Flow Chart on Accounts Payable and Cash Disbursment

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					                         Financial Policy Templates

The following are sample policies that should be in place when implementing a
financial system such as the Kuali Financial System. They have been written to
be broadly applicable but to provide meaningful guidance for consideration in
adopting institutional policy. Institutions are encouraged to make changes and
add details to the policies to reflect their own needs, structure and operations.

Internal Control                                                             2

Authorizations                                                               4

Chart of Accounts                                                            8

Cash Receipts                                                              10

Cash Disbursements                                                         12

Journal Vouchers                                                           14

Reports                                                                    16
Internal Control

Purpose: To communicate the importance, objectives and assignment of
responsibility of internal controls for the institution.

Objective: Internal controls are a process, effected by an entity’s board of
directors, management and other personnel, designed to provide reasonable
assurance regarding the achievement of the following:
    • Effectiveness and efficiency of operations
    • Reliability of financial reporting
    • Compliance with applicable laws and regulations.

Procedure: Five interrelated components must be in place in order for internal
controls to be effective: control environment, information and communication,
control activities, risk assessment and monitoring.

Control Environment - trustees, the President, the Chief Financial Officer
(CFO), deans, department chairs and directors (or equivalents) are responsible
for setting a tone of accountability, high ethical standards and business conduct

Information and Communication - the Office of the CFO (or equivalent) is
responsible for insuring that adequate internal control structure is in place. In this
role, the CFO’s office will insure that appropriate documentation and guidance
exists in the form of financial policies and procedures, incorporation of business
rules and controls into the financial system. Financial policies will describe the
Control Activities which create a system of checks and balances to ensure that
management’s directives are carried out.

Control Activity components include:

       Segregation of Duties to reduce the likelihood of errors and irregularities.
       An individual is not to have responsibility for more than one of the
       following: authorization, custody and record keeping. For example, when
       the work of one employee is checked by another, and when the
       responsibility for custody for assets is separate from the responsibility for
       maintaining records relating to those assets, there is appropriate
       segregation of duties.

       Authorization Procedures need to include a thorough review of
       supporting information to verify the propriety and validity of transactions.
       Approval authority is to be commensurate with the nature and significance
       of the transactions and in compliance with University policy. Vice
       presidents, deans, department chairs, directors and fiscal officers are
       likely individuals to receive authorization responsibility.

       Personnel need to be competent and trustworthy, with clearly established
       lines of authority and responsibility documented in written job descriptions
       and procedures manuals. Personnel need to be provided adequate
       training and ongoing development.

Risk Assessment – identifying institution-specific risk and establishing
appropriate internal controls to manage it should be aligned with the strategic
objectives of the institution.

Monitoring – periodic review of established procedures and any specific follow
up inquiries will likely be performed by the supervisor of the individual
responsible for the activity. In addition, an Internal Audit department will review
and test compliance with procedures.

Kuali Capacity for Control Activity:

The Kuali Financial System has a robust workflow engine. Workflow is the art of
moving transactions from one place to another, requesting and recording actions
related to that transaction along the way. Workflow functions by matching
attributes of a transaction to existing rules that indicate where a transaction with
those attributes should go. Most commonly, Workflow is used to collect

The path of approval can be influenced by:

      Type of transaction (e.g. cash receipt.)
      Content of the transaction (e.g. charges to grants, travel vouchers).

Route levels represent different sets of rules to determine routing and include:

      Account Level (Fiscal Officer) – or a designee of the Fiscal Officer
      Organization Level (Review Hierarchy) – for example a Dean or Director
      Special Conditions – such as grants or travel

Kuali transactions (e-docs) have business rules that provide additional protection
that transactions conform to an institution's business policies and budget office
guidelines. Each e-doc has its own business rules and transactions must pass
these edits before entering work flow. The rules can be adjusted.

See Authorizations
Purpose: To describe how workflow is used to move documents through the
financial system for authorization to ensure accountability, regulatory compliance
and internal control.

While this policy is written with a Kuali implementation perspective, workflow is
an independent program. It can be used with other systems such as human
resources, student accounts or another financial system. A common workflow
system throughout the college or university would be advantageous.

