1 The A-B-C’s of Accounting Presenters:

2 Agenda n Fund Accounting n Fund Definitions n Chartfields n Class Codes n Revenue Types & Transfers n Journals n Q&A

FUND ACCOUNTING n What is Fund Accounting? –The University is a non-profit, governmental entity, therefore it has to follow the fund accounting principles. –The University receives money from many different sources. The source determines what Fund the money will be deposited into. The Fund also dictates what kind of expenditures will be allowable. 3

Two Types of Funds 4 Operating FundsNon-Operating Funds General 10000Endowment 7XXXX Gift 30000Plant 8XXXX Designated 40000Agency Auxiliary 5XXXX Federal Sponsored Non-Federal Sponsored Funds available for the normal operation of the University’s missions Funds to be used to strategically enhance the University, but are not considered available for normal operations

5 Agenda n Fund Accounting n Fund Definitions n Chartfields n Class Codes n Revenue Types & Transfers n Journals n Q&A

General Fund – n The General Fund contains the economic resources that are expendable for operating purposes in the following activities: –Instruction for credit, i.e. degree earning credit –Research –Public service –Academic support –Student services –Institutional support –Plant operations and maintenance –Scholarships and fellowships 6 FUND DEFINITIONS

General Fund – (cont.) n These activities are primarily funded by: –State appropriations –Student tuition and fees –Indirect cost reimbursements from research contracts –Departmental revenues related to student lab and course fees –Distribution of investment income (UIP) 7

Federal Sponsored Fund – n Funding provided by the federal government for research, instruction and public service. Activity for this fund is governed by federal laws enacted by Congress as well as the rules prescribed by individual contract agreements. The primary revenue sources for this fund include: –Federal Grants and Contracts –Small Distribution of Investment Income (UIP) n All University spending of federal funding is subject to an annual audit under the guidelines set forth in OMB Circular A-133. To ensure compliance, all activity affecting a federally sponsored project/grant should meet the terms and conditions of the grant or contract. 8

Non-Federal Sponsored Fund – n Funding provided by non-federal government sources, Charitable Foundations, and State and Local Governments for research, instruction, and public service. The activity on this fund is regulated by the individual contract agreements. The primary revenue sources for this fund include: –Grants and Contracts from State and Local Government –Grants from Charitable Foundations –Contracts from Industry –Small Distribution of investment income (UIP) n It is the responsibility of the unit receiving the grant/contract to comply with the guidelines set forth by the sponsor in the governing agreement when funds are spent. n Departments should ensure that activity is appropriate to the grant/contract. 9

n Gifts given to the University with specific stipulations on how the money is to be used. The primary revenue sources for the Gift Fund include: –Gifts from outside donors –Endowment distributions –University Investment Pool (UIP) distributions n Revenues in the Gift Fund are expendable and not permanently invested. Gift Fund –

Gift Fund – (cont.) n It is the responsibility of the unit receiving the gift to comply with the guidelines set forth by the donor in the governing gift agreement when funds are spent. n Departments should reference an applicable gift agreement to ensure that activity is appropriate to the gift. n If you have any questions regarding transferring funds into or out of the gift fund, contact Financial Services. 11

Designated Fund – n Funds internally designated, but otherwise unrestricted (no identified purpose). Revenue sources include: –Departmental revenue from non-degree academic programs such as continuing professional education (non-degree credit) conferences and seminars –Investment income from the University Investment Pool (UIP) and other sources –Royalty income –Endowment distributions –Expenditures are limited to activities designated by University management 12

Auxiliary Fund – 5XXXX n The Auxiliary funds track activities that are maintained with revenue from their own operations. Internal service providers are also auxiliary units. Examples include: 13 Early Childhood Education Center Contract Services VendingParking

Auxiliary Fund – 5XXXX (cont.) n Revenues in the fund consist of: –Internal recharge from service unit billings –Operating activities –Investment income –Endowment distributions 14

Endowment Fund – 7XXXX n Endowment Funds are long term invested funds established by either a donor or departmental funds where only the distributions earned on the investment may be spent. n If you have any questions regarding the Endowment fund, contact Financial Services. 15

