Following are descriptions of the various types of funds used by Central Michigan University. This information was adapted from the Financial Accounting and Reporting Manual for Higher Education published by the National Association of College and University Business Officers.
The General Fund is to be maintained to account for those transactions related to academic and instructional programs and their administration. The revenues primarily consist of:
- State of Michigan appropriation for general operations
- Student tuition and fees
- Income from pooled investments of the General Fund
- Incidental revenue of departments. Examples of such incidental revenues are the sale of supply items, the occasional rental of educational facilities, and library fines
Expenditures of the General Fund are to be recorded in functional and object classifications. The Statement of Operating Revenues and Expenditures will detail the expenditures in the following functional classifications:
- Public service
- Academic support
- Student services
- Institutional support
- Operation and maintenance of plant
- Scholarships and fellowships
- Other institutional support
The Designated Fund is to be maintained to account for funds for specific purposes which are not restricted by donors or supporting agencies. If only the income is without restriction, it would be recorded in the Designated Fund, with the principal classified in the Endowment Fund.
The Designated Fund will include organized departmental activities associated with the academic program, conferences, seminars, unrestricted gifts, holding for tentative endowments and insurance reserves.
The expenditures of the Designated Fund are to be reported in the same functional classifications as prescribed for the General and Expendable Restricted Funds.
EXPENDABLE RESTRICTED FUND
The Expendable Restricted Fund is to be maintained to account for all special programs financed by separate special-purpose state appropriations, income from endowment funds, federal contracts and grants, and other gifts and grants. In all cases, the use of the funds is restricted for specific purposes stated by the supporting agencies or donors. Internal grants are also recorded in the restricted fund. Those consist of PRIF, REF and FIT.
If only the income from the gift can be expended the principal amount is to be recorded in the Endowment Fund. Gifts and grants to be used only for student loans are to be recorded in the Student Loan Fund. Gifts and grants received for capital outlay purposes such as a new research facility, library books, or alumni gifts for special buildings are recorded directly in the Plant Fund.
The revenues of the Expendable Restricted Fund are to be classified by source, such as:
- State appropriations for special programs
- Federal contracts and grants
- State contracts and grants
- Private contracts and grants
- Departmental activities (this will include revenues of projects under which the donor or supporting agency has required or permitted sales and other revenue to be added to the grant or project).
- Refunds to grantors or donors are to be deducted from revenues.
Most expendable restricted funds are in the nature of deposits by the donor or supporting agency with a responsibility on the part of the institution to carry out the specific provisions of the gift, grant or contract. Accordingly, revenues are recognized only to the extent of appropriate disbursements. Revenues from billable contracts are to be recognized when expenditures are made.
Expenditures will be recorded in the same functional classifications as required in the General Fund.
The handling of restricted purpose contracts and grants requires the use of institutional facilities, utilities, and administrative services, and most of such arrangements allow a charge to enable the institution to recover these indirect costs. There is a separate policy for the distribution of the indirect cost recovery revenue negotiated by the Office of Sponsored Research.
AUXILIARY ACTIVITIES FUND
The Auxiliary Activities Fund is to be maintained to account for the revenues and expenditures of revenue-producing, substantially self-supporting activities that perform a service for but are not themselves educational and general activities. For reporting purposes the auxiliary activities may be classified into appropriate groups such as:
Housing and related food operations
Student centers and other student facilities
Parking and transportation
Other activities (Press, Publications, etc.)
Internal Service Operations
Different treatment may be accorded some activities because of the basic sources of revenue. If, for instance, intercollegiate athletics produce little or no outside revenue, the activities should be reported in the General Fund as part of the student services. Similarly, if the audiovisual activities are for the education of on-campus students, the activity is to be reported in the General Fund; if the major activity is to serve the public on a fee basis (film rentals, etc.), the activity should be reported in the Designated Fund.
Where a dual function exists, the activity should be split into its components and each appropriately titled and classified in the proper fund.
The institutions may charge the operations of auxiliary facilities to create a reserve for maintenance and replacements. Such reserves and the related assets are to be transferred to the Plant Fund.
Inflation of revenues and expenditures where one activity sells goods or services to another activity has to be eliminated, such as in the sales of food or printing services sold to university departments. Such inflation of revenue is eliminated annually through the use of interuniversity revenue general ledger accounts. The other financial information schedule should indicate both the gross expenditures and gross revenues. The basic financial statements will show only the net effect of the offset with notation that such a procedure has been followed. Service operations which are minor in character and whose costs are generally not billed to other activities should be included in the appropriate General Fund functional classification.
