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Selling to External Customers |
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Effective: October 2006
Last Updated: June 2008
Responsible University Officer:
Policy Owner:
- Director of Disbursement Services and External Sales
Policy Contact:
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University colleges and departments are encouraged to fully utilize academic expertise and institutional resources to generate additional sources of revenue from external customers in a commercial and competitive manner. The sale of property and/or services must be consistent with the University's mission of education, research, and public service or maximize the use of existing department, college, or administrative unit resources, consistent with the objectives of the University. Whenever feasible, these sales activities should strive to provide learning opportunities for students and foster positive, mutually beneficial, collaborative relations with outside constituencies.
External sales activity should be conducted in accordance with University policy and procedures to ensure adequate compliance with federal and state regulations and to minimize legal, insurance, and tax risks. Any department, college, or administrative unit desiring to sell property or services to external customers must obtain appropriate approval. Approval and reporting responsibilities are also defined in the attached procedures. Any sales of property or services generated from a sponsored project should also refer to Administrative Policy: Managing Program Income Earned on Sponsored Projects.
When planning or approving business activities, Deans, Department Heads, and other administrators should ensure that these activities are consistent with this policy. Units that do not follow the guidelines set forth in this policy will be held responsible for any fines or penalties incurred.
Align current policy with Regents' 1995-96 budget resolution. Effectively use University resources to establish a University policy that reflects current practices and financing realities of higher education:
- Need to better manage risks associated with external sales activity.
- State support for public higher education will not increase in real terms.
- Tuition levels may need to increase faster than the overall inflation rate.
- Pressure will increase on academic entrepreneurial activities in order to generate critical new revenue.
- Technology investments are critically short and the need is growing.
- Facility renewal investments, while some progress has been made, continue to fall significantly short of established U2000 goals and must be strengthened.
- New strategic investments in academic programs are working but remain a small component of overall spending.
Note: For assistance in distinguishing between "External Sale", "Sponsored Project" and "Gift," see Appendices E and F.
- External Sales
- An exchange by the University of tangible or intangible property or service with external customers for monetary consideration. Transactions handled by OTC for technology transfer, license, and trademark agreements are excluded from this definition. See Appendix F for example of external sales.
- These are the different types of external sellers:
- Administrative Service Charges
- An assessment of accounts for institutional support functions (i.e. payroll, accounting, purchasing) that benefit University activities.
- Auxiliary Enterprises
- An administratively approved unit activity that provides goods or services at approved rates on a regular and continuing basis:
- predominantly to individuals who are part of the University
- community (i.e. staff, faculty, students)
- incidentally to the general public
- incidentally to University departments
Examples: University Bookstore, Housing, Food Services
- Central Administration Sales
- Sales negotiated from a central administrative perspective because it has institution-wide implications. Examples would be exclusive University use of certain products, or sale or lease of a U-wide asset.
- Contract
- An agreement between the University and another entity to provide an economic benefit for compensation paid. This exchange transaction is binding and creates a quid pro quo relationship between the University and the entity. Sponsored contracts are administered by Sponsored Project Administration. Some contracts related to external sales activities may be negotiated at the unit or central level depending on the Regents Delegation of Authority Policies. For guidance in distinguishing between sponsored project contracts administered by SPA and other external sales contracts, see Appendix E.
- Cost of Space Occupied
- Rent paid or the square footage cost of occupying University-owned space as determined by the Budget Office and Facilities Management. The cost of University space used in external sales activity should be charged/allocated.
- Current Operating Costs
- Salaries, wages, benefits, employee related expenses, travel, supplies, and other direct costs of operations.
- Department Sales of Property or Services
- A unit activity, usually academic, that provides goods or services at approved rates on a regular and continuing basis:
- predominantly to the general public
- incidentally to University departments
- incidentally to individuals who are part of the University community (i.e. staff, faculty, students)
Examples: Continuing Education Conferences, Child Care Centers, Agricultural Sales
- External Customers
- Individuals (including faculty, students, and staff), private businesses, foundations and government agencies that acquire property or services from any University departments, auxiliary or ISOs and do NOT use the University internal billing system. Purchases are made by individuals or non-University organizations.
- External Sales Risks
- Risks related to external sales can include but are not limited to legal, tax, insurance, federal compliance, accounting, environmental health and safety, and public relations risks. These risks can be at a departmental or institutional level or both. Some examples include:
- Incurring penalties or fines on unreported and underpaid sales or income tax liabilities.
