MIT Service Center Accounting and Operating Procedures

The establishment of a new Service Center must be approved by the Head/Director of the requesting department, laboratory, center, or institute (DLCI). To request a new Service Center, fill out the Request to Establish a New Service Center Form [PDF] and submit it to Cost Analysis (CA) for review and approval.

CA will approve the establishment of a new cost collector, provide advice and assistance to the unit in the establishment of the Service Center, and provide training on accounting procedures and other issues related to the continuing operation of the Service Center, as needed.

Billing rates, or user fees, should be calculated to recover no more than the cost of the goods/services provided to users of the Service Center. Since billing rates are calculated based on estimated costs and estimated billable unites (i.e., hours, pounds, liters, etc.), it is expected the revenue generated from billing rates will not be equal to the actual costs incurred. However, the billing rates should be designed to break even over a reasonable period of time. It is important that rates be reviewed frequently, no less than annually, and adjusted, as necessary, to ensure there is no accumulation of large surplus or deficit balances. When unforeseen circumstances arise that create a large surplus or deficit balance, a rate adjustment must be made promptly to eliminate the surplus or deficit over a reasonable period to bring the account balance close to zero within a practical timeframe.

Costs 

Recoverable costs include the operating costs of the Service Center that are used in providing goods/services. Indirect costs of operating the Service Center that are paid by MIT and not charged to the Service Center operating account cannot be included in the calculation of billing rates or user fees. Institutional direct costs include central administrative offices, departmental headquarters, and MIT buildings (i.e., building and equipment depreciation, utilities maintenance and custodial costs, etc.). Questions related to institutional indirect costs should be directed to CA.

Non-recoverable costs that are unallowable according to federal regulations (“unallowables”) or are not permitted by MIT policy cannot be recovered through a billing rate or user fee. Some examples of recoverable and non-recoverable costs are:

Recoverable Costs:

• Salaries, wages, and employee benefits (EB)
• Materials and supplies
• Travel (directly related to the operation of the Service Center)
• Rental, lease, and amortization costs¹
• Service agreement costs
• Adjustment for prior year(s) surplus/deficit

Non-recoverable Costs:

• Equipment costs greater than or equal to $5,000 (capital equipment)
• Alcoholic beverages
• Entertainment, including meals with no documented business purpose
• Advertising and public relations
• Contributions and donations
• Gifts for personal use (mugs, t-shirts, memorabilia, etc.)
• Bad debts
• Internal interest
• Reserves (for future expenditures)

Billable Units

Once the annual recoverable costs of a Service Center have been estimated, including the adjustment for the prior period(s) over/under-recovery of expenses, these annualized costs are compared to the total estimated billable unites for the coming year to compute a billing rate. Total billable units, or total units of output, are the quantity of product generated by the Service Center, which is the basis for the calculation of the billing rate. Typical billable units are hours of machine time, hours of labor, number of users, pieces of glassware, or units of measure, such as pounds or liters. It is important to recognize that billable units represent the anticipated number of units that will be billed in the coming year, not the highest potential output of the Service Center. For example, a Service Center that bills for hours of labor would not estimate the billable hours for the coming year as 2,080 hours (52 weeks/year x 40 hours/week). Rather, an estimate of billable hours should take into consideration the estimated time away from work (vacation, sick, and personal time), machine downtime, and hours for which there are no customers. Based on past experience and estimated demand for the coming year, a more realistic estimate of billable labor hours might be 1,500 hours. When estimating billable units, it is critical to be realistic and conservative since overestimating the number of billable hours used in the rate calculation will result in a lower rate which will create a deficit (under-recovery of costs). This will make it necessary to significantly increase the rate the following year to recuperate the deficit, as well as the higher anticipated operating costs for the coming year.

Notes

1. Agreements covering the lease or rental of space or equipment must be approved in advance by the Office of the Provost and the Office of the Executive Vice President and Treasurer (EVPT). See Part C, Service Center Capital Equipment.

Capital equipment (equipment costing greater than or equal to $5,000) cannot be purchased using a Service Center internal order. Capital equipment is unallowable because this type of equipment represents a cost from which the Service Center will derive benefit over multiple periods. Furthermore, Service Center rates cannot be structured to build reserves for anticipated equipment replacements. It is not appropriate to charge current users with costs associated with future periods. 

Therefore, Service Centers have limited options for acquisition of new or replacement capital equipment:

• Request funds to replace existing equipment from the Service Center Equipment Replacement Fund managed by the Office of the Vice President for Research (OVPR);
• Acquisition of equipment which cannot be funded through the Service Center Equipment Replacement Fund may be funded with school or DLCI discretionary funds²;
• Explore the possibility of donor provided equipment (gifts) to fill specific Service Center needs;
• Obtain internal loans through the EVPT or the Office of the Provost^3,4;
• Lease rather than purchase (may be appropriate due to short obsolescence cycles)³.

Notes

2. Equipment purchased with DLCI discretionary funds may be amortized into the service center over its useful life with the approval of the Provost and VPR.
3. Request for equipment leases will be considered on a case-by-case basis. Additional information regarding such requests can be found in Part L, Forms/Assistance.
4. Use of internal loans may involve the payment of internal interest, which cannot be charged to a Service Center and passed to users through a rate.

