Budget spend-down management is a fundamental part of grant fund management, and generating accurate, easy-to-read financial reports is a key part of this process. A summary budget report is often the go-to report in this process, as it provides the current balance and/or financial picture of a grant or other budget-driven funding source. Let’s discuss the primary components of a budget summary report and how to interpret the information.
A budget report is divided into three sections: a header, a financial summary, and a summary of personnel records.
Budget report header
The budget report header identifies the grant or funding source summarized by the report. It includes:
- General ledger number
- Title
- Name of the principal investigator
- Current budget period
Budget report financial summary
The financial summary is typically the most critical part of the report. It includes the amounts budgeted, encumbered, expensed, and balance for:
- Each major budget or expense category (i.e., chart of accounts roll-up)
- The total of the direct and indirect costs
- The total of the overall grant or funding source.
The encumbrances of salary and fringe benefit categories represent the projected personnel costs for the remainder of the current budget period.
Summary of personnel records
The summary of personnel information lists the following info for employees currently paid on the grant/funding source:
- Employee name
- Annual salary paid by the grant or funding source
- Total annual salary
- FTE (full-time equivalent) or percentage of salary paid by the grant or funding source
- Employee title
How to interpret the budget report
When you’re reading a budget report, focus on three key numbers in the financial summary: the overall balance, the direct cost balance, and the balance of the salary and benefits categories. Early in the budget cycle, the overall and direct cost balances should be positive, but at the end of the budget period, they should gradually approach and land on zero. The balance of the salary and benefits categories should always be zero.
Consider the following justification. At the very beginning of the budget cycle, before funded work starts, there are no payroll expenditures and the balance of the personnel categories will equal the budget of these categories. Then you add projected salary and benefit encumbrances. If the salary distributions of the employees used to generate the projections match the original plan or budget, then the balance (budget minus projected encumbrances) will be zero. As we move through the budget period and generate payroll, expenditures will increase and encumbrances will decrease accordingly.
In theory, the balance should still be zero. A positive balance indicates underspending in the personnel categories. A negative balance indicates overspending.
In many cases, the personnel categories are the biggest part of a budget: about 70%-80% of the award budget. At research-intensive institutions, personnel may be simultaneously paid from multiple funding sources. That’s why the personnel categories tend to be the hardest part of a budget to manage. By presenting the balances of these budget categories in an easy-to-read format, the budget report provides quick access to vital information for budget spend-down management.
Monitor these numbers regularly so you can identify and fix any budget issues. When the personnel balance isn’t zero, start with the summary of the personnel records to identify the problem. This section provides lists of the employees and their rate of pay on the funding source. It’s easy to determine whether the correct amounts and the right people are being paid. The personnel components of a budget can be the most important.
Other versions of a budget report may identify budget revisions, carry-over amounts, percent remaining by expense category, and historical personnel information. While the budget summary is not the end-all report, it is a great starting point for budget spend down management. In a nutshell, the budget report is a helpful and useful report partially because it includes the following in an easy-to-read format:
- Information organized for easy interpretation
- Transaction summaries from your institution’s financial system
- Encumbrances of projected salaries, benefits, and indirect costs
- Employee salaries currently supported by the project
For more information on how easy it is to produce a budget report using a grant accounting system, get in touch today!