Objective: Workflow is the art of moving transactions from one place to another,
requesting and recording actions related to that transaction along the way.
Workflow functions by matching attributes of a transaction to existing rules that
indicate where a transaction with those attributes should go.

The benefits of workflow are:
   • Improved efficiency – automation of business processes and budget office
       guidelines results in the elimination of unnecessary steps
   • Increased control – through standardizing working methods and the
       availability of audit trails
   • Flexibility – software control over processes enables their re-design in line
       with changing business needs
   • Business process improvement – focus on business processes leads to
       their streamlining and simplification

Achievement of these objectives requires appropriate business rule edits and
review and authorization of transactions by knowledgeable staff members.

Procedure: After a transaction is initiated, workflow electronically routes the
transaction to the proper authorizers.

Path – the route a document takes can be influenced by:
   1. type of transaction (e.g. cash receipt)
   2. content of transaction (e.g. charges to grants, travel vouchers)

Action – workflow sends users action requests. The actions that can be taken
   1. Approve – verify that the transaction is acceptable. Once approved will
       move to additional approvers and then finally to the general ledger.
   2. Acknowledge – a request to view and acknowledge a transaction without
       the need for formal approval.
   3. FYI review – a courtesy request allowing the user to view the transaction
       or just clear the request from their action list without viewing it.
   4. Disapproval – indicates that the transaction is incorrect and unacceptable.
          Disapproved transactions cease further routing and will not be sent to
           the general ledger.
          The document initiator and any previous approvers receive an
           acknowledgment letting them know the document has been
          Disapproved documents can be copied and used as the basis for
           future documents (or for correction and re-submission).

Route Level – set of rules that determines document routing
       Account Level (Fiscal Officer)
       Organizational Level (Review Hierarchy)
       Special Conditions – can be based on the type of document, account
         attributes or transaction attributes.
       Ad Hoc – document initiator or approver can add individuals or
         workgroups to the routing of a specific document.

       Fiscal Officer can assign delegates.
       Delegates can approve at the account level as if they were the fiscal
       Primary delegates – documents routes to directly (instead of to FO).
       Secondary delegates – filter allows for retrieval of documents for which
         they have been given approval authority.

Workgroups – a collection of approvers who share a similar responsibility. A
document that routes to a workgroup will enable all members of the workgroup to
see that action on their list. Once any member of the workgroup takes action, the
document is removed from the action list of all other workgroup members.

The following are definitions used by Indiana University, the financial information
system on which the Kuali workflow system is based.

       Account is a group of funds that has been assigned to a unit to
       accomplish a specific university function
       Account Manager is the person who through their actions, their position,
       or the budgeting process of the Dean or Vice President has direct
       responsibility for how funds are spent and managed. Examples would be a
       principal investigator who received a grant or contract, an academic
       person who received internal research funds from the Dean, or a Director
       of a non-academic department.
       Account Supervisor will be the “leader” of the organization in which the
       account resides. In an academic unit this would probably be the Dean, in
       an administrative unit it would be the Vice President.
       Allowability of Expenditure refers to when expenditure is allowable (or
       acceptable) within a university account. Policies, donor intent and agency
       guidelines are the guidance that should be followed in order to determine
       if expenditure is allowable or not. Policies are the presiding determinant
       over all other guidance.

       Delegate is an individual, assigned by fiscal officers, who can approve
       account transactions

       Fiscal Officer is a person who is trained and hired for the purpose of
       providing fiscal, policy, and internal control management of all funds in a
       unit. He/she is responsible for ensuring that processes and related
       controls have been established to achieve the mission and objectives of
       his/her unit(s).

       Approvals - When approving documents, the Fiscal Officer is responsible
       for verifying or having processes in place that verify the following:
          Charges to the account correctly represent materials received or
           services rendered;

          Charges represent activities which are established, and comply with
           the fiscal plan that is established for the account;

          Funds are available in the account to cover authorized charges

          The transactions in the account comply with all relevant internal or
           external regulations, policies and procedures.

          The transaction is accurate, timely and completely recorded.

