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

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

3. 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

4. Two Types of Funds 4 Operating FundsNon-Operating Funds General 10000Endowment 7XXXX Gift 30000Plant 8XXXX Designated 40000Agency 90000 Auxiliary 5XXXX Federal Sponsored 20000 Non-Federal Sponsored 25000 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. 5 Agenda n Fund Accounting n Fund Definitions n Chartfields n Class Codes n Revenue Types & Transfers n Journals n Q&A

6. General Fund – 10000 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

7. General Fund – 10000 (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

8. Federal Sponsored Fund – 20000 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

9. Non-Federal Sponsored Fund – 25000 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

10. 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 – 30000 10

11. Gift Fund – 30000 (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

12. Designated Fund – 40000 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

13. 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

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

15. 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

16. 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 70002-74999 and E0001-E9999 –Quasi Endowment Restricted: 75000-76999 and Q0001-Q9999 –Quasi Unrestricted: 77700-77999 and U0001-U9999 –Quasi Permanent: 77000-77699 and P0001-P9999 –Endowment Specific: 78500-78799 –Quasi Specific: 78800-78999 16

17. 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

18. Agency Fund - 90000 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

19. Agency Fund – 90000 (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. 20 Agenda n Fund Accounting n Fund Definitions n Chartfields n Class Codes n Revenue Types & Transfers n Journals n Q&A

21. 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. 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 239475 = 10000/926400/OPERA/62000

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

24. 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

25. CLASS CODES (cont.) n For additional information on Class, including a complete list and definition of all Class values: http://www.finops.umich.edu/accounting/chartf 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

26. 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. 27 Agenda n Fund Accounting n Fund Definitions n Chartfields n Class Codes n Revenue Types & Transfers n Journals n Q&A

28. 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

29. 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

30. Examples of Reimbursements Original Expense (IT Com billing) Journal IDJournal DateAccountFund CodeDeptID Program CodeClassProject GrantDollar AmountJournal Line Descr SUB234387108/22/201061150010000440400ADMIN11100U00890628.21Service Unit Billings Reimbursement Journal IDJournal DateAccountFund CodeDeptID Program CodeClassProject GrantDollar AmountJournal Line Descr CRD083106808/22/201061150010000440400ADMIN11100U008906-0.56Local calls-Smith CRD083106908/22/201061150010000440400ADMIN11100U008906-0.49Local calls-Jones 30

31. 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

32. 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 (620200 to 620999) Example: When a department allows another department to use their copy machine. Rebills continued 32

33. Rebill Example Using Original Expense Account Rebill Journal IDJournal Date Account Fund CodeDeptID Program CodeClass Project Grant Jrnl Ln Ref Dollar AmountJournal Line Descr SUB2387 36812/04/200961508010000 380000 1147211000 SUB (252.13)Service Unit Billings SUB2387 36812/04/200961508050000 240000 OPERA11100U000824SUB 103.26Service Unit Billings SUB2387 36812/04/200961508020000 185500 1000022000F009334SUB 148.87Service Unit Billings 33 Original Expense Journal IDJournal Date Account Fund CodeDeptID Program CodeClass Project Grant Jrnl Ln Ref Dollar AmountJournal Line Descr SUB2387 35212/04/200961508010000 380000 1147211000 SUB 252.13Service Unit Billings

34. Rebill Example Using a Contra Account 34 Original Expense Journal IDJournal DateAccountFund CodeDeptID Program CodeClassProject GrantDollar AmountJournal Line Descr 000234898212/04/2009615080100003800001147211000252.13Rebill Copy Expense Rebill Journal IDJournal DateAccountFund CodeDeptID Program CodeClassProject GrantDollar AmountJournal Line Descr 0002349007 12/04/2009620200 100003800001147211000-252.13 Rebill Copy Expense 0002349007 12/04/2009 615080 50000240000OPERA11100U000824103.26 Rebill Copy Expense 0002349007 12/04/2009 615080 200001855001000022000F009334148.87Rebill Copy Expense

35. 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 52000 n Departments should have a recharge rate approved by Financial Analysis Example: Fairlane Events Center Recharges 35

