Council of Independent Council of Independent Colleges InstituteColleges InstituteNovember 1, 2004November 1, 2004

The CAO and The BudgetThe CAO and The Budget

2004 CIC Institute2004 CIC Institute

Understanding Financial StatementsUnderstanding Financial Statements

Developing an Annual BudgetDeveloping an Annual Budget

Operating Information on the Statement of Operating Information on the Statement of ActivitiesActivities

Carole T. ColemanCarole T. Coleman

Vice President forVice President forFinance and AdministrationFinance and AdministrationSaint John’s UniversitySaint John’s UniversityCollegeville, MinnesotaCollegeville, Minnesota

Understanding College and Understanding College and University Financial University Financial

Statements Statements

2004 CIC Institute2004 CIC Institute

November 1, 2004November 1, 2004

BALANCE SHEETBALANCE SHEET Provides information about the school’s assets, liabilities Provides information about the school’s assets, liabilities

and net assets and their relationship to one another and net assets and their relationship to one another at at a moment in timea moment in time. (i.e. at the end of the fiscal year). (i.e. at the end of the fiscal year)

Financial tool to help us assess our institutions’ ability to Financial tool to help us assess our institutions’ ability to continue to provide services, meet obligations and continue to provide services, meet obligations and have financial flexibility to deal with unexpected needs have financial flexibility to deal with unexpected needs or opportunities.or opportunities.

Reports the resources and the claims and commitments Reports the resources and the claims and commitments against these resources at the end of the fiscal year.against these resources at the end of the fiscal year.

Reports the year-end balances of the three net asset Reports the year-end balances of the three net asset categoriescategories

AssetsAssets

Resources of the University or CollegeResources of the University or College

Types – financial resourcesTypes – financial resources

economic resourceseconomic resources

Listed in the order of their liquidity (nearness to Listed in the order of their liquidity (nearness to cash)cash)

Current assets will be converted into cash or be Current assets will be converted into cash or be used in the next fiscal yearused in the next fiscal year

Financial ResourcesFinancial Resources

Cash and cash equivalentsCash and cash equivalents

ReceivablesReceivables

Investments (Market value at end of fiscal year)Investments (Market value at end of fiscal year)

Economic ResourcesEconomic Resources

Not available to pay billsNot available to pay bills

LandLand

BuildingsBuildings

EquipmentEquipment

Reported at cost less accumulated depreciationReported at cost less accumulated depreciation

LiabilitiesLiabilities

ObligationsObligations

- Amounts owed to vendors, lenders and- Amounts owed to vendors, lenders and

annuitants.annuitants.

-- Deferred revenue is a liability Deferred revenue is a liability (prepayments for tuition)(prepayments for tuition)

* Current (payable in the next fiscal year)* Current (payable in the next fiscal year)

* Long-term* Long-term

Unrestricted Net AssetsUnrestricted Net Assets

Commitments to use resources for the good of Commitments to use resources for the good of the organizationthe organization

Revenue for services providedRevenue for services provided Unrestricted donationsUnrestricted donations Unconditional promises to giveUnconditional promises to give Dividend and interest income on investmentsDividend and interest income on investments

Unrestricted Net AssetsUnrestricted Net Assets

Categories:Categories:

* Available for operations – undesignated and * Available for operations – undesignated and unrestricted resourcesunrestricted resources

* Board designated –self-imposed limits * Board designated –self-imposed limits based on voluntary resolutions of the based on voluntary resolutions of the board. – board. – its plans and prioritiesits plans and priorities

* Investment in property, buildings and * Investment in property, buildings and equipment – long-term equity (portion paid)equipment – long-term equity (portion paid)

Temporarily restricted net assetsTemporarily restricted net assets

Restrictions by the donorRestrictions by the donor

* Support of a particular activity* Support of a particular activity

* Designated for a long-lived asset (building)* Designated for a long-lived asset (building)

* Invested for a specific amount of time* Invested for a specific amount of time

* Use in a future specified period* Use in a future specified period

When the restrictions are met, these assets are When the restrictions are met, these assets are released from restriction and included in released from restriction and included in unrestricted revenues.unrestricted revenues.

