New Fund Numbers for Contributory Sponsored Agreements
May 14, 2019
The University and the Academy of Natural Sciences are required to transition to new accounting guidance, Accounting Standards Update 2018-08 - Not-For-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made, by the end of fiscal year 2019.
The new guidance requires a substantial change in how grants are classified and reported in the financial statements. Our intent in implementing the changes is to minimize any impact on Principal Investigators and their business managers.
What does this mean to Principal Investigators and Department Administrators?
You will begin to receive new funds that begin with a “9” starting on May 1, 2019. Research Accounting Services will be evaluating all existing fund numbers using the new guidance and assigning them to new predecessor funds. You will not have to make any changes at an operational level for the new accounting standard.
What were the fund types and definitions used for setting up externally sponsored awards in Banner prior to the new accounting guidance, Accounting Standards Codification (ASC) 958 – Not-For-Profit Entities?
A fund type is a classification in our Banner general ledger system that allows for the classification of funds and their corresponding net asset balances. Under the old accounting guidance, externally sponsored agreements were classified using one of two fund types.
Fund type 18 is defined as an exchange transaction and is unrestricted. This fund type included all federal, state, and local awards as well as awards from voluntary health organizations, industry, foundations, sub-awards and clinical trials. Fund type 18 utilized funds that begin with a “4” or an “8”. Prior to ASC 958 - Not-for-Profit Entities, the University and Academy of Natural Science classified all awards from federal, state and local governments as exchange transactions, which was consistent with the guidance and the higher education industry. The reasoning was based on the notion that governments do not provide contributions.
Fund type 24 is defined as a contributory sponsored agreement and is considered restricted until the conditions of the award are met in full or in part. This classification used to only encompass funds assigned to the roll-ups 2100 – Voluntary Health Organizations, 2200 – Industry/Corporate, 2300 – Foundations, and 2400 – Other Private Non-Profit Funding. These funds had a restricted net asset classification.
How will externally sponsored agreements be classified in the Banner general ledger after the implementation of the new accounting guidance, Accounting Standards Codification (ASC) 958 – Not-For-Profit Entities?
As part of the transition to the new guidance, we have created fund type 23, which is defined as a contributory sponsored agreement – unconditional, because these awards have contractual stipulations of a right of return of funding and a barrier that must be overcome. The reason for the use of the term “unconditional” in fund type 23’s title is that the barrier for most federal, state and local government awards is typically compliance with the Uniform Guidance. The barriers related to these types of awards are overcome as soon as qualified expenditures are made, and as such they meet their conditions immediately. The funds themselves will be classified as unrestricted since they are immediately released from their restrictions.
Most federal, state and local grants will now be classified in the fund type 23 – contributory sponsored agreement – unconditional classification instead of the fund type 18 – exchange transaction classification. The exception is for federal, state or local clinical trials and federal contracts and sub-contracts, which will continue to be classified as exchange transactions. These types of awards will be assigned a fund that begins with a “9”. The second digit of the fund will delineate the type of funding in this category. The third digit of the fund will range from 0 to 4. The predecessor funds will always have a “0” in the third position.
Fund type 24, previously named contributory sponsored agreements, will now be called contributory sponsored agreements – conditional. The numbering schema for this group is being expanded. It will continue to utilize the roll-ups 2100 – Voluntary Health Organizations, 2200 – Industry/Corporate, 2300 – Foundations, and 2400 – Other Private Non-Profit Funding, but it will be expanded to include roll-ups to capture any federal, state, or local funding that meets the new guidance. These funds will also start with a “9”. The second digit of the fund will delineate the type of funding in this category. The third digit of the fund number will range from 5 to 9. The predecessor funds will always have a “5” in the third position. These funds will have net assets that are classified as restricted.
Please reference our website for the new hierarchy.
When will fund type 18 – exchange transactions be used under the new accounting guidance, Accounting Standards Codification (ASC) 958 – Not-For-Profit Entities?
Fund type 18–exchange transactions will continue to be utilized. Awards that meet the new definition of an exchange transaction will be assigned fund numbers in that fund type’s schema. Predominately, we will see federal contracts, sub-contracts, clinical trials, and state and local government contracts meeting these criteria.
How will the new fund classifications impact the financial statements of the University and the Academy of Natural Sciences?
The University’s consolidated financial statements and the Academy’s stand-alone financial statements will look very much as they do today as a result of this change. The reason for this is related to what the Financial Accounting Standards Board (FASB) calls a "simultaneous release option" in Section 958-605-45-4A. This option allows the University and the Academy to adopt a policy to report any sponsored agreements that were transitioned from fund type 18 - exchange transactions to fund type 23-contributory sponsored agreements - unconditional as “Without Restrictions” on the Statement of Activities. This practice is known as a practical expedient and allows us to adopt this accounting treatment for only the awards being transitioned to the new fund type of "fund type 23- contributory sponsored agreements - unconditional" (i.e. those awards whose conditions are met over time as the award is expended and are subject to the Uniform Guidance). The simultaneous release option allows the University and the Academy to consistently report under the old and new guidance the revenue streams for these awards as "Without Restrictions" on the Statement of Activities. Further, the simultaneous release option also allows this policy to apply to only these types of contributory sponsored agreements and to continue to report other types of conditional contributions and contributory sponsored agreements as we have historically, within net assets “With Donor Restrictions” and then to release those revenues to “Without Restrictions” as the conditions of the agreement are met.
How will grants that are classified as Fund Type 24 – Contributory Sponsored Agreements – Conditional be accounted for?
The University and the Academy have reviewed all the grants that are active for fiscal year 2019 using the new accounting guidance criteria. If a grant is classified as a fund type 24, it will be reviewed as a part of the fiscal year-end close. This review will require Research Accounting Services to contact the Principal Investigator and Business Manager of any award deemed conditional to ascertain if the barriers defined in the contract have been met in whole or in part. If the conditions have been met, all the expenses and revenues recognized at the grant level can be recognized on the financial statements. If the conditions have been met in part, then only the pro-rata portion of the revenues associated with those objectives can be recognized. The adjustment for the difference will be made at a control fund level for financial reporting purposes so as to not distort the grant’s accounting records. For a grant whose conditions have not been met, the adjustment will be made to reverse any revenues recognized at the grant level to-date and defer them until the conditions have been met in a control fund.
There is much to do to complete the transition to the new accounting standard in the next few weeks. As stated previously, the University community will not be impacted other than to see the new numbers being assigned. Research Accounting Services will be adding content surrounding this topic on their website in the coming weeks. If you have questions concerning the transition, please contact Evelyn Balabis, Executive Director, Research Accounting Services, by email at firstname.lastname@example.org or by phone at 215.895.2946.
Thank you for your continued support and cooperation.