This section sets forth the policies governing Stanford service centers. The policies have been developed to ensure compliance with the Federal cost principles for educational institutions contained in OMB Circular A-21 and the Uniform Guidance. These cost principles establish guidelines as to allowability and allocability of all costs that may be recovered on Federal grants and contracts, including costs associated with service center activities.
Except as noted, these policies apply to all service centers at Stanford.
1. Non-Discriminatory Rates
It is paramount that in establishing its rates, a service center does not discriminate against any internal group of service center users. A service center must charge all internal users the same rate for the same level of services or products purchased in the same circumstances. Rates should not differentiate among internal users. The use of special rates, such as for high volume work or less demanding non-scientific applications, is allowed, but they must be equally available to all users who meet the criteria.
The federal government does not object to charging external users a higher rate than that charged to internal users. However, if your external users are charged higher rates than the actual costs associated with your external customers usage, then those costs should be tracked separately to avoid the perception of overcharging. For example, several service centers do not include all or only a portion of equipment depreciation expense in their rate calculations (capital assets should not be included in F&A equipment pool), that cost can be theoretically included in external user rate markup.
All users of the facility must be billed for services.
External users of a center may not be charged at a rate less than that charged to internal Stanford users. They may be charged a higher rate if the service center’s annual budget provides justification for the markup.
3. Service Center Subsidies
Service center budgets and rates should be fully costed (i.e., the budget and rates should include all allowable costs directly associated with the service center operations). However, some departments may wish to subsidize service center operations by offering Dean’s Funds or other unrestricted funds to the center.
Subsidies for service center operations are unallowable for Government F&A (indirect) cost recovery purposes, and must be properly segregated and excluded from F&A (indirect) costs allocated to Government awards. Therefore, it is Stanford policy that all direct costs associated with operating a center are charged to the service center account throughout the year. At year-end, the service center deficit must be funded in accordance the section of this policy on “Guarantee Account.”
A service center which plans on subsidizing its operations must notify RAPC/CMA in its annual budget submission. RAPC/CMA will work with the center to properly account for the planned subsidy before the fiscal year closes. A copy of the subsidy journal is given to CMA who will then remove the amount from the MTDC.
3. Billing Period
Service centers should handle year-end and other billings consistently each year, in order to ensure that income recorded is properly matched with costs incurred, and that the year-end breakeven calculation is accurate. Where possible, this should be the University fiscal year, September 1st through August 31st. Service Centers should ensure that services performed in the month of August are billed in the same month. If the center is recording their services income in the month following, i.e. August services are billed in September, RAPC should be notified. RAPC should also be notified if significant out-of-period billings occur. When calculating the year-end, the center has to maintain a twelve months cost recovery versus twelve months expenses. This allows the best matching of cost recovery and incurred cost.
4. Guarantee Account
In order to establish an academic service center, a "guarantee account" must be designated in the service center's initial proposal by the Stanford unit responsible for the service center. This account is a "guarantee" for the payment of unrecovered service center expense or uncollectible revenue if the service center balance exceeds a 15% loss at fiscal year-end. The guarantee account may be a General Funds operating budget account or other expendable funds in a designated fund or gift account.
Administrative, university-level service centers are not required to have a guarantee account. These centers may have to request additional funds from the Provost if a net operating loss greater than 5% occurs at fiscal year-end.
5. Breakeven Rates For Service Centers
A service center must "breakeven" at the end of a 12 month period, or at the end of a Long Term Agreement period. "Breakeven" is defined by Stanford as follows: "the service center will have a net year-end balance which is within plus or minus (+/-) breakeven % of its total annual expenditures (including any prior year balance carried forward)." That is, the service center's annual revenues must roughly equal its annual expenditures at the end of each fiscal year. For a Long Term Agreement service center, its cumulative revenues must roughly equal its cumulative expenditures at the end of its negotiated multi-year period.
The academic service centers and VSC breakeven amount is 15%. Administrative service centers must breakeven within 5% of total expenses. The "+/- 5% or 15%" breakeven policy provides service center managers with some flexibility in dealing with unanticipated income or expense fluctuations. The difference between the “+/- 5% or 15%” net balance and absolute breakeven (a zero net balance) is carried forward into the next fiscal year. The policies described below as to what happens in the event a service center's net balance is outside the +/- 5% or 15% margin provide strong incentives to manage a service center in conformance with a +/- 5% or 15% year-end breakeven position.
