Selling Goods and Services to University Departments

Responsible Officer

Sue Paulson

Controller

Owner

Sue Paulson

Controller

Primary Contact

Keith Jansen

Senior Finance Manager

Last Revised

02-6-2020

Effective Date

03-1-1995

Policy Statement

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. 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 Office for activities expected to charge sponsored projects or exceed $25,000 in revenue annually prior to conducting internal sales activity. The rates charged for the goods or services must comply with the Office of Management and Budget (OMB) Uniform Guidance CFR number 2 CFR 200, be based on actual consumption of the product or service being provided, and fully cover, but not exceed, costs. Planned subsidies must be included in the rate development and the budget.

Business Manager must review rates annually to determine feasibility of continuing the activity. Rates must be both reviewed and updated every two years. Operating variances greater (based on a three year average) than 15% must be reconciled and resolved with the Internal Sales Office. The Internal Sales Office reviews rates determined by the risk profile outlined in Administrative Procedure: Internal Sales Office Review of Internal Sales Activity. The risk profile is based on specific criteria; the type of recharge center, the amount of revenue recognized on an annual basis, and if the recharge center charges sponsored projects.

When establishing the operating accounts in the financial system for the internal sales activity, units conducting the internal sales activity must ensure that revenue and costs of all other activity including External Sales activity are separated from the revenue and costs of internal sales activity.

Transactions must be charged to departments within 60 days from the day the product or service was provided. Transactions require substantiation, justification and proper record retention. See related Administrative Policies: 1) Documenting Financial/Accounting Transactions and 2) Processing Accounting Transactions.

Exceptions

Requests for exception to this policy and/or the related procedures must be submitted to the Internal Sales Office and approved by the Controller or designee.

Reason for Policy

To ensure that units are consistent with accounting, costing, and federal compliance requirements.

Procedures

Forms/Instructions

Appendices

Frequently Asked Questions

Contacts

Subject	Contact	Phone	Email
Primary Contact(s)	Sue Paulson	612-624-5007	[email protected]
Overall Process / Depreciation Methods	Keith Jansen	612-624-5540	[email protected]
Indirect Cost Calculations	Office of Cost Analysis	612-626-9895	[email protected]
Rate Approval	Keith Jansen	612-624-5540	[email protected]
Capital Equipment	Mollie Viola or Scott Eggert - Accounting Services	612-625-0126 612-626-8222	[email protected] [email protected]

Definitions

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 Office. A flat monthly fee that is assessed to a customer regardless of the level of service that is actually provided is not sufficient to meet this requirement.

Auxiliary Enterprise

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.

Break-even Period

A time-period in which total revenues for a good/service equal total expenses. Three-year average margin of + or - 15%, is considered an acceptable variance for actual sales activity. Annual variances within that range should be reflected in future rates. Variances greater than 15% need to be resolved with the Internal Sales Office.

Compliance Memo

Documentation provided to the Internal Sales Business Manager and the Chief Financial Manager by the Internal Sales Office after the completion of rate and related financial activity compliance review. 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.

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 routine, recurring costs incurred in the ongoing delivery of goods or services, such as: salaries and wages, operations and travel.

Depreciation

The allocation of the cost of a capital asset over its economic useful life as defined by Accounting Services.

Disclosure Statement

Required by OMB Uniform Guidance CFR number 2 CFR 200, an document describes the accounting practices of the institution.

Engagement Letter

The letter that is sent to the Internal Sales Business Manager and Chief Financial Managers by the Internal Sale Office. The engagement letter defines the activity being reviewed, the review period, the objective of the review, the process and what documents are necessary for the review.

External Customers

All individuals (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’s internal billing system.

Facilities and Administrative Costs (F&A Costs)

Expenses that are not readily identified with a particular sponsored project, contract, project function or activity, but are necessary for the general operation of the unit and the conduct of activities it performs.

Internal Sales Activity

An activity that provides goods or services:

to University departments
at approved rates
on a regular and continuing basis

Internal Sales Business Manager

The person who is responsible for managing the operations and finances of the recharge center.

Uniform Guidance (UG or 2 CFR 200)

Published by the Office of Management and Budget, this document establishes uniform regulations for each federal agency to follow regarding the administration of projects sponsored by the federal government. In addition, each federal agency has its own regulations that are listed in the Code of Federal Regulations (CFR) and explained in its policy handbook (if it has one).

Management Action Plan

The Management Action Plan documents the process/actions necessary to resolve the compliance issues identified during the Internal Sales activity compliance review.

Rate Development

The process used to establish the rates charged by the recharge center providing the good or service.

Recharge Center

A University organization that provides one or more services or goods to other University departments on a rate basis.

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. Examples of service units include: hours or units.

