Transfer of Funds

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Prerequisites

Prior to reading the instructions on the Transfer of Funds document, it is beneficial to review the below sections to gain foundational knowledge:

  1. Accounting Fundamentals
  2. Chart of Accounts and General Ledger
  3. Financial Statements

Preface

This section discusses elements of the Transfer of Funds document and how it is used internally within Indiana University. Information presented below will walk through a general understanding of the Transfer of Funds document, including how it looks and how to use it. Lastly, this section will specify requirements and best practices associated with the Transfer of Funds document.

Introduction

A Transfer of Funds (TF) document is used to move cash between accounts. Transactions between internal departments (refer to RSOP #2 for other alternatives) should use a TF document unless when billing for goods or services in excess of $100,000. The Transfer of Funds document is often used to cover an overdraft, reimburse an account for an expense incurred, provide a subsidy, transfer funds to close an account, fulfill a funding commitment, or, to bill for goods and services in aggregate of $100,000 or less. Below are several common examples of transfers at the University:

  1. Monthly administrative charges, budget allotments, university tax and intercampus transfers
  2. Recharge Accounting - Reimbursement of depreciation
  3. Subsidies
  4. Transfers from operating accounts to renewal and replacement accounts
  5. Recording an interdepartmental sale of capital equipment- This is done in conjunction with the asset transfer document.
  6. Additions to loan funds and quasi-endowment funds
  7. Accruing a cash transfer from a previous month
  8. Lifecycle funding
  9. Matching the commitments and faculty endowment matches (FEMP)
  10. Transferring funds to close out accounts. (For Contract & Grant accounts, this would include residual balances and overdrafts.)
  11. Moving cash from departmental accounts to Contract & Grants (C&G) “Cost Share” subaccounts to cover expenditures that occur within those subaccounts
  12. Debt related transfers (i.e., debt funding, dedicated fee transfer, bond expenses)
  13. Accounts with internal activity under $100,000 will NOT be permitted to use internal billings, service billings and/or ID billings without prior approval from the Chief Accountant or Controller. However, a Transfer of Funds document can be initiated to complete the transaction between university accounts

Types of Transfers

There are two kinds of transfers, mandatory and non-mandatory. Mandatory transfers are required to meet contractual agreements. Specific object codes are used to identify these transactions. An example of this type of transfer is moving dedicated student fees to the retirement of indebtedness sub-fund group for principal and interest payments on bonds.

Non-mandatory transfers are allocations of unrestricted cash between entities, which are not required by contractual agreements. An example of a non-mandatory transfer would be if a dean makes a commitment to give a department $500 in support of a mission without expecting reimbursement. Non-mandatory transfers are most commonly used and include:

  • Non-mandatory additions to loan funds.
  • Additions to quasi-endowment funds.
  • Non-mandatory transfers to plant funds for:
    • General or specific plant additions.
    • Renewals and replacements of plant assets.
    • Voluntary payments of debt principal.
  • Commitments from a campus to subsidize an organization’s operations.
  • Cover an overdraft.
  • Transfer funds to close out an account.
  • Reimbursement for goods or services when billing department is not eligible to use Internal Billing or Service Billing documents.

Embedded Rules for the TF Document

  • There must be at least one accounting line in the From section and one accounting line in the To section.
  • The total in the From line(s) must equal the total in the To line(s) the Accounting Lines tab.
  • $0 balances are not allowed in the amount section of the Transfer of Funds document.
  • Negative amounts are not allowed (unless it is an Error Correction TF).
  • KFS automatically generates cash object code offset entries as defined by the information entered into the document.
  • Only transfer object codes are allowed to be used on Transfer of Funds documents. A list of transfer object codes is provided further down the page.
  • The two object sub-types available to be used on Transfer of Funds documents must balance independently. They are Mandatory Transfer (MT) and Non-Mandatory Transfer (NT)
  • The following transactions are unallowable on Transfer of Funds documents:
    1. Transfers between clearing fund accounts (68-XX-XXX) and university funds.
    2. Transfers between agency fund accounts (97-XX-XXX) and university funds.
    3. Transfers between restricted and non-restricted funds
  • There are additional compliance rules associated with Recharge Accounting. These can be found in the Recharge Accounting Section.

