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22.3 Self-Supporting Funds Deficits

Policy Statement

Units must ensure that cash deficits within self-supporting funds (SSFs) are resolved in Banner on a timely basis.

Reason for the Policy

To ensure compliance with good business practices, as well as the following:

1. The Fiscal Control and Internal Auditing Act (30 ILCS 10/), which outlines standards of fiscal accountability.
2. Section 1.4 University and System Offices Deficit Reporting, which outlines the requirements surrounding deficit reporting and deficit reduction plans.

Applicability of the Policy

All units who manage SSFs.

Procedure

While it is not recommended to operate a self-supporting fund (SSF) activity at a financial loss (i.e., where SSF expenses exceed SSF revenues), there may be times when this occurs. In those cases, the financial loss may eventually cause the SSF to go into a cash deficit. This is not ideal, as it creates a scenario where the SSF is essentially borrowing against the system’s pool of cash reserves to finance its operation.

Thus, whenever a SSF goes into a cash deficit, steps must be taken to resolve the deficit on a timely basis (which is typically defined as within two to three years).

To properly resolve a cash deficit within a SSF, follow the guidelines and procedural steps below:

1. Determine the cause of the cash deficit and adjust plans accordingly to help prevent a similar scenario from occurring in the future. For example:
   1. Does the rate charged to customers need to be increased in the future?
   2. Are all revenues being properly credited to the correct fund?
   3. Are unrelated expenses that were not included in the original SSF rate calculation being charged to the SSF?
   4. Has demand for the goods or services being sold lessened over time?
   5. Does a new rate re-calculation need to be performed?
2. Identify the fund type of the SSF that is in a cash deficit.
   1. If the fund type is a 3M (Auxiliary Enterprises Under Indenture), then contact UAFR and the appropriate university budget office for further guidance. Due to external bond indenture requirements, 3M expenditures are not allowed to be reclassified to other fund types.
   2. If the fund type is a 3E (Services and Storeroom Activities), refer to the Subsidies section of the Setting Rates .
   3. If the fund type is a 3J (Auxiliary Not Under Indenture) or a 3Q (Departmental Activities), then proceed to the following steps for guidance on how to proceed with resolving the deficit.
3. Determine whether raising the rate in the future is a viable option to generate more revenue.
   1. If so, this may be a preferred solution if the market conditions would allow for it. That way, the additional revenue will eventually help resolve the cash deficit.
4. If additional revenue generation is not a valid option, then identify alternative funding sources where excess SSF expenses can be reclassified.
5. Once potential funding sources are identified, contact UAFR and the applicable campus budget office to determine whether it would be allowable to reclassify the excess SSF expenses to these potential funding sources.
   1. To determine whether a potential funding source is allowable, UAFR and the campus budget office will need to understand the parameters surrounding the situation. Those parameters will help determine whether the potential funding source is allowable to use for the expense reclassifications.
   2. For example, some funding sources (such as unrestricted gift funds, royalty funds, ICR funds, or administrative allowance funds) do not have external restrictions and could be used for this purpose, assuming adequate funding is available. However, other fund types (such as state funds) have several different restrictions to consider, and those restrictions must be discussed with UAFR and the applicable campus budget office before proceeding. This is necessary to ensure that an allowable plan is developed before the expense reclassification begins.
6. It is required to follow the proper accounting procedures when completing expense reclassification to the alternative funding source. To properly complete an expense reclassification from the 3J or 3Q SSF to the approved funding source, follow the steps below:
   1. Reclassify the excess expenses from the SSF and to the alternative funding source’s C-FOP by crediting the applicable expense account code on the SSF where the expenses currently reside and debiting the applicable expense account code on the alternative funding source’s C-FOP that best represents the nature of the transaction.
      1. If the excess SSF expenses are being reclassified to state funds, remember that it is unallowable to reclassify expenses from a prior fiscal year to the current fiscal year’s state fund, as the current year’s state fund should typically only be used for current fiscal year expenses.
   2. To ensure a proper audit trail, provide a clear explanation of the expense reclassification within the FOATEXT and description line of the journal voucher (including the Banner document numbers of the original expenses which are being reclassified, if possible).
7. Ensure that the SSF and the C-FOP of the alternative funding source are both reconciled on a regular basis and that any discrepancies are corrected on a timely basis once they are identified. In addition, keep in mind that a final reconciliation for June 30 period 12 business is required at the end of the fiscal year, to ensure that any errors are corrected by the close of the fiscal year. This will ensure accuracy for the system’s audited financial statements.
8. Finally, if either the SSF or any segment of the alternative funding source’s C-FOP is discontinued, the unit will need to:
   1. Perform a final reconciliation of the C-FOP to ensure all transactions are appropriate and to correct any errors that are found. The reconciliation should include a review of both the general ledger and operating ledger balances.
   2. Ensure that any payroll appointments, detail codes, encumbrances, Pcards, or Tcards that are assigned to the C-FOP are removed prior to submitting the termination request. See Terminating Banner Code Segments for further details.
   3. Once all issues are rectified and cleared, submit a termination request to UAFR (uas@uillinois.edu) requesting that either the fund code or the program code be terminated.

 

Related Policies and Procedures

1.4 University and System Offices Deficit Reporting

13.4 Reconciliation of Financial Activities

Additional Resources

Fiscal Control and Internal Auditing Act (30 ILCS 10/)

Reconciliation of Financial Activities

Self-Supporting Funds

Setting Rates

State of Illinois Legislative Audit Commission University Guidelines

Terminating Banner Code Segments

First Published: February 2022 | Last Updated: June 2024 | Last Reviewed: June 2024