UCR

UCR Policies and Procedures

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For a hardcopy pdf of this document, contact the Office of Compliance (2-8246).
 
Policy Title:                    UCRFS Ledger Reconciliation & Review Guidelines
 
Policy Number:              200-97
 
Responsible Officer:
Associate Vice Chancellor of Business and Financial Services and Controller
Responsible Office:
Business and Financial Services - Accounting Office
Origination Date:
08/01/2002
Date of Revision:
05/31/2020
Date of Last Review:
05/31/2020
 
I. OVERVIEW 
Guidance regarding financial ledger review responsibility is provided throughout this policy.
      SCOPE:
  •   Systematic Departmental Ledger Reconciliation & Review Compliance

      OBJECTIVE:

  • Define the philosophy of UCRFS financial validation, ledger review
  • Clarify requirements for meaningful budgeting and control points
  • Describe accountability through flexibility in validation options
  • Provide audit expectations
  • Provide the minimum procedures for validating, reconciling, and certifying the Financial Transaction Detail Report
II. BACKGROUND

These guidelines were developed by a workgroup of UCRFS campus users who developed departmental guidance for reviewing and analyzing the official ledgers of UCR, the Financial Transaction Detail Reports (FTD Reports). The focus of ledger review/reconciliation should be on fulfilling the requirements of UC BFB BUS-10 Principles of Accountability with Respect to Financial Transactions to ensure financial accountability, financial management, data integrity and compliance. The UCR Financial System (UCRFS) was designed to facilitate a monthly ledger “review/analysis” that compares actual financial summaries against meaningful budget categories by utilizing the UCR Policy & Procedure 300-64 Principles of Resource Planning and Financial Management. 

 

For many transactions, validation occurs during the month via the mandatory PAN review or during workflow approval. Productivity gains can be significant without the undue burden of validating all transactions in the month-end ledgers that are consistent with operating budgets and/or have already gone through the mandatory PAN review or workflow approval.

The department head and/or financial manager should provide direction to the PAN reviewer(s) and workflow approvers regarding the scope of their review in relationship to the ledger reconciliation procedures. The PAN review and workflow approval should involve any or all of the following elements: 
  • Appropriateness of the FAU distribution (account, fund, activity, function, cost center, project code)
  • Completeness of the transaction
  • Accuracy of the transaction
  • Compliance with policies, regulations, and other requirements
  • Overall appropriateness (e.g., the transaction was anticipated and budgeted and appropriate for the departmental operations and University funds).
A list of UCRFS transactions/source codes that trigger a PAN review are available under the General Accounting Resources page at http://accounting.ucr.edu
 
III.   POLICY & PROCEDURES- Ledger Review Guidelines
The UCRFS contains the financial representation of a unit’s operating plan.  This financial representation is established through the Budget Establishment and Adjustment application (BEA) and is summarized in representative budget categories.  This is commonly referred to as a "budget". 
Various UCRFS reports provide a monthly analysis that compares actual financial activity against these related budget categories. The Principles of ResourcePlanning and Financial Management recommend that financial reports and analysis be prepared monthly and management respond to any financial activity deviations from budget.  An appropriate response, among many, could be the validation of actual financial activity to help explain deviations from budget.  A complete validation may not be necessary if the monthly financial activity is consistent with the related budget category. 
Applying the guiding principle above requires establishing a meaningful budget in UCRFS that represents a unit’s operating plan.  This budget becomes the control mechanism where actual financial activity is analyzed.  Without a meaningful budget it is difficult to determine if a unit has effectively managed its resources in achieving operational objectives.  This principle also requires that the staff conducting the FTD Report review have the requisite knowledge and understanding of his/her unit’s operating and funding structure to recognize deviations from budget.
In addition to the minimum procedures outlined below, validation can occur on an exception basis when the monthly financial activity is not consistent with the related budget categories.  Validation can also occur based upon management’s tolerance to risk.  Managers must exercise professional judgment in determining the type of documentation, or other procedures, necessary to achieve an adequate FTD Report review/analysis. 
Department Heads, Financial Manager and PIs are responsible for all financial transactions reported in their FTD Reports. There is no “one size fits all” approach for FTD Report review and reconciliation procedures. Department Heads in concert with their Financial Managers and Organizational Units need to evaluate their specific situations and set up an appropriate process that manages risks. 
When hard copy documentation or other validation becomes necessary, for example when an audit is scheduled, UCRFS has the necessary tools that provide transactional source information/documentation.  (Note: Most audits require only a sample of source documentation material, and this can be generated on request.)  These tools are available through the administrative portal (i.e. RSpace).
Reconciler Role: Individuals responsible for their unit's ledger reconciliation must confirm that the ledgers are complete; and financial activity is reasonable for the accounting period and fiscal year. The Reconciler accomplishes this task by analyzing and reviewing the completeness and accuracy of recorded financial activity against the UCR’s general ledger. The official ledger for departmental revenue and expenditures is the FTD and for balance sheets is the Balance Sheet Transaction Detail Report.  The Reconciler is also ensuring that all financial transactions can be supported with source information. The Reconciler at a minimum is examining recorded financial activity for:
 