Workflow Implementation:

Each institution’s workflow implementation will reflect its internal control policies
(see separate policy) and will also support different levels of management and
different management styles. Before entering workflow, transactions will have
passed the edit checks for business rules associated with the particular type of
transactions. There will have been a check for available funds and depending on
institutional policy the transaction can be stopped or flagged if it will cause an
account to be over budget. Some examples of how workflow can be used follow.

       1. Each account has a responsible person (fiscal officer or other title) who
          is the first level of approval.
       2. All transactions with a travel object code may also be routed to a travel
          work group for conformance to institutional travel policies.
       3. Federal grant and contract transactions may also be routed to a central
          accounting office or work group to check for compliance with sponsor
4. Additional levels of approval may be required for transactions over a
   specified dollar amount. Transactions above the highest threshold may
   require approval of a corporate officer.
5. A department chair may wish to see all transactions over a specified
   dollar amount and all faculty travel regardless of amount.
6. Another department chair may specify a different dollar threshold for
   her/his approval and all consultant payments regardless of amount.
   Other transactions may proceed through the approval chain but s/he
   wants an FYI copy of each of these transactions over a certain dollar
7. Transactions charged to renovation object codes may be routed to the
   physical plant office.
8. Anyone in the approval chain may request FYI or acknowledgement
   copies to be sent to others or add an additional approver to the
9. Each person in the approval chain may attach notes or documents
   which become part of the documentation and audit trail for the
Chart of Accounts
Purpose: The Chart of Accounts is a set of codes used to classify, record and
control how financial transactions and balances are collected and stored. It
provides the framework for understanding the financial picture of the institution’s
operations. The Chart of Accounts uses account attributes to organize financial
information for external and internal reporting such as:

          Financial Statement preparation in compliance with standards set forth
           by the Governmental Accounting Standards Board (GASB) and the
           Financial Accounting Standards Board (FASB)
          Higher education industry guidance set forth by the American Institute
           of Certified Public Accountants (AICPA) and the National Association
           of College and University Business Officers (NACUBO)
          Proper stewardship of resources
          Proper recovery of indirect costs from sponsors
          Internal reporting and financial management

Objective: The Chart of Accounts should reflect organizational and management
structure for financial and budgetary control and reporting of the institution.

Procedure: It is critical that the Chart of Accounts mapping of the organization
does not compromise, or become justification for change to, the organization’s
actual structure. The Chart of Accounts plays a vital role in the management of
data so that it can be summarized at the highest level of the information pyramid
and also provides sufficient detail at the lower level.

The following are definitions of the components used in the Chart of Accounts:

       Account - a specific identifier for a pool of funds assigned to a specific
       organization for use in accomplishing its mission.

       Sub-Account – provides additional detail on accounts. Amounts will roll
       up to the account level.

       Chart - identifies the chart of accounts. For example, in a multi-campus
       institution, may be each campus; could also be an auxiliary or component

       Organization – a collection of accounts or a collection of other
       organizations, for example a campus department or a responsibility

       Account Type – purpose of the account
      Sub-Fund Group – Categories of accounts for internal resource
      management, and to relate the accounts to a fund.

      Fiscal Officer – a person who is trained and hired for the purpose of
      providing fiscal, policy and internal control management of all funds in a
      unit. He/she is responsible for ensuring that processes and related
      controls have been established to achieve the mission and objectives of
      his/her unit(s).

      Object Code – detailed identifiers for Income, Expense, Asset, Liability
      and Fund Balance.

      Sub-Object Code – used to provide additional detail on object codes.
      Amounts will roll up to the object code.

      Account Delegate – designated delegate for the Fiscal Officer

      Project Code – a unique identifier which spans multiple accounts and
      fund groups and even multiple charts.

The key to the success of any financial system is the information that is entered
into it. Therefore consistency in the use of the Chart of Accounts is critical.
Definitions must have the same meaning across the institution. A thorough
knowledge of the Chart of Accounts and the correct use of account codes are
essential in the production of meaningful reports.

