Procedures to facilitate the State Treasurer s bank reconciliation process

MM to Facilitate the State‘s Bank Reconciliation Process MONTANA OPERATIONS MANUAL MANAGEMENT MEMO SUBJECT: Management Memo Number Vol. 2 - Year 03 - No. 1 Date Issued 02/06/03 Date Effective 03/01/03 Procedures to Facilitate the State Treasurer’s Bank Reconciliation Process TO: FROM: All State Agencies Accounting Bureau – Department of Administration INTRODUCTION This management memo establishes State accounting policy to facilitate a timely and effective cash reconciliation process between SABHRS and the banks within the State Treasurer‘s system. This policy defines procedures for electronic payments received or paid by the State. It also addresses certain types of activity received by the State‘s Treasury Unit, including credit card activity, ACH Returns, dishonored checks, and deposits and adjustments not found on SABHRS in regard to outside bank deposits within the State Treasurer‘s system. This policy supercedes MOM 2-1240.30 in regard to dishonored checks. This policy does not address Non-Treasury Cash Accounts. This cash policy requires all agencies to record the receipt of incoming EFT‘s on SABHRS using the Accounts Receivable (A/R) module with one deposit to one relating SABHRS entry. All agencies are required to initiate outgoing EFT‘s on SABHRS using the Accounts Payable (A/P) module, unless prior approval has been granted from Treasury to use the A/R module. For all transactions for which the Treasury Unit is responsible for inputting based on this policy, each agency is required to designate only one A/R business unit and one default fund. Agencies need to make sure that the designated business unit is accessible to anyone within that agency that needs access to it. All transactions input by the Treasury Unit will use NEXT in regard to Deposit ID numbering The Treasury Unit will record an A/R direct journal for credit card activity, ACH returns, dishonored check and bank deposits or adjustments not found on SABHRS in the default business unit and fund as specified by each agency. These direct journals will be using a clearing account for each type of activity. Agencies are responsible for ensuring that Treasury Clearing Account balances under their business unit are cleared out in a timely manner. For each incoming EFT/Wire transactions input directly into SABHRS, this cash policy requires the Treasury unit to enter the control amount and the bank reference number as received from the bank in the A/R module. Each agency is then responsible for completing the accounting lines and processing the deposit. For incoming EFT transactions input onto SABHRS through an interface process, no change in the business process will occur at this time to these transactions. However, with the upgrade to 8.4, interfaced transactions will be required to use the bank reference number field. This management memo is effective on March 1, 2003. 1 MM to Facilitate the State‘s Bank Reconciliation Process Glossary ACH Returns – An ACH transaction that could not be completed. Automated Clearing House (ACH) transactions – A form of EFT that requires two business days to complete. An ACH initiated by the State is processed through the A/P module and can produce 1099 data, if needed. Book Transfer – A type of wire that is a transfer only between US Bank accounts. The bank account number must be specified each time. Deposit – Any placement of cash, checks, or other drafts within the State Treasurer‘s System. Dishonored Checks – Checks received in payment of an obligation to the State, wherein acceptance or payment by the bank on which the demand was drawn was refused. Domestic Wire – A type of wire that is sent to a location within the United States. Electronic Fund Transfer (EFT) – The use of automated technology to move funds without paper checks or warrants. EFT‘s can be used for payments received or paid by the State. Wires and ACH transactions are both forms of EFT‘s. Foreign Wire – A type of wire that is sent to a location outside of the United States. The bank code and account number must be specified each time. Free Form Wire – A type of wire that is sent to a specific location on a non-recurring basis. The bank code and account number must be specified each time. Main State Bank Codes – The codes used in reference to the main State bank are 028 and 999. Incoming and out-going ACH‘s and Wires are recorded in bank code 028. All deposits delivered to the Treasury office for forwarding to the Bank are recorded in 999. Non-Treasury Cash Accounts – The Department of Administration is authorized to approve the establishment and maintenance of Non-Treasury Cash Accounts for the payment of demands requiring immediate cash payment. Each revolving cash account, imprest cash account, petty cash and cash change account so established is subject to the regulations prescribed by the Department of Administration. Outside Bank Codes – Represent all bank codes, except those used to designate the Main State Bank. Repeat Code Wire – This type of transaction is used for wires that are repeatedly sent to the same destination. State Treasurer – Pursuant to Section 17-6-105, MCA, the state treasurer is designated the treasurer of every state agency and institution. State Treasurer’s System – All monies except those in Non-Treasury Cash Accounts. Wire – A form of an EFT, which can be initiated and completed on the same business day. Wires initiated by the State can be either Repeat Code Wires or Free Form Wires, which include either the Foreign, Domestic, or Book Transfer variety. 