account reconciliation training - texas state...

Account Reconciliation Training

Financial Reporting & [email protected]

Debra FosterAccountant IV

[email protected]

Course Objectives

This course consists of two primary objectives:

1. To inform reconcilers of the resources available to perform a proper reconciliation.

2. To provide guidance on completing the account reconciliation.

What is an account reconciliation?

• Process of comparing information

• Analyzing differences

• Making corrections

• Consistent data

Definition of the Reconciliation Process

• In accounting, Reconciliation refers to the process of ensuring that two sets of records are in agreement. Reconciliation is used to ensure that the transactions going through an account match the actual money spent. The objective is to report the correct amount in the general ledger. This is done by making sure the balances match at the end of a particular accounting period.

• Two Records - A proper reconciliation requires obtaining all of the activity in two records (department sub-ledger and the general ledger) since the last time they were reconciled and comparing them to find where any difference(s) occur.

– Reconciliations are much easier to do, and differences are easier to resolve, if they are done monthly. Doing reconciliations monthly will save time and effort and any corrective action can be taken to resolve issues.

• Reconciling Items are any items from the {A} Department Sub-ledger and {B} General Ledger that do not match. These items need to be researched to ensure they are legitimate and will be matched in a future month. Any errors need to be corrected.

Definition of the Reconciliation Process (continued)

• A proper reconciliation is comprised of four parts:– {A} Dept Sub-ledger Account Balance– {B} General Ledger Balance– {C} Variance– {D} Reconciling Items– Items on the {A} Dept Sub-ledger are matched against the items on the {B}

General Ledger.– The {C} Variance should be zero.– Any remaining items that are not matched are classified as {D}

Reconciling Items.

• If the {C} Variance is NOT zero, you need to identify the {D}Reconciling Items. These items can be journal entries not recorded in that period or timing differences that will clear in future months. After the reconciling items have been identified, Unreconciled Balance should be zero.

Why reconcile your department account?

• Ensure the account is correctly charged for all expense and encumbrances

• Ensure that all revenue is recorded (as applicable)

• Ensure the accuracy and completeness of transactions

• Ensure errors or discrepancies noted during the reconciliation process are corrected

Accuracy and Completeness includes a review of the entries to insure that

they are:

• Appropriately classified to the account

• Authorized in accordance with University policies, State and Federal laws and regulations, and specific sponsor or donor requirements or restrictions

Accuracy and Completeness includes a review of the entries to insure that

they are:

• Within the guidelines of the stated purpose of the account

• Have matching dollar values for each transaction between SAP and your department’s records

Who should prepare account reconciliations?

UPPS No. 03.04.02.

The account manager or designee must regularly reconcile budget and financial transactions in the university financial systems with the transactions’ corresponding source documents.

If possible, reconciliations should be prepared by the department’s support staff, but reviewed and approved by the account manager for proper segregation of duties.

When should account reconciliations be prepared?

Departmental account reconciliations should be prepared monthly.

It takes the General Accounting office 10 days to close a month (i.e. period in SAP).

Reconciliations should be started after the 10th

day of the following month to avoid the risk of additional items posting to an account after a

reconciliation has been completed.

Where should account reconciliations be kept?

• Reconciliation report, along with supporting documentation, should be maintained in department offices.

• Account managers should keep either hard copies or electronic files as support of financial transactions.

“Adequate records and files are mandatory for good fiscal management”.

Financial Transactions and examples of support documents:

Budget changes and carry forwards

Support document examples include:

• Budget change forms

• Documentation of budget at beginning of fiscal year


Encumbrances


• Purchase orders,

• Departmental purchase requisitions,

• Travel applications,

• Equipment maintenance and other contracts, etc.


Expenditure Transactions


• Invoices,

• Packing slips / receiving documents,

• Petty cash transactions,

• Pcard receipts and reconciled cardholder statements,

• Interdepartmental transfers


Revenue


• Copy of Money orders, travelers checks, cashiers checks, certified checks, credit card payments received and related billed invoices;

• Incoming Wire Transfers and related billed invoice;

• Inter-Department Transfer requests (emails);

• Student Business Services Deposit Forms.

How long should account reconciliations and support

documentation be retained by the department?

Per University’s Retention Schedule for Financial Documents:

Fiscal Year End + 3

Let’s Reconcile!

Step 1 – Gather your data

Gather documents, receipts, invoices and other transactions for the account that was initiated in the past month along with your Prior Month’s Reconciliation report

A Department Transaction Log and Reconciliation Summary can be obtained at

the General Accounting Office Website

http://www.txstate.edu/gao/reporting/forms.html

What reports should I use in SAP to reconcile our department’s

account(s)?