A. > 5% or 15% (Over-recovery)
If, at fiscal year-end, a service center's revenues produce a net gain in excess of the 5% or 15% breakeven requirement, the center must refund the entire net over recovery to all its users, proportionately for that fiscal year, bringing the service center's net balance to (approximately) $0.
B. > 5% or 15% (Under-recovery)
If at fiscal year-end, an academic service center's expenses produce a net loss in excess of the 15% breakeven requirement, the entire deficit must either be charged proportionately to all service center users or offset against the service center's guarantee account, thus producing a net balance of (approximately) $0 for the service center for the fiscal year.
The administrative service centers have no specific guarantee account. The large number of these service centers' customers, including external users, may make a proportionate year-end charge-out of such an under recovery an impractical alternative. Hence, the only practical recourse for a fiscal year-end under recovery greater than 5% may be that the service center must request additional funds from its sponsoring department or from the Provost to cover the deficit.
See section 2.2.4c and "related items" below for additional definition and examples of +/- 5% or 15% breakeven calculations. Also, see section 2.2.4b for discussion of mid-year breakeven requirements.
6. Unallowable Costs
Unallowable costs may not be budgeted or expensed by Academic service centers. This is because Academic service centers often charge a significant part of their business to Organized Research, federally sponsored grants/contracts. (See the Cardinal Curriculum Level I in the training section of this site). Expenses such as unallowable interest, alcohol, entertainment, unallowable travel must be charged to an unrestricted PTA, instead of service center account.
Unallowable costs such as unallowable interest and unallowable interest markup are permitted in the rates of the Administrative service centers. This is to allow these service centers to properly distribute all of the costs associated with their capital assets to their internal and external users.
These unallowable costs included in their rates which are charged to University academic and administrative accounts are removed from the appropriate cost objectives (and, therefore, from the F&A cost rate) during the F&A Cost Study process.
Read about unallowable activities in the Cardinal Curriculum course DOR-1101: Understanding Cost Policy.
7. Capital Equipment
Effective September 1, 2003 (FY04), the University raised the equipment capitalization threshold for both equipment acquisitions and fabrications to $5,000. Accordingly, effective FY04, “Capital Equipment” is defined as a stand-alone item with an acquisition cost of $5,000 or more and a useful life of one (1) year or more.
This capitalization threshold is applicable for all academic and university- level service centers. Capital equipment may not be charged directly (as a single year expense or period cost) to a service center. However, depreciation on service center assets can be charged to the service center.
Effective FY04, an item costing less than $5,000 must be expensed in the year of acquisition.
8. External Users
Organizations or individuals whose ultimate source of funds is outside of the University. External users include students and any members of faculty or staff acting in a personal capacity.
9. Sales Tax and Facilities & Administration Costs (Indirect Costs)
Sales tax and F&A costs are not applicable for internal sales (F&A is automatically burdened on PTAs). However, sales tax and F&A costs may need to be manually charged on external sales if a Sponsored AR PTA has not been opened.
10. Records Retention
Service center charges are subject to audit as long as the grants or contracts which they charge (either directly or indirectly) remain subject to audit requirements. Service centers are also subject to periodic review by the University's Internal Audit department and by external auditors, to evaluate compliance with federal regulations, established university policies and accounting practices. Therefore, service center activities must be adequately documented and records maintained to support expenditures, billings, and cost transfers.
Each service center must, at a minimum, retain the following:
- Documentation of the proposal for the establishment and approval of a new service center.
- Documentation as to how the charge out rate(s) were calculated.
- RAPC's rate approval letter(s).
- Supporting documents related to expenses incurred which are not retained centrally. See Administrative Guide Memo 3.1.5 for description of centrally maintained documentation.
- Records supporting utilization (level of activity).
- Records supporting the amount and basis of user billings (revenues).
Per Admin Guide 3.1.5, financial records, supporting documents, statistical records, and all of the records pertinent to a service center's activity should be retained for at least three years, unless a litigation claim or audit is started before the expiration of this period. In these cases, contact the CMA office for the record retention time.
Charges to grants and contracts are subject to challenge at least three, and sometimes four years after the project expires and is fully settled.
Service centers under Long Term Agreements must retain their records until their annual report is audited, or until that year is "closed" by Stanford's cognizant Government agency - the Office of Naval Research, (ONR).