Minimum Activities for Financial Oversight

Transcription

1 Financial Oversight refers to the supervision of financial practice and policy implementation, as well as the review and monitoring of financial transactions and reports. This process includes budget planning, financial management, reconciliation of Human Resources, Payroll, and General Ledger, and Internal Controls. Purpose: The purpose of this guide is to provide financial oversight information and tools to LSA Key Administrators and staff responsible for managing their unit s financial resources (financial stewards). For additional information on fiscal responsibilities, please refer to the Standard Practice Guide (SPG) policy number ( which was last updated on 5/25/2011 and states: Four main elements should exist in all University units that manage their own finances. The University requires these elements for all units (and at all levels) that control their own finances. If your unit has a unique DeptID, this policy is applicable. Major operating units, sponsoring agencies, donors, and other internal or external agencies may impose additional requirements. The minimum requirements are: 1. Preparation of a Budget Plan (including anticipated revenues and expenses) 2. Processing and Approving Financial Transactions 3. Financial Review 4. Internal Controls and Management Responsibilities Budget Planning Budget planning is the process of forecasting what the anticipated revenues and expenses will be for a period of time. The budgeting and variance reporting process allows for a better understanding of how funds are being spent compared to forecasts. The SPG policy number states: 1. Budgets should reflect the unit s operational plans for a period of at least one year and ideally represent those plans over several years. Operating budgets are typically adopted and approved on an annual basis and are administered from an annual budget perspective. The budget plan should include all funds available to the unit, including operating and nonoperating funds. 2. Review, approval and endorsement of the budget require an understanding of the major budget components by the unit head. Since budgets include numerous details, responsibility for the budget details are typically delegated to faculty and staff who have operational decision making authority. Preparation of a budget requires involvement by the head of the unit and by their financial management staff (e.g. department administrator who typically report directly to the unit head). The LSA annual budget allocation process is only a part of the overall budget planning process. Each year, typically during the last quarter of the fiscal year, units are expected to develop an internal budget for both revenues and expenses in all funds available for use the following fiscal years. This budget would be for at least one fiscal year, but ideally would include several years. Budgeting by account group and project/grant provides a greater level of detail for financial analysis and identifying variances. Please contact your unit s Financial Analyst in the LSA Dean s Office, or refer to the Real Time Financials Best Practice Procedures (RTF) document to learn more about the process and procedures for entering a budget into the M Pathways system. The RTF document includes tips and tools for developing both Sponsored and Non sponsored budgets. There are also several reports available that may be used for comparing budget with actual data in both Business Objects and M Reports (i.e. CMB Reporting Bdgt Ledger NonSponsored Reconciler reports and the M Reports Fin Mgmt Reporting Budget Ledger report). 1 P age

2 Financial Management Financial management involves providing oversight on how funds are spent and ensuring funds are handled in accordance with relevant fiscal policies. The SPG indicates, Individuals with responsibility for processing any financial transaction must ensure proper approvals have been obtained from individuals with delegated budgetary authority to support the expenditure of University funds. In addition, the approvers should be able to determine that the financial activity is appropriate, which means ensuring that expenditures are (1) consistent with the intended use of the budget and a good use of unit resources, and (2) in compliance with University policies, as well as with the sponsor, donor or federal guidelines, to accomplish the desired financial goals of the Unit, College, and University. More specifically, financial management includes regular reviews of actual activity compared to the unit s budget and historical trends and of balances in all funds. Regular reviews will help identify variances and unusual activity, which then should be adequately explained and documented for understanding and future reference. Reviews should ensure all financial activity is appropriate and correct, transactions are assigned to the appropriate chartfields, proper approvals were obtained, and adequate documentation is maintained. Refer to the SPG policy previously mentioned for a more complete explanation