Financial Fundamentals

1. Financial Fundamentals AM 570 Overview of Fund Accounting, Revenue Sources and Use Restrictions

2. Welcome Janet A. Parker, Associate Vice President – Financial Affairs Oversight for – Controller’s Office: Accounting, Payroll, Disbursements & Travel, Grants & Contracts Financial Services Financial Services & Capital Assets Budget Planning & Development Management Reporting & DEFINE

3. Welcome Janet A. Parker, Associate Vice President – Financial Affairs Higher Education Experience – 3 Yrs Colorado State University 10 Yrs University of Alaska, Anchorage 1 Yr University of So California, Information Sciences Institute 9 Yrs Cal State Univ, Long Beach 4 Yrs UTSA

4. Course Objectives • Fund Accounting Principles • Revenue Sources • Fund Use Restrictions • Chart of Accounts • Reporting Expenses • How Higher Education is Funded • UTSA Budgeting

5. Fund Accounting Principles • Why fund accounting? • Universities have unique obligations for accounting and financial reporting according to the sources of funds received and their subsequent net uses than just reporting net income to investors.

6. Fund Accounting Principles • What is fund accounting? • Method of segregating resources into categories to identify both the source and use of the funds. • Fund accounting principles used in higher education require that income be reported based on funding source and expenditures be reported based on function (use).

7. Objectives of Fund Accounting • Accountability & stewardship • Did we use the funds in the way instructed? • Have we documented that the funds were used properly?

8. Objectives of Fund Accounting 2. Determining financial condition • How much can we do with the resources we have? • What is the value of our buildings & other assets? • What is the financial impact of maintaining/replacing other assets?

9. Fund Accounting Principles 3. Planning and budgeting • What should we do with the funds we have? • How much do we need to do the job right?

10. Fund Accounting Principles 4. Evaluating organizational and managerial performance • Are we accomplishing the objectives for which we received the funds? • What did the program/activity actually cost? • Are we operating effectively and efficiently?

11. Fund Accounting Principles 5. Determining / forecasting cash flow • How much cash is coming in, how much is going out and how much do we need for contingencies?

12. Fund Accounting Principles 6. Communication • Are we communicating financial information to all with the need to know? • Is the financial information relevant, clear, reliable, timely and comparable?

13. Definitions FUND • A segregation of resources established to control and monitor resources and to help ensure and demonstrate compliance with legal/adminstrative requirements.

14. Definitions FUND BALANCE • Equity within a fund Assets = Liabilities + Fund Equity Also known as Net Assets, or Capital, or Net Worth.

15. 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.

16. Six Basic Fund Groups • CURRENT FUNDS • PLANT FUNDS • ENDOWMENTS & SIMILAR FUNDS • ANNUITY AND LIFE INCOME FUNDS • LOAN FUNDS • AGENCY FUNDS

17. Current Funds A group of funds expendable for operating purposes in support of the institutional mission; expected to expended in the near term. • Unrestricted • Restricted • Designated

18. University Fund Groups State Funds Designated Funds Auxiliary Enterprise Funds Restricted Funds Plant Funds Loan Funds Agency Funds Major Capital projects are not part of the operating budget These are not part of the operating base budget.

19. Current Funds at UTSA Fund 14 – Educational and General Technically unrestricted although some appropriations may be restricted by Education Code or the General Appropriations Act Revenue Sources: • State appropriations • Statutory tuition • Student fees • State paid benefits • Texas Higher Education Coordinating Board transfers • Designated funds transfer

20. State Funds General Revenue - State Appropriations Formula Funding Special Items Group Health Insurance / Proportional Benefit Cost Sharing GR-Dedicated Statutory Tuition Lab Fees and Private Music Instruction Texas Higher Education Coordinating Board (THECB) Transfers: Texas Grant Work-study Performance Incentive Funding Texas Research Incentive program (TRIP)

