Financial Fundamentals

1
Financial Fundamentals

• AM 570 Overview of Fund Accounting, Revenue
  Sources and Use Restrictions

2
Welcome

• Janet A. Parker, Associate Vice President
  Financial Affairs
• Oversight for Controllers Office
  Accounting, Payroll,
  Disbursements Travel,
  Grants Contracts Financial
  Services
• Financial Services Capital Assets
• Budget Planning Development
• Management Reporting DEFINE

3
Welcome

• Janet A. Parker, Associate Vice President
  Financial Affairs
• Higher Education
• Experience 3 Yrs Colorado State
  University
• 10 Yrs University of Alaska,
  Anchorage
• 1 Yr University of So California,
  Information Sciences Institute
• 9 Yrs Cal State
  Univ, Long Beach
• 4 Yrs UTSA

4
Course Objectives

• Fund Accounting Principles
• Revenue Sources
• Fund Use Restrictions
• Chart of Accounts
• Reporting Expenses
• How Higher Education is Funded
• UTSA Budgeting

5
Fund Accounting Principles

• Why fund accounting?
• Universities have unique obligations for
  accounting and financial reporting according to
  the sources of funds received and their
  subsequent net uses than just reporting net
  income to investors.

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Fund Accounting Principles

• What is fund accounting?
• Method of segregating resources into categories
  to identify both the source and use of the funds.
• Fund accounting principles used in higher
  education require that income be reported based
  on funding source and expenditures be reported
  based on function (use).

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Objectives of Fund Accounting

• Accountability stewardship
• Did we use the funds in the way instructed?
• Have we documented that the funds were used
  properly?

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Objectives of Fund Accounting

• 2. Determining financial condition
• How much can we do with the resources we have?
• What is the value of our buildings other
  assets?
• What is the financial impact of
  maintaining/replacing other assets?

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Fund Accounting Principles

• 3. Planning and budgeting
• What should we do with the funds we have?
• How much do we need to do the job right?

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Fund Accounting Principles

• 4. Evaluating organizational and managerial
  performance
• Are we accomplishing the objectives for which we
  received the funds?
• What did the program/activity actually cost?
• Are we operating effectively and efficiently?

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Fund Accounting Principles

• 5. Determining / forecasting cash flow
• How much cash is coming in, how much is going out
  and how much do we need for contingencies?

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Fund Accounting Principles

• 6. Communication
• Are we communicating financial information to all
  with the need to know?
• Is the financial information relevant, clear,
  reliable, timely and comparable?

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Definitions

• FUND
• A segregation of resources established to control
  and monitor resources and to help ensure and
  demonstrate compliance with legal/adminstrative
  requirements.

14
Definitions

• FUND BALANCE
• Equity within a fund
• Assets Liabilities Fund Equity
• Also known as Net Assets, or Capital, or Net
  Worth.

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Definitions

• FUND GROUP
• A separate entity with a self-balancing set of
  accounts consisting of assets, liabilities, fund
  balance and where appropriate, revenue and
  expenditure accounts.

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Six Basic Fund Groups

• CURRENT FUNDS
• PLANT FUNDS
• ENDOWMENTS SIMILAR FUNDS
• ANNUITY AND LIFE INCOME FUNDS
• LOAN FUNDS
• AGENCY FUNDS

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Current Funds

• A group of funds expendable for operating
• purposes in support of the institutional
• mission expected to expended in the near
• term.
• Unrestricted
• Restricted
• Designated

18
University Fund Groups

• State Funds
• Designated Funds
• Auxiliary Enterprise Funds
• Restricted Funds
• Plant Funds
• Loan Funds
• Agency Funds

Major Capital projects are not part of the
operating budget
These are not part of the operating base budget.
19
Current Funds at UTSA

• Fund 14 Educational and General
• Technically unrestricted although some
  appropriations may be restricted
• by Education Code or the General Appropriations
  Act
• Revenue Sources
• State appropriations
• Statutory tuition
• Student fees
• State paid benefits
• Texas Higher Education Coordinating Board
  transfers
• Designated funds transfer

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State Funds

• General Revenue - State Appropriations
• Formula Funding
• Special Items
• Group Health Insurance / Proportional Benefit
  Cost Sharing
• GR-Dedicated
• Statutory Tuition
• Lab Fees and Private Music Instruction
• Texas Higher Education Coordinating Board (THECB)
  Transfers
• Texas Grant
• Work-study
• Performance Incentive Funding
• Texas Research Incentive program (TRIP)

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Educational General Funds at UTSA

• Sources of Funds
• General Revenue State Appropriations
• General Revenue-Dedicated Statutory
  Tuition Certain Fees
• THECB Transfers Texas Grant Work Study,
  Higher Education Incentive Funds
• Designated Funds 48.2M of the FY
  2010 EG budget is a transfer from
  designated tuition other revenue
  

State Funds
Local Funds
22
Current Funds at UTSA

• Fund 19 Designated funds
• Technically unrestricted although some fees or
  transfers may
• be restricted by policy
• Revenue Sources
• Designated tuition
• Student fees
• Facilities Administrative overhead recovery
• Transfers from statutory tuition to fund Texas
  Public Education Grants
• Miscellaneous revenue

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FY 2011 Designated Fund Revenue Sources
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Designated Tuition (DT)

• Tuition collected locally not considered a
  funding source for the formula
• Before 2003 was the same rate as Statutory
  tuition until the Texas State legislature
  deregulated DT to make up for declining state
  revenue
• Rates are approved by the Board of Regents (not
  legislature) and vary by institution
• FY10 120.85 / SCH
• FY11 131.75 / SCH
• FY12 142.75 / SCH

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Designated Tuition (DT)

• Used for need-based financial aid
• 20 of the amount collected from paid resident UG
  and 15 from resident GR over 46/SCH is set
  aside for student financial aid.
• Very important revenue stream to support UTSAs
  growth given the amount of state funds received
  per FTE Student as compared to other UT
  institutions

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Mandatory Incidental Fees

• New fees and or changes to fee amounts are
  approved
• for 2 years by Board of Regents in Spring
• New rates go into effect the 2nd year of the
  budget biennium (odd years).
• Revenue must be spent in accordance with the
  approved purpose and Texas Education Code.
• Mandatory Fees
• Paid by all students.
• New fees and/or fee rate changes must be approved
  by the Board of Regents (BoR)
• Incidental or College/Course Fees
• Assessed when good/service is used or based on
  enrollment in a course or college.
  College/course fees are part of the Total
  Academic Cost formula.

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Current Funds at UTSA

• Fund 18 Service Centers
• Breakeven charge back operations when
  authorized to provide
• goods services for internal customers cost
  principles must be
• followed for OMB Circular A-21 compliance. All
  customers must be
• charged the same rate.
• Technically, unrestricted.
• Revenue Sources
• ALL FUNDS

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Current Funds at UTSA

• Fund 29 Auxiliary Enterprises
• An auxiliary enterprise is an entity that exists
  predominantly to furnish
• goods or services to students, faculty, or staff,
  and that charges a fee
• directly related to, although not necessarily
  equal to the cost of the goods
• or services. The general public may be served
  incidentally by some
• auxiliary enterprises. We also refer to them as
  self-supporting and are
• technically unrestricted.
• Revenue Sources
• Revenues recovered from charges for goods or
  services.
• Mandatory student fees Athletics, University
  Center Recreation Center.

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Current Funds at UTSA

• Fund 26 Sponsored Grants Contracts
• Restricted usage based on agreement between
  sponsor and UTSA.
• Usage of federal funds are subject to OMB
  Circular A-21 compliance and
• other restrictions in federal law that may apply.
  
• Revenue Sources
• Federal
• State
• Local
• Private

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Current Funds at UTSA

• Fund 30 Gifts
• Technically restricted, however usage may be for
  discretionary
• purposes based on intentions of the donor.
• Revenue Sources
• Private
• Distributions of Endowments invested by UTIMCO

31
Plant Funds at UTSA

• Fund 36 Plant Funds
• Used to record construction or acquisition of
  capital assets - normally
• exceeding 100,000 in total. Will also include
  renewal replacement
• projects.
• Revenue Sources
• Designated funds (Cash)
• Bond Financing
• Private (Donations)
• Grants Contracts (Sponsored programs)
• Distributions from Permanent University Fund
• Auxiliary Enterprise Revenue
• NEVER STATE APPROPRIATIONS

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Agency Funds at UTSA

• Fund 41 Agency Funds
• Used to record funds held by UTSA for outside
  groups that
• have a close relationship with the university.
  These funds
• do not belong to UTSA and are not reported in our
  
• financial statements.
• Revenue Sources
• Student clubs and organizations
• 3rd Party vendors who need to use campus services
  e.g. Follett

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Loan Funds

• Fund 32 Loan Funds
• Are used to record activity on funds available
  for
• loans to students.
• Revenue Sources
• Texas Public Education Grants (technically
  sourced from statutory tuition)
• Federal/State programs
• Gifts

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Transfers within a fund group (Intrafund
Transfers)

• Intrafund transfers are generally allowed but may
  be prohibited between certain revenue sources.
• Is the use of the revenue restricted?
• Will the transfer affect reporting?

