Finance Demonstration Script :Budgeting

By June 21, 2015

A large number of stakeholders, as detailed below, are involved at various levels in the budgeting process. Thus, the budget process must have flexibility in the span of authority allowed to create, review and monitor budgets. Also, all of these stakeholders should be provided with tools and information to perform their respective functions in the budgeting process. Stakeholders include:
• Fiscal technicians & clerks
• Fiscal administrators
• Department & division managers
• Principal investigators & Research Administrators
• General accounting department
• Major budget units (MBU) – (i.e., Schools, auxiliary areas, etc.)
• Vice Presidents & Provosts
• Central Budget office
• Board of Visitors & Senior Cabinet
Preparation and Submission
Budgets need to be created at different levels (possibly as low as the faculty member level), and individual budgets need to be aggregated at different levels (i.e., roll up data to see a bigger picture). Regardless of which stakeholder prepares the initial budget, they should have the ability to:
• Use smart templates as an aid in creating the budget; for example, automatically calculate indirect costs and fringe benefits
• Create budget models and what-if scenarios
• Budget by person, unit, or project, as applicable
• Budget down to different levels of detail for different accounts
• Maintain different fiscal year budgets concurrently, and process transactions against either
• Monitor sources and uses of dollars
In addition, the budget process/system needs to accommodate various budget cycles and shared budgets across different MBU’s.
Review and Approval
The budget review process needs to be flexible in order to allow varying review and approval paths by MBU, type of budget and budget attributes. Depending on how many of the business rules are built into the system, training will be required to handle the flexibility in policies. The status of the budget review should be tracked.
Those reviewing the budget should have the ability to:
• Review on-line, whether the reviewer is internal or external to institution
• Review and approve a budget at different levels of detail, or in aggregate
• Easily identify deviations to non-standard budgeting or violations of business rules
Implementation
Budget activation should require a minimal amount of intervention, assuming all appropriate reviews and approvals have occurred. Features include the ability to:
• Activate a new budget while the current budget is active
• Activate a new budget at whatever level of detail the department creates it
• Activate a budget based on user selected attributes, i.e., event driven
• Automatically feed budget data to other systems, such as Payroll and the General Ledger
Amendments
As in the current process, stakeholders should have the ability to amend budgets for accounts within their purview in whatever way is necessary, so long as the overall budget is not impacted. This will include the ability to:
• Enter amendment information on-line for a business unit’s own accounts
• Process temporary and permanent amendments
• Process amendments that impact different fiscal years (i.e., future dated budgets)
• Access detail to assist business units in generating custom reports for Monitoring Budget amendments will continue to require approvals as determined by the Major Business Unit. In certain circumstances, amendments will be automatically generated based on expenditures (budget bump).
1.1.1 Budget Planning/Assumptions
The Trustees for VU have decided that resident tuition rates should not increase more than the rate of inflation over the next five years. Based on previously defined rates of inflation, salary increases and limits on state appropriations, it is important to be able to define the impact of tuition increases on the budget.
1.1.1.1 Show how all budgets controlled by Dean can be copied from the current fiscal year to the next fiscal year.
1.1.1.1 Demonstrate the ability for Business to store and incorporate assumption information into the budget and forecast planning process.
1.1.1.3 Demonstrate the ability to communicate assumptions and distribute allocations top down or bottom up using electronic means.
1.1.1.4 Demonstrate capability to maintain various budget versions to demonstrate changes that have been made as the budget moves through multiple approval steps to final adoption.
1.1.1.1 Demonstrate ability to support budgeting under varying budget models (e.g. incremental, zero-base, responsibility center, etc.) and multi-year budgets.
1.1.1 Budget Preparation
All operating units of VU must have the ability to prepare budgets flexibly to meet both the needs of the central university and the particular managerial requirements of the operating unit. The budget represents the critical yardstick against which operational effectiveness is measured.
Dean undertakes an annual budgeting process that includes state funds, funds from sponsored research grants, local funds from endowment income accounts, and non-university funds derived from a separate (university-related) foundation that supports Dean’s School. Dept1 and Dept1 have budgets that they “own” and budgets that they share. Faculty1 receives some funding from both Dept1 and Dept 1.
In addition, Dean also has a modest amount of discretionary funds that she uses to support academic programs. These funds derive from local funds, state funds, endowments and gifts, and indirect cost recoveries. Allotments for program support vary widely in terms of the duration of the allotment, the type of expenditures that will be made, the sharing of the commitment with other schools and departments, and the revenue sources. Dean currently has to track, separately, 600 individual allotments that have been made since she became dean 11 years ago. The original amount of each allocation, the expenditures to date, expenditures this month, and the unexpired balance of the allocation must all be tracked on at least a monthly, if not weekly, basis. The information on the status of these 600 allotments forms the basis for Dean’s monthly financial report. Since many of the allotments are shared with other schools and departments, this same information is required for the financial reporting systems in those units as well.
INTEGRATION POINT WITH GENERAL LEDGER:
A critical feature of the system is its ability to create and maintain project or program budgets in parallel with the general ledger reporting and reconciliation functions.
Dept1 and Dept1 decide to fund a start-up package for Faculty3. The total is $300,000 and the “project” year runs from January 1 through December 31 of each year. The project will be funded at $100,000 per year for each of the three years. The budget will contain $100,000 for technician salaries, $11,000 for their fringe benefits, $10,000 for stipends for graduate students, $80,000 for equipment, and the remainder of $41,000 for supplies, reagents, copying, phones, etc. No travel will be allowed from any of these funds. Dept 1 will pay 60% and Dept 1 will pay 40%. In addition, Dept 1 agrees to pay for all of the equipment from its 40% share.
Dept1 will use their overhead account and a gift account to fund their share of the expenses. Each of these accounts will provide $90,000 but Dept1 would like the first $90,000 to come from the overhead account since the gift account is allowed to earn interest.
Dept1 will fund the equipment from restricted equipment funds (there is a separate account code available for this program). The remainder of their share ($40,000) will be paid from a grant that is available only in year 1 of the project.
1.1.1.1 Show how the budget is established for this project.
1.1.1.1 Show how both Dept1 and Dept1 can approve the budget before it is sent to Dean for final approval.
INTEGRATION POINT WITH GENERAL LEDGER:
1.1.1.3 Show how Depts. 1 and 1 can determine the status of their remaining commitments to this project and how the expenses charged to the project are reported on each department’s reports for the accounts (fund sources) used to support the start-up package.
1.1.1.4 Faculty3 tries to pay for an airplane ticket from the project funds. What happens when he tries to do this?
1.1.1.1 Dept1 wants to see a report on the graduate student expenses only. These expenses have their own object code. Show how your system would be able to produce this on-line report for Dept1.
1.1.1.6 Faculty3 lobbies Dept1 for more money and an additional year in which to spend the funds. Show how $10,000 is added to the package for supplies and how a 4th year can be added to the project.
Dean must be able to budget compensation for each faculty member by fund source (ledger and account). Dean must be able to record, at a minimum:
• The per cent of time the faculty member will work during the budget year (full time or part time; if part time, the percent, 10%, 71%, etc.)
• the number of months during the fiscal year that the faculty member will be employed
• the pay cycle (9-month, 11-month, etc.) used for the faculty member, and
• the FTE represented by each fund source that provides compensation to the faculty member
The prototype faculty compensation table (below) is a report that department and school administrators would receive on each faculty member. It contains complete budgeted as well as actual compensation information and a comparison is made between the two. It is not intended to be an input form. Those forms would be much simpler in format and would allow departmental and other authorized personnel to input status changes (pay-cycle, leave status, etc.) and payroll changes (account and amount changes) into the HR system.

