Student Affairs Buying 101

1. Student Affairs Buying 101 Topic 4 Budgets, Accounting, and Timelines Students First 4-01

2. Student Affairs Buying 101 Budgets, Accounting, and Timelines Topic Objectives To provide an overview of . . . • The importance and use of budgets • The accounting structures used to record purchasing-related transactions • The importance of segregation of duties • The Budget-to-Actual accounting report known as the “90 report” • Key budget, accounting, and purchasing-planning timelines Students First 4-02

3. Student Affairs Buying 101 Budgets, Accounting, and Timelines Importance and Use of Budgets Budgets are a key management tool that help • Allocate scarce resources (money and people) to institutional priorities • Ensure effective fiscal planning and management of resources • Identify accounting effectiveness or shortfalls • Communicate authorized spending levels See Appendix F for Budget Information. Student Affairs auxiliary budget information is available at: http://studentaffairs.osu.edu/intranet/fiscal/reports.asp Students First 4-03

4. Student Affairs Buying 101 Budgets, Accounting, and Timelines Importance and Use of Budgets Budgets are established at each institutional level. University State BOT At each institutional level . . . • Prepares budget • Provides budget to higher level for review • and approval • Reviews budget to actuals to ensure • compliance with budget • Establish & communicate institutional • resource priorities • Provides planning guidelines and • requirements • Reviews budget of lower level units • and communicates approvals • Reviews budget to actuals to ensure • compliance with budget Students First 4-04

5. Student Affairs Buying 101 Budgets, Accounting, and Timelines Importance and Use of Budgets Budgets are established at each institutional level. Student Affairs Units University (RPIA) Student Affairs At each institutional level . . . • Prepares budget • Provides budget to higher level for review • and approval • Reviews budget to actuals to ensure • compliance with budget • Establish & communicate institutional • resource priorities • Provides planning guidelines and • requirements • Reviews budget of lower level units • and communicates approvals • Reviews budget to actuals to ensure • compliance with budget Students First 4-05

6. Student Affairs Buying 101 Budgets, Accounting, and Timelines Importance and Use of Budgets Within Student Affairs • Each department has a budget that is reviewed and approved by the Vice President of Student Affairs (through the Associate Vice President – Bill Schwartz) • The Student Affairs budget must comply with budgetary requirements established by the University • Once approved by the University (RPIA), becomes a large part of the University’s budget • The University’s budget is then reviewed and approved by the Board of Trustees • The University’s budget then becomes a part of the State’s overall budget Students First 4-06

7. Student Affairs Buying 101 Budgets, Accounting, and Timelines Importance and Use of Budgets The Budget-to-Actuals tell us . . . • If we are generating the intended income • If we are staying within our spending constraints • If we are managing our operations effectively by establishing a plan and sticking to it • If we must take action to restructure operations or transfer funds to help bring an • operation within its budget See Appendix G for example accounting reports. Students First 4-07

8. Student Affairs Buying 101 Budgets, Accounting, and Timelines Importance and Use of Budgets What happens at HOME if we don’t achieve our budget in terms of income or if we over spend? • We can cut our spending, or • Take on another job or work over time, or • Move money from savings What happens at OSU if we don’t achieve our budget? Generally, because most of our operations are not permitted to lose money . . . we • Reduce our level of service and programs (remember our mission), or • Take money out of our savings or reduce our planned savings - which impacts our future operations, or • Take money from other Student Affairs operations to make up the difference Students First 4-08

9. Student Affairs Buying 101 Budgets, Accounting, and Timelines Importance and Use of Budgets The University reviews our budget-to-actuals and if our operations run “negative,” we must provide explanations and identify our remediation steps or actions. Why is the budget important for buying? • With buying, we are spending the University’s/Public’s money. • Buying is a significant portion of our overall expenses. Students First 4-09

10. Student Affairs Buying 101 Budgets, Accounting, and Timelines Importance and Use of Budgets Effective budgets require an effective accounting (or bookkeeping) system so that we consistently record revenues and expenses in an appropriate manner. Students First 4-10

11. Student Affairs Buying 101 Budgets, Accounting, and Timelines Accounting Overview As discussed earlier, the University is required to implement specific accounting requirements and controls, such as: • Use of generally accepted accounting principles • Provide a number of fiscal reports and information to various State agencies, • vendors, employees, investors, donors, federal agencies, and etc. • Various accounting controls, such as • Budgets • Segregation of duties . . . So, to understand our budgets, we must have a basic understanding of the accounting system that has been implemented by the University. Students First 4-11

