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PBA Home  >  Campus Budget and Finances  >  Fee-For-Service Practices & Policies

Fee-For-Service Practices & Policies

Fees-for-Service are charges for goods and services to both internal and external customers. This web page provides information regarding fee-for-service practices and policies.






Key Definitions

Fee-For-Service (Charge for Service)
The term Fee-for-Service applies to any activity in which a campus department sells a good or service for a fee. The customers may be either external or internal to the University. Fees-for-Service are distinct from student fees in that they are typically directly charged upon delivery of the good or service and are ancillary to the University’s instructional mission. For more information on student fees, click here.

Internal Sales
Sales of goods and services to units within the university system. All entities with a speedtype (other than Fund 80) are internal units. This activity is collectively known as Interdepartmental Sales and Services, and units that engage in these sales are known as Internal Sales Activities (ISA).

External Sales
Sales of goods and services to units and individuals external to the university system. This includes faculty, staff and students acting in a private capacity.

Exchange Transaction
There is an identifiable exchange of goods or services between the selling unit and the customer. The payment and the goods or services received are of essentially equal value.

Internal Sales Activity (ISA)
Any business line that includes interdepartmental sales and services. The activity is typically the sale of a specific good or service often, though not always, recorded within a single speedtype. A department may engage in multiple internal sales activities.

Point Control
The central review group for interdepartmental sales and services, comprised of members of Planning, Budget and Analysis (PBA) and Accounting and Business Support (ABS). Point Control can be contacted at InternalSales@colorado.edu.



Sales to External Customers

An external customer is defined as a non-university entity. Many external customers can be identified because they pay by cash, check, or credit card. This includes students, faculty and staff, and fund 80 speedtypes. This category specifically excludes other CU campuses, which are considered internal. The cost to external customers may not be less than what an internal customer would be charged for the same good/service, and may include a profit component.

Campus units may earn revenues by selling goods and services to entities outside of the University. These revenues will typically be recorded as Auxiliary Operating Revenues, Sales and Services of Educational Activities (SSEA) revenues, Rental Income, or Miscellaneous Revenues. The appropriate recording of these revenues in the finance system will, in part, depend on the nature of the unit raising the revenues. For example, officially designated Auxiliary Enterprises will typically use the Auxiliary Operating Revenue account codes, regardless of the customer, while Internal Service Centers (ISCs) can only use the Miscellaneous Revenue account codes for external sales.

External customers may be charged market prices, and must be charged at minimum the same rate as internal customers pay for the same goods or services.

When operating your business be aware of the Fund type, especially if your business charges both internal and external customers. If your business does both types of business, please refer to the Fund Decision tree for best fund placement.

For more information on charging external customers, see the ABS website for the following topics:
Charging both External and Internal Customers
Some campus units may generate revenues by selling to both internal and external customers. The external customers must be charged a rate equal to or higher than that of the internal customers. This is because federal costing standards require that federal contracts and grants be charged the best price and CU-Boulder policy is for internal charge rates to be non-discriminatory (i.e., all internal users should be charged the same rate).

ISAs are generally expected to operate on a break-even basis, and therefore should maintain fund balances equal to no more than 60 days of working capital, per federal regulations for higher education costing practices and principles (in particular, OMB Circular A-87). Profits from external customers do not factor into this calculation, but may be used to buy down rates for internal customers or for other approved activities.

When recording revenues from both internal and external customers, ISAs should use the Miscellaneous Revenue account codes for the external revenue and the Internal Service Center or ID revenue account codes for the internal revenue.


Sales to Internal Customers

An internal customer is defined as a unit within the university's financial structure. Rates for goods and services provided to internal customers must be at cost (must not exceed cost). Internal customers are easily identifiable because they use speedtypes or CU procurement cards for payment. This includes other campuses, but specifically excludes students and payments made using a fund 80 speedtype.

ISAs are operated as essentially self-funded business units. Their business activity consists of interdepartmental sales, and may also include inventory for resale and occasional sales to the general public. ISAs must follow the appropriate internal controls for cash, inventory, and accounts receivable as prescribed in the respective chapters of The Guide, and in compliance with government regulations.

Because sales to internal customers can include charges to federal contracts and grants, they are subject to both departmental and central oversight. All units engaging in internal sales activity must prepare charge rates in accordance with appropriate federal costing and accounting standards. The level of oversight increases as the risk involved in the activity increases, as defined by dollar volume and charging to federal contracts and grants (see risk framework below).

