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 margin.

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 allocable 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 (XLSX) 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. Historical documentation of rates should be maintained locally to support charges and be available upon request.