The suggested beginning point for any reconciliation should be the Budget to Actual Report in SAP (Transaction Code: ZBUDACT)

Refer to the Budget Office’s training document

http://www.fss.txstate.edu/budget/training/how-to-and-reference

How To Instructions for Budget to Actual Report:

Step 2 – Run the Budget to Actual Report in SAP through the period

being reconciled

Depending on how you wish to reconcile, the Commitment Item Group can be filtered

Definitions

SAP Query Results layout can be changed to fit your needs.

To change from SAP’s default layout, click on the middle Rubik's cube, select a preferred layout, then check the execute button.

Selected layout results can be filtered, sorted, summed further to provide only

the information needed.

In this example, only Maintenance and Operation expenses will be reconciled. To

filter out other expense groups, highlight the Commitment Item Group Column

Select the filter on the menu bar. In the pop up window, drop down the box to

the right of the Commitment Item Group

Select the group you wish to view and check the execute button

Budget to Actual Results

The Budget to Actual Report provides a summary of the account:

• Shows total amount budgeted for the current year (in real time)

• Shows total amount expended from the account

• Shows total amount of revenue received (if applicable)

• Shows total amount of requisitioned and encumbered expenses (in real time)

• Provides an available budget balance

In the Budget to Actual Report –Total Budget, Reserves and Encumbrances are on

“real time” and do not reflect totals as of a certain point in time.

Budget Total ran for Period 1-1

Budget Total ran for Period 1-4

Notice the same Budget Total is reflected?

Encumbrance, Reserve and Budget Balances can be calculated for a

specific period of time. It just takes a few more steps to compile the

information.

.

To obtain the actual budget for period 1:

- Drill into the Original Budget and Budget Adjustment Lines of the Budget to Actual Report.- Identify transactions that occurred after the end date for the reconciling period (for period 1, the date would be 09/30/16)- Adjust the Total Budget amount reflected on the Budget to Actual report by adding/subtracting the transactions that occurred after the reconciling period end date.

Budget Adjustment Detail

• The original budget was added 06/30/16 and is included in the Sept 2016 reconciliation.

The year end carry forward budget addition was added on 10/05/16 so would not be included in the Sept 2016 reconciliation.

The additional budget adjustment was added on 12/01/16 so would not be included in the Sept 2016 reconciliation.

Derived Budget for Period 1

For this account, only the first budget line was posted prior to Sept. 30, 2016 (end date of period 1). The total budget amount of $25,297.14 matches the amount shown on our Department Transaction log.

We highlighted budget transactions in green on the transaction log to make them easy to identify and subtotal.

Step 2 – Gathering expense data in SAP

Period 1 expenses total $1,778.56 in SAP.

Is there an easier way to obtain line item detail in SAP without drilling into

each Commitment Item line on the Budget to Actual Report?

Line Item Detail can be obtained from :

All Postings Report

Transaction Code: ZFMRP_RFFMEP1AX

Refer to the Budget Office’s training document

http://www.fss.txstate.edu/budget/training/how-to-and-reference

SAP - All Postings T Code

In SAP, run All Postings for current period activity (period 1, FY 2017)

(Transaction Code: ZFMRP_RFFMEP1AX)

All Postings Report Transaction Code: ZFMRP_RFFMEP1AX

Execute the Query

XXXXXXXXXX

XXXXXXXXXX

Query Results:All Postings Report


Results can be changed to a preferred layout if desired.

Results can be sorted, subtotaled, filtered or manipulated in any format that helps with the

reconciliation process.

In this example, we want to filter by the Value Type Text so that only posted transactions in SAP are included.

This will help us tie back to the expense total listed on the Budget to Actual Report.

In query results, filter by Value Type Text and select Invoices and Profit Transfer Postings

under Select Single Values Tab

Results filtered to show only Invoices and Profit Transfer Postings

These represent the expenses for the period queried.

Budget to Actual Report using same parameters as the All Postings ReportConfirming that the current period expense total matches the Payment Budget amount on the All Posting Report provides assurance that all posted expenses have been captured on both reports.

Additional filtering, subtotaling, etc. is optional

At this point, additional filtering by vendor, invoice number, reference document number, predecessor number, text field and multiple other fields can be executed to assist with recognition of expenses.

Or for ease of manipulation, download the results into an excel file.

In this example, results were subtotaled by Reference Document

Number

Notice the predecessor document number (PO#) has been included in the

query results. This makes it easier to track the data back

to your transaction log.