35
Intrafund Transfers

• When allowed, intrafund transfers can be
  permanent or temporary.
• Temporary transfers affect the current year only.
• Permanent transfer permanently move monies from
  one budgeted account to another.
• You cant process a permanent transfer if the
  account has no available original budget.

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Transfers between Funds (Interfund Transfers)

• Can we transfer money between fund 14 EG and
  fund 19 Designated?
• Yes, but only if the account you are transferring
  from / to doesnt have any usage restrictions.
• Example between two accounts funded by
  Designated Tuition is okay but between a state
  appropriated Special Item and a student fee
  account is not okay.

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Fund Swapping

• Because the EG fund has a budgeted transfer from
  designated funds, we facilitate authorized
  transfers between 14 and 19 accounts by
  swapping funds.
• Process managed by the Budget Office
• Eliminates the need to process multiple interfund
  transfers (that require several steps to record.)

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Interfund Transfers

• Can we transfer money between fund 14 EG and
  fund 29 Auxiliary Enterprises?
• NEVER

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Interfund Transfers

• Can we transfer money between fund 14 EG and
  fund 18 Service Centers?
• Yes, as a funding source to pay for goods or
  services used by the 14 account or to refund for
  goods or services returned or incorrectly billed.

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Interfund Transfers

• Can we transfer money between fund 30 Gift and
  fund 19 Designated accounts?
• NEVER

41
Interfund Transfers

• Can we transfer money between fund 29 Auxiliary
  Enterprise and 36 Unexpended Plant fund accounts?
• Yes, when these revenues are funding capital
  projects, e.g. new parking garage.

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Interfund Transfers

• Can interfund transfers be permanent?

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• Questions about fund accounting,
• revenue sources or related subjects?

44
Chart of Accounts

• DEFINE Account structure users assign
• expenditures to a 10 digit code
• FF-XXXX-XX-SS
• 1st 8 digits referred to as a BUDGET GROUP
• FF Fund (e.g. 14-)
• XXXX-XX Unique identifier (e.g. 0240-00)
• SS Subaccount (e.g. -50 MO) to group expense
  
• classifications

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Chart of Accounts

• Other chartfields
• Object codes detailed expense categories for
  reporting
• NACUBO program codes functional expense
  classifications tied to budget groups and or
  subaccounts
• Unit codes groups multiple budget groups to an
  organizational area or manager

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Reporting Expenses Functional Expense
Classifications

• A functional expense classification is a method
  of grouping expenses according to the purpose for
  which the costs are incurred.
• The classifications tell why an expense was
  incurred rather than what was purchased.
  Reporting expenses this way helps stakeholders
  understand the various mission-related activities
  and their relative importance.

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Reporting Expenses Functional Expense
Classifications

• Primary functional expense classifications -     
  
• Instruction
• Research
• Public Service
• Academic Support
• Student Services
• Institutional Support
• Scholarships and Fellowships
• Auxiliary Enterprises
• Operations Maintenance of Plant

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Reporting Expenses Natural Expense
Classifications

• A natural expense classification is a method of
  grouping expenses according to the type of costs
  that are incurred.
• The classifications tell what was purchased
  rather than why an expense was incurred.

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Reporting Expenses Natural Expense
Classifications

• Included are
• Salaries Wages (can be further broken into
  categories of employee types)
• Employee Benefits
• Utilities
• Supplies
• Travel
• Scholarships and fellowships
• Services

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Fund Accounting Financial Reporting

• UT System requires regular monthly annual
• financial reports
• Annual Financial Report
• Balance Sheet
• Statement of Revenues, Expenses Changes in Net
  Assets
• Statement of Cash Flows
• Miscellaneous Supporting Schedules
• Annual Sources Uses
• Analysis of Financial Condition

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Fund Accounting Financial Reporting

• UTSAs FY 2009 AFR
• http//www.utsa.edu/financialaffairs/controller/do
  cs
• DF/annualRpt09.pdf
• Other Key UT Financial Reports
• http//www.utsystem.edu/cont/internal_reports.htm

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Financing Higher Education in Texas Legislative
Primer (4th Edition, January 2009)http//www.lbb
.state.tx.us/Higher_Education/HigherEd_FinancingPr
imer_0209.pdf

• Texas public systems serve 90 of the 1.2
  million students enrolled in higher education
• 35 general academic teaching institutions
• 50 community junior college districts
• 1 technical college with 4 main campuses
• 3 lower division state colleges
• 9 health related institutions

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Formula Funding in Texas

• Tool used since 1950 to allocate most of the
  funds for public universities (not community
  colleges).
• Intended to provide the majority of instructional
  costs based on semester credit hour enrollment
• 62 of all state appropriations for general
  academic institutions are allocated via 2 funding
  formulas and 2 supplements.
• Not intended as restricted budget line item
• Universities may allocate to a college or
  department more or less than the amount earned
  through the formula.

