Reviewing Internal Sales activity annually is a best business practice and should be completed by all units conducting internal sales. The preceding year's financial information will provide the basis for developing the following year's rate.
Monitor internal sales activity throughout the year to ensure a surplus or deficit (based on a three year average) is not greater than +/- 15% of revenue will not exist at year-end.
How to review internal sales activity
- Annual review of the Internal Sales activity.
The review of the activity should consider, but not be limited to, the following questions:
- Does the recharge center continue to meet the criteria to conduct internal sales? Is the revenue greater than $25,000 or is the recharge center charging sponsored projects.
- Can the service be provided more cost effectively elsewhere? If so, what is the rationale for sustaining the internal sales activity?
- Should the internal sales activity be discontinued?
- 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 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.
- Determine the reconciled carry-forward surplus or deficit balance.
Total annual revenue less total expenses plus inventory and pre-paids not consumed and subsidies equals the surplus or deficit. See Internal Sales Activity Reconciliation Template: the Internal Sales Reconciliation Template is the 3rd tab on UM 1842 Internal/External Sales Rate Development Template (Cost per Hour) and is the 3rd tab on UM 1843 Internal/External Sales Rate Development Template (Cost Per Unit).
- Determine adjustments to be made to following year's rate.
Reconciled carry-forward surplus or deficits from prior year must be incorporated in the calculation of the following year's rate development. A surplus greater than 15% may require refunding the customers. A deficit greater than 15% may require a subsidy from the college or department. Please contact Internal Sales Office for assistance in determining the appropriate handling of surpluses or deficits.
Calculate the updated rate using the steps described in Administrative Procedure: Internal Sales Rates. Use the preceding fiscal year's financial data to estimate expenses and revenues for the following year.
- Implement the new rate.
Customers are to be charged the new rate at the beginning of the fiscal year. Communicate the new rate to internal customers.