  • Accurate and appropriate FAU distributions (Account, Activity, Fund, and Function)
  • Completeness of financial activity for the accounting period and fiscal year
  • Compliance with policies, regulations, and other applicable regulations
  • Appropriateness of financial activity for the department operations
  • Unusual activity. If identified, the activity must be research and adjustments/corrections promptly initiated as appropriate
  • Errors and omissions. If errors/omissions are identified, they must be annotated and the appropriate adjustments/corrections promptly initiated
  • Overdrafts. Processes must be in place to avoid overdraft conditions; when overdrafts do occur, they must be promptly resolved.
 
The following transactions must be explicitly validated to source documents supporting the accuracy of FAU distributions, compliance with requisite funding source, and the appropriateness for the department operations:
·                  All transactions over $5,000 validated to source documents (e.g., purchase order, packing slip, work order, check request, travel voucher, ePay request, etc.).
·                  All cash collection transaction (e.g. cash, checks, credit cards, etc.) validated for completeness
·                  All salary transactions verified by thoroughly reviewing of the Distribution of Payroll Expense against source documents such as job acceptance letters, timesheets, funding change requests, stipend approvals, etc., ensuring appropriate separation of duties exist.
·                  All expenditures charged to contract and grant funds reviewed for adherence to the award terms, conditions, and 2 CFR 200 Uniform Administrative Requirements (e.g. allowability, reasonableness, allocability and consistency). Unallowable charges will be immediately transferred.
 
For transactions that have not been explicitly validated, a reasonableness analysis (e.g. budget to actual comparison, fluctuation analysis by period and fiscal year, sampling) must been conducted to ensure the FTD Reports are in reportable condition.
 
