SECTION 6: Service Center Policy

A “service center” is an all-inclusive term to describe an operating unit within the University that provides goods or services on a regular and continuing basis for a fee based on established rates. Rates are generally formulated to recover the direct costs of the operations (e.g. salaries, benefits, materials, and supplies) as well as unit indirect costs (e.g. administrative assistant, IT charges, etc.) that can be attributed to the activity. To the extent service centers provide goods or services to external customers, market rate considerations may be included in establishing rates. There are two main types of services centers at MSU:

1. Academic Service Centers (DN/DY/DS) - these are departmental units or operations that produce goods and services related to educational activities. These types of activities are generally related to the central mission of the University of conducting instruction, research, and public service and that incidentally create goods and services that may be sold to students, faculty, staff, and external customers. Examples of revenues from educational activities include:
   1. Non-credit instruction, conferences, and workshops (account for in DN sub-fund). These offerings include noncredit instructional programs carried out by the University’s extension division, adult education programs, and continuing education programs. Non-credit training associated with sponsored programs (RC/RG accounts) and instructional creation and design initiatives are excluded.

   2. Fee-for-Service Activities in Academic Settings (account for in DY sub-fund). Fee-for-Service Activities support the mission of the University, provide a mechanism to establish relationships with companies and organizations that can lead to sponsored programs (RC/RG accounts), and result from MSU’s excess research capacity. Fee-for-Service Activity deliverables are generated using known practical applications of standard procedures and established theories, methods, and standard experiments. The results of Fee for Service Activities are of specific interest to the client and generally involve a set fee. Examples of revenues from these Fee-for-Service Activities could include:

      • Applying a lab technique developed by MSU research to an external customer’s products.
      • Providing consulting services utilizing methodologies developed via MSU research to external customers.
      • The sale of any other recurring services based on completed research.

      MSU Business-CONNECT assists the Office of the Vice President of Research and Innovation in determining whether an activity qualifies as a Fee-for-Service Activity. A department that conducts Fee-for-Service Activities for sale to external customers may provide the same or similar services internally to other MSU departments and/or MSU sponsored program (RC/RG accounts) activities at cost-based rates. Please see Section 315 of the Manual of Business Procedure for additional information and requirements when conducting Fee-for-Service Activities.

   3. Other academic service center activities that do not fit the definition of DN or DY activities above (account for in the DS sub-fund). This includes certain community facing services and community health/clinical activities, apart from direct patient services.
2. Auxiliary Service Centers (XH/XT sub-funds) – Departmental units or activities that exist to predominantly furnish goods and services to other University departments. These types of activities are generally support-type functions and focus more on routine, readily available goods and services. External customers may be served incidentally by some Auxiliary Service Centers. Examples of Auxiliary Service Centers include facility and maintenance services, technology services, machine shop/fabrication services, printing/copy centers, food stores, chemistry stores, motor pool, and telecommunications. These service centers should utilize either sub-fund XH (Student Life and Engagement related) or XT for their respective accounts. The Office of Financial Reporting determines whether an activity qualifies as an auxiliary activity. 
   The University operates certain auxiliary activities that are designed to be self-supporting and exist principally to furnish goods and services to students, alumni, or faculty and staff acting in a personal capacity, and/or external customers, and charges a fee for the use of goods or services. Auxiliary activities are not considered service centers for purposes of this policy and pricing for goods and services may be based on market rates. Examples include Residential and Hospitality Services, Breslin Center, Intercollegiate Athletics, Wharton Center, Kellogg Center, MSU Surplus, Veterinary Medical Center, Parking Services, among others. In instances where these goods or services are provided and charged to internal customers, including MSU sponsored program accounts (RC/RG), units must maintain documentation that supports the rates charged are reasonable in comparison to market conditions.

In certain cases, departments may administer intra-departmental charges as a mechanism to distribute certain administrative costs across functions within their own college/MAU. These activities are not considered services centers for purposes of this policy. In addition, in the normal course of business, departments may bill another University department for incidental goods or services provided, but in general, do not provide those services on a regular and continuous basis. These activities are also not considered service centers. Regardless, in both instances, if billings result in charges to a MSU sponsored program account (RC/RG), rates charged must be cost-based in accordance with 2 CFR Part 200.

