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Forcasting the Operating Fund Reserves

The budgets that are established in the various university accounts represent spending limits. The objectives for managing budgets are to make optimum use of available funds, and to avoid overspending. Forecasting assists with meeting these objectives.

This section addresses the following topics:

The Forecasting Objective

The University Forecast

Divisional Operating Reserve Forecast as Input to the University Forecast

Divisional and Departmental Forecasting

The Forecasting Objective

For effective financial control, the forecasting of the operating fund must be carried out at each level of the organization: the departmental level, the divisional level, and the university level. At each level, the objective is to make optimum use of the funds available throughout the fiscal year, while avoiding deficits.

The University Forecast

The Financial Services Department is responsible for the preparation of the overall University forecast submitted to the Business Board of Governing Council.

The purpose of the university forecast is to develop a financial picture of the university, which formulates the basis for:

  • financial decision making through the current year,
  • planning for subsequent years, and
  • reporting to the Governing Council and its committees.

The university forecast reports anticipated income and expense variances and initiates consideration of action to be taken in the case of negative variances and opportunities to pursue in the case of positive variances.

Components of the University Forecast

Anticipated income variances:

  • Much of the income of the university is referred to as general university income and is largely comprised of the provincial government operating grant, student fees, investment income, overhead recoveries etc. The forecasting of these items is primarily the responsibility of Central University departments, namely Planning & Budget and Financial Services.
  • In some cases, divisions/departments budget for additional income to be generated at the divisional/departmental level. As this additional income is used to provide additional expenditure budget directly to the divisions/departments, it is very important for divisions to monitor and report significant unfavourable variances in this income.

Anticipated expense variances:

  • Much of university spending occurs at the divisional/departmental level and therefore input from divisions is important for effective overall university forecasting.

Since divisional forecasted activity is a significant component of the university forecast, the next section covers the annual requirement for divisions to prepare and submit divisional forecasts of their anticipated operating reserve balances for the year.

Divisional Operating Reserve Forecasts as Input to the University Forecast

Divisions having operating funds are subject to the divisional operating reserve policy and are therefore responsible for covering any overspending, and directly benefit from any underspending, such that:

  • any overspending in one budget year will be the first charge against any new budget allocations in the next budget year, and
  • any underspending in one budget year will be made available for spending in the next budget year.

Annual Requests for Divisional Operating Reserve Forecasts

Each year, in the month of October, the Controller sends out a request to divisional financial officers to prepare and submit a forecast of the divisional operating reserve balance (i.e. net underspending or overspending of available budget) for the year ending April 30.

The most recent version of the annual forecasting memo to divisional financial officers can be found on our News page.

The first forecast is normally due the first week of December, and the second forecast is due the last week of February. It is important that divisions provide their forecasts by the due dates in order to meet pre-set deadlines for completing the overall University forecasts and reporting to the Business Board.

The forecast of the divisional operating reserve balances is an important part of the forecasting exercise because it provides input into central calculations such as the estimation of investment income as well as providing an early look at potential areas of risk with respect to funding problems. It also provides input to the determination of University’s forecasted net assets.

Preparing the Divisional Operating Reserve Forecast Report

In an effort to assist the divisions in preparing their annual forecast for submission to the Controller, the Budget Carry Forward Simulation Report was designed. This report provides the divisions with a view of their operating budget positions based on information contained in the FIS system and should be used as a starting point for divisional operating reserve analysis. The benefit of using this report for this particular forecast is that the information is summarized and presented in the same format as the Year End Operating Reserve Report on which divisions will need to explain future spending plans (see the section Divisional Operating Reserves)

For this particular forecast, it is strongly recommended that the Budget Carry Forward Simulation Report is used. Any questions regarding this report can be directed to your FAST Team Representative.

Departments can use their own preferred format for the submission (e.g. a spreadsheet), so long as the following information is included in the forecast:

  • the estimated operating reserve balance at April 30;
  • the source of the operating reserve balance by:
    • savings in spending from budget
    • additional income over budget

If the division is projecting a deficit in the current year, the forecast text should explain the contributing factors to the deficit, the steps being taken to limit the deficit, and an indication that a plan is being developed, in consultation with the respective Vice-President’s office, to recover the deficit.

Helpful Hints in Preparing Divisional Operating Reserve Forecasts

In preparing a forecast, the following should be considered:

Expenses

  • Additional expenses
  • salary costs not yet encumbered / reserved
  • teaching assistants
  • salaries billed to the department
  • overtime at peak volume periods
  • special assignments
  • retiring allowances
  • necessary supplies and/or equipment not reflected in existing purchase orders
  • charges pending from other University departments and not reflected in internal purchase orders or manual reserves.

Savings

  • Salary encumbrances which overstate annual expenses because they do not reflect upcoming maternity leaves, unpaid leaves, staff turnover with replacement staff being hired at lower salaries.
  • Manual reserves which overstate planned expenditures for the year.
  • Uncleared residual encumbrances for completed or inactive purchase orders (see Financial Management of Purchase Orders)

Income and expense recoveries

  • budgeted income or expense recoveries which will not be realized (i.e. negative variance)
  • income or expense recoveries expected for which no budget was established resulting in a positive variance,
  • uncollectible accounts receivable, since amounts which are not collected are charged back to the department (Accounts Receivable, Collection Responsibilities and Uncollected Amounts).

Central Budget Allocations

  • planned and anticipated budget allocations to divisions from other divisions or a central office.

The forecasting process attempts to estimate the level of funds available at the end of the fiscal year. Encumbrance accounting assists with this estimation because it removes funds from the funds available at the point of commitment rather than at the point when the amounts are actually paid. It is recommended that departments use manual reserves and other commitments in FIS, where practical, to assist in the management and forecasting of operating reserve funds.

Divisional and Departmental Forecasting

Though necessary for effective University forecasts, departmental/divisional forecasts should be viewed primarily as an essential tool to assist departments and divisions in the management of their operations, to initiate decisions to:

  • proceed as planned because expenses and, in some cases income and expense recoveries, are expected to occur as budgeted;
  • take advantage of projected underspending in one or more accounts to cover projected overspending in other areas, or to undertake new initiatives;
  • engage in fundamental reworking of plans and alert the appropriate University administrator, e.g. dean, Provost, where the forecast indicates net overspending for the unit;
  • input to departmental/divisional operating decisions.

There are a wide variety of FIS reports available to assist departments and divisions in preparing forecasts. Since each division does not manage their resources in the same way within FIS, contact your FAST Team divisional representative for advice on which reports to use.

Last revison February 2014