Financial Policies

FN27 Establishing and Billing Service Center User Rates

Policy Status: 

Active

Subject Matter Expert: 

Kimberly Croft, 814-865-1962, ksw13@psu.edu

Policy Steward: 

Associate Vice President for Finance and Corporate Controller

CONTENT:

PURPOSE:

The purpose of this policy is to establish rates for Service Centers (Specialized Service Centers, Core Facilities, University-wide Service Centers, Departmental Recharge Centers, and Other Sales and Services) within The Pennsylvania State University (“University” or “PSU”) and to ensure compliance with University policies as enumerated in its Cost Disclosure Statement (DS-2) as required by Office of Management and Budget (OMB) Uniform Guidance. Application of the policy is needed in order to ensure goods and services:

  • comply with government requirements (the government monitors, by routine audits, the University’s compliance with Federal regulations);
  • are being sold at rates that recover, but do not exceed, the costs of providing the goods and services (rates must be based on actual costs and established to break even); and
  • are being sold at comparable rates when compared to external users.

SCOPE:

This policy applies to all existing and any new Service Centers and specialized service facilities (SSF) that may be proposed in the future.

This policy does not apply to the following rates:

  • Housing and Food Services: Menu prices and housing rates for Housing and Food Services are approved by the Assistant Vice President for Housing and Food Services
  • Hospitality Services: Menu pricing for Hospitality Services is approved by the General Manager at each respective location. Hotel rates are set by the Revenue Manager at each respective location
  • Bryce Jordan Center (BJC): BJC facility rental rates are negotiated with each performer and therefore, exempt from this policy. This policy also does not apply to other commercial performing arts centers
  • Events sponsored by the Associated Student Activities (ASA), Student Government Association (SGA), and Graduate Student Association (GSA), for which admission is charged. All questions should be directed to asaoffice@psu.edu
  • Fundraising and development events conducted by the University are not within the scope of this policy. See Policy FN10 Other Business Expenses and Activities
  • Donor levels approved through Development which grant access to programs or certain levels of benefits. See Policy AD04 Development Solicitation
  • Tuition and course rates are approved by the Budget Office and governed by Policy BT06 University Student Course-Related Fees and Specific Charges. Continuing Education and Executive Education at University Park are approved by Cost Analysis. Continuing Education and Executive Education at Commonwealth Campuses are approved by the Director of Education of each respective campus
  • Long-term lease/rental fees. Contact psurealestate@psu.edu
  • Center or Industry membership programs – seePolicy Guideline RAG05 - Establishing Research Institutes, Consortia, and Centers
  • Rates set by the state or other regulatory agency (i.e., University Health Services (USH) medical services and supplies)
  • Intercollegiate Athletic (ICA) Varsity Athletic events
  • Penn State Health and The Pennsylvania College of Technology

DEFINITIONS:

  • Academic User: Non-Penn State Academic, Non-Profit, and Government Users
  • Auxiliary Enterprise: A completely self-supporting unit operated primarily to service students, faculty, staff, other institutional departments or the general public that does not receive tuition or appropriation support, as designated by the University
  • Cost Accounting Practice: Any accounting method or technique which is used for measurement of cost, assignment of cost to cost accounting periods or allocations of costs to cost objectives
  • Cost Accounting Standards Disclosure Statement: A standard federal form that documents or discloses an organization’s cost accounting practices in a variety of financial areas. An educational institution is required to file a CAS Disclosure Statement with its cognizant federal administrative agency if it receives federally sponsored agreements totaling $50 million or more in a fiscal year. Administrative responsibility for the Cost Accounting Standards Disclosure Statement at the University resides with Cost Analysis
  • Cost Recovery: The method of recovering the actual costs of an expenditure
  • External User: Industry entities, general public, and other non-Penn State entities using non-federal funding
  • Internal User: Penn State departments, faculty, staff, and students
  • Over Recovery: Cost recovery recovers more than the actual costs of an expenditure
  • Pass-Through Costs: Actual third-party costs passed directly to the customer often referred to as supplies and consumables
  • Service Center: A Service Center is a unit within Penn State which provides goods and/or services of a specialized nature on a recurring basis and charges a fee for those goods/services. Operations that are set up as Service Centers are designed to recover the costs of their operations (i.e., operates on a break-even basis)
  • Service Center Rates: A method of allocating costs among multiple users of a resource
  • Under Recovery Costs: Cost recovery recovers less than the actual costs of an expenditure

POLICY:

This policy is in place for the best interest of the overall University not to generate income but to distribute an internal cost to the users of the Service Center.

