Student Affairs Buying 101

Student AffairsBuying 101

Budgets, Accounting, and Timelines

Students First

Topic 4

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• The importance and use of budgets

• The accounting structures used to record purchasing-related transactions

• The importance of segregation of duties

• The Budget-to-Actual accounting report known as the “90 report”

• Key budget, accounting, and purchasing-planning timelines

Topic Objectives

To provide an overview of . . .


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Importance and Use of Budgets

Budgets are a key management tool that help

• Allocate scarce resources (money and people) to institutional priorities

• Ensure effective fiscal planning and management of resources

• Identify accounting effectiveness or shortfalls

• Communicate authorized spending levels

See Appendix F for Budget Information.

Student Affairs auxiliary budget information is available at:http://studentaffairs.osu.edu/intranet/fiscal/reports.asp

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Budgets are established at each institutional level.

State BOT University

At each institutional level . . .

• Establish & communicate institutionalresource priorities• Provides planning guidelines and requirements• Reviews budget of lower level unitsand communicates approvals• Reviews budget to actuals to ensurecompliance with budget

• Prepares budget• Provides budget to higher level for reviewand approval• Reviews budget to actuals to ensurecompliance with budget

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Budgets are established at each institutional level.

University(RPIA)

StudentAffairs

StudentAffairsUnits

At each institutional level . . .

• Establish & communicate institutionalresource priorities• Provides planning guidelines and requirements• Reviews budget of lower level unitsand communicates approvals• Reviews budget to actuals to ensurecompliance with budget

• Prepares budget• Provides budget to higher level for reviewand approval• Reviews budget to actuals to ensurecompliance with budget

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Within Student Affairs

• Each department has a budget that is reviewed and approved by the Vice President of Student Affairs (through the Associate Vice President – Bill Schwartz)

• The Student Affairs budget must comply with budgetary requirements established by the University

• Once approved by the University (RPIA), becomes a large part of the University’s budget

• The University’s budget is then reviewed and approved by the Board of Trustees

• The University’s budget then becomes a part of the State’s overall budget

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The Budget-to-Actuals tell us . . .

• If we are generating the intended income

• If we are staying within our spending constraints

• If we are managing our operations effectively by establishing a plan and sticking to it

• If we must take action to restructure operations or transfer funds to help bring anoperation within its budget

See Appendix G for example accounting reports.

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What happens at HOME if we don’t achieve our budget in terms of income orif we over spend?

• We can cut our spending, or

• Take on another job or work over time, or

• Move money from savings

What happens at OSU if we don’t achieve our budget?

• Reduce our level of service and programs (remember our mission), or

• Take money out of our savings or reduce our planned savings - which impacts our future operations, or

• Take money from other Student Affairs operations to make up the difference

Generally, because most of our operations are not permitted to lose money . . . we

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The University reviews our budget-to-actuals and if our operations run “negative,” we must provide explanations and identify our remediation steps or actions.

Why is the budget important for buying?

• With buying, we are spending the University’s/Public’s money.

• Buying is a significant portion of our overall expenses.

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Effective budgets require an effective accounting (or bookkeeping) system so that we consistently record revenues and expenses in an appropriate manner.

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Accounting Overview

As discussed earlier, the University is required to implement specific accountingrequirements and controls, such as:

• Use of generally accepted accounting principles

• Provide a number of fiscal reports and information to various State agencies,vendors, employees, investors, donors, federal agencies, and etc.

• Various accounting controls, such as Budgets Segregation of duties

. . . So, to understand our budgets, we must have a basic understanding of the accountingsystem that has been implemented by the University.

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Accounting Overview

In July 2000, the University implemented its PeopleSoft accounting system that combined the following business processes/modules:

The General Ledger is the accounting hub of these primary systems. For example, if your operation purchases new furniture, the purchasing information is recorded in the Purchasing module and the “encumbrance” amount is sent to the General Ledger. When the furniture comes in, it is recorded in the asset management module. When the invoice is received and matched to the purchase order and receiving document, the invoice is processed for payment as a voucher in the Accounts Payable module, which then pays the vendor and records the actual expenses in the General Ledger. Anyone having access to the PeopleSoft system, should have access to the Brio/Hyperion (web-based) accounting reports.