The intention of MIT in operating Service Centers is to facilitate MIT research. However, some Service Centers may occasionally offer their services to users outside the MIT community. Service Center managers are encouraged to charge outside users a surcharge equal to the current MIT Facilities and Administration (F&A) rate. Use of Service Centers by non-MIT users raises a number of questions related to competition, taxes, and the Institute’s mission. Should use of any Service Center by other than MIT personnel become more than incidental, CA must be consulted.

Proper accounting procedures contribute to the successful operation of a Service Center. Lack of accurate data regarding costs, revenues, and billable units make it difficult to effectively manage the Service Center and monitor the operating results. 

Service Center activities are recorded in “deferred charge” cost collectors (11xxxxx or 12xxxxx ranges of accounts) in MIT’s accounting system. These cost collectors do not close at fiscal year-end (FYE) but rather carry forward their balances from year to year. Once established, Service Center management is responsible for managing the cost collector and adhering to Service Center accounting and operating policies and procedures. 

It is critical there be a matching of revenues and expenses. To accomplish this, all expenses and all revenues of the Service Center must be recorded in the same cost collector.

CA is responsible for monitoring, on an aggregate basis, the operation of the Institute’s Service Centers. In order to accomplish this, it is necessary that accounting practices are consistent between Service Centers. Therefore, all Service Center Supervisors/Addressees are asked to book Service Center billings in the following manner:

*Use G/L account 801018, Income – Outside Services, for billing outside users

Use of general ledger (G/L) accounts other than those above must be approved in advance by CA.

User fees for all Service Centers must be reviewed annually and revised where necessary. Rate calculations for Service Centers with annual expenses in excess of $100,000 must be submitted annually to CA on or before May 31 for approval. Approved rates will be the billing rates for the next fiscal year (FY). 

Service Centers must submit a proposed line-item budget. Budgeted expenses must be listed by G/L account group (e.g., Salaries and Wages, Benefits, Supplies, etc.) for ease of review. Estimated revenues must be documented as proposed user fee(s) multiplied by the estimated units of output. Estimated revenues must equal budgeted expense plus or minus operating surplus/deficit from prior years.

At the end of each FY, a Service Center carrying forward a cumulative balance beyond the tolerable threshold of the greater of 1) 20% of its annual expenses or 2) $5,000 must provide CA with a Balance Liquidation Plan. This plan will outline how the Service Center will liquidate the balance within the next two years. CA will monitor compliance with the plan.

Service Center managers have two years from the time the excess balance is reported and the initial Balance Liquidation Plan is submitted to adjust the balance. At the end of the two-year compliance period, excess balances (balances above the threshold) will be liquidated by CA by funding the excess from a DLCI account (deficit) or returning the overcharge to sponsors through the F&A process (surplus).

All Service Center managers should continually monitor performance of their Service Centers against the budget used to develop the current billing rates. Should current performance indicate that a significant under/over billing may occur, resulting in a cumulative balance at the end of the FY in excess of the tolerable threshold, a mid-year rate change would be appropriate. Service Center rates requiring annual review/approval by CA (annual expenditures in excess of $100,000) may not be changed without submission of a request for a mid-year rate change and appropriate supporting documentation being forward to CA for review and approval.

Should it become necessary to close a Service Center, CA must be notified in writing. In order to the Service Center cost collector to be closed, there cannot be any open Purchase Order (PO) commitments and the net cumulative balance of the cost collector must equal zero. 

If operation of a Service Center has ceased and it is to be closed but the net cumulative balance does not equal zero, the balance must be brought to zero as part of the closing process.

Deficit Balance

A deficit indicates an underbilling of costs. The DLCI responsible for the operation of a Service Center must fund the deficit with DLCI funds.

Surplus Balance

A surplus indicates an overbilling of costs. The DLCI responsible for operation of the Service Center must perform an analysis of the Service Center’s users to determine the extent to which federally funded MIT research projects were charged. A journal voucher (JV) will then be executed by CA to transfer the portion refundable to the government into a cost collector which returns the overcharge to the government through the F&A process. If it is determined that a full analysis would not be cost effective, the entire surplus will be liquidated.

CA provides assistance and advice to DLCs with Service Centers on an ad hoc basis or through training courses. Training is available on an “on demand” basis by contacting CA and CA staff are available to consult with Service Center managers in person or virtually at any time. Questions on the operation of Service Centers, the MIT Service Center Policy/Procedures, or available training should be directed to CA.

Request for Service Center equipment replacement

To request equipment replacement funds, fill out the Request for Financial Assistance Service Center Equipment Replacement Form [PDF], and forward it to Ken Goldsmith (kegol@mit.edu) at the OVPR and copy Kimberly Croft (kcroft@mit.edu) in CA. 

Request for an advance of internal funds or a lease of capital equipment

To request authorization to lease equipment or to request an advance of internal funds to acquire equipment, a formal request must be forwarded to the Office of the EVPT and OVPR with a copy to Jennifer Rowles (jrowles@mit.edu) in CA. The request must be signed by the appropriate Dean and Department Head or Lab or Center Director, clearly describe the equipment and the need it will fill, and the reason why a loan or lease is necessary and appropriate. The request must include a statement of fiscal responsibility guaranteeing payment/repayment. Additionally, the request must include:

• Profit center number
• Service Center name
• Service Center cost object number
• Discretionary funds cost object number (for interest payments, if necessary)

Should requests be approved, separate equipment rates will need to be developed and billed using unique G/L accounts such that no F&A is applied to equipment costs. CA will assist with amortization schedules and transfers.