Fund AccountingJim CorkillAccounting Services & ControlsNovember 2011

AgendaGoals/Objectives DefinitionsFund GroupsBudgetingFinancial Statements

GoalsConcepts of fund accountingUnderstanding the various fund groupsHow are we different than a profit organization?

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.

Objectives of Fund AccountingDemonstrating accountability and stewardshipDetermining financial conditionPlanning and budgeting

Objectives of Fund AccountingEvaluating organizational and managerial performanceDetermining/forecasting cash flowCommunication

DefinitionsFund: A fund is a segregation of resources established to control and monitor resources and to help ensure and demonstrate compliance with legal/administrative requirements.

DefinitionsFund 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 AccountsHow do we track the sources and uses of funds?

DefinitionsFund 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 GroupsSix basic fund groups:Current FundPlant FundEndowment & Similar Funds GroupAnnuity & Life Income GroupLoan FundAgency Fund

Current FundGroup of funds expendable for operating purposes in support of the institutions mission; expected to be expended in the near term. Unrestricted Restricted Designated Funds

Current FundUnrestricted 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 FundRestricted 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 FundDesignated Current Funds: Unrestricted funds the governing body designated for a special purpose.

Examples: Special State AppropriationsTobacco ResearchBreast 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.

Plant FundThe 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 FundUnexpended 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

Plant FundRenewal 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.

Plant FundInvestment 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.

Discussion #1For each transaction or situation, name the correct fund (Current or Plant) where it should be recorded.

Endowment & Similar FundsThis 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 FundsThere are four types of endowments:1)True Endowments (or Permanent Endowments):Donors have stipulated that the principal of the gift is to remain in perpetuity and is to be invested for the purpose of producing present and future income.

Endowment & Similar FundsFour types of endowments, contd:2)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.

Endowment & Similar FundsFour types of endowments contd:3)Funds Held in Trust by Others:These are funds derived from private gifts and bequests that are held in trust for investment by outside trustees, and the University is designated as the income beneficiary.

Endowment & Similar FundsFour types of endowments contd:4)Living Trusts, Annuity Trusts, and Unitrusts:These are donations where the terms stipulate that income must be paid to a designated beneficiary for a specified period, which in most cases is the duration of the beneficiarys life. At the end of the specified payment period, income from these funds reverts to the University.

Annuity & Life Income FundsAnnuity: Institution is obligated to pay stipulated amounts periodically to the donors beneficiary. When the agreement terminates, the remaining funds become property of the institution.

Annuity & Life Income FundsLife 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 #2Your 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?

Loan FundUsed to record activity on funds available for loans to students, faculty, and staff.

Examples include:Student Financial Aid Loan FundFaculty Home Mortgage LoanStaff Emergency Loan Fund

Agency FundUsed 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 FundExamples:Scholarship fundsFraternities and sororitiesThe UCSB FoundationUCSB Alumni Association

Agency FundAccounting for Agency AccountsTransactions 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 FundAccounting for Agency AccountsDuring 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.

Financial Transfers Between Fund GroupsMandatoryNon-MandatoryTemporaryPermanent

BudgetingBudgets 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.

BudgetingBudget entries are the reverse of financial entries: Revenue entries are budgetary debits. Appropriations to expenditure accounts are budgetary credits.

EncumbrancesIn 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.

EncumbrancesWhen 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.

Financial StatementsInternal UsersManagersAnalysts/Internal AuditorsExecutive Campus Mgmt.Office of the PresidentRegentsExternal UsersExternal AuditorsCreditors/LendersState GovernmentOther CollegesGranting AgenciesPurpose: To communicate financial condition and operating results.

Financial StatementsWhat do users want to know?Is the institution financially healthy?Is the institution financially better off or not at the end of the year than it was at the beginning?How does the institution compare with others?Can the institution repay debt it may be taking on?

Questions