General Ledger

HumanResources

PurchasingAccountsPayable

AssetManagement

Reports

BRIO/Hyperion

Others

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Accounting Overview

With the implementation of the PeopleSoft accounting system, an accounting structure was established across the university that segmented the “account” into more than sixsegments. [The combined accounting segments is referred to as the “chartfield”.]

• *^Fund – 6 digits – identifies the source or purpose of the monies (consider this as the home checking or savings account)

• *^ORG – 5 digits – identifies the organization or department for which the transaction originated. At home, this may be the spouse that is making the purchase or writing the check.

• ^Program – 5 digits – identifies transactions for additional tracking purposes for the fund or organization. For example, in Student Affairs, we use a program number to track the expenses associated with “Move In”

(Account Structures continued on next page)4-13

* As a minimum, each accounting transaction must include Fund, ORG, and Account.

^ For budget purposes, Student Affairs budgets for Fund, ORG, Program, and Account.


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Accounting Overview

Account Structures (Continued)

• Project – Up to 15 digits – provides additional information. A project must have a definite start and end date. Student Affairs uses project numbers to track expenses for various renovation/construction projects.

• User Defined – Up to 6 digits – Allows additional detail tracking of transactions, generally used at the department level.

• *^Account – 5 digits – identifies the specific types of assets, liabilities, equity, revenue, or expenses for the transaction.

* As a minimum, each accounting transaction must include Fund, ORG, and Account.

^ For budget purposes, Student Affairs budgets for Fund, ORG, Program, and Account.

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Accounting Overview

Key Account Numbers

• 1xxxx – Assets (e.g., cash, accounts receivable)• 2xxxx – Liabilities (amounts we owe others)• 3xxxx – Equity (the actual cash value of the operation – what is left after we

subtract the liabilities from the assets). (Retained Earnings)

Balance Sheet Accounts:

• 4xxxx – Revenues (money that we receive for our goods and services)• 6xxxx – Expenses (money we have paid for our payroll, goods and services)

Income Statement Accounts:

Net Income = Revenue - Expenses

Net Income is added (subtracted) to/from Equity.

At the end of the fiscal year, the total Net Income is moved to equity. Revenue and expenses begin again at zero for the new fiscal year.

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Items purchased that do not use the appropriate chartfield are possible indications of the following issues/problems:

• Incorrect Fund – it is possible that the expense is not permitted for the fund that is used.

• Incorrect ORG, Program, or Account – inaccurate accounting and budget matching.

• Incorrect Project – project expenses may be recorded incorrectly, therefore, providing inaccurate capital improvements information which may lead to inaccurate university depreciation calculations.

• If any of the above – these may be indications of insufficient management reviews (monitoring) and controls.

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Accounting Overview

Why is the accounting information important for buying?

• Use our Procurement Card• Purchase items from Stores• Create a requisition

Whether we

If we do not properly record the expense (from the initiation of the transaction):

• Create a purchase order• Travel• Process a reimbursement

• Any payments made will be recorded to an inappropriate chartfield• Problem identification and corrections will be required (this takes away valuable time)

(In FY06 Business Office generated 13,394 JE lines, with 4,132 (30.8%) being corrections for various operations)

• Current and future comparisons with budget to actuals may by misleading or incorrect• Financial/Business decisions at multiple levels may be made based on incorrect

information• We may not be in compliance with Generally Accepted Accounting Principles• Because we do pay taxes (unrelated business income tax, sales tax) and overhead to

the university, we may not be in compliance with tax requirements or we may be losing money, needlessly

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Accounting Overview

What is the difference between an Actual Expense and an Encumbrance?

Actual Expense – the amount we actually paid for the goods and services (the amount of the check)

Encumbrance – the amount of our commitment that has not yet been expensed (paid).

For example: When a purchase order is created, the purchasing module provides the commitment amount (encumbrance) to the general ledger. By reviewing our various accounting reports, we can see the amount remaining in the budget. When the item is paid, the encumbrance amount for that item is reversed.

