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First of all, an auxiliary enterprise is an entity. Webster’s Dictionary defines entity as 1a: being, existence, esp: independent, separate, or self-contained existence b: the existence of a thing as contrasted with its attributes 2: something that has separate and distinct existence and objective or conceptual reality.

When the definition of entity is combined with the examples, the conclusion is that the AICPA’s Audit Guide intended an auxiliary enterprise to be a major, ongoing business operation separately identifiable within the university and one that would likely be found in the private sector. In a university setting, departments (or centers, institutes, etc.) are the basic, separately identifiable organizational units. Therefore, our first task is to look at a department and decide whether or not the department as a whole should be classified as an auxiliary enterprise. This is contrasted with the frequent mistake of looking at an individual activity and classifying the activity as an auxiliary enterprise independent of the classification status of the department conducting the activity. For example, the Chemistry department sells Chemistry department tee shirts to its students. Clearly this activity is furnishing goods to students so the tendency is to classify the activity as an auxiliary enterprise. This would be in error because an auxiliary enterprise has to be an entity, and not just an activity. The Chemistry department (the entity) is not classified as an auxiliary enterprise; therefore any revenue it generates cannot be auxiliary enterprise revenue.

Care must be taken regarding what is defined as a department, because the same administrator may be responsible for more than one department or major activity. For example, the director of Housing is responsible for the housing function and the conference function. Just because both of these functions are located under the same director does not mean that these constitute a single department. In fact these would be two departments: Housing (an auxiliary enterprise) and conferences (an education and general activity).

An auxiliary enterprise charges a fee directly related to, although not necessarily equal to, the cost of the goods and services. Again, combining this criterion with the private sector business examples, it is possible to conclude that the Audit Guide intended an auxiliary enterprise to charge a fee to those customers who use the goods and services. The fact that the fee does not have to equal the cost of the goods and services means that a surplus can be generated. It also means that a loss may be generated, and that the loss may be supplemented by other resources.

The distinguishing characteristic of auxiliary enterprises is that they are managed as essentially self-supporting activities. It is important to look at this criterion in relation to the charging of a fee directly related to, although not necessarily equal to, the cost of the goods or services. The Audit Guide’s intent is that the business charges a fee to its customers based on the goods and services provided to each customer. A loss from these exchange transactions can be incurred and that loss can be supplemented from other sources, such as a student activity fee allocation. However, if the entity’s ongoing financial plan is such that it incurs annual losses of a material amount that must be supplemented from other sources, then it loses its auxiliary enterprise status and becomes an education and general operation since it is no longer essentially self-supporting.

Also, if the entity’s ongoing financial plan is to get an allocation of other resources, such as student activity fees, in order to provide services for free to all registered students (even though all students won’t use the services), then it loses its auxiliary enterprise status and becomes an education and general operation because it is not charging a fee directly related to the cost of goods or services and it is not essentially self-supporting.

This concept is also supported in the examples of intercollegiate athletics (only if essentially self-supporting), and student health services when operated as an auxiliary enterprise. It is clear that the Audit Guide envisioned two scenarios for these two entities. The first is when these entities charge a fee to only those customers using their services, and this fee allows the entity to be essentially self-supporting—an auxiliary enterprise. The second is when these activities are materially supplemented by an allocation of other resources, usually student activity fees, and makes a certain range of services free to all students, even though not all students paying the fee and supporting the entity will use its services—an education and general operation.

Many cases are very clear and others are quite gray. A case-by-case analysis has to be made and professional judgment must be used to decide one way or the other in the gray cases.

This category includes all expenditures and transfers relating to the operation of auxiliary enterprises, including expenditures for operation and maintenance of plant and for institutional support; also included are other direct and indirect costs, whether charged directly as expenditures or allocated as a proportionate share of costs of other departments or units.

This criterion is consistent with the private business concept of an entity in which the entity pays for all its operating costs, including space costs and administrative overhead. In the previously noted Chemistry tee shirt example, the FOPPS set up in Fund 29 to account for the tee shirt sales likely is only paying the costs of buying the tee shirts.

It is likely that no administrative costs of this activity were allocated to the FOPPS. This would include costs such as the salaries, wages and benefits of the general fund staff who designed, ordered and sold the tee shirts; an allocation of departmental administrative staff time such as the department chair or departmental administrator managing the FOPPS; or an allocation of cost of the space where the activity is conducted and paid for by general fund budget. General Administrative and Infrastructure Recharge (GAIR) will be charged to the Fund 29 FOPPS, but this covers only central general fund administrative costs such as the Chancellor, Vice Chancellors, CCO, purchasing and accounts payable, human resources, etc. GAIR does not include departmental administrative or space costs. Therefore, the Chemistry tee shirt FOPPS does not include all expenditures related to the sale of the tee shirts.

How does a department know whether its particular FOPPS is classified as an auxiliary enterprise? Are all fund 2x FOPPS auxiliary enterprises? No.

All fund 2x FOPPS are reported under the auxiliary and self-funded activities fund group in the financial statements. This clearly indicates that within the 2x funds there are a mixture of auxiliary enterprises (the auxiliary part of the fund group) and non-auxiliary enterprises (the self-funded part of the fund group). Once again, it is necessary to look to the expense structure of a transaction in order to answer the revenue question. Financial statement functional classifications are assigned to program and project chartfields via the expense purpose code (EPC) attribute. The auxiliary enterprise EPC is 2000. Additional EPCs are discussed later in this chapter. 

The EPC of a given FOPPS can be found in both the Finance System ChartFields and on many of the CU-Data financial reports. Any program with an expense purpose code of 2000 is an auxiliary enterprise and should record its revenue using only the auxiliary enterprise revenue accounts. 

Auxiliary enterprises must use only auxiliary enterprise revenue accounts, within the range of 280000–289999, to record all of their revenue. An auxiliary enterprise cannot use the miscellaneous revenue accounts within the range of 325000–334999.

The definition of auxiliary enterprise revenue is the revenue of an auxiliary enterprise. Therefore, if an entity is defined as an auxiliary enterprise, then all of its revenue is auxiliary enterprise revenue, and must be recorded in accounts within the range of 280000–289999.

Internal sales of goods/services between departments are usually recorded in such a way as to avoid inflating revenues and expenses from internal sales. For additional information, refer to the EPC 2100 discussion in this chapter or the CCO website for internal sales activity.

However, the Audit Guide provides an exception for auxiliary enterprises (i.e. those with EPC 2000). “Certain intra-institutional transactions, however, should be reflected in the operating statements as revenues and expenditures. Sales and services of auxiliary enterprises to other departments, for example, catering by the food services department in the entertainment of institutional guests and sales by the college store to instructional departments, should be treated as sales and services revenues of the respective auxiliary enterprises and as expenditures of the unit receiving the services or material.” This example assumes that the food services is the one serving students in dormitories, therefore an auxiliary enterprise. The selling FOPPS will record auxiliary enterprise revenue and the purchasing FOPPS will record expense as if the purchase had been made from an outside vendor.