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Budget spend down management is a fundamental part of grant management and fund accounting, and the generation of accurate, easy to read financial reports is a key part of this process. A summary budget report is often considered 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 in an easy-to-read format. In today’s blog we look at a sample budget report and discuss its primary components and how to interpret the information provided. To view a sample budget report, please click here.

The budget report linked above, produced by IT Works’ grant accounting software system is designed for grant and research administrators as well as principal investigators and research faculty. It presents the current balance of a grant in a summary format. The 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 information such as the:

  • 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 rollup)
  • 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 information for the 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

In reading the budget report, our initial focus is on three key numbers in the financial summary: the overall balance, the direct cost balance and the balance of the salary and benefits categories. While early in the budget cycle the overall and direct cost balances should be positive, they should gradually approach and land on zero at the end of the budget period. On the other hand, 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 work that is funded by the grant or other budget driven funding source has begun, there are no payroll expenditures and the balance of the personnel categories will equal the budget of these categories. At that time projected salary and benefit encumbrances are added. 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 payroll is generated, 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 dominant part of a budget, accounting for 70 to 80 percent of a grant budget. Furthermore, at research intensive institutions, personnel may be simultaneously paid from multiple funding sources. For these and other reasons, 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.

Regular monitoring of these numbers identifies budgetary issues and provides plenty of time to correct them. When the personnel balance is not zero, the summary of the personnel records is used to begin the process of identifying the source of the problem. This section provides lists of the employees and their rate of pay on the funding source. Answers to questions such as – “Are the correct amounts and the right people being paid?” – are easily determined. Again, many administrators consider the personnel components of a budget the most important.

In today’s blog we presented one version of a budget report. Other versions of this 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
budget report infographic

Budget Report Infographic

For more information on how easy it is to produce a budget report using a grant accounting system, please contact the IT Works team today.