Budget Development
Through the budget development process and in our everyday work, the University remains committed to the long‐term view of the University Strategic Plan, Learning Together, Leading Together, and our institutional vision to provide an exceptional undergraduate educational experience for our students.
For those interested in learning more about budget development at Mount Royal University, Financial Services and the Office of the Provost, are developing "budget briefs" in regard to frequently asked questions.
The first briefs were posted in April 2018 - and the content will be expanded and updated as necessary to reflect the Resource Planning Redesign project coming out of the work of the Resource Planning Task Force.
Additional content remains available on MyMRU.ca under the Financial Matters tab.
Budget development at Mount Royal University
Reserve funds at Mount Royal University
The rigour and reliability of financial reporting at MRU
Expenses by Function and Expenses by Object
Brief No. 1: Budget development at Mount Royal University
The budget is both an instrument of responsible financial management and a window into the values and priorities of Mount Royal University.
Each year, we honour our legal requirement to produce a three-year balanced budget through a collaborative and iterative process. It is a major undertaking that touches each and every department of the University.
At Mount Royal, the fiscal year runs from July 1 to June 30 and it is divided into four quarters. For example, July 1 to Sept. 30 is known as Quarter 1 - or "Q1".
The "in-year" budget cycle runs through the fiscal year and the next three years' budgets are built and refined to a final state of balance by the end of Q4.
A balanced budget is one in which the expenses equal revenues and no deficit or surplus exists. Operating the university on a balanced budget scenario is not only a legal requirement, it also reflects prudent and responsible management of public funding.
Draft 1
Under our current budget model, the starting point for budget development is the second year of the Board of Governors-approved budget from the previous year.
In early January, as part of Draft 1 - commonly referred to as D1 - we update our "labour assumptions," which are an informed estimate of our labour (faculty, staff, management) costs for the upcoming fiscal year. Collectively, these costs typically make up about 70 per cent of our total expenses. Labour assumptions factor in salary grid step, negotiated salary adjustments, changes to the cost of employee benefits and validated changes to positions and incumbents.
There are also "non-labour assumptions" to consider, which comprise the other 30 per cent of our total expenditures. These adjustments include changes in technology maintenance agreements, utility costs, currency exchange rates, asset amortization and contractual agreements.
We also update our revenue assumptions in Draft 1.
Given that about two-thirds of our revenues come from government-controlled sources, specifically tuition and fees and the Campus Alberta operating grant, we must build in a best-estimate of our revenue projections at this time. For tuition, Enrolment Services provides a forecast for how many students we expect next year and how many classes we think they'll take. These enrolment estimates are constructed using predictive analytics and are typically accurate within 5 per cent.
For our Campus Alberta operating grant, we carefully observe government signals and plan for a few different grant scenarios since the final figure for the Campus Alberta Grant is not available to us until the provincial budget is released in March. Other revenue sources, such as income from the University's investment portfolio, are estimated at this time as well.
Revenue generated from commercial and retail activities on campus is updated by the respective budget managers throughout the Draft 1 update.
When the Draft 1 numbers are captured by Financial Services, it is common to see total expenses exceeding total revenues.
This is the result of the Draft 1 capturing our rising costs and non-discretionary commitments outpacing increases to revenues. As mentioned above, the increase reflects changes in labour (faculty, staff, management) and non-labour (technology maintenance agreements, utility costs, currency exchange rates, asset amortization and contractual agreements) costs.
When the assumptions are updated, we have a fresh snapshot of all commitments and decisions made since the end of the prior year's budget cycle - Year 2 captured there.
To be clear, the increase in costs is not a result of individual "wish lists" or new activities, but rather reflect prior decisions.
However, this often means that there needs to be spending reductions in order to produce a balanced budget.
President's Executive Committee (PEC) reviews the Draft 1 results and projections to develop budget scenarios and "budget directions" for budget managers to return to a balanced budget.