12. Student Affairs Buying 101 Budgets, Accounting, and Timelines Accounting Overview In July 2000, the University implemented its PeopleSoft accounting system that combined the following business processes/modules: General Ledger Reports BRIO/Hyperion Accounts Payable Human Resources Asset Management Others Purchasing The General Ledger is the accounting hub of these primary systems. For example, if your operation purchases new furniture, the purchasing information is recorded in the Purchasing module and the “encumbrance” amount is sent to the General Ledger. When the furniture comes in, it is recorded in the asset management module. When the invoice is received and matched to the purchase order and receiving document, the invoice is processed for payment as a voucher in the Accounts Payable module, which then pays the vendor and records the actual expenses in the General Ledger. Anyone having access to the PeopleSoft system, should have access to the Brio/Hyperion (web-based) accounting reports. Students First 4-12

13. Student Affairs Buying 101 Budgets, Accounting, and Timelines Accounting Overview With the implementation of the PeopleSoft accounting system, an accounting structure was established across the university that segmented the “account” into more than six segments. [The combined accounting segments is referred to as the “chartfield”.] • *^Fund – 6 digits – identifies the source or purpose of the monies (consider this as the home checking or savings account) • *^ORG – 5 digits – identifies the organization or department for which the transaction originated. At home, this may be the spouse that is making the purchase or writing the check. • ^Program – 5 digits – identifies transactions for additional tracking purposes for the fund or organization. For example, in Student Affairs, we use a program number to track the expenses associated with “Move In” * As a minimum, each accounting transaction must include Fund, ORG, and Account. ^ For budget purposes, Student Affairs budgets for Fund, ORG, Program, and Account. (Account Structures continued on next page) Students First 4-13

14. Student Affairs Buying 101 Budgets, Accounting, and Timelines Accounting Overview Account Structures (Continued) • Project – Up to 15 digits – provides additional information. A project must have a definite start and end date. Student Affairs uses project numbers to track expenses for various renovation/construction projects. • User Defined – Up to 6 digits – Allows additional detail tracking of transactions, generally used at the department level. • *^Account – 5 digits – identifies the specific types of assets, liabilities, equity, revenue, or expenses for the transaction. * As a minimum, each accounting transaction must include Fund, ORG, and Account. ^ For budget purposes, Student Affairs budgets for Fund, ORG, Program, and Account. Students First 4-14

15. Student Affairs Buying 101 Budgets, Accounting, and Timelines Accounting Overview Key Account Numbers Balance Sheet Accounts: • 1xxxx – Assets (e.g., cash, accounts receivable) • 2xxxx – Liabilities (amounts we owe others) • 3xxxx – Equity (the actual cash value of the operation – what is left after we • subtract the liabilities from the assets). (Retained Earnings) Income Statement Accounts: • 4xxxx – Revenues (money that we receive for our goods and services) • 6xxxx – Expenses (money we have paid for our payroll, goods and services) Net Income = Revenue - Expenses Net Income is added (subtracted) to/from Equity. At the end of the fiscal year, the total Net Income is moved to equity. Revenue and expenses begin again at zero for the new fiscal year. Students First 4-15

16. Student Affairs Buying 101 Budgets, Accounting, and Timelines • Items purchased that do not use the appropriate chartfield are possible indications of the following issues/problems: • Incorrect Fund – it is possible that the expense is not permitted for the fund that is used. • Incorrect ORG, Program, or Account – inaccurate accounting and budget matching. • Incorrect Project – project expenses may be recorded incorrectly, therefore, providing inaccurate capital improvements information which may lead to inaccurate university depreciation calculations. • If any of the above – these may be indications of insufficient management reviews (monitoring) and controls. Students First 4-16

17. Student Affairs Buying 101 Budgets, Accounting, and Timelines Accounting Overview Why is the accounting information important for buying? Whether we • Create a purchase order • Travel • Process a reimbursement • Use our Procurement Card • Purchase items from Stores • Create a requisition If we do not properly record the expense (from the initiation of the transaction): • Any payments made will be recorded to an inappropriate chartfield • Problem identification and corrections will be required (this takes away valuable time) • (In FY06 Business Office generated 13,394 JE lines, with 4,132 (30.8%) being corrections for various operations) • Current and future comparisons with budget to actuals may by misleading or incorrect • Financial/Business decisions at multiple levels may be made based on incorrect • information • We may not be in compliance with Generally Accepted Accounting Principles • Because we do pay taxes (unrelated business income tax, sales tax) and overhead to • the university, we may not be in compliance with tax requirements or we • may be losing money, needlessly Students First 4-17

18. Student Affairs Buying 101 Budgets, Accounting, and Timelines Accounting Overview What is the difference between an Actual Expense and an Encumbrance? Actual Expense – the amount we actually paid for the goods and services (the amount of the check) Encumbrance – the amount of our commitment that has not yet been expensed (paid). For example: When a purchase order is created, the purchasing module provides the commitment amount (encumbrance) to the general ledger. By reviewing our various accounting reports, we can see the amount remaining in the budget. When the item is paid, the encumbrance amount for that item is reversed. By accurately identifying our purchase order amounts we should be able to fairly accurately predict the budget amount remaining. Students First 4-18

