INTERFUND TRANSFERS - NONMANDATORY
Issued By: Controller
Issued Date: 03/01/92
This procedure describes the purpose of an interfund transfer and defines nonmandatory as opposed to mandatory transfers (see Procedure 2-044, Interfund Transfers - Mandatory. Interfund transfers are subject to certain restrictions and reporting requirements imposed by Trustees, Chancellor, Generally Accepted Accounting Principles (GAAP), and the Controller. Finally, this statement provides specific procedures for processing nonmandatory transfers in Banner.
Current Trustee Policy XII-A-720.3.4 (as adopted by the Board of Trustees June 30, 1989) states: "Other Unrestricted fund [ie., Internally Designated funds and Auxiliary Enterprise funds] budget adjustments [including nonmandatory interfund transfers] are delegated by the Chancellor to Presidents/Chief Executive Officers ... unbudgeted transfers are not permitted between other Unrestricted funds and Unrestricted [undesignated] Educational and General funds, except as approved by the Financial Affairs Committee [of the Board of Trustees]."
Current Chancellor's Procedures. The Chancellor's Office issued Procedures to Implement Financial Planning Policies (endorsed by the Administrative Board on 12/8/89 and revised on 6/6/91). Section E.3 states: "[Unbudgeted] transfers between Unrestricted [undesignated] Educational and General funds and other Unrestricted [i.e., Internally Designated and Auxiliary Enterprise funds] or Restricted funds [ie., Loan funds, Endowment and Similar funds, Plant funds, and Restricted Current funds] cannot be made without approval from the Financial Affairs Committee; requests for such transfers should be submitted to the Chancellor for endorsement prior to such approval."
Definition of an interfund transfer. An interfund transfer is an accounting transaction which moves fund balance (reserves) from one fund to another fund. By definition, transfers cannot occur within the same fund. There is never a net economic impact on USNH as a whole due to a transfer, since the transaction is entirely between funds. There is no external cash involved. A transfer does not increase or decrease total USNH revenues or expenses. Except for those transactions processed quarterly by the Controller's Office (ie. intra-system support from campuses, interfund borrowing repayments, debt service, etc.), transfers should not be routine transactions. Fund accounting is the practice by which resources are maintained in separate fund accounts to provide proper stewardship over the resources entrusted to administration. If transfers among funds are routine, it means either stewardship is lacking or the accounts (funds) were not properly established or budgeted.
Mandatory versus nonmandatory transfers. Transfers are classified as either mandatory (see Procedure 2-044, Interfund Transfers - Mandatory) or nonmandatory. The National Association of College and University Business Officers (NACUBO) defines nonmandatory transfers as follows:
Nonmandatory transfers are authorized only by the governing board or administration. Unlike mandatory interfund transfers, there is no legally binding requirement to make the transaction. Examples include:
Transfers to a Loan fund to increase the amount of funds available for loans to students (this does not include the institution's matching funds for Perkins Loans, see Procedure 2-044, Interfund Transfers, Mandatory).
All interfund transfers must be approved by the Accounting Services department of the USNH Controller's Office. Additionally, specific interfund transfers require prior written approval, as follows:
Transfers to or from an Unrestricted Undesignated Educational and General (E&G) (campus budgeted operating) account and any other account require prior approval from the Trustee's Financial Affairs Committee, unless:
the transfer was part of the original budget as approved by the Trustees, or
Financial Affairs Committee approval is requested after the transfer transaction is recorded in Banner in the case of (3) and (4) above. This is accomplished by a quarterly report of unbudgeted transfers submitted by the Controller's Office. Campus Chief Financial Officer (CFO) review and comments are required for the quarterly report. If approval is subsequently denied, the Controller's Office will notify the individual originating the transfer transaction.
Transfers to or from Quasi Endowment funds require Financial Affairs Committee approval.
Transactions which are not transfers.
Budget moves are not accounting entries at all. When additional budgeted funds are required in a fund-area-org and are being used from another fund-area-org within the same fund, this is a budget move, not an interfund transfer. The current budget and spending authority is modified through budget documents (for example, EB's for expense lines, RB's for revenue lines, and AA's for changes in appropriation units). Increases and decreases in expense or revenue budgets within undesignated, unrestricted current educational and general (campus budgeted operating) funds do not usually require funds to be transferred by an accounting document. However, when an interfund transfer is required in these cases, the USNH Budget Office or Campus Financial Office handles the budget move and the Controller's Office handles the interfund transfer.
