How To Reconcile Accounts
University of Miami
Controller’s Office
January 2015
Objectives
Provide an explanation of what the formal account reconciliation process
entails and how it differs from a review
Identify terms and concepts that are essential to account reconciliation
Present tools such as DMAS online screens and the monthly RDS Report 90
that are available for users who reconcile accounts
Instruct account reconcilers how to perform this essential internal control
activity which may help identify potential misappropriations and/or fraud
Provide guidance on how to document that the reconciliation was performed
and what records should be kept to support the reconciliation
2
What is it, How it Differs from a Review and Why is it So Important
Reconciliation Process
3
Reconciliation vs. Review
Reconciliation
Review
The process of comparing information in two systems
or locations, analyzing differences and making the
necessary corrections to ensure the information is
accurate, complete and consistent in both systems or
locations
The process of examining financial information
for accuracy and reasonableness
Formal account reconciliations are to be performed on
a monthly basis and in a timely manner
Reviewers make sure that accounts have been
reconciled appropriately and in a timely
manner
The review process is in addition to the
reconciliation process
Account reconciliations are typically identified as a key
internal control activity to help identify potential
misappropriations and/or fraud
A review is broader and less detailed than a
reconciliation
4
Reconciliation is Important to an Effective
Internal Control Environment
•
It ensures the following:
The accuracy
and validity of
the entries
and balances
That
transactions
are accurately
recorded
That
unauthorized
charges or
changes did
not occur
That
discrepancies
are resolved in
a timely
fashion
•
•
•
Faculty and staff should refer to
Senior Vice President Joe Natoli’s
memo addressing the integrity and
reputation of our University
The April 5, 2012 memo is found on
the Internal Controls Corner web
page at:
http://www.miami.edu/finance/inde
x.php/internal_controls/
It mentions that fraud is an avoidable
waste of University resources
When dealing with financial controls
it is better to be safe than sorry thus
it’s OK to point out inappropriate
transactions.
5
Segregation of Duties and Compensating Controls
Individual in charge of reviewing financial transactions in Report 90’s for a department/area
should not be approving or recording expenses reflected in the account.
Individual performing the cash collecting function should not be responsible for recording
deposits or for reviewing Report 90’s.
Compensating controls, such as performing a reasonability check or a review of inventory
variances by an independent party (one with no access to cash, inventory, etc. and no
approval authority), could help mitigate a lack of segregation of duties as depicted above.
Reconcilers, especially for small departments, should not be initiating and approving
transactions or reconciling and reviewing.
6
Account Numbers and Their Attributes
Sub Object Codes
Transaction Types and Codes
Batch Reference ID
Transaction Fields
Important Formulas
Terms and Concepts Needed To Understand
the Account Reconciliation Process
7
Subsidiary Ledger (SL) Accounts
and Their Attributes
Account attributes or characteristics include the following:
• The purpose of the account
• The associated GL (General Ledger) Account number starts with zero
• The Responsible Person generally has primary responsibility for control of the
activity within the account
• Only Sponsored Accounts have an end date
• The account status may be open, frozen or deleted
• The 5 digit Department # and 2 digit Sub Dept. # that the account belongs under
• Account fund group
• Accounts have year end codes as follows
• P (project year) – balances that accumulate from the start date to the end
• F (fiscal year) - accounts that do not have an end date and the balance may or
may not carry forward to the new fiscal year
8
Sub-Object Codes
Four digit codes attached
to the account number
Categories used to record
transactions in the
Subsidiary Ledger
(revenue/expenses)
Listing and explanations
for expenses and revenue
found in General
Accounting section of
Controller’s web site
9
How Sub-Object Codes are Numbered
0001 to 0999 - Revenue Sub Object Codes, 0011 is a Balance Forward code found in designated and restricted accounts
Starting with digit 1 - Used by Payroll Office for payroll related expenditures
Starting with digit 2 - Used by Payroll and Benefit Offices for fringe benefit related expenditures
Starting with 3, 4 , 5 - Supplies, services
Starting with 6 - Capital , Non UM Title Purchases , Land, Buildings, Leasehold Acquisitions & Improvements
Starting with 7 – Transfers, Annuities and Actuarial Liabilities, Debt Service for Plant Fund
Starting with 8 - Indirect Costs and Cost Sharing
Starting with 9 – Allocations Codes
10
Budget, Actual and Encumbrance Transactions
and Their Corresponding Transaction Codes
Budget – 020 to
029
Actual – Cash
Receipts - 030 to
039
Three digits that
identify type of
transaction
Actual – Cash
Disbursements 040 to 049
•
Accounting System Transaction Codes
–
•
The University’s Accounting systems (FRS and
DMAS) use transaction codes. Transaction codes
identify to the system what type of entry or
entries the system will be recording. Transaction
codes are three digits in length.