In February, budget managers are provided with the first set of budget directions and asked to a carry out scenario-planning exercises.
Budget managers, in consultation with their teams, are then asked to bring forward scenarios to their respective Vice-President and ultimately President's Executive Committee (PEC) to demonstrate their plans and the impact of the budget directions.
PEC will review the submissions to ensure that the proposals are in line with the guiding framework provided by the Institutional Strategic Plan, Academic Plan and budget framework document that outlines our budget values, principles and priorities.
Draft 2
In early March, before the provincial budget is released annually, Financial Services compiles the impact of proposed budget changes to the Draft 1 in development of Draft 2 of the institutional budget. At this point in the budget development process, the University is in a solid position to respond to potential adjustments contained in the provincial budget.
The provincial budget fills in most of the remaining blanks on the coming year's statement of operations, including the Campus Alberta operating grant and capital grants, such as the Infrastructure Maintenance Program (IMP) grant which enables us to carry out necessary maintenance on our plant and facilities.
Large capital grants, such as the one that enabled us to build the Riddell Library and Learning Centre, are captured separately under a capital budget.
With this information, PEC finalizes their budget directions to budget managers.
Financial Services confirms when all adjustments have been captured and summarizes results for PEC review.
In mid-April, Draft 2 - including all budget managers' adjustments resulting from the final directions - is completed.
Approval and audit
Throughout the budget development process, updates are provided to the Finance Committee of the Board of Governors and the full Board of Governors at their regular meetings.
In May, the recommended budget is distributed to the Finance Committee and the full Board of Governors two weeks in advance of their final regularly scheduled meeting. The final meeting is the one in which at which the recommended budget is reviewed for approval.
Once the budget is approved by the Board, it is submitted to the province as part of our Comprehensive Institutional Plan (CIP) at the end of June.
As a provincially controlled institution, Mount Royal University is also subject to an annual audit by the Office of the Auditor General. The final audit report, which includes audited financial statements and the approved budget, is presented to the Board of Governors in October and the Minister of Advanced Education by December.
Brief No. 2: Reserve funds at Mount Royal University
When it comes to questions around budget development, Financial Services is most often asked about the intent and function of reserve funds. It's an important topic as Mount Royal relies on reserve funds to advance our signature priorities and mandate as a University.
Reserve funds, technically referred to as "internally restricted funds," are established under the authority of the Board of Governors by restricting a portion of the available "unrestricted net assets" for a specific purpose. Unrestricted net assets are the fund balance from the fiscal year's revenues over expenses with balance sheet adjustments.
Mount Royal's ability to assign funds to reserves is dependent on the availability of unrestricted net assets at the close of each fiscal year - as planned in budget development.
Under our current budget model, the reserve fund functions primarily as a mechanism to fund strategic priorities and necessary one-time initiatives beyond normal operations and often extending beyond a budget year.
Because our operating dollars cannot be used for more than one year or carried forward, the reserve funds are the only mechanism to fund one-time activities that last longer than one fiscal year. While this practice is consistent with other post-secondary institutions, it means that our community often relies upon these funds to undertake highly necessary work.
The University is looking to establish a new approach through a strategic investment fund. This was recommended by the Resource Planning Task Force and would inform the Board-approved reserve funds, to be directed to our articulated strategic priorities.
As it stands, and following the MRU Reserve Fund policy, these activities and investments are captured within three main categories:
- Investments for programs or services beyond what can be accommodated within normal operations, such as:
- Development of new academic programs for ministry approval
- Research activities
- Implementation of the Enterprise Risk Management Program - as required by government of all post-secondary institutions
- Implementation of Payment Card Industry (PCI) standards that enable the University to continue to accept payment via credit and debit cards.
