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APPENDIX
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APPENDIX
Home : Finance : Accounting and Financial Oversight

Transaction Justification/Documentation Standards For All Non-Sponsored and Sponsored Transactions

Printed on: . Please go to http://policy.umn.edu for the most current version of the Policy or related document.

Effective: November 2003

Revised as of: July 1, 2008

When completing University of Minnesota documents, preparers should keep in mind that in addition to the originating department's personnel (approvers, accountants, administrators and PIs), financial managers throughout the University (Audits, Accounting Services, OAR, SFR) would use and rely on the information contained in the financial transaction for an indefinite period of time. Supporting documentation must be sufficient to comply with institutional policies, procedures and provide an audit trail. Extraction or review of the transaction justification maybe conducted either by reviewing the actual documents or by utilizing the data warehouse. Therefore, some additional requirements have been added to the procedures for documenting financial transactions for all fund sources on both sponsored and nonsponsored activity at the University of Minnesota.

All transaction justifications must include complete information about the transaction by documenting answers to the following (referred to as the "5 W's" throughout this Job Aid):

  • WHY is the transaction being completed and HOW does the transaction relate to the account affected or charged when the relationship to the account is not clear.
  • WHAT is the transaction for?
  • WHO initiated the transaction? and WHO are the affected individuals or units?
  • WHERE and WHEN did (or will) the activity take place?
  • The justification should not repeat information provided elsewhere in the document or by the account string. It must provide additional information.

Note: Refer to individual document instructions for proper areas to document justifications.

Documentation standards for the following areas are addressed in this Job Aid:

  1. Entertainment, Hospitality and Recruiting
  2. Budgeting
  3. Cost Transfer/Non-Salary
  4. Cost Transfer/Salary
  5. Purchases from Internal Vendors
  6. Journal Entries
  7. Purchases from External Vendors
  8. All Payment Transactions
  9. Travel and Employee Reimbursements

Entertainment, Hospitality and Recruiting

In addition to the 5 W's, additional documentation is required for entertainment, hospitality and recruiting (EHR) expenses. The requirement is regardless of employee/non-employee status or transaction type. This requirement also applies to transactions (meals, etc.) with University Dining Services or the Campus Club for EHR business expenses that are charged to departmental membership accounts as indicated below (Entertainment is not normally allowed on sponsored projects):

Entertainment and recruiting expenses must be documented in the following manner:

  • Business purpose for the expense, benefit gained or expected to be gained
  • Location and date
  • Names of attendees and their business relationship to you or the University (alumni, donor, occupation or their titles)
  • For entertainment, the nature of the business discussion or activity that occurred immediately before or after the entertainment must be documented.

Note: The following events do not need to adhere to the above additional documentation standards and ought to only provide answers to the basic 5 W's only (individual names and nature of the business discussion immediately before, during or after the entertainment, do not need to be documented):

  • Staff meals provided less frequently than quarterly and that have a nominal cost per person (nominal in these instances generally mean an amount equivalent to the travel per diem rate associated with the location/meal of the entertainment expense).
  • Meals or refreshments served incidental to an educational or training event that lasts at least a half day.
  • Meals or refreshments served incidental to an event where the participants of the event and benefactors to the meals and refreshments must pay to attend.
  • Meals or refreshments served at an event where the participants are not employees or independent contractors of the department sponsoring or paying for the event and the event is central to the university related mission of the department.
Special consequences of inadequately documented travel, recruiting or entertainment expenses

IRS regulations require the University to increase the employee's taxable income for costs relating to reimbursement of travel, entertainment and recruiting expenses not properly documented according to the above-mentioned standards. Each approver that authorizes and approves transactions is responsible for ensuring that the above standards are followed. If an employee fails to adequately document these expenses the approver is authorized to notify the payroll department of the amount of expenses not substantiated so that these expenses can be added to the employee's compensation. Failure to report these instances to the payroll office puts the University at risk for non-compliance with the IRS regulations and may jeopardize the University's ability to reimburse employees on a tax-free basis.

