Best Practices of Self-Supporting and Agency Funds
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Best Practices of Self-Supporting and Agency Funds March 9, 2015; 9:00 – 10:15am March 9, 2015; 10:30 – 11:45am
Transcript of Best Practices of Self-Supporting and Agency Funds
Best Practices of Self-Supporting and Agency Funds
March 9, 2015; 9:00 – 10:15am
March 9, 2015; 10:30 – 11:45am
Workshop Presenters
Roger Fredenhagen
Self-Supporting and Financial Analysis Coordinator
Michelle Flack
Financial Accounting and Reporting Analyst
Bridget To
Financial Accounting and Reporting Analyst
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Please …
• Silence cell phones.
• Avoid side conversations.
• Ask questions anytime!
• Sign the attendance roster.
• Complete the evaluation after the workshop.
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Workshop Topics
• Self-Supporting Funds
• Fact Sheets
• Sales Tax
• Unrelated Business Income Tax (UBIT)
• Excess Funds
• Agency Funds
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Self-Supporting Funds Defined
“Self-supporting funds are used to record revenue and expenses generated from the sale of products or services to University departments, students/faculty/staff, or the general public which support and enhance the programs and missions of the University.”
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Self-Supporting Funds Defined
“Self-supporting funds are used to record revenue and expensesgenerated from the sale of products or services to University departments, students/faculty/staff, or the general public which support and enhance the programs and missions of the University.”
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Self-Supporting Funds Defined
“Self-supporting funds are used to record revenue and expenses generated from the sale of products or services to University departments, students/faculty/staff, or the general public which support and enhance the programs and missions of the University.”
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Self-Supporting Funds Defined
“Self-supporting funds are used to record revenue and expenses generated from the sale of products or services to University departments, students/faculty/staff, or the general public which support and enhance the programs and missions of the University.”
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Self-Supporting Funds Defined
“Self-supporting funds are used to record revenue and expenses generated from the sale of products or services to University departments, students/faculty/staff, or the general public which support and enhance the programs and missions of the University.”
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Did You Know…There are Restrictions?
• Activities must support and enhance the programs and missions of the university
• Funds are expected to break even over time
• Expenditures must be related to the income generated within the fund
• Funds cannot be used for discretionary purposes
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Self-Supporting Fund Types
3E: Service and Storeroom Activities
(internal units)
3J : Auxiliary Enterprises Not
Under Indenture
(students/faculty/staff)
3M : Auxiliary Enterprises
Under Indenture
(students/faculty/staff)
3Q: Departmental
Activities
(general public)
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Entity Codes at a Glance
3E: Service and Storeroom Activities
• 3100 - Communication & Computing Services
• 3110 - Plant & Service Operations
3J : Auxiliary Enterprises Not Under Indenture
• 3200 - Student/Staff Programs
3M : Auxiliary Enterprises Under Indenture
• 3300 - Housing & Food Service
• 3310 - Student Activity Facilities
• 3320 - Parking
3Q: Departmental Activities
• 3400 - Instructional Course Activities
• 3410 - Professional Development Activities
• 3420 - Unique Programs
• 3430 - Agricultural Operations
• 3440 - Public Service & Academic Support
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Why Do We Need These Codes?
Entity Codes
LAC Guidelines
Financial Statement Reporting
Excess Funds
CalculationF&A Rate
Calculation
Equipment & Fixed Assets
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Where Do You Find These Codes?
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Self-Supporting Funds
To Create…
• Complete Fund, Program, Index Request form– New questions such as:
• Rate calculation for all self-supporting fund types
• Multi-year pro-forma budget• Surplus/Deficit Plan• Any revenue-generating
agreements, contracts, or other documentation related to the activity
– Attestation statement required
To Terminate…
• Units should terminate funds if– Original purpose of fund has
changed– No revenues/expenses in
recent years– Activity has ended
• Benefits of termination– One less CFOAPAL string – One less fact sheet
• Old funds cannot be used for new activities
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Best Practices
• Perform reconciliations regularly
• Terminate unused funds (even with balances)
• Review rate annually
• Ensure activity matches fund’s purpose
• Use appropriate account codes for entries
– Ex. 305300 vs 307900 for conference registrations
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Fact Sheets
Required for all self-supporting funds
Provides information to convert cash basis accounting to accrual basis accounting
Accrual adjustments entered as of 6/30/YY; reversed on 7/1/YY
Due 7/15/15 (after period 12 close)
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Fact Sheet Reporting Items
Inventory
External receivables not recorded in Banner AR & amounts deemed uncollectible
Deferred revenue
External payables not recorded in Banner
Prepaid expenses
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Should You Report It?
In June, you received $20,000 in registration fees for a conference your department is putting on in July 2015.
Since the conference is in FY16, all of the revenue needs to be deferred to that year. Report on ‘Deferred Revenue’ tab.
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Should You Report It?