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State Appropriations Formula Funding

• Instructional and Operations (I/O) Formula
  (84.1M/yr)
• Based on Weighted SCH (Base Year)
• Teaching Experience Supplement (2.35M /year)
• Additional weight of 10 to undergraduate SCHs
  taught
• by tenured or tenure track faculty
• Small Institution Supplement (under 5,000
  enrollment)
• Infrastructure Support Formula (15.8 M/yr)
• Based on utility cost square footage of EG
  space
• for Operation Maintenance of Plant
  (Facilities)
• UTSA received lt15.8Mgt less than the biennial
  amount recommended by THECB

84.2
15.8
Based on actual amounts allocated in the current
biennium (2010-2011)
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State Appropriations Formula Funding

• Formula Strengths
• Cost based (but not fully funded)
• Emphasizes instructional mission
• Consistent, fair (hold harmless funding)
• De-politicizes the award of funding to higher
  ed
• Formula Weaknesses
• Funding delayed for fast growing institutions
  adjustments occur every 2 years
• Motivates creation of graduate programs and
  higher cost programs
• Doesnt reward quality or student success
• Validity of weighting not demonstrated

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Texas State Budget Cycle

• Legislature convenes every 2 years for 140 days
  in odd numbered calendar years beginning January
  2nd
• 2009 81st Legislative Session for FY10 and 11
  Budgets
• 2011 82nd Legislative Session for FY12 and 13
  Budgets
• State budget is allocated once every two years
  Fiscal Year begins Sept. 1st through August 31st
• Appropriation is generally flat in the 2nd year
• Numerical reference is the trailing year of the
  biennium
• Example FY10 is 9/1/09 through 8/31/10
• Budget 101 A Guide to the Budget Process in
  Texas http//www.senate.state.tx.us/SRC/pdf/Budget
  101-2009-web.pdf

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General Appropriations Act (GAA)

• GAA details each agencys biennial budget
  allocations includes
• State revenues only
• Certain restrictions on use of state funding
• Reporting other requirements
• http//www.lbb.state.tx.us/Bill_81/6_FSU/Bill-81-6
  _FSU_0909.pdf
• Academic institutions
• Direct appropriations from funding formula are
  lump sum and discretionary
• Most non-formula appropriations have restricted
  uses
• Special Items Higher Education Group
  Insurance

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General Appropriations Act (GAA)

• Specifies how state funds are allocated, not how
  they must be spent.
• Institutions are not bound to spend
  appropriations within a specified strategy some
  exceptions include
• TRB Debt service
• Research Development must be used per Ed Code
  62.091
• Higher Ed Group Insurance
• Limitations General Revenue can not fund
• Construction
• Auxiliary Enterprises e.g. Athletics, Parking,
  etc.

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General Appropriations Act (GAA)
UTSA was allocated a cut of 8,766,319 over this
biennium, 4.4 of net General Revenue excluding
ARRA and TRB funding.
60
General Appropriations Act (GAA)
61
General Appropriations Act (GAA)
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Legislative Appropriations Request (LAR)

• Budget Request prepared by each agency during the
  Summer (of an even year) prior to legislative
  session
• Performance budget tied to goals, objectives,
  strategies and measures
• Does not include formula funding for higher
  education
• Joint Budget Hearings
• Result in draft budget bill (General
  Appropriations Act) filed in both houses of the
  legislature
• Comptrollers Biennial Revenue Estimate
• Revenue sources, projections, economic outlook,
• detailed accounting of state treasury

Legislature can not appropriate an amount greater
than anticipated revenue!

63
University Budget Process

• University Strategic Resource Planning Council
  (USRPC) Recommends Budget Changes
• Council on Management Operations (CMO) Endorses
  President Approves
• Draft Budget Document Prepared
• UT System Budget Hearings
• Board of Regents Approval
• http//www.utsa.edu/financialaffairs/budget/

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Operating BudgetFiscal Year 2011
Revenue Sources 500.1 Million (Gross)

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THE END!

• Questions and Answers?