STUDENT LOAN FUND
The Student Loan Fund is to be maintained to account for loans to students of the institution. If only the income of a fund may be loaned, the principal of that fund is to be shown in the Endowment Funds group. Any income earned from such principal investments in the Endowment Fund is to be distributed to the Student Loan Fund as received.
Loans to the faculty and staff, if they are not material in amount, may be included in the Student Loan Fund group.
Reimbursements from the federal government for administrative costs of the student loan program are to be recorded as revenues of the General Fund in the financial aid cost center.
The Endowment Fund is to be maintained to account for money or investments received for the following purposes:
1. Endowment Funds: This includes amounts where the donor has specified that the principal may not be expended.
2. Term Endowment Funds: This includes amounts required to be held for a particular period or pending the happening of a particular event, which thereafter will be available for expenditure or discretionary action by the governing board.
3. Funds Functioning as Endowment (Quasi): This includes gifts which the donor has not required be held in perpetuity and the governing board has decided that they be treated as endowments.
4. Annuity and Life Income Funds: This includes funds acquired subject to annuity or life income agreements. Payments to annuitants are expended directly from the fund. If annuity and life income funds’ are not significant in amount, they may be included in Endowment Funds.
5. Undistributed Realized Gains and Losses: This includes undistributed realized gains and losses on pooled investments.
Investment income on assets subject to life annuities is to be included in “Income from Payments to Annuitants” are to be shown as deductions. All other recorded income of the Endowment Fund except income to be added to the fund principal is to be distributed to the beneficiary funds (principally Expendable Restricted) and the expenditures shown in those funds.
The Plant Fund is to be maintained to account for funds held for debt service charges and for retirement of indebtedness on institutional properties; funds designated for the acquisition of physical properties to be used for institutional purposes; funds set aside for the renewal and replacement of institutional properties; and funds expended and invested in institutional plant properties.
Assets held by trustees for plant purposes are to be shown separately from those assets held by the institution.
Plants funds are categorized into the following groups:
1. Unexpended Plant Funds: Assets in this category are available for construction of new facilities and for major repairs and replacements. Sources of construction funds consist of state appropriations, federal grants, gifts, transfers from other funds, and proceeds from note and bond issues. Appropriations receivable from the state (State Building Authority) will be recorded as assets of the unexpended plant funds in the year in which the funds were appropriated.
2. Maintenance and Equipment Replacement Funds: Assets in this category are amounts available, from earnings of activities, for renewals and replacements of Auxiliary Activities facilities and the proceeds of bond issues held for maintenance and equipment replacement.
The institution may charge the operations of auxiliary units and create a reserve for maintenance and equipment replacement, provided such reserves are funded. Actual expenditures for maintenance and replacements for participating units shall be charged to the reserve as they are made.
3. Debt Service Funds: Debt service assets consist of amounts held by trustees and by the institution for payment of interest and redemption of outstanding obligations. If cash or other -assets are not transferred from the Auxiliary Activities Fund to offset amounts payable to trustee from the income of self-liquidating projects, the amounts will be reported in this section as due from other funds.
4. Physical Properties: This section of the Plant Fund includes all land, land improvements, infrastructure, buildings, and equipment in possession of the institution, except that held for investment, whether acquired by gift, by state or other appropriations, note and bond proceeds or expenditures from other funds. Capital items purchased from other funds of the institution and classified at the time of purchase as expenditures are recorded here.
University policy on capitalization is as follows:
Capital assets are divided into asset classes which include land, land improvements, building, building improvements, infrastructure, equipment, library books, and works of art and historical treasures.
Land: Includes all land that is purchased or acquired by gift or bequest. The capitalized cost of land purchased would include the amount paid for the purchase, plus all ancillary costs, such as broker and legal fees. If acquired by gift or bequest, the capitalized cost would be recorded at fair market value at the date of the gift or bequest. CMU must have title to the land before being capitalized. The purchase of easements should also be recorded as land.
Land Improvements: Includes assets such as parking lots, fencing, gates, athletic fields, and parking lot lighting. Work to maintain land improvements in their existing condition, for example, re-asphalting a parking lot, should be expensed. Work to improve land improvements in excess of $50,000, for example, expanding a parking lot, should be capitalized. All direct costs of construction or alteration should be included in calculating the cost of the land improvement. If the land improvement is constructed / altered by CMU’s own personnel, then these costs should also be included as part of the capitalized amount of the asset.
