Printed on: 06/20/2018. Please go to http://policy.umn.edu for the most current version of the Policy or related document.

ADMINISTRATIVE POLICY

Selling Goods and Services to University Departments

Responsible University Officer(s):

Associate Vice President and Controller

Policy Owner(s):

Assistant Controller

Policy contact(s):

Sue Paulson

Date Revised:

Jul 30, 2015

Effective Date:

Mar 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 exceed $25,000 annually (that do not charge federal grants) prior to conducting internal sales activity. The rates charged for the goods or services must comply with the Federal Uniform Guidance; and the rates should fully cover, but not exceed, costs. These rates must be reviewed by department annually to determine feasibility of continuing the activity. The Internal Sales Office reviews rates on a periodic basis determined by the risk profile outlined in the procedure. 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 external sales activity are separated from the revenue and costs of internal sales activity.

Subsidies should be documented in the rate development.

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 For All Non-Sponsored and Sponsored 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 which carryout the mission of the university.

PROCEDURES

FORMS/INSTRUCTIONS

APPENDICES

FREQUENTLY ASKED QUESTIONS

CONTACTS

Subject	Contact	Phone	Email
Primary Contact(s)	Sue Paulson	612-624-5007	spaul@umn.edu
Overall Process / Depreciation Methods	Internal Sales	612-624-5540	kkjansen@umn.edu
Indirect Cost Calculations	SPA	612-626-9895	hagen027@umn.edu
Rate Approval	Budget Office	612-625-4517	jstrader@umn.edu
Equipment Record Keeping	Inventory Services	612-626-8222	egger006@umn.edu

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 typically 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 Internal Sales Office. Only actual variances should be calculated into budgeted rates.

Compliance Memo

Provided to the Internal Sales Business Manager and the Chief Financial Manager by the Internal Sales Office after the 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, employee related expenses, operations and travel.

Depreciation

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

Disclosure Statement

Required by the Uniform Guidance, a disclosure statement describes the accounting practices of the institution.

Engagement Letter

The letter that is sent to the internal sales business manager 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 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.

Facilities and Administrative Costs (F&A Costs)

F&A 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

A non-sponsored chartfield string designated by the Chief Financial Manager to absorb any losses that should be subsidized in the operation of internal sales activity.

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 UMarket.

Internal Sales Business Manager

The person who is responsible for managing the finances of the internal sales activity.

Uniform Guidance

Published by the Office of Management and Budget, This joint rule is for all Federal award-making agencies, the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards.

Management Action Plan

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

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 but expensed on a monthly basis.

Rate Development

The process used to establish the rates/amounts 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 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

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.

Subsidy

Funding provided, typically by the Department or College, to the recharge center that keeps the price of a product or service low or to help the activity continue.

Useful Life

The length of time that a depreciable asset is expected to be useable as defined by standard guidelines and applied by the Controller's Office consistant with Generally Accepted Accounting Principles.

RESPONSIBILITIES

Internal Sales Office: 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 variances > 15% threshold. Develop and update content in internal sales training materials.
Review and approve internal sales approval form for units with estimated internal sales revenues greater than $25,000 or that charge sponsored projects. Forward to Risk management and other subject matter experts. Update and document the Disclosure Statement as required by the Uniform Guidance.
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.
Chief Financial Manager: Act on or disapprove internal sales activity prior to obtaining Internal Sales approval. Responsible for compliance of all University policy and federal regulations. Review internal sales revenues, expenses, rates and business plan 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 Inventory Services of equipment included in rates. Comply with established University policy Selling Goods & Services to University Departments and its related procedures Responsible creation of management action plan and implementation.
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 Internal Sales Office
Sponsored Projects Administration (SPA): Determine appropriate internal sales activity classification when specialized service center is being considered. Work with Internal Sales Office in approving initial rates for all new specialized service center activity. Provide advice on rates that include costs normally included in F&A rates. Review internal sales activity meeting the definition of Specialized Service Facilities.

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

HISTORY

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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