Permanently restricted net assetsPermanently restricted net assets

Restrictions by the donorRestrictions by the donor

*Purpose of funds only (i.e. scholarship)*Purpose of funds only (i.e. scholarship)

*Principal must be retained in perpetuity*Principal must be retained in perpetuity

*Interest may be retained in perpetuity or used *Interest may be retained in perpetuity or used for the restricted purpose (i. e. scholarship)for the restricted purpose (i. e. scholarship)

Statement of ActivitiesStatement of Activities

Provide relevant informationProvide relevant information*Effects of transactions and other *Effects of transactions and other

events/circumstances that change the amount events/circumstances that change the amount and nature of net assetsand nature of net assets

*Relationships of those transactions,*Relationships of those transactions, events/circumstances to each otherevents/circumstances to each other

*Depicts how the organization’s resources are *Depicts how the organization’s resources are used in providing various programs and used in providing various programs and servicesservices

Statement of ActivitiesStatement of Activities

Activities that caused the Activities that caused the increase/decrease in the increase/decrease in the unrestricted, temporarily unrestricted, temporarily restricted and permanently restricted and permanently restricted net assets – restricted net assets – changes that occurred changes that occurred during the fiscal year in during the fiscal year in these three categoriesthese three categories

Statement of ActivitiesStatement of ActivitiesThree major sections:Three major sections:

*Revenues, gains and other support - reported by net asset *Revenues, gains and other support - reported by net asset category (Increases/decreases in assets) category (Increases/decreases in assets)

*Net assets released from restrictions – reflect that *Net assets released from restrictions – reflect that institutions have met donor restrictions in the current institutions have met donor restrictions in the current periodperiod

*Expenses – cost of providing services by function; *Expenses – cost of providing services by function; program expenses are the cost of providing services, program expenses are the cost of providing services, support expenses are the cost of administrative support expenses are the cost of administrative services and institutional advancement, sponsored services and institutional advancement, sponsored program expenses are usually the cost of donor-funded or program expenses are usually the cost of donor-funded or

self-supported programsself-supported programs

Statement of ActivitiesStatement of ActivitiesAccrual basis methodAccrual basis method

* Revenues and receivables are recorded in the * Revenues and receivables are recorded in the accounts and reported in the financial statements accounts and reported in the financial statements when they are measurable and realizable – not all when they are measurable and realizable – not all increase cash. increase cash.

* Expenses are recorded in the accounts and * Expenses are recorded in the accounts and reported in the financial statements when services reported in the financial statements when services have been rendered or a portion of an asset has have been rendered or a portion of an asset has been used up.been used up.

Statement of Cash FlowsStatement of Cash Flows

Provides relevant information about the cash Provides relevant information about the cash receipts and cash payments of an enterprise receipts and cash payments of an enterprise during a period.during a period.

Reports increases and decreases in cash.Reports increases and decreases in cash.

Cash basis, not accrual basis, statement.Cash basis, not accrual basis, statement.

Statement of Cash FlowsStatement of Cash Flows

Three primary classifications:Three primary classifications:

* cash flows from operating activities* cash flows from operating activities

* cash flows from investing activities* cash flows from investing activities

* cash flows from financing activities* cash flows from financing activities

DEVELOPING THE ANNUAL DEVELOPING THE ANNUAL BUDGETBUDGET

Create a budget that is linked to the mission and Create a budget that is linked to the mission and strategic plan of the university, explores effective strategic plan of the university, explores effective and efficient revenue generation and cost and efficient revenue generation and cost reductions while improving academic quality.reductions while improving academic quality.

Academic, administrative, physical and financial Academic, administrative, physical and financial plans must be sustained within the available plans must be sustained within the available resources.resources.

2004 CIC Institute2004 CIC Institute

November 1, 2004November 1, 2004

BUDGET METHODSBUDGET METHODS

Strategic BudgetingStrategic Budgeting

Zero-based BudgetingZero-based Budgeting

Incremental BudgetingIncremental Budgeting

Combination of MethodsCombination of Methods

Budget CategoriesBudget Categories

OperatingOperating

* Educational and General * Educational and General (E&G)(E&G)

* Auxiliary* Auxiliary

CapitalCapital

RestrictedRestricted

Sample Budget ProcessSample Budget Process2004-2005 Budget2004-2005 Budget

April, 2003 – Review comprehensive list of April, 2003 – Review comprehensive list of capital projects for 2004-2005.capital projects for 2004-2005.

