Service Centers - How to Open & Operate Legally

advertisement
Service Center Workshop
How to Open and Operate – Legally!
Sarah Elwell
Associate Director of Operations,
Harvard University
Nuala McGowan
Senior Manager for Compliance,
Harvard University
1
• Goals for Today's Session
–
–
–
–
Define a Service Center and its characteristics
Discuss OMB A-21 and other federal requirements
Identify what to budget in the billing rate
Learn the different rate bases that can be used
to calculate the rate
– Identify key compliance issues
– Learn about the recent audit findings on service
centers
Service Center Definition :
An operating unit within the Institution
that provides a service, or group of
services, or product, or group of
products, to users – principally within
the institution for a fee.
3
Federal Definition of a “Recharge” Ctr.?
• Definition of “Recharge Centers” *
– “Recharge centers at universities, also known as
specialized service centers, operate as in-house
enterprises that provide goods or services to
individual users or other operating units. These
centers function as nonprofit businesses, funding
operations through fees from users.”
* Summary Report on Audits of Recharge Centers at 12 Universities
~ HHS Office of Inspector General, January 1994
4
Introductions…
Which of the following best describes your role?
1. Central Sponsored Research Administration Office
2. Department Grants Management
3. Service Center Facility Manager
4. Compliance Office
5. At wrong training session, I think…
5
How many years of Service Center related
experience do you have?
1. Less than 1 year
2. 1-3 years
3. 3-5 years
4. 5-10 years
5. 10-15 years
6. Too many to count / >15
6
Important Considerations
• Determine the need to establish a service center:
 Is this service available elsewhere on campus?
 Is our need short-term or long-term?
 Is this service provided for or subsidized by a federal award?
- Program income vs. service center
 What portion of our users will be internal vs. external?
- High external user volume may result in tax implications UBIT (unrelated business income tax)
7
Regulations Governing
Service and Recharge Centers
8
Federal Service Center Guidance
– OMB Circular A-21
– Other OMB Circulars (A-87; A-122; A-133)
– HHS Review Guide for Long-Form University Indirect Cost
Proposals
– Cost Accounting Standards (CAS) DS-2
– Audit Guide: Adequacy and Compliance Audits of
Disclosure Statements Submitted by Educational
Institutions (HHS OIG)
– Federal Audits of Recharge Centers (HHS OIG)
9
OMB Circular A-21
• Specialized Service Facilities (section J.47)
– “the costs of services provided by highly complex
or specialized facilities operated by the institution,
such as computers, wind tunnels and reactors”
• No mention of “service centers” in A-21
• Change to OMB Circular A-21: 5/10/04
– Specialized Service Facilities (section J.47)
• Rates to be adjusted “no less frequently than biennially.”
10
Specialized Service Center (A-21)
• Cost of service includes direct and F&A
• Cost will be charged directly to users
– based on actual use
– using rates that don’t discriminate between federal and
non-federal users
• Rates don’t have to equal cost during one fiscal
year - reviewed and adjusted at least biennially
• Rates shall take into consideration over/under
applied costs of the previous period(s)
11
Other Sources of Federal Guidance
• OMB Circular A-122: Cost Principles for NonProfit Organizations
– “Specialized Service Facilities”
• OMB Circular A-87: Cost Principles for State,
Local and Indian Tribe Governments
– “Billed Central Services”
– “a working capital reserve of up to 60 days cash
expenses is considered reasonable…”
12
Service Center
Accounting
13
Service Center Accounting…
• Revenues should equal costs, over time
• Accurate accounting for service center costs
and revenues is critical
– Service Center operating account must “match”
revenues with expenses
– Inaccurate accounting will distort the financial
picture and create a deficit or surplus in the
service center account
14
Typical Service Center Operating Costs
•
•
•
•
•
•
•
Salaries and Wages
Fringe Benefits
Depreciation expense
Materials and Supplies
Outside services
Repairs and Maintenance
Carry-forward surplus/deficit
15
Guidance for Calculating Serv. Ctr. Rates
• Step 1 - Identify all services provided
• Step 2 - Determine direct costs associated
with each service, regardless of how it is
funded
• Step 3 - Identify other costs associated with
service center operations
» Salary of service center administrator / billing personnel
» General supplies
16
Guidance for Calculating Serv. Ctr. Rates
• Step 4 - For specialized service facility, identify
University-wide indirect costs to be included in
billing rates in accordance with University
policy
• Step 5 - Identify and segregate unallowable
costs in accordance with the cost principles
• Step 6 - Add prior period variances (surplus
/deficit) in accordance with University policy
17
Guidance for Calculating Serv. Ctr. Rates
• Step 7 - Develop a reasonable method to assign
service center operating costs to each service
