Account Account Reconciliation Reconciliation

TrainingTraining

The University of Texas-System

The University of Texas – Pan American

Course Objective

This course consists of two primary objectives:

1. To inform reconcilers of all resources needed to perform a proper reconciliation, and to provide background on these resources

2. To provide a step-by-step guide to a proper and complete account reconciliation

BackgroundBackground

What is an account reconciliation?

An account reconciliation is a comparison of two sets of information: 1) the accounting statement plus the payroll statement from Personnel, and 2) support documentation for departmental transactions. You could compare this process to the balancing of your checkbook – each transaction in the bank statement (represented by the accounting statement) should be matched against your checkbook (the support documentation)

Why reconcile departmental accounts?

To ensure that the expenditures which have been charged to the department’s accounts were properly approved and charged to the correct account.

To ensure that all revenues which have been earned/collected by the department have been credited to the correct account.

This control activity helps to ensure the accuracy and completeness of transactions which have been posted to the department’s accounts.

Why reconcile departmental accounts? (continued)

In order to check for accuracy and completeness, reconcilers must make certain that each transaction posted in the statement of account has a match in the department’s support documentation. Simultaneously, each transaction found in the support documentation must have a match in the statement of account. Matching transactions must be consistent in dollar amount. Items that do not match or have different dollar amounts are reconciling items and must be explained.

Why reconcile departmental accounts? (continued)

Other important goals of the reconciliation process include:

1. To provide the account manager with an accurate amount for the remaining (available) budget balance

2. To make certain that each transaction that affects the account has been properly approved

Who should prepare account reconciliations?

To ensure proper segregation of duties, the person who approves expenditures or handles cash generally should not prepare the account reconciliations.

It is best for reconciliations to be prepared by the department’s support staff, but reviewed and approved by the account manager. In situations where the account manager is the only employee available to perform reconciliations, he/she may reconcile.

The account manager should provide the reconciler with copies of all support documentation for transactions.

When should account reconciliations be prepared?

Departmental account reconciliations should be prepared monthly and preferably within two weeks of the receipt of the Statement of Account.

Reconciliation reports should be kept on file in your department for audit purposes.

Types of Transactions

You will encounter the following types of transactions in the accounting system:

1. Revenue transactions

2. Expenditure transactions

3. Encumbrance transactions

4. Budget changes and carryforwards

The department should maintain support documentation for each of these types of transactions.

Support Documentation

Each type of transaction has several different types of support documentation. Examples include:

1. Budget changes and carryforwards – budget change forms, or documentation of budget at beginning of fiscal year

2. Expenditures – invoices, report of phone charges, packing slips, travel vouchers, receipts, etc.

3. Encumbrances – small purchase orders, departmental purchase requisitions, purchase orders, travel applications, etc.

4. Revenue – deposit receipts, etc.

Types of University Types of University AccountsAccounts

University Account Structure

A University account number consists of six digits; the first digit reveals the specific type of account. For example, accounts beginning with the number “1”, such as 111001, are considered state fund accounts. Different types of accounts receive funding from different sources, and each account type has distinct spending restrictions.

“1” Accounts – State FundsState fund accounts primarily receive funding from the following two sources:

State AppropriationsTuition

All expenditures made from these accounts must support activities that represent the primary functions of an institution such as:

Education, Research, Academic SupportInstitutional Support, Operation and Maintenance of Plant

Examples of expenditures that do not support these activities include:Advance payments for goods or services before their delivery (exceptions: newspaper/magazine subscriptions, seminars)Money, goods, or services to a charitable organizationFood, coffee, cream, sugar and similar items that employees or visitors would consumePlants, flowers, or floral arrangementsAwards in excess of $50

“2” Accounts – Designated or Local Funds

These funds have been internally designated by University management or by the Board of Regents for a specific use (which must be an educational purpose). The internal designation may be removed or altered at management’s discretion. No broad set of restrictions exists for these accounts, but expenditures made must comply with the specific purpose of the account. Primary uses of designated funds include instruction and institutional support.