By accurately identifying our purchase order amounts we should be able to fairly accurately predict the budget amount remaining.

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Accounting - Segregation of Duties

Two Key Rules for Segregation of Duties:

• The individual purchasing or receiving the items is not the individual that authorized the purchase.

• The individual that enters the transaction into PeopleSoft is not the individual that reconciles the general ledger to the supporting documentation.

Segregation of Duties -- assigning incompatible duties or functions to separate people to provide reasonable assurance against fraud and provide an accuracy check of the other person’s work. Required by GAAP to help ensure the integrity of the financial information, and more importantly, to protect the integrity of our staff.

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The individual purchasing or receiving the items is not the individual that authorized the purchase. WHY?

• To protect the individual/unit by helping to ensure that items being paid by publicfunds are needed, and will be used appropriately within the organization.

• The operation may not be getting the best goods and services for the best price.

• The operation may not have the budget (funds available) for the purchase.

• A majority of buying-related fraud is a direct result of unauthorized purchases. Examples:

Items could be purchased from a family member or other relationship (conflict of interest). Items could be shipped to the employee’s home address and never received. The person placing the order may be receiving a “kick-back” by the vendor. (many others)

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The individual that enters the transaction into PeopleSoft should not be the individual that reconciles the general ledger to the supporting documentation. WHY?

• Reconciliation is a primary control to ensure that what was received and paid-for is appropriate and properly recorded.

• If the individual that entered the transaction (e.g., purchase order/requisition) makesa mistake, it is less likely to be caught and corrected.

• A frequent purchasing-related fraud may happen when a buyer creates a purchase order(or etc.) that is unapproved and has the items sent directly to a friend or their home. It is the reconciliation that would help identify this.

By ensuring that the individual that enters the transaction into PeopleSoft is not the onewho reconciles the transaction to the general ledger and supporting documentation,we help protect our employee by ensuring that these types of transactions should notoccur.

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Reporting

How do you know the financial status (actual vs. budget) for each operation and account?

General Ledger

Reports

BRIO/Hyperion

Options:

• Contact your fiscal support staff• Obtain the reports directly from BRIO/Hyperion• Use the custom reports provided on the Business Office web pages, located at http://studentaffairs.osu.edu/intranet/fiscal/

See list of financial training courses provided by the university for additional information on reporting.

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Stu. Affs.Data Bases

Stu. Affs.Reports

ExtractData

Intranet


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Timelines

By understanding the timing for accounting, budgets, and procurement activities, we should be able to anticipate and plan our activities, purchases, and support our staff.

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Accounting Timelines

• Fiscal Year – ends on June 30th and the next fiscal year begins on July 1st.

• Fiscal Year Close – the university generally establishes around July 20 th as the finalclose for the fiscal year. Therefore, at the end of the fiscal year, through around the 20th of July, most of the accountants and fiscal staff members are extremelybusy ensuring all entries are loaded into the general ledger for year end.

• Monthly Final Close – the final month-end close is the end of the 5th working dayfollowing the end of the month; after this, the prior month’s fiscal reports arecomplete and ready for review.

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Let’s take a look at an example of budgets and the impact of NOT staying within the approved budget.

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Budget ImpactSituation:

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4-26B

Situation: XYZ Food Operation

If supplies cost $40 for the month instead of $30, how much NEW revenueis required to cover this $10 expenditure overage to bring us back to the desired $31.50 Net Income?

Assume that we do not need to collect any taxes on the new sales.

Which is the most correct answer? A. $10.00 of new sales to cover the difference. B. $11.53 of new sales to cover the difference. C. $22.83 of new sales to cover the difference. D. $23.53 of new sales to cover the difference.


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What are some of the hidden costs that are not included? A. The additional cost of marketing to generate the new customers/sales B. The additional cost of buying, receiving, accounting, paying for the additional inventory needed C. The additional cost of rent for the facilities, we often pay rent based on the gross revenue D. The additional cost of needed supplies to support the additional sales E. The additional cost of staff and benefits associated with attracting and servicing the additional sales

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Student Affairs Buying 101

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