PROTOTYPE FACULTY COMPENSATION TABLE

1. SALARY PROFILE:
# OF MONTHS ANNUAL
EFFECTIVE PAY CYCLE FULL OR EMPLOYED RATE ACTUAL
NAME DATE (9,11,ETC.) PART-TIME % THIS F.Y. FTE OF PAY PAY

SMITH, D 10/11/98 11 100 8 0.67 $ 100,000 $ 66,667
(CHANGE 1)
(CHANGE 1)



1. SOURCES OF SALARY
DOLLARS FTE
LEDGER 1 BUDGET $ 10,000 0.10
ACTUAL
START STOP
ACCOUNT DATE DATE RATE AMOUNT
16010 10/11/98 7/14/99 $ 10,000 $ 33,333
(CHANGE 1)
(CHANGE 1)
TOTAL THIS LEDGER $ 33,333 0.33
VARIANCE $ 13,333 0.13

LEDGER 4 BUDGET $ 10,000 0.10
ACTUAL
START STOP
ACCOUNT DATE DATE RATE AMOUNT
47661 10/11/98 7/14/99 $ 11,000 $ 16,667
(CHANGE 1)
(CHANGE 1)
TOTAL THIS LEDGER $ 16,667 0.17
VARIANCE $ 6,667 0.07

LEDGER 1 BUDGET $ 36,667 0.37
ACTUAL
START STOP
ACCOUNT DATE DATE RATE AMOUNT
31000 10/11/98 7/14/99 $ 11,000 $ 16,667
(CHANGE 1)
(CHANGE 1)
TOTAL THIS LEDGER $ 16,667 0.17
VARIANCE $ (10,000) (0.10)

