blog posts System Government Costing Reminder-Subsidizing Service Centers Jan 19, 2021 7:15 amAccounting and BudgetingBuying and ContractsFY 21Appropriate Methods for Subsidizing Service CentersFirst, service center managers must determine the total cost of the individual service line or product (numerator) and the appropriate base (denominator) to be utilized when calculating rates.If the service center manager and financial manager determine they want to charge less than the calculated rate for internal customers, there are two methods to subsidize service activity operations using unrestricted departmental funds.Method 1Use unrestricted funds (e.g., ICR or gift) normally incurred on the service fund on a portion of the service center’s operating expenses. Therefore, the subsidies cannot be recovered in the internal user fee or internal storeroom markup assessed by the service activity.Example: A service center that runs a laboratory may choose to purchase the supplies necessary to operate the lab from departmental ICR funds instead of purchasing the supplies on the 3E self-supporting fund. These supply costs would then be excluded from the internal rate calculation. The resulting calculated rate would be lower because some of the expenses for the services reside in a different fund.Method 2Service center incurs all operating expenses on the service fund to calculate a service rate. Then, the customer is charged a portion of the rate and the remainder (subsidy) must be charged to departmental unrestricted funds (e.g., ICR or gift).Example: If the calculated rate is $15 and the department wants to charge $10, the remaining $5 must be charged to unrestricted funds as a subsidy. This subsidy is to be applied consistently across internal customers.Subsidy remindersFor the methods above, the subsidies need to be separately identifiable in Banner. A best practice is to utilize a separate program code with an attribute code of "SNS" (Stores and Services) assigned by System Government Costing. This is necessary to allow for proper treatment in the F&A Rate Calculation. Subsidies cannot be charged to sponsored funds nor can a deficit or surplus be transferred to another service activity. The profit from one service activity cannot be used to subsidize the loss in another service activity. Units should include subsidized expenses in differential (higher) rates for “external” non-system users. Use appropriate accounting procedures and assistance from System Government Costing. ContactIf you have questions about calculating compliant rates, refer to System Government Costing’s “Who to Ask” list to find an expert who can help.