• Step 8 - Accumulate/estimate future usage for
each service to establish the rate base(s)
i.e., billable units
• Step 9 - Calculate cost-based rate for each service
• Step 10 - Determine the rate that will actually be
charged
18
Exercise :
Rate Calculation
19
Comparison of Service Center Rate Calculations
(Specialized vs. Regular)
Service Center
Specialized Service Facility
Estimated expenses:
Estimated expenses:
Technicians (2)
Supplies
Maintenance contracts
Equipment depreciation
200,000
50,000
50,000
150,000
Total expense budget:
450,000
Estimated units of service:
2,000
Rate per unit of service =
225
*Note: That $288 may be a rate that
the users of the facility will be
unwilling to pay, in which case the
SSC may have to charge a lower rate
and the unit "owning" SSC will
underrecover.
Technicians (10)
Supplies
Maintenance contracts
Equipment depreciation
1,000,000
250,000
250,000
750,000
Addt’l expenses in "fully loaded" rate:
Building depreciation
Building loan interest
Operations & Maintenance
Total expense budget:
Estimated units of service:
Rate per unit of service =
30,000
400,000
200,000
2,880,000
10,000
*288
For the F&A Rate Calculation - Addit’l costs not
included in Service Center Rate: $630,000.
Add to F&A numerator => higher F&A rate
20
Service Center
Compliance Issues
21
Summary of Key Compliance Issues
1. Rates should recover no more than the
cost of the good or service
2. Rates must breakeven over time, not each
year
3. Rates don’t discriminate between users,
especially those paying with federal funds
4. Surplus from service center shouldn’t be
used to fund unrelated activities
22
Summary of Key Compliance Issues
5. Must maintain published price list
6. Rates may include depreciation expense
only, not the full cost of equipment
7. Depreciation included in SC rates can’t
also be in the F&A rate
8. Service center subsidies should NOT be
included in the F&A rate
23
Discussion Questions
1. Must all users be charged the same rates?
2. Can we charge F&A costs on service center
charges made to grants?
3. Can we include a “reserve” amount in the
rate to purchase new equipment?
4. Do we add F&A costs to service center
charges made to external parties?
24
Discussion Questions ( cont’d)
5. Can we charge users based on “market”
rates, or what other institutions charge?
6. Can we charge external users more than
the cost of the good or service provided?
7. If we earn a surplus, do we have to give a
refund to users in the same year?
25
Top 10 Elements for Effectively Managing Service Centers
1.
2.
3.
4.
5.
Be able to identify the active service centers at your
university.
Understand the mechanics behind service center
accounting.
Know the workflow (and the parties involved) in setting
up a center.
Recognize operations that may become service centers in
the future.
Have a solid (and realistic) business plan for operating the
center.
26
Top 10 Elements for Effectively Managing Service Centers (cont.)
6.
7.
8.
9.
10.
Have written policies and procedures in place for the
management of service centers.
Templates should be made available to assist with rate
calculations.
Rates should be reviewed and approved at least every two
years.
External usage (sales to non-university customers) should
be monitored and tracked.
Use software or some other means to invoice and collect
27
regularly.
# 1 : Be able to identify the active service centers at your University
 Create/Maintain an inventory that includes all of the following:
 Name (and account number) of the center
 Related accounts (capital accounts)
 Contact information
 Date when rate submissions were received
 Date when rate submissions were approved
 Actual rate submission documents
 Identifiers in the accounting system (Fund Type, Class, Internal Revenue
codes)
28
# 2 : Understand the mechanics behind service center accounting.
 Proper account codes
 Expenses
 Revenues
 HR set up to get people paid out of the right place
 Expenses and revenues accounted for in the center
 Payroll expenses
 Fringe
 Depreciation
 Supplies
 Collections
 Carry-Over? Deficit funding?
29
# 3 : Know the workflow (& parties involved) in setting up the center.
 Who is involved in each step of the set-up process?
 Who is involved once the center is up and running?
 What approvals are required during set-up and beyond?
 School/Department
 Budget Office
 Accounting
 Cost Studies
30
# 4: Recognize operations that may become service centers in
the future.
 Internal activity identified
 Internal revenue account codes used
 “Word of Mouth”
 Not on active inventory yet, but should be
 Discussions on potential centers
31
# 5 : Have a solid (& realistic) business plan for operating the center.
 Market for goods/services
 Is there a demand for the products and services offered?
 Are you able to charge rates that will allow you to cover costs
 Centers are not just a source of “revenue”
 School level understanding of potential deficits
 If the center loses money, will school cover it?
 Expectations versus Reality
 Administrative Requirements: Managing budgets, billing, etc.
32
# 6 : Have written policies and procedures in place for the
management of service centers.