RESPONSIBILITIES:

Financial Officer:

Financial Officer (FO) will work with responsible person in area that needs to establish new rate:

  • Provide copy of appropriate policy and necessary forms
  • Discuss need for rate and what basis of rate will be
  • Review rate for completeness and appropriateness
  • Provide guidance where needed

Area Administrator:

Area Administrator will:

  • Ensure costs are captured within specific account
  • Calculate costs needed to be used for rate calculation and provide appropriate documentation to support the costs
  • Develop base to use for rate
    • Processing time
    • Number of tests/samples
    • Staff time utilized
  • Communicate need for rate and explanation of where rate will be applied
    • Who will be charged

Budget Executive:

Budget Executive will:

  • Sign-off acknowledging the requested unit rates (in addition to signature by the Financial Officer and Area Administrator)

Cost Analysis Department:

  • Review Request for Approval of Service Center User Rate and Spreadsheet template and/or market rate comparisons to ensure all information is complete and accurate
  • Request additional detail to document or justify a cost change or element based on auditor expectations, requirements, or guidelines
  • Coordinate Defense Contract Audit Agency (DCAA) rate audits with FO’s and Area Administrators
  • Update the published list of approved rates
  • Monitor rates and send out notification to FO’s for upcoming expiring rates
Cost Analysis Manager:
  • Sign-off on requested rates (except the Office of Physical Plant (OPP) and Specialized Service Facility (SSF) rates)
Senior Director for Research Administration:
  • Sign-off on requested rates (except the OPP and SSF rates) as a backup to the Cost Analysis Manager

Associate Vice President for Finance and Corporate Controller:

  • Sign-off on requested OPP and SSF rates

Senior Vice President for Finance & Business (F&B):

  • Sign-off on F&B rates (in addition to signature of Cost Analysis or Senior Director for Research Administration)

ESTABLISHING SERVICE CENTERS:

A Service Center is a unit within Penn State providing goods and/or services of a specialized nature on a recurring basis and charges a fee for those goods/services. Operations that are set up as Service Centers are designed to recover the costs of their operations (i.e., operates on a break-even basis). The following are the five types of Service Centers: Specialized Service Facilities (SSFs); Core Facilities; University-Wide Service Centers; Departmental Recharge Centers; and Other Sales and Services.

DEVELOPING THE USER RATE:

Determining the Measurable Units for Goods or Services:

The Service Center must determine a measurable unit of output for the products it distributes. If a measurable unit of output cannot be determined, the activity is considered an “other sale or service.” This measurable unit may be determined in terms of labor, machine time, or product. Examples of measurable units include labor hour, machine hour, liter, page, test, test tube, tray, set-up, lab runs, slide, etc.

A Service Center may have different measurable units for the different types and classes of products it offers. Whatever the measurable unit, it must be easy to determine and quantify and must provide for an equitable distribution of costs to the Service Center’s users. For example, a Service Center that performs tests on samples has two possible units of measure; it could charge per test or per hour. If the amount of time to perform each test is uniform, charging on either basis is equitable. If some tests take twice as long as others, and labor is a large portion of the cost of performing a test, it is not equitable to charge each user on a per test basis. In such circumstances, the User Rate should be on a per hour basis.

Users Rates must be based upon the number of budgeted product units. User Rates must be charged directly to a customer based upon the actual number of units the customer purchases. User Rates based upon flat fees per year, a percentage of salary, or Modified Total Direct Costs (MTDC) that do not relate directly to actual usage are not in compliance with Cost Accounting Standards (CAS). User Rates consisting of flat fees that charge per range of actual use such as light, moderate, or heavy use are not in compliance with CAS. Records documenting actual products purchased by customers must be maintained by the Service Center. These records are subject to audit.

Pass-Through Activities must also determine a measurable unit of output for the costs of the products it distributes to other customers. The measurable unit must relate to the invoiced product. Records documenting actual product distributed to customers must be maintained by the Pass-Through Activity. These records are subject to audit.

