year-end accruals the university of texas system administration

Year-End Accruals

The University of Texas System Administration

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Overview Presentation Objectives:

To explain the basic principal of accrual accounting

To demonstrate why we do accrual accounting To review end of year deadlines To review the new Accrual Portal

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Accrual AccountingAccrual accounting follows one of the main principals of accounting, which is the matching principle - matching of revenues and expenses in the period earned and incurred. The goal is to match revenues to expenses in the same fiscal year.

The University of Texas System is undergoing external audit by Deloitte & Touche. One of the issues that was raised by the auditors is the payment of vouchers in the new fiscal year that should have been paid or accrued in the prior fiscal year. This violates the matching principle. At the end of fiscal year 2005, System Administration accrued $1.5 million from 305 accrual forms submitted.

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Accrual AccountingTo illustrate the matching principle:

A department has an invoice for goods or services received in August, but the invoice does not get paid until September. This can change the financial statement presentation.

An invoice for $500 was received August 25th. The department didn’t submit it for payment until after the cutoff, so their office would have extra budget (or a profit) at the end of the year. If the invoice had been paid in the period it should have, then the office would have used its entire budget for the year.

Invoice paid in September Invoice Paid in August

Revenues $40,000 Revenues $40,000

Expenses 39,500 Expenses 40,000

Remaining Budget 500 Remaining Budget -0-

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The University of Texas at Anywhere - Balance Sheet($ in thousands) 2006 2005Assets:

Current Assets $ 2,131.1 1,388.5 Noncurrent Investments 15,135.2 14,124.1 Other Noncurrent Assets 1.5 - Capital Assets, net 3,110.3 2,764.8

Total Assets 20,378.1 18,277.4 Liabilities:

Accounts Payable 32.9 239.6 Current Liabilites 3,151.6 2,179.3 Noncurrent Liabilities 3,371.6 3,373.5

Total Liabilities 6,556.1 5,792.4 Net Assets

Invested in Capital Assets, Net of Related Debt 6.5 (9.5) Restricted 12,677.8 11,378.9 Unrestricted 1,137.7 1,115.6

Net Assets 13,822.0 12,485.0 Liabilities and Net Assets $ 20,378.1 18,277.4

Accrual AccountingAnother issue that arises from not following the matching principle is that the financial statements are incorrect. Using the previous example of the invoice that is not paid until September, on the Balance Sheet, Accounts Payable is understated by the $500 that was not included. This makes the financial position appear to be better than it really is.

Understated by $500

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The University of Texas at Anywhere - Income Statement($ in thousands) 2006 2005Operating Revenues:

Sponsored Programs $ 8.5 1.8 Sales and Services of Educational Activities 4.7 6.1 Other (17.2) 32.1

Total Operating Revenues (4.0) 40.0 Total Operating Expenses 51.4 48.8 Operating Loss (55.4) (8.8) Nonoperating Revenues (Expenses):

State Appropriations 6.1 8.3 Gift Contributions 1.1 1.2 Net Investment Income (Loss) 1,348.0 158.8 Net Inc. (Dec.) in Fair Value of Investments 122.5 1,254.9 Interest Expense (88.9) (87.5)

Net Other Nonoperating Revenues 20.3 23.2Income (Loss) Before Other Revenues, Expenses, Gains or Losses) 1,409.2 1,358.9

Additions to Permanent Endowments 204.1 222.1 Transfers 1,132.88 1,025.20

Change in Net Assets 1,337.0 1,247.3 Net Assets, Beginning of the Year 12,485.0 11,238.2 Net Assets, End of the Year $ 13,822.0 12,485.5

Accrual AccountingThe income statement is also incorrectly presented. Expenses are lower than actual, so it again appears that the financial position is better than reality. This income statement is overstated by the $500 which would not have been included had the invoice been paid in the correct fiscal year.

Understated by $500

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Due Dates

September 5th – DEFINE closes for August

September 7th – Reimbursement requests due to APS by 5 p.m.

September 12th – Rollback of prior period vouchers

September 14th – All accruals due to Controller via the portal by 5 p.m.

September 17th – DEFINE closes for 13th month

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Accrual Portal

Received over 300 manual forms which had to be manually input into database

“Request for Payable Accrual” form was created on the accrual portal

$500 minimum expense for accrual Each department will be able to

electronically enter and submit their accrual forms to the Controller’s Office (backup will need to be sent manually)

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Accessing the Portal

List anyone who would need to have access to the portal

Sherill Boline will create members and send a email to the members with access information

Website is: https://portal.utsystem.edu/financialreporting/YearendAccrual/default.aspx

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Portal Home Page

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Select “New Item” to create a new accrual

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Enter the information and hit “Save and Close.”

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Here are some samples of the form we are using to gather the accrual information.

The electronic version of the form as well as a copy with the backup is due to the Controller’s Office by 5 p.m. Thursday, September 14th.

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Sample #2:

Originals will be submitted to APS for payment following the usual procedure. Please indicate the date that the originals were submitted to APS. This field may be blank if the invoice has not been received.

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Sample #3:

Note the expense should relate to the period 9/1/2005 through 8/31/2006 and should meet the $500 minimum for an individual expense.

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QUESTIONS?

Technical Portal QuestionsSherill Boline x4558

sboline@utsystem.edu Accrual Questions

Tracy Schumacher x4458 tschumacher@utsystem.edu