of the responsibilities. Management reports should be reviewed regularly by Key Administrators and in some cases the Business Manager or other business office staff, Directors, and Department Chairs. Refer to the attached tables for specific financial management reports and the frequency with which reviews should occur. The College and University have many financial management reports available: Source/Use Reports The Source/Use reports are available in M Reports. The year to date report provides a summary of activity for the current fiscal year to date by fund. The projection provides a three year trend of activity with a comparison to the current fiscal year projection. This report can be used to develop projections for the current fiscal year, analyze trends in each of the revenue and expense groups, and identify variances which may require explanation. The Source/Use projection can be run for a single fund or for a group of funds, such as Operating funds ( XXXX) or Non Operating funds (6XXXX 8XXXX). Refer to LSA Annual Reports Annual Reports are operational in focus, and connect the financial resources to the mission and outcomes of the unit. The package is intended to give a unit a summarized picture of the financial activity and accomplishments for the year with comparisons to previous years when applicable. The reports provided include Sponsored research, fund balances, and account group activity trends, endowment and other invested funds and related expendable restricted utilization summaries, and summary of activity for the current year for each fund and in total. While these reports are provided by the College annually, they may be run at any time and many of them are useful for financial reviews on a quarterly basis. LSA Quarterly Reports The Quarterly Reports are a subset of the Annual Reports package. These reports are available in MRS the month following the close of a quarter. They should be used as a high level review of activity and balances in all funds. These reports provide a summary of beginning balances, revenues, expenses, transfers, and ending balances for each department, fund, and program. They can be used as a high level tool to help verify that revenues, appropriations, and expenses are reflected accurately and are in the correct fund and program. The Quarterly Reports also help identify inaccurately used programs in a given fund. For example, the PROFE program (endowed professorships) would not typically be used in the general fund (fund 10000). Summary of Activity by Program or PG (2.1.f.) The Summary of Activity by Program or PG (2.1.f.) report from Business Objects provides a summary of current fiscal year activity, with beginning and ending balances for each program and project/grant. Many Key Administrators find the Balances by 2 Page

3 Accounting Period report in MRS helpful for reviewing current balances. The Summary of Activity report also contains the balance information, but provides so much more. This report may be used to compare annual revenue and other allocations to actual expenses, review the current balances in the unit s various chartfields, and assist in identifying significant deficit or surplus balances. It may also be helpful for quickly identifying programs or project/grants that require clean up or inactivation due to balances at a fund, program, or project/grant level with little or no activity. For example, the report would show a negative expense on a chartfield combination that has a zero beginning balance and no other activity, which may be an indication of a chartfield error requiring further investigation and possible correction. Summary of Rev/Exp Activity M Report The Summary of Rev/Exp Activity report is available in M Reports. This report may be used for the same purposes as the Summary of Activity by Program or PG and Source/Use reports. The format is similar to the Summary of Activity report, but is also drillable to be able to view the Summary of Activity for a single P/G or trended data by fund, program, etc. An advantage of using this report is that the projected balances are updated daily with certain types of activity (activity since last month closed, procurement, some payroll, and unit defined commitments). In addition, the report is designed with drilldown capability to view an activity summary by account group category in a full year (or monthly) trended format for the last five full fiscal years, plus the current year to date. The account groups can be further expanded to view the activity summary by account code and description. The amounts in the reports can be selected to view activity at the journal or subsidiary ledger (voucher, accounts receivable, etc.) levels. This drill capability acts almost as an ad hoc query and greatly facilities the investigation process in determining the cause of chartfield errors and reviewing trends. The following reports can be used for financial management: System Report Name Purpose Reports to Review Monthly Business Objects (1) 2.1.f. LSA Rev Exp Summary by Program or PG Review activity and balances at the fund, program, and P/G levels to ensure proper chartfield use. Identify chartfields with large balances or overdrafts and project/grants that require clean up or inactivation. MRS (2) PS/nVision (3) Summary of Rev/Exp Activity (with drilldown features) Summary by Fund, Dept, Program, P/G Drill to P/G Budget Status/Activity Drill to Rev/Exp Trends by Account Group Summary of Projects (with drilldown features) Sponsored P/Gs UM / Funded / Gift / Other P/Gs Balances by Accounting Period MGLN128A Srce/Use Projection General Fd (letters A M, at the end of the report ID, each represent a different fund or fund group) Reports to Review Quarterly Source/Use Projection Summary of Rev/Exp Activity (with drilldown features) Summary by Fund, Dept, Program, P/G Drill to P/G Budget Status/Activity Drill to Rev/Exp Trends by Account Group In the last quarter of the fiscal year, review this report for small balances or overdrafts on chartfields that require cleanup before year end. Review the Summary of Rev/Exp Activity to indentify chartfields with projected deficits and to compare spending on an annual and monthly trend. Use to develop projections for the current fiscal year, analyze trends in each of the revenue (source) and expense (use) groups, identify unexpected variances, and investigate. Document findings. The M Reports Source/Use and Summary of Rev/Exp Activity reports can both be used to view trended data by fiscal year and by month and to drilldown into amounts by fund, which may aide in explaining these variances. This report can also provide trend information at the program and project/grant levels, or even by faculty. Source/Use Year To Date Use for a high level review of activity and balances in all funds by source and use categories. MRS (2) LSA Quarterly Reports Use for a high level review of activity and balances in all 3 P age

4 MRS (2) MRS (2) Summary of Rev/Exp Activity (with drilldown features) Summary by Fund, Dept, Program, P/G Drill to P/G Budget Status/Activity Drill to Rev/Exp Trends by Account Group Shortcode and Chartfield Information Query (previously referred to as Reverse Chartfield Lookup) FinMgmt Report Library /FilteredReportList.aspx?ReportFilter=FIN_MGMT Reports to Review Annually LSA Annual Reports 1.1. LSA Trend of Research Activity 2.1.a. LSA Rev Exp by Account Group and Fund 2.1.f. LSA Rev Exp Summary by Program with PG Detail 2.2. Endowment and Other Invested Funds 2.3. LSA ERF Project Grant Utilization by Dept 2.4.a. LSA Year End Balances by Program 2.4.b. LSA Account Group Trend by DeptID & Fund 2.4.c. LSA Program Code Trend by DeptID and Fund funds by program. Review activity and balances at the fund and program levels to ensure proper use. Identify chartfields with large balances or overdrafts and programs that require clean up. Review Chartfields Report to ensure that the correct people are identified as the Project Director and Single Admin Point of Contact on each P/G. Use to review established shortcodes and chartfields for the department or to lookup a chartfield based on a known shortcode, P/G, or other combination of chartfields. Confirm that the programs and classes assigned to shortcodes in the chartfield mapping are appropriate based on intended use. Internal control reports related to Employment, P Card, and Financial Management are located under Other Useful Reports. Use for the review of financial activity as it relates to the mission and outcomes for the department. Refer to the Annual Reporting Package Guide for each year, which provides a detailed explanation of each of the reports and a better understanding of the information in each. Reconciliation of Human Resources, Payroll, and General Ledger The reconciliation process is important and necessary to ensure the financial health of the unit. Reconciliation is the process of matching and comparing transactions in the financial ledgers to receipts and other documentation that substantiates the transaction. Basically, make sure what hit the statements for a set of chartfields was supposed to and what was expected to hit the statements did. Reconciliation involves several steps, which are summarized on the Financial Oversight timeline table. When reconciling activity, verify not only that the amount is reasonable and accurate, but that the revenue or expense is appropriate on the chartfields to which it was applied. The SPG states: Although individual units may use supplemental systems to monitor selected unit trends and activity, financial review is necessary to validate that the University s centrally maintained financial data (e.g. statements of activity, gross pay registers, project grant balances) is complete and accurate. Departments should not duplicate the data available in the M Pathways, which is the system of record. It is critical to fully reconcile any supplemental system financial data maintained by departments to the financial data in the central M Pathways system. There are a few methods by which the reconciliation process can be performed, for example, reviewing activity in FINPROD using ereconciliation, running and reviewing queries in Business Objects, or reviewing Statements of Activity. In addition, reconciliation should include reviewing payroll activity, which can be completed using Gross Pay Registers or through ereconciliation. Refer to the Real Time Financials Best Practices Procedures for more information regarding the ereconciliation process and step by step procedures. 4 P age

