All Funds Budgeting. Outline

Transcription

1 All Funds Budgeting Eileen G. McLoughlin, Assistant Vice President of Finance and Budgeting, Rensselaer Polytechnic Institute Andrew Harker, Ed.D., Director of Budget Management University Budget Office, Stanford University 2014 Managerial Accounting and Decision Support Charlotte, North Carolina November 13-14, 2014 Outline The Experience Going Full Funds The Budgeting Models Evolution

2 The Experience Moving from an unrestricted funds budgeting exercise to a Consolidated (All Funds) Budget Before: Although we were always conscious of the activity of the Consolidated Budget ( All Funds Budget ), the budget exercise only focused on the unrestricted funds The role of activity funded completely by other sources, and the use of fund balances, was not taken into account in budget discussions

3 The Experience Operating Budget Guidelines: Work of the University Budget Office focused primarily on the forecast of general funds at the disposal of the Provost, Institute Budget discussions with each school or department focused only on their allocation of general funds plus any restricted funds they could commit to supplement those Examples are endowed chair income, graduate student aid income The Experience What was not part of the budget plan - Stanford: The role of sponsored activity (at the time approximately 30% Stanford, 27% RPI of the university s expenses) Direct expenditures against restricted and school-controlled funds (another 20% Stanford, 15% RPI) Auxiliary and service center enterprises (just over 10% Stanford, 14% RPI) Linkages between the capital plan of the university and the university s annual budget

4 The Experience What was not part of the budget plan: The amount and use of central and school fund balances No rationalized policies on reserve balances The Stanford Experience Moving to All Funds Budgeting Until 1991, budgeting focused on Operating Budget General Funds plus Restricted Funds supporting on-going operations (mainly endowed chairs) and Auxiliaries Dr. Gerhard Casper became president in 1991; declared intention to focus on all funds Consolidated Budget No systems in place to support this kind of budget development, so for several years the University Budget Office and the school dean s offices stumbled through the process using Excel to develop very high level Consolidated Budgets President Gerhard Casper s priorities Narrow focus of prior process Only looked at 25% of the activity

5 The Stanford Experience Moving to All Funds Budgeting (continued) At this same time, the University embarked on a long-term process to replace legacy systems with market-place solutions, including budget formulation tool to support new budgeting demands In the legacy system, the budget also served a control /fund tracking function This severely limited the ability to have the budget number mean something other than actual funding The RPI Experience Moving to All Funds Budgeting Until 2000, budgeting focused on Operating Budget General Funds unrestricted and Auxiliaries Dr. Shirley Ann Jackson became president in 1999; declared intention to focus on all funds in a performance based planning process No systems in place to support this kind of budget development, so quickly developed an Access Database and then developed a data warehouse and business intelligence tools All resources identified in budget planning and requests

6 The Experience Consciously tying in the Capital Budget with the operational budget Visibility and evaluation of reserve balances Trustee requests for active monitoring & updates Transforming the Budget from a control mechanism to a strategic resource allocation tool The Stanford Experience Drivers for success Strong commitment from the Provost for undertaking the initiative Skillful and knowledgeable implementation team Gained buy-in from key schools and administrative units Use of financial information systems to support the processes

7 The RPI Experience Drivers for success Change required by the President and the Board of Trustees Endowment investment being committed Skillful and knowledgeable implementation team Funding the Rensselaer Plan the how understood by schools and administrative units Use of financial information systems to support the processes The Experience: Summary We now have a thoroughly vetted process, accepted throughout the university, for considering all resources in planning for the next year

8 Budgeting at Stanford $5.0B in Revenues and Expense ~30 decentralized budget units >50k cost centers; >10k employees Fund Accounting standards High-level forecasting several months before detailed budget exercise Top-down and Bottom-up Stanford s Consolidated Budget

9 2007/08 Consolidated Budget by Fund Type (in millions of dollars) Auxiliary General Grants & & Svc Ctr Funds Designated Restricted Contracts Activities Total Total Revenues ,449.8 Total Expenses ,265.8 Revenues less Expenses (180.9) Transfers (91.2) (54.2) (131.9) (23.8) (125.2) Surplus/(Deficit) 10.0 (32.9) 86.7 (5.0) 58.8 Issue: maximizing the utility of ALL university funds Budgeting at RPI $400 million in Revenues and Expense ~20 budget units ~20 end users Fund Accounting standards Project FASB financials High-level forecasting several months before detailed budget exercise - Topdown and Bottom-up

