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2010/2011 Budgeting Guidelines

2010/2011 Budgeting Guidelines. Why do we need a budget?. A budget is a financial plan that represents an operational strategy. UCLA ledger does not provide a full-year budget perspective.

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2010/2011 Budgeting Guidelines

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  1. 2010/2011 Budgeting Guidelines

  2. Why do we need a budget? • A budget is a financial plan that represents an operational strategy. • UCLA ledger does not provide a full-year budget perspective. • UC Regents policy now requires a campus budget with budget to actual reporting. Possible review during PricewaterhouseCoopers audit. • Campus management will be using CBIG to track budget to actual results to confirm budget reductions are being achieved. Part of campus management reviews at mid-year. • APB analysts will be reviewing results quarterly. 2

  3. Our Goal • Create a budget in CBIG that will accurately predict the full year financial outcome on a quarterly basis. • Reduce variances by avoiding some of the common mistakes made during budget creation. 3

  4. Topics • Budgeting salaries • Benefits • Fee Remissions • Adjustments to the unexpended balance • Budgeting other activity • Other financial activity • Fund swaps • Contracts and grants • Gifts and endowments • Budgeting in a “down cycle” • Variance Analysis • System Overview and Reminders 4

  5. Salaries2009/10 Budget by Quarter Compensation is 94% of total cost. 5

  6. SalariesBudget by Quarter • Budget creator used even spread for monthly budget 6

  7. SalariesSalary Detail (in Excel): 2009/10 Faculty Salary Budget 7

  8. SalariesActual Costs By Quarter 8

  9. Salaries2009/10 Budget to Actual Variance: Favorable/(Unfavorable) 9

  10. Question:What did the department chair and/or MSO know that wasn’t included in 2009/10 Budget? 10

  11. SalariesSalary Detail (in Excel): What 2009/10 budget should have looked like (“What If”) • Salary savings from furlough program started in September • Professor I left in October • Three positions filled in January 11

  12. SalariesActual Versus “What if” budget • Reduced variability across quarters • “What If” budget produced minimal dollar variability • “What If” budget produced minimal percentage variability 12

  13. SalariesSalary Detail (in Excel): 2010/11 Proposed Budget Include retroactive merits, mid-year retention increases and other case-by-case adjustments in the salary detail. 13

  14. Question:There was a temporary budget cut associated with the furlough program in 2009/10. There are two more months of reduced salaries for non-represented employees in 2010/11(July and August).What is the impact of the two months of reduced salaries on 2010/11 funding? Answer:Recall that the entire projected twelve months of salary savings was taken as a budget reduction in 2009/10. There is no additional temporary funding reduction related to the furlough program in 2010/11. However, you need to determine if you have a funding shortfall that rolled over into 2010/11 that is the result from not meeting the entire salary savings target. 14

  15. Question:What about the furlough/salary savings program with respect to represented employees? Answer:The full temporary budget reduction was taken in 2009/10. Reduced salaries run through December, 2010. 15

  16. Question:I want to use one of the automated spread rules in CBIG for salaries in my 2010/11 budget. What can I expect if I use a spread rule on salaries? Answer:Let’s look at an example using the previously constructed faculty salary budget. 16

  17. Using the “Based on Last Year” Spread Rule What is your conclusion about using the “spread rules”? 17

  18. Question:I want to use one of the automated spread rules in CBIG for salaries in my 2010/11 budget. What can I expect if I use a spread rule on salaries? Answer:Since we are trying to minimize budget to actual variances, using automated spread rules for salary will probably not be applicable for 2010/11 due to the different salary savings patterns in 2009/10 and 2010/11. 18

  19. BenefitsWhat is Included in “Benefits”? Variable costs • Employer portion of FICA (Social Security and Medicare) • 7.65% with ceiling on Medicare • Unemployment insurance • State disability • Worker's compensation • UCRP contribution (4% in 2010/11) Fixed costs • Employer portion of Health insurance (but varies depending on employee plan choice) • Dental and vision insurance Hybrid costs • Vacation accrual and credits (varies based on when vacations are taken, employee tenure) 19

