Financial Management of Service Centers Policy

The University at Buffalo (UB, university) allows service centers to recover their costs by charging for goods and services provided, using billing rates established in accordance with this policy and the Service Center Procedures.  

All service centers must comply with Office of Management and Budget (OMB) Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 C.F.R. 200) (Uniform Guidance). Key requirements of the Uniform Guidance include:

a)       The costs of services provided by highly complex or specialized facilities operated by the non-federal entity (e.g., computing facilities, wind tunnels, reactors) are allowable, provided the charges for the services meet the conditions of either (b) or (c) below, and, in addition, take into account any items of income or federal financing that qualify as applicable credits under § 200.406.

b)      The costs of such services, when material, must be charged directly to applicable awards based on actual usage of the services on the basis of a schedule of rates or established methodology that:

1)      Does not discriminate between activities under federal awards and other activities of the non-federal entity, including usage by the non-federal entity for internal purposes, and

2)      Is designed to recover only the aggregate costs of the services. The costs of each service must consist normally of both its direct costs and its allocable share of all indirect (Finance & Administrative (F&A)) costs. Rates must be adjusted at least biennially, and must take into consideration over/under-applied costs of the previous period(s).

c)       Where the costs incurred for a service are not material, they may be allocated as indirect (F&A) costs.

d)      Under some extraordinary circumstances, where it is in the best interest of the federal government and the non-federal entity to establish alternative costing arrangements, such arrangements may be worked out with the federal cognizant agency for indirect costs. 

The service center billing rate is the cost per unit of measure (UOM) used to recover the costs of the service center: New service center billing rates and changes to existing rates are calculated with guidance from Financial Management and approved by:

• Financial Management
• Service center manager
• Department head/chair
• Unit Business Officer (UBO)
• University Controller
• Provost designee, as applicable

Service center billing rates must be calculated and reviewed based on the university’s fiscal year. Rates must be reviewed and adjusted at least biennially.

Service centers must develop billing rates so that revenues offset costs over a reasonable period of time.

With proper approval, the service center operations may be subsidized, if the center is meeting their research or educational mission to serve the university. When billing rates are lower than cost, the resulting deficit cannot be carried forward as an adjustment to future billing rates. Amounts charged to external users in excess of the internal service center billing rate must be excluded when calculating the service center surplus or deficit.

Internal Customers

Internal university customers must be charged at cost for the services provided. 

Subsidized Customers

Service centers must bill all customers for all services provided. With proper approval, the service center may choose to provide a service to an internal group of customers at no charge or at a lower rate than other customers, however, the service center billing rate must be calculated for all internal customers based on total service center expenses and total units of output. Variable rates must be based on clear and identifiable criteria.

External Users

Services centers are permitted to charge external customers a rate higher than the rate charged to internal customers. Service centers are required to track revenues and costs associated with external customers separately to avoid the perception of overcharging.

Rates charged to external customers may include:

Full direct costs of the service center operation including direct costs not charged to internal usersIndirect (F&A) costs of the service center operation

General University Service Fee (GUSF)

Sales tax, where applicable

External rates cannot be significantly different than the prevailing rate for identical services provided by commercial organizations in the area.

Revenue from external customers may have Unrelated Business Income Tax (UBIT) implications.

Service centers must establish a separate account(s) to record only service center revenue and expenditures to provide transparency and an audit trail for tracking and performance. All service center accounts must roll up to a service center entity.

An Income Fund Reimbursable (IFR) account(s) should be established to record service center activity. A Research Foundation (RF) service and facility account, and/or University at Buffalo Foundation (UBF) service account may be established to record service center activity with prior approval from Financial Management and the University Controller.

Funds recovered by depreciation included in the service center billing rate must be set aside in a separate account as an equipment replacement reserve to fund the purchase of new equipment. 

Service centers that provide services to external customers must establish Services Center Agreements. A university member may not sign or otherwise execute a procurement contract that binds the university unless they have been delegated signature authority in accordance with the Approval Authority Policy. Refer to the Service Center Procedures to request a contract.

Billing must be based upon measured and documented utilization using approved billings rates and processed on a timely basis. An invoice must not be issued until the service has been rendered or the materials provided (pre-billing is not allowed).

Invoicing and accounts receivable tracking must be managed through university-approved systems. The service center manager or designated staff must reconcile accounts receivable against service center accounts.

Revenue collection must be processed through a university approved method.

Service centers receiving payments must ensure that appropriate segregation of duties is maintained to safeguard funds and the university’s reputation as required by the Safeguarding Cash and Cash Equivalents Policy.

When staffing resources make segregation of duties difficult, compensating controls must be implemented to provide the appropriate checks and balances to detect errors, deter fraud, and prevent concealment of irregularities.

Service centers must have standard operating procedures on file.

The service center manager must maintain rate development documentation. Documentation includes the actual costs of providing the service, units of service provided, billings, collections, and the annual surplus or deficit.

In accordance with the Uniform Guidance, original rate development documents must be retained for three years from the end of the fiscal year covered by the calculations. These documents are subject to external audit (e.g., federal, state, RF, other sponsors) and internal review.

Service centers that stock items as inventory must perform an annual physical inventory and reconcile to the inventory records. Inventory valuation must be submitted to Financial Management.

All service centers must comply with the Uniform Guidance. Non-compliance could result in government-imposed fines or disallowed costs, harm the university’s reputation, and reflect negatively on future grant proposals.

Service centers are established to provide specific technical or administrative services or goods that support the internal operating activities of the university. Service centers must provide services that are consistent with the university’s mission and the activities of the unit.

