Systems and Procedures
A Division of The Office of Budget and Finance
A Division of The Office of Budget and Finance
A Service Center is a unit within The Pennsylvania State University ("University" or "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., break-even basis).
A service center may be housed in a department or may operate university wide. Service centers not classified as research core facilities generally do not pertain to research. They may include printing and copying centers or facilities management centers.
Cost Accounting Standards (CAS) Disclosure Statement (DS-2), Section 3.2.0: "Service Centers are departments or functional units which perform specific technical or administrative services primarily for the benefit of other units within a reporting unit."
Service centers include 'recharge' centers and the 'specialized service facilities' defined in 2 CFR 200.468 Specialized service facilities."
There are four (4) types of Service Centers:
Examples include:
Examples include:
PSU Core Facilities contains a full list of Core Facilities at the College of Medicine.
Examples include:
Examples include:
Units must request permission to establish a charge-out rate (also known as a recharge rate) prior to charging a fee for a service. Departments may not establish their own rates. All requests for charge-out rates must be submitted for approval in accordance with Policy FN27 Establishing and Billing Service Center User Rates.
Cost Analysis, a division of the Office of Budget and Finance, is responsible for ensuring that appropriate fringe and facilities and administrative rates are applied to the rate structure of any costs charged against external grants and contracts. Rates must be approved to confirm that the cost basis used to develop the fee is appropriate and that the federal government will not be overcharged for the services provided. Cost Analysis also must ensure that the services being provided do not compete unfairly with the commercial sector. Penn State does not provide services to an outside audience (non-University related or commercial) unless the service is commercially unavailable within the region of a campus and has the prior written approval of the Associate Vice President for Budget and Finance. If such a case exists, the unit must provide a clear rationale why the University should provide this service to the commercial sector. In general, services being provided which are also provided commercially must be fully costed, including the application of fringe and overhead.
Federal customers should never be charged a higher rate than any other external or sponsored customer.
All service centers operate in separate accounts, created solely for the purpose of recording revenues and expenditures related to the service(s) provided.
Equipment purchase costs should be recorded in the service center account or in a separate capital equipment account and only the actual amount of depreciation will be acknowledged as an expense for determining the service center's financial results and rate(s) for any given year. If the equipment is purchased with federal funds, any relevant depreciation must be excluded from the service center rate. Purchases of equipment normally will not be funded through any surpluses generated from operations.
Pricing of services performed for internal uses should be consistent among users and billings to external users should include F&A costs using the current applicable state or federal rate.
The goal of the service centers should be consistent - providing service and recovering costs while achieving a break-even point. Realizing these goals require careful planning and preparation, please consider the following:
To ensure all new service centers have established adequately documented rate structures, controls, and operating methodologies, new service centers require review and approval by the Budget Administrator, Budget Executive, Financial Officer, the Senior Vice President for Finance & Business (only for Finance & Business rates), and Cost Analysis.
A Request for Approval of Service Center User Rates form must be completed and submitted to Cost Analysis 60 days prior to the requested commencement of operations so as to allow sufficient time for review, feedback, account creation, and approval. It is highly recommended that the timing of a new service center operation coincide with the start of the next fiscal year for the purpose of monitoring activity, allowing for rate adjustments, and providing a complete picture of operations at the end of the first year. See the Cost Analysis website for additional information.
The University's business cycle operates on a fiscal year that starts July 1st and ends on June 30th. The reason for using this time frame for service center operations relates to the need to capture each fiscal year's operating results and to incorporate these results into annual financial statements. To maintain consistency with the University's financial cycle, it is required that all service centers account for operations during the same period.
Departments responsible for service centers must prepare budgets for all service center accounts. This will facilitate greater ease in measuring actual operating performance and developing charge rates. If a department wishes to modify a service center budget during the fiscal year, the Controller's Office must be contacted as soon as the need becomes known. If the modification is significant, a mid-year rate review may also be done by Cost Analysis.
Uniform Guidance 200 Subpart E - Cost Principles is the federal regulation which provides guidance to all universities on issues concerning cost allowability for direct and indirect costs. Service centers should strive to operate at break-even (i.e., revenues=expenses). The federal government allows for over-recoveries and under-recoveries. Upon determining that break-even was not achieved, rates are adjusted accordingly by incorporating such over-recoveries and under-recoveries into subsequent years' rates.
Uniform Guidance 200.468 Specialized service facilities specifies that it "is designed to recover only the aggregate costs of the services. The cost of each service must consist normally of both its direct costs and its allocable share of all indirect (F&A) costs. Rates must be adjusted at least biennially, and must take into consideration over/under-applied costs of the previous period(s)."
