This policy provides a framework for the fiscal operations of University service centers that will assure their compliance with sound government regulations and accounting principles. Both are essential elements in supporting the educational and research mission of Auburn University. Although there is a wide variation in size, complexity, and services provided by service centers, they should maintain consistent administrative practices.

TABLE OF CONTENTS

1. Regulations
2. Service Centers Defined
3. Compliance Responsibilities
   Service Center Review Committee
   Deans
   Department Head
   Service Center Manager
   Budget Services
   Financial Reporting
   Planning and Analysis
   Internal Audit
4. Recovery of Costs
   Nondiscriminatory Rates
   Billing Period
   Break-Even
   Mid-Year Treatment of Over/Under Recoveries
   Unallowable Costs
5. Request For Establishing a New Service Center - SC 99-01
6. Rate Development Illustration - SC 99-02
   Consumption Approach
   Output Approach
7. Rate Development Worksheet - SC 99-03
8. Revenues and Expenses Worksheet - SC 99-04

REGULATIONS

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SERVICE CENTERS DEFINED

Recharge Accounts will be defined as departmental operations with annual expenditures less than $50,000. They can only recover direct operating costs such as salaries, supplies and equipment maintenance costs. A separate account is suggested, but not required. Recharge unit activities are covered by the separate Recharge Account Policy and the Service Center policy is not intended to apply to recharge units. However, cost accounting principles applicable to Service Centers also apply to Recharge Accounts.

Service Centers will be defined as units with annual expenditures of $50,000 and generally up to $1 Million,and their rates are to include direct operations and maintenance costs as well as depreciation of equipment. Service Center managers who have equipment to depreciate should contact the Controller's Office for guidance. The rates will not include an allocation of central administrative costs. (The Federal government has designated certain services as Service Centers, even though they may fall below the University expenditure threshold, e.g., animal care facilities.) Separate account(s)must be established for each service center to account for its operations. Depending upon the complexity and variation of activities, it may be necessary to establish separate accounts within the Service Center.

Specialized Service Facilities are defined in OMB Circular A-21, Section J.44 as highly complex or specialized facilities, the rates of which should include their appropriate share of indirect costs. Specialized Service Facilities meet all of the following criteria:
1) The facility incurs substantial annual expenditures and chargeout volume, approximately $1 Million or greater, or has significant charges to federal funds .
2) Treatment of its indirect cost within the service center rate rather than as part of the overhead pool, would "materially" affect the University-wide overhead rate;
3) Its services should not be easily available from external vendors.

If a service center is determined to meet the requirements to be considered a specialized service facility, then the service center rates must be set to recover both its direct costs and its allocable share of the University's administrative and facility-related indirect costs. Units falling in this category should contact the Controllers Office for specific rate development guidance.

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COMPLIANCE RESPONSIBILITIES

• Overseeing the formation of service centers and the establishment of their accounts

• Performing an annual review and approval of rates for the selection of service centers

• Reviewing the performance of selected service centers annually, with respect to break-even at midyear and at fiscal year end

• Periodic review of financial status of service centers with respect to budget vs. actual expenditures

• Approving service center requests for rate changes during the year

DEANS - Ultimate responsibility for review of desirability and feasibility of service centers and recharge centers rests with the dean (or equivalent for non-academic units). Responsibilities include:

• Fully review and approve the establishment of each new service center, prior to an account being requested from the Controller's Office (See Request For Establishing a New Service Center - SC 99-01.) Factors such as consistency with Auburn University mission, availability of similar service (particularly on campus) and the ability to identify separate costs should be considered before approving
• Review and approve the rate calculation, and supporting documentation for the rate, prior to submission to the Service Center Review Committee (See Rate Development Illustration - SC 99-02 and Rate Development Worksheet - SC 99-03)
• Review and approve the annual rate calculation and budget
• Ensure centers will operate in accordance with federal cost principles and University policies and procedures<>
• Respond to all audit findings related to the Service Center
• Monitor financial position with the respect to 'break-even' semi-annually

DEPARTMENT HEAD - The Department Head is responsible for serving as a liaison between the Service Center Manager and the Dean, as well as providing oversight for the activities of the Service Center Manager.

