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.

Units 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.

Each fund corresponds with a fund group used for reporting. Major fund groups 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, donors, 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, donors, 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, 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 unit 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 the University controls but are not derived directly from University activity and are held for the benefit of another party outside of the University. Funds are typically 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 fiduciary component units, certain pension or other post employment benefits, or other fiduciary activities as defined by GASB Statement No. 84, Fiduciary Activities.

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 revenues and expenses to ensure compliance with donor or external agency restrictions, and
• Provides management with data to evaluate organizational performance.

Fund and Cost Transfers

Fund transfers are a transfer of resources between or amongst funds. Cost transfers are a transfer or reclassification of expenses. Transfers may occur between funds or within a fund, however transfers must adhere to:

• University policies
• Externally imposed restrictions
• Unit or College requirements

Units must ensure that:

• Externally imposed restrictions are always followed.
• Fund transfers crossing between restricted and unrestricted funds should be avoided, whenever possible.

Clear documentation and appropriate use of chartfield string values are essential to ensure reporting is accurate and supports accountability of the appropriate usage of University resources in accordance with imposed restrictions.

Functional Expense Reporting

The University reports operating expense transactions based on function. The function indicates the purpose of the expense in alignment with the University mission. Function codes are attributes of the Project and Program Chartfield values. Units 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 unit executes purchase orders, employment agreements, and other commitments for materials or services not yet received. Recording of encumbrances typically occurs when a transaction has been entered and approved in EFS. An encumbrance is not recorded as an expense in the general ledger until the execution of the corresponding activity (for example, when a purchase order is fulfilled or employment services are provided).

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 that is based on the estimated useful life of an asset.

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: