Business and Finance
Policy Title: Budget Development
Created 11/1/2004 Updated 2/28/2008
Purpose: To provide budget formulation processes and policies.
FYO6-08 Budget Development
By Victoria Payseur, Vice President for Business and Finance
With the approval of a balanced budget for FY05 in April 2004, it appears that the University’s deficit spending has been corrected and our existing 5-year Budget Plan is complete. It is now time to develop a new strategic, multi-year model to guide the University’s budget planning for the next several years. I am proposing a 3-year model, covering FY06, 07 and 08. The development of a new 3-year Budget Plan provides the University with an opportunity to rethink its overall budget process and to ensure that resources are directed toward institutional priorities in fulfillment of Drake’s mission and strategic plan. While some reallocation was effected during Program Review, it has become increasingly clear that our historical budget funding may not be an accurate reflection of our current strategic priorities. The new 3-year Budget Plan should bring together the five goals of the strategic plan into a realistic and comprehensive financial projection.The revised Higher Learning Commission (HLC) accreditation requirements also provide an additional impetus for Drake to revise its budgetary allocations. Criterion 2 in the HLC accreditation guidelines requires that institutions demonstrate a clear alignment between resource allocations (i.e., all resources—budgetary, physical and human) and the University’s mission, strategic plan and institutional priorities. Drake will need to provide clear evidence that we have made conscious decisions to shift resources strategically toward our plans and priorities. Our budgetary planning and our resource decisions must be very intentional and very strategic to ensure that our future vision for Drake is realized. Resource allocation should be a quantitative reflection of the strategic plan and institutional priorities.
Budget Plan Goals
- To align budget resources with strategic planning and institutional priorities;
- To encourage revenue generation;
- To ensure good stewardship of institutional resources;
- To improve the fiscal health of the institution for the longer term.
Strategic Improvement Plans
Each College/School Dean will be asked to submit a three-to-five year Strategic Improvement Plan (SIP) based upon the individual College/School strategic plan. Directors of the major administrative budget units will also be asked to prepare SIPs. Consistent with Program Review emphases and the Strategic Plan, initiatives that encompass multiple budget units (multi-disciplinary or cross-departmental) are encouraged and will receive a high priority during the budget decision-making process. These initiatives are to be prioritized by each Dean or Director.Ultimately, each of the five College/School Deans must select only one SIP to bring forward to the Budget Committee. Likewise the President, Provost, Vice President for Business and Finance; Vice President for Institutional Advancement; Vice President for Admissions/Financial Aid; and the Athletic Director can each present only one SIP for his/her areas of responsibility. The written SIPs will be presented orally to the Budget Committee in February. The Budget Committee will then prioritize these SIPS and determine which SIPs should be funded in FY06.
Potential Reallocation of Budget Funds
In order to establish a funding mechanism for the SIPs, each Dean or Director may be required to provide a potential funding reallocation from his/her own budget into the University’s Strategic Improvement Plan Fund. A funding reallocation of 1 to 5% of the unit’s total budget will be established by the Cabinet. The Cabinet will discuss the consequences of recommended reallocations and will ultimately decide which unit budgets to reduce and which SIPs to fund in order to better align strategic priorities and funding.
Multi-year Resource Commitments
Budget commitments to SIPs could be made up to 3 years in advance with the understanding that emergencies or unexpected circumstances might affect the University’s ability to fulfill the future commitment (e.g., significant enrollment or endowment decline). It is also possible that unexpected gifts might accelerate the implementation of a future year commitment. Multi-year commitments will be reviewed annually by the Cabinet to determine if the commitment still represents an institutional priority.
Preview: Gain Sharing Opportunity
Each budget unit will have an opportunity to share a portion (50%) of the University’s total net revenues in excess of the budget target when the overall institutional goals are exceeded. Gain sharing opportunities would arise from budgetary expenditure savings for non-revenue producing units and from excess net revenues for revenue-producing units.