Accrual of Transfer Object Codes Object and Sub-Object Code Usage for Transfer of Funds Documents

Only specific object codes may be used on a Transfer of Funds document. The majority of Non-mandatory transfer object codes are within the range 9900 – 9999. Non-mandatory transfers have an object sub type of “TN”. Mandatory transfer object codes are used by a select group at Indiana University and should not be available for general use. Mandatory transfer object codes have an object sub type of “MT”.

Due to the limited number of transfer object codes available, tracking can be difficult. If a greater order of granularity is required for an entity’s needs, sub-object codes can be implemented at the account level. This will allow an entity to have separate buckets for specific transfers and will be broken out on financial statements at the object code level.

Along with mandatory/non-mandatory classifications of object codes, there are also certain transfer object codes that hit the fund balance section of the balance sheet and some that flow through the income statement. Below are tables of all transfer object codes separated by this distinction.

The following transfer object codes will appear in the income statement and fund balance section respectively:

For a more comprehensive excel version of these object codes, follow this link Summary of Transfer Object Codes.

Additional Restrictions for Recharge/Service Center Accounts

Transfers In: A recharge/service center 66 account can receive a subsidy through a Transfer of Funds document to help cover expenses, however, any excess subsidy will not be allowed to be transferred out of that 66 account. Once funds have been transferred into a recharge/service center 66 account, they cannot be transferred out for any reason other than what is cited below in the Transfer Out section.

Transfers Out: With the exception of a transfer out of depreciation to the dedicated renewal and replacement 92 account, transfers out of a recharge/service 66 account are not allowed.

As a best practice, if a recharge unit chooses to fund depreciation (reimburse expense) the units that have capital assets should annually transfer out cash in the amount equal to or less than their depreciation expense. This transaction is conducted using a Transfer of Funds document from the 66 account to the 92 account and the intent is to fund future capital purchases.

Please include a detailed description on the KFS Transfer of Funds document that includes the depreciation period (i.e., “Transferring depreciation expense for FY 2015”).

Recharge/service center units that have debt service should contact recharge accounting regarding Transfers of Funds.

Importance & Impact of Transfer of Funds

Accuracy and the proper use of Transfer of Funds documents are important in ensuring cash balances are correct at account, organization, RC, and Campus levels. Inaccurate cash positions can affect account and RC fiscal officer’s decision making. For example, if cash is overstated, a fiscal officer may make cash commitments which they cannot fulfill.

Misuse of Transfer of Funds can also lead to compliance issues. For example, there are many Cost Accounting restrictions dealing with transfers of recharge/service center accounts. One such restriction is if cash is transferred into a service center account, it may not be transferred out. If a transfer is made in error, it can have a major impact on a service center’s rates and their ability to bill other Indiana University accounts.

Example of Transfers of Funds

The Psychology department is transferring $2,000 from their General Fund to cover expenses for a faculty research project. Funds need to be transferred from account 1031400 to account 2231402. Below is an example of a Transfer of Funds document for this scenario.

Once the document is saved, expand the General Ledger Pending Entries tab on the document to show the specific debit/credit journal entries. Below are the pending entries for this example which show a debit entry of $2000 to Object Code 9900 (Transfer Out) on Account 1031400 and a credit entry of $2000 to Object Code 9915 (Transfer of Funds - Revenue) on Account 2231402, with system generated offset lines to the appropriate cash object code for each account.

Where are the Transfer of Funds Documents Located?

For instructions on how to locate the transfer of funds document, please see the below instructions.

Requirements & Best Practices

Requirements

  1. Review and become familiar with the material on this page; as well as, the reference material prior to completing a Transfer of Funds document.
  2. Ensure supporting documentation for each document is adequate, prior to approving. For further information on the substantiation of Transfer of Funds documents, refer to the individual financial statement sections.

Quarterly Activities:
  1. Fiscal officers should review transfers to and from their accounts on a quarterly basis, at a minimum, to ensure accuracy of data.

Annual Activities:
  1. During year-end close, fiscal officers should review all transfers to and from their accounts and make any necessary corrections during the year-end close period. Also, any transfers intended to post in the current year must be submitted on a Year-End Distribution of Transfer of Funds (YETF) document. Please refer to individual financial statement sections for more information.

Best Practices

  1. Fiscal officers should review transfers to and from their accounts on a monthly basis, to ensure accuracy of data.
  2. Monitor the Transfer of Funds document. Users should stay up to date with any potential changes to the document and its requirements.