  20. Benefits Considerations for 2010/11 • Coordinate with your Associate/Assistant Dean or Divisional Analyst regarding how to handle this. There are several options: • Organizational/division • Departmental • Unknown increase in health benefits • Increase will occur in January, 2011 • 10% would be a good estimate • Continuation of UCRP contribution • 4% for full-year 2010/11 • Based on “unreduced” salaries for months with salary reductions and full salaries after furlough periods end • The difference between the salary basis (reduced or full) for the UCRP contribution is not material to the budget. 20

  21. BenefitsCalculating 2010/11 Benefits Question: Is knowing last year’s 12-month benefit rate enough to calculate the 2010/11 benefit rate? 21

  22. BenefitsCalculating 2010/11 Benefits Answer: There are several factors that make 2010/11 a challenging year with respect to calculating benefits. • Fluctuating base on which benefits rate is calculated due to partial-year salary savings from furlough program. Reduced salaries for part of 2009/10 have the effect of inflating benefits as a percentage of wages. • 2009/10 had 2.5 months of UCRP contribution. 2010/11 will be a full-year contribution. • Increase in medical costs in January 22

  23. BenefitsCalculating 2010/11 Benefits We suggest looking at benefits in three pieces: • Medical cost • UCRP contribution • Everything else: This includes vacation accrual which will be a dynamic component of benefits in 2010/11. • More people will use accrued vacation this year since the furlough program is ending. This will probably generate more vacation credits on the ledger. 23

  24. BenefitsCalculating 2010/11 Benefits We’ll fill out this chart to arrive at one approach to calculating benefits: 24

  25. BenefitsCalculating 2010/11 BenefitsMedical • Use payroll reports or data downloads to get medical costs for the second half of 2009/2010 (medical increase occurs in January) • Download the corresponding salary data • Increase dollar value of 2009/2010 medical costs by 10% 25

  26. BenefitsCalculating 2010/11 Benefits So far, our benefits chart looks like: 26

  27. BenefitsCalculating 2010/11 BenefitsUCRP Since the UCRP contribution is 4% of wage for all of 2010/11, the next line of the chart is easy: 27

  28. BenefitsCalculating 2010/11 Benefits“Everything Else” • 2008/09 was the last “clean year” for benefits (no impact of UCRP contribution, no furlough, regular use of vacation) • Use payroll reports or data downloads to get benefit information excluding medical costs for full-year 2008/2009 • Download the corresponding salary data • Derive “everything else” as percentage of wage 28

  29. BenefitsCalculating 2010/11 Benefits Our completed chart looks like: Benefits as % of salaries could go up by 3.5% to 4.0%. 29

  30. How important is getting the benefits % correct? Small percentages can translate to large dollars: Note divergence of benefits and salary variances Note variance of benefits “floats” with salary variance 30

  31. Question:The department has only one open faculty position planned for 2009/10. In the past five years, the number of open ladder positions has been as few as three and as many as five.What impact does that have on the 2010/11 budget? Answer:If hiring has “ramped up” over the last two to three years, there could be a material impact on benefits. 31

  32. Fee Remissions (19900 Funds) 2009/10Actual Versus Budget 32

  33. Fee Remissions (19900 Funds) 2009/10 Budget by Quarter 33

  34. Fee Remissions (19900 Funds)2009/10 Actual by Month • With 2009/10 decentralization of 19900 benefits pool, if YTD fee remission cost is not zero there could be two different possibilities: • Funding was provided to offset the cost that resides in the unit. This would result in higher than budgeted revenue and higher than budget expense which offsets each other. • Graduate Division did not perform a complete expense transfer. Net expense transfer in June (includes YTD expense transfer + June expense) 11 months of gross expense 34

  35. Fee Remissions 35

  36. Fee RemissionsRecommendations • Using automated spread rules is not recommended • Your fee remission budgeting method depends on which option you chose in 2009/10 for benefits • If you budgeted based on expenses being transferred out and you actually received funding to offset the expense, this would be a reasonable variance explanation. • If #3 happens, you will probably want to look at 2010/11 results by removing funding and expenses related to fee remissions (which should offset one another). 36

