FOUNDATIONS IN UNIVERSITY FINANCE AUXILIARY ACCOUNTING · Auxiliary Accounting ... • KFS Transfer...

FOUNDATIONS IN UNIVERSITY FINANCE

AUXILIARY ACCOUNTING

Auxiliary AccountingAuxiliary Accounting

• Distinguish between auxiliary activity and other fund group activity

• Determine proper KFS document for recording sales and services

• Understand reporting requirements for auxiliary units

• Understand basic financial statements and how they can be used for ALL accounts

I N D I A N A U N I V E R S I T Y 2

Kathy CochardAuxiliary Accounting Manager

Participant Outcomes

Mission of Auxiliary AccountingMission of Auxiliary Accounting

• Uphold the integrity of the general ledger by:• ensuring compliance with authoritative accounting

standards and university policy;

• developing, maintaining and enhancing university financial systems and reporting tools related to auxiliary accounting

• Achieve excellence in customer service by:

• providing consulting services and training to support effective and efficient accounting and business operations


What is an Auxiliary Unit?What is an Auxiliary Unit?

aux·il·ia·ryadjectiveproviding supplementary or additional help and support

IU Definition:A unit that furnishes goods or services to any non-Indiana University department and charges a fee directly related to, although not necessarily equal to, the cost of the goods or services. • Includes sales to students, faculty and staff for non-IU

business, or the general public.

• An auxiliary activity is an entity that is regularly carried on and is managed with the intent to be self-supporting.


What is a Service Center?What is a Service Center?

IU Definition:A unit that furnishes goods or services to another IU departmentand charges a fee directly related to, and equal to, the cost of the goods or services.

Additional facts:• Managed as a self-supporting activity that is to operate at

breakeven• Commonly referred to as a recharge center• Rates cannot exceed the rate charged to an external

customer


Auxiliary Enterprises Fund GroupAuxiliary Enterprises Fund Group

• Auxiliary and Service Center activity must be recorded in specific accounts in the AE Fund Group

• Auxiliary accounts begin with 60-XXX-XX• Service Center accounts begin with 66-XXX-XX

• All revenue and expenses related to the activity must be recorded in the same account


Designated Fund AccountsDesignated Fund Accounts

These are institutional unrestricted funds that have been designated for a specific activity/project. Most are budgeted and have a multi-year life. These should NOT contain auxiliary activity. Examples include:

• 20 accounts: Continuing Education • 21 accounts: Public Service • 22 accounts: Faculty Research• 23 accounts: Other (Biggest area of confusion) • 24 accounts: Scholarships and Fellowships

When creating a new account, every fund group and sub-fund should be considered before using a 23 account.


Examples of Auxiliaries and Service CentersExamples of Auxiliaries and Service Centers• University Information Technology Services

• IU Auditorium

• School of Medicine

• Parking Operations

• Physical Plant

• Residential Halls and Dining Services

• Some academic units – Biology Stock Room, Chemistry Stores

• Athletics


What is NOT Considered Auxiliary ActivityWhat is NOT Considered Auxiliary ActivityRevenue from the following is not considered auxiliary activity:

• Instruction. Both credit and non-credit courses and continuing education

• Public Service. Activities providing non-instructional services for the benefit of those external to the institution

• Research Activities.

• Student Services. Activities contributing to the student’s emotional and physical well-being, and intellectual, cultural and social development outside the context of formal instruction program (ex: cultural events, intramural athletics, student organizations)


Which of these activities would be considered “Auxiliary”?Which of these activities would be considered “Auxiliary”?

A. Department is hosting a one day conference for higher education business officers.

B. Department is offering online non-credit courses to the general public.

C. Department is receiving funds from another university to split the cost of a shared program.

D. Department opens a shop that sells books and departmental logo items.


A. B. C. D.

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Why is this Important?Why is this Important?


Why is this Important?Why is this Important?

• Represents a significant portion of IU’s total revenue

• Misstatements of financial information can lead to a qualified opinion from State Board causing many downstream effects

• Federal Cost Accounting Standards• Must account for internal sales transactions correctly

or federal funds could be jeopardized

• Additional compliance issues for sales to external customers (i.e., UBIT, sales tax)


Proper use of KFS DocumentsProper use of KFS Documents

Sales of a good or service:• To another IU account: Internal Billing, Service Billing, ID Billing – use

revenue object code• To an external entity: KFS AR Invoice – use revenue object code

Reimbursement of expense or sharing of cost:• To/From another IU account: Distribution of Income/Expense (DI) – use

expense object code• From an external entity: KFS AR Invoice – use expense object code

Transfers:• KFS Transfer of Funds (TF) used to record movement of cash (subsidies,

budget allotments, administrative charges, moving cash balance of closed account)

• Should not be used to allocate general operating expenses

ASOP 21.0 – Recording Transactions between University Accounts


Physical Plant is providing maintenance services to the IU Foundation. What type of document should be used to record the transaction?