Service centers are self-supporting activities in which fees are charged to customers to recover the costs of providing goods and services. Units should establish accounting structures to easily report and analyze service center income and expense amounts to ensure billing rates are appropriate. Every unique service center should be recorded in its own MSU account, with any unique product or service line requiring different rates tracked in separate sub-accounts within the overall service center account.

Upon start-up of a service center, it is expected colleges or other major administrative units (MAUs) make an investment/contribution to establish the service center, similar to a business start-up. This is necessary to cover initial costs for equipment, supplies, or other start-up costs to get the service center operating. Therefore, establishing a service center must be approved by an MAU Administrator (Vice President, Dean, including Assistant and Associate positions, Chief of Staff, CFO, or MAU Budget Officer). Approvals should be attached to the new account request document submitted in the finance system. Once operational, income from billing rates charged to customers should cover operating costs.

In most circumstances, service center accounts should maintain a positive balance and not be in overdraft status. However, it is understood that when service centers establish billing rates, certain estimates may be used which could vary from actual results (e.g. sales volume or total costs). These variances can create deficits in the account, which need to be incorporated in future billing rates. Please see Section VI below for instructions on how service centers should complete a lookback review as part of establishing billing rates to ensure future rates are set accordingly.

If a service center has an overdraft balance that exceeds 25% of its average annual income (based on three previous years) and is more than $100,000 in deficit, the college or MAU must subsidize the service center to break even and conduct an updated billing rate review to evaluate the feasibility of providing the goods or services into the future. In some instances, recurring service center subsidies from the college or MAU are needed to continue providing certain goods or services at reduced rates to meet strategic priorities. Fiscal Officers must use object codes 4106 – Transfer In-Service Center Subsidy and 6106 – Transfer Out-Service Center Subsidy to specifically identify any subsidy payments.

Based on federal regulations (see 'Key Federal Requirements' listed below) the University has developed the policy and guidance below for establishing and monitoring service center billing rates. All service centers that charge MSU sponsored program accounts (RC/RG) are subject to the cost principles and cost accounting standards outlined in 2 CFR Part 200, sections 200.402 through 200.406 in general and section 200.468 in particular. In summary, rates must be based on actual costs, applied consistently, and based on the actual use of the service (i.e. per test, hour, item, class, etc.).

1. Key Federal Requirements
   1. Rates should recover no more than the net cost of the good or service.
   2. Rates must break-even over time, not necessarily each year.
   3. Rates cannot discriminate between MSU sponsored program accounts (RC/RG) and other internal customers.
   4. Surplus from one service center shouldn’t be used to fund unrelated activities.
   5. Equipment use (depreciation) may be included in the rate if the equipment was purchased with funds from the service center account (not General or MSU sponsored program funds).
   6. Equipment costs must be spread over the useful life (instead of one year) if the cost is greater than $5,000.

The rates charged to MSU sponsored program accounts (RC/RG) and internal customers may not exceed the cost-based rate (no profit/markup). The billings for external customers can include markups. In some cases, work for external customers may be subject to Unrelated Business Income Tax (UBIT). More information on UBIT is available on the UBIT FAQ website. The University Administrative Fee or the Fee for Service charge in accordance with section 315 of the Manual of Business Procedures (MBP) will be charged on revenue derived from external services. This charge and UBIT (if applicable) should be considered when developing rates for external customers.

TEMPORARY POLICY CHANGE – See above for temporary policy changes for routing and approval of certain internal billing rates.

In accordance with 2 CFR 200.468, rates must be adjusted at least biennially (every two years) and must take into consideration over/under-applied costs of the previous period(s). To adhere to this policy, it is expected that all service centers complete a review of their respective billing rates biennially, with certain billing rates requiring an additional review and approval by the Office of Financial Reporting in conjunction with Contract and Grant Administration.

• Service centers with annual billings in excess of $25,000 to MSU sponsored program accounts (RC/RG accounts) are required to have their billing rates reviewed and approved by the Office of Financial Reporting biennially.
• Service centers with annual billings of less than $25,000 to MSU sponsored program accounts are required to update and document rates biennially at the department level. No central level review is required.