Cost allocations (charge-backs). These are instances where the actual expense incurred is shared by more than one department, fund or campus. In these cases, all costs are paid to vendors from one account to manage the cost of operating the department, project or event. Then periodic (usually monthly or quarterly) accounting entries are made to allocate the costs to the account benefiting from the expense. Examples of this type of activity are telecommunications, administrative service charges to auxiliary enterprises, and facility service support charges to auxiliaries. Transfer codes are never used for charge-backs. Instead, similar expense object codes are used for both the debit and credit so the integrity of total USNH expenses within each object class may be maintained.
Restricted fund allocations (purchases with multiple sources of funding). These are similar to charge-backs, except they occur only with Restricted funds and only in non-routine circumstances. Occasionally, departments charge an entire purchase to one account, planning to recoup the funds from other restricted accounts at a latter date. When this latter accounting entry occurs, it is an allocation of costs not a transfer. It should not be accomplished with transfer codes. Instead, the journal entry (JVS) should debit and credit the appropriate expense object code as charged on the original purchase order (PO) or payment voucher (PV). The PO/PV should be referenced on the JVS where it is reasonable to do so. This method should be used only in circumstances where it is not possible to charge each source directly on the original PO/PV.
It is far more preferable to charge the specific fund-area-org-object of the source(s) of the funds on the PO when the item is initially ordered. There can be multiple restricted funds referenced or a combination of restricted and unrestricted funds on a single PO. By charging the specific fund-area-org-objects on the original PO/PV, USNH's fiduciary responsibility for the proper management and use of restricted funds is more easily proven since payments to vendors for specific purchases can be readily seen by reviewing the Banner online general ledger (OLGL). By charging another account initially, the transaction trail is more difficult to follow.
Reporting requirements. In addition to the quarterly report of unbudgeted interfund transfers described in B.1.a. above, transfers are reported in summary and in detail as part of the year end financial report. GAAP requires mandatory and nonmandatory transfers to be recorded as separate line items on the USNH financial statements. All reporting on interfund transfers is totally dependent on the proper coding of interfund transfer transactions in Banner. These transactions can materially misstate the results of operations if not coded correctly in Banner. Therefore, careful attention to the detailed operating procedures which follow is required.
How to use the transfer code listing. The proper codes are determined by the purpose of the transfer. Locate the purpose on the table. The object code listed under the first column labeled "DEBIT OBJECT CODE" is the object code you will use for the debit side of the entry. The revenue source code listed under the second column labeled "CREDIT REVENUE SOURCE CODE" will be used for the credit side of the entry - REGARDLESS OF THE FUND AFFECTED.
Example: Assume a transfer from the UNH general fund (fund 1000) to Plant funds to help fund a major new construction project. The purpose of the transfer is to fund a capital project. The correct codes can be found under:
TO PLANT FUNDS
|Debit - NT62||Credit - NF62|
Proper supporting documentation. As with all documents to be processed through Banner, proper supporting documentation is essential. This is especially true for interfund transfers since approvals and reporting requirements are quite restrictive. To process the document as quickly as possible, all information a reader of the document should reasonably need to know to authorize this document should be attached to the document. Simply put, proper supporting documentation means adequate (but not excessive) relevant documentation (e.g., language, calculations, report totals, external invoices, contracts, etc.) that explains the transaction so an uninformed reader can understand the transaction.
All entries for transfers must balance. That is, the transfer debits must equal the transfer credits and all the lines must be valid transfer codes.
Banner documents to use for nonmandatory transfers. All nonmandatory transfer documents, except those processed as part of an automated Banner feed, should be prepared and entered into Banner via a JVS document. A nonmandatory transfer is not an original receipt of funds, therefore it should not be on a CR (Cash Receipt document). Nor is it a legitimate expenditure, therefore it should not be on any kind of a purchasing or payment document.
As with all JVS's, after the document has been properly authorized and entered into Banner, the original paper JVS document with all necessary supporting documentation should be attached to a Banner Document Cover Sheet and forwarded to the USNH Controller's Office, Box 6. These are original source documents and are maintained on file at this site.
Processing time required. A transfer transaction should take between five and ten working days to complete from start to updating within Banner. This can only occur when these procedures are followed and proper documentation accompany the document. Omitting approvals or relevant documentation will slow down the entire process. Please allow enough time. To facilitate the processing turnaround time required on these documents the following should be addressed prior to forwarding the documents to the Controller's Office: