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To:     Deans, Directors and Department Heads

From: Matthew M. Fajack, Vice Chancellor for Finance and Administration
Chris Kielt, Vice Chancellor for Information Technology and Chief Information Officer

Date:  June 15, 2015

Fiscal year 2014-15 represented a year of substantial change for our institution. We replaced several major standalone enterprise applications that had been in service for periods of time ranging from 10 to 46 years with an enterprise resource planning system that integrated key operational and reporting elements of Contracts and Grants, Financial, HR, Payroll, and Student (Student applications went “live” in 2009). For the financial aspect of this enterprise system, we not only implemented a new financial system, but we also instituted a new underlying chart of accounts and replaced central and campus-based reporting tools with an integrated centralized platform.

As we come to the close of our first fiscal year of operations with this new system, it is important to highlight some institutional financial activity. Since we went “live” on October 1, 2014 (and through May 31, 2015), our institution has:

  • issued 298,246 paychecks;
  • issued 61,492 purchase orders for goods and services;
  • paid 278,416 campus-initiated vouchers;
  • set up 1,071/1,335 awards/projects, respectively; and
  • processed 31,156 campus deposits.

The University’s first year-end close has been planned, reviewed and tested. Though any first-time process can present challenges, focused preparations have occurred for the fiscal year-end processes and the start of the new fiscal year. Fiscal year-end deadlines are established to provide time to process transactions in the queue and to allow reconciliations by central offices to occur; transaction can be submitted after cut-off dates, but they will be effectively dated for fiscal year 2015-16. July 8 is a key deadline as the University submits its State funds carryforward request to OSBM, and disbursements for FYE 2015 must conclude. We currently anticipate a June close on July 15, the 10th business day of the month and within accepted standards.

As we approach fiscal year deadlines beginning this week and continuing through June 30, an area of significant focus is in the expenditure of State appropriations. Current provisions allow us to carry forward up to 2.5% of unspent State funds to the next fiscal year, subject to approval by the Office of State Budget and Management. Through the end of May 2015, the University had spent 82.2% of its State appropriations, which compares to 82.3% in the prior fiscal year in legacy systems (please keep in mind that the University must spend tuition receipts before it can begin to spend State appropriations, so spending of State appropriations is back-end loaded in the course of the fiscal year). As in prior years, the University will centrally monitor these expenditures over the month of June to work toward appropriate use of all available State funds. Budgeted funds may be temporarily reallocated among units if needed to fund current-year expenditures, but each campus unit is made whole for any reallocation. It should be noted that there is a provision in the recently passed House Bill that would increase the State carryforward rate to 5%, and this provision seems to enjoy some support outside of the House, so if it is enacted, the carryforward allowance would double.

Another area of focus for campus as we come to fiscal year end is in cleaning up departmental suspense accounts. When a transaction has an underlying funding source that is either invalid or insufficient, departmental suspense accounts, F&A overhead receipts (an unrestricted funding source), are used as a replacement, or default funding source to ensure the completion of a transaction. Although the transactions are completed, the use of departmental suspense accounts represents a use of F&A funds.

As of June 12, 2015, the total balance on suspense accounts across the institution was approximately $7.8 million, which represents approximately 1% of our annual payroll expenditures but approximately 5.2% of our annual F&A revenues. This balance on suspense may be higher at month end depending on the net difference between additions to suspense through remaining June payrolls and the reductions in suspense due to the use of the short-term retroactive salary source change tool. The majority of the transactions that were funded by these accounts were payroll transactions — more specifically, transactions that primarily had multiple contracts and grants funding sources with one or more of these sources expired. In short, the current balances on suspense accounts primarily represent payroll expenses that should be on contracts and grants.

The impact of this use of suspense accounts is that it reduces a department’s F&A balances, in a situation in which another funding source may be available, and to the extent that a contract or grant, as the intended funding source, is eligible for F&A reimbursement, it represents a lost opportunity for new F&A funds and may have an adverse impact on F&A revenues for the institution. From a timing perspective, the clearing of these accounts is not so much geared to fiscal year end, as it is oriented to the end dates for contracts and grants. Since the majority of the University’s contracts and grants are Federal, a more significant deadline may be September 30, 2015, to the extent that any of the current contracts and grants ending in the current Federal fiscal year. The ConnectCarolina project team is close to finalizing a new long-term retroactive salary source change tool that should be a more efficient and effective tool to move suspense transactions back to intended funding sources and to help reduce the balances in suspense accounts.

The other area of focus has been year-end financial reporting. Over the last several months, reporting has improved in terms of making available critical reports for year-end reconciliation, closing, and reporting; the creation of processes and oversight surrounding the development of reports; and data validation processes between PeopleSoft and the data warehouse. However, there are still concerns around the accuracy of underlying data, primarily due to issues such as balances in suspense accounts; incorrectly converted (pre-implementation) data; allocations of expenditures for specialized benefits plans such as for UNC Faculty Physicians; and related considerations. These issues are being worked on, and as they are resolved, the accuracy of the reports will continue to improve.

In closing, fiscal year 2014-15 has been a year of substantial transition for an institution of our scale, scope, and complexity of operations. With respect to general financial performance, we expect major revenue streams to be in line with historical trends, and we expect customary inflationary growth in institutional expenditures.   Contracts and grants expenditures may be down during this fiscal year, but sponsored awards remain constant over prior year. Although transaction volumes have returned to normal levels, we have still only been in the new enterprise system for close to nine months and have not had a chance to see a full year’s worth of transaction types. As a result, our staff continues to work through new business processes, and changes to existing ones, and to focus on reporting needs to support operating in a new system with a new chart of accounts and new reporting tools. We recognize it has been a substantial hardship for our employees and that it will take some more time to get to where we need to be.

Thank you for your support during this transition. Please let us know if there is anything that we can do specifically to help you during this time of transition.

This message is sponsored by: Division of Finance & Administration

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