Internal Service Center Policy - Definitions

Acquisition Cost: Cost of acquiring materials and supplies and capital assets, including taxes, freight, and installation costs to place the materials and/or assets into intended use (see FIN 430-01 for definition of capitalized expenditures). Acquisition cost of equipment and buildings excludes the cost of land. For donated capital assets, acquisition cost is its fair market value at the time of the donation (plus any acquisition related expenses such as freight and installation).

Auxiliary Enterprise: A separately organized University unit or activity specifically established to sell services/products on a continuing basis to students, faculty, staff, and the general public primarily for personal use. These units may sell to ASU departments if revenues generated represent a minor percentage of total revenues. Auxiliary enterprises charge fees directly related to, although not necessarily equal to, the cost of the services/products.

Auxiliary enterprises differ from Internal Service Centers in that Internal Service Centers generally are subsidiary to a larger university unit (e.g., ASU Stores is a part of University Business Services), provide support primarily to individuals and university units for institutional activities (e.g., instruction, research, etc.), and/or can not generate a profit from the sales of services/products.

Billing Rate: An amount established to charge for specific services/products. The billing rate may vary by types of customers and/or services/products, however, rates charged to Federal funds, either directly or indirectly, may not subsidize non-Federal users or rates in any way. The rate shall be determined by dividing the costs of a particular service/product by the billing unit. Billing rates may also include surcharges to non-university users in an effort to promote full costing and to comply with competition laws of the State of Arizona.  The billing rates for each Internal Service Center are to be posted on the website of each Internal Service Center.  If the Internal Service Center does not have its own website, the billing rates need to be posted on the website of a higher level organizational unit of the Internal Service Center.

Billing Unit: The basis on which services/products are offered (e.g., hours, unit price, etc).

Break-even Period: A reasonable time-period over which cumulative revenue for a service/product equals cumulative expenses, exclusive of net revenues realized from providing business to non ASU customers (reference Section IV.E.3.).

Capital Usage Factor: The annual cost of capital equipment, buildings and building improvements. This includes depreciation, and lease/rental. NOTE: ASU utilizes straight line depreciation for capital equipment, buildings, and building improvements.

Carry-forward: The over or under-recovery of current operating costs resulting from billing rates that vary from actual cost (generally calculated on a fiscal year basis). Carry-forward is an allowable cost adjustment to subsequent year rate computations and promotes "break-even" within the break-even period. When determining account balances Internal Service Centers must impute revenue as if it were collected at the normal rate (exclusive of discounts or surcharges) to avoid reflecting false deficits or surpluses. This is critical to avoid subsidies between users (e.g., the Federal government cannot subsidize non Federal users). The carry forward balance cannot be greater than 60 days worth of expenditures, excluding depreciation.

Cost: Actual expenditures incurred for salaries & wages, employee related expense, operations, travel, capital usage and associated administrative service charges.

Cost Centers: Units of activity or areas of responsibility into which an Internal Service Center is divided for accountability purposes, and to which costs are allocated or directly assigned (e.g., Key Shop, Electrical Shop within Facilities Management). Units should establish cost centers for similar services/products when the annual dollar volume becomes significant and the cost of providing particular services/products varies significantly from other services/products.

Current Depreciable Value: Acquisition cost of a capital asset less accumulated depreciation. Depreciation funds must be transferred to an equipment replacement account.

Current Operating Costs: Represents allowable salaries & wages, employee related expenses (ERE), operations, travel, internal Service Center overhead, capital usage factor (if applicable) and associated administrative service charges (ASC) for the operation of an Internal Service Center and intended to be recovered through the billing process. Current operating costs may include unallowable costs if billed to external users (e.g., advertising costs to attract external users).

Depreciable Life: The time period or units of activity over which the value of a capital asset is distributed (e.g., years, miles driven for vehicles, etc.) to determine annual depreciation.

Depreciation: The process of allocating the cost of a capital asset, net of residual or salvage value if applicable, over the estimated depreciable life. Normally only straight line depreciation will be recognized.

Imputed Revenue: The process of determining Internal Service Center revenue without regard of billing rate discounts and/or surcharges (e.g., the normal billing rate of a Service Center is $10 per hour. A discount of 50 percent is provided to a customer who uses 10 hours of service. The actual revenue realized is $50 whereas the imputed revenue is $100). Departments must track any imputed revenue.