Designated fund accounts primarily receive funding from the following two sources:

Tuition – designated (formerly general use fee)

Sales and services of educational activities

Fees

“3” Accounts – Auxiliary or Student Services

An auxiliary enterprise exists to furnish goods or services to students, faculty, or staff, and it assesses a charge directly related to, although not necessarily equal to, the costs of the goods or services. The distinguishing characteristic of an auxiliary enterprise is that it is managed as an essentially self-supporting activity – it finances its operations through its own revenues. Examples include:

Athletic programs

Food services

Dormitories

Expenditures made from auxiliary accounts must correspond to the service the particular department provides.

“5” Accounts – Restricted Funds

Funding for these accounts consists primarily of gifts, contracts, and grant funds from federal, state, local, or private donors; these funds are restricted by the donor as to how they are spent.

Expenditures made from these accounts must comply with the restrictions set forth by the donor.

Examples of Unallowable Transactions for “5” Accounts

Alcohol

Entertainment

Fines

Donations

Goods and services for personal use

Fundraising

Lobbying

Memberships in civic, social, or community organizations or country clubs

Proposal costs

Refreshments/food – unless specifically approved by funding agency

Other University Accounts

In addition to the University accounts covered on the previous slides, reconcilers may encounter other types of accounts.

Loan fund accounts are designated as “6” accounts. These accounts maintain the resources that are available to make financial aid loans to students.

Plant fund accounts are designated as “7” accounts. These account for the resources that are committed to fund capital projects approved by the Board of Regents, such as construction of a building or renovation of existing facilities.

Agency fund accounts are designated as “8” accounts. These funds are owned by an outside entity or individuals, but the University is acting as their custodian or fiscal agent.

Statements of AccountStatements of Account

Monthly Statement of Account

The monthly statement of account is a three-part report consisting of the following:

Account Summary

Open Commitments (encumbrances)

Report of Transactions

Format of the Account Summary

Information in the account summary portion of the statement is provided by object code. Totals are provided for each object code, for groups of object codes, and for the account in total. An example of an account summary is provided on the next slide.

This portion of the statement provides a summary of the account budget and how it is being used. It summarizes the budget balance itself, how much has been spent from the account, how much revenue has been taken in, and how much has been encumbered to come to the available (remaining) balance.

FBM090 - Account Statement10 digit Account # Statement for

The date & time the Current Month report was generated Date Run 12/7/XXXX Report Page 23

and report ID # Time Run 03:24:21 Financial Records System Program ID FBM092 Individual responsibleFBM090 - A2 Account Statement for 11/30/XX Account Page 1 for this account & the

Account Number = 114XXX0000 Campus Address

Acct.: 1-14XXX Account Title To: Account Manager4 digit # identifying the Dept.: 02060 ASB 1.126category of revenue or ------------------Budgets---------------- --------------Actuals--------------expense. See exhibit A. Sub Current Fiscal Open Balance Perc

Code Description Original Revised Month Year Commitments Available Used

1210 Classified 113,766.00 113,766.00 9,480.50 28,440.98 85,325.02 0.00 100

Salaries 113,766.00 113,766.00 9,480.50 28,440.98 85,325.02 0.00 100

1500 Wage Pool 10,000.00 3,345.49 0.00 0.00 0.00 3,345.49 01700 College Workstudy 0.00 6,654.51 814.94 1,569.62 5,084.89 0.00 100

20 Character description Wages 10,000.00 10,000.00 814.94 1,569.62 5,084.89 3,345.49 66

Salaries, Wages & Ben 123,766.00 123,766.00 10,295.44 30,010.60 90,409.91 3,345.49 98

3000 Operating Budg Pool 21,535.00 17,885.22 0.00 0.00 0.00 17,885.22 0 3276 Communication Serv 0.00 319.52 23.71 106.13 213.39 0.00 100 3291 Postal Services 0.00 8.12 3.64 8.12 0.00 0.00 100 3300 Consumables 0.00 1,123.40 514.04 1,122.03 1.37 0.00 100 3330 P&S Furnish & Equip 0.00 1,050.01 27.24 912.51 137.50 0.00 100 Reflects percentage of 3334 Noncap Noninv Frn/Eq 0.00 1,054.25 0.00 430.95 623.30 0.00 100 Revised Budget used or3504 Phone Monthly Charge 0.00 171.35 52.95 171.35 0.00 0.00 100 encumbered from Sept. 1