21. Educational & General Funds at UTSA Sources of Funds • General Revenue = State Appropriations • General Revenue-Dedicated = Statutory Tuition & Certain Fees • THECB Transfers = Texas Grant & Work Study, Higher Education Incentive Funds • Designated Funds = ~ $48.2M of the FY 2010 E&G budget is a transfer from designated tuition & other revenue State Funds Local Funds

22. Current Funds at UTSA Fund 19 – Designated funds Technically unrestricted although some fees or transfers may be restricted by policy Revenue Sources: • Designated tuition • Student fees • Facilities & Administrative overhead recovery • Transfers from statutory tuition to fund Texas Public Education Grants • Miscellaneous revenue

23. FY 2011 Designated Fund Revenue Sources

24. Designated Tuition (DT) • Tuition collected locally; not considered a funding source for the formula • Before 2003 was the same rate as Statutory tuition until the Texas State legislature ‘deregulated’ DT to make up for declining state revenue • Rates are approved by the Board of Regents (not legislature) and vary by institution FY10 = $120.85 / SCH FY11 = $131.75 / SCH FY12 = $142.75 / SCH

25. Designated Tuition (DT) • Used for need-based financial aid • 20% of the amount collected from paid resident UG and 15% from resident GR over $46/SCH is set aside for student financial aid. • Very important revenue stream to support UTSA’s growth given the amount of state funds received per FTE Student as compared to other UT institutions

26. Mandatory & Incidental Fees New fees and or changes to fee amounts are approved for 2 years by Board of Regents in Spring • New rates go into effect the 2nd year of the budget biennium (odd years). • Revenue must be spent in accordance with the approved purpose and Texas Education Code. Mandatory Fees • Paid by all students. • New fees and/or fee rate changes must be approved by the Board of Regents (BoR) Incidental or College/Course Fees • Assessed when good/service is used or based on enrollment in a course or college. College/course fees are part of the Total Academic Cost formula.

27. Current Funds at UTSA Fund 18 – Service Centers Breakeven “charge back” operations when authorized to provide goods & services for internal customers; cost principles must be followed for OMB Circular A-21 compliance. All customers must be charged the same rate. Technically, unrestricted. Revenue Sources: • ALL FUNDS

28. Current Funds at UTSA Fund 29 – Auxiliary Enterprises An auxiliary enterprise is an entity that exists predominantly to furnish goods or services to students, faculty, or staff, and that charges a fee directly related to, although not necessarily equal to the cost of the goods or services. The general public may be served incidentally by some auxiliary enterprises. We also refer to them as self-supporting and are technically unrestricted. Revenue Sources: • Revenues recovered from charges for goods or services. • Mandatory student fees – Athletics, University Center & Recreation Center.

29. Current Funds at UTSA Fund 26 – Sponsored Grants & Contracts Restricted usage based on agreement between sponsor and UTSA. Usage of federal funds are subject to OMB Circular A-21 compliance and other restrictions in federal law that may apply. Revenue Sources: • Federal • State • Local • Private

30. Current Funds at UTSA Fund 30 – Gifts Technically restricted, however usage may be for discretionary purposes based on intentions of the donor. Revenue Sources: • Private • Distributions of Endowments invested by UTIMCO

31. Plant Funds at UTSA Fund 36 – Plant Funds Used to record construction or acquisition of capital assets - normally exceeding $100,000 in total. Will also include renewal & replacement projects. Revenue Sources: • Designated funds (Cash) • Bond Financing • Private (Donations) • Grants & Contracts (Sponsored programs) • Distributions from Permanent University Fund • Auxiliary Enterprise Revenue NEVER STATE APPROPRIATIONS

32. Agency Funds at UTSA Fund 41 – Agency Funds Used to record funds held by UTSA for outside groups that have a close relationship with the university. These funds do not belong to UTSA and are not reported in our financial statements. Revenue Sources: • Student clubs and organizations • 3rd Party vendors who need to use campus services – e.g. Follett

33. Loan Funds Fund 32 – Loan Funds Are used to record activity on funds available for loans to students. Revenue Sources: • Texas Public Education Grants (technically sourced from statutory tuition) • Federal/State programs • Gifts

34. Transfers within a fund group (Intrafund Transfers) • Intrafund transfers are generally allowed but may be prohibited between certain revenue sources. • Is the use of the revenue restricted? • Will the transfer affect reporting?

