2. Are sold to Federal customers. When services/products are paid with Federal funds and the Internal Service Center receives direct or indirect Federal support the Federal support must be netted from the billing rate (e.g., salaries & wages, operations, and/or travel paid directly by Federal sources or capital depreciation included in the billing rate associated with equipment/facilities acquired with Federal funds).

3. Are sold to non ASU customers. Non ASU customer rates are fully-developed billing rates which should recover all costs, including institutional overhead, capital depreciation, unallowable costs (see Section I., Unallowable Costs), and expenditures incurred by State/General Operating Funds. Non ASU customer rates will minimize the potential for competition (or unfair competition) with private enterprise and therefore may also include a reasonable surcharge resulting in net revenue being realized. Such net revenue, however, may be subject to unrelated business income tax (reference Section I, "Unrelated Business Income Tax").

4. Any other time a discount or surcharge is extended

F. Capital Depreciation. Billing rates cannot include the acquisition cost of capital expenditures. Instead, subject to limitations specified above, billing rates may include "capital depreciation" related to the use of Internal Service Center equipment provided the asset(s) exist and are usable, used, and needed. Capital usage factors is computed based on depreciation methods for equipment. Capital usage factors for the lease/rental of equipment are determined based on the actual lease/rental amount. The following rules apply:

1. The computation of depreciation must be based on the acquisition cost of the capital assets involved. [Note: Consistent with section IV.E.2., billing rates for federal customers must exclude any portion of capital asset costs borne or donated by the Federal Government, as well as any portion of the cost prohibited from recovery by law or agreement.]

a. The computation of depreciation for buildings & improvements will be based on a 40 year life. The amount of depreciation is limited to the portion of building space (i.e., net assignable square feet) that relates to the Internal Service Center.

b. The computation of depreciation for equipment will be based on the straight-line depreciation (contact Property Control for useful life information). No depreciation may be computed or charged on equipment that has outlived its useful life.

2. Capital asset records & inventories. Capital depreciation must be based on adequate property records: complete physical inventories must be taken at least every two years to ensure that the assets exist and are usable, used, and needed. Inventory is tracked in the Property Control database and coded specifically to the service center account

See Section V, paragraph I, for the equipment replacement accounts that need to be established for all capital costs being recovered by Internal Service Centers.

G. Internal Service Center overhead. Internal Service Center overhead usually should be financed by the Internal Service Center's operating account(s) accounts and be included in billing rates for each service/product in a logical manner beneficial of the relationship to the service/product.

H. Frequency of billing rate calculations. Service centers should review billing rates annually (generally to coincide with the university's fiscal year) and adjust them as necessary to achieve a break-even condition. Proposed billing rate changes that cross vice presidential areas must be submitted for review to Office of Planning and Budget.

I. Break-even operation. Internal Service center billing rates should be designed to recover the aggregate cost of a service/product over a defined break-even period (after necessary reductions for current operating costs borne by non-operating accounts). The break-even period for most services/products should be one year although a longer break-even period may be established when necessary. Exceptions to this may occur when providing services/products to non ASU customers (reference Section IV.E.3.).

Example, because of high "start-up costs", the cumulative cost of a new service/product may exceed cumulative revenue during the first year or two of availability. [Note: Revenue for a service/product does not have to equal the cost of providing the service/product during any one fiscal year, provided the applicable billing rates are reviewed periodically for consistency with the "break-even plan" and adjusted if necessary. In this respect, carry-forward adjustments to future year rates may be necessary to accomplish break-even.]

J. Revenue or expenditure transfers. Since revenue or expenditure transfers between cost centers and other accounts may impact billing rate computations (including break-even), such transfers generally are not allowable. Exceptions to this are capital depreciation and institutional overhead recoveries made through the billing rate which must be transferred to capital replacement and institutional overhead recovery accounts respectively in accordance with pre-approved schedules. Additionally, surplus revenue may not be transferred to general fund accounts. Exceptions to this are cases where the surplus represents net revenue resulting from a surcharge to non ASU customers. In such cases the net revenue may be transferred to a separate account provided the service center can demonstrate the net revenue resulted from services/products provided to non ASU customers (reference Section IV.E.3.).

K. Exceptions. Internal Service centers may request specific exceptions to section IV guidelines. Written requests must be submitted to the Executive Vice President for Business & Finance for review and approval. Approved exceptions usually will be temporary in nature and will not relieve the Internal Service Center of long-term responsibilities for complying with section IV guidelines.

L. Service Centers are responsible for computing of their rates.  Service Centers need to consult with the chief business administrator of their college or vice presidential area before submitting rates for approval.   The Offices of (1) Budget Planning and Management, (2) Financial Services, and (3) Sponsored Projects are available for consultations with the chief business administrator of the college or vice presidential area, but not to actually develop and prepare the rate calculations and the on-going periodic monitoring of the rates.