ADMINISTRATIVE PROCEDURE

Obtaining Approval to Conduct Internal Sales Activity

Introduction

Any University organization planning to sell goods or services to University colleges and departments in excess $25,000 must verify that it can conduct internal sales activity. The following steps must be completed in order to conduct internal sales activity: 1) determine the appropriate classification of the activity 2) prepare a business plan 3) complete the Internal/External Sales Approval Form and 4) obtain administrative approval.

1. Verify that the unit can conduct internal sales activity

In order to conduct internal sales activity, the unit must meet the following criteria:

  • Provide a specific ongoing good or service to other campus units or projects, and recover the costs of the service by charging the users on a "rate basis."
  • Develop rates to consistently and equitably recover the costs of the service.
  • Review rates annually to ensure that they continue to operate on a breakeven basis.
  • Customers are other colleges or departments within the University of Minnesota.
  • Expect annual internal sales revenue greater than $25,000.
  • Expect to be charging a federal grant of any dollar amount.

The following units cannot conduct internal sales activity:

  • Units, such as parking or housing services, that primarily serve individuals and whose revenues are recorded as income to the University (these are auxiliary services).
  • Units that provide a one-time distribution of an expense rather than an on-going activity.
  • Units with expected annual internal sales less than $25,000 that do not charge federal grants. (These units should use cost allocations, cost sharing, historical salary adjustments/direct retros, transfers, or a NonISO revenue account such as 500103.)
Example: Copy charges

Internal sales activity: a unit provides full service document printing. Units using the printing service are charged a rate per sheet and the rate includes salaries and benefits of printing staff, equipment depreciation, and supplies.

Not internal sales activity: two units share a copy machine. They divide the costs of the equipment, service agreement, and supplies. These are direct costs that are allocated to each unit, and it is acceptable for one unit to incur the expenses and transfer the appropriate portion to the other unit's budget or to allocate the appropriate portion to the other unit's budget at the time that the invoice is paid.

Note: The following sales activities are examples of un-acceptable internal sales.

  • Activities that are illegal or that violate University policy.
  • Activities that are not consistent with the University's mission.
  • Activities that do not provide competitive rates and service.
  • Activities that do not identify an acceptable method for distributing costs to users based on actual usage.

2. Determine the appropriate classification of the activity

Units that conduct internal sales activity must identify the activity as either a recharge service or a specialized service.

Recharge Service: A Recharge Service is a good or service that provides support to the University community on a rate basis (for a fee). A unit engaged in providing one or more recharge services is known as a Recharge Center.

Recharge services must be fiscally managed through the use of a separate ChartField 2 code to track recharge service activities separately from external sales activities and other activities of the unit.

Examples of recharge services include:

  • Physics shop
  • Central stores
  • Facilities repair and maintenance

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.

Specialized Service Centers must be fiscally managed through the use of unique DeptIDs, in conjunction with one or more ChartField 2 codes to track the activities of a Specialized Service Center separately from other activities of the unit.

Examples of specialized service centers include:

  • Research Animal Resources

3. Prepare a business plan

Refer to UM 1741 - Internal and External Sales Business Proposal Outline.

Address all of the following items. If certain items do not apply, please indicate and explain why.

Summary
  • A description of the proposed sales activity.
  • How the proposed sales activity relates to the University's mission and purpose.
  • Who within the unit will be responsible for the day-to-day operations of the proposed activity.
  • Who within the unit will be responsible for monitoring the finances of the proposed activity.
  • Anticipated startup date, and any related or dependent deadlines.
Marketing and Pricing Information
  • Describe the competitive options or who else (in or outside the University) performs these services or sells these goods.
  • Describe type and size of expected customer base.
  • Define the expected per-unit price(s)
  • Provide an analysis of the product's cost structure
  • Provide a justification explaining any indirect cost inclusion when proposing to be classified as a recharge center (see Administrative Policy: Charging of Direct and Facilities and Administrative/Indirect Costs).
Budgeting and Forecasting

Include a proposed budget for the current and subsequent fiscal year. See Administrative Procedures: Establishing Internal Sales Rates and Reviewing Internal Sales Activity. Clearly identify:

  • Resource needs which will not be met by sales activity (subsidy requirements);
  • Resources from grants
  • If grant funding is expected, identify tentative plan for replacement of any substantial grant funding at the end of the initial grant period.
  • Identify all organizational partners and the level of financial participation of each, if any, business partner
  • Include a financial forecast for the current and next fiscal year, detailing estimated annual revenues, expenses, capital needs, and sales volumes.
  • Include a projection of capital funding needs for expenditures such as equipment, facilities, or inventory acquisition. Identify proposed source of funding for capital expenditures. All financing plans for capital expenditures related to major equipment purchases of $100,000 or more, or new facility construction or renovations must receive prior approval by the Office of Budget and Finance.

4. Complete the University of Minnesota Internal/External Sales Approval Form (UM 1608).

The Internal/External Sales Approval Form (UM  1608) must be signed by the appropriate Chief Financial manager and Chancellor, Vice President, or Dean. If the internal sales activity is categorized as a Specialized Service, the relevant Senior V.P. must also sign the Internal/External Sales Approval Questionnaire.

5. Obtain administrative approvals

This process will ensure that the internal sales rates conform to federal regulations and help the University determine which sales activities are best provided internally and which would better be done by external organizations.

Send a copy of the completed Internal/External Sales Approval form and the business plan to the University Internal Sales Office for administrative approvals.

Units will be notified whether authorization has been granted or denied. If authorization is denied, a memo will be sent to the unit with an explanation.

6. Training

Training is required for all new recharge center managers. Training can be taken on-line. Visit to take on-line training. The Internal/External Sales department will provide direct training to an individual or department if on-line training is not a feasible format. Please contact the Internal/External Sales department at extsales@umn.edu to setup an appointment.

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