service center billing rates becca fedewa, cpa senior financial analyst, financial and cost analysis...
TRANSCRIPT
Service Center Billing Rates
Becca Fedewa, CPA Senior Financial Analyst, Financial and Cost Analysis
Evonne Pedawi Assistant Director, Contract and Grant Administration
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Service Center Billing Rates
What is a Service Center
Calculating a Billing Rate (or Fee)
Requesting/Renewing a Rate
Responsibilities
Resources
Questions2
What is a Service Center?
An operating unit within the University that provides a service or group of services, or product or group of products to users principally within the University for a fee on a regular and continuing basis.
“Regularly makes stuff or does stuff for $.”
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What is a Service Center?
Recharge Center
Specialized Service Facility
Fee for Service
Testing Center
Entrepreneurial Operation
Internal Service 4
What is a Service Center? “Regularly makes stuff or does stuff for
$.”An operating unit within the University that provides a service or group of services, or product or group of products to users principally within the University for a fee on a regular and continuing basis.
More than once per year, or recurring annually
Even though the deliverable product or service can vary widely, if the center is regularly producing or doing “stuff” it is probably considered a service center
Unique, one-time products or services are generally not service centers and the fee will be determined on a case by case basis
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What is a Service Center? “Regularly makes stuff or does stuff for
$.”An operating unit within the University that provides a service or group of services, or product or group of products to users principally within the University for a fee on a regular and continuing basis.
Typically considered a service center even if all products are always different.
Examples of Service Centers: Physical Plant (IPF Services), University Stores, MSU Press, Copy Centers and Print Centers, Noncredit Instruction, Telecommunication Services, Event Planning, etc.
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What is a Service Center?
“Regularly makes stuff or does stuff for $.”An operating unit within the University that provides a service or group of services, or product or group of products to users principally within the University for a fee on a regular and continuing basis. Fee, surcharge, price, bill, commission, cost,
pay, cut, stipend, cost share, revenue, consideration, remuneration, toll, slice, take, piece, ante……they’re all considered goods or services for a fee, and the rates to be charged need to be approved by Financial and Cost Analysis (and CGA if customers include Federal Grant Accounts)
Let’s talk about how to calculate the rate…
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Calculating Billing Rates
Five Step Process1. Identify all of the services provided2. Identify your user groups (customers) 3. Determine how much it costs to produce
the goods or provide the services4. Determine price points for external customers
(i.e. markups)5. Send rates and cost calculations to Financial and
Cost Analysis for renewal every 2 years (minimum)
Pretty simple, right? Well, maybe not yet…. 8
Calculating Billing Rates
1. Identify all of the services provided
A separate rate schedule should be calculated for each category of service.
Typically costs for all the services are in one revolving account. In order to determine how much it costs to produce each good or service, you need to know which services or goods are provided so you can allocate total costs accordingly. Costs incurred on General Fund or Grant accounts cannot be included.
Tip: Sub accounting or setting up new accounts for various service lines may be helpful. 9
Calculating Billing Rates
2. Identify your user groups (customers)
Off-campus/External (ex: individuals, businesses, external entities)
• This includes students and other universities
On-campus/Internal (ex: departmental billings)
Grants (ex: federal/state grants administered by Contract and Grant Administration in RC accounts)
Why does it matter?
Campus and Grant rates are held to more restrictive rules. You can’t make a
profit on these rates, but you can profit from Off-campus/External customers!
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Calculating Billing Rates
3. Determine how much it costs to produce the goods or provide the service
Direct Costs – Specifically identifiable to the product or service with relative ease and high degree of accuracy.
Indirect Costs – Costs that are incurred for providing multiple goods or services. Overhead/admin costs.
Only costs incurred on revolving accounts (starting with D or X) may be included in the calculation of costs of providing a service. Costs incurred on grant accounts or general fund accounts cannot.
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Calculating Billing Rates3. Determine how much it costs to
produce the goods or provide the service
Direct Costs – Specifically identifiable with relative ease and high degree of accuracy. Salaries and fringes of staff directly providing the service Material costs Equipment lease or rental Consumables Contracted services Other directly related expenses
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Calculating Billing Rates3. Determine how much it costs to
produce the goods or provide the service
Indirect Costs – Costs that are incurred for providing multiple goods or services. Salaries of administrative support staff (directors,
clerical, and accounting/business office staff) Supplies not directly attributable to the service (office
supplies) Equipment lease or rental Contracted services Other costs incurred that can’t be traced to the final
product with a high degree of accuracy
But wait, some things are on both lists. Why?It depends on the service. Paper may be an indirect office
cost in for most service centers, but at a copy center it would be a direct cost since we know exactly
how many pages a customer is paying for.
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Calculating Billing Rates3. Determine how much it costs to
produce the goods or provide the service
Allocate Indirect Costs
Develop a method to allocate the indirect costs to each service offered
Allocations should be based on a causal and beneficial relationship i.e. percentage of effort, time usage, costs, space (sq. footage), etc.
We’ll go through an example shortly…14
Calculating Billing Rates3. Determine how much it costs to
produce the goods or provide the service
Quantify or estimate usage (number of units) for each service.
What pricing structure will you use to charge customers? (What is your “per”)
• Time (per hour, per minute, per day, per week)
• Units (per credit, per attendee or attendee-hour, per test)
• Price (similar to units, except consists of a product list with a markup rate applied to cost of goods)
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Calculating Billing Rates3. Determine how much it costs to
produce the goods or provide the service
Calculate the rate for each service:
Annual Estimated Costs (Direct and Indirect) + or -
Prior Period Cumulative Carry Forward (Deficit)
Expected Units of Activity (“per”)
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Calculating Billing Rates3. Determine how much it costs to
produce the goods or provide the service
Noncredit Instruction Ex:
Indirect Costs
Basket Weaving 102 (30 ppl)
Basket Weaving 101 (50 ppl)
Basket Weaving 103 (20 ppl)
Direct CostsDirect CostsDirect Costs
• Admin Labor• Management Labor• Office Supplies• Phone Bill
• 2 Instructors• Facility Rental• Course Materials• Refreshments
• 1 Instructor, 1 Aide• Course Materials• Refreshments• Audiovisual
50%30%
20%
• 1 Instructor• Course Materials• Beverages/Snacks• Audiovisual
Hint: People-hours is a good, flexible NCI unit of measure!
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Calculating Billing Rates3. Determine how much it costs to
produce the goods or provide the service
When calculating labor costs, group people who do the same kind of work together and calculate an average rate.
18Note: 100% effort is approx. 1600 billable hours due to admin time, vacations, etc.
(A x B)
Calculating Billing Rates3. Determine how much it costs to
produce the goods or provide the service
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Calculating Billing Rates4. Determine price points for external
customers (i.e. markups)
Must be greater than or equal to the On-campus and Federal rate
External Rate should be at least 2% higher to cover the Administrative Fee
Watch out for Unrelated Business Income Tax (UBIT)
• Beth Powers, Financial and Cost Analysis 884-4279
Other than that, there aren’t really any restrictions 20
Calculating Billing Rates5. Send rates and cost calculations to
Financial and Cost Analysis for renewal every 2 years (minimum)
Send more frequently if cost components change (which is annually for many service centers due to pay changes)
Keep in mind that service center operations should break even over time so changing rates doesn’t need to happen when costs fluctuate minimally, but should when there is a significant change in costs.
Avoid being on “the list” by sending in updated rates on time.
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Calculating Billing Rates
That was the hard part! Questions so far?
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Requesting/Renewing a Rate Send rates and cost calculations to
Financial and Cost Analysis for renewal every 2 years (minimum) Send more frequently if cost components
change
Always include the following information in your request:
• Revolving account number for the Service Center
• User groups/customers (on-campus, off-campus/external, and/or federal grants)
• Effective date for the rates to be implemented or “upon approval”
• Rate calculation and explanation of methodology (if needed)
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Requesting/Renewing a Rate Send rates and cost calculations to
Financial and Cost Analysis for renewal every 2 years (minimum) When renewing a rate, calculate the prior
period (the time since the last rate was reviewed) surplus or shortage, and factor that into your upcoming rates. Subtract a surplus from total costs, and add a deficit. This is the “Cumulative Carry Forward” referenced on Slide 16
NEW: A 10% Working Capital (Cumulative Carry Forward) balance may be maintained without
adjusting rates. 10% of annual service center operating expenses. 24
Responsibilities Financial and Cost Analysis
Review submitted rates in a timely manner.
• Target turnaround 4-6 weeks, but may be much sooner if the rate calculations submitted are self-explanatory
Hint: Use the provided templates or something similar to calculate rates!
If user groups include federal grants, route to CGA
Email rate approval memo and attach to account in KFS
Provide guidance and assistance with rate development to departments
Maintain and update the billing rate policy at: http://ctlr.msu.edu/COFA/ServiceCtrBillingRatePolicy.aspx
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Responsibilities Service Center (department)
Revisit the billing rate policy before submitting rates to FCA for review. http://ctlr.msu.edu/COFA/ServiceCtrBillingRatePolicy.aspx
Obtain appropriate departmental/college reviews before sending rates to FCA
Send rate calculations to FCA every 2 years (minimum) for review/approval
Maintain supporting documentation of the calculations (i.e. operating statements, supporting schedules, labor distribution, etc.) and provide this support in the event of an agency audit
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Responsibilities Contract and Grant Analysis
Review submitted rates for compliance with federal regulations and cost circulars in a timely manner (as part of the 4-6 week target turnaround)
Provide guidance and assistance with rate development to departments (when user groups include federal grants)
Provide audit support. Act as liaison between federal auditors and the department responsible for maintaining the supporting schedules for rates
Assist with updating the Service Center Billing Rate policy to ensure federal compliance
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Resources Service Center Billing Rates policy
http://ctlr.msu.edu/COFA/ServiceCtrBillingRatePolicy.aspx (link in Section 5 of the MBP)
Templates for calculating rates (under Quick Links)
• Price Lists - Cost of Goods Sold + markup %
• Noncredit Instruction – Direct and Indirect costs per participant hour or course
• Testing per Unit and per Hour – Direct and Indirect costs per test
• Services – Direct and Indirect costs per hour where primary cost is labor
Quick Links – OMB Circular A-21, Sample letter, MBP, etc
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Resources Financial and Cost Analysis
Becca [email protected](517) 884-4193
Contract and Grant Administration Evonne [email protected](517) 884-4272
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Questions?
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