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Quality Improvement in Financial Management at the University of Washington

Vol. 4, No. 1, Winter 2005
 

Innovations

Financial Accounting—More than Just Numbers

by Sarah Moore

The University receives nearly three billion dollars of revenue each year, and manages and accounts for over five billion dollars of assets. Needless to say, it requires a lot of effort and coordination among many departments for all that managing and accounting to be effective, accurate and useful. Much of that information ends up in Financial Accounting (FA), and then we have to do something with it!

The activity we are primarily responsible for is the financial information in the University’s Annual Report. This represents four to five months of concentrated activity for most of our group. It requires gathering and organizing all the information from the Financial Accounting System, along with other adjustments, data from Capital Projects, Treasury, the Budget Office, Grant and Contract Accounting and others, in order to complete it. It includes financial statements and other financial reporting that reflect what assets and liabilities we have, how successfully we have used these assets to operate efficiently, what activities generated cash for the University, and how that cash was used.

Users of the Annual Report such as donors, bondholders, the state, bond rating agencies and other interested parties rely on our Annual Report to tell them how we use the money we receive from tuition and from the state and federal governments to fulfill our teaching and research missions. Bondholders and bond rating agencies want to know what debt we have and how we are investing it in assets to further the University’s goals. These users and others want to know how efficiently we manage our assets and if we receive enough revenue to safely cover our costs.

We know for sure we can celebrate a job well done when the University’s Board of Regents formally accepts the Annual Report, usually in mid-January. The June 30, 2004, Annual Report will be available on the Web soon after that. The Annual Reports are archived at http://www.washington.edu/admin/finacct/annual.report.archive.html.

In addition to the millions of transactions that go into our accounting system from departments all over the University, there are several activities that require additional monitoring, accounting and adjusting. That’s where FA comes in. Some of the ongoing activities are:

  • accounting for capital leases of equipment and buildings;
  • billing and accounting for reimbursement from several hundred agencies that use University resources and reimburse us;
  • accounting for the many bonds and other debt issued by the University;
  • the final accounting for acquisition and disposal of assets for the year;
  • helping departments across the University with questions about such things as coding and recording transactions, and how to understand their budget reports;
  • detecting, resolving questions and problems with the Financial Accounting System, as well as identifying needed improvements, and helping to implement them;
  • accounting for equipment inventory, which recently became part of FA;
  • developing the financial desktop – see the article in the Spring, 2004 issue of Directions for more information.

All of these activities are a collaboration of FA with many departments, among them Purchasing, Capital Projects, Treasury, Grant and Contract Accounting and Information Systems.

Then there are several functions of FA that are concentrated more on daily, monthly, quarterly, or annual deadlines:

A quarterly project for us is recording Institutional Overhead. With the help of the Budget Office, FA gathers information to record charges to cover University overhead costs to over 300 budgets. You can learn more about this at: http://www.washington.edu/research/maa/recharge/externalrates.html#inst,

Another big project for FA has to do with employee benefit expenses. During the year, FA gathers information about actual payments for such costs as health care premiums and the University’s contributions to pension plans, and actual expenses for benefits that are charged to budgets. This requires much information and help from the Benefits Office and Payroll, among others. Our challenge is to estimate the various percentages (depending on the type of salary and benefit) that can be multiplied by salary expense in each budget to arrive at an appropriate benefit cost. Before the end of very fiscal year, these rates and their supporting documentation must be submitted to the Department of Health and Human Services for approval. After that, we enter the rates into the Financial Accounting System for the new year so they can be applied to the budgets. Payroll Load rates are available at: http://www.washington.edu/admin/finacct/loadrate.html.

Financial Accounting also prepares the University’s Federal Tax Return (yes, we pay taxes each year!) We advise clients about whether their business activities could generate taxable income. We also played a large role in some recent tax incentives that have become available to us. For instance, the High Technology tax deferral on construction projects and the Machinery and Equipment Exemption on research-related equipment has the potential for saving a good deal of money for the University!

One of the more interesting balancing acts that Financial Accounting’s Cash Management group does is to forecast our daily cash balances. Each banking day, (with a 10 o’clock deadline, mind you!) we estimate how much money will be available in our main account after 1) checks clear for the day, and 2) money is received. Then each day’s estimated excess cash can be invested. That way, the University receives the maximum interest on the money that we are responsible for. This requires close communication from other departments that might be making large deposits or wiring out large amounts of money. Our Financial Accounting Dashboard measures the effectiveness of this activity.

The University must also report our financial activity and asset and debt balances to the State of Washington, using the state’s accounting system. This uses a separate, state system of accounting to which we enter our revenues and expenses monthly, and requires that we continually reconcile what our system reports with what the state system reports.

Managing and accounting for equipment inventory is also an important part of our activities. The Equipment Inventory group has just been moved (organizationally, that is) to Financial Accounting, so we want to welcome the folks in Equipment Inventory to our group. This organizational change was effective in December of 2004. Financial Accounting works very closely with Equipment Inventory to bring together information about the University’s assets for our annual reporting. Equipment Inventory also provides data that we need for the application for the Machinery and Equipment tax exemption – which results in an important tax savings for the University. So it will be a big advantage to have them as part of our group. Welcome to Mark Centuori, Martin Crabb, Heidi Gustsafson and Christine Wall!