Financial Deficits
| Section: | Financial & Business Policies |
| Policy Name: | Financial Deficits |
| Policy Owner: | Vice President of Finance and Treasurer |
| Responsible University Office: | Office of the Vice President for Finance and Treasurer |
| Origination Date: | June 1, 2024 |
I. SCOPE OF POLICY
The purpose of this policy is to describe the University of Delaware’s policy for monitoring, reporting and the timely resolution of Financial Deficits. This policy applies to all Funds, including basic budget, self-supporting, designated, discretionary, sponsored, endowment payout, capital and restricted gifts.
II. DEFINITIONS
As used in this policy, the following terms shall have the meanings specified.
A. “University” means the University of Delaware or a subsidiary or entity controlled by the University.
B. “Administrative Official” refers to any University of Delaware employee who holds a position with delegated financial, administrative, or management responsibility within a college or unit.
C. “Financial Deficit” means a situation when a Financial Unit spends more than is authorized or available in a particular Fund source. Financial Deficits may be measured by testing balances at any level within the accounting hierarchy.
D. “Financial Unit” represents a business unit with an ongoing business mission, with a responsible individual with fiscal authority over budget, resources and expenses, an identifiable group of employees, and generally physical space.
E. “Fund” is the high-level classification of the source of funds for a transaction and tracks restrictions and designations.
F. “Project” is a segment of the Chart of Accounts chart string which tracks ‘a body of financial activity’ with a start date, and in some cases an end date, spanning multiple fiscal years. Examples include Sponsored Awards, Capital Projects and other activities.
III. POLICY STATEMENT
The University receives financial support from a number of external stakeholders and has stewardship responsibility to its students; donors; federal, state, Unidel, local and private funding agencies; and the public. This stewardship includes the prudent fiscal management of resources entrusted to the University and the Administrative Official of each University unit.
At the beginning of each fiscal year, an expense budget is established for all Financial Units. All Financial Units are expected to operate within their available resources and to maintain a positive Fund balance for each fund type (e.g., a positive Fund balance in one Fund cannot be considered an offset to a negative Fund balance in another). Additionally, each Financial Unit is expected to operate within the budget by expense type (e.g., a positive balance in salaries and wages cannot be considered to offset a negative balance in other than personnel services). When a unit’s spending exceeds its authorized budget, it impacts the overall institutional budget.
Best practices establish that institutions shall not overspend approved budget authority, nor will expenses exceed revenues. When budgets are overspent or expenses exceed revenues, an operating budget deficit is created. Before the fiscal year can be closed, the operating deficits must be corrected. To help facilitate more effective management of the University’s budget as a whole, each unit will be responsible for any year-end deficits.
All Financial Units are expected to meet their financial needs within their overall available funding. This may be accomplished by (1) regularly monitoring financial activities, (2) avoiding cost over-runs relative to approved resources, (3) avoiding unallowable or unreasonable costs against various Fund sources, (4) avoiding unauthorized cost-transfers or expenditures, (5) immediately resolving improper charges and any deficit by properly moving expenses or redistributing resources, or (6) a proactive and timely pursuit of additional funding. Financial Deficits should not occur and must be remedied immediately when they do occur. The appropriate resolution will differ by Fund and circumstance.
Financial Units will not be permitted to carry over Financial Deficits exceeding $25,000 without a deficit resolution plan that is approved by the Department Chair/Designee and Dean/Vice President.
Financial Deficits should first be identified by Financial Unit and Fund. However, in some cases, balances must be measured by including the Project segment that captures business categories. Financial Deficits for Sponsored Research Project Awards, Capital Construction Projects and General Projects (including operating Recharge Activities, Auxiliaries, Service Agreements, Faculty start-up and portfolio, among others) will be measured at the Project segment.
IV. RESPONSIBILITIES
A. Principal Investigator (PI) or Financial Unit
1. For Sponsored Projects, the person(s) named as the PI, manager, or director in an award of a contract or grant accepted by University of Delaware has primary responsibility for adherence to the conditions of the award and for ensuring that expenditures made are appropriate, allowable, and within the budgetary limitations of the award.
2. For Projects other than Sponsored Projects, the Financial Unit is responsible for avoiding Financial Deficits at both the Fund and expense type level, promptly resolving any Financial Deficits when they occur, or developing and implementing written action plans to eliminate.
3. Where possible, identify unrestricted Fund reserve balances to cover Financial Deficits.
B. Department Chair and Department Business Officer (or Equivalent Administrative Official)
1. Identify, avoid and resolve Financial Deficits within their purview.
2. Ensure that sponsored Projects’ expenses do not exceed the cumulative amount of the award, allocation or budget and, if Financial Deficits do occur, ensure that corrective action is taken.
3. Ensure that PI or Financial Unit develop a written plan under which Financial Deficits larger than $25,000 will be eliminated before year-end. Any longer period for deficit resolution must be approved by the appropriate Vice President or Dean.
4. Where possible, identify unrestricted Fund balances to cover Financial Deficits.
C. Vice Presidents and Deans
1. Ensure Financial Deficits under their purview are routinely monitored at the level of the Department Chairs and Financial Units.
2. Ensure written plans to resolve deficits are prepared and submitted to the Department Chair/Designee and Dean/Vice President for review and approval when deficit balances are larger than $25,000.
3. Confirm actions specified in approved deficit resolution plans are effective and acted on for timely resolution of Financial Deficits before end of current fiscal year.
4. Where possible, identify unrestricted Fund balances to cover Financial Deficits.
5. Ensure Financial Deficits that cannot be resolved by the fiscal year-end are rare. In such rare cases, written and well justified requests for an internal loan should be submitted to the Vice President for Finance and Treasurer. All such requests shall be submitted by June 30th.
D. Vice President of Finance and Treasurer (VPFT)
a. Develop a report that provides timely information for monitoring and remedying deficits.
b. Partner with the appropriate Administrative Official(s) to ensure that they have written resolution plans and that corrective actions are progressing for deficits that remain unresolved after June 30 of each fiscal year.
c. Review deficit loan requests from Vice Presidents/Deans to make a recommendation for approval or disapproval to the Senior Vice President and CFO as part of the year end close.
IV. POLICY STANDARDS AND PROCEDURES
A. General Standards
1. Campus units are expected to resolve any operating deficits on their own throughout the fiscal year. Financial Deficits resulting from current year activity can be resolved in several ways, including the following potential options:
a. Reduce expenditures in advance of deficit spending.
b. Reclassify expenditures to another available Fund source.
c. Reallocate budget authority between budget of like type, as approved.
d. Perform revenue transfers between budgets of similar fund restriction types, as approved.
2. Financial Deficits that are not resolved by the Financial Unit by the close of the fiscal year will be closed by the budget office against any available resources in the following order:
a. Financial Unit unrestricted Funds
b. Unrestricted Funds at executive level to which the unit reports
3. In the event resources are not available, the Vice President of Finance and Treasurer may recommend that the Senior Vice President and Chief Financial Officer assign the unit an internal loan bearing interest to repay the institution for the short-term funding of the deficit. All approved internal loans will require a repayment plan incorporated into the following year(s) budget.