These requirements are summarized below:

Please note: certain internal billing rates are so prominent to the operations of the University that they will continue to be subject to annual review by the Office of Financial Reporting regardless of billings to MSU sponsored program accounts (RC/RG). This requirement will be determined and communicated directly to the respective service centers by the Office of Financial Reporting. If it is determined that units are not complying with the billing rate review process, the Office of Financial Reporting may require annual review of rates and/or central level review and approval.

Please visit the Office of Financial Reporting’s Service Center Billing Rate Guidance site located at https://ctlr.msu.edu/financial-reporting/service-center-billing-rate-guidance for detailed steps on preparing a billing rate, including templates for a variety of common service center activities, sample approval letters, and other resources. These templates should be used for preparing service center billing rates as they provide guidance to ensure the rates are complete and promote consistency in preparation and review.

TEMPORARY POLICY CHANGE – See above for temporary policy changes for routing and approval of certain internal billing rates.

Departments are required to update rates at a minimum biennially (every two years) for each service, see Section IV above. Service center rates should allow the operation to "break even" over time; however, working capital balance of up to 10% of annual operating expenses may be maintained.

1. Departmental Lookback Review - Departments must review operating statements to evaluate the total revenue and expenses related to providing each service. If it is determined that revenue exceeded expenses + cumulative deficits (or less cumulative surplus) for the period under review and working capital balance exceeds 10% of annual operating expenses, adjust rates for the following period (whether the period is one year or two) down to give back the surplus (except for external customer rates). If revenue was less than the expenses + cumulative deficits (or less cumulative surplus) of providing the service, adjust future rates up to capture all the costs and recover the shortfall provided that the working capital balance remains under 10% of annual operating expenses. The templates noted in Section V provide guidelines for preparing the lookback calculation.
   1. Revenues that exceed the actual costs of a service cannot be used to subsidize other services of the service center, except for revenue generated by external customers. For example, one service can’t be run at a profit, to subsidize another service that is run at a loss.
   2. Cumulative surplus should not exceed 10% of annual operating expenses.
   3. Surpluses and deficits should be cumulatively used to adjust future billing rates or be credited back to users by tracking the carry forward net cumulative surplus or deficit. This effort can exclude the surplus created on external customers, so long as these surpluses can be documented.
   4. It is the department’s responsibility to maintain general ledger information and operating statements to support calculations used to develop and review rates. Departments should be prepared to support their rates in the event of audit by internal or external auditors. If rates are determined to include ineligible costs, the service center may be required to reverse charges in certain circumstances.
2. Submission of billing rates
   1. For service centers with billings less than $25,000 to MSU sponsored program accounts (RC/RG), units must only submit a certification to document the completion of this biennial update. Service centers are required to submit this form to CTLR.billingrates@ctlr.msu.edu once completed. The Office of Financial Reporting will monitor departments and periodically conduct reviews as deemed appropriate.
   2. For service centers with billings in excess of $25,000 to MSU sponsored program accounts (RC/RG), billing rates must be submitted to the Office of Financial Reporting for review (see below).
3. Office of Financial Reporting Review - Submit the completed template (see Section V) or the billing rate details including budget detailing costs included in the rate to the Office of Financial Reporting at CTLR.billingrates@ctlr.msu.edu for approval. The rates will be reviewed and, if no issues are identified, an approval letter will be e-mailed back to the sender and any other individuals copied on the requesting message.
   1. Provide the following information either in your rate or in the body of your email request:
      1. Users (Internal/MSU Sponsored Programs (RC/RG accounts), External)
      2. Account and sub-account (if applicable) to receive the revenue from the service.
      3. Rate effective date (when will the rates be charged).
   2. Upon review and approval, an email will be sent noting the approval. A sample approval letter is viewable here. This approval letter along with the rates approved will be attached to the KFS Account e-doc in KFS for future reference.
   3. Supporting documentation and records should be retained in compliance with the University Archive policies.

1. Questions regarding the allowability of costs and inclusion in billing rates and the review and approval process: Christine Mossner, Office of Financial Reporting at 517-355-5029, CTLR.billingrates@ctlr.msu.edu.
2. Questions regarding federal cost allowability: Contract and Grant Administration (CGA.ServiceCenter@cga.msu.edu).