Internal controls are methods and procedures used to:
- Produce reliable financial information
- Promote effectiveness and efficiency of operations
- Ensure compliance with applicable regulations and University policy
- Safeguard University assets (minimize financial and other risks)
Control procedures should observe the following principles:
- Authorization limitation: Transaction authorization responsibility should be limited to the lead administrator and his/her designee(s). The number of authorizers within any given department should be minimized to ensure efficient operations while maintaining fiscal and policy integrity. Any delegation of transaction approval authority should be documented as stated in Policy 1104, Signature Authority and Delegation of Approval Authority for Financial Transactions
- Separation of duties: At least two people should be involved in processing a transaction. No one person should have the ability to initiate, approve record, review and physically control a transaction. Note: When these functions cannot be separated due to limited staff resources, it is the lead administrator’s transaction, or the transaction does not require approval prior to processing, a secondary review of transactions should be done. By using the Activity Review Report, EMS Monitoring Report and Review Tool a department/section should have periodical reviews performed by an individual who is not the initiator of the transaction and who has a clear line of authority or responsibility for the transaction.
- Review of financial statements: Financial statements and transactions must be reviewed on a timely basis. The individual reviewing an account must have knowledge of the transactions and a clear line of responsibility for the account.
- Record retention: The department must maintain documents and records in accordance with institutional record retention Policy 1105 Retention of University Financial Records and Record of Retention Requirements Matrix
- Physical controls: The department must maintain proper physical control over its assets and records.
- The cost of implementing and maintaining controls, whether measured in terms of monetary value or staff time and effort, should be proportional to the associated risk, and not exceed the expected benefits.
All individuals who are involved in business transactions within the University have a fiduciary responsibility to safeguard the assets of the institution and ensure the integrity of its accounting records.
University Office or Department
Establish clear guidelines, policies and procedures for use in transaction processing and review.
Provide assistance and recommendations to departments.
Institutional transaction processing centers (e.g., Accounts Payable, Payroll, Business Service)
Assure adherence to institutional policies when processing transactions (E.g. issuing payments to vendors and employees).
Maintain appropriate use and control of the funds entrusted to them, including the following:
Prepare transactions and ensure compliance as follows:
Departments must provide appropriate transaction documentation at the time the transaction is processed. Documentation must be available for later review, if needed. Refer to the Financial Review Guidelines for detailed information on the appropriate location of transaction documentation. Please note that it is not necessary to attach transaction documents to monthly financial reports.
After completing the monthly financial review and distributing Account Holder Reports, lead administrators/operations managers must complete and sign the Financial Management Checklist to confirm completion of monthly financial statement review. Attach notes as needed to substantiate any corrective actions taken. This signed checklist must be stored in the department folders at the following shared drive: \med1\home\YSMFIN. Please note that institutional offices may ask to review monthly checklists on a periodic basis.
Documentation must be retained in accordance with the record retention policy that is appropriate for the account. After their record retention requirement has expired, departments must ensure that locally stored records are securely disposed of. Please note that record retention policies vary across different types of funds.
Relevant Record Retention Policies include:
Departments should not locally store those documents that are retained centrally per the Financial Review Guidelines for a period longer than 90 days following the month in which the transaction was processed. Doing so presents a potential liability to the university.
There are a limited number of sponsored agreements with more restrictive terms and conditions than University policy. Please contact GCFA for more information on these limited exceptions.
The Financial Management Checklist describes a series of steps that should be included in the standard financial review process.
Note that each task has been completed. Use the “Remarks” section to log special notes and document significant corrections to the financial reports that will be recorded in the subsequent fiscal period. Be sure to complete the bottom of the checklist form, then sign and date the form. This checklist must be retained in the department Financial Management Checklist folder on med1\home and other non-standard University records pertaining to the fiscal period being reviewed must be maintained in the department.
Detailed information on each of these steps is outlined below.