- Renovations, alterations and equipment renewal not funded through Government of Alberta grants:
- New technology with cross-campus impacts
- Space renovation and alteration for programs or people
- Capital investment and capital renewal investment
- Revenue-generating facilities renewal such as required maintenance on Residence facilities and recreational equipment
- Parking facility upgrades, including maintenance and access control equipment
The annual operating budget of the University plans for reserve fund investment but does not capturing reserve fund activity. A planned excess of revenue over expense in the year facilitates the creation of reserve funds for strategic priority initiatives and vital one-time investments.
Reserve fund spending is captured in the annual audited financial statements of the University and then isolated in a related note in order to separate that activity from normal operations.
The following demonstrates the appropriations and spending from reserves as reported in the Annual Audited Consolidated Financial Statements of Mount Royal University over the past eight years.
Reserve Fund Balances 2009 - 2017
The balance trend of reserve funds, as illustrated in the graph above, demonstrates an overall downward trend reflecting the tightening of fiscal resources and resulting, an increased challenge for investment in strategic initiatives, infrastructure and technology.
When comparing this reserve balance trend with comparative post-secondary institutions in Alberta, we see that Mount Royal maintains one of the lowest levels of reserve funding in the province.
All areas (departments, faculties and institutes) are invited to submit requests for reserve funds.
The first call for requests occurs in the spring of each year in order to allow for a preliminary list to be brought to the Finance Committee of the Board of Governors at the same meeting as they receive the recommended operating budget for approval.
The final list of recommended reserve appropriations is brought to the Finance Committee of the Board and the full Board of Governors for approval at the October meetings, along with presentation of the Annual Audited Consolidated Financial Statements - also for approval.
In keeping with the recommendations of the Resource Planning Task Force approved in November of 2017, reserve fund appropriation requests will be reviewed by the Resource Advisory Committee (RAC) against criteria reflecting the institutional strategic objectives. The RAC will present recommendations for investment of reserve funding available to President's Executive Committee for consideration along with their current process. These considerations will ultimately be presented to the Finance Committee and Board of Governors for approval of appropriations.
Budget brief No. 3: The rigour and reliability of financial reporting at MRU
Mount Royal University revenues and expenses are presented in the Annual Audited Consolidated Financial Statements (annual reports).
As outlined in the brief on budget development, the financial statements are approved by the Board of Governors and published after completion of the audit conducted annually by the Office of the Auditor General of Alberta (OAG). In this audit, the OAG tests the reliability of financial reporting, and expresses its opinion as to whether the financial information produced is free of "material misstatement" - in other words, whether or not there were any major mistakes.
For the past five years, Mount Royal University has received an "unqualified opinion" from the OAG. This means, in the auditor's view, Mount Royal's financial statements are in line with the Generally Accepted Accounting Principles and can be relied upon by the reader; the University has not hidden any important facts. In fact, Mount Royal received the highest grades for financial reporting accuracy, timely presentation and status of outstanding recommendations.
Budget brief No. 4: Expenses by Function and Expenses by Object
Where does Mount Royal University spend money? It's a good question and the subject of great interest when we discuss budget and resource planning.
As a responsible steward of public funds and student tuition and fees, we believe that sharing information about the allocation of resources demonstrates our commitment to openness and transparency.
There are two primary ways of looking at how the University spends money:
- Expense by Function (why spend it)
- Expense by Object (what it's spent on)
Before diving in to each expense category, it is important to consider the wider context in which financial information is organized.
Mount Royal is responsible for both the University itself and its "controlled" but separate legal entities in the Child Care Centre and Foundation. In accounting parlance, we refer to the financial statements that include all three entities (the University, the Child Care Centre and the Foundation) as "consolidated." The financial statements that separate out the three entities are described as "unconsolidated."
The University's reported expenses include all budgeted operations, as well as the current year's spending from reserve funds, from funds previously restricted for investment in strategic priorities, as approved by the Board of Governors.
When looking at the portion of budget spent on any one activity, it's important to consider the difference between consolidated and unconsolidated financial statements. This is because we often talk about expenditures in terms of percentages, not actual dollar figures. For example, if you take the total dollars spent on student services and divide it by our total consolidated expenditures, it will make the proportion appear smaller, since the consolidated expenditures include the non-university entities.