Specialized Service

A Specialized Service is a recharge service that requires the use of highly complex or specialized facilities or equipment. A unit that charges a rate for providing one or more specialized services,has an annual internal sales budget exceeding $1 million and generates significant charges to sponsored projects. Specialized Service Centers are documented in the University of Minnesota’s Disclosure Statement.

Subsidy

Funding provided, by the Department or College, to the recharge center that keeps the price of a product or service lower than the actual cost.

Useful Life

The length of time that a depreciable asset is expected to be usable as defined by standard guidelines and applied by the Controller's Office consistent with Generally Accepted Accounting Principles. Used as the basis to determine monthly depreciation expense.

Responsibilities

Internal Sales Analyst: Review and approve internal sales approval form for units with estimated internal sales revenues greater than $25,000 annually or that charge sponsored projects, consult with Risk Management. Approve initial rates for all new internal sales activity. Ensure ongoing compliance to University Policy and Procedures related to internal sales activity. Perform compliance reviews of recharge centers and follow up on management action plan. Recommend and monitor resolution to the handling of operating variances +/-> 15% of the revenue.threshold. Develop and update content in internal sales training materials. Update and document the Disclosure Statement as required by the Uniform Guidance CFR number 2 CFR 200.
Internal Sales Office: Review and approve internal sales approval form for units with estimated internal sales revenues greater than $25,000 annually or that charge sponsored projects, Approve initial rates for all new internal sales activity. Ensure ongoing compliance to University Policy and Procedures related to internal sales activity. Perform compliance reviews of recharge centers and follow up on management action plan. Recommend and monitor resolution to the handling of operating variances +/- 15% of revenue. Develop and update content in internal sales training materials. Update the Disclosure Statement as required by the Uniform Guidance CFR number 2 CFR 200.
Budget & Finance: Approve budget related to internal sales activity during annual budget process (see Budget Instructions.) Develop and communicate cost pool factors to be used in annual rate development.
Controller: Approve exceptions to the policy and any new Internal Sales activity
Chief Financial Manager: Act on or disapprove internal sales activity prior to obtaining Internal Sales Office approval. Responsible for compliance of all University policy, procedures and federal regulations. Review internal sales revenues, expenses, and rates to evaluate financial solvency. Work with business manager to cover any deficits or disallowances created by internal sales activity under their direction. Review the internal sales compliance memo and management action plan. Provide resources as necessary.
Internal Sales Business Manager (within the recharge center): Prepare business plans, rate development and analysis. Notify Accounting Services of capital equipment included in rates. Ensure recharge center activity is in compliance with all university policy and related procedures. Responsible for regular review of financial activity, annual review of rates, creation of management action plan and implementation of corrective actions. Take required Internal Sales training.
Accounting Services: Accounting Services is responsible for updating the accounting system for all capital equipment. 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: Review and act on internal sales activity requests referred by the Internal Sales Office
Sponsored Projects Administration (SPA): Determine appropriate internal sales activity classification when specialized service center is being considered. Review internal sales activity meeting the definition of Specialized Service Facilities.
Chancellor, Vice President or Dean: Approve internal sales activity by signing the Internal/External Sales Approval Form (UM 1608).

Related Information

Administrative Policy: Documenting Financial/Accounting Transactions
Administrative Policy: Processing Accounting Transactions
Administrative Policy: Managing University Records and Information
Administrative Procedures: Capital Equipment Disposals
Federal Office of Management & Budget Uniform Guidance CFR number 2 200

History

Amended:: January 2020 - Comprehensive Review, Minor Revision - 1. Removed redundant language; 2. Moved language for better organization and clarity; 3. Added policy language and definition found in a related procedure
Amended:: July 2015 - Comprehensive Review, 30 Day Review, Major Revision. 1. Lengthens the frequency of reviewing and updating rates from annually to every two years. 2. Removes the requirement for annual review by the Deans as the recharge center budget & rates are included in the overall institutional budgeting process. The budgeting process is at the college level and takes place with the Deans involvement. 3. Establishes a risk-based approach to the level of oversight so the review efforts of the Internal Sales Office are concentrated on recharge centers with larger dollar volumes and charge sponsored projects. 4. Relaxes Business Plan requirements by requiring only specific and relevant data. 5. Relaxes Training requirements and provide voluntary training rather than required training. 6. Clarifies areas in which there were frequent questions, updates the Internal Sales Office name and other general edits for consistency.
Amended:: December 2014 - Replaced reference to A-21 and A-133 to OMB Uniform Guidance.
Amended:: February 2010 - Replaced Sales Approval form with Internal/External Sales Approval Form. Added Internal and External Business Proposal Template and Certification of Annual Review of Internal Sales Activity to forms section. Updated procedures to address use of new forms.
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

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