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Budgeting and the Operating Fund

For further information on budgeting for the Operating Fund, refer to the Planning and Budget website.

The allocation of available operating funds across the many University departments is a process referred to as the budget process. It can be described as having three distinct components: Budget Development, Budget Implementation and Monitoring/Forecasting. This section covers these three components, and also provides additional information on key dates and reference materials.

Budget Development

Budget Implementation

Monitoring/Forecasting

Schedule of Key Dates

 

Budget Development

Budget Objectives

  • to ensure that the University’s operating revenue is deployed in ways which best realize the University’s objectives, approved plans and academic purposes;
  • to ensure that academic and administrative units have the resources required to carry out their work effectively, subject to the constraints imposed by the flow of revenue; and
  • to provide an effective means of monitoring revenue and controlling expenditures in conformity with the highest standards of financial management and accounting.

Budget Methodology

The university’s budget is the mechanism by which operating funds are allocated to various divisions in the university. As such, it is a primary tool in the management of the university and in enabling it to fulfill its mission and achieve its academic goals.

This statement is the guiding principle underlying the University’s new budget methodology. The University transitioned to a new approach to budgeting in 2007-08. A full description of the new methodology can be found in the Task Force to Review Approach to Budgeting on the Planning and Budget website.

Academic Divisions

The fundamental nature of the budget methodology for academic divisions is captured in the report, “To provide incentives for revenue generation, divisions should receive a significant portion of the revenues they generate. At the same time, it should be possible to fund programs and activities based on the University’s academic plans and priorities, even when these activities do not generate sufficient revenues to cover costs. To accommodate these objectives, budget allocations under the recommended model consist of two components. The first is a revenue-based component that includes a proper accounting for the costs of central services and overhead. The second is a non-formulaic component that is based on academic plans.”

Shared-service Divisions

Funding recommendations for shared-service divisions are made by a committee chaired by the President, with input from academic and administrative leaders. The role of the committee is to first ensure that any proposed changes in service are aligned with the needs and priorities of the academic enterprise; the second is to establish spending priorities and to ensure that all possible cost reductions have been examined.

Global allocations
Allocations are made to divisions on a global basis, allowing considerable discretion to divisional managers. The effect is to steer the budgeting and planning towards program budgeting and away from control of expenditures by category, e.g. salaries, travel, etc.

Budget Report

At the institutional level the University’s budget is prepared by management – the President and Vice-Presidents (PVP) – and subsequently reviewed, revised and approved by the Planning and Budget Committee.

The result is the Budget Report, a summary of administrative recommendations which the President submits annually to the Governing Council for review and approval via the Planning and Budget Committee, the Academic Board and the Business Board. The Budget Report also includes a set of Long Range Budget Guidelines. The University prepares budget plans based on a five-year rolling window. Each year, the budget assumptions used in the Budget Guidelines of the year before are updated and new assumptions prepared for one additional year. Revised revenue and expense projections are prepared for the new cycle based on these assumptions. This approach provides a more realistic horizon for the University for the purpose of planning and decision making in a fast-changing environment.

Schedule 1 of the Budget Report provides an institutional summary of projected revenue and expense, as well as the planned accumulated deficit repayment schedule.

Schedules 2 and 3 of the Budget Report provide details on shared-service costs.

Schedule 4 presents an alternative high-level view of the budget projections that enables an assessment of the impact of the budget on the University’s operation.

Schedule 5 contains a detailed summary, by academic division, of revenue attributions and deductions by division for the year. Multi-year projections by division for the entire budget cycle are given in Schedule 6.

Budget Implementation

As mentioned above, the Budget Report allocates operating funds to divisions on a global basis.

Divisional Level
The next step in the process is the first stage of implementation of the Budget Report under the caveat that it is still subject to a favourable recommendation of the Academic Board, the concurrence of the Business Board, and approval by the Governing Council.

From the divisional perspective, however, this may be viewed as budget development because principals, deans, and directors make decisions on the allocation of funds within their divisions. It is at this stage that divisions finalize budget development and translate the result into line-by-line budgets for each division.

Departmental Level
This process, in turn, is updated by the detailed line-by-line budgets developed at the departmental level.

Policies and Procedures

  • Additions and reductions must be consistent with divisional plans and objectives, as recognized by the Planning and Budget Committee;
  • Funds added to the division by specific recommendation in the Budget Report should not be diverted to other purposes;
  • Assigned reductions may not be exported, e.g. passed on, to another division; each reduction must result in a reduction of net University expense;
  • Reductions in income are not permitted unless they can produce a net reduction in expense;
  • Staff benefit accounts are to be maintained at the current Standard Benefit Rates;
  • Changes to budgets and transfers are to comply with the Budget Change Policy for the Operating Fund. Also refer to the section Budget Changes – Authorizations and Procedures.

Key Considerations

There are many factors that come into play when developing divisional / departmental budgets, a number of which are consistent throughout the University:

Possible Funding Sources

  • tuition and grants related to enrolment
  • research overhead
  • divisional income
  • expense recoveries
  • availability of other funds (e.g. research grants, trust funds)
  • carry forwards
  • contingencies and reserves

General Expenditure Considerations

  • one-time-only expenses
  • outstanding commitments
  • transfers to/from other divisions/departments
  • cost containment

Salary Related Expenses

  • terminations and/or retirements of staff
  • new hires
  • staff benefits
  • provision for salary increases, where applicable
  • research leaves
  • maternity leaves
  • protection of salary base for academic administrators

Other expenses

  • general price increases
  • equipment needs
  • maintenance contracts
  • computer software needs
  • supplies
  • stationery
  • telephones

Approach

These guidelines are for divisional level financial administrators. Since each division may manage their budget process differently, departmental business officers should contact their divisional financial office for specific divisional budgeting guidelines.