The consolidated budget is what is posted publicly online in our audited financial statements. We are legally required to present consolidated financial statements rather than unconsolidated financial statements for each of the entities separately. However, you may see the unconsolidated figures presented in internal materials, such as budget presentations to the community.
Expense By Function
If you pick up an annual report anywhere in Alberta, you will likely notice that the information is presented in a way that is consistent with Mount Royal's financial statements. That is because the Ministry of Advanced Education provides extensive guidelines for how post-secondary institutions classify activities carried out on campus.
The primary categories are:
- Instruction and Non-Sponsored Research
- Academic Support
- Student Support
- Computing Network and Communications
- Institutional Support
- Facilities Management, Operations and Maintenance
Annual reporting to the Minister of Advanced Education isolates the activities budgeted for general operations, spending related to:
- Program or project specific conditional (funding including conditional grants, donations and endowment interest);
- Capital related costs;
- Regulated, cost-neutral activities;
- Revenue-generating activities of Continuing Education; and,
- Provision of ancillary, revenue-generating services
From the published annual reports of the five-year period from 2012/2013 through 2016/2017, the following graph of our consolidated expenses by function reflects total spending in millions of dollars across all of these categories per year along with the five-year average.
MRU Consolidated Expense by Function
The above reflects institutional expenditures in the primary functional categories of University activities as well as those more variable activities such as capital. In addition, expenditures that are externally funded - break even and those relating to revenue-generating activities, Foundation and Child Care Centre, and reserve-funded initiatives are excluded.
These primary functional categories are regulated by Advanced Education for the advancement of our academic mandate. MRU is able to allocate these funds toward the activities that are foundational to the instructional process, underlying services and infrastructure and the supports and services provided to students.
When Mount Royal first become a University, it had established an allocation model of these primary functions: 50 per cent (instruction) / 10 per cent (academic support) / 10 per cent (student support) / and 30 per cent (institutional support).
The following presents the proportionate spending in the six primary functional categories of our operating budget with a five-year average. This MRU Unconsolidated Operating Expense by Function graph below excludes reserve-funded activity, Foundation and Child Care Centre, externally funded / revenue-generating and capital expenditures.
Given this presents the proportionate spending, material changes in any area impact the percentages of all others. For example, in the category of "Instruction," the suspension of programs decided in 2013 reduced spending on Instruction - as did the response to the voluntary retirement offering for Faculty made in 2015. The latter reduced the full-time faculty compliment by 11 with a plan for phased re-hire over four years.
All material changes are not only reflected in their own functional category but also a relative impact on all other categories.
MRU Unconsolidated Operating Expense by Function
Expense by Object
Expense By Object is the technical reference for what we're actually spending our money on. As with the functional categories above, these objects are defined by accounting standards and provincial guidelines. There is no discretion in where expenses are categorized.
The primary categories are:
- Salaries, Wages and Benefits
- Supplies and Services
- Capital Amortization
- Utilities
- Maintenance
- Cost of Goods Sold
- Scholarships and Bursaries
- Debt Servicing
At Mount Royal University, our Expense by Object has remained quite stable over the past five years. Salaries, wages and benefits make up our largest expenditures by far, averaging 70 per cent of our total expenditures over the last five years.
The following chart depicts our Expenses By Object over the last five years:
Expense by Object
On the whole, Mount Royal's expenses are quite consistent with those of Alberta's post-secondary sector. The provincial five-year average for salaries, wages and benefits is 62 per cent, 16 per cent for supplies and services and 5 per cent for capital amortization.
At Mount Royal, we do lag behind the provincial average on scholarships and bursaries (province: 4 per cent versus MRU: 2 per cent). As part of the University Strategic Plan, Mount Royal aims to increase the value of available student bursaries, scholarships and awards to 5 per cent of the University's annual operating budget.