Budget Changes – The Decision Process

Overview

The annual allocation of the Operating Fund results in the establishment of the original budgets for departmental fund centres on May 1 for the fiscal year. As the year proceeds, a department may need to change its original budgets. Reasons for this include:

anticipated divisional income in excess of the amount reflected in the original budgets, e.g. from an existing program or a new program, or
additional internal funding, e.g. the department has obtained some funding for a project from another operating department, e.g. the dean.

This section will set out a decision process for determining whether, and when, a change in budget is required.

The majority of academic departments in the University have both operating funds and restricted funds supporting ongoing operations and specific projects respectively. Fund Accounting and Transfers Between Funds sets out the objectives and related limitations of fund accounting. An understanding in this area is important to ensure the appropriate use of budget changes within the operating fund.

The Decision Process

Key Objectives

Under fund accounting, there are two key objectives in accounting for expenses: the funding objective and the financial reporting objective .

Funding objective: to record the expense against the fund that is funding the expense . The most common funding alternatives which departments will encounter are:

funding from operating funds
funding from a restricted fund
shared funding between two restricted funds
shared funding between a restricted fund and the operating fund.

Financial reporting objective: to accurately record the expense.
The financial reporting objective is concerned with the accurate recording of the expense, by using the appropriate object of expense and by recording the expense in the department which directly benefits from the expense.

Operating Funding

The decision process is guided by the financial reporting objective when an expense is being funded from the operating fund:

Question 1: Which department(s) is(are) receiving the benefit of the expense?
The expense should be recorded in an operating Fund Centre of the department which directly benefits from the expense.

Question 2: Is the budget for the expense already in the account?
If funds are insufficient for the expense, it will be necessary to increase the budget by transferring budget from another Fund Centre.

Restricted Funding

Restricted funds are provided for specific purposes. These are sometimes narrowly defined, e.g. a specific research project, or sometimes more generally defined, e.g. donations to be used by a specific department for special needs defined by the Chair. Because restricted funds are purpose-directed, the question as to which department benefits from the expense is not relevant; instead, the funding objective applies.

For grants and contracts, budgets are established according to agreements with sponsors. For donations, budgets are established only when donations are received and released. In most cases, budgets are established in FIS at the “expense-s”, or total expense, level. For certain grants and contracts, budgets can be established at specific expense category due to budgetary restrictions imposed by sponsor. Budget changes occur only when new donations are received or when amendments are made to agreements. Budgets can also be transferred between specific expense categories after approval has been received from the sponsor. Budgets amendments and transfers can be initiated by departments, but once approved by the sponsor the changes are handled by central offices.

The transfer of funds between restricted funds is extremely rare because of accountability and reporting requirements to sponsors and donors. Requests should be sent to the Financial Services Department (for non-research funds) and Research Accounting (for research funds). Transfers of funds between restricted funds and operating funds are also rare and are only allowable after being approved by the Business Board. For Business Board approved transfers, the transfers are processed by the Financial Services Department through journal entries and not through budget transfers.

When an expense is funded between two restricted funds, the best approach is to share the cost between the restricted funds by splitting the actual cost between the funds.

Question 1: Which department(s) is(are) receiving the benefit of the expense?
Not applicable. Since restricted funds are purpose-directed, the question as to which department benefits from the expense is not relevant in the case of restricted funding.

Question 2 – Is the budget for the expense already in the account?
In the case of most restricted funds, the entire fund is available in one fund. If funds are insufficient for the expense it will be necessary to obtain additional funding for the same purpose from other restricted funds and split the expense between the funds. This is done by journal entry and not via budget transfers.

For the purpose of the examples below, it is assumed that there are sufficient funds reflected in the one budget for the fund.

If, however, the restricted fund has budgetary controls on specific expense categories within the fund – common with contract research funding – there may not be sufficient salary budget for the payment of a technician whereas there may be underspending in the supplies budget. In these cases, departments can request a budget transfer between expense categories when permitted by the sponsor . These requests are usually initiated by the principal investigator. Such budget transfers are administered through Research Services. Refer to GTFM section Research Funding – Managing Successful Awards.

Example 1 – Funding from Restricted Funds only

Department A will be offering a term appointment to a technical person who will be working 50% on a Department A project and 50% on a project for the Dean. The Dean’s Office is funding the entire salary from a restricted fund called the John Smith Estate, an expendable fund.

Decision Process – Restricted Funding

Is the budget for the expense already in the account?
Yes. The fund balance is sufficient to cover this expense and the use is consistent with the terms of the fund

Action:
Pay the salary from the John Smith Estate fund. The fact that the technician will be working on a project for Department A and another for the Dean is not relevant. This fund is a restricted fund and both projects are eligible for funding under the terms of the fund.

Example 2 – Funding from both Operating and Restricted Funds

Department A will be offering a term appointment to a technical person who will be working 50% on a Department A project and 50% on a project for the Dean. The Dean’s Office is funding Department A’s costs from the Dean’s operating account. The Dean’s share of the cost is being funded by the John Smith Estate, an expendable fund.

Decision Process – Operating Funding

Which department(s) is receiving the benefit of the expense?
Department A

Is the budget for the expense already in the account?
No.

Decision Process: Restricted Funding

Is the budget for the expense already in the account?
Yes. The fund balance is sufficient to cover this expense and the use is consistent with the terms of the fund.

Action
The Dean’s office will move budget equal to 50% of the salary from its operating Fund Centre to department A’s Fund Centre. Payment of the salary will be 50% from Department A’s salary account and 50% from the John Smith Estate restricted expendable fund. The split will be processed using HRIS.

Last revision April 2007