MARKET RATES:

In instances where services cannot be calculated on an actual basis, a market price may be charged. However, justification of the need to use market prices must be submitted with the request to establish the market rates, along with sufficient evidence of market research to validate the price requested. Furthermore, if the sponsor is federal or is using federal pass-through dollars, the sponsor must be notified in writing that a market rate will be used in lieu of a rate based on actual costs. This method is only acceptable when it is not possible to calculate an actual rate and when we must charge a customer so as not to undercut the market. Market rates must be benchmarked annually.

If F&A is applicable to the market rate being submitted (see Applying F&A rates section below), the proposed rate must be exclusive of F&A. For example, if the market rate is $3,000 and the F&A is 50.00%, then the submission to Cost Analysis should be $2,000. $3,000/1.5000=$2,000.

This calculation must be shown in the submission.

FACILITIES USE RATES:

Facilities Use Rates should only be developed and charged when we must charge a sponsor to avoid undercutting the market or when auxiliary units need to receive the costs of operating. For non-auxiliary units, Cost Analysis must be contacted for assistance in developing this rate and the following information must be provided: potential customers, costs the unit is attempting to recover, and room numbers to be rented to ensure space is coded correctly in LionSpace for F&A purposes. Any costs recovered for facilities for non-auxiliary units must be returned to the central account for overhead recovery.

DETERMINING THE BUDGET OF A SERVICE CENTER:

Service Center operations must be separately budgeted and accounted for, to include expenses and income. The budget of a Service Center includes the allowable and allocable costs of providing a good or service. All allowable costs of a Service Center that will be used in establishing User Rates must be budgeted in and expended through one account. The budget must be determined using the standard guidelines established by Cost Analysis, outlined below. Generally, these costs include:

  • Salaries and Wages
    • Faculty and staff who provide the services; produce the products; direct the Service Center; supervise the Service Center’s staff; and provide administration and support activities. Effort reports for all faculty charged to the Service Center must agree with salary expenditures charged. If faculty salaries are to be included in User Rates, they must be budgeted and paid from the Service Center
    • Administrative activities associated with operating a Service Center may include web site development and maintenance, personnel management, general office duties, etc.
    • Since some equipment requires methods and processes that are highly complex and require a level of development dependent on the nature of the equipment by the staff to achieve proficiency, time related to these methods and processes may also be included. A level of tool utilization must be defined to become proficient
  • Fringe Benefits
    • Assess on salaries/wages charged to the Service Center account. Fringe benefits must be budgeted and charged at the federally negotiated rate. Rates can be found on the Fringe Overhead Schedule
  • Materials and Supplies (consumables)
    • Includes only the technical supplies necessary for the operation of the Service Center. Office supplies are generally considered indirect and cannot be included in a Service Center’s budget. However, to the extent office supplies/materials are consumed solely for the operation of the Service Center in deliverance of its product, they may be budgeted and included as allowable costs of the Service Center. All supplies and materials must be clearly identifiable as benefiting the Service Center and be under the control of the Service Center’s staff. Supplies and materials not clearly identifiable with the Service Center’s product cannot be included in the Service Center’s budget or charged to its account. The costs of non-capital items (i.e., items costing less than $5,000 with a useful life of less than one (1) year) and upgrades to these items should be classified as supplies and included in the Service Center User Rate
  • Repairs and Maintenance
    • Actual expenses for items such as travel, or equipment service contracts incurred specifically for the operation of the Service Center should be treated as a cost of the Service Center and included in calculating the User Rate. To the extent that costs which are normally considered indirect costs are required and incurred solely for the operation of the Service Center in deliverance of its products, they may be budgeted and included as allowable costs. These costs must be clearly identified and documented as benefiting and controlled by the Service Center
    • If the cost of installation by a third-party vendor is not capitalized, it may be included in the User Rate. Contact Property Inventory to determine whether installation has been capitalized. Installation labor costs incurred by Penn State employees when performing relatively minimal effort are considered ancillary charges and cannot be included
    • Generally, equipment depreciation and capital expenditures cannot be included in the rate. Information and Technology Services (ITS) is an exception. These costs are recovered through the F&A rate
  • Other
    • Staff Professional Development Costs: To maintain and stay abreast of knowledge in techniques, it is often necessary for staff to have some level of annual training on instrumentation dependent on complexity of service. The cost of such annual training is an allowable factor in User Rate development
    • Actual Expenses for items such as Subcontracts, Other Outside Services, Communication Fees, Mailings, and Other Support Costs incurred specifically for the operation of the Service Center should be treated as a cost of the Service Center and included in calculating the User Rate. To the extent that costs which are normally considered indirect costs are required and incurred solely for the operation of the Service Center in deliverance of its products, they may be budgeted and included as allowable costs. These costs must be clearly identified and documented as benefiting and controlled by the Service Center
  • Prior Year Surpluses or Deficits
    • Any surplus resulting from the prior year operations must be included in the Service Center’s budget
    • Any deficit resulting from the prior year operations must be included in the next year’s operating budget or subsidized by other non-federal funds
  • Subsidies
    • A department may wish to have its Service Center charge its users less than fully costed rates. In these circumstances, a Service Center must first calculate a fully costed rate. Service Centers can then apply a subsidy using an operating budget or other unrestricted fund to derive the desired rate
    • Internal Users/Rates:
      • Service Centers can apply a subsidy using an operating budget or other unrestricted fund to derive the desired rate
      • All internal users must be charged the same rate for the same level of services or products purchased in the same circumstances
    • External Rates:
      • External rates cannot be subsidized
      • Excess income collected from external rates can be used to subsidize internal users

UNALLOWABLE COSTS:

Unallowable costs (i.e., alcohol, marketing/advertising), in accordance with the Uniform Guidance, cannot be included through the User Rates. In addition, the following costs cannot be included in rates:

  • Contingency provisions
  • Reserves, unless approved by the Corporate Controller’s Office (CCO)
  • Service Center personnel salary expenses funded on sponsored projects
  • Donated materials and supplies (where no actual expense was incurred by the Service Center)
  • Space rental costs (whether the rent expense relates to PSU-owned space or leased space)
  • Capitalized leases and equipment

TEMPLATE FOR RATE CALCULATION:

Cost Analysis has developed a template which can be used to facilitate Service Center rate calculation and surplus/deficit analyses. Although the final calculations do not have to conform precisely to the template format, it is necessary that a documented methodology exist to support the rates charged. In addition, the rate calculation must be submitted on an Excel spreadsheet and the formulas must be visible. This template is available on the Cost Analysis website.

APPROVAL OF RATES:

The unit requesting approval must complete a Service Center Rates Proposal and develop the proposed rates in an Excel file. Once the Budget Executive and FO have approved the rates, submit the rate proposal to:

Units must plan for obtaining rate approval. Approval of new or complex rates may take additional time and effort.

Rates billed to the Governmental are valid for one (1) year from the date of approval. All others expire two (2) years from the date of approval. All rates must be reviewed at least annually to ensure the rates in place break even. Should an over recovery occur, rates must be revised accordingly, adjusting the rate to take the over recovery into account. Should an under recovery occur, the Service Center can either adjust the rate to take the under recovery into account or the unit can maintain the same rate by subsidizing the rate.

If a revised rate does not change by 10 percent or more from the last rate approved by Cost Analysis and the methodology used to calculate the rate has not changed, the FO has the authority to approve the revised rate. The only exception is market rates. Market rates must be benchmarked annually and submitted to Cost Analysis for approval. A copy of the approval must be provided to Cost Analysis to update the published list of approved rates.

FO’s also have the authority to approve the following rates:

  • Admission fees for events (i.e. theatrical productions) if the rate is $50 or less, excluding ASA, SGA, and GSA events
  • Fees for student field trips based strictly on recovery of direct costs (i.e., reimbursement for transportation costs or admission fees)
  • Pass-Through rates, where the costs are passed directly to the customer based on the exact cost paid to the supplier. The rate is the invoiced costs including the amount charged on the invoice, including shipping, freight, dry ice, etc., divided by the number of units

DETERMINING USER RATES:

Rates established by Service Centers must be non-discriminatory, and all users of the Service Center must be billed for services. Non-discriminatory means all internal users must be charged at the same rate(s) for the same level of services or products purchased. External users may be charged a higher billing rate than internal users to receive F&A costs, and other related expenses and to be comparable to commercially available market rates that have been adequately benchmarked.

All users of the facility must be billed for all services rendered or goods sold. Special deals cannot be made with specific users. If a specific user was instrumental in acquiring the equipment, they cannot get reduced or free access to the equipment.

