1-E. Banner Concepts and Definitions

Accounting

Accounting identifies, measures, and communicates economic information so users can make informed judgments and decisions. The two objectives of accounting are:

  • To provide information to managers for the effective allocation and use of resources
  • To help evaluate the financial operations of the organization.

 In short, accounting is used to compile financial details so managers can make informed decisions. This information also helps others (auditors, contributors, etc.) evaluate how UNM records and uses financial resources.

 Although Banner is a finance and accounting system, a significant number of transactions can be processed without formal training in accounting principles.  The key to success is having an understanding the basic concepts and rules, as explained in this resource manual.

Chart of Accounts

A Chart of Accounts, also referred to as a COA is a list of categories or grouping used by an organization in order to classify transactions for reporting purposes.  UNM has designed the COA in Banner to allow for reporting flexibility as the University has diverse and complex reporting requirement while allowing for individual units to be created for accountability and reconciliation purposes.  This is accomplished through the use of an individualized accounting string, referred to as an Index within the COA. 

Index

The Index reflects certain attributes that can be grouped and analyzed for financial purposes.   Each Index has a unique combination of attributes that are referred to as the FOPA, which refers to the Fund, Organization, Program, and Activity. 

Fund

Because UNM is a state institution and nonprofit organization, we are required to use an accounting method called fund accounting. Fund accounting allows us to use each source of funds separately and to honor differing restrictions or provisions. It also ensures that we spend dollars as requested by funding sources. Fund accounting provides records that can be used to certify the use of the funds. 

Funds. Each fund is set up as a self-balancing, separate entity with its own set of asset and liability accounts, just like a business. Fund accounting is the method of separating funds into categories (or groups) according to funding source restrictions. 

UNM fund management appears complex at first; but logical, operational reasons support this fund management system. The following topics outline reasons for using the fund management process. These topics also provide background on UNM structure and procedures.

To make financial reporting easier, similar funds are grouped together. Remember that fund accounting allows UNM to ensure that the funds are used as the providers requested. Each fund is treated like a business that can be reported and analyzed separately in order to streamline the reporting process. 

The first character of a fund indicates which campus is responsible for reporting. 

1 – Institutional Fund
2 – Main Campus
3 – Health Science Center
4 – Gallup Campus
5 – Los Alamos Campus
6 – Valencia Campus
7 – Taos Campus

The second character of a fund indicates the type of fund.

Unrestricted - U
Restricted - numeric
Endowment - E
Non-endowed - N
Plant - P

Purpose of Funds. Sources of funding provide money for specific purposes. The state, sponsors, and donors expect us to use the money for its intended purpose.  Typically the purpose of funds aligns with the mission of UNM as previously discussed.

Proof of Use. To show that funds are used for the specified purposes, each fund is accounted for separately. Funds are set up with separate identities and monitored individually. Financial reports describing how the funds are used are regularly generated for review. graphic: pie chart

UNM depends on money from outside sources of funding (or sponsors), and this money is available for a specific period of time. The funding may continue beyond that time, but there is no guarantee that it will.  For example, state appropriation depends on legislative approval and can be subject to reversion if unspent; research grants may or may not be renewed; contributors may or may not make another gift next year.  Since funding may not continue, UNM operates within the actual funds it receives. 

Fund Types. To further differential funds for reporting purposes, funds are divided into fund types.   General fund types include: 

Unrestricted Funds – resources that are currently expendable for any purpose toward performing the primary objectives of the University:  Instruction, Research, Public Service and Supporting Services.  Unrestricted funds include all funds received for which no stipulation was made by donor or other external     agency as to the purposes for   which they should be expended.  The use of these funds is governed by and must comply with administrative policies such as UNM Business Policy, as well as state and federal legislation.

Restricted Funds – resources that are available for operations that are limited by granting and other external agencies to specific purposes, program, department or        schools.