2 MM to Facilitate the State‘s Bank Reconciliation Process I. PROCEDURES FOR ELECTRONIC PAYMENTS A. Accounting for electronic payments received by the State Treasury Agencies are required to record the receipt of incoming wires and ACH transactions on SABHRS using the Accounts Receivable (A/R) module with bank code 028. Each wire must have a one-to-one relating SABHRS entry. For example, an agency receiving four wires must prepare four corresponding individual A/R direct journals. In the past an agency may have received five incoming wires on one day and only recorded two or three SABHRS A/R direct journals. In other situations, the agency may have received one incoming wire and prepared three or four A/R direct journal entries. These scenarios have caused considerable difficulties for Treasury in reconciling entries on the bank statement to the A/R direct journals on SABHRS. Agencies are encouraged to run the query MTAR_DIRJRNL_UNPOST on a regular basis. This query details Direct Journals that are not completely posted and need to be reviewed and corrected accordingly. These entries need to be corrected within the month that they are input. Occasionally, the Treasury Unit receives activity that cannot be identified to a specific business unit. The Treasury Unit will record the activity in control account 2550, Treasury Wire Clearing Account, under business unit 33010 and research for the appropriate business unit. Treasury will e-mail agencies in regard to unidentified transactions. This activity will be included on the daily e-mails sent to all agencies. If an agency recognizes that the activity belongs to them, the agency needs to contact the Treasury. The Treasury Unit will enter a General Ledger transaction to move the activity from business unit 33010 to the appropriate business unit. B. Accounting for electronic payments made by the State Treasury Outgoing wire requests sent directly to Treasury and recorded by the agency on SABHRS using the A/R module do not generate a 1099 and thus will only be allowed in certain cases. Agencies must use the ACH transfer capability in the A/P module whenever possible. Before outgoing wire payments are allowed, prior approval must be granted in writing from the Treasury. Approval must be requested on the approved EFT Form submitted to the Treasury Unit. Only authorized individuals within each agency will be allowed to submit EFT forms. Forms can be submitted in person, by mail, by fax or by e-mail. These forms can be accessed at http://www.discoveringmontana.com/doa/adm/afsd/forms.htm. Agencies must specify on the EFT Form if the wire is a 1099 payment, which certifies that a W-9 Form is on file and the payment will be entered into the 1099 system by the agency. An agency must also specify the type of EFT being used, as an ACH, Repeat Code Wire or a Free Form Wire (Book Transfer, Domestic or Foreign). Agencies are required to initiate outgoing EFT‘s in SABHRS using the Accounts Payable (A/P) module, unless prior approval has been granted by Treasury to use the A/R module. EFT transactions made through the A/P module require two business days to complete before the deposit is reflected in the account of the entity receiving the payment from the State. Agencies need to be aware of the time required to complete payments, and are encouraged to plan accordingly so that the A/P module is used to make EFT payments. Agencies need to be cognizant that wires will only be allowed in certain cases. Therefore, when agencies are developing contracts with outside entities, they need to make these entities aware of the fact that the State will be using the A/P module in the future with its inherent two day time lag. 3 MM to Facilitate the State‘s Bank Reconciliation Process II. PROCEDURES FOR CREDIT CARD ACTIVITY, ACH RETURNS, DISHONORED CHECK, AND DEPOSITS/ADJUSTMENTS NOT FOUND ON SABHRS IN REGARD TO OUTSIDE STATE BANK DEPOSITS General Discussion The Treasury unit will record a direct journal for all credit card, ACH return and dishonored check activity received in the treasury. The activity will be recorded in the appropriate business unit in that agency‘s designated default fund using Treasury Clearing Accounts. Each day, the Treasury Unit will e-mail agencies regarding activity received and recorded for that day. This email will include the receiving agency, the A/R direct