The Controller’s Office recommends the use of the following Data Warehouse tools to assist in these processes:
- Activity Review Report
- EMS Monitoring Report
- Review Tool
These reports are located in the Portal, under the Finance Folder in the Review Tools section.
- Review & Clear Labor Suspense: Project 0300018 includes salary charges to the labor suspense account for reasons such as:
- No PTAEO was entered on the time sheet or labor schedule.
- The award entered on the time sheet or labor schedule is closed.
- The labor was charged after the end date of the award.
The department must transfer labor suspense charges to the appropriate account with a Labor Distribution Adjustment (LDA), and take appropriate corrective action to ensure that future charges are accurate, such as entering a new labor schedule.
If using the Review Tool view your labor suspense transactions using the Review Tool by selecting the Labor Suspense button. Departments should review these transactions during the month and take the appropriate action to reduce errors at the close of the fiscal month.
- Review & Clear A/P Bounces:Invoices that have the appropriate approval, but have invalid or missing PTAEOs, AP will proceed with vendor payment and charge it as follows:
- Invoices of $100 or less are automatically paid and charged to the department or section in the University-wide default AP “bounce” account (project 1001283 - AP PTAEO Bounces), which is linked to their GA award. The department or section must transfer the charge to the appropriate account with a JSA transaction, particularly if the charge is allocable to a sponsored award.
If using the Review Tool, select the A/P Bounces button. Departments should review these transactions during the month and take the appropriate actions to reduce errors at the close of the fiscal month.
- Review & Clear A/P Holds: Invoices that require department approvals or valid PTAEO charging are placed on “hold” by Accounts Payable. These invoices on hold are not paid until the department takes appropriate action. AP Holds must be viewed, approved and processed via the AP Worklist.
If using the Review Tool, select the A/P Holds button to review invoices on hold. See Managing Invoice Holds on the Procurement website, which explains why invoices are placed on hold and the appropriate action(s) to be taken. Departments should review these transactions during the month and take the appropriate actions to reduce holds at the close of the fiscal month.
- Run Monthly and Weekly Payroll Preview Reports to ensure that changes (hires, terminations, leaves, salary changes, etc.) have been processed and that all potential suspense transactions are corrected prior to the month end closing. Note that the reports include a “Suspense Only” view to display salary charges that may go to suspense.
- Run BUG311a Semi-Monthly Labor Commitments Exception Report to identify semi-monthly payroll transactions for which charging PTAO’s have, or will be, expiring. Take action to correct the PTAO before the payroll is run.
Good judgment and common sense are the guiding principles for performing an efficient and effective financial review of transaction activity. The following guidelines provide a standard framework for the transaction process, and suggest example questions that a typical financial review might include.
Transactions Recommended for Financial Review
After-the-fact financial review is recommended for the following transactions. These transactions are listed on the Activity Review Report
- Expense Reports – Those where no departmental approval was required prior to processing
- SciQuest – Those where no departmental approval was required prior to processing
- OK-to-Pay Invoices
- Sub-Award Payments
- Shipping Transactions
- Internal Service Provider (ISP) Transactions
- Transactions classified as typically high-risk:
- “Unallowable” Expenditure Types
- Typical F&A Expenditure Types on Sponsored Awards
- “Miscellaneous” Expenditure Types
- Non-ISP JSA & LDA Transactions (Journal Entries) approved outside of the dept
- Inter-fund Transfers, and Income & Expense Reclassifications
- “Miscellaneous” Revenue
Using the Activity Review Report located in the Data Warehouse Portal:
- Review basic transaction information for reasonability and appropriateness, and consider the typical questions that a financial reviewer might ask, such as:
- Is the business purpose and/or transaction description thorough and appropriate (WHO, WHAT, WHERE, WHEN, WHY)?
- Are the vendors typical and appropriate for the account?