The cost of services provided by a service center must be charged directly to all users based upon actual use through a schedule of rates that recover costs. Service center billing rates for internal customers must not exceed the actual cost of providing the goods or services

As a recipient of federal funding, the university must comply with OMB Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 C.F.R. 200) when developing service center billing rates and charging sponsored program accounts. This policy and the Uniform Guidance require that costs incurred on federal awards must be necessary for the performance of the award and be a reasonable allocation of actual costs relative to the benefit received. 

This policy applies to service center activities conducted through university accounts including State, RF, and UBF.

Entity

Officially recognized campus elements assigned a unique 4-digit number to provide common identifier across systems.

Equipment

An item of tangible personal property having a useful life exceeding one year.

Equipment Reserve

The amount of funds accumulated and set aside to cover the cost of purchasing replacement equipment for the service center

External Customers

Individuals or organizations whose originating source of funds is outside the university. External users include faculty and staff acting in a personal capacity. Affiliated hospitals and other universities are external users unless the university has subcontracted with them as part of a grant or contract, in which case they are an internal user. External users are billed an external rate.

Fiscal Year

The twelve month period used for accounting purposes; the university’s fiscal year is July 1 to June 30. 

General University Service Fee (GUSF)

Fee charged against external revenue. The service fee is a flat rate charged across all entities on funds generated through the use of university faculty or staff time and/or use of university facilities.  

Indirect (Facilities and Administrative (F&A)) Costs

Costs of administrative and support functions of the university including general administration and general expense, operations and maintenance, building and equipment depreciation, library expenses, and interest.

Internal Customers

Academic, research, administrative, and auxiliary unit whose originating source of funds is within or flows through the university. The originating source includes State, RF, UBF, and Faculty Student Association (FSA) funds. Internal users are billed an internal rate, based on allowable costs.

Inventory

Inventories are defined as the aggregate of those items of tangible personal property which are held for sale in the normal course of business (e.g., supplies), or are to be consumed within one year in the production of a service (e.g., fuel). 

Office of Management and Budget (OMB)

The part of the executive branch of the federal government that assists the President in the development and implementation of budget, program, management, and regulatory policies. 

Provost Designee

Individual(s) designated to act on behalf of the Provost. Designees are identified for each unit:

• Research Related Centers reporting to Vice President for Research and Economic Development (VPRED)
  • VPRED AND
  • Vice President for Finance and Administration (VPFA)
• Research Related Center reporting to all other VP/decanals
  • VPRED
• Academic Related Centers
  • Vice Provost for Educational Affairs
  • Dean of the Graduate School
• Support Related Centers (no external margin)
  • N/A – approval process ends at the Controller’s Office
• Support Related Centers (Non-Research/Non-Academic) with external margin reporting to VPFA
  • VPFA AND
  • Provost and Executive Vice President for Academic Affairs
• Support Related Centers (non-research/non-academic) with external margin reporting to all other VPs/decanals
  • VPFA

Service Center

An operating unit within the university that provides specific technical or administrative goods or services in direct support of the academic or research activities of the university. A service center recovers the cost of its operations through charges to users. Examples include but are not limited to lab analysis services, print and mail services, instrumentation shops, and animal care services.

Service Center Billing Rate

Amount charged to a user for a unit of service calculated by dividing the total annual costs of the service center by the total number of billing units expected to be provided to users of the service for the year.

Service Center Management

Faculty or staff within a department that manage the financial or day-to-day operations of a service center, including the items listed in the responsibility portion of this policy (this does not include staff from the Financial Management). 

Subsidy

Additional funding provided by a department or the university to assist in covering costs.

Subsidized Customers

User who is charged at a lower rate or not charged at all.

Unallowable Costs

Costs that cannot be included in calculating the cost of a service or activity. 

Uniform Guidance

Document issued by the Office of Management and Budget that establishes uniform administrative requirements, cost principles, and audit requirements for federal awards to non-federal entities. 

Unit of Measure (UOM)

Quantity at which the product or service will be billed.

Unrelated Business Income Tax (UBIT)

Taxes that result from income produced by the sale of goods or services to external users not substantially related to the university’s tax-exempt purpose.  

• Provide Financial Management with all necessary information to calculate service center rates.
• Assist Financial Management with preparing biennial profit and loss statements.
• Review actual costs and billing rates for reasonableness at least annually and adjust when necessary.
• Submit documentation supporting new billing rate calculations and adjustments to existing rates to Financial Management for review.
• Develop standard operating procedures for the service center, including segregation of duties and compensating controls, as needed.
• Request separate account(s) in the university's accounting systems to record service center revenues, expenditures, and equipment replacement reserves. 
• Work with the assigned party to establish Services Center Agreements with external customers.
  • A university member may not sign or otherwise execute a procurement contract that binds the university unless they have been delegated signature authority in accordance with the Approval Authority Policy.
• Prepare and issue invoices for actual services provided. Charging users in advance is not allowable per federal regulations.
• Reconcile accounts receivable against service center accounts.
• Maintain records to document the actual costs of providing the service, units of service provided, revenues, billings, collections, and the annual surplus or deficit.
• Perform an annual physical inventory and reconcile to the inventory records.
• Comply with the Uniform Guidance.

• Provide guidance in the calculation of service center billing rates.
• Provide guidance in the calculation of project break-even (pro forma) and perform biennial reviews.
• Review and recommend approval of new rates and changes to existing rates for service centers.
• Perform periodic reviews of service center financial management to ensure consistency with this policy and federal guidelines.
• Review all equipment included in the service center billing rate to ensure that the equipment is excluded from the university’s indirect (F&A) cost rate charged to federally sponsored projects.

• Review and approve service center billing rates, including justification for subsidies
• Provide guidance on establishing and reviewing accounts.
• Provide guidance on procedures for billing and collection revenue.
• Provide guidance on establishing standard operating procedures, segregation of duties, and compensating controls.

• Review and approve service center billing rates, as appropriate.