NOTE: New processes for internal sales, outlined below, will go into effect January 1, 2014 for FY15 rates. Managers of auxiliary activities that do not involve internal charging can continue to develop and submit budgets in accordance with existing templates and timelines.


General Guidelines for Internal Sales
  • All internal customers must be charged the same rates. Per federal cost accounting standards, federal research projects must be charged the best rate. It is therefore standard practice to charge all internal customers the same rate in order to demonstrate that the federal government is not being overcharged.
  • Rates charged to internal customers must be based on projected costs, or in arrears. All costs should be accounted for when developing rates. When factoring in equipment costs into rates, units must use the original cost for the equipment, including its depreciated cost.
  • Federal Cost Accounting Standards also require that educational institutions maintain consistency in estimating, accumulating, and reporting costs (CAS 501), allocating cost incurred for the same purpose (CAS 502), accounting for unallowable costs (CAS 505), and using the same accounting period for purposes of estimating, accumulating, and reporting costs (CAS 506).
  • Equipment purchased with federal funds may be used by internal service centers in some situations but should not be incorporated into the rate calculation. This is to avoid the potential of charging federal accounts for using equipment that was originally purchased with federal funds.
  • In order to cleanly track the revenue and expense activity associated with a particular good or service, that financial activity should be recorded in a unique and dedicated speedtype.
  • Any sales to contracts and grants should be recorded using revenue account code 390123 ID Sales to Grants/Contracts or 380101 IN Sales to Grants/Contracts, depending on the fund of the seller.
  • Rates should be made available, preferably online.
  • When conducting an ISA, the proper fund will be determined by the type and amount of internal sales. Please refer to the Fund Decision Tree for additional information.

Risk Framework
Guidelines and policies for units charging internal customers are established based on risk level. Two main variables are considered to establish risk: (1) volume of internal revenues and (2) charging to federal contracts and grants. The decision tree below shows the breakdown between low, medium and high risk units:
RechargeDecisionTree

This “Risk” method of managing internal sales will be effective January 1, 2014 for FY15 rates. Units are encouraged to continue with any practices they have developed to manage their internal sales, as long as they are compatible with these new campus rules.


Risk Grid
The grid below outlines the requirements for ISAs depending on their level of risk.

RiskGrid


Guidelines for Low Risk Units:
No rate submission is required for ISAs with less than $10,000 annual internal revenue. However, these units should still prepare rates and manage their sales in accordance with all appropriate costing standards and generally accepted accounting principles, and be prepared to provide documentation about rate calculations upon request.

If the nature of the ISA’s business or charging methodology changes, it is good practice to inform Point Control in order to ensure continued compliance.


Guidelines for Medium Risk Units:
Medium Risk ISAs should calculate and submit rates at least every other year in accordance with the review cycle developed by Point Control. A rate sheet containing all necessary elements for a proper rate calculation can be found here. However, ISAs may submit their own rate calculation worksheets, as long as they contain all of the following elements:
  • Price by product or service line
  • A pro forma including: four years of revenue, expense and fund balance activity – the two most recent full years, estimated totals for the current year, and projected totals for the following year.
  • Units of sale for each of the years listed above
  • A list of GL chartfields – the speedtypes or FOPPS where the financial activity is recorded
  • A certification that internal customers are not being charged more than the actual cost of the good or service
  • A certification that the ISA management has reviewed current campus guidelines and policies for interdepartmental sales and services.
The rate submission should include sign off from both the manager of the ISA and the appropriate department manager. Rates should be submitted via e-mail to InternalSales@colorado.edu and a signed copy should be sent to 579 UCB.


Guidelines for High Risk Units:
High Risk ISAs are required to submit rate calculations on an annual basis. These units should develop their rates using the same standards and criteria listed for medium risk units above. They must also convene a Rate Review Committee consisting of members representing the seller, at least one buyer, and PBA/ABS. The purpose of the rate review committee is to provide an ongoing, additional level of review for those units who are considered high risk in terms of the volume of their sales and/or amount of charging to federal contracts and grants.

More information on rate review committees can be found here. High-risk units should provide a certification to the rate review committee using this form. Contact Point Control at InternalSales@colorado.edu to receive the PBA/ABS representative to your rate review committee.


Rate Determination Guidelines

Billing rates for fee-for-service operations are based on projected annual cost and the related units of measure. The following model provides an outline for rate determination.