Management of the Chart of Accounts
New accounts shall be established whenever separate accounting and reporting
are required for legal, organizational or functional reasons. Accounts shall not be
established for record-keeping purposes which can be accomplished by the
proper use of accounts, sub-accounts, organization codes, etc. Advance
accounts for extramurally funded research and training projects may be created
when authorized.

Adding new accounts should be requested as follows: (INSERT INSTITUTION

Once established, requests to change, freeze or delete an account may be

Accounts should be closed when the original purpose for an account no longer
exists and all reporting and administrative requirements are fulfilled e.g.
discontinued programs, completed grants.
Cash Receipts
Purpose: To provide procedures and guidelines to all University departments
handling cash collections.

Objective: To ensure the safeguarding of assets by applying appropriate internal
controls and the proper transporting of cash.

Procedure: Cash is an important asset that must be safeguarded and controlled.
Cash is received from a variety of sources including revenue producing activities,
sponsored programs, gifts and investment income. The definition of cash receipts
for this policy includes cash, checks, lock box receipts, credit and debit cards and
electronic receipts.

Payers should be encouraged to send payments to the central finance office as
opposed to individual departments whenever possible. This provides greater
opportunities for internal control and prompt deposit. Remittances should be
payable to the college or university and not to departments or individuals.

However, some departments will receive payments and there should be
established policies for departmental cash receipts. Lock boxes and credit and
debit cards can be helpful in reducing the risks associated with actual cash.
Policies will vary greatly among institutions depending on size and type of cash
receipts. But, there are some common elements of good policies.

Receipts should be processed and deposited promptly, usually daily. There
should be separation of duties. At a minimum, persons receiving payments and
recording them should be separate from persons preparing and making the
actual deposit. A receipt should be prepared for the payer as well as for internal
records. All checks should be stamped with a restrictive endorsement when
received. Deposits should be sent to a designated finance office or direct to a
bank. There should be consideration of the security of the receipts awaiting
deposit and of the safety and security of staff members. Receipts should be
stored in a locked cash box or safe depending upon their value. It may be
appropriate to use campus police or armored car services for making deposits.

Gifts are usually reported to a central office for further acknowledgement and
follow up with donors. The finance office usually examines the receipt
documentation and determines the correct general ledger account if there is any
question about the accounts to be credited. When there is insufficient information
to determine the proper accounts to be credited a suspense account is used to
avoid delays in entering receipts into the general ledger system. Electronic funds
transfers are frequently processed by the central finance or treasurer’s office
using information on the transaction or previously supplied by a department.

Deposits are usually processed in batches and then checked to the general
ledger system to verify that they were processed. Bank account balances are
reconciled to cash balances in the general ledger system and this promotes the
integrity of the financial reports.

In addition to a general policy for departmental cash receipts that follows these
guidelines, a list of topics for specific policies follows.

Topics for Specific Policies:
      Armored Car Service
      Automated Clearing House (ACH)
      Blanket Bonding
      Cash Box
      Counterfeit Money
      Deposit Bag
      Electronic Funds Transfer
      International Check
      Reconciliation to Bank Statement
      Reconciliation to General Ledger
      Returned Check
      Segregation of Duties
      Stale-dated Check
      Timely Manner

Kuali Financial System:

Cash Receipt Document - The Cash Receipts (CR) document is used to record
cash and checks received by units, for subsequent deposit into bank accounts.
Cash Receipts route for verification and preparation of bank deposits. Each unit
that verifies cash receipts and/or prepares bank deposits will use a Cash
Management (CM) document to consolidate those Cash Receipts into bank
deposits. The actual verification of the Cash Receipt will be done on the Cash
Receipt document itself. In essence, the Cash Management document is the
means by which a unit manages its cash drawer.

Cash Reporting – Bank account identification may be entered on all cash
transactions so bank account balances are maintained and there are clear audit
trails of all receipts and disbursements by bank account.
Cash Disbursements
Purpose: To provide general guidance on formulating cash disbursement policies
and procedures.

Objective: Cash disbursement policies and procedures should ensure that cash is
disbursed only for valid business purposes after approvals by authorized persons
and in compliance with applicable donor, sponsor or regulatory requirements.

