Financial Reporting Overview

Fund Accounting

The University records its financial transactions in the Enterprise Financial System (EFS) in accordance with the principles of fund accounting. Revenues and expenses are classified for accounting and reporting purposes into funds that characterize the sources of revenue and specific activities or objectives in accordance with regulations, restrictions, or limitations imposed by donors, parties outside the University, or the Board of Regents.

To apply the principles of fund accounting, the University has established a Chart of Accounts (COA). The COA includes funds that identify the source, purpose, and broad restrictions or reporting requirements.

Departments must ensure financial transactions follow the principles of fund accounting when recording transactions to the general ledger. Transactions must align revenues and expenses with the appropriate activities. All transactions must be in compliance with University policies.

All financial transactions are recorded in funds, which are reported by fund group. Major fund groups may be restricted or unrestricted, and are as follows:

  • Current unrestricted funds - Funds in which the University retains control to use in achieving its mission, including instruction, research, public service and general support activities.  These funds have no constraints imposed by external creditors, grantors, contributors, or laws or regulations of government.
  • Current restricted funds - Operating funds that may be utilized only in accordance with the purpose established by the external creditors, grantors, contributors, or laws or regulations of government, as to the specific purpose for which they may be expended.
  • Loan funds - Funds provided by the federal government, the State of Minnesota, and private donors, and other sources for student loans.
  • Endowment & similar funds - Funds received from a donor that, as a condition of the gift, generally requires the maintenance of principal.
  • Investment pool funds – Funds that track investment activity of the University.
  • Plant funds – Funds used to record acquisition or construction of physical assets that meet the University’s policy for capitalization, debt service related to University property, and investment in capital assets, net of accumulated depreciation or amortization. The use of Plant Funds is restricted to:
    •  Funds set aside for future significant capital projects for which the specific department must provide the funding.  A significant capital project is defined as $5 million or greater per project.
    • Internal Sales capital asset transactions.
  • Agency funds - Funds held in trust by the University but owned by outside entities that have a close relationship to the University.  These funds are held by the University as custodian or fiscal agent for individual students, faculty, staff members, student organizations, and University related Foundations.  These funds do not belong to the University but are owned by the group or agency, and thus are not available for University operations.

Segregating these resources into separate fund groups allows the University to:

  • Compile accurate financial statements which illustrate how the University meets its mission of Instruction, Research and Public Service.
  • Monitor resources and expenditures to ensure compliance with donor or external agency restrictions, and
  • Provides management with data to evaluate organizational performance

Fund Transfers

Fund transfers are resource or cost transfers between or amongst funds.  Transfers may occur between funds or within a fund, however transfers must adhere to:

  • University policies
  • Donor Restrictions
  • Department or College requirements

Departments must ensure that:

  • Donor restrictions must always be followed
  • Fund transfers crossing between restricted and unrestricted funds should be avoided, if possible

Fund transfers that are recorded in EFS and mingled with existing funds make reporting on accountability difficult or impossible. 

Functional Expense Reporting

The University reports operating expense transactions based on function.  The function indicates the purpose of the expense.  Function codes are attributes of the Project and Program Chartfield values.  Departments are required to ensure that expense transactions are properly coded to the correct program or project value based on the function of the expense.

Encumbrance

Funds are encumbered when a legally binding obligation is incurred. Recording of encumbrances typically occurs when a transaction has been entered and approved in EFS.  Examples of transactions include: a purchase order and payroll related transactions.

Encumbrance

Funds are encumbered when a legally binding obligation is incurred. Recording of encumbrances typically occurs when a transaction has been entered and approved in EFS. Examples of transactions include: a purchase order and payroll related transactions.

Capital Assets, Depreciation, and Amortization

Land, buildings, and other property are recorded at cost, if purchased or constructed. Capital gifts are recorded at market value on the date of gift. Depreciation is determined using the straight-line method, based on the estimated useful lives of the assets.

Capitalization thresholds vary depending on the capital asset category and are items that have a useful life of more than one year. Capital thresholds include the following:

CategoryCapitalization Threshold
Land $0
Museums and Collections $0
Library and reference books $0
Equipment $5,000
Buildings $50,000
Leasehold improvements $50,000
Intangible Assets $500,000
Capitalized software $500,000

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