UW-Madison Administrative Policy Policy # AOAP 101Accounting for Cash – Major Auxiliaries

Effective Date: Last Updated:

Last Reviewed:

April 7, 2017April 7, 2017April 7, 2017

Functional Owner Director, Auxiliary Operations AnalysisExecutive Sponsor Vice Chancellor for Finance & AdministrationPolicy Contact Director, Auxiliary Operations Analysis

Policy SummaryMajor auxiliaries accounting on the full accrual basis must have cash reconciliation procedures for all of the following cash transactions and balances:

Fund 128 cash balance Fund 123 cash balance Change Funds

Each division that accepts cash, checks, and/or credit cards should have procedures in place to reconcile daily cash deposits and credit card payments to internal sales records. Adequate separation of duties must be in place. Expenditure transactions for salaries, fringe benefits, supplies and services and capital should be reconciled to internal records, if applicable, and posted to the unit’s general ledger. Transactions should be reviewed for accuracy, with corrections processed as needed. Schedule AR will be used to reconcile the fund 128 cash balance on the general ledger to the Shared Financial System (SFS). It should be completed monthly. The Statement of Cash Flows will be used to document cash flowing through fund 128 for the current month and year-to-date. Change Funds should be reconciled in accordance with Accounting Services Policy 301.

Whom This Policy Applies ToThis applies to major auxiliaries that use the full accrual basis of accounting. Refer to AOAP 100 for the list of auxiliaries.

RationaleReconciling cash deposits and credit card receipts provides the necessary control mechanisms to reduce the risk of misappropriation of assets. In order for the control process to work effectively, it is necessary to segregate the duties of persons responsible. These procedures help ensure controls are in place to mitigate the risk.Reconciliation of cash also identifies errors in the auxiliary’s general ledger (Great Plains Dynamics or Oracle Financials) or in SFS and ensures the financial statements reflect the actual cash balance per SFS, which is the UW System general ledger of record.

Procedure DetailThe starting point for accounting for cash is to reconcile transactions posted to SFS to internal source documents on funds 128 and 123. This should be completed monthly.

I. Revenue Transactions. Each division that accepts cash, checks, and/or credit cards should have procedures in place to reconcile daily cash deposits and credit card payments to internal sales records. Adequate separation of duties must be in place. These transactions may be posted to the auxiliary’s general ledger daily or as part of the month end process. Daily reconciliation provides a record that can be used to perform the monthly reconciliation to SFS deposits. Each month, this record should be reconciled to SFS deposits through a process

of matching individual transactions. Deposits recorded on departmental records that have not yet posted to SFS should be tracked as deposits in transit.

This matching process may identify errors, such as deposits that have been in transit for long periods, deposits on SFS that are miscoded or for the incorrect amount, or deposits that do not belong to the division. Each potential error should be investigated and corrected, if needed. The correction may be necessary on the auxiliary’s general ledger, on SFS or both. If the correction is to SFS, it should be tracked as an in transit item to be corrected in a future month. It is good practice to maintain documentation showing what action was taken to correct the errors.

Internal billing transactions and refunds should also be included in the match of revenue transactions. These may also be in transit at the end of the month.

Segregated fee revenue, interest earnings, sales tax and some miscellaneous transactions will not have source documents, so there is no reconciliation. These should be reviewed and the related transactions will ultimately be recorded in the auxiliary’s general ledger.

Transfers of revenue to and from fund 123 will be handled as follows: If revenue is transferred to or from fund 123 with no related debt service payment, record the cash

transaction on both funds in the general ledger. If revenue is transferred from fund 128 to fund 123 for the exact amount of debt service paid from fund

123 and the division records the related debt service on fund 123 in the general ledger, record the cash transaction on both funds in the general ledger.

If revenue is transferred from fund 128 to fund 123 for the exact amount of debt service paid from fund 123 and the division records the related debt service on fund 128 in the general ledger, no entry is needed.

When all revenue transactions have been matched, a journal entry should be prepared to record transactions in the general ledger. The sum of all entries to cash for the month related to revenue transactions should equal SFS revenue (funds 128 and 123) minus prior month deposits in transit plus current month deposits in transit.

