Working Capital Agreement
°®ÎÛ´«Ã½ facilitates the long-term finance strategies of its programs through the use of working capital agreements (WCA). Such agreements are typically internal to the institution and make use of the financial flexibility managed into the fixed cost structure of the university. °®ÎÛ´«Ã½'s capacity to maintain and employ the use of this tool is contingent upon balancing long-term inputs and disbursements.
It is crucial that all units enter into any such agreement fully committed to maintain the agreed schedule.
There are situations where °®ÎÛ´«Ã½ does not have the capacity to provide necessary funding. If the Vice Chancellor determines that the project warrants funding consideration, then °®ÎÛ´«Ã½ may choose to seek other financing options (such as a WCA through statewide or an external financing agreement). In such situations, the unit is responsible for any associated financing fees and interest.
Review the process standards (below) and complete the WCA Request form with as much information and backup as necessary to allow for a thorough review. A representative from Financial Services will follow up to finalize the details.
The °®ÎÛ´«Ã½ Central process for management of internal unit working capital agreements (loans) was established in 2010 as a method by which units can borrow and lend unrestricted funds internally, in order to facilitate long-term financial strategies.
- Use of the fund is for any approved purpose with a total transaction value not less than $50,000.
- A completed internal working capital agreement authorizes final approval of any transfer.
- Approval requires the signature of a unit’s Dean, Director, or Vice Chancellor (VC), and the Associate Vice Chancellor (AVC) for Financial Services.
- The signature of the Vice Chancellor for Administrative Services (VCAS) is also required for unit borrowing agreements and for any exceptions to the standard practices, as listed below.
°®ÎÛ´«Ã½â€™s capacity to maintain and employ the Central banking function is contingent upon balancing long-term inputs and disbursements in order to avoid significant shortfalls in annual activity. It is therefore critical that all units enter into any agreement fully committed to maintaining the agreed schedule.
Unit Lending
An eligible unit may wish to deposit unrestricted funds to Central in order to reduce
a year-end balance, bridge activities as part of a budgetary step-down plan, or pre-fund
a future need or long-term commitment. A unit is eligible for a lending agreement
if its UFB projection exceeds the approved range (see °®ÎÛ´«Ã½ UFB Management Principles),
but does not fall below minimum UFB guidelines. Units with a zero or deficit UFB projection
will not be permitted to enter into a UFB agreement.
Projected Working Capital Agreements noted in the April Management Report (submitted in May), will be compiled and presented to the Vice Chancellors and Chancellor
for review and feedback.
Final year end WCA's will again be compilied and submitted to VC's and Chancellor
to ensure agreement and facilitate year end balancing before formal letters are sent
out for signature.
Central will retain funds for no longer than two fiscal years before repayment begins unless a specific exception is documented. Transfer of funds to the unit will occur at a rate no greater than one-third (1/3) of the original amount or $500,000, whichever is less, per fiscal year. A standard exception is for agreements under $200,000, which may be fully returned in one year, or agreements under $400,000, which may be returned at half (1/2) of the original amount per fiscal year.
Unit Borrowing
Funds are typically borrowed by units in order to bridge funding gaps, purchase equipment, or meet a start-up funding commitment, but may be borrowed from Central for any approved purpose. A request to borrow Central funds must be submitted to the AVC Financial Services and must include a sound financial analysis for repayment over a reasonable term. VCAS approval will be required for all unit loans.
Maximum term lengths are:
1) five years for amounts up to $500,000,
2) ten years for any amount over $500,000, or
3) for equipment loans, the useful life (based on °®ÎÛ´«Ã½â€™s standard depreciation schedule).
Exceptions to the standard terms will require additional review/approval of the VCAS.
For reference, °®ÎÛ´«Ã½ UFB Management Principles can be found online:
/finserv/finance-accounting/financial-manager-resourc/°®ÎÛ´«Ã½_UFB_Principles_Revised.pdf
Please do not hesitate to contact Jason Theis, Director of the Office of Finance & Accounting (OFA), with any questions.
Our staff are happy to answer questions and help navigate the WCA process.