POLICY 05:16:00

AUXILIARY ENTERPRISES

This policy is consistent with Tennessee Board of Regents Guideline B-020.

Purpose

The primary mission of institutions in the Tennessee Board of Regents System is the creation and
dissemination of knowledge. To carry out this mission, it is often desirable for the institution and its
affiliated units to charge fees for providing goods and services that enhance, promote, or support its
instructional, research, public service, and all other educational and support functions in order to meet
the needs of the students, faculty, staff and members of the public participating in institutional events.
Educational business activities shall be established and carried on only when pursuant to, and in
accordance with, an authorization and statement of purpose approved by the institution’s president or
designee.

The purpose of Section II. is to provide uniformity in the classification and operation of auxiliary
enterprises at the institutions in the Tennessee Board of Regents System. Also provided are examples
to supplement the various System policies, procedures, and reports concerning the operation of
auxiliary enterprises. Reference is made to reporting forms which shall be provided by the Board staff.

Definitions

• Definitions of Educational Business Activity and Auxiliary Enterprises are given as part of the
  guideline.
• Policy/Guideline Educational Business Activity

1. Definition of Educational Business Activity – Each educational business activity shall meet the
   following three conditions:
   1. The activity is deemed to be an integral part in the fulfillment of the institution’s
      educational, research, public service, and campus support functions, and other
      educational and support activities, without regard to profit.
   2. The activity is needed to provide an integral good or service at a reasonable price, on
      reasonable terms, and at a convenient location and time.
   3. The activity is carried out for the primary benefit of the campus community but with
      sensitivity to the total community
2. Concept of Unrelated Activities
   1. All institutions should comply with applicable laws and regulations pertaining
      to such activities, and educational business activities not falling within the
      conditions established above may be unrelated business income activities and
      subject to unrelated business income tax.

Auxiliary Enterprise Operation

1. 1. Role and Scope of Auxiliary Enterprise Operation
      1. Definition of Auxiliary Enterprises:
         1. An auxiliary enterprise furnishes a service to students, faculty, or staff, and
            charges a fee directly related to, but not necessarily equal to, the cost of the
            service.
         2. The public may be served incidentally in some auxiliary enterprises
         3. They are essential elements in support of the education program, and
            conceptually should be regarded as self-supporting. Little or none of the
            revenue comes from educational and general sources, but in the case of
            housing and food services, there may be a limited amount of sales to the
            institution.
         4. Other examples of auxiliary enterprises are college union, college stores, rental
            facilities, institutionally operated vending services, recreational areas, faculty
            clubs, laundries, certain parking facilities.
         5. This definition has been approved by the Tennessee Higher Education
            Commission, the State Comptroller, and the State Department of Finance and
            Administration in the publication Financial Reporting for Tennessee Public
            Colleges and Universities, with the following exceptions:
            1. Revenue and expenses of student centers (college unions), but not the
               auxiliaries housed therein, are to be classified under the category of
               student services.
      2. Pursuant to the foregoing, the following activities should be classified as auxiliary
         enterprises:
         1. Housing, including dormitories, apartments, and all other housing.
         2. Food Services.
         3. College Stores, including bookstores, hobby shops, mini-markets, etc.
         4. Vending Services, including food vending and other non-food vending.
         5. Post Offices, limited to the cost of revenue-related services, and excluding
            campus distribution.
         6. Parking facilities, if subject to an indebtedness which is being liquidated through
            revenues or if otherwise operated in a manner within the definition of auxiliary
            enterprises.
         7. Laundries, beauty shops, barber shops, etc.
         8. Any other activity which meets the approved definition.
         9. Student recreation centers subject to indebtedness.
      3. Users of Auxiliary Enterprises
         1. Auxiliary enterprises exist for the purposes of providing services to students,
            faculty, and/or staff, and any service to the public should only be incidental in
            nature.
            1. For example, student housing facilities are operated for the benefit of
               students, and occupancy should be limited to students and student
               housing personnel, provided that, on a space available basis, such
               housing may be provided to faculty or staff.
            2. In the case of food services, bookstores, etc., while non-students who are
               guests or who otherwise have business on the campus may be served, the
               institution or school should not actively seek non-campus trade.
   2. Concept of Auxiliary Enterprises as Self-Supporting
      1. The goal for all auxiliary enterprises, both individually and cumulatively, is for
         revenues to at least equal expenditures and transfers.
         1. It is recognized that some auxiliary enterprises may have difficulty in providing
            necessary services at reasonable prices on a break-even basis, but justification for each
            such enterprise must be provided to the Board through the annual operating budgets
            analysis.
      2. All rate structures should be recommended and set on the basis of projected expenditures and
         transfers.
   3. Purchasing of Goods and Services for Auxiliary Enterprises
      1. General
         1. Purchases for auxiliary enterprises generally fall into two major categories:
            1. Purchases for resale; and
            2. Purchases for consumption or use in the operation of the auxiliary enterprise.
               1. Examples of purchases for consumption or use by the
                  auxiliary enterprises are furnishings for dormitory rooms,
                  general supplies, office supplies, etc.
               2. Purchases for resale include items which are to be resold,
                  including textbooks and other course related materials and
                  supplies, and other miscellaneous items which are needed
                  on a regular basis by the users of the enterprises.
         2. Purchases for auxiliaries are subject to the provisions of the purchasing policy (no. 05:07:00).
   4. Classification of Revenues and Expenditures for Auxiliary Enterprises
      1. All Revenues and Expenditures will be classified first under the appropriate
         specific auxiliary enterprise. Further details relative to appropriate
         classifications are provided below.
      2. Classification of Revenues: The source of funds is the primary determinant of
         revenue classification. Only nominal amounts may be reported as “Other” or
         “Miscellaneous”. With regard to the Federal Work Study Program, an amount
         equal to the federal share of FWS salary expenditures shall be reported as
         restricted revenue. Supplemental schedules must clearly identify both restricted
         and unrestricted revenues. On all applicable statements, restricted auxiliary
         revenue should be reported under Auxiliary Enterprises regardless of the source.
         Restricted auxiliary revenues should be reflected as auxiliary enterprises
         revenue rather than grants and in the same amount as the auxiliary enterprises
         restricted expenditures.
      3. Classification of Expenditures: Expenditures should basically be classified by
         activity, with breakdowns by object classification or grouping of objects. The
         following specific provisions shall be applicable to classifications of
         expenditures:
         1. Staff benefits and FWS expenditures should be reported by activity. In
            Athletics, the “Grant-in-Aid” classification should include scholarships,
            room and board, books, fees and other costs directly associated with
            individual student athletes.
         2. Where several activities are managed by one office, the managing
            office may be listed as a separate activity with object classifications
            shown. The last line of the operating expenditures shall show the
            allocation of these costs to the operating activities. The management of
            a group of activities may also be reported under one of the activities by
            detail object, with the appropriate allocation shown as the last item
            under operating expenditures.
         3. Operating expenditures for prorated plant costs may be shown as one
            line, or they may be shown in further breakdowns under the Plant
            Allocation heading. Extraordinary Maintenance costs may be listed
            separately under plant operations. However shown, the Maintenance
            and Operation of Plant Costs must be clearly identifiable.
         4. An “Excess (Deficit) of Revenues over Expenditures” sub-total before
            transfers must be included.
         5. Transfers must be classified as Mandatory or Non-Mandatory, and
            detailed by the fund to which the transfer is made.
         6. All direct costs will be charged to the appropriate activity. Where
            actual incurred costs apply to more than one activity, the costs will be
            allocated or prorated to each auxiliary enterprise. Salaries and wages
            will be utilized as the allocation base, unless otherwise designated. For
            example, vending and contracted food services must have the
            appropriate cost of the person(s) or activity which coordinates or
            manages them allocated as an expenditure. These are direct costs which
            are not replaced by institutional support allocations.
      4. Allocation of Institutional Support to Auxiliaries:
         1. Auxiliary enterprises shall be charged directly for the specific and specialized
            services or benefits they receive, whether the initial charge is in Institutional
            Support, Student Services, or some other functional area. For example, if an
            employee is directly responsible for the management of an Educational and
            General activity and an Auxiliary Enterprise activity, their salary and related
            expenses should be prorated.
         2. Institutional Support functions which provide no benefit to Auxiliary
            Enterprises may not be allocated, such as the chief academic officer, catalogs
            and bulletins, and graduation expenses.
         3. All other institutional support costs shall be allocated on the basis of salaries
            and wages. “Direct” charges which are charged to auxiliaries should be broken
            down by object classification between salaries and wages and all other objects.
         4. Institutional Support allocation should be a separate line item expenditure on
            supplemental reports.
      5. Plant Costs Allocated to Auxiliaries:
         1. Proportionate amounts of all Operation and Maintenance of Plant costs shall
            be allocated to Auxiliary Enterprises. The allocations shall be made on the
            basis of the most accurate information and the most reasonable basis in
            accordance with the following provisions.
         2. A direct charge basis shall be used when the institution maintains a work
            order or other costing system which records this information. The total of all
            costs incurred by the Maintenance and Operation of Physical Plant must be
            included in the costing system. Where only a portion of the costs is accounted
            for by direct job orders, the balance of the costs shall be prorated on the basis
            of square footage or on the basis of the direct charges which have been
            identified.
         3. In the absence of accurate costing information, the Maintenance and
            Operation costs shall be allocated on a square footage basis. Where
            adjustments are made to any of the allocations, for example, dormitories
            which are not used in the summer, similar adjustments shall be calculated and
            recorded for Educational and General Facilities which may not have been in
            full use during all periods of the year. Due to the difficulty of establishing a
            reasonable basis for allocation, Care of Grounds costs may also be allocated
            on a square footage basis.
         4. It is permissible to allocate some cost elements, such as Custodial Services
            and Maintenance and Repairs, on a direct charge basis and other costs such as
            Utilities on a square footage basis. The administrative expense of
            Maintenance and Operation must be allocated on the same basis that other
            direct services are allocated. Where a square footage basis is used, the
            administrative costs must be allocated on the basis of the relative direct
            charges made to auxiliaries. Any allocation basis other than direct charge of
            square footage must be approved.
      6. Replacement of Equipment and Facilities
         1. Any mandatory allocations for accumulating funds for the replacement of
            equipment and facilities must be made in accordance with the bond indenture or
            other binding external agreements. In financial reporting, these items shall be
            listed under Mandatory Transfers as transferred to Funds for Renewal and
            Replacement.
         2. Non-Mandatory Transfers may be permitted, based upon the excess of revenues
            over expenditures and other transfers. Where a particular auxiliary or group of
            auxiliaries, such as dormitories, does not have a sufficient excess of revenues over
            expenditures and other transfers, Non-Mandatory Transfers to Renewals and
            Replacements are not permitted.
      7. Debt Service
         1. Mandatory Debt Service Requirements must be shown as transfers to Funds for
            the Retirement of Indebtedness in accordance with external binding agreements
            such as bond indentures and agreements with the Tennessee State School Bond
            Authority. Strict adherence to the absolute transfers required by these external
            agreements must be made. Where agreements require only that the earnings will
            be available for debt retirement but do not specify where deficiencies in Debt
            Services Requirements are to be generated by the institution, the Mandatory
            Transfer may not include any amount in Excess of Revenues Over Expenditures
            and other Transfers.
         2. Other transfers to Retirement of Indebtedness will be based strictly upon the
            nature of the transaction. Only where funds to increase Debt Service
            Requirements are planned by the institution to come from the auxiliary activity
            may Non-Mandatory Transfers to Debt Service be shown. Where funding for
            Retirement of Indebtedness is made from debt service fees assessed to all students
            from general funds or from other sources, the addition to Retirement of
            Indebtedness funds shall not be shown as an auxiliary transfer.

Sources
TBR Guideline B-020; T.C.A. § 49-8-203Adopted by TBR: May 22, 1979

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Revised by TBR: July 1, 1984
Revised by TBR: February 16, 1988
Revised by TBR: November 8, 2006
Revised by TBR: February 4, 2014
Reviewed/Recommended: President’s Council, August 28, 2023
Approved: President L. Anthony Wise, Jr., August 28, 2023