5 The following are options that can be used for monthly reconciliation: System Report Name Purpose HEPROD (3) Business Objects (1) FINPROD (5) Business Objects (1) Human Resources (HR) and Payroll Submittal Forms for Dept Budget Earn or Additional Pay HR01 HumRes Emp Fundings in Appt DeptID or HR01 HumRes Employee Salary Distribution ereconciliation; PY01 Pay Consolidated Gross Pay Register by Project Grant; or PY01 Pay Consolidated Gross Pay Register by Fund, Department, Program Compare appointments of all faculty and staff appointed in the unit to appointment paperwork after merit increases and when other expected pay rate changes occur. Review gross pay registers for each pay date to ensure that the individuals and amounts paid are correct based on appointment paperwork and charged to the correct chartfields. Review activity and identify any payments to individuals not appointed to the unit. Business Objects (1) PY01 Pay Salary and Benefits for a Project Grant Review payroll activity charged to a P/G. Business Objects (1) PY01 Pay Salary and Benefits for Employee Review payroll activity for an employee. General Ledger FINPROD (5) ereconciliation by Project Grant Compare actual general ledger activity (including procurement voucher and service unit billing detail) ereconciliation by Fund,Dept,Prgm to receipts, packing slips and other source ereconciliation by Fund,Dept documentation on at least a monthly basis. This can be done at the P/G, Program, or Department level. Business Objects (1) CMB NonSponsored Reconciler by PG with Carryfoward & Revenue (or by FundDeptPrgm) CMB Reporting Bdgt Ledger NonSponsored Reconciler by PG (or by FundDeptPrgm) CMB Sponsored Project Grant Reconciler with PBSR These are alternatives to the ereconciliation option for reconciling activity each month. They also contain balances based on revenue or budget. MRS (2) SOA/Voucher Detail Query This is an ad hoc query to view general ledger and procurement voucher activity by accounting period, fiscal year, and/or some set of chartfields for a range of dates. Unit Defined Commitments (UDC) FINPROD (5) Unit Defined Commitments (UDC) Add, review, or manage UDCs each month. After reconciliation is completed, the UDCs should be reviewed, so that commitments that have occurred can be removed or updated based on real general ledger activity. Internal Controls The SPG states, Internal controls are a coordinated set of policies and procedures used by managers to ensure that units operate efficiently and effectively in conformance with applicable policies, regulations, and laws. Proper internal controls provide reasonable assurance that resources are adequately protected from potential errors and irregularities. A few examples of internal control include proper separation of duties, review of internal control reports in M Reports and Business Objects, and regular reviews of the unit s financial statements and reports. Smaller units may require special arrangements to ensure separation of duties. For units with work performed partially or in whole by Shared Services, a coordinated effort between the unit and Shared Services may be needed in order to complete the analyses. The university requires units to certify annually that proper internal controls are in place. The Chair or Director for each unit must certify the following: Stewardship They have read and, to the best of their ability, are guiding their unit in adhering to the Fiscal Responsibilities Standard Practice Guide ( and the Statement on Stewardship ( 5 P age

6 Financial Results They have reviewed and discussed unit financial results with the financial administrator and will report any concerns to the Associate Dean for Budget. Internal Controls / Risk Management They have promoted the University Compliance Hotline, implemented faculty and staff policies related to conflict of interest and commitment to ensure that conflicts of interest/commitments do not occur and that perceived conflicts are managed appropriately ( Internal Controls / Ongoing Financial Related Processes They have implemented proper internal controls within their unit and performed the necessary annual gap analyses. The related tools and guidance can be found on the Internal Controls Website at: Internal Controls / Management Reporting They have reviewed and discussed the data, trends and exceptions in the management reports provided for the processes identified by the Office of Internal Controls, with the financial administrator and found them consistent with expectations. Internal Controls / Audit Reports and IT Security The University Audit Reports is only applicable if the unit underwent