May, 2003 – Present an updated strategic plan May, 2003 – Present an updated strategic plan to the Board of Directors for input and approval.to the Board of Directors for input and approval.

Budget Process ContinuedBudget Process Continued

August, 2003August, 2003 - Budget committee - Budget committee (Faculty,staff,students) review the mission (Faculty,staff,students) review the mission statement and strategic plan. This group attempts statement and strategic plan. This group attempts to reach a consensus on a set of planning to reach a consensus on a set of planning assumptions that link to the mission and strategic assumptions that link to the mission and strategic plan.plan.

September, 2003September, 2003 – Revise the 2003-2004 budget – Revise the 2003-2004 budget based on actual enrollment/tuition discounting and based on actual enrollment/tuition discounting and other factors to reflect current expectations of other factors to reflect current expectations of revenues and expenditures.revenues and expenditures.

BUDGET PROCESS CONTINUEDBUDGET PROCESS CONTINUED

September, 2003September, 2003– Request input from academic – Request input from academic departments and administrative areas. (Operating departments and administrative areas. (Operating and Capital)and Capital)

October, 2003 – October, 2003 – Board of Directors approves Board of Directors approves revised 2003-2004 budget. Analyze budget revised 2003-2004 budget. Analyze budget requests and prioritize based on mission/strategic requests and prioritize based on mission/strategic plan. Communicate budget planning process and plan. Communicate budget planning process and timeline to campus committees.timeline to campus committees.

BUDGET PROCESS BUDGET PROCESS CONTINUEDCONTINUED

November, 2004 – Budget committee reviews November, 2004 – Budget committee reviews updated 2004-2005 projected budget. Adjust for updated 2004-2005 projected budget. Adjust for mission/strategic priorities. Present to the mission/strategic priorities. Present to the President.President.

December, 2004 – Present current assumptions December, 2004 – Present current assumptions and projected budget to the Finance Committee of and projected budget to the Finance Committee of the Board of Directors for discussion.the Board of Directors for discussion.

BUDGET PROCESS BUDGET PROCESS CONTINUEDCONTINUED

January, 2004 – Finalize 2004-2005 budget and January, 2004 – Finalize 2004-2005 budget and develop a plan for communicating the proposed develop a plan for communicating the proposed budget to the campus community.budget to the campus community.

March, 2004 – Present the 2004-2005 budget to March, 2004 – Present the 2004-2005 budget to the Finance Committee of the Board of the Finance Committee of the Board of Directors. The Chair of the Finance Committee Directors. The Chair of the Finance Committee presents the budget to the Board of Directors for presents the budget to the Board of Directors for a resolution to approve the proposed budget.a resolution to approve the proposed budget.

Budget Process ContinuedBudget Process Continued

April, 2004 – Review comprehensive list of April, 2004 – Review comprehensive list of capital projects for 2005-2006capital projects for 2005-2006

May, 2004 – Present an updated strategic plan May, 2004 – Present an updated strategic plan to the Board of Directors for input and approval.to the Board of Directors for input and approval.

BudgetsBudgets

As soon as the ink is dry on a budget document, As soon as the ink is dry on a budget document, there will be changes since the budget there will be changes since the budget represents a plan and the forecasts in it cannot represents a plan and the forecasts in it cannot anticipate all future events.anticipate all future events.A budget is never static, it is a dynamic A budget is never static, it is a dynamic consensus-building process that involves all key consensus-building process that involves all key institutional decision makers.institutional decision makers.A budget reflects how conservative or A budget reflects how conservative or aggressive an institution will be in its aggressive an institution will be in its assumptions about revenue streams and assumptions about revenue streams and expenditures.expenditures.

Operating Information on the Operating Information on the Statement of ActivitiesStatement of Activities

Operating Statements help internal and external Operating Statements help internal and external groups to understand a university’s financial health.groups to understand a university’s financial health.

Currently there is no consistent definition of an Currently there is no consistent definition of an operating statement.operating statement.

The various methods of computing operating The various methods of computing operating performance makes comparability of institutions performance makes comparability of institutions difficult at this time.difficult at this time.

