Obtaining Approval to Conduct Internal Sales Activity

Introduction

Any University organization planning to sell goods or services to University colleges and departments 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 Sales Approval Questionnaire 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:

   • They 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."
   • They develop their rates to consistently and equitably recover the costs of the service.
   • Their rates are reviewed annually to ensure that they continue to operate on a breakeven basis.
   • Their customers are other university colleges or departments.
   • They expect annual internal sales revenue greater than $25,000.
   • They 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 or transfers.)

   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 non-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 to ensure compliance with OMB Circular A-21 regulations.

   Recharge Service: A Recharge Service is a good or service that provides support to the University community 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 program 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 Program 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.

   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.
   • A description of whether the activity should be classified as a recharge center or a specialized service center.
   • 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.
   • Any other sales activity currently being conducted by the unit which would demonstrate the unit's ability to successfully manage the proposed activity.
   • Anticipated start up 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.
   • Describe the customer expectations for pricing service and quality
   • 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 the University's Charging of Direct and Facilities and Administrative/Indirect Costs policy).

   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 Annually. Clearly identify:

   • Resource needs which will not be met by sales activity (subsidy requirements);
   • Onetime budget requests;
   • Recurring budget requests.
   • 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 3 fiscal years, 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 Sales Approval Questionnaire (UM 1606).

   The Internal Sales Approval Questionnaire must be signed by the appropriate RRC 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 Sales Approval Questionnaire.

5. Obtain administrative approvals:

   This process will ensure that the internal sales rates will 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 questionnaire and the business plan to the University Internal Sales Compliance 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.