journal number, description, and a 10 digit open item number. The open item number will contain the receiving business unit as the first four characters. The next 4 characters will represent the month and day the transaction was received by Treasury. The last 2 characters will represent the transaction number for that day in regard to a specific business unit. For example, open item 6101121502 represents the second transaction received on December 15 for the Department of Administration (business unit 61010). One default fund per business unit will be used to record the Treasury Clearing Account activity. Each agency needs to provide the Treasury Unit with the appropriate default business unit, fund, and a primary and back-up contact person. If an agency does not provide a default fund, the Treasury Unit will post the activity to the General Fund. If an agency does not have funding through the General Fund, the Treasury Unit will use the agency‘s primary fund as the default fund. The agency‘s default fund will only be changed upon written notice to the Treasury Unit. Agencies are responsible for ensuring that Treasury Clearing Account balances under their business unit are cleared out in a timely manner. Since the bank code has already been used on the direct journal as prepared by the Treasury, only a general ledger entry should be prepared by agencies to clear the Treasury Clearing Accounts. These Treasury Clearing Accounts must have a zero balance by fiscal yearend. Agencies need to monitor these accounts on a regular basis, perferrably monthly. The State Accounting Division, within the Department of Administration, will monitor the balances in these accounts on a periodic basis and provide notification to agencies. If activity is applied to an incorrect business unit, the Treasury Unit should be notified within 5 working days. Upon notification, Treasury will enter a General Ledger transaction moving the activity from the incorrect business unit to the appropriate business unit. Occasionally, the Treasury Unit will receive activity that cannot be identified to a specific business unit. The Treasury Unit will record the activity in the appropriate Treasury Clearing Account under business unit 33010 and research for the appropriate business unit. Once identified, the Treasury Unit will enter a transaction a General Ledger transaction moving the activity from business unit 33010 to the appropriate business unit. These policies are designed to ensure that all activity is recorded to the appropriate bank code via the A/R module in a timely and accurate manner. Agencies should not process A/R documents impacting any activity already recorded by the Treasury. A. Credit Card Activity Account 2551, Credit Card Activity Clearing Account, will be used by the Treasury to record the net credit card activity per agency as reported on the bank statements received daily by the Treasury. The activity will be coded to the identified business unit in that agency‘s designated default fund. Agencies should review the actual credit card statement to determine the breakdown of the net activity recorded by the Treasury (i.e. sales, fees and cancellations). This procedure does not apply to the PARIS card activity. 1. When sales are greater than fees and cancellations – Treasury will record the net activity on a direct journal as follows in the designated default fund using an open item number with account 2551: 4 MM to Facilitate the State‘s Bank Reconciliation Process A/R Entry Made by Treasury -Debit 1104 – Cash in Bank Credit 2551 -- Credit Card Activity Clearing Acct If the cash does not move from the default fund: agencies need to make the following general ledger only entry using the appropriate open item number with account 2551. Debit Debit Credit 2551 – Credit Card Activity Clearing Acct 6XXXX – Appropriate Expenditure Account(s) 5XXXXX – Appropriate Revenue Account(s) If the cash has to be moved from the default fund: agencies need to make a general ledger only entry moving the cash from the default fund to the correct fund(s) using the appropriate open item number with account 2551. Default Fund – Debit 2551 – Credit Card Activity Clearing Acct Credit 1104 – Cash in Bank Correct Fund(s) – Debit 1104 -- Cash in Bank Debit 6XXXX – Appropriate Expenditure Account(s) Credit 5XXXXX – Appropriate Revenue Account(s) 2. When sales are less than fees and cancellations – Treasury will record the net activity on a direct journal as follows in the designated default fund using an open item number with account 2551: A/R Entry Made by Treasury -Debit 2551 – Credit Card Activity Clearing Acct Credit 1104 – Cash in Bank If the cash does not move from the default fund: agencies need to make the following general ledger only entry using the appropriate open item number with account 2551. Debit Credit Credit 6XXXX – Appropriate Expenditure Account(s) 5XXXXX – Appropriate Revenue Account(s) 2551 – Credit Card Activity Clearing Acct If the cash has