- Is the amount of the transaction reasonable in light of the type of expense and/or the vendor>
- Are the Initiator (for sponsored awards), Preparer and Approver names complete and appropriate, and is it reasonable that these individuals would be initiating, preparing or approving transactions on the account?
- Is the expense type used, typically considered a “high risk” area? (i.e. “Misc”, “Unallowable”, etc.)
- Does the transaction “look familiar” (i.e. does it appear to be a duplicate)?
Those transactions that the financial reviewer believes require further analysis should be reviewed on an individual basis (see step 2 below). Not all transactions will require individual review.
- Reviewing transactions on an individual basis may include some (or all) of the following steps:
- Review transaction documentation
- Review original transaction information and/or documentation (if a journal entry)
- Discuss the transaction with Initiator, Preparer, and/or Approver
- Contact internal service provider for documentation or information
- Contact appropriate central unit or subject matter expert for guidance
- Contact the vendor for information
- Locate reference to relevant policy, if needed
- Take corrective action, where needed. Specific actions might include:
- Update PTAEO information on PO, VIP #, stockroom card, etc.
- Update Initiator or Preparer reference information
- Update delegation documentation
- Identification of training opportunities
- Initiate cost transfer to proper account
The following activities should be performed on an ongoing basis:
- Update labor schedules to reflect any status changes.
- Authorize pending JSA and LD batches.
- Review unprocessed and unapproved EMS transactions (EMS Available Charges Report).
- Periodically review P-card holders and limits (P-card Card Holder report in Portal; formerly BUG701a).
- Periodically review EMS Approvers (BUG112a - 5a EMS Signing Limits).
As the end of the fiscal month approaches, lead administrators/operations managers and business office staff should be aware of all relevant processing deadlines and posting schedules including JSA and LD batch approval cutoff times, Internal Service Providers (ISP-SFTP), Payroll processing, EMS processing, HR changes, and Labor Schedule changes. Refer to the Month End Closing Calendar and Pay Schedules for complete monthly deadlines.
Note that the following will not appear in monthly financial statements:
- JSA batches that have not been approved
- Labor distribution adjustment batches that have not been approved
- Certain ISP transactions that have not yet posted
- Purchasing card transactions that were not received from the bank, or have not been approved through EMS
On a monthly basis (quarterly basis where noted) lead administrators should take the following actions:
- Ensure that financial information accurately reflects the organization’s activity
- Identify possible inaccuracies through the comparison of actuals to established budget guidelines
- Identify and resolve or define action to be taken for balance deficits
- Use the Financial Management Checklist form as a minimum guide to ensure that all required monthly financial review steps have been completed. Please note that each task has been completed. Use the “Remarks” section to log special notes and document significant corrections to the financial reports that will be recorded in the subsequent fiscal period. Be sure to complete the bottom of the checklist form, then sign and date the form. This checklist must be retained in the department Financial Management Checklist folder on med1\home and other non-standard University records pertaining to the fiscal period being reviewed must be maintained in the department.
- Review overall Expense Report activity using the EMS Monitoring Tool.
- Ensure all department accounts have been reviewed periodically (at least quarterly)
Review budget variances. Run the Account Holder or Position Plan Report at the level at which the budget was developed to determine if actual activity matches budgeted plans. Variances may indicate errors or misstatements. Document any significant variances (over- or under-budget). This includes any projects with a zero budget that will be funded at fiscal year-end by another source such as a gift.
Please Note: Entering and maintaining budget information in the University budget tool ( YBT) is required in order to ensure significant variances are identified in a timely manner.
Review fund balances. Note and resolve any deficits at the project/award intersection for all source groups except General Appropriations (GENAP). Since GENAP does not typically carry a fund balance, make sure that GENAP activity is reasonable and appropriate.
If using the Review Tool, Select the Review Fund Balances button. A negative balance in the right column (other than General Appropriations) signifies a deficit. Determine when and how to clear each deficit.