Endowment Fund – 7XXXX(cont.) n Funds donated by a donor to be invested in perpetuity. The interest earned may then be spent on purposes designated by the donor/unit - also includes funds functioning as endowment (quasi-endowments). –True Endowment: Funds and E0001-E9999 –Quasi Endowment Restricted: and Q0001-Q9999 –Quasi Unrestricted: and U0001-U9999 –Quasi Permanent: and P0001-P9999 –Endowment Specific: –Quasi Specific:

Plant Fund – 8XXXX n Construction Funds (80000) –Used to track expenses for construction and renovation projects –Funding source must be identified prior to project authorization n Departmental Equipment Funds (82000) –Used for current or future equipment purchases/replacements, minor renovation, and other non-operating expenditures 17

Agency Fund n The University acts as the custodian for the agency fund. The balances consist of amounts held for organizations affiliated with, but not legally part of, the University. All agencies must maintain a positive cash balance in the general ledger. Examples include: –Alumni Society –United Way –Toastmasters –Student Organizations 18

Agency Fund – (cont.) n Please note the University doesn’t own any of these assets. The cash and investments on deposit with the UM in this fund are offset by a liability in the UM financial statements, i.e. we owe these amounts to the entities that have deposits in this fund. 19

20 Agenda n Fund Accounting n Fund Definitions n Chartfields n Class Codes n Revenue Types & Transfers n Journals n Q&A

21 CHARTFIELDS  Account The type of transaction. It is NOT the shortcode.  Fund Source and intended purpose of monies and how they should be spent.  Department ID The academic or administrative unit.  Program Additional reporting layer for the dept. What are Chartfields? ChartFields are the seven fields used in M-Pathways to enter, record, and report financial transactions for the University.

22 CHARTFIELDS (cont.)  Class The functional nature of the expense.  Project/Grant Identifies a specific pool of money or activity.  Shortcode A shortcode represents a string of chartfield values. Shortcodes are required to: Process payroll transactions Gift/development processing Order through Marketsite Use Concur reimbursement system May be used with Service Unit Billings in place of Chartfields SHORTCODE = CHARTFIELD = 10000/926400/OPERA/62000

23 Agenda n Fund Accounting n Fund Definitions n Chartfields n Class Codes n Revenue Types & Transfers n Journals n Q&A

CLASS CODES n Value that identifies the functional nature of an expense –E.g. instruction, research, scholarship n Essential for external and internal financial reporting –Audited financial statements –Facilities & Admin cost proposal for federal sponsored programs –State of Michigan reporting –Various surveys –Management and departmental reporting 24

CLASS CODES (cont.) n For additional information on Class, including a complete list and definition of all Class values: ields/classoverview 25 1XXXX – Instructional6XXXX – Institutional Support 2XXXX – Research7XXXX – Operation and Maintenance of Plant 3XXXX – Public Service8XXXX – Scholarships and Fellowships 4XXXX – Auxiliary Activities 9XXXX – Auxiliary Activities 5XXXX – Student Services

n Costs classified as indirect cost recovery excluded (ICRX) by the federal government must be specifically identified by using the appropriate Class ending with "X". The most frequently used categories of ICRX costs are: - Alumni activities - Entertainment - Fund raising - Hosting (when considered "entertainment") - Lobbying - Public relations CLASS CODES (cont.) 26

27 Agenda n Fund Accounting n Fund Definitions n Chartfields n Class Codes n Revenue Types & Transfers n Journals n Q&A

n Reimbursements n Rebills n Recharges n Revenue n Transfers n Account Codes n Processing Retroactive Salary Distribution Changes n Processing Manual Payroll Journal Entries n Useful Resources REVENUE TYPES & TRANSFERS 28

n A payment received from an employee or individual who is paying back the University for a personal or non-University expense n Non-revenue generating n Recorded as a negative expense against the account the expense was originally recorded to n Rebates are also recorded as a negative expense against the account originally recorded to Example: Using your business phone to make a personal call Reimbursements 29

Examples of Reimbursements Original Expense (IT Com billing) Journal IDJournal DateAccountFund CodeDeptID Program CodeClassProject GrantDollar AmountJournal Line Descr SUB /22/ ADMIN11100U Service Unit Billings Reimbursement Journal IDJournal DateAccountFund CodeDeptID Program CodeClassProject GrantDollar AmountJournal Line Descr CRD /22/ ADMIN11100U Local calls-Smith CRD /22/ ADMIN11100U Local calls-Jones 30

n Moving an original cost of a good or service from the department that was charged to the department that used the good or service n Non-revenue generating n Recommend to bill through Service Unit Billings (SUB) n Rebill activity should be recorded as a reallocation of expenses instead of revenue using the following options: Rebills 31

n Use original expense account on both sides of the journal entry when moving the expense n Use the contra-expense accounts in the Internal Rebill ranges ( to ) Example: When a department allows another department to use their copy machine. Rebills continued 32

