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  1. 1. Council of Independent Colleges Institute November 1, 2004 The CAO and The Budget
  2. 2. 2004 CIC Institute <ul><li>Understanding Financial Statements </li></ul><ul><li>Developing an Annual Budget </li></ul><ul><li>Operating Information on the Statement of Activities </li></ul><ul><li>Carole T. Coleman </li></ul><ul><li>Vice President for </li></ul><ul><li>Finance and Administration Saint John’s University </li></ul><ul><li>Collegeville, Minnesota </li></ul>
  3. 3. Understanding College and University Financial Statements 2004 CIC Institute November 1, 2004
  4. 4. BALANCE SHEET <ul><li>Provides information about the school’s assets, liabilities and net assets and their relationship to one another at a moment in time . (i.e. at the end of the fiscal year) </li></ul><ul><li>Financial tool to help us assess our institutions’ ability to continue to provide services, meet obligations and have financial flexibility to deal with unexpected needs or opportunities. </li></ul><ul><li>Reports the resources and the claims and commitments against these resources at the end of the fiscal year. </li></ul><ul><li>Reports the year-end balances of the three net asset categories </li></ul>
  5. 5. Assets <ul><li>Resources of the University or College </li></ul><ul><li>Types – financial resources </li></ul><ul><ul><li> economic resources </li></ul></ul><ul><ul><li>Listed in the order of their liquidity (nearness to cash) </li></ul></ul><ul><ul><li>Current assets will be converted into cash or be used in the next fiscal year </li></ul></ul>
  6. 6. Financial Resources <ul><li>Cash and cash equivalents </li></ul><ul><li>Receivables </li></ul><ul><li>Investments (Market value at end of fiscal year) </li></ul>
  7. 7. Economic Resources <ul><li>Not available to pay bills </li></ul><ul><li>Land </li></ul><ul><li>Buildings </li></ul><ul><li>Equipment </li></ul><ul><li>Reported at cost less accumulated depreciation </li></ul>
  8. 8. Liabilities <ul><li>Obligations </li></ul><ul><li> - Amounts owed to vendors, lenders and </li></ul><ul><li>annuitants. </li></ul><ul><li> - Deferred revenue is a liability (prepayments for tuition) </li></ul><ul><li>* Current (payable in the next fiscal year) </li></ul><ul><li>* Long-term </li></ul>
  9. 9. Unrestricted Net Assets <ul><li>Commitments to use resources for the good of the organization </li></ul><ul><ul><li>Revenue for services provided </li></ul></ul><ul><ul><li>Unrestricted donations </li></ul></ul><ul><ul><li>Unconditional promises to give </li></ul></ul><ul><ul><li>Dividend and interest income on investments </li></ul></ul>
  10. 10. Unrestricted Net Assets <ul><li>Categories: </li></ul><ul><li>* Available for operations – undesignated and unrestricted resources </li></ul><ul><li>* Board designated –self-imposed limits based on voluntary resolutions of the board. – its plans and priorities </li></ul><ul><li>* Investment in property, buildings and equipment – long-term equity (portion paid) </li></ul>
  11. 11. Temporarily restricted net assets <ul><li>Restrictions by the donor </li></ul><ul><li>* Support of a particular activity </li></ul><ul><li>* Designated for a long-lived asset (building) </li></ul><ul><li>* Invested for a specific amount of time </li></ul><ul><li>* Use in a future specified period </li></ul><ul><li>When the restrictions are met, these assets are released from restriction and included in unrestricted revenues. </li></ul>
  12. 12. Permanently restricted net assets <ul><li>Restrictions by the donor </li></ul><ul><li>*Purpose of funds only (i.e. scholarship) </li></ul><ul><li>*Principal must be retained in perpetuity </li></ul><ul><li>*Interest may be retained in perpetuity or used for the restricted purpose (i. e. scholarship) </li></ul>
  13. 13. Statement of Activities <ul><li>Provide relevant information </li></ul><ul><li>*Effects of transactions and other </li></ul><ul><li>events/circumstances that change the amount </li></ul><ul><li>and nature of net assets </li></ul><ul><li>*Relationships of those transactions, </li></ul><ul><li>events/circumstances to each other </li></ul><ul><li>*Depicts how the organization’s resources are </li></ul><ul><li>used in providing various programs and </li></ul><ul><li>services </li></ul>
