University of Minnesota  Procedure

Review of External Sales Activity

Introduction

Reviewing external sales activity annually is a best business practice and should be completed by all units conducting external sales. The preceding year's financial information will provide the basis for developing the following year's rate.

Monitor external sales activity throughout the year to ensure that the unit is recovering all direct and indirect cost plus any additional revenue.

The Internal/External Sales Office reviews rates on a periodic basis determined by the risk profile. The review process includes an engagement letter which outlines the role and responsibilities of the Internal/External Sales Office and the unit contracting for external sales activity, the documentation necessary, the activity under review, and a final report that summarizes the review and, if applicable, any findings.

Unit Review

  1. Annual review of their external sales activity.

    The review of activity should consider, but not be limited to, the following questions:

    • Have the appropriate External Sales Agreements been processed based on the risk profile of the sales transaction?
    • Can the invoices be traced to the calculated rates for the respective fiscal year?
    • Have the customers been billed monthly as work is completed?
    • Are the expenses and revenue recorded in an external sales-specific fund 1026 with CF2s that segregate activity?
    • Did the volumes used to calculate rates include only external sales activity?
    • Are the rates based on actual usage?
    • Was depreciation on capital equipment part of the rate development process and included in the rates, budgeted and expensed, and does it agree with records maintained by Accounting Services?
    • Are the actual margins the same as the margins in the rate development.
    • Were all external customers charged the same rate?
    • Was the EFS Contracts module and associated queries to monitor, invoice, and modify agreements used?
  2. Analyze budget to actual.

    Compare budgeted revenues and expenditures to the current year-end results on a line-by-line basis. Identify large variances and analyze the reason for variance.

    Determine if all expenses required are included in the rates.

    Depreciation expense in the operating fund should match annualized depreciation in the plant fund.

  3. Determine the reconciled carryforward surplus or deficit balance.

    Total annual revenue less total expenses plus inventory and prepaids not consumed equals the surplus. Use the 3rd tab on UM 1843 Internal/External Sales Rate Development Template for this task.

  4. Determine adjustments to be made to the following year's rate.

    Reconciled expenses and expected increased cost from prior year should be incorporated in the calculation of the following year's rate development.

    Calculate the updated rate using the steps described in Administrative Procedure: External Sales Rates. Use the preceding fiscal year's financial data to estimate expenses and revenues for the following year.

  5. Implement the new rate.

    Customers should be charged the new rate within 30 days of the rate review. Communicate the new rate to external customers at least 30 days prior to implementing the new rate.

Internal/External Sales Office Review

  1. Determine when a review is necessary

    The Internal/External Sales Office reviews external sales activity based on risk profile. The risk profile is based on a number of factors including; revenue recognized on an annual basis, and the type of external sales.

  2. Determine frequency of reviews

    The frequency of the review is based on the risk profile. The frequency of the reviews will be based on a number of factors including; type of external sales, and the results of  prior or by request.

  3. Process of the review

    The frequency of the review is based on the risk profile. The frequency of the reviews will be based on a number of factors including; type of external sales, and the results of  prior or by request.

    Engagement Letter

    The External Sales Analyst sends an engagement letter (link to sample letter) to the unit. The letter includes the activity being reviewed, the review period, the objective of the review, the process and what documents are necessary for the review.

    Review

    the rate development and associated financial documents received from the department are analyzed. The External Sales Analyst meets with the unit to discuss the process, answer any questions, and ask any questions about the activity to gain a clearer understanding.

    The External Sales Analyst completes the checklist. This is a quantitative summary of activity being reviewed. This form is the basis to determine the narrative associated with the compliance memo.

    Compliance Memo

    The External Sales Analyst drafts the compliance memo (link to sample memo). This memo includes the activity/areas reviewed, a summary and rating of findings (if applicable), the policy/procedure included in the review, and the resolution to satisfy the finding.

    The compliance memo and checklist is sent to the unit for review and understanding of the identified findings.

    A final draft of the compliance memo and the checklist are sent to the significant parties involved in the External Sales activity. The External Sales Analyst  works with the unit to develop a Management Action Plan which defines the process/actions necessary to resolve the findings.

  4. Follow-up

    The External Sales team follows up on the management action plan. Useful findings should be adopted as best business practices to avoid findings in the future. Significant findings must be corrected during next budget cycle. Essential findings must be corrected within three months of the date of the final memo.

  5. Results

    External Sales reviews serve several purposes and are designed to result in greater awareness of policies, procedures and best practices. The review is also designed to highlight opportunities that will enhance compliance or efficiencies related to rate development, overall management, and monitoring of the external sales activity.