Sub-totals 3605 Central Store IDT's 0.00 456.61 46.58 456.61 0.00 0.00 100 3610 Print Shop IDT's 0.00 455.45 455.45 455.45 0.00 0.00 100 3625 Physical Plant IDT's 0.00 4.13 0.00 4.13 0.00 0.00 100 3660 Tx An Charges 0.00 62.56 40.25 62.56 0.00 0.00 100

Maint & Operating 21,535.00 22,590.62 1,163.86 3,729.84 975.56 17,885.22 21

7100 Travel Budget Pool 4,818.00 4,324.56 0.00 0.00 0.00 4,324.56 07101 I/S - PubTrans Fares 0.00 498.74 0.00 498.74 0.00 0.00 100 7102 I/S - Mileage 0.00 32.70 32.70 32.70 0.00 0.00 1007105 I/S - Incidental/Park 0.00 7.00 0.00 7.00 0.00 0.00 100 Computation of [Revised Bdgt - Fiscal

Travel 4,818.00 4,863.00 32.70 538.44 0.00 4,324.56 11 Year or Project Year Actuals - Open

9000 Merchan Resale Pool 4,842.00 3,096.26 0.00 0.00 0.00 3,096.26 0 Commitments = Balance Available]9300 Print Shop Merch 0.00 269.76 269.76 269.76 0.00 0.00 100

Total Balances 9400 Merch For Resale 0.00 1,824.45 54.72 699.52 1,124.93 0.00 100

Merch For Resale 4,842.00 5,190.47 324.48 969.28 1,124.93 3,096.26 43

Total Expenses 154,961.00 156,410.09 11,816.48 35,248.16 92,510.40 28,651.53 82

Account Totals 154,961.00 156,410.09 11,816.48 35,248.16 92,510.40 28,651.53 82

ACCOUNT BALANCE 156,410.09 35,248.16 92,510.40 28,651.53

This is a summary of your account supporting current month transactions. Reflects funds set aside to The detail is on FBM091. Please call Accounting with questions. be paid at a later date.

Original Budget increased/decreased by Current Month (ENCUMBRANCE)Budget Changes, salary adj., & prior year Transactions Summary of Cumulative Transactions

encumbrance carryforwards. Processed Processed (Sept. 1 through report date)

The University of Texas - Pan American

through date of report

Summary of

Beginning of the Fiscal YearBudget allocation at the

Format of the Open Commitments Status Report

This portion of the statement of account provides information on all encumbrances open at the beginning of the month, and where they currently stand. The next sheet provides an example of the open commitments status report.

Encumbrances are account funds that are set aside as a result of a purchase order, departmental requisition, travel application, etc., for a future purchase. These funds have not yet been spent (no expenditure has been recorded), but they have been set aside in anticipation of a future expenditure.

Each outstanding encumbrance is listed, and they in order by object code. This portion provides the original amount of the encumbrance, expenditures and adjustments made against the encumbrance, and the remaining amount of the encumbrance.

This order was paid or adjusted thismonth and will not appear on this

Open Commitments Status statement the following month.

Original Liquidating Adjust- Current DateAccount Ref. No. Date Description Amount Expenditures ments Amount Completed

Account # and4 digit subcode 1-14XXX-1210 P000520 08/21 Pos Ctl Account Sum 108,549.00 0.00 -23,223.98 85,325.02