Budget overages will be deleted first from unit’s restricted gifts (if any) and may result in budget reduction in future years. If a gain sharing opportunity is anticipated, each dean or director will be asked to decide if the unit’s gain share should 1.) be deposited into a quasi-endowment fund to help enhance the unit’s operations in the future or 2.) be used for bonuses or for some non-recurring improvement (to be defined by the unit) in the following year. The remainder of the gain (the other 50%) reverts to the University to be used for such things as: bonuses, capital improvements, one-time only SIP requests, or other non-recurring institutional priorities. Each cost center is expected to meet the expenditure budget defined without overspending (benefits might be the only potential exception). All miscellaneous revenues will be managed at the institutional level; excess revenues cannot be used to expand budgetary spending. Any expenditure savings will be subject to gain sharing rules. Each revenue-producing auxiliary operationwould be expected to provide either a percent of revenues or a net dollar amount toward the University enterprise to offset various administrative, other indirect costs and the general University good. All direct costs will be charged to the unit. Each auxiliary operation will have a bottom line target to meet annually for both revenues and expenses. Each college/school will be eligible for gain sharing on graduate and/or other special programs revenue only. Institutional financial aid (if any) will be allocated against the graduate tuition on an aggregated basis (vs. by individual student). All direct expenses associated with undergraduate programs must be separated from graduate and/or other special programs. Each college/school will be expected to provide a percentage of net graduate/special program revenues or a net dollar amount toward the University enterprise annually. To avoid, undue focus on graduate programs, gain sharing will be contingent upon first meeting an undergraduate and graduate enrollment baseline in each college/school.Further details regarding the gain-sharing plan are still being developed.
Expenditure Classification Issues (Academic Units only)
In FY03 as part of the Banner conversion, costs were reclassified within each college and school to properly reflect the industry definitions of Instruction, Academic Support, and Student Services. The proper classification of costs is vitally important to the provision of good financial data for various benchmarking studies with peers. It is important that budget managers work within the guidelines of these cost classifications as provided below: Instruction vs. Academic Support: Instructional costs include only direct instructional costs; in most cases, that means only faculty salaries and benefits. Salary and benefits for faculty with joint instructional/administrative appointments are to be allocated between Instruction and Academic Support, based upon the percentage of time allocated to each activity. Faculty development costs, phone, postage, clerical salaries and benefits, student wages, equipment, maintenance contracts are not considered direct instruction costs, but are classified as Academic Support and, therefore, included in the dean’s office budget. When feasible, printing and supply costs can be allocated between direct instructional costs and academic support. Libraries, galleries, and academic computing are also classified as Academic Support. Student Services:Student Services include admissions, student records, academic services office, student financial aid office, the office of the dean of students, the health center, the counseling center, student activities, the career center, tutoring operations, intramural athletics and similar recreational services. In the CPBA and the Law School, costs associated with registration, career services, and admissions/financial aid that can be readily identified are classified as Student Services. If other colleges have student service costs that need to be re-classified, please provide a written explanation with a request for the change to the University Budget Director.
Included below is a summary of budgetary/expenditure policies that will apply universally. Most of the policies outlined below have been in effect since FY03. New policies are noted with an asterisk (*).
Beginning with FY05, unit budget results will be shared with the campus community and the Board of Trustees annually. Budget Management will be used as a significant performance measure for determining the individual Dean’s/ Director’s annual salary increase.
Elimination of Incentive and/or Revenue Sharing Plans*
To provide consistency and fairness throughout the institution, the new gain sharing opportunity will replace various unit incentive or revenue sharing plans. Only two incentive plans still exist: the Quad Cities plan in CBPA (which has recently been rolled into the SMC start-up plan) and the Omaha plan in SOE, which will be finished in FY05. Also, any grant sharing (i.e., indirect cost recovery) plans will be eliminated for FY05.
