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Basis of Accounting
The amounts paid to employees as part of severance and termination agreements are recorded on the cash basis of accounting. This means that the expense is reflected in the departmental accounts when the employees are paid.

The termination and severance agreements currently in place are described in the Academic Personnel Policies and Procedures Manual. The cost associated with these agreements is borne by the department to which the employee was assigned at the time of termination. Costs are charged to federally sponsored accounts to the extent the costs are allocable to the project and allowable by the sponsor. Refer to University Administrative Policy 2.1.3, Charging of Direct and Indirect Costs, for more information in this area.

Payment Process
Amounts paid to an individual as part of a termination or severance agreement are paid on the biweekly payroll system for all employees, including those individuals normally paid on the regular payroll system. Beginning April 29, 1996, pay type will be used for the enhanced biweekly payroll. There are pay types for Layoff Nonrenewal (LO) and Terminal Agreement (TA). Fringe benefits applied against these payments include the following components, effective October 1996:

• Health Plan
• Unemployment Compensation
• FICA
• Medicare

Certain agreements include provisions for future health benefits to be provided to the terminating employee. The costs of these health benefits are charged to the fringe benefit pool and included as part of the total costs used in determining the annual fringe benefit rate. (Prior to FY96-97, these costs were charged as lump-sum or monthly charges to the unit the employee was last assigned).

Fiscal Year-end Accrual Process
The University incurs a liability at the time an employee accepts a termination / severance package that is offered as part of an existing policy administered by the Office of Human Resources. Each June 30, the University's fiscal year-end, Accounting Services estimates the total liability owed to previous employees under the termination / severance agreements, and recognizes this cost in its annual financial statements. The financial statements of the University are presented on the accrual basis in accordance with accounting principles outlined in the American Institute of Certified Public Accountants' audit guide, Audits of Colleges and Universities, and guidelines suggested by the National Association of College and University Business Officers.