1-14XXX-1700 P000520 09/21 Pos Ctl Account Sum 3,235.47 0.00 1,849.42 5,084.891-14XXX-3000 Q902938 11/13 Req Commitment; No Vn 623.30 0.00 -623.30 0.00 11/17/XX1-14XXX-3000 Q903104 11/23 Req Commitment; No Vn 287.00 0.00 -287.00 0.00 11/24/XX1-14XXX-3000 Q903106 11/23 Req Commitment; No Vn 119.00 0.00 -119.00 0.00 12/4/XX1-14XXX-3276 R901020 09/01 TCI Cablevision 260.81 71.13 23.71 213.391-14XXX-3300 R805694 05/13 Trevino's Studio & P 522.71 521.34 0.00 1.371-14XXX-3300 R902104 10/14 Texas Art Supply Inc. 393.00 414.52 21.52 0.00 11/23/XX1-14XXX-3300 R902168 10/19 Team Marketing Compa 75.00 79.22 4.22 0.00 11/11/XX1-14XXX-3330 R804335 02/26 Electrotex 22.77 0.00 0.00 22.771-14XXX-3330 R900354 09/01 Broadway Hardware 500.00 885.27 500.00 114.731-14XXX-3330 R901957 11/04 3M Safety & Security 23.88 27.24 3.36 0.00 11/18/XX1-14XXX-3334 R902103 10/14 USI, Inc. 249.89 271.04 21.15 (0.00) 11/7/XX1-14XXX-3334 R902655 11/18 MCM Electronics 623.30 0.00 0.00 623.30 Reflects total outstanding1-14XXX-7102 T908154 10/26 Travel - Brownsville 32.70 32.70 0.00 0.00 11/13/XX1-14XXX-9000 Q903059 11/20 Req Commitment; No Vn 527.42 0.00 -527.42 0.00 11/30/XX Should equal to the Open1-14XXX-9300 R902102 10/14 Spiral Blinding Compa 269.76 269.76 0.00 0.00 11/3/XX Commitments Column on1-14XXX-9400 R900352 09/01 Trevino's Studio & P 500.00 90.80 0.00 409.20

Encumbrance number: 1-14XXX-9400 R900353 09/01 Lodico Electronics 500.00 311.69 0.00 188.31P = Payroll/Position Control 1-14XXX-9400 R902829 11/30 School House Audio-V 527.42 0.00 0.00 527.42Q = Interim RequisitionR = Requisitions ** Account Total ** 117,842.43 2,974.71 -22,357.32 92,510.40 T = TravelW = Work Order If you have questions on outstanding purchase orders, please call Accounts Payable.Note: The second character Expenditures or adjustments of this label represents the posted to an existingfiscal year The original amount encumbrance.

20 character description of of the encumbranceDate of the transaction the vender or misc information

FBM090 - Account Statement [Continued]Encumbrance Report

encumberance

FBM090.

Format of the Report of Transactions

This portion of the Statement of Account provides information on each transaction that affected the account during the month. The next slide provides an example of a report of transactions.

When looking at dollar amounts on this sheet, keep in mind that negative amounts are credited to your account and positive amounts are debited. Therefore, revenue would show up as a negative amount, and an expenditure would show up as a positive amount.

FBM091 - Report of TransactionsThe date & time the report was generated Statement for Operating Reflects amounts Adjustments to Encumbrancesand report ID # 10 digit Account # processed through a

budget changeDate Run12/10/XX The University of Texas - Pan American Report Page 1543Time Run10:20:31 Financial Records System Program ID FBM092FBM091 Report of Transactions for 11/30/XX Account Page 1

Account Number = 114XXX0000 Individual responsible for this account & the

Acct.: 1-14XXX Account Title To: Account Manager Campus AddressDept.: 02060 AB 222

4 digit # identifying thecategory of revenue or Sub 2nd J .E. Offset Budgetexpense. See exhibit A. Code Description Date TC Ref. Ref. Account Entries Rev/Exp Commitments Ref. Date

1210 Pos Ctl Account Sum 11/18 053 P000520 0000086 -9,480.50 PC1801 111898 6 digit accounting batchPayroll Exp - 1R03 11/18 063 0-11100-2410 CR 9,480.50 0.00 LD1801 111898

1210 CM Total Classified 0.00 9,480.50 -9,480.50

20 Character description 1700 Pos Ctl Account Sum 11/06 053 P000520 0000084 -719.89 PC0601 110698 of Transaction Payroll Exp - 2R03 11/06 063 0-15000-1610 CR 814.94 0.00 LD0605 110698

