4. Fiscal Policies and Regulations

Table of Contents

4.1 Payment of Obligations

4.2 Encumbering Funds

4.3 Closing Accounts at End of Fiscal Year

4.4 Imprest Cash Funds

4.5 Sales Tax Assessment and Collections

4.6 Repayment of Money Owed to the State

4.7 Legislation on the Establishment of Committees

4.8 Vending Operations

4.9 Intercollegiate Athletics and Intramurals

4.10 Advertising and Marketing Costs

 

4.1 Payment of Obligations

The State of North Carolina operates on a cash basis. State agencies should pay all bills when due so as to take advantage of discounts offered and so as not to endanger the credit of the State. When bills are not paid within the time specified in the contracts made by the Division of Purchase and Contract, it becomes increasingly difficult to make favorable contracts for the State's needs. Early payments should not be made because it is an added cost to the State through loss of interest on deposited funds. (For additional policy information refer to the Office of the State Controller.)

4.1.1 Discounts

Discounts are due to be taken by a certain number of days after goods or materials are received in good and proper condition or by a certain number of days after invoices are received if determined to be in the best interest of the State. The level of interest rates should be a major consideration. Discounts, if taken, should be taken within the discount period. If discounts are taken, vendors are entitled to payment within this period. Most State contracts and purchase invoices provide for the discount period.These provisions are generally known to the State agencies.

The following will be used as the basis for determining time in connection with discounts offered:

  • When final inspection and acceptance of supplies and materials are at the point of origin, time is computed from the date of delivery to the common carrier; or,
  • When final inspection and acceptance of supplies and materials are at the destination, time is computed either from date of delivery to the destination, or from date the correct invoice is received, if such date is later than the date of delivery.

 

4.2 Encumbering Funds

4.2.1 Purpose and Policy

All unencumbered balances of maintenance appropriations shall revert to the State Treasury to the credit of the general fund or special funds from which the appropriation and/or appropriations were made and/or expended at the end of each fiscal year; except that capital expenditures for the purchase of land, the erection of buildings, new construction or renovations in progress shall continue in force until the attainment of the object or the completion of the work for which the appropriations are made; except that maintenance appropriations to the General Assembly shall remain available until expended, unless otherwise provided by the Legislative Services Commission.

Pursuant to G.S. 116-30.3, the UNC system may carry forward funds in an amount not to exceed 2.5% of the institution’s fiscal year ending authorized General Fund appropriation. In addition, the UNC system may carry forward funds realized from implementing energy cost savings, provided there is a credit balance remaining in their utilities expenditure accounts (see G.S. 116-30.3B). Unearned revenue collected for goods or services, such as summer school, provided in the subsequent fiscal year and approved by OSBM may be carried forward, in addition to funds within the 2.5% threshold.

As used in this section, "unencumbered" means not obligated in the form of purchase orders, contracts, renovations in progress or salary commitments.

4.2.2 Encumbering Funds for Next Fiscal Year

Where an obligation or commitment has been made in one fiscal year that cannot be concluded or liquidated in that year, and funds have been set up in the budget for the succeeding fiscal year for expenditures relating to the same class of obligations or commitments, the obligations or commitments must be paid out of funds budgeted for the succeeding fiscal year; and funds cannot be encumbered in the prior fiscal year to meet any such obligation or commitment. However, where no funds, or insufficient funds, have been set up in the budget for the succeeding fiscal year for expenditures relating to the same class of obligations or commitments, the Director of the Budget may, in justified cases, permit funds to be encumbered in the year in which the obligation originates and the encumbered funds will be transferred into the succeeding fiscal year or biennium for use in liquidating the obligation or commitment.

 

4.3 Closing Accounts at End of Fiscal Year

4.3.1 Liquidation of Obligations

The fiscal year ends on June 30th and all obligations should be liquidated by the end of the fiscal year. State agencies and institutions for the most part maintain their records on a budget reporting basis. At year end the required adjustments are made to various accounts in order to accurately state accrued revenues and expenditures. OSBM will issue special memorandums annually designating the specific closing dates.

Allotments provide funds for the payment of salaries and other operating expenses as due. No commitments can be made that will overdraw the allotment for the quarter or that will overdraw the budget subhead against which the commitment is made.