19. Student Affairs Buying 101 Budgets, Accounting, and Timelines Accounting - Segregation of Duties Segregation of Duties -- assigning incompatible duties or functions to separate people to provide reasonable assurance against fraud and provide an accuracy check of the other person’s work. Required by GAAP to help ensure the integrity of the financial information, and more importantly, to protect the integrity of our staff. Two Key Rules for Segregation of Duties: • The individual purchasing or receiving the items is not the individual that authorized the purchase. • The individual that enters the transaction into PeopleSoft is not the individual that reconciles the general ledger to the supporting documentation. Students First 4-19

20. Student Affairs Buying 101 Budgets, Accounting, and Timelines Accounting - Segregation of Duties The individual purchasing or receiving the items is not the individual that authorized the purchase. WHY? • To protect the individual/unit by helping to ensure that items being paid by public • funds are needed, and will be used appropriately within the organization. • The operation may not be getting the best goods and services for the best price. • The operation may not have the budget (funds available) for the purchase. • A majority of buying-related fraud is a direct result of unauthorized purchases. • Examples: • Items could be purchased from a family member or other relationship (conflict of interest). • Items could be shipped to the employee’s home address and never received. • The person placing the order may be receiving a “kick-back” by the vendor. • (many others) Students First 4-20

21. Student Affairs Buying 101 Budgets, Accounting, and Timelines Accounting - Segregation of Duties The individual that enters the transaction into PeopleSoft should not be the individual that reconciles the general ledger to the supporting documentation. WHY? • Reconciliation is a primary control to ensure that what was received and paid-for • is appropriate and properly recorded. • If the individual that entered the transaction (e.g., purchase order/requisition) makes • a mistake, it is less likely to be caught and corrected. • A frequent purchasing-related fraud may happen when a buyer creates a purchase order • (or etc.) that is unapproved and has the items sent directly to a friend or their home. • It is the reconciliation that would help identify this. By ensuring that the individual that enters the transaction into PeopleSoft is not the one who reconciles the transaction to the general ledger and supporting documentation, we help protect our employee by ensuring that these types of transactions should not occur. Students First 4-21

22. Student Affairs Buying 101 Budgets, Accounting, and Timelines Reporting How do you know the financial status (actual vs. budget) for each operation and account? General Ledger Reports Extract Data Stu. Affs. Data Bases Stu. Affs. Reports BRIO/Hyperion • Options: • Contact your fiscal support staff • Obtain the reports directly from BRIO/Hyperion • Use the custom reports provided on the Business Office web pages, located at • http://studentaffairs.osu.edu/intranet/fiscal/ Intranet See list of financial training courses provided by the university for additional information on reporting. Students First 4-22

23. Student Affairs Buying 101 Budgets, Accounting, and Timelines Timelines By understanding the timing for accounting, budgets, and procurement activities, we should be able to anticipate and plan our activities, purchases, and support our staff. Students First 4-23

24. Student Affairs Buying 101 Budgets, Accounting, and Timelines Accounting Timelines • Fiscal Year – ends on June 30th and the next fiscal year begins on July 1st. • Fiscal Year Close – the university generally establishes around July 20th as the final • close for the fiscal year. Therefore, at the end of the fiscal year, through around • the 20th of July, most of the accountants and fiscal staff members are extremely • busy ensuring all entries are loaded into the general ledger for year end. • Monthly Final Close – the final month-end close is the end of the 5th working day • following the end of the month; after this, the prior month’s fiscal reports are • complete and ready for review. Students First 4-24

25. Student Affairs Buying 101 Budgets, Accounting, and Timelines Let’s take a look at an example of budgets and the impact of NOT staying within the approved budget. Students First 4-25

26. Student Affairs Buying 101 Budgets, Accounting, and Timelines Budget Impact Situation: Students First 4-26A

27. Student Affairs Buying 101 Budgets, Accounting, and Timelines Budget Impact Situation: Situation: XYZ Food Operation If supplies cost $40 for the month instead of $30, how much NEW revenue is required to cover this $10 expenditure overage to bring us back to the desired $31.50 Net Income? Assume that we do not need to collect any taxes on the new sales. Which is the most correct answer? A. $10.00 of new sales to cover the difference. B. $11.53 of new sales to cover the difference. C. $22.83 of new sales to cover the difference. D. $23.53 of new sales to cover the difference. Students First 4-26B

28. Student Affairs Buying 101 Budgets, Accounting, and Timelines Budget Impact Situation: Students First 4-26C

29. Student Affairs Buying 101 Budgets, Accounting, and Timelines Budget Impact Situation: Students First 4-27D