36. Example of a Recharge Journal IDJournal DateAccount Fund CodeDeptID Progra m CodeClass Project GrantJrnl Ln Ref Dollar AmountJournal Line Descr SUB2726851 7/12/2010410000520006851001213492320 SUB (1,267.50)Service Unit Billings SUB2726851 7/12/201061508030000240000OPERA31100C302289SUB200.25Service Unit Billings SUB2726851 7/12/20106150805600031167331100SUB67.25Service Unit Billings SUB2726851 7/12/201061508010000185500LNCUR11100U005590SUB100.00Service Unit Billings SUB2726851 7/12/201061508010000406800LDPRG21000U000428SUB175.00Service Unit Billings SUB2726851 7/12/2010615080300003723001000031100C300049SUB250.00Service Unit Billings SUB2726851 7/12/20106150805600031810431100 SUB195.00Service Unit Billings SUB2726851 7/12/2010615080400007551001000051000U006476SUB160.00Service Unit Billings SUB2726851 7/12/2010615080500006861001270692320U000824SUB120.00Service Unit Billings 36

37. n http://www.finance.umich.edu/accounting/recharge n Financial Analysis n Forms n Recharge Vendor Request form n Send completed form to Financial Analysis: recharge@umich.edu 37 Recharge Information

38. 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

39. Revenue Examples Royalty revenue Journal ID Journal DateAccount Fund CodeDeptID Progra m CodeClass Project Grant Dollar Amount Journal Line Descr CR0035272512/02/2010413720400005870401000021100U000047-1,828.87Copyright Royalty Gift revenue Journal ID Journal DateAccount Fund CodeDeptID Progra m CodeClass Project Grant Dollar Amount Journal Line Descr DAC0202224507/01/2010405075300002524001000021000G009154-100.00Gift 39

40. 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

41.  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. http://www.umd.umich.edu/fileadmin/template/businessaff airs/files/Financial_Budget_General_Services_- _FILES/Accounting/TransferMatrix.pdf Transfer Matrix 41

42. 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 http://www.finance.umich.edu/finops/accounting/quicklink s/validaccounts Valid Account List 42

43. 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 73000 on both sides n Transfers to/from Endowment Funds are processed by Financial Operations Unique Transfer Guidelines 43

44. 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

45. 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

46.  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 http://www.finance.umich.edu/finops/programs/effortrptg/ principles 46

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

48. 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

49. n The following are accounts that are allowable to be used for manual transfers: Tuition Related Activity Tuition Refunds: 580800 & 581000 Geo Tuition Grant: 585200 GSA Tuition Waiver & Adj: 595250 & 597000 Activity not related to an appointment Prize/Award Pmts: 502300 Moving Expenses: 502500 & 502600 Royalty Pmts: 584400 & 586000 Unemployment Comp: 597250 Non-employee activity Prize to non-emp: 581600 Subject Fee Income – non emp: 582000 Accounted-For travel expense: 586400 n See Valid Account List for appropriate account usage against corresponding Fund Allowable Accounts for Manual Transfers 49

50. 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

51. n Situation: It is October 1 st, 2011. 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 111111 should have been paid out of two short codes (111111 and 222222), split evenly between the two. The most recent appointment is for the time period 07/01/10 – 07/31/11. Example 1 51

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

53. n Situation: It is March 13th, 2011. 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

54. n A manual JE is required Since this transfer constitutes activity not related to appointment, then a manual JE will be processed at account 502300. Solution to Example 2 54

55. n Standard Practice Guide 501.09: http://spg.umich.edu/pdf/501.09.pdf Policy on Retroactive Salary Distribution Changes n Sponsored Transfer Guidelines: http://www.finance.umich.edu/finops/programs/effortrptg/ principles n Non-Sponsored Funds Retroactive Salary Distribution Change: http://www.finance.umich.edu/finops/programs/rules/retro salarytsfNonSP Transfer - Useful Links and Resources 55

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

57. 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

58. JOURNALS Sample Journal Entry AcctFundDeptProgClassP/GAmt 62435040000753060DISCR61000U0304411500.00 62421040000193000FACAW21000U013848(1500.00) n Transfer Matrix file is a useful guideline on proper account usage –In this case, per the file, a debit to acct 624350 and a credit to acct 624210 is appropriate 58

59. 59 JOURNALS RESOURCES n Journal upload template http://www.finance.umich.edu/finops/accounting/forms/upl oadtemplate n The all funds Valid Account List defines what revenue and expense accounts are allowable, unallowable, exceptions, or for Fin Ops use only. http://www.finance.umich.edu/finops/accounting/quicklink s/validaccounts n Transfer Account Matrix http://www.umd.umich.edu/fileadmin/template/businessaff airs/files/Financial_Budget_General_Services_- _FILES/Accounting/TransferMatrix.pdf

60. 60 QUESTIONS