For a complete listing and explanation visit
the General Accounting section of the
Controller’s Office website
Encumbrance or
Commitment–
050 to 059
Actual – Journal
Entry – 060 to
069
11
Batch Reference ID Field
Batch reference initials
identify the individual or subsystem that originated a
transaction
Controller’s Office web-site
General Accounting section
contains a current listing of all
authorized ID’s and their
contact information
Batch reference numbers are
used on budget, actual and
encumbrance transactions
12
Transactions in Your Accounts Contain the
Following Fields
Indicator
Transaction
code
Debit/Credit
account and
sub-object
Reference 1
and 2
(7
characters)
Date
Description
(20
characters)
Amount
•D (debit) or C
(credit) or left
blank to default
•P/F/N – partial,
final or no
liquidation of
commitment
13
Batch
Reference
Number –
includes 3
digit ID
Important Formula to Know
Budget Balance Available (BBA)
• This formula represents the available balance on your accounts
• Budget minus Actual minus Commitment Totals = BBA
14
Other Important Formulas
Open Commitment Current
Amount or OCCA
• This formula represents the
open commitment
remaining balance
• Original amount less
liquidating expenditure + or
– adjustments = OCCA
• This formula is found in
DMAS and FRS screens and
in Report FR90 in RDS
Purchase Order Remaining
Balance or PORB
• Original amount of PO less
liquidated amounts plus or
minus adjustments
• PO Remaining Balance as of
today is shown on DMAS
Purchasing Menu - Document
Inquiry after the PO #
15
DMAS and FRS Screens
Other Subsystems
Using Tools to Reconcile Accounts
16
Access to DMAS and FRS Systems
The university operates the Departmental Management
Accounting System (DMAS) that you need to access to in order to
properly reconcile your accounts
DMAS is the web version of the Financial Records System (FRS)
The integrity of the data used in the reconciliation is vital and
therefore, the only data that should be used in the reconciliation
process is the data in DMAS (the official University general ledger)
rather than using data from shadow systems such as Dolfin
17
DMAS Online System - Access to Financial Information
DMAS Log In:
•
Menu Screen available after you log in
https://dmas.ir.miami.edu/DMAS/signon.asp
The DMAS Main Menu contains useful
screens for account reconciliation
Key screens used to display financial
information include:
•
•
•
•
Accounts
Departments
Purchasing
Sponsored Awards
18
DMAS Account Menu Screens
to be Used for Account Reconciliations
Account Summary
• Listing of all sub-objects for the fiscal year
• Budget, Actual, Encumbrance and Balance columns
Open Commitments
• Original, Liquidated, Adjustments and Current
columns
Account Transactions
by Month
• Detail for a particular month
Account Detail
• Transaction history detail for the fiscal year
19
Examples of Other Systems or Applications
DMAS users
also have
access to the
FRS
application
with the same
security
Sponsored
Programs
Menu (SPM)
allows users
to manage
sponsored
accounts,
awards and
proposals
UMeNet
(Ariba)
contains
various tabs
such as
Purchasing
and eBERF
KRONOS is a
timekeeping
system for
hourly and
student
employees
20
FR90 and Other Reports
Using Report Distribution System Tools to
Reconcile Accounts
21
Using Report Distribution System to Reconcile Accounts
DMAS provides real
time inquiry while
most RDS reports
are generated after
month end close
RDS or EOS Thin
Client Applications
• Visit the Report Distribution System web-site for
additional information on this application
• Contain monthly reports such as:
• FR90 SL Accounts
• Labor Distribution
• Salary Encumbrance Report by Account
• Telecommunications – detail and summary reports
22
Month End Report FR90
Three sections include:
• Account Statement In Whole Dollars (Summary) - BBA
• Open Commitments Status
• Report of Transactions
Includes only SL Accounts
• Report FR91 includes GL accounts
Salary Detail
• Available on Report of Transactions only if user has been given
system access to salary information
23
Review of FR90 - Columns/Sections
Start with
Revised Budget
(Listed by Sub
Code)
Actual Current
Month
Open
Commitments
Balance
Available
• Ties back to Report
of Transactions
• Payroll sub codes –
refer to Labor
Distribution
• Includes other
expenditures such
as telecomm and
physical plant
• Salary and other
encumbrances tie
back to Open
Commitment Status
Section
• Apply BBA formula
to get surplus or
deficit amount
24
From Analyzing Online Screens and Monthly Reports To Preparing
Findings and Following Up