You bought a maintenance agreement in December 2014 for calendar year 2015.
50% of the agreement’s amount need to be deferred to FY16. Report on ‘Prepaid Expense’ tab.
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Should You Report It?
You bought a computer in May for an administrative assistant.
Since the computer is equipment, it would not need to be recorded on the ‘Inventory for Resale’ tab.
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Should You Report It?
You collected a fee for two orientations; one in June and the other in August.
The fees associated with the August orientation need to be deferred to FY16. Record on ‘Deferred Revenue’ tab.
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Should You Report It?
You bought all the materials in May for the two orientations on the previous slide.
Even though the materials were bought in FY15, the portion relating to August needs to be deferred to FY16. Record on ‘Prepaid Expense’ tab.
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Should You Report It?
You counted 20 brochures on your shelf that you sell to local farmers.
This is an item for resale. Record on ‘Inventory’ tab. Note –record even if the number of items has not changed.
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Should You Report It?
You performed testing services for XYZ Co. in May; they paid 60% of the bill on June 28.
40% of the bill is still a receivable at year end. Record on ‘Accounts Receivable’ tab ONLY if not already recorded in Banner.
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Should You Report It?
You bought shirts for $4 each and sold them for $10 each. You still have some left over to sell next year.
The remaining shirts for resale need to be recorded as the lesser of cost or FMV on the ‘Inventory’ tab.
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Should You Report It?
Housing sold catering services to your college for a graduation lunch; you have not paid the bill.
Neither you nor housing would list this outstanding item on the fact sheet. Internal sales should not be accrued.
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Should You Report It?
You purchased three computers in June. The vendor shipped them FOB shipping point on 6/28 but you did not receive them until 7/3.
As soon as the vendor ships the items, your department is liable for the goods. Record on ‘Accounts Payable’ tab.
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Should You Report It?
You have 100 copies of the 2012 edition of “Technology Today” brochure; you only sold one in FY15.
Inventory for resale needs to be recorded on the ‘Inventory’ tab. Note – type “no” under ‘Items sold on regular basis’ column.
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Should You Report It?
At year end your fund balance is $250.
Surplus balances are not the same as deferred revenue. They will carry over automatically into the new FY and should not be recorded on fact sheet.
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There are
self-supporting funds at UIUC
Best Practices
• Start tracking items now
• Attend a fact sheet webinar
• Work on your fact sheet early!
• Call with any questions
• Allow time for questions after submission
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Sales Taxes
• Exempt from sales & use taxes in Illinois
• Not exempt from Hotel Operators’ Occupation Tax
Taxability of Purchases
• Sales of tangible property
• Includes sales from fundraisers or clothing to students, employees, alumni or other individuals
Taxability of Sales
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Illinois Tax-Exempt Sales
Sales in interstate commerce
Sales for resale
Sales of service
Other items
specifically exempted
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MYTH or FACT
The university is exempt from sales taxes.
No sales taxes are due on purchases; however, we are required to collect sales taxes on sales of tangible property.
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MYTH or FACT
There is only one Illinois tax rate.
There are multiple tax rates depending on the location of the sale.
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MYTH or FACT
Sales of t-shirts to students are exempt.
All non-exempt end users must pay sales tax.
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MYTH or FACT
Collecting sales tax is easy to do.
There are two ways to collect taxes:
1) Include it in the price
2) Multiply the rate by the price and add to price.
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Example
Shirt = $10 sold in Champaign (9% tax rate)
Option 1
Amount Collected: $10.00
Sales Price: ($10 / 1.09) $9.17
Tax: $0.83
Option 2
Sales Price: $10.00
Tax: ($10 x 0.09) $0.90
Amount Collected: $10.90
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MYTH or FACT
Reporting to UAFR is required when collecting Illinois taxes.
Currently, collected taxes are deposited to a tax liability fund; no reporting required.
In the near future, the process will change.
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New Illinois Sales Tax Process
UAFR
Records the taxes and reduces the unit’s revenue
Files tax returns
Unit
Deposits sales proceeds and taxes as sales revenue
Completes a monthly tax report and submits to UAFR
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MYTH or FACT
Taxes are collected for sales to other states.
We are required to collect taxes for several other states.
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Taxes for Other States
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Best Practices
• Build tax rate into price
• Retain certificate from exempt customers
• Download a new tax template every month
• Contact us with questions
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Unrelated Business Income Tax (UBIT)
UI exempt from income taxes on normal, related university activity
In order to be subject to UBIT, the activity must be…
• Trade or business
• Regularly carried on
• Not substantially related to any IRC §501(c)(3) purpose
A department may have multiple UBI activities.
It is important to continually evaluate the sources of your external income for potential UBI.
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UBIT Examples
• Event sponsorships with advertising
• Publication advertising sold to external customers
• Routine testing services (not related to research)
• Rental income with services provided
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UBIT Examples
Vet Med Memorial Stadium
University of Illinois
Press
Campus Rec
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So You Think You Have UBI…
• What should you do?
