Auxiliary Standard Operating Procedures

 

SUBJECT:

Financial Reporting Standardization for Units with Debt & Assumptions for the Comprehensive Pro Forma Financial Projections

SOURCE:

Financial Management Services, Auxiliary Accounting

DATE ISSUED:

April 2016

DATE OF LAST REVISION:

 

N/A

ASOP NO:

15.0 

RATIONALE:

Auxiliary Financial Standards Policy FIN-ACC-I-600 requires that all costs of an auxiliary unit should be charged to the organization (fully loaded cost), providing consistency across auxiliary units including the allocation of expenditures.

 

While this policy is in place for all auxiliary and recharge/service centers, this particular ASOP is designed to provide additional guidance for those units with outstanding debt, related to capital projects, to ensure transactions are recorded in a consistent manner across campuses.

ASOP:

Recognition and Recording of Revenues and Expenses:

In order to measure the success of a particular organization for a given period of time, it is critical that revenue is recognized in the accounting period in which it is earned and becomes measurable; and, expenses are recorded in the period they were incurred.

 

For auxiliary units with debt related to capital projects, the following types of expenses are required to be charged to the accounts within that organization:

 

  • Cost of Goods Sold (if applicable)
  • Compensation
  • Repairs & Maintenance
  • Energy & Utilities (by Responsibility Center (RC))
  • Depreciation
  • Interest
  • Any other expense category that is the lessor of 5% or $100,000 of the total expenses.

 

Subsidies:

In the event that another department or the campus is going to help fund an expense, or portion of an expense, related to the auxiliary organization, the funding department should initiate a transfer of funds document to move the cash into the auxiliary account. The entire expense associated with the auxiliary organization should be recorded in the auxiliary organization’s account. It is not appropriate to record a portion of the expense on the funding organization’s account.

 

Note: Recharge/Service Center (66) accounts are not permitted to transfer cash out of the recharge/service (66) account except in the case where they are transferring cash to a renewal and replacement (92) account in the amount equal to or less than their annual depreciation. Furthermore, recharge/service (66) accounts may only record federally allowable costs to their accounts.  See RSOP 6.0: Allowable/Unallowable Expenses for Recharge Centers.

 

Administrative Charges/Assessments/University Tax:

Operating expenses should include an allocation of campus and university overhead costs, using allocation methodologies that are consistent among campuses.

 

Comprehensive Pro forma Financial Projections:

Auxiliary organizations with debt related to capital projects are required to create and submit comprehensive pro forma financial projections to The Office of the Senior Vice President & Chief Financial Officer during the budget construction process and within 60 days of year-end closing. If the official operating budget of the University is adopted in late June, budget and actual requirements may be satisfied at the same time. These projections should extend over the life of the financing and should outline all key financial and economic assumptions contained in the pro forma projections. Those auxiliary organizations that have submitted comprehensive pro forma financial projections for housing rate reviews have satisfied this requirement. Pro forma format and contents should be acceptable to the Office of the Treasurer, Capital Finance prior to submission.

 

The inflation assumptions used in comprehensive pro forma financial projections and overhead cost allocation calculations will be based on the institutional cost inflation assumptions used by the Office of the Senior Vice President and Chief Financial Officer in its institutional financial forecasting. Capital Finance or Auxiliary Accounting will provide the assumptions for the Pro Forma.

 

Policy exceptions must be approved by the Office of the Senior Vice President and CFO or the University Treasurer.

 

For more detailed information on specific requirements, please refer to the Institutional Credit Guidelines.


 

DEFINITIONS:

Auxiliary: An auxiliary activity is one that furnishes goods or services to any non-Indiana University department and charges a fee directly related to, although not necessarily equal to, the cost of the goods or services. This includes sales to students, faculty and staff, or the general public. An auxiliary activity is an entity that is regularly carried on and is managed with the intent to be self-supporting.

 

Activities that involve Instruction, Research, Public Service, or Student Services are typically not considered auxiliary activity.

 

 

Recharge/Service Center: A recharge/service center activity is an activity that furnishes goods or services to another Indiana University department for the convenience of the university and charges a fee directly related to, and not more than, the allowable cost to provide the goods or services.

CROSS

REFERENCE:

 

FIN-ACC-I-600: Auxiliary Financial Standards

 

FIN-TRE-VI-140: Capital Financing

RESPONSIBLE

ORGANIZATION:

 

Financial Management Services, Auxiliary Accounting