University System of New Hampshire

02 - 029 Deficit Fund Balances

A. SUMMARY OF ADMINISTRATIVE PROCEDURE

Campus Chief Financial Officers (CFO's) are responsible for resolving deficits. The USNH Vice Chancellor for Financial Affairs is responsible for monitoring deficits and establishing appropriate deficit spending controls.

1. Definition of deficit spending. Each fund in the USNH general ledger (Banner) is a separate accounting entity with a self-balancing set of accounts for recording assets, liabilities, fund balance (i.e., net assets), revenues, expenditures, and transfers. Each fund has a source of funding, whether it be revenue from external or internal sources, or a transfer of funds from another fund. If the expenditures within a Banner fund exceed the funding sources, a deficit occurs. In other words, a deficit results when the sum of current year-to-date revenues plus the beginning fund balance is less than the current year-to-date expenses. 
2. Deficit spending is prohibited. At all times during the fiscal year, funds must maintain a fund balance of zero or greater. The funding source should be identified, secured and recorded in Banner before expenses may be incurred. To do otherwise would cause the cash balance in the fund to be negative, similar to an overdrawn personal checking account. 
3. Exceptions for deficit spending. Auxiliary enterprise funds may, with proper campus CFO approval, incur temporary deficits during the fiscal year due to the business nature of their operations, i.e., they must often incur expenses before generating revenue. However, auxiliary enterprises must end the fiscal year with a positive fund balance. Internally designated funds may, with proper campus CFO approval, incur temporary deficits during the year provided that the CFO notes when the deficit will be corrected and identifies a specific Unrestricted Undesignated E&G FOAPAL that will absorb any remaining deficit at year end. Restricted sponsored projects and Plant fund capital manifest accounts will typically run deficits since most contracts require USNH to incur costs prior to seeking reimbursement from the agencies. All other funds require specific written permission as defined under section B. below to be in deficit position.
4. Responsibilities regarding deficit spending. Each campus CFO is responsible for assuring compliance with this procedure for all funds at his/her campus. The USNH Controller is responsible for the monitoring and periodic reporting of deficit spending to the Vice Chancellor for Financial Affairs. A periodic report of auxiliary enterprise activities and fund balance is also presented to the Financial Affairs Committee of the Board of Trustees. 

B. DETAILED OPERATING PROCEDURES

This procedure details the establishment of appropriate deficit spending authorization.

1. Unrestricted, undesignated funds (Education/general funds with a U in the second character of the funds code) may be permitted to incur deficits with approval from the campus CFO or higher designee.
2. Auxiliary Enterprise Funds (funds with second character of A) may be permitted to incur deficits with written approval from the campus CFO or his/her designee. 
3. Internally Designated funds will generally be expected to maintain a fund balance of zero or greater. Exceptions may be allowed only when adhering to the following:
 

a. The requesting department will document the purpose of the activity in this fund and the level of deficit being requested.
b. A specific plan as to how the deficit will be eliminated prior to year end will be identified.
c. An Unrestricted Undesignated E&G FOAPAL will be identified that will absorb any open deficit remaining in the fund at year end.
d. The campus CFO authorizes all of the above, in writing, and submits it to the Controller's Office for annual monitoring.

It is the responsibility of the Campus CFO to make certain any outstanding deficit is cleared at year end. Any deficit not cleared by the end of 13th month will be journaled by the Controller's Office to the Unrestricted Undesignated E&G FOAPAL identified in 3.c. above.

4. Restricted current funds, other than gifts and endowment income funds, (P1 and P2 funds) will be permitted to operate at any amount (positive or negative) upon written authorization from the campus CFO or the UNH Sponsored Programs Administration Office. It will be these individuals' responsibility to ensure the prudent management of these funds, in accordance with all USNH policies and procedures. Adequate spending controls should be exercised through Banner budget mechanisms.
5. Plant funds including capital manifest accounts and certain auxiliary renovation/adaption (R&A) projects are allowed to carry temporary deficit balances. Capital manifest accounts are large construction/improvement projects funded by the state. USNH incurs the expense and "bills" the state for reimbursement, so these funds will always be in deficit during the life of the project. Some auxiliary R&A projects, funded by Housing, Dining, etc., must be encumbered prior to the beginning of the fiscal year, and therefore operate in a deficit during those times.
6. All other funds in Banner are not expected to have deficit balances.  These include loan funds, endowment funds, agency funds, and restricted current fund gifts/endowment income funds. Deficits in these fund groups require written approval from the campus CFO or his/her designee.