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Budgeting Process and Requirements

By Curtis Snyder,2014-06-15 18:11
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Budgeting Process and Requirementsand

    Budget Guidelines

    Budget Overview

    The budget is a financial plan for the university that quantifies the resource allocation plan for the next three fiscal years. The budget process begins in early fall of each year to develop the budget for the following fiscal year as well as projected budgets for the next 2 years. Budgeting at the unit level is a decentralized process. Each unit is responsible for building its own budget. The allocation letter, in

    addition to various other data collected at the unit level, is essential to completing this process. Central administration distributes the allocation letter, which includes the assumptions and the initial allocation amount. All units' budgets are reviewed and compiled by the Budget and Financial Planning Office. The result is an overall university budget that is taken to the Board of Trustees for final approval in May.

Budget Assumptions

    The assumptions that feed the budget process are: tuition rate increase, financial aid, gift revenue, overhead rates on sponsored projects, the salary pool, the benefit rate, capital requirements, and the endowment distribution.

Central Allocation

    The colleges and major administrative units receive an annual allocation of funds to support their operating budgets. The allocation amount is incremented each year based on the assumptions and any other known factors. The initial allocation letter are sent to the units in the early fall. The units use the information contained in the allocation letter to build the budgets for the upcoming fiscal year. For most of the colleges, the majority of the allocated amount is used to support faculty salaries. In addition to the lump-sum allocation, the colleges also budget for additional revenue sources and expenses based on the specific activities of their organization. Following each financial review, the allocation letters are revised to accurately reflect the changes in assumptions and any other items that were agreed upon during the financial review.

Information to Start Your Budget or Forecast

    Before beginning a budget or forecast, it is important to have a knowledge of the organization or business, including its current financial status. Input from department management, principal investigators, system support, and faculty who control significant funding from any source (including discretionary funds) is key. Additional data for financial analysis can be found in financial reports such as operating statements, funding source detail and financial review reports. Budgets are uploaded into Oracle through Application Desktop Integrator (ADI).

Budgeting by Funding Source

    Each college or administrative unit has a diverse organizational structure. Therefore, the approach to begin a budget will vary according to these needs. For example, certain funding or expense types may be the largest part of the budget and dictate the budgeting criteria. Most often, the source of funding will be the determining factor. The following sections outline issues and guidelines to consider when budgeting in each funding source.

General Operating Funding

    The general operating funding source is used to define a department's operating budget. It includes the university allocation, summer programs, executive education, INI masters programs, the Heinz College, the Tepper School, unrestricted contributions, and general institutional funding. All Oracle department allocation budgets need to agree with the allocation letter. Allocation funding can be base, one time, and general institutional.

General Operating Budgeting Quick Reference

    The following table will assist you in preparing your general operating budget. Please note, you are

    required to use specific object codes for the different funding sources.

    Chart of Accounts Requirement Budgeting Process and Requirements Funding Allocation Object Funding Source Description Source Codes Activity Code Surplus/ Deficit Revenue, Expense, Surplus, Deficit Considerations General Unrestricted 000001 N/A N/A = $0 at year end Transfer balances to/from Op Reserve

    Base Allocation N/A Transfer balances to/from Op Reserve 000002 71100 = $0 each month Base Allocation - Adj = $0 each month Transfer balances to/from Op Reserve 000001 71150 N/A One Time Allocation 000003 71200 N/A = $0 each month Transfer balances to/from Op Reserve One Time Allocation - Adj 000001 71250 N/A = $0 each month Transfer balances to/from Op Reserve Base Allocation Adj - Division 000001 71210 N/A = $0 each month Transfer balances to/from Op Reserve General Institutional 000004 71400, 71450 Assigned = $0 each month Budget all funding General Unrestricted GM 000005 N/A N/A = $0 at year end Transfer balances to/from Op Reserve F&A Return Allocation 000003 71500 N/A F&A Return Allocation Adj 000001 71550 N/A

     ALLOCATION REVENUE (new Object Codes are highlighted in yellow)71100Base Allocation RevenueBase allocation revenue is posted montly to reflect the revenue allocated to the

    division/department from general university sources. Should be used with funding

    source 000002, when budgeting. Allocation revenues and income transfers provide

    sources of funding for expenses; the bottom line should be zero.