35. Intrafund Transfers • When allowed, intrafund transfers can be permanent or temporary. • Temporary transfers affect the current year only. • Permanent transfer permanently move monies from one budgeted account to another. • You can’t process a permanent transfer if the account has no available original budget.

36. Transfers between Funds (Interfund Transfers) • Can we transfer money between fund 14 E&G and fund 19 Designated? • Yes, but only if the account you are transferring from / to doesn’t have any usage restrictions. • Example: between two accounts funded by Designated Tuition is okay but between a state appropriated Special Item and a student fee account is not okay.

37. Fund Swapping • Because the E&G fund has a budgeted transfer from designated funds, we facilitate authorized transfers between 14 and 19 accounts by ‘swapping’ funds. • Process managed by the Budget Office • Eliminates the need to process multiple interfund transfers (that require several steps to record.)

38. Interfund Transfers • Can we transfer money between fund 14 E&G and fund 29 Auxiliary Enterprises? • NEVER

39. Interfund Transfers • Can we transfer money between fund 14 E&G and fund 18 Service Centers? • Yes, as a funding source to pay for goods or services used by the 14 account or to refund for goods or services returned or incorrectly billed.

40. Interfund Transfers • Can we transfer money between fund 30 Gift and fund 19 Designated accounts? • NEVER

41. Interfund Transfers • Can we transfer money between fund 29 Auxiliary Enterprise and 36 Unexpended Plant fund accounts? • Yes, when these revenues are funding capital projects, e.g. new parking garage.

42. Interfund Transfers • Can interfund transfers be permanent?

43. Questions about fund accounting, revenue sources or related subjects?

44. Chart of Accounts DEFINE Account structure – users assign expenditures to a 10 digit code: FF-XXXX-XX-SS 1st 8 digits referred to as a BUDGET GROUP FF = Fund (e.g. 14-) XXXX-XX = Unique identifier (e.g. 0240-00) SS = Subaccount (e.g. -50 M&O) to group expense classifications

45. Chart of Accounts Other chartfields: • Object codes – detailed expense categories for reporting • NACUBO program codes – functional expense classifications tied to budget groups and or subaccounts • Unit codes – groups multiple budget groups to an organizational area or manager

46. Reporting Expenses – Functional Expense Classifications • A functional expense classification is a method of grouping expenses according to the purpose for which the costs are incurred. • The classifications tell why an expense was incurred rather than what was purchased. Reporting expenses this way helps stakeholders understand the various mission-related activities and their relative importance.

47. Reporting Expenses – Functional Expense Classifications • Primary functional expense classifications - Instruction Research Public Service Academic Support Student Services Institutional Support Scholarships and Fellowships Auxiliary Enterprises Operations & Maintenance of Plant

48. Reporting Expenses – Natural Expense Classifications • A natural expense classification is a method of grouping expenses according to the type of costs that are incurred. • The classifications tell what was purchased rather than why an expense was incurred.

49. Reporting Expenses – Natural Expense Classifications • Included are: • Salaries & Wages (can be further broken into categories of employee types) • Employee Benefits • Utilities • Supplies • Travel • Scholarships and fellowships • Services

50. Fund Accounting & Financial Reporting UT System requires regular monthly & annual financial reports Annual Financial Report: Balance Sheet Statement of Revenues, Expenses & Changes in Net Assets Statement of Cash Flows Miscellaneous Supporting Schedules Annual Sources & Uses Analysis of Financial Condition