TOTAL FROM VU $ 66,667 0.67

FROM OTHER ENTITY BUDGET $ –
ACTUAL
START STOP
ACCOUNT DATE DATE RATE AMOUNT
(CHANGE 1)
(CHANGE 1)
TOTAL OTHER ENTITY $ –
VARIANCE $ –

TOTAL SALARY SOURCES $ 66,667

3. OTHER COMPENSATION: BUDGET $ 6,000
ACTUAL

TYPE PROVIDER ACCOUNT NOTES AMOUNT
WAGES FBI 6-41000 TEACHING $ 1,000
(CHANGE 1)
(CHANGE 1)
TOTAL OTHER COMPENSATION $ 1,000
VARIANCE $ (1,000)

1.1.1.7 Demonstrate how Dean may create a compensation budget for individual faculty members containing, at a minimum, all of the required information cited above
1.1.1.8 Demonstrate how financial information in the preceding demonstration point can be converted into FTE information for the faculty member as well as for each fund source.
1.1.1.9 Demonstrate how the input of FTE information for the faculty member and each fund source can be converted into financial information for the faculty member and each fund source.
INTEGRATION PONIT WITH PAYROLL:
1.1.1.10 Demonstrate how the system will produce periodic variance reports that will also project the year-end status of the compensation plan for the faculty member based on all available “to date” information.
INTEGRATION POINT:
1.1.1.11 Demonstrate how budgets for Dean’s non-university (i.e., foundation-held monies) accounts can be incorporated into VU’s budgeting system for operating unit managerial purposes, while not being counted as university budgeted funds.
INTEGRATION POINT:
1.1.1.11 Demonstrate how Dept1 and Dept1 can jointly budget for the compensation of a shared faculty member when the two departments are in different major budget units or schools. Each department should be able to view their cash requirements to support the faculty member’s compensation plan as well as view the faculty member’s:
• full compensation
• full or part time status (if part time, the percentage)
• number of months worked in the fiscal year
• pay cycle (9-month, 11-month, etc.)
INTEGRATION POINT:
1.1.1.13 Demonstrate how a 1-year budget prepared for an external sponsor (e.g., NIH, NSF) on a required template can be carried forwarded into the comprehensive university system at the level of Dept1. Also demonstrate how these budgets (e.g., a research grant that is not yet active) can be prepared outside the normal budget preparation cycle and then be rolled into comprehensive budgets when activated.
INTEGRATION POINT WITH PAYROLL
1.1.1.14 Demonstrate how preliminary salary and fringe benefit information, including all of the information in the Faculty Compensation Table can automatically be transferred from the payroll system into a budget template in Dept1.
1.1.1.11 Demonstrate how text, spreadsheets and other supporting documentation can be footnoted to budget figures using “sticky notes” and how these can be printed with the budget.
1.1.3 Budget Review and Approval
The budget review and approval process needs to be flexible in order to allow varying review and approval paths by Major Business Unit, type of budget and budget attributes.
1.1.3.1 Demonstrate the ability for management to review, change, request revisions and approve the budget on-line.
1.1.3.1 Demonstrate the “roll-up” of multiple budgets to a consolidated budget both before and after approval.
1.1.4 Budget Implementation
After budgets have been reviewed and approved, they are “activated”. That is, they are made available to have expenditure and revenue transactions posted against the available funds. Budget activation should require minimum intervention once approval has been received.
INTEGRATION POINT:
1.1.4.1 Demonstrate how budget data is used to update and activate other systems, such as Payroll and the general ledger, without having to re-enter the data (e.g., compensation, funding sources, pay cycle, full time vs. part time, etc.). Specifically, show how effective dates (start/stop dates) are used as well as how events (e.g. receiving grant approval from a sponsor) could trigger the activation of a budget.
1.1.4.1 Demonstrate how FAID can view next year’s aid budget and the impact of financial aid packaging activity against that budget, even though the budget does not become available for expenditures until the beginning of the next fiscal year.
1.1.4.3 Demonstrate the ability to load a budget by summary expenditure category and have the system “draw down” as expenditures are made in detailed expense categories.
1.1.4.4 Demonstrate the ability to have certain budgets track across fiscal years, e.g. project budgets. Please note that these budgets may not start or stop concurrent with a fiscal year.
1.1.4.1 Demonstrate the ability to track the differences between original and revised budgets.
1.1.4.6 Demonstrate the budget amendment process for both temporary and permanent amendments. For example, Dean1 allocates, for this year only, an additional $10,000 to Dept1. Show how this is recorded as temporary in the current fiscal year and then show how it is displayed when preparing next year’s budget.
1.1.1 Budget Monitoring and Reporting
Sponsored Program Budgets
