This Accounting Resource Document is currently under revision. If you have any questions, please contact Tom Ewing (688-3113) or Sue Chizmar (292-6856).
Managing Financial Resources
Table of Contents
- General Funds Budgets
- Earnings Operations
- General Requirements
- Budget and Rates Policies
- Accounts Receivable and Cost of Sales
- Other Earnings Policies
- Establishing a New Earnings Fund
General Funds Budgets
Policies, guidelines and procedures associated with the management of general funds budgets is the responsibility of University Resource Planning and Institutional Analysis. This is a direct link to the RPIA web site.
Earnings operations are defined as campus entities that charge an approved fee for goods and services to university departments, faculty, staff or students, the general public, or research grants. Earnings units earn their own revenue and incur all of their own costs, both direct and indirect.
Types Of Operations
The four types of earnings operations and their fund ranges are:
- Departmental earnings 110000-115999
- Conferences 116000-119999
- University Services /Recharge Centers 140000-149999
- Auxiliaries 160000-169010
Reason For The Policy
The purpose of this policy is to ensure that a uniform set of guidelines governs all earnings operations. Specifically, its purpose is to:
- Provide assurance that the university is in compliance with federal regulations that govern charges to research grants,
- Incorporate issues associated with IRS regulations,
- Incorporate State rules governing not- for- profit institutions and competition with private enterprises, and
- Provide guidance concerning other external and internal rules and regulations.
- All revenue associated with the sale of goods and services must be deposited into an earnings fund. Revenue must not be deposited as a credit to expense in a non-earnings fund.
- Operations must be fully costed. Both the direct and indirect costs such as salaries, benefits, supplies, equipment, and university overhead must be included.
- Operations should be self-supporting. If it is determined that an operation cannot be fully self-sufficient, the department can support the operation from its general funds via a funds transfer.
- Operations must be reviewed and approved by the Office of University Resource Planning and Institutional Analysis.
- Operations must have start up funding. Spending into a deficit until sufficient revenue is earned is not permissible.
- Operations must not use an external bank account. All financial activity must go through the university financial accounting system.
Budget and Rates Policies
- A budget must be submitted annually to University Resource Planning and Institutional Analysis during the annual budget process. Auxiliary operations and university services also must submit a cash flow statement.
- Budgets represent planned income and expense. Budgets should be reasonable, based on prior years' actual experience or marketplace demands.
- Budget variances from actual should be incorporated into the following year's budget. Budget revisions should be minimal.
- "Budget balances" on the income statement do not carryforward at year-end.
- Deficit budgets are not permitted unless the operation has sufficient cash to cover the operating loss.
- If a cash deficit does develop, it must be resolved within a two-year period and the budget should reflect resolution of the deficit.
- Rates/fees, except for conferences, must be submitted annually to University Resource Planning and Institutional Analysis.
- Rates must be calculated to cover all costs that are incurred in providing the goods or service. If necessary, departments may choose to use their general funds to subsidize the operation, thereby lowering their rates. (Submit a fund transfer to University Resource Planning and Institutional Analysis).
- Rates must not include unallowable costs as defined by A-21 regulations.
- Two different methods are available for calculating rates, depending on the type of operation: (1) full-cost recovery and (2) marketplace.
- Rates must be associated with customer types and operations must indicate who their customers are, i.e., federal grants, university departments, faculty, staff, students, corporations, and the general public. This information is important because different rate setting strategies and considerations apply to different types of customers.
- Rates must not be calculated to generate a surplus if (1) the operation is designated as a university service (recharge center), (2) the primary customers are university departments or federal grants and (3) a monopoly exits e.g. the Telephone Company.
- Rates (marketplace) calculated to produce an operating surplus are allowed if (1) the primary customers are the general public, a private corporation, or university employees or students acting as the general public (athletic events), (2) there is reasonable marketplace competition, or, as in the case of conferences, when it is stated on the registration form.
- Documentation associated with rate calculations must be maintained by departments and be available for internal and external audits.
- All rates are presented to the Board of Trustees at their September meeting. Selected rates, especially those that affect students (tuition, residence halls, parking, etc.) are presented to the Board of Trustees at their June meeting. Copies of approved rates are provided to Internal Audit and the University Research Foundation.
- The Office of Resource Planning and Institutional Analysis must approve all rates applied to federal research grants before they are accepted by the Research Foundation. Departments must not use credits to expense as a substitute for charging federal grants for goods or services.
Accounts Receivable and Cost of Sales
- It is the responsibility of each earnings operation to accurately reflect accounts receivable in the general ledger.
- All receivables must be promptly recorded.
- Receivables more than 120 days old must be referred to the Office of Accounts Receivable Collection Services (ARCS) for active collection.
- All returned checks and credit card drafts are receivables and are collected by ARCS.
- Interest assessed on unpaid account receivable balances must be in accordance with ARCS policy.
- All operations must keep a record of the age of its accounts receivable.
- Policies and procedures Information related to accounts receivable is available from the Office of the Treasurer, Accounts Receivable.
Cost Of Sales Policies
- Merchandise and services purchased externally for the purpose of resale and direct pass-through qualify as cost of sales.
- University overhead for operations with approved cost of sales is calculated on gross margin, i.e. total revenue minus approved cost of sales.
- The Office of Resource Planning and Institutional Analysis must approve the use of cost of sales by earnings operations. Proposed cost of sales accounts should be submitted during the annual earnings budget process.
Other Earnings Policies
- Earnings operations that consistently do business in excess of $100,000 annually are charged a "physical plant assessment" (i.e. a central charge for utilities and maintenance costs associated with the space occupied by the earnings unit).
- Operations over $100,000 that pay physical plant costs also earn interest on their cash balances. Interest expense is charged on negative cash balances.
- Operations in excess of $100,000 that earn interest on their cash balances also earn interest on plant funds, usually equipment replacement reserves, associated with the earnings operation.
Establishing a New Earnings Fund
If a department determines that it needs a new earnings fund for a particular business that is important to the department, the department, through its college, should:
- Discuss the new operation with a budget analyst in University Resource Planning and Institutional Analysis.
- Prepare a "New ChartField Value Request" form for the Accounting Division, which will establish the fund and chartfield values, required to support the operation's financial activities.
- Prepare a proposed fee schedule, rate calculations and a budget for review by the college or office and the Office of Resource Planning and Institutional Analysis.
ASSISTANCE: All questions concerning earnings operations, budgets, and rates should be directed to the Office of University Resource Planning and Institutional Analysis.
Revised: August 10, 2000