For further reference see:

Budgeting

Re-budgeting/Reactivation/Deactivation/Activation

The following information is required for All Non-Sponsored & Sponsored Transactions:

In documenting answers to the 5 W's, the preparer must:

  • Identify the reallocation of or change in budget.
  • Verify the allowability per funding source and University policy and procedure.
  • Describe how the re-budget benefits the account and why it is necessary at this time.
  • Identify the reason for reactivating or deactivating the account code and that it is allowable per funding source and University policy and procedure.

Note For Non-Sponsored: If the activation of an object does not include a dollar change in the overall budget, Units can activate an object line at $0 without documenting the 5W justification. However, if activating a line involving a dollar change in the budget, in those situations, the 5W justification would be required.

Examples:

Non-sponsored:

$200,000 addition to budgeted revenue/expenses related to an increase in a non-sponsored federal appropriation - per RRC manager. This is allowable per University policy. It represents a significant increase in a revenue source unanticipated at the time of budget prep. The budget adjustment will allow for accurate management reporting.

Re-budget $3000 from a personnel account to a medical/laboratory supplies account, an endowment account in support of Washburn Professorship in Fisheries, Wildlife & Conservation Biology. The reallocation is to pay for increased costs of HPLC gels instead of personnel costs as originally budgeted.

Sponsored:

$100 re-budgeted from a supplies account to a services account on the NIH study "bones are brittle." Costs which are ordinarily for indirect type costs, have been justified in the sponsored project proposal as costs that relate to the scientific objectives of the grant. The reallocation is to pay for film development of pictures taken at the retirement home during bone density screenings. These pictures will be used to help promote continued participation from the elderly involved in the study.

For further reference see:

Cost Transfer/Non-Salary

The following information is required for All Non-Sponsored and Sponsored Transactions:

In documenting answers to the 5 W's, the preparer must:

  • Indicate the date of the original charge.
  • Reference the number of the original accounting document and the account.
  • Justify why the cost is being transferred. If the cost is being moved onto a sponsored account, this explanation is particularly important for accountability to sponsors. It cannot merely state that the transfer was made "to correct error" or "to transfer to correct project." The form must state how and why the error occurred. This information is needed to adequately support the validity of this cost on the project and may be reviewed by auditors.
  • Description of the cost being transferred.
  • Note steps taken to avoid errors in the future, if not simply a keystroke error.
  • The originally charged document should contain the required justification per the standards outlined in this job aid. If this transfer alters this justification in any way, the change should be reflected in the transfer justification.
  • Additional justification (reason for delay) required for transfers processed outside of allowable transfer window listed in Administrative Policy: Processing Internal Accounting Transactions (under development).
Examples:

Nonsponsored:

Description: Excel Energy Bill for April 2003.

Reason: Distribute April expense to operating departments.

Comments: Expense split between departments.

Sponsored:

Description: Smith ASEE Conf March 2003

Reason: Conference expenses were charged to a non-sponsored account because the award was not set up by the time the costs for the conference were incurred.

Comments: The department will avoid this type of cost transfer in future by using a pre-award/advanced account in order to charge the conference costs to a sponsored account.

This cost transfer is late per the cost transfer policy and the staff has instituted a new process so that corrections are made on time. PI and department head's signature in place on department copy.

For further reference see:

  • Administrative Policy: Processing Internal Accounting Transactions (under development)

    Administrative Procedures:

    • Adjusting/Correcting Internal Accounting Transactions on Non -Sponsored Accounts (under development)
    • Adjusting or Correcting Internal Accounting Transactions for Sponsored Accounts (under development)

Cost Transfer/Salary

The following information is required for All Non-Sponsored and Sponsored Transactions:

In documenting answers to the 5 W's, the preparer must provide:

Sufficient documented justification that will provide a credible audit trail for all HSAs. Call SFR for instructions on cost transfers across fiscal years.