If goods and/or services have been rendered to a customer, but the service center has not yet been paid, the service center must bill the customer for the amount owed.
Previously established service centers using third-party billing systems to manage their income and receivables may continue to use the third-party billing system. All new service centers and existing services centers without third-party billing systems must use Central Accounts Receivable to manage the receivables. Contact Central Accounts Receivable to discuss billing requirements.
Revenues recorded in the accounting system should be closely aligned with the timing of the expenditures incurred that generated the revenues. It is recommended that billings for goods and services be accomplished monthly. At year end, billings for the month of June should be prioritized so that they are recorded in the accounting system before year end. Should a department not be able to meet this time frame, a listing of unposted internal billings and unpaid external billings should be provided to the Business Area Finance Office to allow for the accrual of revenues in the same fiscal year in which they were earned. Only by posting all entries for each year's fiscal activity can a reasonable determination be made of the operating results for the service center.
Journal entry or Purchasing Card (PCard) payments are means by which service centers receive payment from internal users for goods and services. Payments from external users are made via check or wire transfer.
It is the responsibility of the business area overseeing the service center operations to maintain and provide, as requested, all copies of documentation pertinent to the activities of service centers.
Costs incurred by service centers should be in accordance with University policy (see the Policy website and 200.403 Factors affecting allowability of costs). The following information should be considered by departments having service center responsibility prior to the incurrence of actual costs:
The costs of salaries, wages, and fringe benefits of personnel directly involved with (i.e., devoting effort to) service center activities are allowable. These costs should be included in the preparation of each rate proposal so that each individual's function, relationship to (i.e., working under the umbrella of a different department) the service center, and estimated level of effort to be devoted are stated clearly. Significant variances will require adjustment of estimates in subsequent rate proposals. Fringe benefits should be charged in the same relative percentage as the level of effort and at University approved rates.
Materials, services, and supplies necessary to carry on the business of service centers are allowable. When a service center purchases materials, services, and/or supplies, an expense General Ledger (GL) account ending in zero (0) should be utilized.
Equipment included in the University's facilities and administrative (F&A) rate and equipment purchased with federal funds cannot be included in service center rate proposals. If matching funds were required for purchase of equipment with federal funds, the required matching funds cannot be included in depreciation calculations. Any non-federal funds in excess of required match may be included in depreciation calculations.
When purchasing non-depreciable equipment, the service center must use an expense GL ending in one (1).
If equipment is to be depreciated, it should be shown in rate proposals. The amount of depreciation charged must be calculated using the appropriate estimated useful life of the asset and the straight-time method (i.e., equipment cost, including freight, set-up charges, etc. divided by the estimated useful life in years or part of a year). See Procedure CR2068 Property Inventory: Recording, Tracking, and Depreciation for the Depreciation Useful Life schedule.
When purchasing depreciable equipment, the service center must use an expense GL ending in zero (0).
The costs of travel related directly to and necessary for the operation of service centers (i.e., conferences, meetings, local travel, etc.) are allowable. When payment for or seeking reimbursement for travel expenses, the service center must use a travel GL 5278xxxx ending in zero (0). Any unallowable travel expenses must use a travel GL ending in one (1).
Other direct costs not identified above are allowable to the extent they relate directly to and are necessary for the operation of service centers and are not specifically unallowable in University policy or Code of Federal Regulations Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards.
Recover of F&A at the current state or federally negotiated rate from external users of service centers is allowable. This amount should be added to the standard billing rate when performing services for external users.
Unallowable costs are those expenses specifically unallowable under University policy or Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Examples of unallowable costs include, but are not limited to, the following:
Questions regarding allowability of expenses to service centers should be submitted to Cost Analysis.
A service center rate may be defined as the cost per unit of output to recover the expenses of the service center and achieve a break-even financial position. In its most basic form, a service center rate may be expressed, as follows:
Budgeted Expenses +/- Prior Year Over/Under-recovery
Budgeted Level of Activity (Usage Base)
The budgeted usage base can be further defined as the volume of "activity" estimated to be performed or produced, expressed in terms of units. Examples are labor hours, machine hours, or any other unit of measurement appropriate to the type of activity. The resulting rate is then charged to users of the service center based upon actual services performed and/or products delivered.
For example, a microscope costs approximately $100,000 per year to operate and has an estimated usage (activity level) of 1,500 hours during the year. The resulting hourly rate would be calculated as $100,000/1,500 hours = $66.67 per hour. A researcher using the microscope for 4 hours would then be charged $266.68, or 4 X $66.67.