to move from the default fund: agencies need to make a general ledger only entry moving the cash from the default fund to the correct fund(s) using the appropriate open item number with account 2551. Default Fund – Debit 1104 – Cash in Bank Credit 2551 – Credit Card Activity Clearing Acct Correct Fund(s) – Debit 6XXXX – Appropriate Expenditure Account(s) Credit 5XXXXX – Appropriate Revenue Account(s) Credit 1104 – Cash in Bank 5 MM to Facilitate the State‘s Bank Reconciliation Process B. ACH Returns The procedure for ACH returns is different depending on whether the transactions originated in or out of the A/P module. Agencies are responsible for reviewing all ACH returns and issuing a ‗paper‘ warrant accordingly or performing timely follow-up to collect on money owed to the state. 1. ACH returns originating in the A/P module – Treasury will forward a copy of the ACH return to the Warrant Writer Section, within the State Accounting Division in the Department of Administration. The Warrant Writer Section will mark the original A/P entry as ―Cancelled‖. This reverses the original A/P coding and produces the appropriate journal entries. Since the A/P module automatically generates the appropriate journal entries to return the funds to the agency, a Treasury Clearing Account will not be used. After the transactions have been cancelled, warrant writer will notify each agency. notification will include any changes needed to the vendor file. This Warrant Writer will also be responsible for canceling WAW‘s (Warrants Already Written), except for WAW‘s that used EFT as the payment method. See II.B.2 below for further information. Each agency will have to review the ACH returns and issue a ‗paper‘ warrant accordingly by processing another A/P journal. 2. ACH returns originating outside the A/P module – Account 2552, ACH Return Clearing Account will be used by the Treasury to record ACH Returns when an agency attempts to deposit funds into an outside bank account or withdraw funds from an outside bank account and the transaction fails. Account 2552 will also be used for other transactions that originated outside the A/P module, including payroll transactions and Warrants Already Written (WAW) that used EFT as the payment method. a. When ACH Returns represent money the state was attempting to pay to an outside party – Treasury will record the activity on a direct journal as follows in the agency‘s designated default fund using an open item number for account 2552: A/R Entry Made by Treasury -Debit 1104 – Cash in Bank Credit 2552 – ACH Return Clearing Acct If the cash does not move from the default fund: agencies need to make the following general ledger only entry using the appropriate open item number with account 2552. Debit Credit 2552– ACH Return Clearing Acct XXXXX – Appropriate Account(s) If the cash has to be moved from the default fund: agencies need to make a general ledger only entry moving the cash from the default fund to the correct fund(s) using the appropriate open item number with account 2552. Default Fund – Debit 2552 – ACH Return Clearing Acct Credit 1104 – Cash in Bank Correct Fund(s) – 6 MM to Facilitate the State‘s Bank Reconciliation Process Debit Credit 1104 -- Cash in Bank XXXXX – Appropriate Account(s) b. When ACH Returns represent money the state was attempting to collect from an outside party – Treasury will record the activity on a direct journal as follows in the agency‘s designated default fund using an open item number with account 2552: A/R Entry Made by Treasury – Debit 2552 – ACH Return Clearing Acct Credit 1104 – Cash in Bank If the cash does not move from the default fund: agencies need to make the following general ledger only entry using the appropriate open item number with account 2552. Debit Credit XXXXXX – Appropriate Account(s) 2552 – ACH Return Clearing Acct If the cash has to be moved from the default fund: agencies need to make a general ledger only entry moving the cash from the default fund to the correct fund(s) using the appropriate open item number with account 2552. Default Fund – Debit 1104 – Cash in Bank Credit 2552 – ACH Return Clearing Acct Correct Fund(s) – Debit XXXXXX – Appropriate Account(s) Credit 1104 – Cash in Bank C. Dishonored Checks Account 2553, Dishonored Check Clearing Account, will be used by the Treasury to record all checks dishonored by the State‘s banks and returned to the Treasury. The Treasury Unit will record the dishonored check on a direct journal. The activity will be coded to the business unit that deposited the dishonored check in that agency‘s designated default fund using an open item number with account 2553. A/R Entry Made by Treasury-Debit 2553 – Dishonored Check Clearing Acct Credit 1104 – Cash in Bank If the cash does not move from the default fund: agencies need to make the following general ledger only entry using the appropriate open item number with account 2553. Debit Credit 1205 – Accounts Receivable – Dishonored Checks 2553 – Dishonored