UCSB Campus Information & Procedure Manual Reviewing & Reconciling the General Ledger

5/03

Reviewing and Reconciling the General Ledger

What is the General Ledger? The General Ledger is the official record of all financial and current year budgetary transactions for the campus. Accounting Services & Controls maintains the General Ledger. When is the General Ledger distributed? A monthly report, the GL060, is distributed via campus mail, approximately the 5th workday each month to all departments by the General Accounting unit. The General Ledger can also be accessed on-line, via the Data Warehouse, using Brio.Insight. General Ledger data is loaded into the Data Warehouse approximately the 4th – 6th workday of the month. To request a license for Brio.Insight, contact the Administrative Analyst in Accounting Services & Controls at x8593. Who gets the General Ledger? Each department receives a paper copy of the portion of the General Ledger containing the accounts assigned to their department code. What if I don’t understand how to read the General Ledger? The General Accounting Unit of Accounting Services & Controls offers periodic training on reading and understanding the General Ledger. Refer to the “Training & Manuals” section of the Accounting Services & Controls web site at http://www.accounting.ucsb.edu. What should I do with the General Ledger report? Each month, the Ledger should be: 1. Reconciled 2. Reviewed 3. Signed (approved) and dated by the individual performing the reconciliation. What do you mean by reconciliation? By reconciliation, we mean the comparing and reviewing of all source documents to their corresponding entry into the general ledger and expecting a match as to dollar amount, vendor, and source document/invoice number. Who should complete the monthly reconciliation? The person reconciling the General Ledger each month should be someone in the department who does not have the authority to approve invoices and transactions. Ideally, this person would also not be involved with ordering or receiving the goods.

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UCSB Campus Information & Procedure Manual Reviewing & Reconciling the General Ledger

5/03

I know I need to reconcile the ledger, but I have so many stacks of invoices and statements, where do I start? We have found the following system to be helpful. 1. First, sort everything by Account – Fund. For example, group all of the recharge statements, invoices, and deposits that belong to one account-fund together. 2. Sort the account-fund invoices/statements by sub. For example, put all of your sub 3 expenses together. 3. Within Sub 3, use a folder for each month of the fiscal year and label “Month Year – Reconciled”, for example, “July 2002 – Reconciled.” 4. Label one folder, “FY 2002 – 2003 Sub 3 – Unreconciled.” 5. Put all of your unreconciled items in the “Unreconciled” folder. 6. As items are reconciled each month, put them in the appropriate month’s “Reconciled” folder. You may discover that some subs do not have much activity during the year. If that is the case, you may only need one “Reconciled” folder for the entire fiscal year’s activity. This system ensures that every transaction that hits the ledger during a month is kept together along with all of the corresponding documentation. Again, this is just one possible system for organizing invoices and department activity. If your department has a great deal of complexity, you might consider coding invoices, documentation and activity according to your own categories of expense, such as by object code or department code (project, cost center, or cost type) depending on the system your department uses for reconciliation. What is the best way to complete the reconciliation process? There are three components to the General Ledger: Appropriations, Expenditures, and Encumbrances. The reconciliation process should include each component. 1. We recommend starting the monthly reconciliation process by reviewing the previous month’s ledger and any notes you may have made. Then look at the current ledger to verify any correcting entries that should have taken place. 2. Pull all of the invoices, statements, journals, UFINS, etc. from your “Unreconciled” folder. Sort out any deposit-related items from your expenditure-related items.

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UCSB Campus Information & Procedure Manual Reviewing & Reconciling the General Ledger

5/03

3. Appropriations Appropriations are budgets for departmental operational expenses. Examples of appropriations include the July 1 Adjusted Budget, funding for merit increases or range adjustments, or funding for one time allocations such as special projects and contracts and grants. All appropriations should be reconciled and reviewed – this is particularly important as it relates to staffing transactions and receiving the appropriate funding for merits, range adjustments, or retroactive pay. 4. Deposits a. Compare copies of any deposit documentation to the General Ledger, to see if the corresponding dollar amounts are recorded correctly. b. If you have documentation for a deposit that does not appear on the Ledger, it may be the deposit occurred too late to be posted for the month you are reconciling. However, if you have documentation for receipts that were not recorded but should have been, notify General Accounting. c. On each document matched to the General Ledger, note the month/year it was posted to the ledger, your initials and the date. 5. Expenditures a. For each charge (debit) to the account-fund-sub, verify you have the appropriate back-up documentation. Back-up documentation includes all invoices, packing slips, copies of financial journals, UFINS and any other relevant information to the transaction. • If you are missing documentation for a type 53 or 54 entry (financial journals or UFINs), first contact the initiating department. If they are unable to produce a copy, you may request a copy from General Accounting. If you are missing documentation for a type 41 (Vendor Disbursement – Direct Deposit) or 42 entry (Vendor Disbursement – Check), you may request a copy from Accounts Payable (AP); however, make a note of the Accounts Payable Reference Number prior to making your request, as AP will need this to find the appropriate documentation. For reoccurring items such as mail recharges, where no documentation is available, verify the amount looks reasonable and initial next to the charge. If you have an expenditure on the Ledger which does not belong to your department, contact the appropriate Accounting unit (Accounts Payable or General Accounting) to request more information. Depending on the type of transaction, you may need to process a correction for the expense. Do not wait until the end of the fiscal year (June) to make corrections – remember that expense probably belongs to another department and your delay could impact their budget and programs.
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UCSB Campus Information & Procedure Manual Reviewing & Reconciling the General Ledger