Rebill Example Using Original Expense Account Rebill Journal IDJournal Date Account Fund CodeDeptID Program CodeClass Project Grant Jrnl Ln Ref Dollar AmountJournal Line Descr SUB /04/ SUB (252.13)Service Unit Billings SUB /04/ OPERA11100U000824SUB Service Unit Billings SUB /04/ F009334SUB Service Unit Billings 33 Original Expense Journal IDJournal Date Account Fund CodeDeptID Program CodeClass Project Grant Jrnl Ln Ref Dollar AmountJournal Line Descr SUB /04/ SUB Service Unit Billings

Rebill Example Using a Contra Account 34 Original Expense Journal IDJournal DateAccountFund CodeDeptID Program CodeClassProject GrantDollar AmountJournal Line Descr /04/ Rebill Copy Expense Rebill Journal IDJournal DateAccountFund CodeDeptID Program CodeClassProject GrantDollar AmountJournal Line Descr /04/ Rebill Copy Expense /04/ OPERA11100U Rebill Copy Expense /04/ F Rebill Copy Expense

n When a department’s primary existence is to provide goods and services n Revenue generating n Recharged through Service Unit Billings (SUB) n Recharges operate in the Auxiliary Fund n Should use fund n Departments should have a recharge rate approved by Financial Analysis Example: Fairlane Events Center Recharges 35

Example of a Recharge Journal IDJournal DateAccount Fund CodeDeptID Progra m CodeClass Project GrantJrnl Ln Ref Dollar AmountJournal Line Descr SUB /12/ SUB (1,267.50)Service Unit Billings SUB /12/ OPERA31100C302289SUB200.25Service Unit Billings SUB /12/ SUB67.25Service Unit Billings SUB /12/ LNCUR11100U005590SUB100.00Service Unit Billings SUB /12/ LDPRG21000U000428SUB175.00Service Unit Billings SUB /12/ C300049SUB250.00Service Unit Billings SUB /12/ SUB195.00Service Unit Billings SUB /12/ U006476SUB160.00Service Unit Billings SUB /12/ U000824SUB120.00Service Unit Billings 36

n n Financial Analysis n Forms n Recharge Vendor Request form n Send completed form to Financial Analysis: 37 Recharge Information

Revenue can come from several sources such as: n Tuition n Gifts n Organized activities such as seminars and conferences n Investments n Other Revenue 38

Revenue Examples Royalty revenue Journal ID Journal DateAccount Fund CodeDeptID Progra m CodeClass Project Grant Dollar Amount Journal Line Descr CR /02/ U ,828.87Copyright Royalty Gift revenue Journal ID Journal DateAccount Fund CodeDeptID Progra m CodeClass Project Grant Dollar Amount Journal Line Descr DAC /01/ G Gift 39

A transfer is used for: n Moving funding (e.g. appropriations)or moving expenses from one chartfield combination to another n Covering an overdraft n Moving a balance to close a project grant Transfers 40

 The Transfer Matrix shows users which transfer accounts to use for the debit and credit of their journal entries in an easy to read format. airs/files/Financial_Budget_General_Services_- _FILES/Accounting/TransferMatrix.pdf Transfer Matrix 41

n The Valid Account List defines for all funds what revenue and expense accounts are allowable, unallowable, exceptions, or restricted for Financial Operations use only. n s/validaccounts Valid Account List 42

n Contact Gift Processing to transfer a gift. They process the change in the DART system and process a journal entry in the General Ledger to ensure the systems stay in sync n Cannot transfer funding in or out of the General Funds. Transfer specific expenses only. Same rule applies to Gift funds, unless you have provost’s approval. n Transfers to/from the Plant Fund will always use class code on both sides n Transfers to/from Endowment Funds are processed by Financial Operations Unique Transfer Guidelines 43

n Why does the Payroll Expense need to be moved? –Purpose of transfer indicates proper method to follow n The general purpose: –The movement of payroll expenses is to report the effort of the individual’s appointment correctly 44 Determine the Purpose of Payroll Transfers

n Any change in effort reporting certification to adjust a prior pay period retroactively A change in one or more shortcode(s) A change in the % of Distribution among existing shortcode(s) A combination of changes on SC’s and % of Distribution Retroactive changes can affect: Current Fiscal Year Prior Fiscal Year (up to October 31 st of current year) Both current and prior fiscal years Processing Retroactive Salary Distribution Changes 45