Review grant award balances. For any deficits note in writing how the deficit will be cleared (continuation award, department funds, etc.). If the award ended three or more months ago, all final entries should be made and the Financial Status Report (FSR) should be filed with GCFA. If the award cannot be closed in the subsequent month, note in writing the reason for the delay.
If using the Review Tool, select Award Summary. The oldest awards will appear at the beginning of the list. In this report view the amount funded, the inception-to-date expenses, the dates of the award, and the Principal Investigator. This report also shows commitments and trends to help you anticipate overspending or under spending. Select PI Summary to view a summary of grant status organized by Principal Investigator.
Review activity trends over the last twelve months. Compare current period balances with previous period balances in order to identify inconsistencies. Research (and resolve when necessary) any unusual or unexpected activity.
If using the Review Tool, select Review Trend Balances. You can limit your selection to a specific project or organization to check at a more granular level. You can also include payee information by selecting Show Payee Info once in the report.
Other reports include the Account Holder Payee Trend Report and BUG 402a-Compare Period Actuals
Compare source group activity to the prior year. For any significant changes, investigate the reason and write a brief description in the Remarks section of the Financial Management Checklist.
If using the Review Tool, select the Source Group Comparison button to compare the year to date balances for the selected period this year with the same period last year. The report will show the dollar and percent difference for each expenditure type, for each source group. This report should agree with the fixed format report Summary of Activity by Source Group (see below). This report is particularly useful when analyzing organizations or source groups that do not have budgets in MP0. If you need to research any items, go back to the Review Transactions section and the button to limit expenditure type in the results.
Run Summary of Activity by Source Group (titled Summary of Activity for Period, Source Group Summary, Operating Detail and Non-Operating Summary) by major object code. This statement is a cross-source statement of revenue, expense and change in fund balance that provides an overall financial perspective for an organization at the hierarchy selected. Make sure revenue, expense and net change per source group matches your expectations. Investigate any discrepancies.
Review Asset and Liability balances (If applicable) see 1310 FR.02 Asset and Liability Reconciliation. Verify that:
- Petty Cash and Advance Disbursement for Study Subject accounts are active
- Travel and Expense Advances must be cleared by submission of the appropriate form no later than two weeks (10 business days) after the end date of travel, or two weeks (10 business days) after the occurrence of the expense. Follow up as needed.
If using the Review Tool, select Review Assets & Liabilities. Reconcile the information to supporting detail as needed.
Individuals defined as Account owners and those that have budgetary responsibility for a project, task, award and/or organization must receive monthly financial statements. The University standard report for distribution to these individuals is the Account Holder Report Package. Non-sponsored Department accounts where the account owner is the Chair/Dean/Director/Officer must be reviewed periodically by the account owner, minimally quarterly, using the standard reports or reports with sufficient detail approved by your appropriate BOLT member.
The Account Holder Report can be run by either Person and by PTAO. Both versions are available in the Data Warehouse Portal Financial Reports folder for scheduling, or running on demand. Alternatively, distribution can contain the Position Plan Report with Account Holder by PTAO transaction detail, payee trend and/or commitment reports.
For specific questions regarding the Account Holder Report, please email firstname.lastname@example.org. Demonstrations showing how to run the Account Holder Report in the Data Warehouse Portal are available on the Monthly Financial Review website.
- Complete the Financial Management Checklist, noting the tasks that have been completed and any follow up action that is required.
- Document that you used the Controller’s Office recommended process (the Review Tool and other referenced reports on the Financial Management Checklist). If custom or locally developed reports are used and/or distributed in addition to the institutionally provided standard reports, these reports must be reconciled to the institutional reports of record. You must also note the reports and processes that were used in your review and register your process with your appropriate BOLT member.
- If significant issues or inappropriate activities were discovered in the course of the review, contact the Controller’s Office.
- If significant deficits exist, notify your Dean or Department head.
- Sign and date the checklist. Retain the form in the department financial files along with other reports and documents that support the review process.
- Distribute Account Holder reports.