Most internal and external grants at VU start on the first day of any month and have at least a 11-month project period. The project period usually ranges from one to five years and prior to the start of each new grant year a Notice of Award (NOA) is sent from the sponsor detailing the approved budget for the next 11 months. Some grants require 100% expenditure of annual funds within the budget period, but many allow a carryover of unexpended funds as long as the carryover does not exceed 11% of the entire annual budget. It is critical that Principle Investigators (P.I.s) and departmental administrators can easily access and track grant expenditures and encumbrances against the sponsor-approved budget.
Faculty1 has just received a two-year grant for $100,000, to be awarded at $10,000 per year starting in the third month of VU’s fiscal year. The sponsor provides quarterly payments each year and expects a Financial Status Report (FSR) at the end of the first year summarizing expenditures. The grant is assigned a project number for tracking purposes.
1.1.1.1 Demonstrate how this award’s budget can be managed and reported based upon VU’s fiscal year, sponsor’s year or total project period.
1.1.1.1 Demonstrate how Fisadmin also produces a “project-to-date” budget to actual report at any point in the life of the project.
1.1.1.3 Demonstrate how the budget and actuals could be used in forecasting expenditures through the end of a user defined period end-point.
1.1.6 Encumbrances
VU needs flexibility in determining the level of encumbrance (e.g. “hard” encumbering, “soft” encumbering, or no encumbering).
1.1.6.1 Demonstrate the ability to encumber (“soft” or “hard”) or not encumber at the level of fund, project, summary object code, sub-object code or any combination thereof.
1.1.6.1 Faculty1 has overestimated the amount of money in his account. It is, at the moment, overdrawn but there is an additional check on the way from the sponsor. Show how the system will prompt Faculty1 that this is the case. Show how Faculty1 can override this warning and proceed with the purchase.
1.1.6.3 When a buyer places an order with a vendor, how does the encumbrance change into a firm commitment? Show what happens when the requisition is made into a firm purchase order with the vendor. How does the nature of the encumbrance change?
1.1.6.4 Show what happens to an encumbrance when a partial payment is made.
1.1.6.1 Show how subsequent purchases are recorded against a standing purchase order (SPO). Show what the encumbrance on the on-line accounting statement for the account code will look before and after a $1,000 purchase is made against the SPO.
1.1.7 Restrictions
Many of VU’s funding sources have restrictions placed upon them. For example, sponsored research funds are frequently restricted for travel and equipment purchases.
1.1.7.1 Demonstrate the ability to restrict at the level of fund, project, summary object code, sub-object code or any combination thereof. Also demonstrate the ability to restrict one object in relation to the balance of another object (e.g., if you have less than $1100 in the travel budget, then you may not spend the balance on airfare.)
1.1.8 Budget Close Out/Year End
VU has many fund sources, and is accountable to many of these resource providers. They include the central State government, federal/state/private entities that sponsor research and related activities, and donors of gift monies. The funds given by the central State government are given a year at a time, and must be expended before the fiscal year ends on June 30. The funds given by sponsoring agencies are given for work to be done over a period of multiple fiscal years. The funds given by donors have, for the most part, no time period in which they must be spent. The system must be able to accommodate all three types of accounts mentioned above.
1.1.8.1 Demonstrate how the different year-end budget balance treatments of “zeroing out” and/or “rollover” occur in the system for the three types of accounts below:
1. Account 1, which is funded from state appropriations. The unexpended balance of a $1000 initial budget must be returned at year-end, and its year-end budget balance of $300 must be “zeroed out.”

2. Account 1, which is a sponsored program account with a $10,000 project budget. It has $30,000 of unspent budget balance at year-end that should carry forward (“rollover”) into the new fiscal year.

3. Account 3, which is a gift account with an original gift of $10,000. The unexpended balance of $6000 should carry forward (“rollover”) into the new fiscal year.
Rollover of Cash and Budget Balances: As a public research university, VU has many sources of funding, including state appropriations and private donations, etc. Any state appropriations not spent by year-end revert to the state, thus requiring balances (cash and budget balances) in these types of accounts to be “zeroed out” at year-end. Accounts funded by private donations do not revert, and their balances roll forward “as is” at the beginning of the new fiscal year.
1.1.8.1 Demonstrate how both of these requirements can be accommodated.
1.1.8.3 Demonstrate the ability to book an expense in April but process it in May.
1.1.8.4 Show how to process an expense in the current fiscal year but book it in the previous fiscal year.
1.1.9 Integration with Cash Management
The examples above refer to BUDGET balances, which represent the authority to spend an account’s balance. But closing out an account’s budget balance has cash balance implications as well.
1.1.9.1 Show the effect on the cash balance of “zeroing out” Account 1’s budget balance.