- Improper handling of sales (program income) generated from sponsored projects.
- Allegations of unfair business practices resulting from underpriced products or services.
- Litigation resulting from copyright, intellectual property, or product liability issues.
- Discrediting the University name or reputation.
- Gift
- A transfer of money or property (i.e., equipment, land, stock, etc.) made to the University via a recognized University foundation by an individual group, business, foundation, or nongovernmental agency when the use of the funds is NOT intended to result in direct economic benefit or any other tangible compensation (i.e., goods or services) to the donor. The donor may specify that the gift be used for a specific purpose such as scholarships or faculty awards or for the general use of a college, department or individual. Some general reporting may be required.
Cash gifts include:
- Cash
- Check (Foreign, 3rd Party, etc.)
- Credit Card
- Wire Transfers
- Payroll Deductions
Deferred gifts - A planned gift that minimizes the donor's income and estate taxes. Deferred gifts include:
- Trusts
- Gift Annuities
- Retained Life Estates
- Life Insurance
- Life Income Gifts
- Bequests
- Grant
- Grants are additional resources awarded to the University to support instruction, research or public service. Sponsored grants are administered by Sponsored Project Administration. Grants that are donative in nature without expectation of any tangible compensation are handled by the appropriate University Foundation. The terms of the grant will determine whether it should be processed as a gift or a sponsored project. For guidance in distinguishing between gifts and sponsored projects, see Appendix E.
- Internal Sales
- The sales of goods or services by one University department to another department within the University. Transactions are completed using an Intra-Institutional Voucher (IV) that recognizes income and expense between University accounts.
- Internal Service Organizations (ISOs)
- A unit that provides goods or services at approved rates on a regular and continuing basis:
- predominantly to University departments
- incidentally to the general public
- incidentally to individuals who are part of the University community (i.e. staff, faculty, students)
Examples: Graphic Services, Fleet Services, Telecommunication Services, Physics Shop and University Stores.
- Sponsored Project
- An externally funded activity that is governed by specific terms and conditions. Sponsored projects must be separately budgeted and accounted for subject to terms of the sponsoring organization. Sponsored projects may include grants, contracts, and cooperative agreements for research, training, and other public service activities. The project commits the University to specific work or research with financial and or technical reporting. To help assure compliance with submitted proposals, these projects are routed through Sponsored Project Administration (SPA). Within the University accounting system, sponsored projects have organization numbers (ORG) of 6000 or greater.
- Other Sponsored Activities
- Other academic projects not related to instruction funded by sponsors; project activities typically fall in the category of public service. For assistance in distinguishing between gifts, sponsored projects and external sales - see Appendices E and F.
- Sponsored Instruction/Training
- Teaching and training activities at the University funded by federal or nonfederal sponsors.
- Sponsored Research
- Research and scholarship activities that include inquiry, experiment, or investigation to increase the scholarly understanding of the involved discipline.
- Accounting Services
- Provide accounting expertise to the University External Sales Director to support the successful implementation of this policy. Provide specialized accounting assistance to those selling to external customers. Provide guidance to on rate setting and cost recovery. Approve chart of account requests. File Unrelated Business Income Tax Return.
- Department/College/Administrative Unit
- Decide if external sales activity is appropriate. Prepare and approve External Sales Action Form. Prepare business proposal. Generate additional sources of revenue. Properly code and route gift and sponsored project revenue. Manage external sales activity to comply with policy. Report external sales activity to the University External Sales Director.
- Director of Tax
- Provide tax expertise to the University External Sales Director and departments to support the successful implementation of this policy. Promote activities to minimize taxes paid by the University. Provide specialized tax assistance to those selling to external customers.
- Environmental Health and Safety
- Provide environmental health and safety expertise to the University External Sales Director and departments to support the successful implementation of this policy.
- Foundations
- Handle gift activity and forward other activity to SPA, central administration or departments.
- General Counsel
- Provide legal expertise to the University External Sales Director and departments to support the implementation of the policy. Develop standard external sales contract forms for use by academic and administrative units and provide ongoing legal assistance to such units and the External Sales Coordinator, as needed.
- Office of Sponsored Projects Administration
- Handle sponsored project activity and forward other activity to the foundations, central administration or departments.
- Risk Management
- Provide risk management expertise to the University External Sales Director and departments to support the successful implementation of this policy. Provide specialized insurance assistance to those selling to external customers.