    71150Base Allocation AdjustmentsThis object code is used to record changes in the Base Allocation Revenue after the

    budgets are finalized. Should be used with funding source 000001, when budgeting.

    The base allocation adjustment revenue is posted via journal entry by the budget

    office.71200One Time Allocation RevenueOne time allocation revenue is posted monthly to reflect the revenue allocated to the

    division/department from general university sources as approved annually by the

    president/provost. Should be used with funding source 000003, when budgeting.

    Allocation revenues and income transfers provide sources of funding for expenses; the

    bottom line should be zero.

    71250One Time Allocation AdjustmentsThe object code is used to record changes in the One Time Allocation Revenue after

    the budgets are finalized. Should be used with funding source 000001, when

    budgeting. The one time allocation adjustment revenue is posted via journal entry by

    the budget office.

    71400General Institutional AllocationRecords the allocation from the Budget Office to fund general institutional expenses.

    Should be used with funding source 000004 and activity code assigned by the Budget

    Office. This object code is used for the general institutional allocation budgeted as part

    of the university budget process.

    71450General Institutional Allocation AdjustmentsRecords the allocation from the Budget Office to fund general institutional expenses.

    Should be used with funding source 000004 and an activity code assigned by the

    budget office. This object code is used for changes in funding after the budgets are

    finalized. The general institutional allocation adjustment revenue is posted via journal

    entry by the budget office.

    71500F&A Return AllocationRecords the allocation of F&A (overhead) revenue to certain departments and

    colleges based on the funding allocation arrangement agreed upon by university senior

    management. Should be used with funding source 000003, when budgeting. This

    object code is used for the F&A return budgeted as part of the university budget

    process.

    71550F&A Return Allocation AdjustmentsRecords the allocation of F&A (overhead) revenue to certain departments and

    colleges based on the funding allocation arrangement agreed upon by university senior

    management. Should be used with funding source 000001, when budgeting. This

    object code is used for changes in central funding after the budgets are finalized.

    The F&A return allocation adjustment revenue is posted via journal entry by the budget

    office.

    INCOME TRANSFERS (new object codes are highlighted in yellow)

    72250Income Transfer Capital ProjectsTransfer of funding from an organization to fund capital projects.72260Income Transfer Internal LoansTransfers of funding from the Treasurer's Office to an organization to record the

    issuance of an internal loan.

    Budget Guidelines

IC Tuition and Financial Aid Overview and Budgeting Considerations

    Undergraduate tuition, graduate tuition, and educational revenue that are split with central or between colleges are recorded in the following object codes: 61500 IC Undergraduate Tuition Transfer; 61502 IC Graduate Tuition Transfer; 62500 IC Educational Programs Revenue; and 67500 Intercampus Other Income for Portugal transfers. Coordinate all tuition transfers with the organization that is forecasting the other side of the entry. This will ensure that amounts will agree and balance across the university. When budgeting semester tuition it should coincide with quarterly accounting deferrals. IC graduate tuition revenue from central will be booked quarterly to the college and is based on the percentage of the semester completed. Undergraduate aid should be budgeted to object code 75100 and graduate aid should be budgeted to object code 75102.

Designated Operating

    Designated funding sources include operating reserves, cost sharing, faculty discretionary funds, internally funded projects, faculty development grants, SURG, affiliate programs, Technology Transfer projects, unrestricted endowment, and capital reserves. Operating and capital reserves are budgeted based on expected funding requirements for operations and capital. All other funding sources are budgeted based on past experience and department knowledge of changes in operations that will have an impact on the balances.

Designated Operating Budgeting Considerations

    Use the income transfer surplus/deficit (72400) code to/from operating reserves, funding source 060000, to project the transfer of surpluses or deficits from other funding sources where balances are required to equal $0. Cost Sharing, funding source 063000, are any costs incurred and funded by the university that can be directly attributed to an existing sponsored project. Expenses are budgeted in grants management by project, task and cost sharing award. Transfers to fund cost sharing, as well as the expenses, are budgeted in summary in the general ledger. The university funds the Facilities & Administrative (F&A) expense in cost sharing. Either the department or the university can fund the direct cost sharing expense. The budgets for funding sources 061000 through 066999 should be detailed in grants management, if applicable, and summarized in the general ledger. Actual designated balances will carry over to the next fiscal year through a financial system generated entry. Therefore, do not budget beginning net assets.