 Retroactive Changes for Sponsored Funds (20000, 25000) Must be requested within 120 days from original accounting date of transaction in question  Retroactive Changes for Non-Sponsored Funds All changes needed for the prior fiscal year must be processed on or before October 31 st of the current fiscal year, after that a funding transfer must be processed instead  Effort Reporting Must be performed for certain individuals, per Federal Regulations; see Policy on Effort Certification for more details principles 46

n All transfers of permanent faculty/staff salaries should be referred to Dearborn HR to handle the appointment change. 47 Processing Salary Transfers

n The following are allowable manual payroll transfers that do not require a Retroactive Effort Change: Temporary Staff Other items not related to base appointment (see next slide) Allowable Manual Transfers 48

n The following are accounts that are allowable to be used for manual transfers: Tuition Related Activity Tuition Refunds: & Geo Tuition Grant: GSA Tuition Waiver & Adj: & Activity not related to an appointment Prize/Award Pmts: Moving Expenses: & Royalty Pmts: & Unemployment Comp: Non-employee activity Prize to non-emp: Subject Fee Income – non emp: Accounted-For travel expense: n See Valid Account List for appropriate account usage against corresponding Fund Allowable Accounts for Manual Transfers 49

n What is today’s date? What is the original accounting date? n What type of employee is involved with the transfer? Also, what kind of payment is it, specifically? n When a salary transfer is processed within the GL, an automatic calculation is also processed using the current Benefit Recharge Distribution (BRD) rate, which can change between fiscal years Factors to Consider when moving payroll 50

n Situation: It is October 1 st, It has been determined that a regular full time professor with a 100% appointment (40.0 hrs a week) in the Mechanical Engineering department against short code should have been paid out of two short codes ( and ), split evenly between the two. The most recent appointment is for the time period 07/01/10 – 07/31/11. Example 1 51

n A change in effort certification is required Tell your staff member to recertify. Solution to Example 1 52

n Situation: It is March 13th, A lecturer that is on the University’s payroll is compensated an additional payment of $5,000 for winning an award. This payment is to be transferred to a different short code within the department. How will this be processed? Example 2 53

n A manual JE is required Since this transfer constitutes activity not related to appointment, then a manual JE will be processed at account Solution to Example 2 54

n Standard Practice Guide : Policy on Retroactive Salary Distribution Changes n Sponsored Transfer Guidelines: principles n Non-Sponsored Funds Retroactive Salary Distribution Change: salarytsfNonSP Transfer - Useful Links and Resources 55

56 Agenda n Fund Accounting n Fund Definitions n Chartfields n Class Codes n Revenue Types & Transfers n Journals n Q&A

JOURNAL ENTRY PROCESS DEBITS AND CREDITS 57 $ AmountEntry TypeFinancial Impact + PositiveDebitExpense/Negative Revenue - NegativeCreditRevenue/Negative Expense Balance Sheet Accounts 1XXXXX=Asset, Dr. Balance 2XXXXX=Liability, Cr. Balance 3XXXXX=Equity, Cr. Balance Income Statement Accounts 4XXXXX=Revenue, Cr. Balance 5XXXXX=Expenses related to salary & fringes, Dr. Balance 6XXXXX=All other expenses, Dr. Balance

JOURNALS Sample Journal Entry AcctFundDeptProgClassP/GAmt DISCR61000U FACAW21000U013848( ) n Transfer Matrix file is a useful guideline on proper account usage –In this case, per the file, a debit to acct and a credit to acct is appropriate 58

59 JOURNALS RESOURCES n Journal upload template oadtemplate n The all funds Valid Account List defines what revenue and expense accounts are allowable, unallowable, exceptions, or for Fin Ops use only. s/validaccounts n Transfer Account Matrix airs/files/Financial_Budget_General_Services_- _FILES/Accounting/TransferMatrix.pdf

60 QUESTIONS