All state contracts for supplies and materials and equipment are made with definite times for payments. All invoices must be settled in accordance with the provisions of the contract under which the purchases were made.

Voucher registers for June should cover payments for all invoices for which the goods have been received, all payrolls and all other obligations that are in order for liquidation during the fiscal year being closed. Warrants must not be drawn for invoices unless materials/services have actually been received. Memorandum invoices will not be accepted.

4.3.2 Receipts

All expendable or on hand receipts will be credited in the State Controller's Cash Management accounts and in the State Treasurer's accounts to the allotment account of the fourth quarter for all deposits made up to and including June 30. All amounts due the State and its departments and institutions, applicable to the current fiscal year, should be collected by the end of June and deposited to the credit of the State Treasurer.

Deposits of receipts made after June 30 applicable to the fiscal year just closed should be recorded in the accounts to indicate receipt as of June 30.

  • Mark deposit tickets appropriately to show that they belong to the period ending June 30.
  • Show on receipts register as of June 30th (last work day).
  • Do not record any receipts back into the previous (old) year that do not belong to that year.
  • No receipts that belong to the year just closed should be held out and deposited to the credit of the new year. The Cash Management Act requires revenues to be deposited immediately, (the only difference is which day is recorded as the day of receipt - old year or new year).

 

4.4 Imprest Cash Funds

4.4.1 Definition

An imprest cash fund is a fixed sum of money used for making change in a cash receiving function. It is also used to meet emergency payments such as freight and express bills, with later reimbursement. An imprest cash fund, using budgeted funds, may be established by request to OSBM. Increases to existing imprest cash funds must also be approved in advance by OSBM.

4.4.2 Process of Request

The request to establish an imprest cash fund should be submitted on a budget revision (BD 606) in the following manner (using line item numbers appropriate to the agency's budget):

Requirements Increase Decrease

1230-53 5950 Petty/Imprest Cash       $100              -0-

Estimated Receipts

1230-43 7992 Imprest Cash Redeposit $100              -0-

After approval by OSBM, a warrant (or check) would be drawn payable to Imprest/Petty Cash and the custodian of the fund and charged to the expenditure line item Imprest/Petty Cash Fund. The warrant would be cashed and the proceeds placed in a manner appropriate for safekeeping and use.

In a cashier receipting operation, the fund would be used to make change. Receipts would be stored with the cash funds during the business day. At the end of the day, the receipts would be removed from the drawer and deposited in the appropriate bank account. The amount remaining in the drawer should be the full amount of the fund (i.e., imprest amount such as $100 in example).

In a petty disbursing operation, due bills are paid from the fund with the paid invoices (with customary number of copies) remaining with the fund until reimbursed. At periodic intervals, the fund should be replenished by a warrant (or check) drawn to Imprest/Petty Cash Fund in the amount of specific invoices. The warrant would be charged to appropriate line items determined by the nature of the invoices. Invoices covered by the warrant would be attached to the file copy of the warrant. The full amount of the fund must at all times remain constant and will therefore consist of cash and/or paid invoices for which cash was spent.

At the end of the fiscal year, the full cash amount of the fund should be restored to the pre-established level and redeposited to the allotment account by June 30th closing.

Reporting on and accounting for imprest cash funds is similar to handling of other items of expenditures and receipts.

 

4.5 Sales Tax Assessments and Collections

4.5.1 Tax on sales by the State of North Carolina

Sales tax is to be added to the sale price of taxable tangible personal property sold at retail by the State, and the tax is to be collected from the purchaser and remitted to the Department of Revenue in accordance with regulations of the Secretary.

4.5.2 Intradepartmental Sales

A sale by one State department to another department or area, under the same administrative head as the seller, is not subject to sales tax.

4.5.3 Sales Tax Added to the Purchase Price

G.S. 105-164.7 states that the sales tax is assessed on the consumer and shall be added to the sale price when sold at retail. In every instance where an agency of the State makes a sale that is subject to the tax, the tax shall be shown separately and added to the sale price of the article.

4.5.4 Separation of Sales Required

G.S 105-164.22 provides that: "a retailer's records must include records of the retailer's gross income, gross sales, net taxable sales, and all items purchased for resale. Failure of a retailer to keep records that establish that a sale is exempt under this Article subjects the retailer to liability for tax on the sale."

