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 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 current three-budget plan can be found on myMRU.ca under Resource Planning and Budget on the Financial page.
Budget development 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 April 1 to March 31 and it is divided into four quarters. For example, April 1 to June 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 of the fiscal year.
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.
As the previous year’s budget development draws to a close in May, planning and strategic conversations for the new budget development process start almost immediately. The first iteration of the budget build is referred to as Draft 1 — commonly referred to as D1 — in which "labour assumptions” are updated. These are informed estimates 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 are related to non-discretionary spending and include changes in technology maintenance agreements, utility costs, currency exchange rates, asset amortization and contractual agreements, to name a few.
If the information is available at the time, Draft 1 also includes updates to revenue assumptions, including tuition and fees which are informed by enrolment projections and updates to Campus Alberta Grant.
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.
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. In such a case, the results of Draft 1 indicate our rising costs and non-discretionary commitments as 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 captured a fresh snapshot of all commitments and decisions made since the end of the prior year's budget cycle — Year 2. To be clear, the increase in costs should not be a result of individual "wish lists" or new activities, but rather are to reflect prior decisions and commitments
However, this often means that there needs to be spending reductions in order to produce a balanced budget. The Executive Leadership Team (ELT) reviews the Draft 1 results and projections to develop budget scenarios and "budget directions" for budget managers to return to a balanced budget. Budget managers are provided with the first set of budget directions and may be asked to carry out scenario-planning exercises. Budget managers, in consultation with their teams, are often then asked to bring forward scenarios to their respective Vice-President and ultimately ELT demonstrating their plans and the impact of the budget directions.
ELT would then 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.
Alternatively, more directive instructions may be provided by ELT to which budget areas must respond to come to a balanced budget position for all three years of the Budget Plan.
It is important to note that this process may vary year to year and is dependent on the results of D1 and the decisions of ELT on addressing the gap to a balanced budget.
Draft 2
Once ELT makes the decision and provides directions on dealing with the D1 ‘gap’ to create a balanced budget, a copy of the D1 budget is made and is referenced as Draft 2 or “D2.”. This new draft then is to be updated for all necessary changes as directed and approved by ELT.
Once the D2 budget changes are completed, Financial Services compiles results of D2 for presentation to ELT in the hopes of the budget plan receiving the green light to proceed forward for recommendation and approval from the Board of Governors.
If the results of D2 require further change as deemed by ELT, a “D3” or Draft 3 of the budget is created to absorb the next set of changes and directions. Once all changes are made to the institutional budget as part of the budget development process, the University is in a solid position to forward these recommended results to the Board of Governors for final approval of the three-year budget plan.
In mid-February, the final draft of the budget (may be D2 or D3) is complete and ready for submission to the Board of Governors for their final approval.
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 March, the recommended budget is distributed to the Finance Committee and the full Board of Governors week(s) in advance of their final regularly scheduled meeting. During the final meeting of the Board, the recommended budget is motioned for Board approval.
Once the budget is approved by the Board, it is ready to be prepared as the submission to Advanced Education as part of our provincially required Annual PSI Budget submission in May.
Brief No. 2: 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.
Brief No. 3: 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)
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 the 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.
If you pick up an annual report anywhere in Alberta, you will see 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
- Restricted and Endowment Activities
- External/Sponsored Research
The above reflects institutional expenditures in the primary functional categories of University activities as well as those more variable activities such as capital. 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. All material changes are not only reflected in their own functional category but also a relative impact on all other categories.
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 financial reporting 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, salaries, wages and benefits make up our largest expenditures by far, averaging 70 per cent of our total expenditures over the past five years.