University organizations that sell to other departments are expected to offer goods or services on an on-going basis that are unique, convenient or not readily available from external sources. University organizations may not be subject to external market forces so initial approval and an ongoing review is needed. The sale of goods or services must be consistent with the University's mission and the normal activities of the college or unit associated with the organization.
University colleges and departments must obtain approval from the Internal Sales Compliance Office prior to conducting internal sales activity. The rates for the goods or services must comply with Federal A-21 regulations and Federal Cost Accounting Standards (CAS); and the rates should fully cover, but not exceed, costs (see special situations below.) These rates must be reviewed annually.
When establishing the internal sales activity operating accounts in the financial system, units must ensure that revenue and costs of external sales activity are separated from the revenue and costs of internal sales activity.
Exceptions
A letter justifying any exception to this policy and/or the related procedures must be submitted to the Internal Sales Compliance Office and approved by the Vice President of Finance and Operations.
Special Situations
Subsidies should be documented in the rate development.
To ensure that units are consistent in estimating, accumulating and reporting costs in order to meet the following objectives:
- Reliable cost estimates
- Improved cost control
- Enhanced accountability
- Assure costs incurred for same purpose in like circumstances are treated consistently as direct or indirect costs
The intent of the policy is to help units to accurately accumulate all allowable and allocable costs within an identified, segregated set of accounts; to recognize subsidies to the operation; to provide a feasible means of operating a business within federal guidelines; and to establish rates based on total costs.
NOTE: Forms can be ordered from University Stores
- Internal Sales Activity
- An activity that provides goods or services:
- predominantly to University departments
- at approved rates
- on a regular and continuing basis
- incidentally to the general public
Examples of units conducting internal sales activity: Graphics Services, Fleet services, Telecommunication Services, Physics Shop and University Stores.
- Auxiliary Enterprises
- An activity that provides goods or services:
- predominantly to individuals in the University community (students, staff, etc.)
- at approved rates
- on a regular and continuing basis
- incidentally to the general public
Examples of units conducting auxiliary enterprise sales: University Bookstore, Housing, Food Services.
- Actual Usage
- Charges must be based on actual consumption of the product or service being provided, or other reasonable basis as approved by Internal Sales Compliance Office. A flat monthly fee that is assessed to a customer regardless of the level of service that is actually provided is not typically sufficient to meet this requirement.
- Administrative Service Charges
- A process where accounts are assessed for institutional support functions (payroll, accounting, purchasing) that benefit University activities.
- Break-even Period
-
A time-period in which total revenues for a good/service should equal total expenses. Three-year average margin of + or - 15%, is considered break even. Annual variances within that range should be reflected in future rates. Variances greater than 15% need to be resolved with Internal Sales Compliance Office.
- Cost of Space Occupied
- Rent paid or annual facility cost allocation for occupying University owned space as determined by the Budget Office & Facilities Management.
- Current Operating Costs
- The essential things that an organization or department must pay in order to maintain a business, such as: salaries and wages, employee related expenses, operations and travel.
- Depreciation
- The allocation of the cost of an asset over its economic life.
- External Customers
- See Public, Public Customers, or External Customers.
- Facilities and Administrative Costs (F&A Costs)
- Indirect costs represent the expenses of doing business that are not readily identified with a particular grant, contract, project function or activity, but are necessary for the general operation of the unit and the conduct of activities it performs.
- Guarantee Account
- An account designated by the RRC manager to absorb any losses greater than 15% in the operation of internal sales activity.
- Indirect Cost
- See Facilities and Administrative Costs (F&A cost).
- Internal Sales Business Manager
- Anyone within the RRC who is responsible for managing finances related to internal sales activity.
- OMB Circular A-21
- Published by the Office of Management and Budget, this circular establishes principles for determining costs applicable to Federal grants, contracts and other agreements with educational institutions.
- Operating Lease
- A lease contract that allows the use of an asset, but does not convey rights similar to ownership of the asset. An operating lease is not capitalized.
- Public, Public Customers, or External Customers
- All individual (including faculty, students, and staff), private businesses, foundations, and government agencies, that acquire goods /services from University departments, or units and do NOT use the University internal billing system. Purchases are made by individuals or Non-University organizations.
- Recharge Center
- A unit engaged in providing one or more recharge services is known as a Recharge Center.
- Recharge Service
- A Recharge Service is a good or service that provides support to the academic community for a fee.
- Service Unit
- Each distinct good or service provided must have a unit of product or service (Service Unit) that becomes the basis for charging customers. A service unit: 1) is identifiable and measurable; 2) accurately captures the resources necessary to produce it, 3) is related to, or is a reasonable proxy for, the benefit received by the user.