an audit in that year. The IT Security is completed by LSA Information Technology (LSAIT) in cooperation with units. Reviewing internal control reports is a necessary step in this process. The annual gap analyses and additional resources related to Internal Controls, including the internal control matrix, written procedures template, and management oversight reports for each process, can be found on the Office of Internal Control s website: According to the Fiscal Responsibilities SPG, Review of management reports to identify outliers and trends is an important part of the internal control process. The following reports are available for assessing whether proper internal controls are in place: System Report Name Purpose Compliance / Internal Controls Employment Reports: Employee Compensation by Admin Dept Total Earnings for Faculty by Admin Dept Total Earnings for Staff by Admin Dept Overtime Payroll Trend By Funding Dept Temporary Payroll Trend By Funding Dept Payroll Retroactivity by Funding Dept Review internal control reports to identify any individuals paid incorrectly, which may have been missed in the monthly GPR reconciliation. The Payroll Retroactivity report indicates whether corrections are being completed in a timely manner. This will help to ensure proper internal controls exist within the unit for the Employment/Payroll Process. Business Objects (1) Compliance / Internal Controls Other Reports/Tools: Cash Deposit Controls* Credit Card Controls* P Card/T&E Controls Gap Analysis Sub Certification * There is a Deposit Management Report and Merchant Management Report available in Business Objects that provided additional information. Travel and Expense Approver Report Travel and Expense Spend Report Travel and Expense P Card Holder & Limits Travel and Expense Workflow Audit Report Review deposit activity to ensure deposits have been properly accounted and identify any discrepancies to ensure that funds are handled properly. Ensure that individuals making deposits are authorized for the deposit location(s) and have completed the required cash handling training. Review credit card sales and refund amount/count trends for appropriateness, ensure PCI status is compliant, and ensure merchant users are authorized and have an active certification status. See below for purpose of P Card/T&E Controls. Review the Approver Report to ensure the proper individuals are approving expense reports and approvers have completed the Concur Approver Training course. Use the Workflow Audit Report, in conjunction with the Approver Report, to review the 6 P age

7 entire workflow for any report to ensure that all the proper individuals approved each report (i.e. the Dean s Office Financial Analyst was the final approver the Key Ad/Chair/Director expense reports or another unit s Key Ad was included in the approval flow for a report that is charged to that other unit s chartfields). Review the Spend Report to ensure employee spending levels are reasonable and appropriate and to compare spend levels for individuals with similar job positions to determine if spending patterns, for travel and other spend, are appropriate. Review the P Card Holder & Limits Report to ensure the proper individuals have P Cards and limits are appropriate compared to spend levels. Underutilized cards can create unnecessary liability for the University. The Fiscal Responsibilities SPG also provides a list of reports that should be reviewed, at a minimum, for each business process for various levels of financial oversight is available at the following website. Please note: many of these reports have been referenced throughout this Financial Oversight document. As stated in the Financial Management section, management reports should be reviewed regularly by Key Administrators and in some cases the Business Manager or other business office staff, Directors, and Department Chairs. While Key Administrators and Department Chairs would conduct regular reviews of all activity for the department, faculty have a delegated budgetary responsibility for any funding sources under their direct control. A few examples of these funds include Sponsored grants, research start up funds, retention funds, indirect cost return (RESIN) allocations, and faculty awards. In order for faculty to appropriately manage the funds over which they have direct control, it is necessary that those funds be allocated to a separate project/grant(s) for each faculty. In cases where a single faculty member has multiple allocations designated as mostly discretionary, or the purpose of the allocations is similar, then one project/grant for a single faculty may be appropriate. However, if the purpose is more defined or limitations exist on the usage of funds, then multiple project/grants may be more appropriate. For example, start up funds typically must be used within a stated period of time and Collegiate Professorship research funds usually have a maximum amount to which they can accumulate, so these two types of funds should be allocated to separate project/grants. Individuals who are assigned responsibility for any financial activity must clearly understand the financial authority that accompanies this responsibility. In most cases, the faculty member is granted this financial authority and should therefore be assigned the role of a Project Director on the project/grant. The Project Director is the individual with ultimate responsibility of ensuring funds are spent in accordance with all internal and external policies and guidelines. 7 P age