II. Expenditure Transactions. Expenditure transactions for salaries, fringe benefits, supplies and services, and capital should be reconciled to internal records, if applicable, and posted to the general ledger.

Transactions should be reviewed for accuracy, with corrections processed as needed. If there is a correction that will affect the cash balance, such as an expenditure charged to the division in error, it should not be included in the cash total. Instead, it should be treated as an in-transit item.

Debt service payments on fund 123 may be recorded on either fund 128 or 123 in the general ledger. The related revenue transaction will differ depending on the division’s choice (see above).

Transfers to the Division of State Facilities on account code 5805 should be entered to the general ledger as a transfer from Cash to Cash on Deposit at DSF.

The sum of credits to cash should reconcile to the sum of expenditure transactions on funds 128 and 123.

2 | document.docx

III. Cash Balance Reconciliation/Schedule AR. Schedule AR is used to reconcile the fund 128 cash balance on the general ledger to SFS. It should be completed monthly.

The top half of Schedule AR starts with the month-end cash (fund) balance from SFS. Add or deduct in transit items such as deposits, refunds, or corrections to calculate the adjusted cash balance.

The bottom half of the schedule is the division’s cash balance for the unit(s) included in this statement. This would be the fund 128 cash balance in Great Plains, Oracle, or other general ledger used to produce statements. This is the number that will appear on the balance sheet as the fund 128 cash balance. Enter this on the Entity Cash Balance line.

When the reconciliation is complete, the adjusted SFS balance should equal the cash balance in the auxiliary general ledger. If not, re-trace the reconciliation steps until the reason for the variance is found.

It is not necessary to complete Schedule AR for fund 123 because there generally will not be in transit items on this fund. The fund 123 cash balance should be verified to ensure it equals the balance on SFS. If it does not, a separate Schedule AR may be used as a tool to reconcile the two balances.

IV. Preparation of the Statement of Cash Flows. The Statement of Cash Flows is used to document cash flowing through fund 128 for the current month and year-to-date. In-transit items are included in the cash balance on the balance sheet and should be included on the Statement of Cash Flows. The ending cash balance must equal the fund 128 balance shown on the balance sheet and Schedule AR.

Debt service payments are paid through fund 123, with a revenue transfer made from fund 128 to fund 123 to cover the payments. Although debt service payments are not made through fund 128, these should be shown on the Statement of Cash Flows as if they had been paid through fund 128. If there are additional transfers to or from fund 123, these should be shown in the other cash inflow/outflow section of the report.

Transfers to DFS for capital projects should be in the capital section of the report.

Sales tax should be included in the other cash inflow/outflow section of the report.

Bond proceeds do not flow through fund 128. They are held by the State of Wisconsin for payments to contractors. Divisions may choose to reflect bond proceeds on the Statement of Cash Flows. This is acceptable as long as there are equal amounts in the other cash inflow and outflow sections, netting to zero.

V. Change Funds. A change fund is a cash advance from Accounting Services to departments with retail sales and cashiering operations that require handling of currency and coin. Requirements for management of these operations are found in Accounting Services Policy 301. In addition to the ongoing reconciliation requirement included in this policy, it is good business practice to implement a procedure to independently count the cash on hand to ensure the full amount is on hand.

The amount of the change fund should be reported as an asset on the balance sheet. The corresponding liability to Accounting Services should also be recorded.

3 | document.docx

Consequences for Non-ComplianceFailure to comply with this procedure may result in adverse audit findings, inaccurate financial statements, and undetected errors or misappropriation of cash.

Supporting Tools Schedule AR Statement of Cash Flows (sample)Definitions1. Segregation of duties (SoD) is an internal control designed to prevent error and fraud by ensuring that at least

two individuals are responsible for the separate parts of any task.2. In transit, or un-cleared deposit, is a cash or check deposit that is recorded in the departments accounting

system but has not posted to SFS.ResponsibilitiesAuxiliary Operations Analysis is the recipient of financial reports from auxiliaries and is responsible for maintaining this policy.

Link to Current Policyhttp://aoa.wisc.edu/policies-procedures-major-auxiliaries.htmLink to Related PoliciesAccounting Services Policy 301: http://www.bussvc.wisc.edu/acct/policy/ca/capol.html

Link to Policy HistoryThis is a new policy.

4 | document.docx