Endowment Funds - donated funds that are invested.  Normally only the income earned on endowments may be spent.  An earning formula is applied to invested funds to determine the amount available for spending.  

Non-Endowed Funds - donated funds that are available to be spend within the guidelines established by the donor.   

Plant Funds – funds to be used for the acquisition of properties; funds restricted or designated for retirement of indebtedness. 

Loan Funds – include resources available for and transaction related to loans to students.

Agency Funds – are amounts deposited with the University by organizations for which the University acts as fiscal agent.

 Organization

 The Organization code is used to track financial activities by functional reporting unit such as campus, college, school, department, division, and cost center.  The hierarchy UNM has created includes the following structure: 

Organization Level 1:              President (highest level of reporting)
Organization Level 2:              Campus/Vice President
Organization Level 3:              College/School
Organization Level 4:              College Grouping (determined by Level 3 Administrator)
Organization Level 5:              Department (determined by Level 3 or 4 Administrator)
Organization Level 6:              Division (optional, determined by Level 5 Administrator)
Organization Level 7:              Unit (optional, determined by Level 6 Administrator)
Organization Level 8:              Sub-unit (optional, as necessary)

The organization represented in the Index is where the financial activity is reflected and this activity will also roll up into the financial reports of the higher levels of organizational reporting within the structure.  An organization is a permanent unit with assigned employees and an operating budget.  Each organization has an “organization financial manager” identified within the Banner system.  The organization structure within Banner may mirror the organizational and reporting chart that is used within each unit as a tool or method to review and report on the financial results of each unit’s manager. 

Program

The Program assigned to each index represents specific reporting requirements established by the State of New Mexico Higher Education Division (HED) to which the University must adhere.  The program designated indicates the functional classification, such as Instruction, Research or Public Service.  For additional flexibility in reporting, the UNM COA program structure is also hierarchical:

Program Level 1:                     Mission
Program Level 2:                     Functional Classification (Restricted/Unrestricted)
Program Level 3:                     Program or Project

The program assignment for Sponsored (Restricted) Projects is designated based on the classification of the award as administered by the Contract and Grant Administrative (core) offices.  The program assignment for unrestricted projects is determined by the Budget Offices responsible for reporting to HED.  Within the hierarchy structure, the fund assignment and the program assignment that an index receives should been consistent as they both refer to the overall mission of the University. 

Activity

Activity codes are for the use of departments and are selected by department administrators.  Activity codes allow departments to create specific groupings for reporting purposes.

 Account Codes

Use of appropriate UNM Account Codes when processing transactions is vital in ensuring that the University’s financial statements are properly stated.  A user can easily determine account codes classifications by referring to the table below,

Account Type

Ledger

Account Code Starts With

Normal Balance

Assets

General

A

Debit

Liabilities

General

L

Credit

Net Assets

General

N

Credit

Revenues

Operating

0, 1

Credit

Salary Expense

Operating

2

Debit

Other Expenses

Operating

3 – 9

Debit


Department personnel are expected to select the most appropriate code for each expense they oversee.    Please carefully consider the account code(s) to be used when processing transactions, and when in doubt, consult with the appropriate Financial Services accounting office.  Use of an inappropriate account code will cause your transaction to be disapproved so that it can be corrected.

The Operating Ledger Account Code Definitions shows all the active account codes at UNM, and gives a definition and usage for each account. To view or print this list, go to Acount Code Definitions (revised)  

Account codes are used by various Core Accounting offices to monitor activities and can also be used to produce specialized reports.  Transactions within various account codes are monitored for income tax purposes, impact of the University’s Facilities and Administration (F&A) rate, and for compliance with federal cost accounting mandates.  Incorrectly recorded transactions could have adverse implications to the University and its employees.