8 Useful References Navigation paths to access the systems previously described in the tables of this document: (1) Business Objects reports are located in the U M Data Warehouse, which can be accessed through the Wolverine Access homepage. The navigation path is Wolverine Access homepage > Faculty & Staff > University Business > Reporting > UM Data Warehouse (Business Objects). Once in Business Objects, the report can be found by using the Search title field. Enter the report name and click on the arrow. If multiple items are returned by the search, then look for those in the UM Maintained or Unit Maintained/College of LSA/LSA Public folders. (2) MRS refers to the LSA Management Reporting System. MRS is accessed from the LSA website by selecting Faculty and Staff > Budget and Finance > Reporting > LSA Management Reporting System. (3) The navigation path for PS/nVision is Wolverine Access homepage > Faculty & Staff > University Business > M Pathways Financial & Physical Resources System > Reporting Tools > PS/nVision > Define Report Request. Enter the report ID in the appropriate field and click the Search button. (4) M Reports is accessed from Wolverine Access. The navigation path is Wolverine Access homepage > Faculty & Staff > University Business > Reporting > M Reports. Once in M Reports, select either Fin. Mgmt or Research. The Fin. Mgmt tab will only be visible to Department Managers, Chairs & Directors, or others designated to have this level of access. The Internal Control reports can be found under the Compliance area in M Reports. (5) FINPROD refers to the M Pathways Financial & Physical Resources System or the Financial Production environment. The navigation path is Wolverine Access homepage > Faculty & Staff > University Business > M Pathways Financial & Physical Resources System. Once in FINPROD, choose General Ledger and select either ereconciliation or Unit Defined Commitments. 8 P age

9 Financial Oversight Timeline Area of Oversight Recommendation Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Budget Planning Develop an internal budget plan of at least one year, but ideally for several years. This should be X done during the last quarter of the fiscal year. Review activity compared to budget plan. Identify unexpected variances and investigate. X X X X Document findings. Financial Review Balances by Program and Project/Grant: X X X X X X X X X X X X Management Monitor overdrafts and take corrective action as needed Monitor chartfield usage and take corrective action as needed Use when approving transactions to ensure funding is available Review programs that roll up to LDBAL at year end (May/June) Review Summary of Rev/Exp Activity and Source/Use Projection for each fund and in total for all X X X X Operating Funds. Use to develop a projection for the current year, analyze trends in the source/use groups, and identify variances which may require explanation. Review Chartfields Report to ensure that the correct people are identified as the Project Directors X X X X and Single Administrative Contacts and chartfield mappings are appropriate. Review Annual Reports on MRS X Review Quarterly Reports on MRS X X X X Reconciliation of Reconcile Payroll Activity: X X X X X X X X X X X X HR, Payroll, and General Ledger Compare actual payroll activity to what is expected based on current appointments and changes to appointments Review activity for payments to individuals not appointed in the unit Compare summer appointments to payroll X X X X Ensure salary rates and distributions are correct in the HR system X X X X Review appointments for accuracy after merit increases (Note: Post docs merit increases don t X occur in September) Reconcile general ledger activity: X X X X X X X X X X X X Compare actual general ledger activity with receipts and other documentation Verify that general fund appropriations and budget adjustments received are correct Verify that appropriate chartfields are used Initiate journal entries to correct errors Add, review, or manage Unit Defined Commitments (UDC). After reconciliation is completed, the X X X X X X X X X X X X UDCs should be reviewed, so that commitments that have occurred can be removed or updated based on real general ledger activity. Internal Control Ensure proper separation of duties within Unit (see SPG Fiscal Responsibilities) X X X X X X X X X X X X Complete the necessary Gap Analyses (P Card, HR, etc.) X Review the Internal Control Management Oversight Reports X X Distribute policies related to conflict of interest and commitment X X Complete Unit Certification of Financial Results X 9 P age