Conducting a Rate Study

The FSO Rate Studies Team can assist University of Arizona departments with evaluating a cost recovery opportunity and determine if a rate study needs to be completed.

First, is evaluating if an “opportunity” fits all the specific guidelines to be considered a service center. There are many different factors, for example; What type of services will be provided? Who will be the primary users? Will there be customers using grants/contracts for payment? Will this new center be in any direct competition with other similar service centers on campus? What type of operational costs will be associated with the new center?

If it is determined that a service center is appropriate, the FSO Rate Studies Team will work with departmental staff (Business Managers, Lab personnel, Accountants, etc.) to compete a full analysis of the operations.

The General Process:

  1. Compile financial data (operational costs, personnel costs, equipment costs, etc.).
  2. Define what type of services will be provided.
  3. Perform analysis and allocation of the data.
  4. Complete rate studies template. Rate Studies along with the help of the department will conduct a thorough review of the data and allocations.
  5. Once this is all completed Rate Studies will issue an approval letter and the service center can implement rates and begin the cost recovery process through the rates.

What is required from the service unit to develop a rate:

  1. Salary & Wage
  2. ERE
  3. Employee effort
  4. Operational costs
  5. Equipment depreciation
  6. Overhead
  7. Units of service

What data is required:

  1. Actual expenses – prior full fiscal year of data
  2. Supporting documentation (i.e. employee effort, total amount of units billed)

Allowable expenses:

  1. Expenses that directly benefit the services being provided
  2. Payroll
  3. Operational expenses (ex. Service contracts, supplies)
  4. Travel (needs to directly relate to the service center and provides a direct benefit to current customers)

Examples of unallowable expenses:

  1. Alcoholic beverages
  2. Entertainment
  3. Bad debt expense
  4. Donations, gifts & contributions
  5. Communication user FTE charge

Common Blunders:

  1. Charging market rates
  2. Delayed invoicing
  3. Misuse of depreciation
  4. Unallowable expenses included in rates
  5. Lower rates for external customers
  6. Varying rates for internal customers
  7. Adding new service without prior approval

Compliance Checklist:

  1. UA Service Center Policy
  2. Break-even costs – base rate
  3. Fund balance – 60 day reserve
  4. Depreciation
  5. Cross-subsidization
  6. Discrimination of rates between customers

Department Responsibilities:

  1. Establish and maintain record keeping procedures and systems
  2. Financial records
  3. Statistical records
  4. Effort reporting
  5. Background information
  6. Billing rate methodology
  7. Approved rate study letters
  8. Reconcile accounts

To start the process, contact Rate Studies at ratestudies [at] fso [dot] arizona [dot] edu

For further information please check back for our FSO Rate Studies Manual.

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