Examples:

Nonsponsored:

To correct operating account used. The Microbiology payroll staff received information on a new employee too late to be processed on the proper account so payment was made on a central account. Once the information was received, an HSA was used to transfer from the central account to the correct operating account.

Sponsored:

To reflect effort expended. Dr. John Doe reduced his effort by 10% on another and increased his effort by 10% on one project effective xx/xx/xx. This change was not correctly adjusted on his distribution until xx/xx/xx. Dr. Doe's effort statement for this reporting period will reflect these changes in effort on both projects.

Note: Changes in committed effort greater than 25% for the budget period usually will require sponsor approval.

For further reference see:

  • Administrative Policy: Processing Internal Accounting Transactions (under development)

    Administrative Procedures:

    • Adjusting/Correcting Internal Accounting Transactions on Non -Sponsored Accounts (under development)
    • Adjusting or Correcting Internal Accounting Transactions for Sponsored Accounts (under development)
  • Administrative Policy: Effort Certification

Purchases from Internal Vendors

The following information is required for All Non-Sponsored & Sponsored Transactions:

In documenting answers to the 5 W's, the preparer must provide:

  • Supporting documentation must be sufficient to comply with institutional policies and procedures. Transaction justifications must be able to explain the business purpose of the transaction, be reasonable and allocable. In general, documentation must be sufficient to verify the accuracy and appropriateness of transactions at any time during the required record retention period.
  • Refer to the section above within this Job Aid for documentation requirements for Entertainment, Hospitality and Recruiting transactions.
  • Clear explanations must be provided when justifying the following circumstances:
    • of common personal use items or items that do not appear to have a direct benefit to the University and/or project
    • Unusual purchases for the type of account charged

Additional justification requirements for Sponsored Accounts ONLY:

  • The following phrase is acceptable and satisfies the WHY and WHAT portions of the 5W's: "This cost was justified in the proposal and is allowable per University and Sponsor policies." If this statement is used, the remaining WHO, WHEN and WHERE portions of the justification are still required.
  • following are some examples of situations requiring additional justification for Sponsored transactions:
    • Equipment not listed in the proposal
    • Common indirect type costs charged to sponsored projects
    • General-purpose equipment (including computers) charged to sponsored projects
    • Purchases in the last 60 days of the project period should be reviewed closely for possible disallowances. Purchases within the last 60 days of a grant period are a known risk indicator communicated by auditors. If an item must be purchased within 60 days from a project's end, it is recommended that the purchase be encumbered and the justification for the purchase explain the reason for the timing.
    • For purchase orders, Pre-travel expenses on sponsored accounts, the justification must establish a beneficial or causal relationship of the travel to the project or account charged
    • For additional information please refer to the Sponsored Projects Manual

Note: Storehouse, Facilities Management (FM), and other interface Journal Entries or IVs which charge sponsored project accounts need justification when the expense item is normally considered to be an indirect cost. These justifications may need to occur manually outside of the system. If the cost was justified in the proposal, write in the comment field: "This cost was justified in the proposal and is allowable per University and Sponsor policies."

Example:

Seller description: Fleet Services

Line Description: Vehicle Lease

Comments: Vehicle ID 22021. Date 5/15/03. Leased to John Doe.

For further reference see:

  • Administrative Policy: Processing Internal Accounting Transactions (under development)

    Administrative Procedure:

    • Originating Internal Accounting Transactions - C. Recording Interdepartmental Sales (under development)

Journal Entries

The following information is required for All Non-Sponsored and Sponsored Transactions:

Answers to the 5 W's must be provided, in addition:

  • Supporting documentation must be sufficient to comply with institutional policies and procedures. Online transaction justifications must be able to explain the business purpose of the transaction and answer the questions who, what, where, when and why. In general, documentation must be sufficient to verify the accuracy, appropriateness, reasonableness and allocability of the transactions at any time during the required record retention period.
  • Refer to the section above within this Job Aid for documentation requirements for Entertainment, Hospitality and Recruiting transactions.