Procedure: Cash disbursements are used to facilitate the purchase of goods and
services for university operations. These payments must conform to university
policies and in many instances the policies and restrictions of donors and sponsors
including state and federal requirements. If payments do not follow applicable policy
guidelines the university may be susceptible to fraud, have adverse publicity in
addition to having to refund amounts that auditors find to have been incorrectly
charged, along with potentially paying fines.

Some cash disbursement systems include the formal requisition/purchasing system,
procurement cards, corporate cards (if a liability of the university), direct payment
vouchers or check requests, reimbursement vouchers, travel vouchers and petty
cash. Payroll is also a cash disbursement but is not included in the Kuali Financial
System (KFS). The base KFS system does not include purchasing so separate
policy guidance will be provided when that module is released.

There are some common elements of cash disbursements policies. There should be
clear guidance as to which form of disbursement is appropriate for a particular
transaction. The requisition/purchasing system is typically used for significant
purchases especially where the vendor invoice can be matched with the purchase
order and a receiving report. Procurement cards are used for certain small dollar
purchases Direct payment vouchers are special payments including for example
honoraria, entertainers, reprints and some independent contractors. Payments that
should be made through the payroll system must not be made by direct payment
voucher. Travel and other employee reimbursements are usually covered by
separate policies and payment reviews. Petty cash is used for those situations
where actual cash payments are required.

The larger dollar expenditures should have greater internal control review before
payment. There should be evidence of proper approvals, conformance to applicable
policies and receipt of goods or services before payment is made.

The university may have a list of prohibited transactions (e.g. contributions or club
dues) or transactions that require special approvals (e. g. memberships in
professional organizations). Some payments require obtaining tax identification
numbers and Form 1099 reporting. Charges to state or federal funds require special
review for conformity to the sponsor’s policies. Some payment requests must also be
approved by other university departments (e. g. travel). These are just some
examples of specific areas where clear policies are needed. Some list of policy
topics follow.
Topics for specific policies:
Conflict of Interest
Corporate Card (if university liability)
Emergency Procurement
Employee Morale Activities
IRS Form W-9
Meals and Entertainment
Moving Expense
Non-resident Aliens
Other Reimbursable Business Expenses
Petty Cash
Procurement Card
Sole Source
Travel Expense Reporting
       Advances and Prepaid Expenses
       Air Travel and Other Transportation
       Foreign Travel
       Meals and Entertainment
       Missing Receipts
       Non-reimbursable Expenses
       Personal Vehicles
       Preferred Travel Agency
       Rental Vehicles
       Tax Exemption

Kuali Financial System:

Kuali Work Flow can be structured to require additional approvals depending on
dollar amount or type of transaction. The funding source and object code type can
trigger additional approvals before payment. Charges for equipment on federal
grants for example can be automatically routed to the grants and contracts office.
Travel reimbursements can be routed to the travel group. Renovation expenses can
be routed to the physical plant office. These are just a few examples of how KFS can
support cash disbursements policies. Before entering work flow the transaction will
have passed the edit tests for conformity to business rules and will also have been
checked for sufficient funds.
Journal Vouchers
Purpose: To provide general guidance on formulating policies for journal

Objective: Financial policies for journal vouchers should promote timely and
accurate entries supported by proper documentation and approval of the account
being charged.

Procedure: A broad definition of Journal Vouchers is that they are accounting
processes that transfer amounts from one university account to another without
the movement of actual cash into or out of bank accounts. This broad definition
includes service and other internal billings, fund transfers, distribution of
income/expense, general error correction and auxiliary vouchers. There are
many specialized uses of journal vouchers that are restricted to the central
finance office such as distributing investment income from a central pool,
recording depreciation and amortizations, etc. This policy guidance is aimed at
journal vouchers originated outside of the central finance office.

These include internal charges from service center billings for services provided
to other departments. These charges are usually expenditures (debits) to the
department receiving the service with a corresponding reduction in the budget
balance available and income (credits) to the service center with a corresponding
increase in the budget balance available. The income credits are usually
recorded as expense offsets to the service center because these internal sales
are not income to the university.

