The establishment of revenue operations requires campus Budget Office recommendation and Chancellor and Board of Trustees approval.

All fees and rates charged by the revenue operation must have campus Budget Office recommendation, approval of the Chancellor and President or Board of Trustee approval.

Once established, fees and rates cannot be changed without Budget Office recommendation, approval of the Chancellor and in certain cases President or Board of Trustee approval.

Revenue operation activities must be consistent with the University mission and must be appropriate with regard to the normal activities of the department.

All financial activity must be in compliance with both the University's Policy for the Management of University Funds and campus policy.

All income must be expended for the purpose for which the operation was established.

The operation must be fiscally sound.

Revenue operations are established for activities that are:

All income generated by these activities must be expended for the purpose for which the operation was established. Furthermore, income generated in revenue operations is university money and, as such, must comply with the policies and regulations that govern the use of university funds. There are three types of revenue operations: auxiliary operations, student fee operations and sales and service operations.

Auxiliary operations are services ancillary, but contributing to, the basic academic mission of the university. They are managed as self-supporting activities through revenue generated from student fees, the sale of goods or services to the campus community, or a combination of these sources. Some examples of auxiliary operations on this campus are Residence Halls and Parking.

Student fee operations provide services to students for various educational and ancillary purposes. The fees may be either mandatory or non-mandatory. Some examples of student fee operations include Fine Arts Center, Computer, Career Services, and Student Activities.

Sales and service operations are established for the purpose of providing goods and services to the university community and, in certain limited circumstances, the general public. Sales and service revenue operations are not established to generate a profit, but rather, to provide goods and services to the campus that are unique, convenient or not readily available from external sources or to help demonstrate classroom or related educational techniques. Some examples of sales and services operations are Geology Microprobe, Central Mail, Research Support Services, and the Communications Disorders Clinic.

The Chancellor, in conjunction with the President’s Office, has the responsibility for establishing campus policies and guidelines for revenue-based budget preparation. The Chancellor has sole responsibility for the approval of new cost centers and changes in fees or rates within an existing revenue operation that is not a mandatory student fee operation, major auxiliary enterprise, nor major campus service. In addition, the Chancellor, upon Budget Office recommendation, recommends budget and fee requests for President and Board of Trustee approval.

The Budget Office is responsible for the following:

• Establishing campus policies and guidelines for revenue-based budget preparation in conjunction with the President’s office and Chancellor;
• Analyzing fees, rates, and budgets to determine if they are reasonable and if they comply with appropriate guidelines and are consistent with campus-wide objectives and policies;
• Recommending budget and fee requests to the Chancellor;
• Developing the official campus documents for President’s Office and Board of Trustee review;
• Conducting year-end and mid-year reviews of revenue operations; and
• Uploading the initial revenue-based budgets to the Financial Records System (FRS).

The Vice Chancellor has overall management responsibility, including budgetary, for an executive area on campus.

The contact for the Vice Chancellor is the Executive Financial Officer (EFO). The Executive Financial Officer assists the Vice Chancellor with overall budgetary responsibility. The executive areas and current EFOs are as follows:

Revenue operations are normally established during the annual budget process (see Appendix A for an approximate timeline of the budget process). However, under some circumstances, it may be possible to establish an operation off-cycle. The process for establishing a revenue operation during the annual budget process is outlined below, a discussion of off-cycle establishment follows.

The diagram below presents the typical flow for establishing a revenue operation.

The first step is to determine the purpose of the revenue operation. The operation manager should have a specific plan that describes the products or services to be provided, the type of clients who will purchase the products/services and the operation’s relationship to departmental mission. At this stage, the operation manager should also determine if the activity will require the collection and deposit of sales tax to the Commonwealth (See Appendix D for a more detailed discussion of sales tax considerations). Once the purpose has been established, the operation manager should contact the EFO to discuss whether the proposed operation is appropriate as a revenue operation and whether it fits with the mission of the executive area. If the EFO agrees that the proposed operation is appropriate, he or she will provide the manager with a packet of forms to be completed. Prior to filling out the forms, the operation manager should estimate a budget for the proposed operation. The estimated budget should include all projected revenues and expenditures for the operation. Projected revenues will be based upon the fee or rate charged and the estimated number of payers, products or units of service provided. (See Section IV for assistance on how to calculate rates and fees.) Projected expenditures should reflect all costs to the operation including: Payroll (both regular employee and student); Fringe benefits; Administrative expenses; Equipment; Leases; and Administrative Overhead expense (see Appendix B for a discussion of the Administrative Overhead rate). Once the budget and fees have been determined, the operation manager should complete and submit the following to the EFO: Budget proposal, which includes: The "Statement of Trust" or information regarding the revenue operation’s purpose and function; A description of services or products to be provided; A description of potential clients (i.e., students, grants and contracts, outside organizations, etc.); The estimated revenue and expense budget for the operation; and An explanation of how the fees or rates were calculated. A "Request for New Account Form". The Vice Chancellor and EFO will review the proposal. If approved at the Vice Chancellor’s level, the EFO will send the proposal to the Budget Office. The Budget Office will analyze all requests for new revenue operations. Requests recommended for approval by the Budget Office are submitted to the Chancellor. At this point, and in conformance with Board of Trustee policy, the approval process will differ depending on the type and projected size of the operation, the potential clients, and the fees or rates charged. Independent Revenue Operations (Expenditures greater than $100,000) Revenue operations with projected annual expenditures greater than $100,000 will be established as independent operations and must receive approval as a specific item by the Board of Trustees. The Chancellor will review requests forwarded by the Budget Office then submit a recommendation to the President. If the President approves the request, he will then certify to the Board of Trustees that the request has received appropriate financial and legal review and that it adheres to existing Board of Trustees policy and law. Final approval is per Trustee vote. Cost Centers (Expenditures less than $100,000) Typically an independent revenue operation will not be established if the annual expenditures are expected to be less than $100,000. Instead these smaller operations will be categorized as "cost centers" under a larger umbrella operation. Cost centers that will be charging existing fees can be approved by the Chancellor. However, new fees require the Chancellor and, depending on the type of fee, either President or Board of Trustee approval. See Appendix C for a summary of the approval process.

Depending upon the circumstances, new revenue operations that will be established as cost centers may be approved off-cycle. A manager requesting a new cost center should follow the same procedure outlined above. Requests with supporting documentation are submitted through the appropriate EFO to the Budget Office. The Budget Office will review the documentation and make a recommendation to the Chancellor. Upon review and recommendation of the Chancellor, the proposed new fees will be sent to the President for approval.

Off-cycle establishment of a stand-alone revenue operation is strongly discouraged. Because these operations require approval of the Board of Trustees, this rarely occurs outside of the annual budget process.

In October, revenue operation managers are given instructions and guidelines for completing forms for establishing the next fiscal year’s fees, rates, and budget. The due date to the Budget Office varies with the type of operation (see Appendix A). For all types of operations the paper work flow is as diagramed:

V. How to Make Changes to Existing Revenue Operations

Once a revenue operation has been established, the manager may make changes to the fees/rates, the name, or Statement of Trust during the annual budget process. In some very rare circumstances changes may be requested off-cycle. Contact the Budget Office for assistance.

Requests to establish new fees or rates or to raise or lower fees or rates are to be made as part of the annual budget process. The manager should submit the changes along with an explanation of why the increase or new fee is needed, how the amount was determined, and the consequences of not charging the increased amount or new fee. The fee or rate changes will be forwarded through the standard channels for budget approval. The Budget Office will analyze the documentation and make a recommendation to the Chancellor. Changes in certain fees and rates require Trustee approval, others require approval by the President and some only need campus level approval by the Chancellor. Therefore, after review of the request, the Chancellor will either make the final decision on the request or make a recommendation to the President or to the Board of Trustees. (See Appendix C for a summary of the approval required for these changes.) Fees established or changed during the annual budget process become effective for the new fiscal year.

A manager requesting a name change for his or her revenue operation should submit the new name and reason for the change with the annual budget packet. Upon review and recommendation of the campus, the new name will be sent to the Board of Trustees as a specific item for approval. Because name changes require specific Board of Trustee approval they occur rarely.

Similarly, a manager requesting a change in the Statement of Trust should submit the new Statement of Trust and an explanation of why the change is necessary with the annual budget packet. Again, upon review and recommendation of the campus, the new Statement of Trust will be sent to the Board of Trustees as a specific item for approval. Revisions to the Statement of Trust should only be requested when the existing Statement of Trust incorrectly defines the purpose of the revenue operation.

VI. Establishing Fees/Rates and Other Questions

Establishing new fees or rates can be a complex process. All new fees and rates should be designed to cover the costs (both direct and indirect) of providing the product or service. For help in determining appropriate costs and setting new fees or rates contact the Budget Office. When appropriate, the Budget Office will forward proposed fees or rates to Financial Analysis for review.

Questions concerning the establishment of or changes to a revenue operation can be answered by either the EFO or the Budget Office. The list of EFOs is presented in Section III. The Budget Office contacts for revenue operations are:

Or

The outline below represents the approximate timeline of the revenue operation’s process. Actual dates will vary from year to year.

The Administrative Overhead rate at the University of Massachusetts Amherst was established to comply with state law which requires that every revenue operation be self-supporting and self-amortizing. Because revenue operations use a number of central campus services they increase the operational cost of these units. Examples of these central administrative units are:

To comply with the law, revenue operations must be charged for these costs.

The actual central administrative costs generated by each revenue operation are not easily identified. Therefore, Financial Analysis has developed a rate that reflects the revenue operations’ allocable share of central administrative support costs. The rate is applied to each revenue operation based upon its level of expenditures. Each year the Administrative Overhead rate is recalculated. For information on the current Administrative Overhead rate, contact the Budget Office.

* Major campus services are services provided by the campus to major campus constituencies (example: Telecommunication Services).

When a revenue operation is established, the operation manager should consider if the activity will require the collection and deposit of sale use tax to the Commonwealth. Generally a five percent (5%) sales tax is applied to the purchase price or rental charge of tangible personal property sold or rented in the Massachusetts Commonwealth. The tax is collected by the seller in addition to the purchase price and subsequently forwarded to the Commonwealth.

Governmental organizations and charitable non-profit organizations are exempt from being charged sales tax, however, any individual or organization paying for campus goods or services should be charged the tax unless they can prove they are otherwise exempt. The individual should be able to identify affiliation with a campus department or provide a copy of Commonwealth Form SF-5 or ST-5C to prove their exempt status.

Campus policy is that operations that require the collection of sales tax must register as sales/use tax vendors and forward the payments to the Commonwealth as required. There are many rules relating to the applicability and deposit of sales and use taxes. As such, once the goods or services for which the operation will be collecting revenue have been identified, the operation manager should contact the Controller’s office (Bob Liebowitz, 545-0806; email: rliebowi@admin.umass.edu) for assistance in identifying any sales or use tax issues which might exist.