1700 CM Total College Workstudy 0.00 814.94 -719.89

3000 Req Commitment:ND VN 11/23 050 Q903104 9018 287.00 PBF120 112398Req Commitment:ND VN 11/23 050 Q903106 9019 119.00 PBF120 112398Req Commitment:ND VN 11/17 051 Q902938 R902655 -623.30 PBF116 111798Req Commitment:ND VN 11/24 051 Q903104 R902794 -287.00 PBF121 112498Req Commitment:ND VN 12/04 051 Q903106 9019 -119.00 PBF127 111798

3000 CM Total Oper & Maint 0.00 0.00 -623.30

3276 TCI Cablevision 11/05 068 R901020 9973615 0-1110-2100 CR 23.71 P -23.71 ADF082 1105983276 CM Total Communication Serv 0.00 23.71 -23.71

3291 Postage 11/17 060 107438 107438 1-19XXX-3291 CR 3.64 0.00 AJVB78 1119983291 CM Total Postal Services 0.00 3.64 0.00

3300 B.S 11/02-11/06 11/30 060 107458 107458 3-10XXX-0680 CR 12.80 0.00 AJVB92 112398Texas Art Supply Inc. 11/23 064 R902104 9974640 0-91902-1144 CR 414.52 F -393.00 PAF628 112398Team Marketing Compa 11/11 064 R902168 9973960 0-91902-1144 CR 79.22 F -75.00 PAF628 111098Staff/Fac ID 11/27 066 9916003 3-10XXX-0915 CR 7.50 7.50 AITB23 113098

3300 Cm Total Consumables 0.00 514.04 -460.50

3330 3M Safety & Security 11/18 064 R901957 9974166 0-91902-1144 27.24 F -23.88 PAF628 1117983330 CM Total P7S- Furnish & Equip 0.00 27.24 -23.88

3334 MCM Electronics 11/18 050 R902655 Q902938 623.30 PBF117 1118983334 CM Total Noncap Noninv Frn/Eq 0.00 0.00 623.30

Month

Sub-totals

Batch

Object Codes

Object Code Range Expenditure or Income Class0001-0009 Income for sales, fees, admissions, interest, rentals, etc.1000-1499 Expense - Salaries of Employees1500-1800 Expense - Wages of Hourly Employees2000-2999 Expense - Fringe Benefits3000-3999 Expense - Operating Costs4000-4999 Expense - Books5000-5999 Expense - Computer Services6000-6999 Expense - Loans and Grants to Students7100-7999 Expense - Travel8000-8999 Expense - Capital Outlay9000-9998 Expense - Merchandise for Resale

An object code is a four-digit code that outlines the objective of an expense or revenue transaction. It is often labeled as “sub-code” on the statement of account.

Transaction Codes

Transaction Code Transaction Description020 Original Budget Entries021, 022 Budget Revision/Transfer026 Budget brought forward for Encumbrance031 Electronic Funds Transfer (Direct Deposit)050-059 Encumbrance060 Journal Voucher061 BRS Feeds (Billings & Receivables System)062 Fixed Assets Feed063 Payroll Disbursement064, 065, 068, 04x Disbursement Voucher066 Interdepartmental Transfers067 LMS Feeds (Loan Management System)098 Beginning Balance Transactions

A transaction code is a three-digit code that provides the nature of the transaction (i.e., whether the transaction is a revenue, expenditure, encumbrance, etc.)

Reconciliation ProcessReconciliation Process

Step 1 – Listing of Accounts

The person performing departmental account reconciliations should obtain from Accounts Control (AB 217) a listing of all accounts which have been assigned to the department, or to persons employed by the department. The accuracy and completeness of the listing of accounts should be confirmed at least annually.

Monthly Statements of Account are provided by Accounts Control. If the department does not receive a statement, the reconciler should contact that office to request a copy. The department should not expect a report if the account had no activity for the month.

Step 2 – Check Beginning Balances

The reconciler must verify that the starting point (your revised budget balance) is correct. If no budget changes or budget carryforwards have affected the account during the month, the revised budget balance (check the account summary) for each group of object codes should match that of the previous month.

