Effective financial management of your department involves two related components: budgeting and financial accounting/reporting. The purpose of this section is to familiarize you with your responsibilities in these areas.

Key Terms

The University’s fiscal year begins each July 1 and ends on June 30 of the following year. A fiscal year is identified by the combined years (fiscal year 2019-2020) or by the ending year only (FY2019 or FY20).

An operating budget is a financial plan for one fiscal year that includes salaries and other routine expenses. Operating budgets for sponsored projects and other restricted funds may have varying time periods. Each department manages its own operating budget in consultation with appropriate supervisory personnel.

The capital budget is managed by the University’s central administration and includes planned expenditures for new construction, major repairs or renovations, and major equipment items.

Commitments (encumbrances) are obligations for future expenditures for goods or services acquired through University purchase orders and requisitions and for salaries and benefits of monthly and biweekly employees. (Salaries are committed on both cost centers and WBS elements, as noted below.)

Cost centers are used to collect unrestricted expenses (e.g., E111001) or income (e.g., I12011234) for activities of the University.

General ledger (G/L) accounts are used to classify expenses by the nature of the cost incurred (travel, supplies, etc.) or revenues by the source of income. G/L accounts are listed and described further on the Controller’s website (https://controller.tennessee.edu/).

Commitment items are codes comparable to G/L accounts, but arranged in a hierarchy for aggregating expenses and revenues and assigning budget items.

A fund is an identification number assigned in the University’s financial and human resources system (IRIS) to separate budget units such as departments, programs, or sponsored projects. Fund numbers, used in the budgeting module of IRIS, are grouped into funds centers, functional areas, fund groups, and business areas that make monitoring the budget of various levels of the University possible. Elsewhere in IRIS, funds are referred to as either cost centers or WBS elements. Each fund has a corresponding cost center or WBS element with the same numerical identifier (e.g., fund E041234 is also cost center E041234).

Funds center (department) is the organizational unit responsible for preparing and monitoring the budget for one or more funds. Funds centers are organized into hierarchies of department, college, vice chancellor, and budget entity.

WBS (work breakdown structure) elements are used to collect revenues and costs for sponsored programs with specific start and end dates, gifts, loans, endowments, and all other restricted funds (e.g., R180014321, F179901010).

Workflow is the routing mechanism in IRIS by which an authorized person approves transactions electronically.

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Budgeting enables the University to allocate resources according to established plans and priorities and is a means of controlling expenses based on anticipated funding. As department head, you are responsible for managing your department’s operating budget. Each department’s budget is divided into five principal categories: Personnel, Staff Benefits, Operating, Equipment, and Capital Outlay, with further subcategories.

The specific process for developing the annual operating budget may vary at each campus and institute, with most conducting budget hearings for departments to discuss their spending needs and priorities. Most departments enter their budget information in the University’s financial and human resources system (IRIS), using several online reports to compile their budgets (see manuals and guidelines on the IRIS website, https://iris.tennessee.edu, and in the Appendix). You will also receive budget guidelines from the campus/institute business office indicating the availability of funds and any restrictions on their use. Your budget request is reviewed at the college or major division level and forwarded to the chief business officer for further review and integration into the campus/institute budget. The budget approved by the UT Board of Trustees for the University system is the sum of the individual campus and institute budgets.

During the fiscal year, you may wish to transfer funds from one general ledger (G/L) account in your budget to another. Such transfers are made so that the budget reflects your anticipated expenditures more accurately. You should request a transfer by submitting a Budget Revision (Form T-15) or campus equivalent (see Appendix).

The budget process is different for WBS elements such as sponsored programs. The Restricted Budget Form (Form T-1) is used to record and revise the budget for sponsored programs (see Appendix). Call your campus research office for guidance on sponsored programs and your campus/institute budget and finance office for budget guidance on other WBS elements.


Departments that are required to fund their own staff benefits should take this expense into account when preparing budgets. Departments whose staff benefits are funded centrally should exclude such expenses when preparing those budgets. Budgets will be transferred to cover staff benefits expenditures at the end of the fiscal year. Reports for each situation are provided in IRIS.


