Reserves, Carry-Forwards, and Over-Expenditures
UPPS No. 03.02.01
Issue No. 7
Effective Date: 10/13/2014
Next Review Date: 8/01/2019 (E5Y)
Sr. Reviewer: Assistant Vice President for Budgeting, Financial Planning and Analysis
briefly explains fund accounting and defines available reserves and Method of Finance;
outlines procedures for budget carry-forwards, especially for Method of Finance accounts;
outlines procedures for use of available reserves by non-Method of Finance funds;
prescribes treatment for over-expended accounts and deficit fund balances; and
specifies and explains Texas State University’s available funds targets.
FUND ACCOUNTING, AVAILABLE RESERVES, AND METHOD OF FINANCE
Texas State, like most universities, uses fund accounting to properly account for all financial resources received and used. Fund accounting classifies all resources into funds according to specific limitations placed on their use by the resource providers.
Each fund is a self-balancing set of accounts. Each fund has its own revenues and other additions, expenditures and other deductions, assets, liabilities and a fund balance.
A change in fund balance represents the difference between fund additions and deductions. A fund balance is the sum of previous changes in fund balance for that fund. A fund balance equals the net difference between a fund’s assets and liabilities.
Not all of a fund balance may be available for budgeting or spending. Some part of it may be reserved to offset non-liquid assets such as inventories or accounts receivable or to offset encumbrances. Available reserves equals fund balance less reserves for non-liquid assets and encumbrances.
Method of Finance is Texas State’s name for a fund group (that is, a group of funds consisting of accounts) funded by general appropriations, interest, and tuition (both Statutory and Designated). Method of Finance does not include accounts that are funded by fees, income generated from sales and services, gifts or grants.
Method of Finance includes most state or educational & general (E&G) accounts as well as the Designated Method fund 20000110XX and the Auxiliary Method fund 30204310XX.
PROCEDURES FOR BUDGET CARRY-FORWARDS AND USE OF AVAILABLE RESERVES
Certain Method of Finance accounts will carry forward 100% of their operating (non-personnel) budget from one fiscal year to the next automatically. Those accounts are standing program accounts and exclude projects, utilities, benefits, and reserves. These carry-forwards will be processed on or about October 16, after final balances are obtained from the General Accounting Office.
Unexpended budgets for restricted non-grant accounts, agency accounts, research enhancement grants and returned indirect accounts will be carried forward automatically on or about September 10.
The budgets for income-generating and fee-based accounts are not typically carried forward. Instead, unexpended revenues collapse to available reserves. Fund managers can draw on their available reserves by sending a request to the Office of Budgeting, Financial Planning, and Analysis at firstname.lastname@example.org after October 16, when final balances are obtained from the General Accounting Office. The request should specify the amount and the reason.
Exceptions to policy for carry-forwards and use of available reserves may be approved by the assistant vice president for Budgeting, Financial Planning, and Analysis.
PROCEDURES FOR OVER-EXPENDITURES AND DEFICITS
Account managers are responsible for maintaining budgetary control. For income-generating accounts, account managers should spend less than the funding available (actual income plus available reserves), as well as less than budgeted.
Account managers are expected to make as many mid-year adjustments to expenditure budgets as necessary to balance the account or secure approval for alternate funding sources via the respective vice president.
The assistant vice president for Budgeting, Financial Planning, and Analysis will reduce a Method of Finance account’s current year budget for the over-expenditure of the budget in the prior year unless the deficit is otherwise funded by the divisional vice president or waived by President’s Cabinet. Before a waiver is granted, another source of funds must be identified to cover the deficit.
A deficit fund balance constitutes unauthorized borrowing from the university’s Method of Finance fund group which is funded by appropriations and tuition. The assistant vice president for Budgeting, Financial Planning, and Analysis will work with management to resolve the deficit. The divisional vice president will fund any deficit fund balance unless waived by the President’s Cabinet. Before granting a waiver, the President’s Cabinet must identify a source of funds to cover the deficit.
AVAILABLE RESERVE TARGETS
Adequate expendable reserves are necessary in the event of revenue or expenditure fluctuations. The adequacy of available reserves is measured by the available funds ratio which is calculated as follows:
available reserves / budgeted expenditures and transfers
Available reserves include those defined in Section 02.02 above, plus relevant unrestricted and uncommitted quasi-endowments. Reserves committed for major expenditures should be excluded from available reserves in the calculation of the available funds ratio.
According to published by the National Association of College and University Business Officers: “Available funds ratios between .2 and .5 indicate a good financial cushion to absorb shocks from revenue or expenditure fluctuations.” Texas State has targeted an available funds ratio of at least .2 for the Method of Finance fund group as well as all current unrestricted funds combined.
Fund managers should target available funds ratios for their individual funds based on the potential volatility of revenues and expenditures of those funds. Fund managers should consult with the assistant vice president for Budgeting, Financial Planning, and Analysis on the appropriate financial cushion. An available funds ratio of less than .2 may be targeted if volatility is low.
REVIEWERS OF THIS UPPS
Reviewers of this UPPS include the following:
Position Date Assistant Vice President for Budgeting, Financial Planning, and Analysis August 1 E5Y
This UPPS has been approved by the following individuals in their official capacities and represents Texas State policy and procedure from the date of this document until superseded.
Assistant Vice President for Budgeting, Financial Planning, and Analysis; senior reviewer of this UPPS
Vice President for Finance and Support Services