Unrestricted Endowment Overview and Budgeting Considerations

    Unrestricted endowment funding sources are 000100-049999. The endowment is similar to a mutual fund. A gift can buy shares in the endowment and receive a yearly distribution of income based on the number of shares. Endowment revenue should be budgeted at the beginning of each quarter. Expenses should be budgeted as they are expected to occur. Do not budget beginning balances. Actual balances will carry over to the next fiscal year through a financial system generated entry.

Sponsored Projects

    Sponsored projects funding sources include: Army, Air Force, Navy, Department of Energy, Industry, State Government, Affiliate Sponsors, and future funding. Expenditures are tracked by total direct costs (TDC) and modified total direct costs (MDTC). Total direct costs include all expenditures paid by the sponsor. MTDC is the TDC less equipment, capital expenditures, charges for tuition remission, rental costs, scholarships and fellowships, as well as the portion of each sub grant and subcontract in excess of $25,000. Equipment and subcontracts can skew comparison of costs between schools, departments or awards and do not add significant incremental overhead burden to the university. The MTDC is significant because this is the amount to which the university's F&A or overhead rates are applied.

Sponsored Projects Budgeting Considerations

    Sponsored projects are budgeted in detail in grants management by project, task and sponsored award and summarized in the general ledger by funding source. Budgets should be based on awards in hand,

    outstanding proposals, past performance, and department knowledge of planned changes that would have an impact on funding. Subcontract costs and capital expenditures must be budgeted as separate items so that MTDC can be calculated. Direct sponsored projects revenues should equal direct sponsored project costs. F&A revenue should equal F&A expense. Utilize the following when preparing sponsored budgets: Budget Management Spreadsheet (BMS) for actuals, budgets, GL funding sources; future funding projections; status of current contracts; status of open proposals along with department trends; timing of revenue recognition; and required cost sharing and funding.

Auxiliary Overview and Budgeting Considerations

    Auxiliaries are managed as self-supporting, break-even business units. Revenues are budgeted based on pricing assumptions for the business. Expenses are budgeted based on the assumptions plus any other direct costs that relate to the business operations. Since auxiliaries are expected to cover all of their costs, university overhead is also charged to each unit. Each auxiliary is a unique entity in Oracle with a balance sheet. Characteristics of an auxiliary statement include the following: capital is charged to the balance sheet not the operating statement; depreciation expense is charged based on property accounting standards; loan interest is expensed; loan principle payments are charged to the balance sheet; any surplus or deficit falls to the bottom line and is carried over to the next fiscal year; and business is evaluated on cash flow. Auxiliary funding source 050000 uses function 700 for expense transactions.

Recharge Overview and Budgeting Considerations

    Recharge centers provide goods, services, or groups of services in support of the university's education and research mission. These units are responsible for recovering only the direct costs associated with their operations through established pricing practices. Direct costs include personnel and operating expenses. The recharge center is expected to build prior year balances into future pricing. Recharge funding source 055000 uses function 740 for expense transactions.

Temporarily Restricted Overview and Budgeting Considerations

    Temporarily restricted funding sources include endowment distribution (funding sources 100000-199999) and contributions (funding sources 200000-299999). The use of these revenues is restricted according to donor specifications. Endowment revenue growth is budgeted based on the parameters in the assumptions and revenues are distributed at the beginning of each quarter. Gift revenue budgets are based on past experience and department knowledge of expected gifts and cash receipt of pledges. The corresponding expenses are budgeted according to anticipated completion of donor specifications. Do not budget income transfers or beginning balances. Actual balances will carry over to the next fiscal year through a financial system generated entry.

Agency Funding Overview and Budgeting Considerations

    Agency funding sources are 900000-910000 and are not included on the operating statement. An agency represents a group outside of the university that uses the university's services and can be funded by the university or can reimburse the university. Examples include student organizations and clubs. Agencies have a unique entity 95 and unique object code 85802 to transfer revenue to and from the university.

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