Buildings & Building Improvements: Includes all structures used for operating purposes, as well as significant improvements made to an existing structure that meet appropriate capitalization criteria. Included with this category are all permanently attached fixtures, machinery, and other components that cannot be removed without damage resulting to the building. If a component can be removed without damage, then it should be considered equipment and not included in the cost of the building or improvement. All direct costs of construction should be included in calculating the capitalized cost of the asset. If the building is constructed by CMU’s own personnel, then these costs should also be included as part of the capitalized amount of the asset. Significant structural alterations that increase the building’s usefulness, efficiency or asset life should also be capitalized.
To determine if a project should be capitalized as a building improvement, certain criteria must be met. Work to maintain buildings in their existing condition, such as painting or repairs, should be expensed. Work to improve the building in excess of $50,000 that would extend the asset’s useful life and/or increase efficiency, such as the addition of a new wing to a building, significant remodeling of a building or office(s), or the addition of HVAC systems to a building or office(s) should be capitalized.
Infrastructure: Includes all items such as streets, street lighting, roads, sidewalks, curbs, utility distribution systems, and storm sewers. These assets usually have a longer useful life and are more permanent in nature than land improvement related assets. Work to maintain infrastructure assets in their existing condition should be expensed. Work to improve infrastructure assets, for example creation or replacement of a storm sewer, in excess of $50,000 should be capitalized. All direct costs of construction or alteration should be included in calculating the cost of the asset. If the asset is constructed / altered by CMU’s own personnel, then these costs should also be included as part of the capitalized amount of the asset.
Equipment: Generally includes all items that are perceived as moveable personal property. Equipment may be purchased, fabricated, or received by donation. Examples of equipment include furniture, lab equipment, classroom equipment, and vehicles.
Purchased equipment should be recorded at cost, which is calculated at the amount invoiced, plus freight and installation costs, less any discounts. The cost of fabricated equipment should include the direct cost of the fabrication and installation, plus overhead or indirect costs. Donated equipment should be recorded at fair market value as of the date of the gift.
CMU’s capitalization threshold for equipment is $5,000, which is also in accordance with OMB Circular A-21, which requires all institutions recovering costs from the federal government to capitalize all equipment costing more than $5,000.
Equipment assets, other than those considered low theft items, are also tagged and then capitalized within the fixed asset system. If tagged equipment items are not found during annual inventories, the asset should be retired and removed from the University’s records.
Library Books: These assets should be capitalized at their purchase price plus transportation and any incidental costs. Donated books should be recorded at fair value as of the date of the gift. Periodicals and subscriptions are also capitalized. The University capitalizes library books at the end of each fiscal year. Rare books that are considered “collections” similar to works of art or historical treasures should be classified as Collections.
Collections: Collections are defined as works of art, historical treasures, or similar assets that are (a) held for public exhibition, education, or research in furtherance of public service instead of financial gain, (b) protected, kept unencumbered, cared for, and preserved, and (c) subject to organizational policy that requires the proceeds of items that re sold to be used to acquire other items for collection. Items that do not meet these criteria are not considered collections and must be capitalized accordingly.
Collections acquired through purchase should be recorded at cost. Collections received through gift or bequest should be recorded at fair value. Fair value is best determined by quoted market prices or appraisals.
Assets acquired other than through purchase are to be recorded on the books at the appraised value at the date of acceptance of the gift.
Library books are to be carried at approximate cost, or fair value at date of gift, with appropriate adjustment for retirements.
Premium and discount on revenue bonds issued is to be charged or credited to construction costs (as part of the interest capitalized during construction), unless the loan agreement specifically provides that initial interest costs during the period of construction are not chargeable to the project cost.
The retirement fund shall be maintained for institutional retirement plans to account for future payments to employees.
Amounts for future annuity payments to employees, or for death benefits under a self-insurance program, whether originating from employee withholdings, institutional contributions, or both, will be held in this fund.
Receipts which are paid in their entirety to an outside agency such as T.I.A.A. are not recorded in this fund.
This fund group shall be used to account for assets that are received by the institution to be held or disbursed only on the instruction or on behalf of the person or organization from whom they were received. If desired, the funds may be separated into various groups such as organization deposits, student deposits, and faculty deposits. Because of the nature of the Agency Fund, the transactions are to be referred to as deposits and withdrawals.
The amounts withheld from payrolls for taxes, social security, bond deductions, insurance, etc., and the institution’s matching contributions, are to be reported as liabilities in the Agency Fund.