Best Practices in Managing the Budget

  • Contact the dean’s office or the business office of the college or institute to learn more about the budget process and see samples of other departments’ budgets and budget presentations. All department heads are encouraged to attend the budget hearings of their college or institute, if possible.
  • Get faculty input when preparing the budget, especially regarding equipment and materials needs.
  • Be aware of the University’s budget cycle and meet its deadlines.
  • Plan ahead for requesting funds for long-range capital costs. Approvals may take longer than a single budget cycle.
  • Plan ahead for the end-of-year report that will close out the fiscal year for your department.
  • Implement controls to ensure that budgets are not overspent.
  • Review cost centers and WBS elements monthly, paying close attention to any overspending. Address the causes of overspending immediately. If appropriate, request a budget revision.
  • Do not stockpile budget allocations not expended. Underspending in one cost center or WBS element does not mean another cost center or WBS element may be overspent.
  • Remember that the budget is not etched in stone. Unanticipated items, recasting of salary type, revisions between departments, new activities, and urgent needs are all reasons for requesting a budget revision.
  • Do not initiate any new expenditures for equipment, supplies, travel, and similar items after May 15 unless they are absolutely necessary (applies to cost centers on a fiscal-year basis, not WBS elements).

Financial Accounting and Reporting

IRIS contains a series of cost centers and WBS elements that record the University’s financial activities. One feature of the system is the University Ledger, which departments access to reconcile their ledgers after each month-end. University Policy FI0115 establishes fiscal responsibility for reconciling and reviewing ledgers.  Departments should contact their campus/institute budget and finance office for reconciliation assistance. Note that there are additional IRIS reports that allow a more detailed analysis of the department’s activities (see Appendix).

The University Ledger is an accounting document representing the current budget and expenditures of a department’s cost center(s) or sponsored project WBS element. Properly reconciling, reviewing, and approving the ledger report on a monthly basis are the best ways to maintain adequate control over the department’s expenditures. The ledger has several possible sections, depending on the type of fund and activity level:

  • Sources & Uses of Funds (sponsored projects only)
  • Responsible Person or Principal Investigator Verification
  • Budget vs Actual Summary
  • Expenses & Income Posted This Month (if any)
  • Commitments for Future Payment (if any)
  • Sponsor Payment/Invoicing History (sponsored projects only)
  • Summary of All Funds Processed


NOTE: Check the IRIS website, https://iris.tennessee.edu, for classes and other help documentation on how to read University ledgers.

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Ledger Reconciliation, Review, and Approval

Reconciling the Ledger

Although ongoing ledger activity may be reviewed in IRIS and the ledgers printed at any time, a formal reconciliation of the accounting records should be performed timely, normally no more than 45 calendar days after the month closes. A reconciliation should be completed for all funds under your departmental funds center, even those with no activity. You may designate an exempt or non-exempt employee to reconcile the ledger, which consists of the following processes:

Compare departmental records with the current month’s transactions – commitments, charges (including payroll), and deposits – listed on the department’s ledgers. Ensure that the cost center or WBS element, G/L account, amount, etc., are accurate.

Verify the sponsor award amount and budget for sponsored projects. Also note the end date and ensure that charges occurred within the project period.

Ensure that all transactions appearing on the ledgers which are not supported by the department’s records are accurate and authorized.

Correct any errors or irregularities identified, notating as such on the ledgers.

Provide the reconciled ledgers for the cost center/WBS element(s) to the department head or principal investigator each month for approval.


NOTE: Reconciliation, review, and approval of ledgers can be performed “manually” by printing a hard copy of the ledger. The reconciler must date and initial the ledger indicating that the ledger has been reconciled and is ready for review and approval. IRIS also offers electronic ledger reconciliation. The reconciliation and approval process is tracked electronically through workflow (see IRIS website, https://iris.tennessee.edu, for classes and other help documentation on electronic ledger reconciliation).


Outstanding purchase orders and requisitions should be reviewed monthly as part of the ledger reconciliation process. Contact the campus/institute purchasing department to correctly close out (not ‘delete’) unneeded commitments.


Separation of Duties

Although a monthly reconciliation of the department’s ledgers is an excellent control, the oversight and control value of the reconciliation is greatly diminished when performed by the same employee who, for example, entered the transactions or processed the invoice for items purchased by the department. Whenever staffing allows, the duties of cash receipting and processing payments should be separated from reconciling the ledgers. For additional details, see University Policy FI0115.


Lesson Learned

A longtime, trusted employee was allowed to make purchases for the department and also reconcile the ledgers. Purchases for her daughter, friends, and church were undetected by the department head for several months.

