Campus Deliverables
What is Fund Accounting
Fund accounting is a system of accounting used to track the amount of money allocated to various operations at UC Berkeley. It’s a system designed to ensure funds are used productively and for the benefit of the organization as a whole.
Fund Accounting is unique to non-profit and governmental organizations. It focuses on accountability of the organization because these organizations generally rely on the contributions of supporters (i.e. donors) and state tax revenues. UC Berkeley must restrict our funding to keep track of how monies are used based on who contributed those funds and how they were restricted. For example, a major donor may ask their contributions be dedicated to a scholarship program for a specific academic school, allowing students awarded these scholarships to enroll and attend the university. Keeping track of donor-restricted funds helps ensure compliance to spending terms. The State likewise places restrictions on how state appropriations and special state appropriations are used.
As a governmental entity that relies on public funding, tuition, and sponsored research, we in turn are also relied upon to keep a tight grip on expenses and prevent overspending. We need to keep a tight grip on finances to determine how funds are leveraged for a variety of purposes and different projects. Fund accounting helps the university keep accurate and tight control over our financial information, with a particular focus on the remaining resources available. This helps prevent general overspending or overspending in areas outside of the set budget for the campus. For example, UC Berkeley relies heavily on grants that have specific deadlines and requirements that need to be met for each grant. Therefore, we use fund accounting to keep track of those deadlines and ensure we do not overspend which is critical to operations.
When UC Berkeley undergoes a financial audit, our accounting documents are checked to ensure the funds we accepted are dedicated to the proper project, cause, and various spending stipulations. Spending stipulations may come from donors, the State of California, the Federal Government, and other entities. Essentially, this is designed to ensure UC Berkeley has remained accountable to those who ask to restrict spending on specific fund types.
Berkeley tracks costs in conjunction with these spending requirements through the use of Chart of Accounts Full Accounting Unit (FAU) chart strings. The fund segment of the FAU chart string identifies spending restrictions on the use of money whereas UC Berkeley tracks costs through the combination of Dept ID, Account, Function Code, CF1/CF2, and PC Chart Fields (only relevant to contracts and grants). The combination of fund with other elements of the FAU chart string allows the university to demonstrate proper spending in accordance with funding restrictions. It also helps us ensure we do not overspend. Please refer to the Chart of Accounts Onboarding module for more information.
What is Cost Accounting
Cost accounting is a managerial accounting process that involves recording, analyzing, and reporting the university’s costs. Cost accounting is helpful because it can identify where the university is spending its money (i.e. how much it earns from tuition, contracts and grants revenues, auxiliary revenues, etc.) and where money is being wasted or lost.
Cost accounting involves assigning costs to cost objects that can include the university’s services (i.e. tuition, research, etc.) and any business activities (i.e. housing, dining, bookstore sales, athletic event ticket sales, etc.) involved.
Having a clear idea of the costs associated with running an academic department or a business activity makes it easier for management to devise ways to maximize productivity and efficiently manage its costs. The university measures cost accounting activity against various types of funding restrictions through the combination of cost tracking against spending restrictions. Cost tracking utilizes the Chart of Accounts FAU chart string through the combination of Dept ID, account, function code, CF1/CF2 in combination with the fund segment of the FAU chart string. The fund segment identifies spending restrictions on the use of money. Please refer to the Chart of Accounts Onboarding module for more information.
Why is Fund and Cost Accounting Important?
It’s important because it helps our supporters (i.e. donors, the State, etc.) and ourselves to better understand where the money is going and how it’s helping fulfill the university’s core mission (teaching, research, public service). It helps UC Berkeley stay accountable in several ways:
It helps us keep a tight grip on where money is going
If a department for example must dedicate $50,000 towards the salaries of the department, $25,000 towards a student scholarship, and $25,000 towards a project sponsored by the Dean, they need to make sure that all funding is properly allocated as such. If they have a grant covering $40,000 of the salaries of the department, they only need to allocate $10,000 more from their operating budget. Likewise, if they have $30,000 to allocate from gift monies, the department knows they can either allocate an additional $5,000 towards student scholarships or roll it forward to the next year if the gift terms allow it. This can be hard to keep track of if the system of accounting is not primarily focused on the allocation and spending of funds.
It helps us honor any restrictions placed on assets
When people give to the university and place restrictions on those gifts, they expect those restrictions will be honored and the university wants to honor those restrictions. If our system is unorganized and emphasis is not placed on how monies are used, it’s challenging to ensure all money is used in the way promised.
It helps us ensure we have the funds necessary to continue operating
Fund and cost accounting allow us to clearly understand how much of our funding is spent on various academic programs, gift related spending activity, and general operating expenses. This allows the university to make more accurate budgets and ensure we have the funds necessary to continue operating in the future. It helps us make critical decisions responsibly by managing costs.
It helps us report our finances to the State of California and the IRS
The University of California is required to report our finances and how funds are used to both the State Controller’s Office and the IRS. This is performed centrally on a systemwide basis by the Office of the President; however, UC Berkeley must transmit financial data with fund and cost accounting elements in order to accurately and completely report our financial activity in accordance with Generally Accepted Accounting Principles (GAAP) as established by the Governmental Accounting Standards Board (GASB).
Policies That Govern the Work
BFB-A-47: Direct Costing Procedures
The general procedures for direct costing are outlined in BFB-A-47: Direct Costing Procedures in order to improve uniformity and consistency in recording direct costs throughout the university. It outlines our policies to ensure direct costs (expenses) are recorded in the general ledger by authorized transactions for initial payments (e.g. invoices, payroll, etc.), recharges from university administrative and service units, and adjustments of expenditures (cost transfers) to the correct accounting entity. The accounting entity refers to a department, unit, office, project, or activity which is identified by the combination of a unique dept ID/fund designation/Function Code, and optional CF1/2 values. This ensures spending is applied to the proper cost center, project or cause that benefited from the cost.
Policy requires that each accounting entity shall charge its budget with all the readily identifiable direct costs associated with the conduct of the operations of that entity. Example charges include salaries and wages, associated employee benefit costs, supplies and other general expenditures such as travel costs, equipment purchases, etc.
Other Policies
Roles and Responsibilities
Deans and Vice Chancellors would not process transactions that require knowledge of the chart of accounts and/or chartstring. Most other financial roles on campus should have a general working understanding about them, particularly if that role includes approving transactions, in which case a mastery of the chart of accounts is necessary.
In the Berkeley Financial System (BFS), all transactions require a preparer and an approver, which must be two different people. The approver must ensure that the correct chartstring is used, the journal is appropriate, and the period and amounts are correct. Supervisors are responsible for approvals made by employees in their organization.
Systems Used
Please refer to the Chart of Accounts Onboarding module. In the Learning Topics section, select Systems Used.