Step 3 - Compare SAP current period records to departmental records

(transaction log)

For visual ease, check items on the SAP reports that are also included on the

Department transaction log.

The unmatched items on both set of records represent your reconciling

items.

Department Transaction Log Sample

The month cleared and document number in SAP have been added to the sample Department Transaction Log. The dollar amount paid in SAP versus the log is also confirmed as part of the matching process.

Managing Encumbrances on our Department Transaction Log

In this example, two encumbrances have been setup to pay a partial amount each month. The actual expenses paid against the encumbrance(s) have been listed on a separate line(s) in our department transaction log. To reduce the encumbrance, the amounts paid to date have been added to the addition column of our encumbrance line.

For ease of identification, the encumbrance line has been highlighted in pink.

Example of Department Transaction Log through end of period 4 (12/31/16)

Budget to Actual Report through end of period 4 (12/31/16)

Step 4 – Investigate each Reconciling Item

Reconciling items may or may not require adjustments in accounting records.

Common Reconciling Items

• Timing Differences

• $ Amounts are different

• Incorrectly Coded Items

• Missing Items

Timing Differences

• Identify prior month timing differences which posted in the current period. These are no longer reconciling.

• Identify current period items expected to clear in the following month due to timing differences. These ARE reconciling items.

Timing Difference Example

eIDT has been entered into SAP, but not posted by month end.

The expense would be reflected in your department’s records, but not posted in SAP. It is expected to move through the approval process and post in the following month. This IS a reconciling item.

$ (Dollar) Amounts are different

• Identify invoices/charges with differing dollar amounts between SAP and department’s records. Is the invoice final? Do you expect additional charges to be paid for this transaction? These may be reconciling items.

Difference in $(Dollar) Amount Example

• eIDT posted to your account charging for 3.5 hours of police work @ $40 per hour, but amount posted in SAP is $160.00.

Contact the department that processed the eIDT to determine why:

Is the amount a result of a calculation error? If yes, then the difference of $20 ($160.00 - $140.00) would be a reconciling item in SAP, requiring an eIDT correction.

Is the amount a result of the officer working 4 hours instead of 3.5? If yes, then the difference of $20 would be a correction that needs to be made to your department’s records.

Incorrectly Coded Items

Possible coding errors:FundFund CenterInternal OrderGeneral Ledger Code

Incorrectly Coded Item ExampleExpense amount of $125.00 matches in SAP and your department’s records for 1000 pink answer sheets.

The General Ledger code in SAP is 721000 (Professional Fees and Services), but your records indicate the GL is 730000 (Consumable Supplies).

The SAP GL is incorrect. This would be a reconciling item between GL’s, but will not cause an overall reconciling difference between SAP and departmental records. Incorrect GL Code Doc# 123 -$125.00Correction of GL Code Doc# 123 $ 125.00

An eIDT correction must be initiated.

Erroneously Posted Items

Items posting in SAP that are not your expense (revenue).

Contact the department that initiated this transaction and obtain a copy of the source document.

Is the item charged to the wrong fund or fund center?

If yes, this would be a reconciling item and a correction in SAP will be required.

Erroneously Posted Item Example

An invoice is paid to an Outside Vendor, but your department did not initiate the transaction.

Contact Accounts Payable (AP) to obtain a copy of the invoice.

Review transaction to determine cause of error.

Contact appropriate department so that they can process an eIDT AP invoice correction to fix the fund / fund center.

Missing Items

• Missing items can occur in either SAP or your department’s records.

• Identify which system of record is missing the item.

• Contact the appropriate office.

• Evaluate the supporting documents to determine if the item is coded to the correct funding source.

• Initiate corrections to the correct system of record.

Missing support documentation Example

An eIDT was paid to Copy Services, but you do not have a copy of the transaction.

Obtain a copy of the transaction from Copy Services.

If the charge is correct, the expense needs to be added to your department’s records.

If the charge is incorrect, the expense needs to be adjusted in SAP through an eIDT. This would be a reconciling item.

Proposed Corrections

The reconciler will occasionally need to initiate corrections to SAP. The eIDT process can be used to correct Interdepartmental Transfers, Cash Receipts and Accounts Payable transactions.

The reconciler should make certain that all proposed corrections from previous months have posted. Once reflected in both systems, they are no longer considered reconciling items.

Review for Proper Approval

During the course of reconciling, the reconciler must make certain that each transaction has proper approval given by the department’s account manager or delegated authority.

Note: The new eIDT system does not require the account manager receiving revenue to approve the transaction.

Time for questions

Congratulations!!

You have successfully completed Account Reconciliation Training through

Texas State University.