Public colleges and universities receive funding from a variety of sources that restrict the use of those resources, such as grants and contracts from sponsors or gifts from donors. State legislative processes also appropriate state funds to an institution.
Legislators and taxpayers want to know how these funds are used to accomplish the institution’s mission and to be assured that these funds are used in accordance with any appropriation requirements.
Additionally, the governing board (CU’s Board of Regents) of the institution may designate resources to be used for certain purposes such as student loans or capital construction. Some operations of the institution, such as housing, are required to generate revenue sufficient to cover all of their operating expenses and debt payments. This financial environment of public colleges and universities imposes upon higher education a special stewardship obligation to demonstrate that all resources were recorded and used in accordance with the directives of the outside sources providing the resources. This stewardship obligation requires an accounting system that provides unique identification and recording of individual resources so that they are not commingled with other resources. At CU, we use the PeopleSoft Finance system for this purpose.
Higher education accounting systems are traditionally based on a “fund accounting” structure. CU is no exception. The AICPA Industry Audit Guide, Audits of Colleges and Universities, last published in 1992, best defines fund accounting as the procedure by which resources for various purposes are classified for accounting and reporting purposes in accordance with regulations, restrictions or limitations imposed by sources outside the institution or in accordance with directions issued by the governing board. ¶2.03 of the Audit Guide defined a fund as an accounting entity with a self-balancing set of accounts for recording assets, liabilities, a fund balance and changes in the fund balance (revenue, expense and cash transfers).
In today’s context, the term fund balance will be referred to as net position. Separate accounts are maintained for each fund to ensure observance of limitations and restrictions placed on the use of resources. For accounting and reporting purposes, however, funds of similar characteristics are combined into fund groups. The fund groups usually encountered in an educational institution are:
The university uses a traditional fund accounting system to meet its stewardship obligations. Additionally, the use of the traditional fund groups serves management’s needs to plan and manage the financial activity of the institution.