The reconciliation must be performed monthly according to the timeframes established by the campus. 
Certifier Role: A FTD Report Certifier is ensuring that the reconciliation has been appropriately accomplished within the above guidelines. At a minimum, the Certifier is acknowledging that FTD Report transactions are complete, accurate, reasonable for the accounting period and compliant with applicable policies.
Procedures
·         FTD Reports must be reconciled and certified by the 15th of the subsequent month or by the applicable year-end closing schedule. 
·         The Reconciler and Certifier cannot be the same person.   Generally, the Certifier role should be assigned to the department/unit Financial Manager.
·         The Review and Certification must be evidenced using the Ledger Reconciliation and Storage System (LRSS).
IV. BEST PRACTICES
There is no one best way to accomplish the ledger reconciliation process. Each unit’s approach may be slightly different depending upon their processes, staffing and funding. However, each department head is responsible for ensuring that appropriate controls are in place to monitor and safeguard the University’s assets in the most effective and efficient manner.
Departmental: It is recommended that each department head and financial manager:
·         Develop meaningful budgets for all FAUs to assist with financial management.
·         Periodically review the effectiveness and efficiency of their operations
·          Annually evaluate risk in the unit (e.g. staff reductions, staff turnover, new endeavor, etc.).
·         Periodically evaluate processes to ensure appropriate internal controls exist (e.g. separation of duties, monitoring controls, etc.). No one person should have complete control over a transaction.  
·         Evaluate processes to streamline validation of transactions (e.g. require PI pre-approval and validation of FAU prior to initiating a transaction against a contract or grant; validate transactions over $5K during the PAN process, etc.)
Organizational: It is recommended that each organization CFAO:
·         Develop a ledger reconciliation framework that complements the campus ledger reconciliation guidelines and clearly communicate the expectations of the organization (e.g. requiring departments to electronically annotate their ledgers and upload them into the campus Ledger Reconciliation and Storage System; or requiring a lower threshold for validation on unit specific risks). 
·         Identify risks specific to the organization and require additional validation in this area (e.g. cash handling)
·         Immediately follow up with department on delinquent reconciliation and assist with creating an action plan for resolution.
·         Monitor deficit positions and require immediate resolution.
·         Institute an annual budget and review process for the organization.
V.   REFERENCES/CONTACTS
VI. Frequently Asked Questions:
Q1. Will Audit and Advisory Services require that we validate all financial transactions on our month-end ledgers? 
A1: Audit and Advisory Services may recommend some level of validation based upon their assessment of how your unit is applying the Principles of Resource Planning and Financial Management policy.
Q2. I have new staff in my unit who is preparing financial transactions.  Should I validate these transactions? 
A2: Transactions that trigger PAN (e.g., ATP, NCT, etc.) must be validated by a Reviewer.  You could validate non-PAN transactions until you feel comfortable that the new staff is performing adequately.
Q3. Certain financial transactions below $5,000 consistently contain errors such as wrong FAUs, amounts, descriptions, and reference information.  Should I validate these transactions on the month-end ledgers? 
A3: Yes, the source of the errors should be identified and rectified. Until the sources of the error is resolved, these transactions should be validated based on professional judgment and a risk assessment.
Q4. I am new to UCR and am not comfortable with the Full Accounting Unit (FAU).  Should I validate all transactions on the month-end ledgers? 
A4: Professional judgment will probably determine yes until you are certain that your unit is applying the Principles of Resource Planning and Financial Management.
Q5. It is sometimes difficult to prepare meaningful budgets for certain funding sources.  Budgets are sometimes established using minimal budget categories or unallocated.  Should I validate all transactions on the month-end ledgers for such funds? 
A5: Professional judgment will probably determine yes until you can apply the Principles of Resource Planning and Financial Management to these funds.
Q6. My department has a Federal grant that seems to attract much attention from the Federal Agency.  Should I validate all transactions on the month-end ledger?  
A6: All transactions charged to contracts and grants must be validated. Depending upon your unit’s ledger reconciliation process, the validation may occur upon initiation of a transaction (e.g. when the purchase is requested), during the PAN process, and/or as part of the month end reconciliation. It is important to understand the internal control procedures in your department and ensure the review is conducted in an efficient and effective manner to ensure compliance with each award's terms and conditions. Unallowable expenses must be promptly transferred.
Q7. Review and analysis of month-end financial performance has brought to light significant expenditures in excess of the approved budget.  Should I validate the transactions that make-up these over-expenditures? 
A7: Yes, particularly if these expenditures are unexpected.  However, overdrafts do require further management attention and prompt resolution.
Q8. I have a new staff member in my unit who is a PAN Reviewer.  Should I validate transactions that were PAN reviewed by this person? 
A8: You could validate these PAN transactions until you feel comfortable that the new staff is adequately performing the PAN review. 
Q9. How does validation occur using the mandatory PAN review? 
A9: The overall control objective of PAN is to safeguard University assets, ensure sound financial management, and minimize financial risk.  Therefore, PAN Reviewers should examine all transactions for:
  • Appropriate FAU distribution
  • Completeness
  • Accuracy
  • Compliance with policies, regulations, and other requirements
  • Overall appropriateness (e.g., associated with a budget and departmental operations)
In addition, timely PAN reviews can help identify and report potentially fraudulent transactions.   
Q10. I understand that the Reviewer validates all PAN transactions.  Should I validate all transactions on the month-end ledger that were not PAN reviewed? 
A10: It is important to ensure the PAN Reviewer and the Ledger Reconciler activities are complementary. Validation can occur for these transactions on an exception basis when the monthly financial activity is not consistent with the related budget categories.  Validation can also occur based upon management’s tolerance to risk.  Managers must exercise professional judgment in determining the type of documentation, or other procedures, necessary to achieve an adequate monthly ledger review/analysis.