Service centers may include storerooms, physical plant operations, copy centers,
telephone service, animal boarding and many other services that support the
university’s operations. Billing rates are established following university
guidelines and in some cases state and federal regulations apply. Many service
centers are budgeted to be self-supporting and set rates to cover all costs of
providing the services. The costs to be recovered may be only direct costs or
both direct and indirect according to university policy and any applicable
sponsor’s regulations. Some service centers may be budgeted to be only partially
self supporting. For example, physical plant may provide a basic level of service
at no charge and charge for services beyond that level. Auxiliary enterprises may
also use journal vouchers to convert accounts to an accrual basis.

It is important for all journal vouchers to include a proper description of the
transaction. Documentation should include the purpose of the transaction in
terms that are easily understood by outside reviewers including auditors.
Kuali Financial System:

In Kuali the term Journal Voucher is reserved for a particular electronic
transaction document (eDoc) and the other transactions addressed above have
their own eDocs including Internal Billing, Service Billing and Auxiliary Vouchers.
Other electronic documents are for journal vouchers used at year end or by the
central finance or other authorized staff members. These electronic documents
have configurable business rules, may check for funds available on accounts
being charged, contain documentation of the transaction and are routed through
workflow for approval. Transactions and their effect on account balances may be
viewed by Balance Inquiry or Standard Reports.
Purpose: To provide an overview of Kuali Standard Reports.

Objective: Financial reporting should provide timely and relevant information to a
wide range of internal and external users. These users include faculty members
with grants, department chairs, auxiliary enterprise units, deans, central
administration and external resource providers to give just a few examples. It is
assumed that each institution implementing the Kuali Financial System will have
its own reporting tools to access Kuali financial data to meet specialized reporting
needs and managerial styles. In some cases financial information is merged with
information from other systems for the final report.

This policy template is concerned with the standard reports that are delivered
with KFS.

These reports are generated to provide a record of the activity posted in the
financial accounting systems and can be used to monitor and reconcile daily
transactions. In addition, reports are used to monitor budgets and to make
managerial decisions.

Procedure: Kuali Standard Reports are: Account Status, Consolidated Account
Status, Consolidated Object Codes, Account Transactions and Trial Balance.
FASB or GASB External Reports are technically not Standard Reports but are
discussed because of their importance. Balance Inquiry reporting is also a
standard feature of KFS.

Account Status
      For Accounts with Budgets this report shows – Budget, Current Month
        Transactions, YTD Actual, Outstanding Encumbrances, Projected
        Available Balance
      For General Ledger Accounts and/or Object Codes this report shows –
        Beginning Balance, Actual to Date, Ending Balance

Consolidated Account Status – provides Account Status information for groups
of accounts by organization unit. For example: Academic Department, Dean,
School, Auxiliary Enterprise, Physical Plant, Vice President

Consolidated Object Codes –provides detail for a range of object codes by
organization unit (e.g. physics department, school of arts and sciences). The
highest level summary would be for an entire college or university.

Account Transaction – provides detail on the individual transactions which are
shown in summary on the Account Status report. Encumbrances are included.
Detail includes: document type, document number, transaction description,
reference codes and project codes.

Trial Balance – Beginning Balance, Receipts, Disbursements, Ending Balance
for accounts with budgets. For general ledger accounts the reports shows
beginning fund or net asset amounts, additions, deductions and ending balances.

External Reports – Use the Kuali attributes and chart of accounts to structure
financial statements to comply with GASB or FASB requirements. These reports
can be accomplished with a reporting tool.

Balance Inquiry – Balance inquiry is available for: Account, Sub-account, Object
code, Sub-object code and displays budget, actual and encumbrance variances.
Pending entries can be included or excluded. From the balance inquiry report, it
is possible to drill down to a specific transaction. These inquiries can be run at
any time.

Features of Kuali Standard Reports:
       Each result field has a link on the header row for sorting, either
         ascending or descending.
       Some row fields have a link to inquiry which opens in a new window.
       Data can be exported to a csv, excel or htm file.

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Description: Flow Chart on Accounts Payable and Cash Disbursment document sample