Account Reconciliation Process
25
Account Reconciliation Involves the Following
Prepare findings &
follow up on and
resolve/correct
pending
transactions in a
timely manner
Analyze monthly
reports including
Report 90, Labor
Distribution &
Salary Encumbrance
found in RDS
Track account
information in
DMAS & download
to Excel as starting
point for
reconciliation
Examine detailed
transactions
posted to the
account on a
monthly basis
Review of overall
financial standing
of accounts
BBA formula
26
A Step by Step Look at the Account
Reconciliation Process
Utilize the Open
Commitments
report as it is
essential in
reconciling
encumbrances
especially for the
review of open
Purchase Orders
Go to RDS and
select the
appropriate
reports (printing
is recommended)
for the account
and month being
reconciled
Go to DMAS and
download the
Account
Transactions by
Month screen for
the account and
month being
reconciled to an
Excel spreadsheet
Perform the
Budget
monitoring
Ensure that all
actual
transactions are
accurate,
complete,
reasonable and
allowable
Prepare findings
and follow up on
and resolve and
correct pending
transactions in a
timely manner
27
Analysis of Current Month Actual
Access DMAS
and
download
the Account
Transactions
by Month to
Excel
Eliminate
Encumbrance
transactions (05x
transaction
codes)
Separate
Budget
transactions
(02x
transaction
codes)
Group and
total Actual
transactions
Verify that
Excel Actual
total ties to
Actual
Current
Month total
on Report 90
28
Calculate
adjustments,
if any, for
Budget &
Actual
Analysis of Current Month Actual (continued)
This spreadsheet
can be the
starting point of
the reconciliation
Adjustments
calculation gives
you adjusted
BBA at the end of
the reconciliation
process
Helps to report
findings, follow
up for questions,
resolutions and
adjustments
Option to sort
transactions by
Ref. 1, Batch Ref
ID, Description….
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Are All Transactions Accurate, Appropriate and
Incurred in the Conduct of Valid UM Business
Verify that all
revenue
entries are
correct and
all
expenditures
are properly
allocated and
pertain to the
purpose of
the account.
Verify back
up, amount
and
approvals.
Use all
available tools
discussed
earlier to
determine
that all
transactions
are accurate,
complete and
allowable.
Correct any
improper
charges by
preparing
correcting
journal
entries.
On sponsored
accounts,
ensure that all
charges are
allowable
under the
sponsor's
regulations.
Sponsored
accounts are
subject to rules
and regulations
that vary
depending on
the awarding
agency.
Ascertain that
billing and
reporting is
done on a
timely basis
and payments
are received
accordingly.
Corrections
after 90 days
need
justification.
An Excel
spreadsheet
may be kept
as reference
for tracking
corrections.
30
These steps
are not meant
to replace
other
departmental
reconciliation
requirements.
Prepare Findings and Follow Up
Use the Excel
spreadsheet and
notations in the Report
90 summary page.
Report your findings to
the account
responsible person and
immediate designees
as applicable.
Include information
about journal entry
corrections already
prepared or to be
prepared in the future.
31
How to Document That the Reconciliation
Was Performed
Once the account has
been reconciled allow
for a place on the
Report 90 printout
for reconciler and
reviewer signatures
and dates
The approver then
reviews and signs and
dates to attest their
review and
agreement of the
reconciled account
documentation
Sign and date that
you have reconciled
the account and then
provide the
reconciliation and
applicable
documentation to the
reviewer
32
Keeping Records of the Reconciliation
Supporting documentation for transactions recorded and used for
reconciliation purposes should be retained
Supporting documentation should be kept in accordance with record
retention guidelines for the University
Visit the UM Records Retention Schedule for guidelines at:
http://www.miami.edu/finance/index.php/spend_management_and_records
_retention/um_records_retention_schedule/
33
Summary
The difference between
reconciliation and review
was discussed
Documenting that the
reconciliation was
done and work
papers are maintained
per UM policy
What are the
processes involved in
performing a proper
account reconciliation
The account reconciler
should be
knowledgeable in key
terminology and
concepts found in
online systems and
reports before the
account reconciliation
takes place
Account reconcilers
should have access to
UM systems as
needed to facilitate
the reconciliation
34