  14. 14. Statement of Activities <ul><li>Activities that caused the increase/decrease in the unrestricted, temporarily restricted and permanently restricted net assets – changes that occurred during the fiscal year in these three categories </li></ul>
  15. 15. Statement of Activities <ul><li>Three major sections: </li></ul><ul><li>*Revenues, gains and other support - reported by net asset category (Increases/decreases in assets) </li></ul><ul><li>*Net assets released from restrictions – reflect that </li></ul><ul><li>institutions have met donor restrictions in the current </li></ul><ul><li>period </li></ul><ul><li>*Expenses – cost of providing services by function; </li></ul><ul><li>program expenses are the cost of providing services, </li></ul><ul><li>support expenses are the cost of administrative </li></ul><ul><li>services and institutional advancement, sponsored </li></ul><ul><li>program expenses are usually the cost of donor-funded or self-supported programs </li></ul>
  16. 16. Statement of Activities <ul><li>Accrual basis method </li></ul><ul><li>* Revenues and receivables are recorded in the accounts and reported in the financial statements when they are measurable and realizable – not all increase cash. </li></ul><ul><li>* Expenses are recorded in the accounts and reported in the financial statements when services have been rendered or a portion of an asset has been used up. </li></ul>
  17. 17. Statement of Cash Flows <ul><li>Provides relevant information about the cash receipts and cash payments of an enterprise during a period. </li></ul><ul><li>Reports increases and decreases in cash. </li></ul><ul><li>Cash basis, not accrual basis, statement. </li></ul>
  18. 18. Statement of Cash Flows <ul><li>Three primary classifications: </li></ul><ul><li>* cash flows from operating activities </li></ul><ul><li>* cash flows from investing activities </li></ul><ul><li>* cash flows from financing activities </li></ul>
  19. 19. DEVELOPING THE ANNUAL BUDGET <ul><li>Create a budget that is linked to the mission and strategic plan of the university, explores effective and efficient revenue generation and cost reductions while improving academic quality. </li></ul><ul><li>Academic, administrative, physical and financial plans must be sustained within the available resources. </li></ul><ul><li>2004 CIC Institute </li></ul><ul><li>November 1, 2004 </li></ul>
  20. 20. BUDGET METHODS <ul><li>Strategic Budgeting </li></ul><ul><li>Zero-based Budgeting </li></ul><ul><li>Incremental Budgeting </li></ul><ul><li>Combination of Methods </li></ul>
  21. 21. Budget Categories <ul><li>Operating </li></ul><ul><li>* Educational and General (E&G) </li></ul><ul><li>* Auxiliary </li></ul><ul><li>Capital </li></ul><ul><li>Restricted </li></ul>
  22. 22. Sample Budget Process 2004-2005 Budget <ul><li>April, 2003 – Review comprehensive list of capital projects for 2004-2005. </li></ul><ul><li>May, 2003 – Present an updated strategic plan to the Board of Directors for input and approval. </li></ul>
  23. 23. Budget Process Continued <ul><li>August, 2003 - Budget committee (Faculty,staff,students) review the mission statement and strategic plan. This group attempts to reach a consensus on a set of planning assumptions that link to the mission and strategic plan. </li></ul><ul><li>September, 2003 – Revise the 2003-2004 budget based on actual enrollment/tuition discounting and other factors to reflect current expectations of revenues and expenditures. </li></ul>
  24. 24. BUDGET PROCESS CONTINUED <ul><li>September, 2003 – Request input from academic departments and administrative areas. (Operating and Capital) </li></ul><ul><li>October, 2003 – Board of Directors approves revised 2003-2004 budget. Analyze budget requests and prioritize based on mission/strategic plan. Communicate budget planning process and timeline to campus committees. </li></ul>
  25. 25. BUDGET PROCESS CONTINUED <ul><li>November, 2004 – Budget committee reviews updated 2004-2005 projected budget. Adjust for mission/strategic priorities. Present to the President. </li></ul><ul><li>December, 2004 – Present current assumptions and projected budget to the Finance Committee of the Board of Directors for discussion. </li></ul>
  26. 26. BUDGET PROCESS CONTINUED <ul><li>January, 2004 – Finalize 2004-2005 budget and develop a plan for communicating the proposed budget to the campus community. </li></ul><ul><li>March, 2004 – Present the 2004-2005 budget to the Finance Committee of the Board of Directors. The Chair of the Finance Committee presents the budget to the Board of Directors for a resolution to approve the proposed budget. </li></ul>
  27. 27. Budget Process Continued <ul><li>April, 2004 – Review comprehensive list of capital projects for 2005-2006 </li></ul><ul><li>May, 2004 – Present an updated strategic plan to the Board of Directors for input and approval. </li></ul>
  28. 28. Budgets <ul><li>As soon as the ink is dry on a budget document, there will be changes since the budget represents a plan and the forecasts in it cannot anticipate all future events. </li></ul><ul><li>A budget is never static, it is a dynamic consensus-building process that involves all key institutional decision makers. </li></ul><ul><li>A budget reflects how conservative or aggressive an institution will be in its assumptions about revenue streams and expenditures. </li></ul>
  29. 29. Operating Information on the Statement of Activities <ul><li>Operating Statements help internal and external groups to understand a university’s financial health. </li></ul><ul><li>Currently there is no consistent definition of an operating statement. </li></ul><ul><li>The various methods of computing operating performance makes comparability of institutions difficult at this time. </li></ul><ul><li>2004 CIC Institute </li></ul><ul><li>November 1, 2004 </li></ul>
  30. 30. Operating Statement Quiz <ul><li>Tuition and Fees O N </li></ul><ul><li>Library Expense O N </li></ul><ul><li>Net Realized Investment Gains O N </li></ul><ul><li>Scholarships O N </li></ul><ul><li>Institutional Advancement Costs O N </li></ul><ul><li>Instructional Costs O N </li></ul><ul><li>Net Unrealized Investment Gains O N </li></ul><ul><li>Unrestricted Gifts O N </li></ul><ul><li>Adjustment of Actuarial Liability O N </li></ul><ul><li>O = Operating </li></ul><ul><li>N = Non-operating </li></ul>
  31. 31. ABC College Statement of Activities $ - -   -   - - - - - - $ - - $ -   Unrestricted $ - -     -   - - - - - - $ - - $ -   Restricted Temporarily $ - -   -   - - - - - - $ - - $ -   Restricted Permanently $ - -   -   - - - - - - $ - - $ -   Total Total Support and Revenue Net Assets Released from Restriction Grants and Contracts Programs and Services The Centers for Law and Leadership: Other Income Investment Income at Spending Rate Federal Government Grants Gifts, Donations, and Pledges Net Tuition and Fees Scholarships and Grants Tuition and Fees OPERATING REVENUE AND SUPPORT
  32. 32. ABC College Statement of Activities OPERATING ACTIVITY CHANGE IN NET ASSETS FROM   Total Operating Expense   Total Support Expense Fund Raising General and Administrative Support:   Total Program Expense Centers for Law and Leadership Student Support Library Instructional Program: OPERATING EXPENSE $ -     $ -   $ - - $ -     $ - - - - $ -     Unrestricted $ -     $ -   $ - - $ -     $ - - - - -     Restricted Temporarily $ -     $ -   $ - - $ -     $ - - - - -     Restricted Permanently $ -     $ -   $ - - $ -     $ - - - - $ -     Total
  33. 33. ABC College Statement of Activities NET ASSETS - ENDING   Net Assets - Beginning   CHANGE IN NET ASSETS   Total Non-Operating Activity Adjustment of actuarial liability Contributions Spending Rate Investment Income Greater than NON-OPERATING ACTIVITY $ -   -   $ -   $ - - - $ -     Restricted Temporarily $ -   -   $ -   $ - - - $ -     Restricted Permanently $ -   -   $ -   $ - - - $ -     Total $ -   -   $ -   $ - - - $ -     Unrestricted
  34. 34. References <ul><li>Understanding Financial Statements, AGB </li></ul><ul><li>College and University Budgeting: An Introduction for Faculty and Academic Administrators (2 nd ed.) by Richard J. Meisinger, National Association of College and University Business Officers, Washington, D.C.,1994 </li></ul><ul><li>AICPA Audit and Accounting Guide </li></ul><ul><li>Ratio Analysis in Higher Education: Independent Institutions, Peat, Marwick, Mitchell & Co., 1982 </li></ul><ul><li>Operating Statements, Larson, Allen Weishair & Co., LLP </li></ul>