Additional justification requirements for Sponsored Accounts ONLY:

  • The following phrase is acceptable and satisfies the WHY and WHAT portions of the 5W's: "This cost was justified in the proposal and is allowable per University and Sponsor policies." If this statement is used, the remaining WHO, WHEN and WHERE portions of the justification are still required.
  • For payments associated with Human Subjects, refer to the specific policy and procedures for documentation requirements.
Examples:

Nonsponsored:

To record an adjustment to the Accounts Receivable balance to write-off uncollectible accounts in the amount of $10,000.

To record or correct the movement of resources based on management's decision

  • Line Description: Jones Set up funding
  • COMMENTS: Provide year one of two year set up funding for Asst Professor Jones Per approved letter of offer dated May 5, 2003

For further reference see:

  • Administrative Policy: Processing Internal Accounting Transactions (under development)

    Administrative Procedures:

    • Originating Internal Accounting Transactions (under development)
    • Adjusting or Correcting Internal Accounting Transactions for Sponsored Accounts (under development)

Purchases from External Vendors

The following information is required for All Non-Sponsored and Sponsored Transactions:

Answers to the 5 W's must be provided, in addition:

  • Name or description of product (a part number is not sufficient)
  • Name of end user (individual or department/group name, in addition to document preparer)
  • Clear explanations must be provided when justifying the following circumstances:
    • Purchases of common personal use items or items that do not appear to have a direct benefit to the University and/or project.
    • Unusual purchases for the type of account charged.

Additional justification requirements for Sponsored Accounts ONLY:

  • The following phrase is acceptable and satisfies the WHY and WHAT portions of the 5W's: "This cost was justified in the proposal and is allowable per University and Sponsor policies." If this statement is used, the remaining WHO, WHEN and WHERE portions of the justifications are still required.
  • The following are some examples of situations requiring additional justification for Sponsored transactions:
    • Equipment not listed in the proposal
    • Common indirect type costs charged to sponsored projects
    • General-purpose equipment (including computers) charged to sponsored projects
    • Purchases in the last 60 days of the project period should be reviewed closely for possible disallowances. Purchases within the last 60 days of a grant period are a known risk indicator communicated by auditors. If an item must be purchased within 60 days from a project's end, it is recommended that the purchase be encumbered and the justification for the purchase explain the reason for the timing.
    • For Pre-travel expenses on sponsored accounts, the justification must establish a beneficial or causal relationship of the travel to the project or account charged.
    • For additional information please refer to the Sponsored Projects Manual.
Examples:

Non-sponsored:

James Smithz and Chris John classrooms, AV equipment replacement for classrooms. Some of the existing equipment is unrepairable or too expensive to repair. Funds were budgeted early this fiscal year for classroom upgrades.

Sponsored:

James Smithz and Chris John classrooms, AV equipment to use in presenting research data to research participants. Funds were budgeted in original proposal for this equipment.

Note: When information related to the 5W's is already provided in another area of the document, it does not need to be repeated in the Justification information. "Where", "When" and "How" are generally listed elsewhere on the document.

For further reference see:

All Payment Transactions

The following information is required for All Non-Sponsored and Sponsored Transactions:

Documenting the 5 W's is required on payment documents when:

  • There is no Requisition/Purchase Order related to the payment.
  • The nature and reason for the transaction has changed since the creation of the purchase order.

Note: When processing a payment document (invoice) that relates to an approved Requisition/Purchase Order and contains the required justification documentation, justification on the payment document is not required.

Additional documentation is required as indicated below:

  • Refer to the section above within this Job Aid for documentation requirements for Entertainment, Hospitality and Recruiting transactions.
  • Clear explanations must be provided when justifying the following circumstances:
    • Purchases of common personal use items or items that do not appear to have a direct benefit to the University and/or project.
    • Unusual purchases for the type of account charged.
  • For payments associated with Human Subjects, refer to the specific policy and procedures for documentation requirements.