If budget changes or carryforwards have been made, the new revised budget balances should reflect those changes. The reconciler must make certain that the revised budget reflects these changes.

Step 3 – Current Period ActivityIn this step, the reconciler agrees each revenue, expenditure, and encumbrance transaction in the statement to supporting documentation. He/she then agrees each transaction in the support documentation to the accounting statement. Through this process, the reconciler:

1. Finds items in the statement which do not have a match in the support documentation

2. Finds items in the support documentation which do not have a match in the statement

3. Finds matching items which do not agree in dollar amount

Step 3- Current Period Activity (continued)

Payroll reconciliation

Payroll entries are unique because each employee’s transactions are not listed separately on the statement, and because each transaction will not necessarily have its own supporting documentation. The reconciler will need to use the memorandum of employment (plus the timesheet for wage employees) to verify the accuracy and completeness of payroll transactions. Each employee’s payroll transactions may be found on an HRS report mailed out by Accounts Control each month.

Step 3 – Current Period Activity (continued)

Proper Approval

In addition to checking for accuracy and completeness of transactions, the reconciler must make certain that each transaction has proper approval. Approval may be given by the department’s account manager, or another employee who has been given delegated signature authority by the manager.

Step 4 – Reconciling Items

Reconciling items are situations in which the two sets of information (the statement and the supporting documentation) do not perfectly match. There are several different reasons why transactions would not match.

Missing support documentation

The reconciler may occasionally be without a copy of the support documentation for an item listed in the statement. In this situation, he/she should contact the appropriate office and request a copy of the document.

Step 4 – Reconciling Items (continued)

Timing differences

These are items that have not posted to the statement yet. An example would be a purchase order that the department has issued , but that has not been posted. During the reconciliation process, the reconciler will need to make certain that all timing differences from previous months have posted. He/she will also need to make a note of the current month’s timing differences for future reference.

Step 4 – Reconciling Items (continued)

Proposed corrections

The reconciler will occasionally need to propose corrections to the accounting system. He/she should have proposed corrections approved by the account manager before contacting the appropriate department.

The reconciler should make certain that all proposed corrections from previous months have posted. He/she should make a note of the current month’s proposed corrections for future reference.

Step 5 – Reconciliation Report

The reconciler should provide a reconciliation report to the department’s account manager after the reconciliation has been completed. The reconciliation report should be signed and dated by the reconciler, approved and signed by the account manager, and filed within the department along with other materials used in the reconciliation process.

Resources

If you have any questions related to account reconciliation, information on monthly reconciliation training sessions, or distribution of account statements, please visit our web site at http://comptroller.panam.edu/acct_cont.html

Account Account Reconciliation Reconciliation Training QuizTraining Quiz

Question #1

Which of the following are important goals of an account reconciliation?

To check for accuracy in dollar amount

To check for completeness of transactions in both the statement and the supporting documentation

To make certain that each transaction has proper approval

All of the above

Review

Question #2

When should account reconciliations be prepared?

After the end of each quarter

At the end of the fiscal year

Prior to an audit

After the monthly statement of account is received

Review

Question #3

Which type of support documentation would be used to support an encumbrance transaction?

Invoice

Deposit receipt

Purchase order

Travel voucher

Review

Question #4

The February Open Commitments Status portion of the statement would provide information on all encumbrances that have posted to the account during the fiscal year.

True

False

Review

Question #5

In a department with five employees, each employee’s payroll transactions appear separately on the statement of account.

True

False

Review

Question #6

The reconciliation report will not provide the following information to the account manager.

Reconciling items

A summary of the reconciliation process

Individual expenditures

The available balance of the account

Review

Question #7

The reconciler should go to the account manager with any proposed corrections before contacting the appropriate department.

True

False

Review

Question #8

The reconciliation report is similar in format to which section of the statement of account.

Account Summary

Open Commitments Status

Report of Transactions

Review

Congratulations!!

You have successfully completed Account Reconciliation Training through The University

of Texas – Pan American.