5/03

b. When looking at each charge, compare the vendor name and invoice amount to your back-up documentation. If all fields agree, make a checkmark next to the amount on the ledger. On the invoice/documentation, sign your initials, the month/year the item appeared in the ledger, and the appropriate sub. By placing the appropriate sub on the invoice/documentation, it will make future filing and retrieval much easier. If your documentation does not match the entry in the General Ledger, make a note to review and follow up. c. Once you have reconciled all of the transactions in the sub, place all of the corresponding documentation in the appropriate month’s “Reconciled” folder. d. In the area next to the sub transactions, initial and date the ledger, signifying a reconciliation was completed. 6. Encumbrances (Liens) Encumbrances (or liens) reflect future commitments of resources prior to an actual expenditure. Encumbrances are established by Purchasing when the department issues a purchase requisition. Departments will see the encumbrance on their General Ledger. When the order/services are received and the University is invoiced, the original encumbrance entry is cancelled and the expense and related cash payment is recorded. If a department decides not to make the purchase, the department should contact Purchasing and cancel the Purchase Order. Encumbrances should be reviewed each month for accuracy. For example, if a balance is remaining, yet the order is complete, please contact Accounts Payable staff and request the encumbrance be released (removed) from the department’s account. Who should complete the monthly review? The monthly review should be done by someone in the department who is familiar with the department’s transactions and will be able to detect any errors or problems. Most often, this person is the department Business Officer. In a small department, the review may need to be performed by the Director or Department Chair. Whenever possible this should be a different person than the individual doing the reconciling of the General Ledger. Why is the monthly review so important? 1. The monthly review is an important internal control because someone other than the person ordering and paying for goods, is evaluating the transactions. 2. The review is also very important in the department budgeting process. Actual costs can be compared to budgeted costs for reasonableness and variances can be evaluated.
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UCSB Campus Information & Procedure Manual Reviewing & Reconciling the General Ledger

5/03

What should I look for in the review? For each account-fund-sub, the following should be reviewed: 1. Unusual transactions – expenditures made to unknown or inappropriate vendors, or to vendors with an unusually large volume of transactions, even if the transaction amounts are not individually significant. 2. Duplicate or erroneous payments – look for transactions involving the same vendor, invoice date, and/or payment amount. (See “Processing Payment for Goods or Services” section for tips on avoiding/preventing duplicate payments.) 3. Correct payment information – look for transactions that are coded with the wrong account-fund-sub-object code information. 4. Reasonableness – look for transactions that appear unreasonable, such as a food/beverage purchase on a federal contract (where such purchase is usually prohibited). 5. Allowable per policy – greater scrutiny of supporting documentation may be appropriate for transactions with significant policy implications – e.g. alcohol included in meal costs for travel or entertainment. 6. Any questionable or irregular entries should be immediately investigated and resolved. What is a “Shadow System?” If a department is using a shadow system, they are using another program such as MS Excel, MS Access, or other system as a way of tracking their department’s financial information, instead of relying solely on the General Ledger. Our department uses a shadow system – should I perform a reconciliation between the shadow system and the general ledger? Yes. A monthly reconciliation between shadow system reports and the General Ledger is critical, since the General Ledger is the official University record. Using the Data Warehouse may make the reconciliation process easier for those using shadow systems.

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UCSB Campus Information & Procedure Manual Reviewing & Reconciling the General Ledger

5/03

References Departments Accounting Services & Controls Accounts Payable http://www.accounting.ucsb.edu/disbursement/ Administration (Data Warehouse License Request) http://www.accounting.ucsb.edu/administration/ General Accounting http://www.accounting.ucsb.edu/general/ Audit Services http://www.audit.ucsb.edu Data Warehouse (Information Systems & Computing) http://dw.isc.ucsb.edu/ Resources Reading the General Ledger (PowerPoint Presentation) General Accounting http://www.accounting.ucsb.edu/training/ Fund Accounting (PowerPoint Presentation) Office of the Controller http://controller.ucsb.edu/presentations.shtml Object Code Listing http://www.accounting.ucsb.edu/pdf/ObjectCodes.pdf Using Department Codes (Project, Cost Center, Cost Type) TBD

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