- Faculty/Staff Development: The Faculty/Staff Development budgets provide funds for conferences, meals, hotels and transportation related to training or enrichment activities. Faculty Development funding is provided to each academic dean at $1,000 per full-time faculty. This budget line may be used only for faculty development, but the actual distribution of the fund is solely the dean’s discretion. For example, a dean may allocate $2,000 to half of the faculty each year, alternating every other year; or may assign varying amounts depending upon the requests or interests of the faculty. In addition, these funds may be used to sponsor on-campus faculty workshops. At each Dean’s discretion, funds may be used to pay individual (not institution-wide) membership dues for professional organizations. These budget funds can be supplemented by restricted or endowed resources for faculty development, including those managed by the Provost. Staff Development funding has been provided to each department using the following allocation formula: $5,000 per vice president, $2,500 per academic dean, $500 to $1,500 per exempt employee (depending upon pay grade). The actual distribution of the fund is solely the supervisor’s discretion. For example, it may not be possible for all administrative staff to attend a national conference each year, but the attendance could be alternated every second or third year. For non-exempt staff, a pool of funds is provided in the Human Resources budget. These funds can be used for on-campus workshops or individual training. A method for distributing these funds has been developed by HR. Faculty and staff development funds may not be re-allocated to another purpose within the budget. They are to be used solely for training and development. The funding levels are currently under review and may be adjusted with the FY06 budget.
- Overload Pay: Stipends, additional course load pay, and other forms of additional compensation (excluding summer school pay) for faculty or academic administrators must be approved by the Provost in advance.
- Overtime Pay: Overtime must be approved in advance by the appropriate supervisor and must be managed within the existing departmental salary budget.
- Salaries and Benefits: Budget funds allocated for salaries and benefits cannot be reallocated to other budgetary lines. Salary savings due to vacant positions may not be used to offset other budget overages within a unit’s budget. All vacant/unfilled academic positions are pooled under the Provost’s oversight. All vacant/unfilled administrative positions remain in the unit’s budget.
- Personnel Benefits: Personnel benefits are budgeted for each unit at 31% of departmental salaries. However, most benefits will be charged to the unit based on actual utilization (e.g., employee x has family health coverage; employee y has no coverage; employee x has tuition rebate, etc.). Budget managers will not be held accountable for overages in personnel benefit budget lines since they are not under their direct control. However, budget managers will be held accountable to cover benefits for any new or upgraded position (i.e., funding must be obtained for both the salary and benefits).
- Sabbatical Pay: Sabbatical pay for approved faculty is budgeted within the appropriate dean’s office budget at full salary. The unused portion of the faculty salary may be reallocated to the part-time instruction budget for the appropriate department/school.
- Transitional Leave: Transitional leave for approved faculty is budgeted within the appropriate instructional organization at the approved percentage rate. The unused portion of the transitional salary will be reallocated to the Provost’s reversion salary account and may be reallocated for part-time instruction budgets with his approval.
- Faculty/Staff Recruitment: All faculty recruitment is to be funded centrally from the Provost’s budget. The Provost will determine the appropriate policies and distribution of these funds. All staff recruitment (except for Athletics) is funded centrally in the Human Resources budget. Athletics is required to fund its own staff recruitment costs.
- Moving Allowance: The Provost is responsible for approving moving allowances for faculty and academic administration; the Director of Human Resources is responsible for approving moving allowances for non-academic administration.
- Student Employment/Graduate Assistants: A job classification system and related wage scale is in place for all student employees. Information may be obtained from Deb Setterdahl. Guidelines for graduate assistants are being revised in light of recent FLSA changes (discussion has occurred with most impacted departments; guidelines will be available later in the spring 2005).
- Use of Restricted Funds: An overall budget will be set for non-scholarship restricted funds. Each Dean or Director will receive a report of available restricted funds in March of each year and then will be asked to submit his/her restricted funds expenditure requests to Nancy Crittenden by April 1 of the preceding fiscal year. Restricted funds must be used within two years of the date of gift receipt. Additional restricted funds may be available for release throughout the year. Contact Nancy Crittenden for more information.
- Use of Endowment Distributions: Each Dean or Director will be informed of his/her endowed funds distribution in March of the preceding fiscal year.