Physical Plant is providing maintenance services to the IU Foundation. What type of document should be used to record the transaction?

A. Internal Billing

B. KFS AR Invoice – expense object code used

C. Distribution of Income/Expense

D. KFS AR Invoice – revenue object code used

E. None of the above A. B. C. D. E.

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Role of Auxiliary AccountingRole of Auxiliary Accounting

• Compliance Services• Accounting principles, university policy, external regulations• Financial statement review and assist with university

financial statements

• Consulting Service• “Accounting help desk”• Act as liaison between auxiliary units and other UA areas

(Tax, Cost, Budget, etc)• Special projects

• Systems Support & Training Services• Develop and maintain auxiliary reporting tools• Provide regular training related to auxiliary accounting


“Reporting” Auxiliary and Service Units“Reporting” Auxiliary and Service Units

• Organizations with more than $750,000 in sustainable revenue in a given year

• Report to Auxiliary Accounting on a quarterly basis

• Must record transactions on an accrual basis at least quarterly

• Currently 71 Reporting Organizations (over 300 auxiliary units in total)


Important Policies Related to Auxiliary AccountingImportant Policies Related to Auxiliary Accounting• Accrual Accounting | FIN-ACC-I-350:

• Matching of revenue and expenses• KFS Auxiliary Voucher used to move revenue or

expenses to proper period. Does NOT move cash. See ASOP 3.0: Accruing and Adjusting Entries

• Provides a more accurate picture of the organization’s financial situation

• Auxiliary Financial Standards | FIN-ACC-600:• Accounting and financial reporting oversight of auxiliary

units

• Role of Fiscal Officer, Acct Manager and Acct Supervisor | FIN-ACC-I-1


Important Auxiliary Standard Operating Procedures (ASOPs)Important Auxiliary Standard Operating Procedures (ASOPs)• ASOP 1.0 | Definition of Auxiliary & Service Center

Accounts

• ASOP 2.0 | Definition of Reporting and Auxiliary Service Centers

• ASOP 7.0 | Annual Reporting Requirement for Non-reporting units

• ASOP 17.0 | Quarterly Variance Analysis

• ASOP 44.0 | Balance Sheet Backup for Year-End


Basic Financial StatementsBasic Financial Statements

Balance Sheet• Assets: what we own at a given date in time

• Cash, Accounts Receivable, Capital Assets

• Liabilities: what we owe at a given date in time• Accounts Payable, Accrued Payroll, Bonds Payable

• Fund Balance = Assets – Liabilities

Income Statement• Revenues: what we earn during a given period of time

• Sales and Services, Gifts, Contract & Grant income

• Expenses: costs we incur during a given period of time• Salary & Wages, Utilities, Contractual Services, Depreciation

• Net Income (Loss) = Revenues - Expenses

IUIE – PDQ GeneratorIUIE – PDQ Generator


IUIE Report Example – Balance SheetIUIE Report Example – Balance Sheet


Quarterly Variance AnalysisQuarterly Variance Analysis

• Used to explain significant variances in the financial statements by organization (not account)

• Current quarter amounts are compared to the prior year and to current budget

• IUIE report identifies the significant variances and the organization is required to explain the identified variance (10% materiality threshold)

• Explanations need to explain WHY the variance occurred


Quarterly Variance Analysis - ExamplesQuarterly Variance Analysis - Examples


Auxiliary Unit X has a sales increase of $100,000 (20%) over prior year sales. Which of these would be the most appropriate explanation for this:

Auxiliary Unit X has a sales increase of $100,000 (20%) over prior year sales. Which of these would be the most appropriate explanation for this:

A. The cost to make our product increased by 20%.

B. Revenue increased significantly over the prior year.

C. Two new customers were acquired last year bringing in an additional $100,000 in prior year sales.

D. We added three new product lines this year which resulted in a significant increase in revenue.


A. B. C. D.

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Quarterly Variance Analysis Group ActivityQuarterly Variance Analysis Group Activity

Quarterly Variance Analysis Group Activity – Questionable ItemsQuarterly Variance Analysis Group Activity – Questionable Items• Negative revenue – missed entry or other error?