I. Projected annual cost
Projected Annual cost may include:
  • Salaries and wages, including benefits
  • Operating expenses, including but not limited to cost of goods sold, maintenance and repairs, services, utilities, etc.
  • Equipment (depreciation transfers)
  • General Administrative and Infrastructure Recharge (GAIR)
  • Operating expense subsidy (if the department covers some of the costs)
Budget planning parameters, including Information about proposed benefits and GAIR rates can be found on the PBA Budget Development Information page. Planning assumptions will be posted around December each year, and will be updated as new information is available. These parameters are subject to change at any time.
Background information about benefits and GAIR can be found at the ABS Cost Allocation page.

II. Charge unit and estimated sales volume
Charge unit may be based on a service provided, an hourly rate, per item, or some other measure. An estimate of annual unit sold is needed for the per unit calculation.

III. Calculate rate based on total annual cost and estimated units sold
Unit rate is simply equal to the annual projected cost, divided by the estimated number of annual units sold. Other considerations include reserves (working capital) and fund balance. Reserves are added to annual costs and must not exceed 60 days’ worth of cash needed for operations. Fund balance is also added to expenses to recapture losses or excess collections from previous years.

IV. Rate Determination Annual Timeline:
  • December: Point Control contacts units in Medium and High risk levels; initial planning parameters posted on PBA website.
  • December-March: Units work on rate development for the following year; rate review committees meet.
  • March 15: Rates for following year due to ABS.
  • March-June: Point Control does final reviews and follow ups as necessary.
  • July 1: New rates go into effect.


Recording Internal Sales in the General Ledger

The recording of revenues and expenses from internal sales will depend on the speedtype/fund of the selling department, in accordance with the table below:
If selling department ST is in Fund Record revenue if NOT charging contracts Record revenue if charging contracts and grants:
10, 20 (Non-Auxiliary Enterprises), 29 ID revenue account codes 390000-399999 Account code 390123 ID Sales to Grants/Contracts
20 (Auxiliary Enterprises) Auxiliary Enterprise Revenue account codes 280000-289999 TBD
28, Telecom and Cogen Service Center account codes 280000-380000 Account code 380101 IN Sales to Grants/Contracts

If an internal sale is occurring in a fund not listed above, contact your area accountant.

All internal expenses, regardless of fund, should be recorded in the buying department’s FOPPS in an ID expense account code.

Each of the account code ranges above include individual account codes to be used for specific purposes. A full listing of account codes can be found here (Chartfields & Attributes tab). Please note that there are specific revenue account codes for charges to contracts and grants, including a new account code in the ID revenue account code range.



Bookkeeping Alternatives if no Exchange Occurs

It may occasionally be necessary to move funds from one place to another without an exchange being involved. Because the ISC and ID revenue account codes are intended for use in recording revenues from true sales (exchange transactions), they should not be used unless a legitimate exchange is taking place. Any exceptions must be approved by Point Control. Examples of entries where there is no direct exchange include cost allocations, revenue sharing, or departmental subsidies. There are options available for recording these entries without using the internal revenue account codes:
  • Cash Transfer Journal Entry (CTJE): a cash transfer entry can be made to move funding between units and between funds.
  • Budget Journal Entry (BJE): if the funding needs to be moved within Fund 10, a BJE can be used. Cash transfers should not be used for transactions between Fund 10 FOPPS.
  • Journal Entry (JE): can be used to move revenues and expenses between speedtypes.
  • Recharge account codes (96XXXX): These account codes are typically used for journal entries resulting from cost allocations within a unit, such as overhead allocations.
The table below illustrates examples of transactions which are not considered exchange and therefore should be done via one of the entries listed above.
Transaction Description Example(s) Bookkeeping Mechanism
Shared Costs Costs that are shared between more than one speedtype for utilization of a good or service Copy machines used by multiple departments JE
Internal Cost Allocation Indirect expenses allocated among benefiting units within same operations Facilities Management overhead, Housing bakery JE using recharge account codes
Shared funding Multiple units providing support to a single program Funding contribution splits for start-up packages CTJE or BJE
Revenue sharing Revenue is generated through the efforts of multiple units and the revenue is split accordingly Performances put on jointly by Music and Theater and Dance JE
Pass-Through/Clearing Revenue, expense or other activity is collected in a central speedtype before being completely distributed elsewhere Suspense or procurement card clearing FOPPS JE
Departmental Subsidies A department provides funding support to a specific program Seed funding for a program, deficit resolution CTJE or BJE

For questions about whether a transaction qualifies as exchange, or about which is the best method for moving funding, contact InternalSales@colorado.edu.


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Last revision 05/27/14


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