- Specialized Service Center
- A Specialized Service is a recharge service that typically requires the use of highly complex or specialized facilities or equipment. A unit that charges a fee for providing one or more specialized services and has an annual internal sales budget exceeding $1 million and generates significant charges to sponsored projects is considered a Specialized Service Center.
- Useful Life
- The length of time that a depreciable asset is expected to be useable as defined by the Controller's Office following Generally Accepted Accounting Principals.
- Internal Sales Compliance Office
- Approve initial rates for all new internal sales activity. Ensure ongoing compliance to University Policy and Procedures related to internal sales activity through compliance reviews of units conducting internal sales activity. Ensure Internal Sales Business Managers are performing annual review procedures. Approve chart of account requests for units requesting to conduct internal sales activity. Determine handling of gains or losses > 15% threshold. Develop and update content in internal sales training materials.
- Budget & Finance
- Approve budget related to internal sales activity during annual budget process (see Budget Instructions.) Develop and communicate cost factors to be used in annual rate development.
- Controller
- Review and approve internal sales questionnaire for units with estimated internal sales revenues greater than $25,000 or that charge sponsored projects. Forward to Risk management and General Council if necessary. Negotiate exceptions of federal A-21 guidelines with cognizant agency.
- Chancellor / Dean / Vice President
- Act on or disapprove internal sales activity. Responsible for compliance of all University policy and federal regulations. Review internal sales revenues and expenses throughout the year to evaluate financial solvency. Cover any deficits or disallowances created by internal sales activity under their direction. Review the internal sales business plan annually. Records of these reviews should be maintained at the RRC level.
- University Services / System Academic Administration
- Maintain space programming and management database.
- Internal Sales Business Manager
- Prepare business plans and rate analysis. Notify Inventory Services of equipment included in rates. Comply with established University policies and procedures. Provide competitive rates and services while maintaining near breakeven profit margins and designated fund balances. Notify Internal Sales Compliance Office of any refunds given.
- Inventory Services
- Inventory Services is responsible for updating the accounting system for all capital equipment. Inventory Services will assist departments to determine depreciable life of capital equipment, appropriate method for disposal of capital equipment, and identification of capital equipment that is purchased with federal funds so that the department can appropriately account for all capital equipment related to their internal sales activities.
- Risk Management / General Counsel
- Review and act on internal sales activity requests referred by the Controller
- RRC Manager
- Setup internal sales activity accounting structure. Designate a guarantee account for use in the event of a deficit resulting from internal sales activity within the RRC. Active participant in management of the internal sales activity processes and procedures. Active participant in annual review process.
- Sponsored Projects Administration (SPA)
- Determine appropriate internal sales activity classification. Work with Internal Sales Compliance Office in approving initial rates for all new internal sales activity.
- Vice President and CFO
-
Approve exceptions to the margins break-even plan. Determine the types of businesses that the University will engage in.
- Office of Vice President of Research
- Review rates that include F&A type charges. Review internal sales activity meeting the definition of Specialized Service Facilities.
- What is A-21?
-
OMB Circular A-21 provides principles for associating costs to Federal grants / contracts as either a direct or indirect charge. Because it covers cost principles, there are no provisions to make a profit on these charges. Because it covers both direct and indirect charges, you need to comply with this policy even if you do not sell to federal accounts.
- What do I need to know about A-21?
-
You do not need an in-depth knowledge of A-21 to operate your business. The policy has incorporated A-21 and other institutional requirements in the previous sections which we want you to understand.
- Administrative Policy: General Accounting
- Federal Office of Management & Budget Circulars:
- Equipment Replacement Process memo - January 27, 1995
- Amended:
- May 2008 - Process Overview Diagram replaced by 3 separate documents in Appendices, rather than using excel spreadsheet with multiple tabs. This was done for clarification.
- Amended:
- February 2008 - Roles, responsibilities and accountability are clearly defined in the revised policy and procedures. Clarified that expenses related to desktop computer support are considered to be administrative overhead expenses and are included in the F&A rate that is assessed on sponsored projects. Units are now required to annually review their activity and verify rates are in compliance as well as continued viability of the activity. Policy now provides for enforcement of the requirements with consequences for non-compliance, to include the loss of ability to conduct internal sales activity. All procedures rewritten to be more clear to the end user.
- Amended:
- December 2000 - Increased allowed ISO profit or loss from 5% to 15%.
- Effective:
- March 1995
-
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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