• Large increase in sales needs explained

• Discounts should be negative

• With sales increase, Cost of Goods Sold should also increase in most cases

• What happened to the salaries?

• Large increase in computing services needs explained - Service contract?

• Decrease in Contractual Services needs explained

• Increase in depreciation should correlate to increase in capital assets on the balance sheet

• What happened to rent expense?

• Why is there negative Telephone & Postage expense?

• Large increase in Valuations & Adjustments needs explained

Balance Sheet Backup for Year EndBalance Sheet Backup for Year End

• Balance Sheet amounts represent assets and liabilities of the unit

• Sufficient supporting documentation must be provided for all non-system-generated balance sheet amounts at fiscal year end

• Required for all auxiliary and service units earning more than $750,000 (reporting units)


Balance Sheet Backup - ExamplesBalance Sheet Backup - Examples

• Inventory – detailed listing of all items in inventory as of 6/30/XX which includes:

• Description of items• Quantity• Cost

• Accounts Receivable – detailed listing of all items comprising AR balance as of 6/30/XX which includes:

• Customer name• Invoice number & date• Amount due• Prefer amounts to be in “aging buckets”


Balance Sheet Backup – Inventory ListingBalance Sheet Backup – Inventory Listing• Accounts Receivable – detailed listing of all items

comprising AR balance as of 6/30/XX which includes:• Customer name• Invoice number & date• Amount due• Prefer amounts to be in “aging buckets”

Valuation Date: 06/30/20XX

8300 Balance as of June 30th $ 3,264.21

Part Number Part Description On Hand Avg. Cost Value

D0172630 Item 1 32.97 $10.00 $329.70

D0101000 Item 2 1.00 10.39 10.39

D0110000 Item 3 0.00 115.00 0.00

D0110003 Item 4 7.00 6.38 44.66

D0110004 Item 5 143.00 7.60 1,086.80

D0113200 Item 6 37.00 2.23 82.51

D0115000 Item 7 255.00 1.95 497.25

D0115001 Item 8 3.00 1.95 5.85

D0115002 Item 9 332.00 1.95 647.40

D0115003 Item 10 287.00 1.95 559.65

Inventory value per physical count 6/30/XX $3,264.21


Balance Sheet Backup – Accounts ReceivableBalance Sheet Backup – Accounts Receivable

Customer Name

Amount Invoice # Current 1-30 days 31-60 days 61-90 days Over 91 days

Total

Jones $15,000 AB123 $1,000 $2,000 $4,000 $1,000 $7,000 $15,000

Smith $2,000 CC899 $500 $1,500 $2,000

Brown $13,000 FB778 $10,000 $1,100 $1,900 $13,000

Williams $5,000 OU156 $250 $4,750 $5,000

Green $15,000 SC462 $5,000 $3,000 $1,000 $6,000 $15,000

$50,000 $16,750 $9,750 $6,100 $4,400 $13,000 $50,000


Revenue Producing Activity (RPA) ProcessRevenue Producing Activity (RPA) Process• Policy VI-121 requires that all activity-generating revenue be

approved by the Revenue Producing Activity Committee (RPAC)

• Online RPA questionnaire needs to be completed and routed to the RPAC. Detailed instructions and link to site found here:

• https://www.sharepoint.iu.edu/sites/revenue/SitePages/RPAProcess.aspx

• RPAC includes members from:• Treasury• FMS – Tax, Auxiliary, Cost• Purchasing• UITS• Research Administration• IU Foundation• Risk Management


Auxiliary Accounting Consulting ServicesAuxiliary Accounting Consulting Services

• Aid Auxiliary units in developing proper accounting procedures

• Provide training to Auxiliary units related to accounting standards, university policies and procedures, university systems, and reporting tools

• Guide service (recharge) centers through the rate setting process

• Assist with special projects and business endeavors


Visit the Auxiliary Website for More InformationVisit the Auxiliary Website for More Information• https://fms.iu.edu/auxiliary-accounting/

• Auxiliary Contacts and “Who is my Consultant”

• Complete list of Auxiliary Standard Operating Procedures

• Frequently Asked Questions

• Links to commonly used Auxiliary IUIE reports



Questions?Questions?

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