University Financial Policies

What is a university financial policy?

A university financial policy is a set of guidelines and procedures that a university or higher education institution establishes to manage its financial operations effectively. Financial policies cover a wide range of topics, including budgeting, asset management, procurement, accounting, and financial reporting. These policies are designed to ensure financial accountability and transparency, comply with applicable laws and regulations, and protect the financial interests of the institution and its stakeholders.

As aforementioned, a financial policy is a rule of law that establishes a common understanding of the overriding principles behind an institution's actions to fund research activities, attract top talent, and provide high-quality academic programs. Good policies merge laws, rules, and regulations from each of the units and agencies they work with into one cohesive instrument, eliminating inconsistencies and redundancies. While we won't dive deep into the differences between policies, procedures, and work instructions in this module, it's essential to know the practical differences between them. When operating together, they efficiently communicate how an institution should share information and perform specific tasks consistently.

Who Sets Policy?

Establishing policy is the responsibility of Executive Management— CFOs, Finance Controllers, Finance Managers, etc. Ultimately, If there's no support at the top, managers and staff will not comply with the organization's policy— it has a hierarchical structure.

Internal: Policies in effect within the institution that detail compliance standards established by the Executive Board
External: Policies affecting day-to-day operations outside the institution that reflect compliance with external organizations' requirements

**Quick refresher of related terms**

Procedure: Steps taken to comply appropriately with policy (e.g., when and how to contact the office in charge of reporting personal conflicts)
Working Instruction: suggested guidelines for actions or relationships that concede properly with procedures (e.g., what time and for what location specific logs need to enter into a system database)

Four Standards for University Policies

According to the Association of College and University Policy Administrators (ACUPA), there are four standards for university policies:

Authority: Policies should clearly state the authority under which they are established and who is responsible for administering and enforcing them.
Clarity: Policies should be clear and concise, using plain language that is easily understood by the target audience.
Accessibility: Policies should be easily accessible and readily available to the target audience.
Consistency: Policies should be consistent with the values, mission, and goals of the university and should be applied consistently across all university departments.

Categories of Financial Policies

Financial policies in universities can be broadly categorized into three categories:

Revenue and Expenditure Policies: These policies govern how the university generates revenue and spends its resources. Examples of such policies include budgeting policies, procurement policies, and fundraising policies.
Investment Policies: These policies dictate how the university invests its financial resources to generate returns. Examples of investment policies include endowment policies, investment objectives and guidelines, and asset allocation policies.
Risk Management Policies: These policies outline the university's strategies for managing financial risks. Examples of such policies include credit risk policies, liquidity risk policies, and market risk policies.

Ethics in Managing Financials

A thorough review of business ethics is beyond the span of this module. At a minimum, finance administrators must understand that financial policies set the standards and adherence to how an institution reaches its mission and goals. Thereby, policies intertwine ethical conduct with the university's governance and accountability by promptly addressing any divergences from core values and beliefs of the institution. All financial policies should be adhered to, and when found in a situation that calls to deviate from these strict rules, one should seek the counsel of a departmental head. Contrarily, personnel should also be capable of recognizing when a not illegal or fraudulent decision is still unethical.

Self-evaluation correctness scales and certified financials can help better position personnel to make difficult ethical decisions under stress. Audit reviews of decision-making at each management level are other critical practices that ensure consistent policy interpretations occur continuously throughout the institution.

The three most common ethical challenges for finance administrators to familiarize themselves with are:

Conflict of Interest
Fundraising:
Budgeting

In essence, when using the financial policies laid out by the university, administrators should recognize where to draw the lines on how to distribute and collect revenue, as all revenue-generating activities pose legal issues. It's critical for research universities to remain aware that reliance on financial indicators and policies alone will not prevent risks of mission drift. Universities will need to go beyond the standard written code of conduct and adopt effective ethics and compliance programs that carry a values-oriented framework.

**Quick refresher of related terms**

Financial Indicators: Profitability ratio, Liquidity ratios, Leverage ratios, & Activity ratios

References

Financial Management for Nonprofit Organizations
Smith, J. (2022). University Financial Policies. Retrieved from https://www.example.edu/financialpolicies
Jones, A. (2019). Financial Management in Higher Education. New York, NY: Routledge.
Association of College and University Policy Administrators. (2017). Standards for effective university policies. Retrieved from https://www.acupa.org/standards-for-effective-university-policies/
Ricketts, R., & Farnsworth, K. (2013). Financial management in higher education. In S. Komives, D. B. Woodward Jr., & Associates (Eds.), Student services: A handbook for the profession (6th ed., pp. 419-439). Jossey-Bass.

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