 Is everything clearly defined?
 Steps for set-up
 Steps for maintenance
 Roles and responsibilities
 Does everyone know their role and what they are responsible for?
 Thresholds for establishment of centers
 Frequency of activity
 Number of grants charged
 Dollar volume
 Carryover of surplus and deficit
33
# 7 : Templates should be made available to assist with rate
calculations.
 Standard templates in place versus freedom of centers to use their
own.
 Capture:
 Salaries
 Fringe
 Equipment
 Supplies
 Usage Estimates
 Advantages and disadvantages to both options
34
# 8 : Rates should be reviewed and approved at least every two
years.
 How often are rate calculations approved at your university?
 Things to look for
 Salaries and effort (individual)
 Correct fringe rates used
 Depreciation on equipment
 Surplus/Deficit carryover
 Rates at or below cost
35
# 9 : External usage (services / sales to non-university customers)
should be monitored and tracked
 UBIT risks
 Sales to other not-for-profits/hospitals/educational institutions
 Sales to corporations.
 Thresholds for external usage
 De minimus vs.
 Significant
 Rates charged to external versus internal users
36
# 10 : Use software or some other means to invoice and collect
regularly
 Centers need to track:
 Usage
 Invoices
 Collections
 University accounting system or specific service center
software
37
Break - 15 minutes
38
Audit Findings:
Past and Present
39
Summary of HHS OIG Audit Findings (1994)
•
Audits at 12 universities to determine whether recharge
centers complied with “OMB A-21”
•
OIG Identified $3.2m in overcharges for:
–
–
–
–
–
Surplus Balances ($1.3m)
Duplicate and unallowable costs ($1.2m)
Recharge costs and Indirect costs ($0.4m)
Funds used for unrelated purposes ($0.2m)
Inequitable billing ($0.1m)
40
Summary of HHS OIG Audit Findings (1994)
•
Examples of significant issues
–
–
–
–
Six universities accumulated $6.6m in surplus funds
Five universities did not analyze and adjust billing
rates resulting in overcharges ($1.2m)
Two universities didn’t credit recharge accounts for
interest earned on excess fund balances
One university improperly classified $0.7m inventory
as expense; inventory not consumed in year of
purchase is unallowable
41
Summary of HHS OIG Audit Findings (1994)
•
Examples of significant issues (continued)
–
–
–
One university improperly included surpluses/deficits of
recharges in the calculation of IDC rates, overcharging
Federal projects by $0.4m
Four universities used $3.5m of surplus funds for
unrelated purposes; supplementing an athletic
department, developing an accounting system, and
renovating academic offices
One university charged inconsistent rates to users of
computer services, subsidizing students and staff,
42
overcharging federally sponsored research
HHS OIG Findings: Reasons for Overcharges
•
Universities did not:
–
–
–
•
Establish or adhere to policies and procedures
Maintain adequate accounting records
Analyze and adjust billing rates, or monitor recharge
centers on a regular basis
OMB Circular A-21 does not provide specific
instructions for when and how to adjust for
surpluses and deficits in fund balances
43
Recent Audit findings…
University of Connecticut:
•
$2.5 Million Whistleblower; False Claims
Investigation Settlement.
–
Specialized Service Centers: Overstated anticipated
expenses, overcharged the government and billed
for items not covered by the grants.
– Billing Rates – Failure to revise and appropriately set
its rate structure resulted in submission of
numerous false claims.
Newsday, January 9, 2006 (Associated Press); Hartford
Current, January 10, 2006
44
Recent Audit findings…
U Mass Medical:
•
Recharge & Laboratory Supply Center
Charges
– OIG could not determine who requested the
recharge center services or laboratory supply
charges and whether these costs were allocable
to the NIH Grant. Records were not retained
(Records should be retained for 3 years after
the dated of the final financial status report).
08/23/05
45
10 Most Common Mistakes
1.
2.
3.
4.
5.
6.
7.
8.
Inadequate policy and/or oversight
Billing rates based on “market” rates, not actual costs
Surpluses not carried forward
Invoicing not done on a timely basis
Depreciation included in s.c.rates and F&A
Unallowable costs included in billing rate
Surpluses used for unrelated activities
Mismatch of s.c. expenses and revenues, especially
depreciation
9. Charging lower costs to external customers (e.g. No O/H)
10. Improperly accounting for costs of subsidies
46
Mitigating risk at your Institution
1. Do you have an office responsible for oversight of
service centers?
2. Who is monitoring your service center activity?






Set-up of new service centers
Review and approval of rates
Identify and resolve large surplus / deficits
Establish a clear differentiation between service, recharge
and specialized service centers in your policy
Dissolve inactive service centers
47
Review / revise policy as needed
Questions…
48
Download
Related flashcards

Accounting

28 cards

British accountants

45 cards

Argentine accountants

12 cards

Create Flashcards