External users of a Service Center may not be charged at a rate less than that charged to internal Penn State users. They may be charged a higher rate if the Service Center’s annual budget provides justification for the markup. Amounts collected in excess of actual costs must be collected in a sister account and not considered part of the operating budget.

The difference between an external rate and an internal rate may not be used as cost share.

Several issues may influence the calculation of the User Rate. Some of them are noted below:

  • Volume discounts are acceptable, if it can be documented that cost savings are realized when a large quantity of a product is provided to an individual user. Criteria for discounted rates must be shown in the rate proposal
  • The unit retains the right to charge customers for no show appointments. A no show is defined as an instance in which a consumer is scheduled for an appointment and does not call, write, or otherwise notify the Service Center within a specified amount of time, defined by the department, prior to the appointment and fails to appear for the scheduled appointment
    • The income from no show appointments cannot be considered in rate development
    • No-show charges are unallowable on sponsored awards. If the charge account is a sponsored award, a non-sponsored account must be provided in order to charge for a no-show
    • The customer is to be charged for any unused hours booked
    • Such stipulations must be provided to the user upon scheduling an appointment
  • Service Centers that have a wide fluctuation in usage during the day may establish a time-of-day rate structure. Higher rates may be charged during hours of peak use, “prime time,” to provide incentives to reduce the demand for services during these times. This structure helps all users by improving performance during peak hours and encouraging the utilization of off-peak hours, thereby reducing the cost for additional equipment. Service Centers utilizing a time-of-day rate structure must show that all users have an opportunity to use the Service Center during non-peak hours and that no user is disadvantaged by the proposed rate structure

Stem Cell Research:

For any shared/core facility that receives federal support (e.g., through a NIH P30 grant), the rate charged to a research project using non-approved stem cell lines cannot reflect that federal support. In other words, the rate must be an “unsubsidized from federal sources” rate.

Teaching Classes in Service Centers:

Service Centers providing products for instructional functions must charge the Department for the instructional function’s actual use at the relevant internal rate using educational source funds (not research funds). A lump sum subsidy is not allowable unless it can be documented that it covered the actual amount of the product or service purchased for instructional purposes.

APPLYING USER RATES:

Service Centers must provide a detailed statement to users monthly and charge users at least monthly.

The Service Center is responsible for the collection of all its receivables. Any receivables not collected are bad debt and are an unallowable cost to the Service Center; thus, they must be absorbed by the Department’s or Unit’s unrestricted funds and classified as an unallowable expense.

User Rates should be applied as follows:

  • Internal: Base rate only (ex. Charging to another Penn State department)
  • Academic: Base rate + Applicable F&A (ex. Charging a government entity)
  • External: Base rate + Applicable F&A + Industry premium (ex. Charging external industry)

Non-university users may be charged a higher User Rate than University users if they are purchasing the service or product with non-federal funds. For the same product, non-university users may be charged a higher User Rate but never one lower than the one charged to internal users. Note that purchases made through subcontracts are frequently funded with Federal funds and may not be charged at a higher rate. It is the unit’s responsibility to inquire if the funds are federal flow-through. External users must be charged at least the full price and cannot be subsidized.

Applying F&A Rates:

The department is responsible for applying the applicable F&A rate. F&A rates should not be applied to auxiliary units or rates for Other Sales and Services.

CLOSING SERVICE CENTERS:

A Service Center must be closed if it is deemed to be no longer necessary and/or viable. When a Service Center’s operation ends, steps must be taken to close the accounts, address account balances (fund deficits, refund surpluses), and dispose of equipment. Service Center administrations should work with Cost Analysis to close a Service Center.

RECORD RETENTION:

The unit is responsible for maintaining documentation of rate calculations. All records relating to a Service Center’s costs, products, and users must be retained for seven (7) years by the unit. These records are subject to audit. Prior to disposition or destruction of these records, Cost Analysis must be contacted to ensure there are not audit holds on any of the records.

SANCTIONS/NON-COMPLIANCE:

Non-compliance could result in Government-imposed fines or disallowed costs. All such results are the responsibility of the unit operating the Service Center.

FURTHER INFORMATION:

Further inquiries should be directed to Cost Analysis, a division of the Office of the Corporate Controller at 814-865-1914 or costanalysis@psu.edu

CROSS REFERENCES:

POLICY STATUS:

NEW

Date Approved: 

November 23, 2020

Date Published: 

November 23, 2020

Effective Date: 

November 24, 2020