Check Clearing Acct If the cash has to be moved from the default fund: agencies need to make a general ledger only entry moving the cash from the default fund to the correct fund(s) using the appropriate open item number with account 2553. Default Fund – Debit 1104 – Cash in Bank Credit 2553 – Dishonored Check Clearing Acct Correct Fund(s) – 7 MM to Facilitate the State‘s Bank Reconciliation Process 1205 – Accounts Receivable – Dishonored Checks 1104 – Cash in Bank Debit Credit The dishonored check is then returned to the agency that deposited it. Agencies are responsible for a timely follow-up designed to collect on dishonored checks. D. Deposits/Adjustments not found on SABHRS in regard to Outside Bank Deposits Outside Banks are all banks that are not considered to be the main State bank. Account 2554, Outside Bank Clearing Account, will be used by the Treasury to record all deposits and adjustments, which were not found to be on SABHRS during the reconciliation process. Adjustments occur when a deposit reported on the bank statement is one amount and the deposit recorded on SABHRS is another amount. The Treasury will record missing outside bank activity on a direct journal using the appropriate outside bank code to that agency‘s designated default fund and send a copy of the deposit slip(s) or adjustment memo to the agency contact person. A/R Entry Made by Treasury—(Missing deposits and cash short adjustments) Debit 1104 – Cash in Bank Credit 2554 – Outside Bank Clearing Account A/R Entry Made by Treasury—(cash over adjustments) Debit 2554 – Outside Bank Clearing Account Credit 1104 – Cash in Bank If the cash does not move from the default fund: agencies need to make the following general ledger only entry using the appropriate open item number with account 2554. (For missing deposits and cash short adjustments) Debit 2554 – Outside Bank Clearing Account Credit XXXXXX -- Appropriate Account(s) (For cash over adjustments) Debit XXXXXX -- Appropriate Account(s) Credit 2554 – Outside Bank Clearing Account If the cash has to be moved from the default fund: agencies need to make a general ledger only entry moving the cash from the default fund to the correct fund(s) using the appropriate open item number with account 2554. (For missing deposits and cash short adjustments) Default Fund – Debit 2554 – Outside Bank Clearing Account Credit 1104 -- Cash in Bank Correct Fund(s) – Debit 1104 – Cash in Bank Credit XXXXXX – Appropriate Account(s) (For cash over adjustments) Default Fund – Debit 1104 – Cash in Bank Credit 2554 – Outside Bank Clearing Account Correct Fund(s) – Debit XXXXXX – Appropriate Account(s) Credit 1104 – Cash in Bank 8 MM to Facilitate the State‘s Bank Reconciliation Process III. BANK REFERENCE NUMBER REQUIRED ON INCOMING EFT/WIRE TRANSACTIONS Effective March 1, 2003 the Treasury will enter the deposit control information in SABHRS for all incoming ACH/Wire Transfers. The Treasury will enter the deposits in the business unit identified by each agency for all incoming ACH/Wire activity. A unique identifier, the Bank Reference field, will be included on the new Payment Ref panel along with a description of the transaction to assist the agencies in identifying the transaction. Agencies will be required to complete the deposit by inputting the accounting information on the payment panel and setting the transaction to ―Complete‖ (Manage Sales Activities > Apply Payments > Use > Direct Journal Entry). Each agency will be responsible for monitoring their deposit activity for these transactions under the ―Direct Journal Entry‖ menu shown above. It is important that agencies do not alter the Bank Reference field on the Payment Ref panel. This field is going to allow Treasury to perform an electronic reconciliation versus a manual reconciliation process on these transactions. As a reminder, for incoming EFT transactions input onto SABHRS through an interface process, no change in the business process will occur at this time to these transactions. However, with the upgrade to 8.4, interfaced transactions will be required to use the bank reference number field. The following Wire Transfer example shows the panels and the type of information that will be entered by the Treasury Unit for each incoming ACH/Wire Transfer: 9 MM to Facilitate the State‘s Bank Reconciliation Process 10 MM to Facilitate the State‘s Bank Reconciliation Process CASH MANAGEMENT REMINDER Agencies need to notify the Treasury Unit before 3:00PM on the working day prior to any incoming or outgoing wire transfers that are over $100,000. For example, agencies should notify the Treasury before 3:00 pm on a Friday for a wire transfer for which will occur on Monday. This will allow the Treasury Unit to notify the Board of Investments on a timely basis so investing activity can be adjusted accordingly. CLOSING Questions regarding this management memo should be directed to the Department of Administration, Office of Finance and Budget at 444-4612. 11