While many service centers have rates that are more complicated by virtue of offering multiple services, by having pricing that is contingent upon types and/or levels of usage, most rates can be reduced to a simple equation such as the one illustrated above.
The usage base, or activity level, is used to arrive at a billing rate which, when applied to actual usage, reasonably allocates service center costs in proportion to those service center customers receiving its benefits. Selection of an appropriate usage base is essential to ensuring that users are charged only their fair share of the actual costs of operating the service center.
Two approaches to rate development are available to determine an appropriate usage base:
Both distribute costs based on a unit of measurement, such as hours.
The consumption approach is used when expenses are directly proportional to how much of a unit of measurement is consumed. The output approach is used when expenses are related to the number of units produced in a year.
It normally is not possible to predict exactly what rate(s) will result in achieving a break-even financial position at the end of the fiscal year.
University-Wide Service Centers (fund 113xxxxxxx) should bill what was expended, thereby eliminating over/under-recoveries.
Internal Service Centers (fund 114xxxxxxx, 115xxxxxxx, and 116xxxxxxx) not meeting the "projected sales" or having expenses exceeding revenue, will need to be subsidized by the associated Business Area general funds. The business area should true-up the service center during period 13. If additional reconciliation needs to happen, the unit will need to work with Financial Accounting and Reporting to ensure a zero balance at the end of the fiscal year.
Departments with service centers offering multiple services should calculate rates appropriate for each service. Where the calculation of separate rates for multiple services is not feasible, an average rate may be calculated, provided that the user base of the different services is approximately the same and the basis for rate setting is equitable. In other words, one user may not be charged more than another user for the same service.
In accordance with Policy FN27 Establishing and Billing Service Center User Rates, a service center must be closed if it is deemed to be no longer necessary and/or viable. All funds must be reconciled with any deficits becoming the responsibility of the business area and any surpluses refunded. All equipment must be be disposed in accordance with Policy FN14 Use of University Tangible Non-Capital Property, Capital Property, Supplies, and University Services. Service center administrators must work with Cost Analysis to close a Service Center.
See Procedure FN2002 Processing Returned Checks for information pertaining to checks returned by a banking institution.
Violation of a financial policy and/or procedure should be reported to your supervisor, unit manager, your Human Resources representative, and/or office responsible for the policy and/or procedure. Where those resources are inadequate, you may choose to make an anonymous report through the Penn State University hotline by calling 1-800-560-1637.
The Financial Officer of the business area is responsible for ensuring that procedures pertaining to the accountability and safeguarding of all cash receipts, cash funds, and other assets are established and followed in accordance with approved University policies and procedures. Regular audits relating to advances, cash, travel, equipment accountability, and other expenditures provide a means to protect University assets. The Financial Officer is responsible for collaborating with Internal Auditing when audits are being performed in the administrative area. Audits pertaining to sponsored activities or other audits performed by external auditors may also be performed. The Financial Officer is also be responsible for collaborating with the external auditor and/or a central University office related to these procedures.
University Records retention must be managed in accordance with Policy AD35 University Archives and Records Management, and retention schedules approved by the Records Management Advisory Committee, the Office of General Counsel, and Senior Vice President and Chief of Staff. These records retention schedules are derived from - or based upon - federal, state, and local statutes or regulations, University Policy, industry standards, and business needs. All University Records must be maintained in such a manner to provide ease of access, establish a suitable audit trail for all transactions, and to be reviewed prior to disposition.
University Records and Transitory/Disposable Record are defined below. See Policy AD35, Definition of Terms for additional information.
Upon completion of the retention period, University Records must be disposed of via secure destruction or transfer to University Archives, unless an exception to the disposition process set forth below applies. If the disposition method for University Records states "Review by Archives" on the records retention schedule, the employees responsible for those records should consult the University Archivist for a final determination of disposition. For University Records that must be securely destroyed, units may arrange for shredding services by either contacting the Blue/White Shredding Program or the Inactive Records Center.
Exceptions to the disposition process are as follows:
To safeguard the privacy of individuals, records that contain Personally Identifiable Information (PII), as defined in University Policy AD53 Privacy Policy, or student records, as defined in University Policy AD11 Confidentiality of Student Records, must be destroyed beyond recovery. For additional information regarding privacy and the protection of an individual's personal information, see Policy AD53 Privacy Policy.
Additional questions may be directed to the Office of Records Management.
There are no exhibits associated with this procedure.
For questions or additional details, please contact Cost Analysis.
To request changes to this procedure, please contact the Office of Systems & Procedures by submitting a GURU Technical Support Request form.
7/30/2024