Fund Accounting Business and Financial Services Controller’s Office Jim Corkill | Controller Business and Financial Services Controller’s Office

Agenda Goals/Objectives Definitions Fund Groups Budgeting Financial Statements Welcome to the next class in the Financial Management Certificate Series. Dry Class - We will use our scenario groups and have a discussion topic. Some Assumptions - Some understanding of GAAP (Gen. Accepted Actg. Principles) Accounting Concepts Fund Accounting Deal with many funds - maybe 50 – 100 Only one fund group - current funds We will discuss other fund groups as well

Goals Concepts of fund accounting Understanding the various fund groups How are we different than a profit organization? Goals of the Class: Better understand the various fund groups. Understand what makes us different than a corporation - such as Microsoft?

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. If you remember nothing else from this class – remember “Sources of Funds” and “Use of Funds.”

Objectives of Fund Accounting Demonstrating accountability and stewardship Determining financial condition Planning and budgeting 1) Demonstrating accountability and stewardship Did we use the funds in the way instructed? Have we documented that the funds were used properly? 2) Determining financial condition How much can we do with the resources we have? What is the value of buildings and other assets? What is the financial impact of maintaining/replacing other assets? 3) Planning and budgeting What should we do with the funds we have ? (planning) What will be the impact if we choose Plan A over Plan B? (Forecasting) How much do we really need to do the job right?

Objectives of Fund Accounting Evaluating organizational and managerial performance Determining/forecasting cash flow Communication 4) Evaluating organizational and managerial performance Are we accomplishing the objectives for which we received the funds? What did the program/activity actually cost? How do we compare with other institutions? Are we doing the right things? (Effectiveness) Are we doing the job right? (Efficiency) 5) Determining/forecasting cash flow How much cash is coming in, how much is going out, and how much do we need for contingencies? 6) Communication Are we communicating financial information to all with a need to know? Is the financial information relevant, clear, reliable, timely, and comparable?

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.

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.

Chart of Accounts How do we track the sources and uses of funds? Handout Pages 2, 3, & 4.

Object Code 7200 This is why you might see funds transferred out of your current funds and moved to unexpended plant. $35,000.??? http://ga.accounting.ucla.edu/

BIG Picture of UC Financials UC audited as one entity!   http://www.ucop.edu/financial-accounting/financial-reports/index.html UC Corporate Systems https://csg.ucop.edu/dwr/Dwr This is why you might see funds transferred out of your current funds and moved to unexpended plant. $35,000.???

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.

Fund Groups Six basic fund groups: Current Fund Plant Fund Endowment & Similar Funds Group Annuity & Life Income Group Loan Fund Agency Fund Handout - Page 5 - lists each of the fund groups and gives a definition.

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

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”)

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

Current Fund Designated Current Funds: Unrestricted funds the governing body designated for a special purpose. Examples: Special State Appropriations Tobacco Research Breast Cancer Research

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. See page 6 of your handouts. There could be more than one appropriate fund number.

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

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. Retirement of Indebtedness: Large items or buildings.

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. HANDOUT - Show Asset Accounts – Overhead?

Discussion #1 For each transaction or situation, name the correct fund (Current or Plant) where it should be recorded. See page 7 of your Handouts.

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.

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. No More STIP 5% Deduction For help, contact Connie Feeley in Extramural Funds or Eric Sonquist in Institutional Advancement. They are listed on the Resources Page. Another reference is the Extramural Funds Manual on the Web - Chapter 7. This is also on the Resources Page.

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.

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.

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? See page 8 of your Handouts. Assume 2.5% return, 8% growth Considerations: Department Short Term Needs Department Long Term Needs

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 Largest Area is Student Loans Direct Lending is $60 million/year Emergency Loans - All balance sheets???

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.

Agency Fund Examples: Scholarship funds Fraternities and sororities The UCSB Foundation UCSB Alumni Association

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.

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.

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 115. Demonstration of compliance with funding sources.

Budgeting Budget entries are the reverse of financial entries: Revenue entries are budgetary debits. Appropriations to expenditure accounts are budgetary credits. Go to FLIP CHART - ??? REVENUE EXPENSES

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.

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.

Questions