It is essential that the accounting records show separately taxable sales and exempt sales in order to facilitate sales tax reporting and providing auditable records of transactions.

4.5.5 Overcollections of Sales Tax

G.S. 105-164.11 provides that: "when the tax collected for any period is in excess of the total amount which should have been collected or is collected on an exempt or nontaxable sale, the total amount collected must be remitted to the Secretary."

4.5.6 Payment of Sales Tax Collections to the Department of Revenue

Sales tax collections paid to the Department of Revenue are to be charged (as a refund of receipts) to the receipts line item "Sales Tax-Net" and recorded as a disbursement before the close of the disbursement records for the month in which tax is collected.

The Secretary of Revenue's regulations specify that, for most merchants, taxes are due monthly by the 20th of each month on sales that took place the previous month. Retail merchants with average state and local tax remittance of $20,000 or more must make a monthly prepayment of the next month's liability when filing the monthly return due on or before the 20th day of each month. This prepayment must equal at least 65% of the amount of tax due for the current month; or of the amount of tax due for the same month in the preceding year; or the average monthly amount of tax due in the preceding calendar year. A late payment penalty and interest is imposed if the tax is paid after the due date.

4.5.7 Sales Tax on Meals

G.S. 105-164.4 levies and imposes a sales tax upon every person or group, whether public or private, who engages in the business of selling tangible personal property at retail. Sales of meals or other prepared foods to employees, guests, etc., by State hospitals and other institutions are subject to retail sales taxes, and such taxes must be collected.

However, food and prepared food sold within the school building during the regular school day or sold not for profit by a public school cafeteria to a child care center that participates in the Child and Adult Care Food Program of the Department of Health and Human Services are not subject to sales taxes. Institutions to which this regulation applies should not assume liability for or pay any sales taxes without first collecting such tax as an addition to the established price of the article sold.

4.5.8 Sales Tax Exemptions

G.S. 105-164.13 provides that sales for resale, and for manufacture and resale, are not subject to sales tax. Reference should be made to the General Statutes or the Department of Revenue as to exemptions.

4.5.9 Refund of Local Sales and Use Tax

G.S. 105-164.14(e) allows a quarterly refund of local sales and use taxes paid indirectly by State agencies on building materials, supplies, fixtures, and equipment, subject to the provisions of the General Statutes. Reference should be made to the General Statutes and the Department of Revenue procedures on obtaining this refund.

4.5.10 Proceeds from the Sale of Equipment and other Surplus Property

The following are guidelines and procedures for budgeting and handling receipts from the sale of equipment (office equipment, automobiles, trucks, tractors, etc.). Special procedures are delineated in G.S. 143-63.1 for the sale of state-owned firearms and in G.S. 20-187.2 for the disposal of badges and service side arms.

Proceeds from the sale of equipment that was originally purchased through a general fund budget code (including capital improvement codes) are subject to this provision. Special funds, including the Department of Transportation, public schools, and community colleges, are not subject to these regulations.

Receipts from the sale of surplus equipment that are not budgeted may be recorded in a separate receipts line item. Receipts that are in excess of amounts budgeted in a certified general fund budget code must be deposited as non-tax revenue as directed by the Office of the State Controller.

4.5.11 Net Proceeds from Sale, Lease or Rental of Land

G.S. 146-30 defines the term "net proceeds" as "the gross amount received from the sale, lease, rental, or other disposition of any state lands, less:

  • such expenses incurred incident to that sale, lease, rental, or other disposition as may be allowed under rules and regulations adopted by the Governor and approved by the Council of State; and
  • a service charge to be paid into the "State Land Fund." "

In the event the "net proceeds" amount cannot be accurately calculated using the above methodology, in limited circumstances an agency may retain an amount or percentage with prior permission from OSBM.

G.S. 146-30 provides that the net proceeds from the sale, lease, rental or other disposition of lands by a state agency be deposited with the State Treasurer to be credited to the general fund. The Wildlife Resources Commission, the Department of Agriculture and Consumer Services, the Department of Natural and Cultural Resources (State Parks), and the Department of Health and Human Services (Butner) are exempt from this provision. Any agency having funds derived from the sale, lease, rental or other disposition of lands should draw a check or prepare an electronic fund transfer for the total of the net proceeds made payable to the State Treasurer and mail to the Office of State Controller. The Office of State Controller should receive these funds within 5 days of receipt of the net proceeds by the agency.

 

4.6 Repayment of Money Owed to the State

4.6.1 State Employees and Certain Local Educational Entity Employees

G.S. 143-553(a) states that "All persons employed by an employing entity . . .[see definition contained in G.S. 143-552, as enumerated in G.S. 143B-3 of the "Executive Organization Act"] who owe money to the State and whose salaries are paid in whole or in part by State funds must make full restitution of the amount owed as a condition of continuing employment." The employee is allowed a reasonable period of time to make the repayment. Employment shall be terminated if the employee ceases to make payments or discontinues a good faith effort to make repayment.

G.S. 143-554 gives an employee the right to appeal the termination to the State Human Resources Commission according to the normal appeal and hearing procedures provided by Chapter 126 of the General Statutes.

4.6.2 Public Officials

As stated in G.S. 143-557, "If after investigation under terms of this Part an appointing authority determines the existence of a delinquent monetary obligation owed to the State by a public official, he shall notify the public official that his appointment will be terminated 60 days from the date of notification unless repayment in full is made within that period."

The appointing authority shall allow the public official, if he/she is financially unable to make payment in full, to continue his/her appointment as long as an attempt to repay the obligation is made in good faith.

4.6.3 Legislators

G.S. 143-559 states "Whenever a representative of any employing entity as defined by this Part has knowledge that a legislator owes money to the State and is delinquent in satisfying this obligation, this information shall be reported to the Legislative Ethics Committee... for disposition."

4.6.4 Collection of Outstanding Debts

Agencies should follow these procedures for the collection of outstanding debts from public officials and employees subject to Article 60 of G.S. 143:

  • A list of names and Social Security numbers of individuals with past due accounts owed to the State should be submitted to OSBM. Individuals with past due accounts should not be included when satisfactory provisions have been made for repayment. (Responsibility of agency collecting the outstanding debt)
  • OSBM will compare the list with lists of individuals who are members of the Teachers and State Employees Retirement System or who are on a central payroll. (OSBM responsibility)
  • OSBM will provide notice, to the agency collecting the outstanding debt, of any individuals on the lists who are employed by a state department, agency or institution, Community College system, or by a city or county Board of Education. (OSBM responsibility)
  • Upon receiving this notice, the agency collecting the outstanding debt should notify the employing agency or department of the individual having a past due account and state: (a) the individual's name, amount of money owed, and for what reason the money is owed; (b) that a written notice has been sent to the employee stating that full restitution of the amount owed is a condition of continued employment; (c) that the employee obtain and provide written evidence from the department owed that a satisfactory arrangement for payment has been agreed upon; and (d) that the employee be given a reasonable time period to accomplish (c) above. If the employee does not provide this evidence, steps must be taken to terminate employment unless the employee is pursuing administrative or judicial remedies. (Responsibility of agency collecting outstanding debt and employing agency.)

4.6.5 Set-off Debt Collection Act

Chapter 105A of the General Statutes authorizes the Department of Revenue to assist claimant state agencies, per request, in the collection of qualifying delinquent accounts. The department will identify those entitled to individual income tax refunds of at least $50, and upon receipt of a final certification of the debt from respective claimant agency, set-off the applicable amount. Periodically, the department will remit to the respective claimant agencies the net proceeds collected, defined as the gross proceeds collected less the collection assistance fees provided in G.S. 105A-13. A transmittal statement will be included reconciling the amount of the remittance with the gross proceeds collected per individual set-off so that the claimant agency can credit the debtor's obligation with gross proceeds collected as required by G.S. 105A-14(b).

Claims for set-off must be filed with the Department of Revenue in accordance with the provisions of Article 1 of Chapter 105A and the rules and procedures set by the Department of Revenue as authorized under G.S. 105A-16.

 

4.7 Legislation on the Establishment of Committees

4.7.1 Establishment of Committees

G.S. 143B-10(d) authorizes the head of each principal department to create and appoint committees or councils to consult with and advise the department. The General Assembly declares its policy that, insofar as feasible, such committees or councils shall consist of no more than 12 members, with not more than one from each congressional district. If any department head desires to vary this policy, he must make a request in writing to the Governor, stating the reasons for the request. The Governor may approve the request, but may only do so in writing. Copies of the request and approval shall be transmitted to the Joint Legislative Commission on Governmental Operations. The members of any committee or council created by the head of a principal department shall serve at the pleasure of the head of the principal department.

4.7.2 Per Diem: Travel and Subsistence

Committee and Council members may be paid per diem and necessary travel and subsistence expenses, within the limits of appropriations and in accordance with the provisions of G.S. 138-5 and G.S. 138-6. Per diem, travel, and subsistence payments to members of the committees or councils created in connection with federal programs shall be paid from federal funds unless otherwise provided by law.

4.7.3 Report on Committees and Councils

An annual report listing committees or councils, the total membership of each, the cost in the last fiscal year and the source of funding, and the title of the person(s) who made the appointments is to be submitted to OSBM for presentation to the Joint Legislative Commission on Governmental Operations by March 31 of each year.

4.7.4 Membership Dues

Membership dues paid from state funds for state departments, institutions and agencies to organizations shall be kept to a minimum. The department head or his/her designee must review and approve all memberships to determine that the benefits accruing to the State from such memberships will exceed the costs. Membership dues shall not be paid from state funds for individual state employees or for the benefit of an individual state employee unless the benefit of the membership is for the State and the position for which the individual is employed. If the State is to benefit from an individual's membership in an organization, that benefit should derive not because of the individual, but because of the individual's position with state government regardless of who is in the position.

Additionally, although the membership may be in the name of the individual, this membership terminates when the individual terminates his employment with the State or moves to another department.

4.7.5 Academic Assistance - License and Certificate Fees

The academic assistance program provides reimbursement of academic costs if funds are available at the agency level, and/or time off the job if the course is available only during working hours and the employee completes the course in good standing, as defined in the Academic Assistance Program policy in the State Human Resources Manual. Academic courses/degrees from accredited community colleges/colleges/universities via traditional classroom, video-based, distance learning, web-based, e-learning and certain correspondence courses are eligible. Exceptions to policy may be approved by the department head. Academic courses are defined by the Office of State Human Resources (OSHR) as a course/degree provided by an accredited community college/college/university. The course must provide academic credit (as opposed to CEU’s), be listed in the college/university course catalog and charge tuition in the traditional meaning of tuition (as opposed to only registration fees). Accreditation must be via an accrediting agency authorized by the US Department of Education.

Completion of the course, workshop, or seminar should have a direct benefit to the organization. The improved knowledge, skills and abilities gained by the employee should benefit the individual in completion of his/her current and/or potential job duties. Management should consider workforce planning, succession planning and career development in approving employees to receive academic assistance.

Incumbent employees who meet minimum academic requirements for employment and for whom certification/licensing is required after employment or is deemed desirable by management and approval by the agency head or designee are eligible for academic assistance (reimbursement) under the following conditions specified by OSHR:

  • Certification/licensing is mandated, or
  • Certification/licensing is a policy requirement of the employing agency.

Even if the State requires the employee to have and maintain a professional license or certificate as a condition of employment, fees directly associated with initially obtaining that license or certificate are not reimbursable. Costs associated with maintaining a professional license or certificate as a condition of employment are reimbursable.

Courses, workshops, or seminars not involving academic credit, which may grant CEU’s or CPE’s or other completion recognition and where instruction is usually in modules, 2-3 days in duration, and which charge a registration fee (although sometimes referred to as tuition) may be paid for by the agency in advance of the training directly to the provider rather than as a reimbursement to the employee. Approval is by the department head or his/her designee and contingent on the same restrictions as academic assistance outlined in the State Personnel Manual.

Tuition fees (associated with academic credit) are charged to account 532941, Academic Assistance Program. Course registration fees (associated with training) are charged to account 532930, Registration Fees, or to account 532942, Other Employee Educational Expense. For more information on tuition and registration fee eligibility, please consult the Academic Assistance Program policy in the State Human Resources Manual.

 

4.8 Vending Operations

The following definitions apply to vending operations:

  • Vending Facility - A vending facility includes a snack bar, cafeteria, restaurant, cafe, concession stand, vending stand, art service, or other facilities at which food, drinks, novelties, newspapers, periodicals, confections, souvenirs, tobacco products or related items are regularly sold.
  • State property or state building - State property or state building means a building and/or land owned, leased, or otherwise controlled by the State, exclusive of schools, community colleges and universities, the North Carolina State Fair, and the State Legislative Building.

The vending facilities operated by state departments, institutions, boards and commissions or operated on state property are subject to the control of the State. The payments received, whether by contract, fixed or variable rate, a percentage basis, or gross or net profit, are state funds and the net proceeds are subject to appropriation by the General Assembly.

Receipts or payments from vending operations shall be deposited in the appropriate fund as determined by OSBM.

4.8.1 Operation of Vending Facilities Supported from State General or Highway Funds

Vending facilities operated on state property supported from the general or highway funds are considered General or Highway Fund operations. Proceeds from vending facilities are to be deposited in departments' and institutions' general or highway fund operating codes as a receipt, unless otherwise authorized by statute. All expenditures of profits must be authorized by OSBM by a budget revision.

4.8.2 Operation of Vending Facilities Supported from Other Funds / Institutional Trust Funds as Defined by G.S. 116-36.1

Universities that have facilities supported from institutional trust funds and which have vending operations in those facilities may retain proceeds from such operations in their trust funds. Proceeds from vending facilities shall be expended in accordance with G.S. 116-36.4. Universities must be able to report on vending proceeds at the time and in the form requested by OSBM.

4.8.3 Institutional Student Auxiliary Enterprises

Proceeds from vending operations located in university facilities supported from institutional student auxiliary enterprises (housing, food, health and laundry) are to be deposited into the appropriate special fund operating budget.

Exceptions:

  • Aid to the Blind: Article 3 of Chapter 111 of the North Carolina General Statutes - Operation of vending facilities on state property requires that state agencies, upon request of the Department of Health and Human Services, give preference to visually handicapped persons in the operation of vending facilities on state property. It is the responsibility of each department and institution to inform the Department of Health and Human Services of existing or prospective locations for vending facilities or coin-operated vending machines.
  • National Guard Facilities: G.S. 127A-138(b) states that funds earned from vending machine commissions shall remain with National Guard units and the expenditure of these funds shall be in accordance with rules prescribed by the Secretary of Crime Control and Public Safety.

4.8.4 Expenditures of Funds

Expenditures of profits may be authorized by the Office of State Budget and Management for the same type of expenditures as currently permitted by law from general and highway funds. Expenditures of profits should be as closely associated to the population or program surrounding the vending facilities as possible. Examples:

  • Recreational equipment for inmates.
  • Field trips for patients.
  • Costs associated with operating the vending facility such as rental of space, utilities and equipment.

4.8.5 Alcoholic Beverages and "Set-ups"

Payment or reimbursement for alcoholic beverages or "set-ups" cannot be made from state funds. Individuals must bear these costs. They cannot be included in registration fees or paid from state funds. Law enforcement personnel in the pursuit of their duties and industrial development personnel are exempt from this provision.

 

4.9 Intercollegiate Athletics and Intramurals

In accordance with a ruling by the Attorney General’s office, payment or reimbursement for intercollegiate athletics or intramurals cannot be made from state funds. These costs must be paid out of student athletics and activity fees or non-state funding sources, such as private and foundation grants, that are specifically charged or designated for that purpose. (See G.S. 115D-43 for explicit prohibition related to community colleges.)

 

4.10 Advertising and Marketing Costs

State funds may be used to purchase advertising space or marketing materials provided those funds have been appropriated or received for that purpose.

 

Fiscal Policies and Regulations Index

Alcoholic beverages - setups

Certificate of fees - academic assistance

Closing accounts

Collection of outstanding debts

Discounts

Encumbering funds

Establishment of committees

Expenditure of funds

Imprest cash funds

Intradepartmental sales

License fees — academic assistance

Membership dues

Net proceeds from sale, lease or rental of land

Payments of sales tax owed to Department of Revenue

Proceeds from sale of equipment

Refund of local sales and use tax

Repayment of money owed to state

Report on committees and councils

Separation of sales and tax required

Set-off Debt Collection Act

Tax on sales by the State of North Carolina

Vending operations