SERVICE CENTER MANAGER - Day-to-day responsibility for the service center is provided by the manager, who monitors the operation and takes corrective actions as needed. The Manager has an obligation to assure that:

• An annual schedule of rates, with supporting calculations, is submitted to the Controller's Office for review by the Service Center Review Committee, with detailed supporting documentation available for an audit upon request
• The financial position with respect to 'break-even' (see following section on break-even) is reviewed periodically so the rate may be adjusted if necessary
• All equipment for which depreciation costs are included in the service center users fees are identified as service center equipment for Property Services
• All building space should also be identified as service center space in the annual space study performed by Planning and Analysis (see below)
• The approved rate schedule is applied uniformly to all users
• Billings are timely and adequately documented, and receivables billed are controlled and reconciled
• Records of the details contained in all service center charges are maintained for audit as long as the grants or contracts they charge remain subject to audit. Each service center activity must be documented and records maintained to support expenditures, billings and cost transfers including:

1. salary and wage documents for seven years,
2. rate calculation work papers,
3. justification of the selected activity base for rate development (See Rate Development Illustration - SC 99-02 )
4. documentation of actual costs of operations (personnel and operating costs),
5. approval of the rate from the review committee, if applicable,
6. records documenting and measuring sale of the services or products.
7. maintaining inventory system

BUDGET SERVICES - This office has responsibility for:

• Assisting centers in establishing expenditure, revenue and capital budgets; and
• Periodic review of financial status of Service Centers

• Assisting service center managers with policy and procedural matters related to accounting operations
• Assisting centers in annual rate calculations for incorporation in the budget
• Maintain depreciation calculations and provide semiannual depreciation estimates to service centers for incorporation in the rate development

PLANNING AND ANALYSIS will collect information regarding the building space assigned to each service center or specialized service facility as part of their annual space usage study.

INTERNAL AUDIT will include a selection of service centers in their work plan to ensure compliance with OMB Circular A-21 and the policies set forth in this document.

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RECOVERY OF COSTS

BILLING PERIOD - Services must be billed after the service has been rendered; prepayments are not appropriate. The centers will operate in accordance with the University's fiscal year, October 1 through September 30. Centers should handle year-end billings consistently each year, to assure that twelve months of revenue are associated with twelve months of incurred cost.

BREAK-EVEN (Revenues equal Expenditures/Costs) - Service Centers should target break-even through budgeting and rate setting, but normally revenues and expenditures do not exactly match. The University has defined a break-even policy stating that a service center's surplus or deficit for a given fiscal year should not exceed 10% of annual operating expenses, computed as of the final closing of the books on September 30. Under or over recovery of costs should be calculated based on actual revenues and expenditures, without regard to budgeted funds. (See Revenues and Expenses Worksheet - SC 99-04.) To the extent the annual operating surplus or deficit is within the break-even range of +/- 10%, that surplus/deficit must be applied to the following year's rate calculation(s) so the operation will break-even over a 5 year period.

Calculation of annual operating expenses should exclude:

i) Increase in inventory. A physical count of inventory must be taken annually and reported to Financial Reporting by October 15. (See Rate Development Worksheet - SC 99-03.)
ii) Current Year Capital Equipment Purchases. Only the annual depreciation expense is to be included in calculating profit or loss.
iii) Federally-funded equipment. Depreciation of equipment purchased with Federal Funds, including Federal Appropriations such as Hatch, cannot be included in user rates.

MID-YEAR TREATMENT OF OVER/UNDER RECOVERIES - When it appears that a service center is going to end a given fiscal year with an operating surplus or deficit for the twelve months exceeding the 10%, this excess (the portion beyond the 10%) surplus or deficit should be addressed in a midyear adjustment of rates.

UNALLOWABLE COSTS - Unallowable costs may not be budgeted or expensed on service center accounts and they may not be included in the user rate calculations as prohibited by OMB Circular A-21. Typical unallowable costs include, but are not limited to:

• Advertising and public relations costs (J.1)
• Alcoholic beverages (J.2)
• Bad debts (J.4)
• Contingency provisions (J.9)
• Entertainment costs (J.15)
• Fines and Penalties (J.18)
• Insurance and indemnification (J.21)
• Memberships, subscriptions, and professional activity costs of a social or individual nature (J.28)
• Selling and marketing costs (J.42)

See OMB Circular A-21, Section J for a complete list of unallowable costs.

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