Proper separation of duties would have allowed the detection of this situation in a timely manner.


Reviewing and Approving the Ledger

The second important control in overseeing the department’s financial records is the review and approval of the reconciled ledgers by an authorized approver, normally the department head or principal investigator. Because all transactions are not configured for processing through workflow in IRIS, this review helps ensure that all financial transactions are appropriate, accurate, and recorded properly and provides information about the status of budgets.

The authorized approver should consider the following questions:

  • According to the department’s budget, was a cost center or WBS element overspent? If so, why?
  • Do the transactions appear appropriate for departmental or University business?
  • Are there any suspicious-looking transactions?
  • Does it appear that the ledgers have been reconciled?
  • Has the reconciler explained any unrecognized or undocumented transactions?
  • What corrective measures should be taken to avoid the same problems in subsequent months’ ledgers?

Remember, the approver is ultimately responsible for all transactions. When you approve the ledger, you are agreeing to the following statement: In accordance with University policy, I have reviewed the charges shown on this ledger and either verified their accuracy and appropriateness for this program or identified and reported discrepancies for correction through proper channels.

For manual ledger approval, the approver should sign (or initial) and date the reconciled ledgers each month to indicate there were no unauthorized transactions. A hard copy of the reconciled and approved ledger must be kept on file in the department for one year.

If using electronic ledger reconciliation, approvals are performed and tracked through workflow. It is not necessary to keep a hard copy of the ledger: it is retained electronically.

Approvals must be completed no longer than 30 calendar days after the ledgers are reconciled.


Note: The approver may delegate an exempt employee to review the department’s ledgers, such as a business manager. Principal investigators of sponsored projects should review their own ledgers.


Lesson Learned

An employee stole more than $130,000 over 18 months by processing false refunds.

Ledger reconciliation and the department head’s approval of the ledgers would have detected the dramatic increase in refund activity.


Approving Transactions

As department head, you have the inherent authority to approve financial and human resources transactions for your department. While you may designate one or more alternate approvers, you are ultimately responsible and accountable for the funds center’s transactions being reasonable and appropriate and complying with University policies and procedures. For more details, see Policy FI0150.

You should designate at least one alternate approver so that transactions are processed timely in your absence, such as during vacations or illness. To designate an alternate approver, you must submit a Departmental User Request in IRIS (see Appendix). You should choose only an exempt employee who:

  • Does not approve any expenditures or payroll transactions in IRIS that he or she has entered or prepared for entry.
  • Demonstrates sufficient ethical standards and knowledge of University and departmental operations to be entrusted with the responsibility for University funds.

Before you approve any transaction, think critically about what you are approving. It may be helpful to use the LADR technique:

  • Look for fraud indicators
  • Ask questions (e.g., how do I know this was a legitimate transaction?)
  • Doubt — when in doubt, doubt
  • Resolve or refer suspicions

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Department Head’s Role in Departmental Financial Management

Specifically, you are responsible for the following activities:

  1. Read and form a basic understanding of the University’s fiscal policies as part of your responsibility for departmental transactions.
  2. Determine your department’s budgetary needs.
  3. Prepare and submit the required budget information (or data for their completion) through the appropriate channels. You may designate an exempt or non-exempt employee to perform these duties.
  4. Authorize financial transactions, ensuring that sufficient funds are available in the department’s cost center(s) and WBS element(s). You may designate an exempt employee to perform this duty.
  5. Ensure that appropriately authorized staff are trained to process transactions accurately and in a timely manner.
  6. Ensure that duties are separated for employees who enter, or prepare for entry, expenditures or payroll transactions in IRIS and employees who approve such transactions.
  7. Oversee the administration of all departmental funds to prevent over expenditure of any cost center or WBS element. If an overdraft does occur, take immediate steps to fund the deficit.
  8. Ensure that a monthly reconciliation is performed of the department’s financial records with the University Ledger. Review the reconciliation each month and approve by signing or initialing (or by using the electronic ledger review process).
  9. Ensure that approval and verification procedures are established in writing to ascertain that all financial transactions are appropriate, described accurately, and recorded properly.
  10. Ensure that procedures are developed to maintain departmental records to accurately reflect adequate control and timeliness of departmental expenditures and records are retained in accordance with Policy FI0120 (records management).

For more details, see University Policies FI0110 (fiscal and budgetary management), FI0115 (ledger reconciliation), and FI0150 (approvals).

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