- Memberships, Dues and Subscriptions: Institutional memberships or dues are budgeted in the Institutional Support section of the budget. Only approved institutional memberships will be paid from the Institutional Support budget. Institutional memberships are defined as those made in the name of Drake University, as opposed to an individual employee. Institutional memberships remain with the institution or with the position regardless of the individual employee. Examples of such memberships are ACE, CASE, NACUBO, ANAC. A list of approved Drake memberships will be issued soon. Individual memberships are those made in the name of the employee, which would transfer with the employee if he/she left Drake employment. Examples of individual memberships are Iowa Society of CPAs and SHERM and other professional organizations. Individual memberships and/or licensing may, at the supervisor’s discretion, be paid for using Faculty/Staff Development funds.
- Equipment: A pool of equipment funds for academic support, totaling $100,000, is available in the Provost’s budget. The Provost is responsible for determining the distribution method for these funds. An equal pool of equipment funds for administrative support is available in the Institutional Support budget. The Vice President for Business and Finance is responsible for determining the distribution method for these funds. Requests for use of these funds should be submitted as part of the budget process.
- Repairs: As in the past, no contingency funding for equipment repairs are budgeted in departmental budgets. A central repair fund of $50,000 is available in the Institutional Support budget. Contact Carolyn Nelson, Budget Director, in case of an emergency repair.
- Office Supplies: The University has negotiated a contract with Office Depot as a preferred supplier of office supplies. Their prices for most common office supplies should be lower than other vendors. Supplies are delivered directly to the requesting office and the University receives one bill (no purchase order is required). Use of Office Depot is highly recommended over other suppliers.
- Chargebacks: As a general rule, chargebacks between University departments are prohibited. Approved chargebacks include: actual long distance phone costs, actual food costs from Sodexho, direct printing and postage charges assessed by LRI, actual costs for facility improvements (not normal repairs). In addition, certain added costs such as overtime costs for security or facilities staff for special events can be billed back to Auxiliary operations or student organizations. Utilities, custodial and maintenance and similar facility costs are also charged back to Auxiliary operations on a monthly basis throughout the year. Prohibited chargebacks include: charges within the University for space utilization, internal labor costs, central software assessments, rental charges for use of University owned equipment, services provided by one department for another during the normal course of business. Questions regarding chargebacks should be directed to the Vice President for Business and Finance.
- Postage, Outside Services: LRI is Drake’s contracted vendor for printing and mail. LRI has negotiated bulk mail rates on behalf of Drake University with its own preferred vendor. To control costs and permit better management of the University’s postal meter, all bulk mail generated on-campus must be sent to LRI (at the MailRoom) for processing. All required printing services should also be directed to LRI. The University reserves the right of non-payment or disciplinary action if other vendors are utilized. Service issues and other concerns regarding LRI are to be directed to Rhea Ann Frost for immediate resolution.
- Contracts, Leases and other written Commitments: Any contract with a term in excess of I year or a financial commitment in excess of $5,000 requires approval and signature by the Vice President for Business and Finance. The University reserves the right to void any contract that has not been properly authorized.
- Purchasing Cards: Purchasing cards are to be used for all non-p.o. required purchases under $1,500 (excluding grants). Documentation of purchases is to be maintained in the unit. Custodians are to review the documentation and are responsible for adherence to University policies.
- Sodexho Food: Drake has contracted with Sodexho as our exclusive provider of food services to the University. The use of other food providers is a violation of our contract and could be subject to penalties.
- Technology Fee Expenditures: Technology Fee expenditures must only be incurred when authorized. Spending levels are released by the Provost at various points throughout the year. Do not forward-spend from your budget, expecting reimbursement from tech fees at a future date. The reason that funds are authorized in phases is a matter of cash flow, not budget authorization. Consequently, no one is authorized to pre-spend technology fees.
- Additional Policies in Progress:
- Cell phones
- Employee Gifts
- Misc. revenues
Send policy comments to: Web Administrator
Responsibility for Administration: Budget Director
Department Policy Resides in: Business and Finance