N.J. Admin. Code § 8:31B-4.16

Current through Register Vol. 56, No. 11, June 3, 2024

Section 8:31B-4.16 - Fund accounting

(a) Many hospitals receive income, gifts, bequests and grants from donors, governmental or other sources external to the hospital that are restricted as to their use. When funds with externally imposed restrictions are received, they must be recorded in a separate fund. This would not preclude the pooling of assets by the hospital among its funds for investment purposes.

(b) Funds transferred to the operating fund from the restricted fund for board-restricted activities must be recorded in the unrestricted fund as nonoperating revenue and as an operating expense when expended. For reporting purposes, the recording of transactions among and within the unrestricted and restricted funds are to be in accordance with the AICPA Hospital Audit Guide.

(c) Funds fall into four categories: "unrestricted" funds, "donor-restricted plant and equipment" funds, "specific-purpose" funds, and "endowment" funds. The accounts within each fund are to be self-balancing, and each fund constitutes a separate subordinate accounting entity. This subsection outlines the conditions and events which require separate accountability within the established funds.

1. Unrestricted funds are used to account for all monies that are not restricted by donors or grantors in accordance with the rules set forth in this section. Two funds are to be established for unrestricted funds:

i. Operating fund is used to account for funds derived from ongoing patient care and related day-to-day activities of the hospital, except for the portions of such funds otherwise classified here.

ii. Board-designated funds are unrestricted funds that have been designated for specific purposes by the hospital's governing board. The board retains the right to undesignate such funds. The amount of such board-designated funds for capital replacement and renovation, as well as the sources and applications of all board-designated funds shall be reported annually to the Department per N.J.A.C. 8:31B-4.13.

2. Restricted internally generated major moveable equipment replacement fund (" equipment fund") is a fund, to be used to account for the portion of all net revenues related to patient care for the leasing, depreciation, or replacement of major moveable equipment.

i. Income from the investment on the fund's assets shall also be credited to this fund, net of any income taxes attributable to such income. Investments are to be reported at market value, and unrealized gains and losses are to be reported as income or loss each period.

ii. This fund shall only be debited for major moveable equipment leasing and capital expenditures for acquisition or capitalized reporting.

3. Restricted internally generated plant replacement and major renovation fund (" plant fund") is used to account for the portion of all net revenues related to patient care (specified as the capital facilities allowance) for the acquisition, preservation, renovation, and replacement of the "plant," (as defined in N.J.A.C. 8:31B-4.21), i.e., buildings, building components, fixed equipment, land, and capitalized assets other than minor or major moveable equipment. It will also account for all capitalized "plant" expenditures plus all debt service payments on long-term debt other than those that may be assigned to the equipment fund. Income earned (losses incurred) on investments (at market value) of the plant fund, less any income taxes attributable to such income, is restricted to the same capital purposes as the fund principal.

4. Donor-restricted plant and equipment fund: resources restricted by donors for the acquisition or construction of plant assets or the reduction of related debt are to be accounted for in the donor-restricted plant and equipment fund.

i. Income earned on investments and any losses incurred, valuing securities as at market value, must be reflected as an addition/reduction to the donor-restricted plant and equipment fund balance, if so specified by the donor.

5. Specific-purpose funds: funds received that are restricted for a specific purpose must be accounted for in a specific-purpose fund. Revenue and expense transactions resulting from these resources, not otherwise restricted by the donor(s), must be recorded as other operating revenue and operating expenses per the appropriate cost center or classification in the period in which these transactions are incurred. (In some instances, the transactions resulting from these resources will be recorded as non-operating revenue and expense.)

6. Endowment funds: funds classified as endowment funds include:

i. Pure endowment (principal is to remain intact in perpetuity).

ii. Term endowments (principal is available for use upon the passage of time or the occurrence of an event).

N.J. Admin. Code § 8:31B-4.16

Amended by 50 N.J.R. 1494(a), effective 7/2/2018