2. 1 Fund AccountingNovember 17, 2015 Fund Accounting Jim Corkill | Controller Business and Financial Services Controller’s Office

3. November 17, 2015 2 Fund Accounting Agenda Goals/Objectives Definitions Fund Groups Budgeting Financial Statements

4. November 17, 2015 3 Fund Accounting Goals Concepts of fund accounting Understanding the various fund groups How are we different than a profit organization?

5. November 17, 2015 4 Fund Accounting What is Fund Accounting? A method of segregating resources into categories (i.e., funds), to identify both the source of funds and the use of funds.

6. November 17, 2015 5 Fund Accounting Objectives of Fund Accounting Demonstrating accountability and stewardship Determining financial condition Planning and budgeting

7. November 17, 2015 6 Fund Accounting Objectives of Fund Accounting Evaluating organizational and managerial performance Determining/forecasting cash flow Communication

8. November 17, 2015 7 Fund Accounting Definitions Fund: A fund is a segregation of resources established to control and monitor resources and to help ensure and demonstrate compliance with legal/administrative requirements.

9. November 17, 2015 8 Fund Accounting Definitions Fund Balance: Equity within a fund. Assets = Liabilities + Fund Equity Fund Assets – Fund Liabilities = Fund Balance Assets – Claims Against Assets = Fund Balance The fund balance may also be known as Net Assets, Capital, or Net Worth.

10. November 17, 2015 9 Fund Accounting Chart of Accounts How do we track the sources and uses of funds?

11. November 17, 2015 10 Fund Accounting 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.

12. November 17, 2015 11 Fund Accounting Fund Groups Six basic fund groups: Current Fund Plant Fund Endowment & Similar Funds Group Annuity & Life Income Group Loan Fund Agency Fund

13. November 17, 2015 12 Fund Accounting Current Fund Group of funds expendable for operating purposes in support of the institution’s mission; expected to be expended in the near term. Unrestricted Restricted Designated Funds

14. November 17, 2015 13 Fund Accounting Current Fund Unrestricted Funds: Includes all funds received in which a donor or other external agency has not specified the purpose(s) for which the funds should be expended. Examples: General funds Reg. Fee funds Unrestricted gifts (“RARE”)

15. November 17, 2015 14 Fund Accounting Current Fund Restricted Current Funds: Includes funds available for financing operations, but that are limited to specific purposes, programs, or departments specified by donors or external agencies. Examples: Federal funds for contracts & grants Work Study funds Endowment income

16. November 17, 2015 15 Fund Accounting Current Fund Designated Current Funds: Unrestricted funds the governing body designated for a special purpose. Examples: Special State Appropriations  Tobacco Research  Breast Cancer Research

17. November 17, 2015 16 Fund Accounting Scenario #1 For each of the fund numbers and titles listed, mark the fund either: a) Restricted b) Unrestricted c) Designated For each transaction, assign the appropriate fund number.

18. November 17, 2015 17 Fund Accounting Plant Fund The plant fund group is used to record acquisition of assets, replacement of assets, pay off debt, and record the investment in assets (equity). There are four subgroups of plant funds: Unexpended Plant Funds Renewal and Replacement Retirement of Indebtedness Investment in Plant

19. November 17, 2015 18 Fund Accounting Plant Fund Unexpended Plant Fund: Used for recording construction or acquisition of long-lived assets. This includes items such as: Land and building acquisition Construction of new facilities Renovation Remodeling

20. November 17, 2015 19 Fund Accounting Plant Fund Renewal and Replacement: Used for extraordinary repairs and maintenance or equipment replacement. Retirement of Indebtedness: Used to record the accumulation of funds and disbursement for repayment of long term debt for assets.

21. November 17, 2015 20 Fund Accounting Plant Fund Investment in Plant: Used to record the equity of campus assets. This subgroup in plant should reflect the total amount of resources expended for additions to assets.

22. November 17, 2015 21 Fund Accounting Discussion #1 For each transaction or situation, name the correct fund (Current or Plant) where it should be recorded.

23. November 17, 2015 22 Fund Accounting Endowment & Similar Funds This fund group is used to record donations to the University which require that the principal is invested and only the interest income is expendable. Interest income earned on these funds is returned to the campus and expended in the current funds group.

24. November 17, 2015 23 Fund Accounting Endowment & Similar Funds Funds Functioning as Endowments: The governing board of the institution, rather than the donor or other external agency, has determined that funds (usually a gift) are to be retained and invested as an endowment. Large amounts - usually $50,000.

25. November 17, 2015 24 Fund Accounting Annuity & Life Income Funds Annuity: Institution is obligated to pay stipulated amounts periodically to the donor’s beneficiary. When the agreement terminates, the remaining funds become property of the institution.

26. November 17, 2015 25 Fund Accounting Annuity & Life Income Funds Life Income: Established when a college/ university is the trustee and remainder for a charitable remainder trust. Income and expenses are paid to beneficiary for life. Principal returns to the institution when beneficiary dies.

27. November 17, 2015 26 Fund Accounting Scenario #2 Your department has received a $150,000 gift to be used for operating expenses for the Biology department. The chair asks you to make a recommendation about turning it into an endowment. What do you need to consider to make the recommendation?

28. November 17, 2015 27 Fund Accounting Loan Fund Used to record activity on funds available for loans to students, faculty, and staff. Examples include: Student Financial Aid Loan Fund Faculty Home Mortgage Loan Staff Emergency Loan Fund

29. November 17, 2015 28 Fund Accounting Agency Fund Used to record funds held by the University for outside groups who have a close relationship with the University. Funds in the Agency Fund group do not belong to the Regents and are not reported in the UC Financial Statements.

30. November 17, 2015 29 Fund Accounting Agency Fund Examples: Scholarship funds Fraternities and sororities The UCSB Foundation UCSB Alumni Association

31. November 17, 2015 30 Fund Accounting Agency Fund Accounting for Agency Accounts Transactions are recorded as a balance sheet item, not as income and expense. To keep their accounting activity separate, a special account series is used.

32. November 17, 2015 31 Fund Accounting Agency Fund Accounting for Agency Accounts During fiscal closing, any balances in these agency accounts are transferred to a balance sheet payable account. Agency accounts affect the campus’ STIP earnings. Therefore, the accounts should have a positive or zero balance at all times.

33. November 17, 2015 32 Fund Accounting Budgeting Budgets are the most widely used method for control in colleges & universities. Fund accounting assists in budget control by providing information that enables: Managers to review their expenditures to ensure they are within their allocations. This is also a Department Key Control for SAS 112. Demonstration of compliance with funding sources.

34. November 17, 2015 33 Fund Accounting Budgeting Budget entries are the reverse of financial entries: Revenue entries are budgetary debits. Appropriations to expenditure accounts are budgetary credits.

35. November 17, 2015 34 Fund Accounting Encumbrances In managing available resources in a non-profit organization, we need to recognize future commitments of resources prior to an actual expenditure. Encumbrances (or liens) are used to reflect these commitments in the accounting system and attempt to prevent overspending.

36. November 17, 2015 35 Fund Accounting Encumbrances When the order/services are received and the University is invoiced, the original encumbrance entry is cancelled, and the expense and related cash payment is recorded.

37. November 17, 2015 36 Fund Accounting Questions