Given the lack of symmetry between the fiscal period (May to April) and the salary year (July to June) the budget implementation is in two phases:

  • Phase I: budget before salary increases
  • Phase II: salary increases

Phase I
In this phase, the budget report recommendations are translated into the detailed divisional budgets.

The Planning and Budget Office initiates Phase I with the Divisional Budget Schedule, commonly referred to as the target budget letter. Instructions for the preparation of the divisional budget are in the section Budget Implementation – Operating Fund.

The Divisional Budget Schedule is extracted from the Budget Report. It is the task of the division to take the net budget allocation and input the information into the Financial Information System (FIS).

Upon receipt of the completed Phase I budgets from the divisions, the budget officers in the Planning and Budget Office review the submissions for:

  • Accuracy,
  • Completeness,
  • Reasonableness, and
  • Compliance with the budgetary rules.

This completes Phase I of the budget implementation process.
Phase II
Phase II encompasses the period during which salary commitments are calculated and finalized.

For Academic divisions:

  • the divisional budgets are based on allocations determined under the New Budget Model methodology described above.
  • the Phase I budgets are the basis for calculating the following for academic salaries:
    • a progress-through-the-ranks (PTR) pool of funds, determined on a divisional basis by multiplying the number of academic staff above and below the breakpoint by the respective PTR values. Divisions allocate the PTR on an individual basis,
    • an across-the-board increase, if any.
  • calculate and allocate merit increases for administrative staff,
  • Academic divisions do not receive funding for salary increases. It is important that a salary increase component be part of the Phase 1 budget submission.

For Non-Academic divisions:

  • the Phase I budget submissions are recycled back to the divisions, including an across-the-board increase, if any.
  • calculate and allocate merit increases for administrative staff
  • the Planning and Budget Office transfers salary increase funding along with applicable benefits. The in-year funding will be provided based on pro-rated fiscal amounts. The annual amount will be provided in the subsequent year. Funding is not provided for:
    • self-funded units, which are required to fund their own increases;
    • that portion of salaries which are recovered;
    • step increases for United Steel Workers (USW) Local 1998 staff.

The divisions then return this information to the Planning and Budget Office for funding and/or salary modelling purposes.

Monitoring/Forecasting

The operating budgets, which are now in divisional accounts throughout the University as a result of implementation of the annual budget, reflect detailed allocations of the Operating Fund. As such they represent spending limits.

Objective

It is important for divisions to monitor the actual results against these budgets in order to identify expected variances and take appropriate action:

  • eliminate or minimize forecasted negative variances,
  • utilize favourable forecasted variances for other purposes, first to cover forecasted negative variances.

The Financial Services Department prepares the overall forecast for the University from input provided by the Planning and Budget office and divisions. This information not only signals possible overspending problems but also provides input to cash flow analysis which is critical to forecasting investment income, a significant revenue component in the budget.

For more information on this process, refer to Forecasting the Operating Fund.

 

Tools

The monthly statement of account is the starting point for forecasting results to the end of the fiscal period. It reflects current budgets, actual revenues and expenditures to-date and anticipated costs to the end of the fiscal year to the extent such costs and revenues are reflected in salary commitments, purchase order commitments, manual reserves and in-year funding transfers.

In arriving at a forecast, future expenses not yet reflected in the account must be taken into account.

The Forecasting the Operating Fund Reserves section provides guidelines on how FIS is used as a forecasting tool.

Academic Divisions – Budgets and actual year-end results for academic divisions are highly dependent on enrolment. It is important that academic divisions monitor enrolments closely. For further information and tools to assist divisions, please refer to the Monitoring and Forecasting section of the Planning and Budget website.

 

Making adjustments

One option for dealing with forecasted variances is to reallocate budget from one account to another where appropriate, and where allowable. Refer to Budget Changes – The Decision Process and Operating Budget Changes – Authorizations and Procedures.

 

Schedule of Key Dates

For further information on key dates related to the Planning and Budget Schedule, please refer to the Key Budget Dates section of the Planning and Budget website.

Following are some additional dates for divisional level financial administrators. Each division will have its own deadlines to meet university deadlines for divisions. Departmental business officers should contact their divisional financial office for divisional deadlines.

January / February

  • Preliminary Divisional Budget letters for the next fiscal year issued to divisions.
  • Revised/Updates versions issued as needed.

March/April

  • Divisions complete and input Phase I budget into FIS by early April.

May/June

  • Final Divisional Budget letters issued to reflect inter-divisional transfers and changes to divisional revenues and recoveries.
  • Phase II of budget process is completed by divisions and returned to Budget Department.

July

  • Transfer of salary/benefit increase funding where applicable.

May

  • Final Divisional plans for expenditure of carryforward or recovery of overspending for the fiscal year just ended submitted to Financial Services. Refer to the Divisional Operating Reserves section.

Last revision September 2010