Additional justification requirements for Sponsored Accounts ONLY:

  • The following phrase is acceptable and satisfies the WHY and WHAT portions of the 5W's: "This cost was justified in the proposal and is allowable per University and Sponsor policies." If this statement is used, the remaining WHO, WHEN and WHERE portions of the justification are still required.
  • Documentation must include: the rate of pay, period of service, and description of duties in sufficient details to show the benefit to the project.
  • The following are some examples of situations requiring additional justification for Sponsored transactions:
    • Equipment not listed in the proposal
    • Common indirect type costs charged to sponsored projects
    • General-purpose equipment (including computers) charged to sponsored projects
    • Purchases in the last 60 days of the project period should be reviewed closely for possible disallowances. Purchases within the last 60 days of a grant period are a known risk indicator communicated by auditors. If an item must be purchased within 60 days from a project's end, it is recommended that the purchase be encumbered and the justification for the purchase explain the reason for the timing.
    • For reimbursement of pre-travel expenses on sponsored accounts, the justification must establish a beneficial or causal relationship of the travel to the project or account charged.
    • For additional information please refer to the Sponsored Projects Manual.

    Payments of less than $200.00 to consultants must include the following:

    • Rate of pay
    • Period of service
    • A description of the services in sufficient detail to show a benefit of the cost to the sponsored project

Examples:

Non-Sponsored - Purchase of software:

Purchased by Joe Smith from Office Depot. Software for survey project data, requested by Dr. X.

**Date purchased (already provided on invoice/receipt)

Sponsored:

The widgets are needed to grow endothelial cells so Bob Long, Lab Tech on this grant, can perform microassays on the cells as stated and justified in the approved proposal. The PI needs to order this amount for experiments planned during the current budget period.

**Note: The justification for "How" is required when the item(s) purchased and the relationship to the account charged is not clear. Also, when information related to the 5W's is already provided on an invoice or as part of the ECAR information, it is only necessary to provide the information that has not been provided. (**e.g., (1) The date is provided as part of an invoice or the downloaded information for an ECAR. (2) The "where" is provided on the invoice or is part of the information provided on an ECAR. In these cases, it is not necessary to repeat this information.)

For further reference see:

Travel and Employee Reimbursements

The following information is required for All Non-Sponsored and Sponsored Transactions:

Answers to the 5 W's must be provided, in addition:

  • Expense justification explaining who is traveling, what is the purpose of the travel, where, when, why travel is necessary and how the travel benefits/relate to the account charged, must be included on the document.
  • Refer to the section above within this Job Aid for documentation requirements for Entertainment, Hospitality and Recruiting transactions.
  • Clear explanations must be provided when justifying the following circumstances:
    • Purchases of common personal use items or items that do not appear to have a direct benefit to the University and/or project.
    • Unusual purchases for the type of account charged.
  • For payments and reimbursements associated with Human Subjects, refer to the specific policy and procedures for documentation requirements.

Additional justification requirements for Sponsored Accounts ONLY:

  • Specify whether the traveler is presenting research. If not presenting, a specific purpose statement must be included (i.e. collaborate with other researchers, off-site research, conferences, project planning meeting, etc).
  • Description of work to be accomplished.
  • List either the names of participants or general description of their relationship to the project (i.e. sponsor representatives, industry advisors).
  • For reimbursement of pre-travel expenses on sponsored accounts, the justification must establish a beneficial or causal relationship of the travel to the project or account charged.
  • For additional information please refer to the Sponsored Projects Manual.
  • Effort must be certified on a sponsored account when travel expenses are charged.
  • For additional information please refer to the Sponsored Projects Manual and the Frequently Asked Questions in the travel policy.

For further reference see:

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Last modified on September 18, 2012