Transcript Accounting, finance, budgets

Budget Overview
Kathy Qualls
Sr. Vice Provost for Academic
Finance and Administration
Goals
• Help you understand the larger University Budgeting
Process
• Discuss PBB
• Talk about local budget responsibilities and share some
concepts that may help you manage your budget
Mission
Vision
Strategic Plan
Long Range Forecast
Operational Plan
Annual Budgets
Annual Budgets
• Operating Budget - current revenues and
expenses
• Capital Budget - major equipment,
renovation, and/or new construction
How Budgets are Built
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Bottom Up vs. Top Down
Zero Based/Modified Zero Based
Formula
Incremental
Performance Based
Incremental at UC
• Determine changes to prior year actuals
• Include estimates for revenue increases or decreases
– Tuition increase or decrease
– Reduction or increase in state support
– Increase or decrease in tuition discount (scholarship)
• Includes estimates for expense increases or decreases
– Mandatory increases, utilities, new leases (U Square), debt
funding, athletics, diversity initiatives, strategic initiatives,
academic support
Incremental at UC
• Calculate all the changes
• Nets to a positive or a negative
• Distribute the positive (only in theory)
• Collect the negative (a re-allocation or a cut)
Incremental at UC
• Budget vetted with University governing
groups
• Deans asked to begin planning on how
to manage the threshold amount
• College and Unit Budget Presentations
to VPs
• VP area Presentations to the President
Other Budget Drivers
Direct and Indirect or Central vs. Local
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Enrollment
Tuition/Fee Rate Increases
Tuition Discount Rate/ Scholarships
External (State) Funding
Endowment Spending Rate
Annual (Unrestricted) Contributions
Payroll/ Fringe Benefits
Faculty Teaching Load
Other Budget Drivers
Direct and Indirect or Central vs. Local
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Faculty to Student Ratio
Debt Service
Maintenance Expenses/Utility Costs
Technology
Auxiliary Enterprises
Depreciation
Indirect Cost Recovery
Budget Officer Goals
• Institution has a balanced budget – revenues are equal to
or greater than expenses
• Resources are allocated in the budget for accomplishing
strategic initiatives
• Projected rates of change in revenues and expenses are
approximately the same – close matters
• Endowment use is limited to preserve purchasing power
– consider the future
• Budget must provide for renewal and replacement of
physical plant and equipment
Old Budget Process – Pre PBB
• Colleges Projected Student Enrollment – IEP
Process
• Budget Office used projections to estimate
revenue
• Estimated budget expense needs (re-allocation)
developed
• Assigned cuts based on the gap of revenue to
expense
How the cut actually worked
• Cut (even when it was a re-allocation) amount
was
– Assigned across the board
• As a percent of base budget
• All colleges and units treated the same – reduce
the budget
– Salary line
– Non-salary line
Impact on Colleges
• Actual performance against
enrollment projections didn’t matter
– If you grew – you took the cut
– If you shrank – you took the cut
What Drives PBB
• University Budgeting Process and
Institutional Financial Decisions
• PBB does not drive the budget decisions
• PBB is a budget management tool
• Like any other tool, it can be used poorly
or wisely
PBB at UC
• PBB is about revenue accountability and is not intended
to measure all types of performance
– We have always had expense accountability
• Revenue budgets are established and based on the prior
year actual
• Distributes revenue to the generating unit/college
• Units share in the surplus revenue over budget
• Units held accountable for revenue shortfalls
PBB
• Major shift in philosophy
– University Budget built on flat enrollment
– Colleges assigned a revenue target
• Based on their individual actual enrollment revenue from the
previous year
– Colleges assigned a threshold share
• Their share of the re-allocation amount
PBB Rules
• Revenue (Instructional Fee and O/S
surcharge) is attributed to the College of
Major
• Colleges pay a transfer price to those who
teach their majors
• Colleges can meet threshold share by
using revenue surplus (growth)
• Or by reducing spending and giving up
perm budget
PBB Rules
• If a College is on target to exceed the revenue target,
they can overspend their perm budget by up to 5% (with
permission), but must have sufficient growth to cover.
• Surplus Revenue (after 5% rule) is split 50% College
50% Provost – results in new Perm Budget
• Missing your revenue target results in expense budget
cut - College is held accountable for their target. Remember, target is the same as last year’s actual
– Growth decision is made by the Dean, not forced
Empowerment
• Deans can now use multiple strategies
– Revenue growth
• Increased Retention
• Increased Enrollment
• New Certificate Programs or degrees
• Market driven courses, i.e., Music of the Beatles
– Expense Reduction – requires a review of existing
practices – efficiency measures – right sizing
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Aggressive course management
Teaching load considerations
Vacant position
Cost cutting
Layoffs
Expectations
• Make strategic enrollment decisions that are consistent
with the Academic Goals - and not at the expense of
quality or another College.