2004 CIC Institute2004 CIC Institute

November 1, 2004November 1, 2004

Operating Statement QuizOperating Statement Quiz

Tuition and FeesTuition and Fees O O NNLibrary ExpenseLibrary Expense OO NNNet Realized Investment GainsNet Realized Investment Gains OO NNScholarshipsScholarships OO NNInstitutional Advancement CostsInstitutional Advancement Costs OO NNInstructional CostsInstructional Costs OO NNNet Unrealized Investment GainsNet Unrealized Investment Gains OO NNUnrestricted GiftsUnrestricted Gifts OO NNAdjustment of Actuarial LiabilityAdjustment of Actuarial Liability OO NN

O = OperatingO = OperatingN = Non-operatingN = Non-operating

ABC CollegeABC CollegeStatement of ActivitiesStatement of Activities

Unrestricted

 

$ -

-

$ -

-

-

-

-

-

 -

 -

-

$ -

Temporarily

Restricted

 

$ -

-

$ -

-

-

-

-

-

 -

  -

-

$ -

Permanently

Restricted

 

$ -

-

$ -

-

-

-

-

-

 -

 -

-

$ -

Total

 

$ -

-

$ -

-

-

-

-

-

 -

 -

-

$ -

OPERATING REVENUE AND SUPPORT

Tuition and Fees

Scholarships and Grants

Net Tuition and Fees

Gifts, Donations, and Pledges

Federal Government Grants

Investment Income at Spending Rate

Other Income

The Centers for Law and Leadership:

Programs and Services

Grants and Contracts

Net Assets Released from Restriction

Total Support and Revenue

ABC CollegeABC CollegeStatement of ActivitiesStatement of Activities

OPERATING EXPENSE

Program:

Instructional

Library

Student Support

Centers for Law and Leadership

Total Program Expense

 

Support:

General and Administrative

Fund Raising

Total Support Expense

 

Total Operating Expense

 

CHANGE IN NET ASSETS FROM

OPERATING ACTIVITY

Unrestricted

 

 

$ -

-

-

-

$ -

 

 

$ -

-

$ -

 

$ -

 

 

$ -

Temporarily

Restricted

 

 

-

-

-

-

$ -

 

 

$ -

-

$ -

 

$ -

 

 

$ -

Permanently

Restricted

 

 

-

-

-

-

$ -

 

 

$ -

-

$ -

 

$ -

 

 

$ -

Total

 

 

$ -

-

-

-

$ -

 

 

$ -

-

$ -

 

$ -

 

 

$ -

ABC CollegeABC CollegeStatement of ActivitiesStatement of ActivitiesNON-OPERATING ACTIVITY

Investment Income Greater than

Spending Rate

Contributions

Adjustment of actuarial liability

Total Non-Operating Activity

 

CHANGE IN NET ASSETS

 

Net Assets - Beginning

 

NET ASSETS - ENDING

Temporarily

Restricted

 

 

$ -

-

-

$ -

 

$ -

 

-

 

$ -

Permanently

Restricted

 

 

$ -

-

-

$ -

 

$ -

 

-

 

$ -

Total

 

 

$ -

-

-

$ -

 

$ -

 

-

 

$ -

Unrestricted

 

 

$ -

-

-

$ -

 

$ -

 

-

 

$ -

ReferencesReferences

Understanding Financial Statements, Understanding Financial Statements, AGBAGB

College and University Budgeting: An Introduction for College and University Budgeting: An Introduction for Faculty and Academic Administrators (2Faculty and Academic Administrators (2ndnd ed.) by ed.) by Richard J. Meisinger, National Association of College Richard J. Meisinger, National Association of College and University Business Officers, Washington, and University Business Officers, Washington, D.C.,1994D.C.,1994

AICPA Audit and Accounting GuideAICPA Audit and Accounting Guide

Ratio Analysis in Higher Education: Independent Ratio Analysis in Higher Education: Independent Institutions, Institutions, Peat, Marwick, Mitchell & Co., 1982Peat, Marwick, Mitchell & Co., 1982

Operating Statements, Larson, Allen Weishair & Co., Operating Statements, Larson, Allen Weishair & Co., LLPLLP