- Senior VP for Finance & Operations
- Determine the types of businesses that the University will engage in and designate the person to be responsible for managing each business. Decide if revenue sources are gifts, sponsored projects, or external sales.
- University External Sales Director
- Coordinate external sales activity for the University. Assist in determining if revenue sources are gifts, sponsored projects or external sales. Sponsor meetings for those with external sales to promote and explain policy. Respond to questions on external sales. Compile information on those who are making external sales and collect information on their annual sales. Notify the Office of Internal Audits of high risk business activity and send them year end reports.
- Vice President for Budget and Finance and Chief Financial Officer
- Provide guidance to the University External Sales Director to support the successful implementation of this policy.
- Q. Will separate 501 3C Corporations be created to handle business activity?
- A. No. All businesses will be run within the University accounting system.
- Amended:
- June 2008 - Policy completely revised to address the Enterprise Financial System rollout. Approving External Sales, Managing Business Activity, Reporting on Business Activity procedures updated to address EFS.
- Amended:
- October 2007 - Updated contacts section. Request to Conduct External Sales is renamed External Sales Action Form.
- Amended:
- April 2004 - The dual purpose External Sales Action Form (which was both a request to conduct external sales and an annual reporting form) has been superceded by two new forms: Request to Conduct External Sales and External Sales Annual Reporting Form. These forms are now fillable, and have been put into Standard University format for forms. Additional questions have been added regarding anticipated creation of intellectual property, condidentiality of information or results. Added the following JobAids to Appendices: Business Proposal Guidelines, Business Proposal Outline, Contract Decision Chart, External Sales Identification Grid, Sample Business Proposal. Added link to External Sales Process in the Financial Onestop to Related Information.
- Amended:
- January 2004: Added new appendix - Common Audit Recommendations - External Sales
- Amended:
- September 2003: Updated Contacts Section, and External Sales Office Address in the External Sales Action Form.
- Amended:
- February 2002: Updated Responsible Office from Budget and Finance to Controller and Risk Management and Insurance in both policy and procedures. Updated link to Standard Contracts in Forms section. Updated links to Standard Contracts in Procedure 3.2.3.2. Corrected External Sales Fax Number in Contacts Section.
- Amended:
- July 2002: Updated Contacts Section.
- Amended:
- August 2001: Updated Contacts Section.
- Amended:
- May 2001: Updated Contacts Section.
- Amended:
- March 2001: Deleted sentence in policy statement dealing with University Wide Risks. Deleted University of Minnesota Hospital and Clinic exclusion since it is no longer applicable; Removed language pertaining to activities generating less than $50,000 in Responsibilities section and Approving External Sales procedure. Updated contacts section. Added links to new Risk Management website when relevant.
- Amended:
- January 2001: Updated Contacts Section.
- Amended:
- November 2000: Updated Contacts Section.
- Amended:
- June 2000: Updated Contacts Section.
- Amended:
- May 2000: Updated Contacts Section.
- Amended:
- March 2000: Updated forms section. There are four (4) new pre-approved legal agreements (contracts) which replace the previous pre-approved legal agreements (contracts) in the policy.
- Amended:
- July 1999: Updated Contacts section.
- Amended:
- May 1999: Updated Contacts section.
- Amended:
- March 1999. Updated Contacts section. Updated Activity risk characteristics, and signature section of the External Sales Action Form.
- Amended:
- July 1998. Updated Contacts section. Updated all University Contracts listed in the forms section to include Force Majeure and Limitation of Liabilities provisions. Request to Conduct External Sales form has been replaced by the External Sales Action Form. The External Sales Action form serves both as a request and reporting form. Added appendix: Institutional Risks. Updated procedure 3.2.3.4 to reflect use of the External Sales Action Form.
- Amended:
- August 1997. Updated contacts section and added Request to Conduct External Sales form.
- Amended:
- June 1997. Added links to online versions of University Contracts in the Forms/Instructions section of policy and in Activities section of procedure 3.2.3.2.
- Effective:
- October 2006
- Supersedes:
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- External Sales Policy - July 1993
- External Sales Procedure - October 1993
- Adopted for Policy Book:
- Sales Tax Procedure - October 1993
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To obtain a copy of a historical policy,
e-mail the U Policy Librarian at policy@umn.edu or call 612-624-4372.
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