Financial Accountability- Fiscal Year

graphic: calendarFor UNM, the accounting year, known as the fiscal year, does not mirror the calendar year. The fiscal year starts July 1st and ends the following June 30th.  This twelve-month period is the fiscal year. Funding is provided for this period of time.  The fiscal year is named with the year in which it ends. For example, if the fiscal year ends on June 30, 2015, it is called Fiscal Year 2015. Fiscal Year 2015 is the period from July 1, 2014, through June 30, 2015. Just like a calendar year, the fiscal year has twelve months, or reporting periods. July is the first month in the fiscal year and is referred to as “Period 1”; August is the referred to as “Period 2” and so on.

The Banner system is “closed” and balanced at the end of each month. Normally, Banner closing is on the third business day following the last day of the month.  The monthly close schedule is available on the UNM Financial Services Resources website at  http://www.unm.edu/~fssc/index.html.  An email notice is sent when the month is closed. 

Sponsored projects, or restricted contracts and grants, operate based on the contract period that is specified in the award document and do not necessarily coincide with the Fiscal Year utilized by the University.  Specialized Operating Ledger reports are available for Contract and Grant reporting in order to evaluate financial results based on the contract period, rather than the fiscal year.

Budgets

UNM may receive funds once during the fiscal year or at intermittent intervals, and because restrictions are placed on certain funds, it is necessary to plan, control, and monitor the use of the funds throughout the budget period. To do this, budgets are prepared for UNM and for most indexes within the system. A budget is a financial plan for the purpose of monitoring and controlling current operations. The budget encompasses both estimated revenues and estimated expenditures for a specific period, usually one year. UNM staff prepares estimated revenue and expenditure budgets prior to the start of each fiscal year to monitor and control their operations.  Deadlines for creating budgets for the upcoming fiscal year are communicated by the Budget Offices.  In the UNM budget process, each department prepares requested budgets according to guidelines provided by the Budget Offices.

In addition, the Budget Offices also require departments to enter projections and allow for budget modification during the fiscal year.  Revised budget reports are prepared and submitted to the Higher Education Division (HED) during the third fiscal quarter. The department operating expense budget is a plan that shows the categories where the department has authority to spend (such as a category for office supplies) and how much the department can spend in each category. 

Expenditures, Commitments, and Encumbrances

Institutions of higher education are funded with fixed amounts for specific periods of time. Consequently, it is very important for expenditures to be budgeted and for budgets to be carefully monitored. A fund accounting technique called encumbering is a method that fund managers use to set aside funds, reserving them until the actual disbursement of funds is completed.  An encumbered amount of money represents a commitment to pay.  In the Banner system, department managers monitor their uncommitted amount to determine what money is available to spend. The uncommitted amount represents the budgeted dollars less expenditure and encumbrances, or the amount that is not yet spent or committed.

Source of Funding

The following information is an answer to Fast Info question 3421.

The source of funding (state appropriated I & G, Public Service, Research, gifts from donors, etc.) expected to be used for a proposed expenditure is not the determining factor as to whether the expenditure is allowable under policy.  University Business Policy #4000 "Allowable and Unallowable Expenditures", section 2 "Scope of University Funds" states: "It is the general policy of the University that all financial resources received by the University irrespective of their sources, shall be expended under common policy and procedures.  All funds made available to the University shall be expended through University accounting systems and in accordance with University Business Policies and Procedures.  This includes funds obtained through the appropriation of tax revenues, gifts from individual donors, income earned for services rendered such as research and public sources, or through transfers from affiliated organizations such as foundations..."  In fact, there may be tighter restrictions on the usage of funds from some sources, specifically I&G and Endowed/Non-endowed, than policy generally allows.  Donors generally specify the type of expenditures for which they intend their donations to be used.  However, if a particular expenditure does not comply with policy, regardless of the donor intent, it will not be allowed.  When in doubt, please contact the appropriate Financial Services accounting office BEFORE initiating the transaction.  As always, any payment must have a valid UNM business purpose, which must be fully explained on the document (DP-EZ, Purchase Requisition, Journal Voucher, etc.).  Do not just restate what is being purchased.