10

11 University Budgeting Models Greater Centralization The King s Decree Mixed Model Revenue Center Management Every Tub on its Own Bottom Less Centralization University Budgeting Models Stanford s Mixed Model: General funds flow to the Provost; restricted funds flow to the area where the money was raised Formula units receive earned funds and pay for central services There s significant local autonomy on use of restricted and designated funds We choose to allocate central funds in ways that maintain a broad set of university programs

12 Issues Who controls growth? Provost controls billets, space, and general funds Local units can grow through controlled fund raising subject to above constraints Why a mixed model? Historical Size Different business/ties to hospital Limits competition within the university Promotes interdisciplinary work Annual Budget Cycle CONTINUALLY WORKING TO DO BETTER THAN BEFORE FALL Load 9/1 Consolidated Budget into financial reporting system Analyze past year s financials Tie GAAP to Fund Accounting Variance Analysis of prior year Update LRF assumptions Preliminary budget letters from units Begin budget meetings w/provost s Budget Group Provost s Budget Group WINTER Continue budget meetings Board of Trustees approves tuition, R&B, payout rate, salary program Determine final GF allocations High level Projections and Variance Analysis SUMMER Load proposed salaries, endowment income projections into Budget System Units enter their detailed budgets into Budget System Preliminary Budget Letters from units Continue Variance Analysis and YE Projections Close out fiscal year SPRING From Units ( Bottom-up ): 6 month YE projections & Variance Analysis Next year s Consolidated Forecast Including Formula ( autonomous ) Top-down Consolidated Budget Forecast Formulate Projected Statement of Activities HROs enter proposed salaries for next year Present Budget Plan to Trustees for approval Local Management Budgets : units rebudget Revenue/Expense Control as they choose, to display on fund/expenditure statements; these budgets, however, are ignored by Budget Office

13 Overview of the Budgeting Process Compensation Analysis Tuition and Financial Aid Analysis Board of Trustees Policy Decisions on Salary Program, Tuition, And Financial Aid Budget Office Creates Long Range Forecast Capital Planning Research Volume and Rate Projections New Initiatives Budget Group Oversight and Advice on Strategic Priorities Academic and Administrative Units Develop Budget Plans General Fund Allocations to Academic and Administrative Units Provost Makes Allocation Decisions Amount of University Reserve Decisions on Major Program Priorities and Initiatives Analysis of School Balance Sheets and Consolidated Income Flows Consolidated Budget Plan Submitted to Board of Trustees in June How has the budget evolved? The notion of a static budget : the 9/1 Consolidated Budget For reporting to the Board, report only variances rather than revised budgets Once the budget is set in September, units manage their budgets locally, for their own purposes, revising them (or not) at their discretion Variance reporting to the Budget Office is done against the 9/1 version of the budget We developed a custom web application ( ibudgets ) due to limitations/complications of entering budget revisions into Oracle Oracle functionality freed the fund tracking role of the budget on unrestricted funds Continual refinement of what we should include in the budget Fund accounting view vs. GAAP view E.g. we don t budget depreciation, but we budget some expense accruals

14 University Budgeting Models RPI s Centralized Approach: Budget allocation decisions by President and Cabinet Departmental budgets are based on achieving specific actions outlined in a performance plan Combines new program needs with existing activities Prioritization of actions is a must May be department, institutional, or external priorities Must determine which actions can be accomplished given available resources May include all resources (i.e., zero-based) or some percentage of available resources Resources for new programs are not necessarily new Issues RPI Approach Strengths: Culmination of a comprehensive, integrated planning approach Cost and outcome of each action necessary to facilitate resource allocation decisions All financial activity included Greater input and accountability from the schools, auxiliaries and administrative units in financial projections Expanded utilization of data and inputs beyond trend data Weaknesses: Very difficult, complex to develop and implement Limited budget resources hinder effectiveness of process Who sets priorities is critical consideration

15 RPI Current budget system resources Hyperion/Data Warehouse UBO and IT Staff: 2 and 3 FTE Support & train the users; maintain & enhance the app Support the servers, networking, databases 20 Budget Managers and Data experts Support their portfolio Reporting line to the Budget Office

16 RPI - How has the budget evolved? Culmination of an integrated planning approach strategy - action - resources Filtering priorities through the lens of the strategic plan All resources scrutinized for budget relief and enhancement Forecast quarterly budget variances, project liquidity needs, project financial statements Continual refinement of what we should include in the budget Fund accounting view vs. FASB view E.g. we don t budget depreciation, but we budget some expense accruals Questions? 32