• Manage the Finances of the college and maintain a
balanced budget
Budget Data Organization
• By Object – salaries, benefits, operating expenses
• By Program or Function – Instruction, Research,
Public Service, Academic Support, Student Services,
Institutional Support, Operations Maintenance,
Scholarship Fellowship, Auxiliary, Hospital
• By Fund Types – Unrestricted, Designated,
Restricted Expendable Endowment, Restricted Gifts,
Grants, Restricted State Appropriations, Agency,
Loan, Plant Endowment
Fund Types at UC
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A1 Unrestricted Undesignated
B1 Unrestricted Allocated
C1 Unrestricted Auxiliary Operating
D Unrestricted Designated Funds
– D1 Unrestricted Designated General
– D6 Unrestricted Designated Service Centers
– D7 Unrestricted Designated Overhead
– D8 Unrestricted Designated Internal Borrowing
Fund Types at UC
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E1 Restricted Expendable Endowments
F1 Restricted Gifts
G Restricted Grants/Contracts
H1 Restricted State Appropriations
J1 Agency
L1 Loan
P Plant
Fund Types at UC
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R Endowments – UC
S Endowments – UC Foundation
T Endowments – Other Trustees
U1 Annuity and Life Income
Endowment Definitions
• True Endowment – Funds received from external donors with the
restriction that the principal or gift amount is to be retained in perpetuity and
cannot be spent. The purpose is to generate investment income that can be
spent for a specific purpose as designated by the donor.
• Term Endowment – All or part of the donated principal may be spent
after the expiration of a stated period of time or occurrence of a specified
event. Terms and limitations are controlled by the donor.
• Quasi Endowment – Can be established by the University.
The source
of the funds will dictate any restrictions that may apply. The fund carries all
of the same restrictions and limitations imposed by the original donor.
Budget Expectations of the
Department Head
Are you expected to manage a Department
budget?
Who will help you?
Do you have a plan?
What do you need to know to do this
successfully?
Spending Authority?
• Who is authorized to charge to your budget?
• Most systems will identify the individuals who are
approved to sign off on charges.
• This is a good to know item. Likely controlled at the
College level
One Time Only
vs.
Recurring Monthly
• New equipment, Consultant, etc. varies and likely
not to occur regularly
• Phones, data-ports, long distance, space, salary,
fringe. Generally the same every month
• Postage, shipping, supplies, recurs but will be
different each month
How Do Charges Hit My Funds?
• Is every charge approved by someone on the list?
• Do I get supporting documentation for all charges
that occur?
• How is this information filed?
Budget/spending Reports
• How often do I get them?
• Do they automatically come to me or do I have to
ask for them?
• Who can do this for me?
• How much detail do I receive?
• Is anyone looking at that detail to verify that all
charges are correct?
High Ticket Items:
Capital Equipment
• What is the dollar threshold for determining that
something is a capital equipment purchase?
• At UC – cost of $5,000 and useful life of 2 yrs.
• See Asset Tracking on UC website for more
details
• Is there a separate budgeting process for capital
equipment purchases?
• What if we need new computers?
High Ticket Items:
Capital Equipment
• Do we have an institutional/unit computer
replacement policy?
• Do I have to budget for replacements or are they
provided by the college?
• What if we need new chairs or new furniture,
what is the policy?
How Do Payroll Charges
Hit My Funds?
• Will I see detail or summary information?
• Is there a separate report that shows detail?
• Is there a fringe benefit charge? Is there a
percentage charged for fringe? What is the rate?
• What is included in the fringe rate, terminal vacation,
long term sick, and tuition fee waiver?
• What is charged to the fringe pool vs. a direct charge
to my budget?
Fringe Benefits at UC
• Applies to Clifton Campus
• Pay into a benefit pool
• Rates:
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34.1% Faculty
40.1% Unclassified/Unrepresented
7.6% Student Worker
Must prepay with perm dollars
If you give up salary budget, you lose the associated fringe
If you add a new position that requires new budget – you must
pay the fringe
– Terminal vacation comes out of the fringe pool not your budget
Salary Increases
• How does the process work?
• Do I get dollars added to my budget to cover raises?
• General Funds vs. Locally funded raises?
• What about equity increases, are they funded
centrally or by my budget?
• Is the process different for Faculty vs. Staff?
Salary Increases
• Do I get to use vacant position salary dollars? What is
your college policy?
• What about temporary or one time salary payments
(bonuses)?
• What about cost of temporary employment – is this
an option?
• Who pays for employment recruitment costs,
advertising, back ground searches?
Psychology of Budget Management
• Deficit spending? Is this an option?
- At UC – NO!
• Unspent dollars at year end – what happens?
• Use it or lose it vs. carry forward
- At UC both processes occur
Leveraging Local Funds
(Endowment Dollars, etc)
• What is the amount you budget for each year as
recurring income – how are the dollars used?
• What one-time expenses are you allowed to charge
to the endowments?
• Are you bound by the endowment to pay a portion of
a “Chair” salary?
• Do I have spending authority over any endowment
dollars?
• If so, I need to see the gift or fund record.
- True vs. Quasi endowment
Leveraging Local Funds
(Endowment Dollars, etc)
• Do I have any restricted dollars, if so, what is the
intended purpose? What are the donor restrictions?
• Do I have accumulated fund balances?
• What does the term Discretionary mean?
What is the Budgeting
Cycle in My College/Unit?
• Learn and understand the dates.
• Who makes budget decisions for my college, my
unit, etc?
• Do I get a chance to influence the decision with a
budget presentation?
• Has my budget ever been increased?
• How do budget cuts and re-allocations work?
Your Business Administrator
as Your Partner
• Bring your BA to the table
• Give them a voice and expect them to use it
• The more your BA knows the business of your unit the
more they can help you with your goals
• The more you work with the numbers and concepts, the
more you will learn about finance and what is possible
• Knowledge sharing enhances both partners
• Put a BA at the table with a group of Academics and you
have instant diversity of thought
Questions