Institutional Indirect Costs: Costs related to specific support functions that are often budgeted as "academic support" or "institutional support," and are provided to departments on a non-billable basis. The three largest of these are general & administrative (institutional administration), operations & maintenance, and college/departmental administration. General & administrative costs include executive management, payroll, personnel, purchasing, etc. Operations & maintenance costs include routine building maintenance and custodial services, utilities, etc. Other institutional indirect cost categories are sponsored projects administration, student administration & services, library, building depreciation, equipment depreciation, and interest expense related to capital.

Interdepartment Purchase Orders (IDPO): IDPO’s are used by University departments when procuring services/products provided by a Service Center to be charged to another University account. This can be done on-line. (PO)

Internal Service Center Indirect Costs: Costs that can be readily and specifically identified with (and are charged to) the Service Center but not with a particular service/product provided (e.g., supervisory costs). Service center indirect costs must be allocated to each service/product in a logical manner beneficial of the relationship to the service/product.

Net Revenue: Receipts realized in excess of operating costs and scheduled capital usage recovery resulting from services/products provided to any non ASU customers (reference Section IV.E.3.). The use of net revenue is left to the discretion of the service center and/or operational unit to which the service center reports. Recommended uses include reduction of future billing rates or transfer to a capital replacement account provided the service center can demonstrate the net revenues resulted from services/products provided to non ASU customers.

Non ASU Customers: Non ASU customers represent individuals, groups, or organizations paying for service center services/products with funds other than state, local, and/or sponsored funds which are under the fiscal oversight of ASU with the following exception. To the extent possible, Sponsored agreements with "for profit" sponsors should be treated as non ASU customers so that ASU, as a state agency, is not subsidizing these organizations.

Non-Interdepartment Billing: An invoice for services/products provided by an Internal Service Center but not charged to a University account (e.g., animal per diem charges for Mayo Clinic researchers).

Private Enterprise: External business enterprises.

Recharge Center: A form of Internal Service Center (see Internal Service Center below) whose activities are generally incidental to total departmental activity and no formal cost studies are performed (e.g., photocopying done on a department copier and recharged to the user).

Internal Service Center: A university unit or activity whose primary customers are University departments generating greater than 50 percent of the unit's revenues. Interdepartmental billings are the predominant revenue source for an Internal Service Center. Billings rates for Internal Service Centers are designed to fully recover current operating costs.

Specialized Internal Service Facility: A service activity that provides unique services to a select group(s) rather than the general university (e.g., animal care facility, wind tunnel, electron microscopy) and has an annual operating budget of $1,000,000 or more. Billing rates for Specialized Service Facilities should include Internal Service Center costs (see above) plus institutional overhead costs such as depreciation, operations and maintenance costs (e.g., utilities, custodial), and general university administrative costs (e.g., Purchasing, Payroll).

Subsidized Billing: A billing using a rate less than the full calculated rate per rate study computations. This occurs when an Internal Service Center is not entirely self supporting (e.g., receives partial support through State appropriations). An intended loss cannot be carried forward when determining subsequent year’s rates (see Carry-forward above). Subsidized funds must be tracked on an annual basis.

Unallowable Costs: Costs that must be excluded from Internal Service Center or Specialized Internal Service Facility billing rates. The following represents examples of common unallowable costs( see Appendix A for a comprehensive list of unallowable costs):

• Advertising of services/products
• Alcoholic beverages
• Bad debts
• Entertainment (for example, amusement, social activities)
• Fines and penalties
• Goods or services not related to the Service Center

Unrelated Business: Any activity that is:

• A trade or business. A trade or a business is any activity that is carried on for the production of income from the sale of services/products. Also, there must be a "profit motive".

AND

• Regularly carried on. Regularly occurring or seasonal activities normally qualify as regularly carried on," whereas intermittent, casual, or sporadic activities do not.

AND

• Not "substantially related" to the University's tax exempt purpose (i.e., teaching and research). Activities that contribute importantly to the accomplishment of the University's tax exempt purposes (other than by providing funds) qualify as related. [Note: Public service by itself does not qualify as part of the University's tax exempt purpose.]

AND

• Not covered by specific IRS Code exceptions. For example, an activity conducted primarily for the convenience of the University community.

Income or revenue from unrelated business may be subject to taxation under IRS Code Sections 511-513. Contact Financial Services (Comptroller) for assistance in determining what constitutes unrelated business income.