– Do nothing; it’s accounting’s responsibility to figure it out
– Contact University Accounting
– Complete questionnaire
– Terminate the fund
– Report it on your fact sheet
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Best Practices
• Track your external revenue and evaluate annually for UBI
• Track & document all expenses related to the revenue
• Document your allocation methods
• Complete the standard annual template
• Call us with any questions
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What are Excess Funds?
• Required by Legislative Audit Commission “University Guidelines”
– Limits the amount that can be retained from year-to-year
• Calculation based on entity totals
• Cash balances that exceed a prescribed formula
• Excess is lapsed to the University’s Income Fund
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Excess Funds Formula
Cash
Less highest month expenses
Less deferred revenue and deposits
Less accounts payable / accrued payroll
Less other adjustments
Equals Excess Funds
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Best Practices
• Review your rate annually
• Ensure all related expenses are recorded in the fund
• Report all payables and deferred revenue on your fact sheet
• Monitor activity in your fund
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Agency Funds Defined
A type of fund where the university holds money on behalf of an outside entity and acts minimally as its fiscal agent, forming an agency relationship.
• Must be related to the university’s mission
• Must be for non-university activities
Agency Funds Defined
• Corporation
• Government
• Not-for-Profit
• Unincorporated Association
• Individual
Owner can be
any entity:
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Agency Funds at a Glance
9A: Agency – Payroll
• Payroll / Benefit Withholding
9D: Agency – Other
• URO/consortia/similar
• Hosted conferences
• Athletic booster clubs
• Academic associations
• Study abroad students
• Private financial aid
9G: Agency – Student Organizations
• Student organizations (includes some staff and similar organizations)
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Did You Know…There are Restrictions?
• University’s sales tax exemption number cannot be used for purchases
• Transaction processing only
• Services not provided:– A/R
– Tax (except 1099/NRA reporting)
– Insurance/risk management
– Legal counsel
• Inactive surplus balances not returned to the owner are subject to unclaimed property requirements
Additional Things to Know
• Defer to existing campus policies on space use
• Additional information on procurement (iBuy, TEM & P-Cards), conferences, non-resident alien payments, and other processes will be released as finalized
• Currently student organizations are not covered by this policy
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Agency Funds
To Create…
• Complete Fund, Program, Index Request form– Supplemental information tab:
• Define University relationship with owner
• Discuss relation to University mission
• Deficit disclosure
• Transfer of activity to a new institution
– Attestation statement required
To Terminate…
• Units should terminate fund when the relationship ends.– In the event of a surplus:
• Complete a “Request to Return Agency Funds to Owner” Form:
– Payee vendor ID required
– Process in TEM
– In the event of a deficit:• Collect balance due from
owner
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Implementing Agreements
All new agency funds will be required to have agency agreements prior to the establishment of the fund.
• Assure understanding of agreement terms and requirements
All existing agency funds will be required to have agency agreements by June 30, 2016.
Best Practices
• Prepare monthly reconciliations
• Review for possible overdrafts
– Undisclosed deficits may result in fees
• Provide regular reports to the owner
• Keep current contact information of owner
• Terminate fund when activity ends
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Self-Supporting Funds
AgencyFunds
Inactive funds report to unclaimed property
Owner sales tax status
Their money
Non-university activity
Inactive funds stay in Banner until terminated
University sales tax exempt status
Our money
University activity
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Workshop Summary
• Self-Supporting Funds
• Fact Sheets
• Sales Tax
• Unrelated Business Income Tax (UBIT)
• Excess Funds
• Agency Funds
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Contact Us
• Michelle Flack
– 217-300-0291
• Roger Fredenhagen
– 217-333-7156
• Anne Koester
– 217-300-1793
• Bridget To
– 217-244-7329
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Resources
• Accounting Reference Materials (including FAQs)
– http://www.obfs.uillinois.edu/accounting-financial-reporting/reference-materials
• Self-Supporting Fund Policy
– https://www.obfs.uillinois.edu/bfpp/section-22-self-supporting-revenue-generating/
• Agency Fund Policy
– https://www.obfs.uillinois.edu/bfpp/section-2-agency-funds
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Resources
• Banner Fund, Program, Index Code Request Form
– https://www.obfs.uillinois.edu/forms/accounting-financial-reporting/
• Sales Tax Information
– https://www.obfs.uillinois.edu/bfpp/section-18-taxes/section-18-6
• Unrelated Business Income Tax Information
– https://www.obfs.uillinois.edu/bfpp/section-18-taxes/section-18-13
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Training Opportunities
http://www.obfs.uillinois.edu/training/materials/accounting/
• Introduction to Self-Supporting Funds (GL105)
– Includes fact sheet information
• Managing Self-Supporting Funds (GL205)
• Fact Sheet Webinar
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Questions
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