  37. Adjustments to the Unexpended Balance2009/10 Budget Vs Actual Results 37

  38. Adjustments to the Unexpended Balance • Many organizations have no such activity • Occurs primarily in Sales and Service and Auxiliary funds • Types of transactions: • Debt/bond payments • Expenses or revenue not recorded in account structure • Large transfers between organizations • Can be material to the financial results of an organization • Entries usually vary from year to year • Since activity varies greatly, even spread or spread based on last year probably not viable for CBIG budgeting 38

  39. Adjustments to the Unexpended Balance2009/10 Budget Vs Actual Results 39

  40. Adjustments to the Unexpended BalanceWhat does the ledger look like? Carryforward = $217,920 Total of adjustments = $93,213 Break apart carryforward and adjustments as two separate entries in CBIG. 40

  41. Other Financial Activity • All other costs may be good candidates for even spread • If you get salaries, benefits, fee remissions, adjustments to unexpended balance, major equipment purchases correct you have assured most of budget is sound. • Make sure to reduce appropriate costs for 5% budget reduction • Carefully consider sales and service funds. Revenue may be lower due to volume reductions (volume sensitivity due to economic conditions) 41

  42. Fund Swaps • Occur at year-end at the discretion of APB or organizational level units • Used to align 19900 needs (or other available resources) with other funding sources • Not predictable • Since swaps occur at year-end, does not currently impact mid-year variance reporting • When year-end variance reporting starts, variance explanation is simple: “A fund swap occurred” and state which fund sources in your organization are involved 42

  43. Contracts and Grants • Budgeted in total in CBIG • Important to project overhead recovery • Estimate increase in total revenue realized on ledger • % increase over previous year • Utilize spread based on last year • Some units budget based on “what you spend equals revenue” • Not accurate approach to budgeting contracts and grants • Recall we are trying to “predict the ledger” • Most likely will be budgeting a June, 2010 surplus in contracts and grants 43

  44. Gift and Endowments • Budgeted in total in CBIG • Need to estimate how much more or less in fund transfers from Foundation will be used in 2009/10 • Utilize spread based on last year • Review gift/endowment funds for untapped opportunities • Campuswide surpluses in unused gift/endowment funds • Review restrictions on funds 44

  45. Budgeting in a “Down Cycle” • Make sure to account for budget reductions. • Rebalancing: 2009/10 saw a reprieve in the planned utility/maintenance rebalancing recharges. Need to budget rebalancing utility/maintenance for 2010/11. • Wage reductions in July-August (non-represented) and July-December (represented) • Concentrate on wages, benefits, fee remissions, adjustments to unexpended balances, large equipment purchases • Be very careful using spread based on last year • Don’t assume the spread is correct even though you’ve “pushed the button” • Make sure to check your final budget for reasonability 45

  46. Reminders • Make sure to take into account one-time or temporary-continuing allocations in funding and expenses • Could be from Chancellor, Vice Chancellor, Dean, or Department Chair • Notations in CBIG may be useful to track this type of financial activity • Budget for new funding sources • New Differential Fee Funds • New Course Material Fees • Include any new funding source already established on the ledger 46

  47. Reminders • Ledger data is being loaded into CBIG on a monthly basis. If you want to use the CBIG reports on a monthly basis, create your budget on a monthly basis. (Quarterly is required.) • CBIG reports have two orientations: vertical and horizontal Let’s look at what you can see on a 12-month CBIG variance reports by looking at it with two different perspectives. 47

  48. Variance Analysis: Materiality • Basis for Variance: Total modified funds, Ending Balance at organization level, 5% or $250K • We want high level explanations • Don’t explain small variances. Pick the large variances and provide substantive reasons (by department, by project, etc.) • Common explanations: • “Budget will catch up by the end of the year” (timing) hasn’t been true for many organizations • “We budgeted incorrectly” should be becoming less frequent • “We pressed the spread button” translates to the creator not reviewing the budget before submission • Please help us avoid rigorous, by-organization review by Pricewaterhouse Coopers 48

  49. Budget to Actual Variance Analysis(Horizontal) 49

  50. Variance Analysis: Revenue(Horizontal) • Temporary budget reduction accounts for approximately $250K of variance • Remaining variance due to overestimation of revenue by four departments 50

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