Documenting Financial/Accounting Transactions
- Director of Accounting Services
- Mollie Viola
Justification standards help ensure that the benefit to the institution and compliance with regulatory requirements is clearly documented and can be understood by both internal and external reviewers (e.g., managers, auditors, IRS, the public) for all financial and accounting transactions.
University faculty and staff initiating, preparing, completing or approving any sponsored or non-sponsored financial transactions must comply with the justification and documentation standards established by this policy, all other associated policies, procedures and job aids.
Units must ensure that the transaction justification and supporting documentation includes complete and transparent information about the transaction, to include:
- WHO initiated the transaction and who are the affected individuals or units?
- WHAT is the transaction for?
- WHERE did/will the activity take place (if applicable)?
- WHEN did/will the activity take place (if applicable)?
- WHY the transaction is being completed and how does the transaction relate to or benefit the account affected or charged?
Units need not repeat information in the justification that is already included in the transaction or supporting documentation. Rather to comply with policy, the justification must provide an explanation about the allowability, allocability, reasonableness and benefit to the project/University not already apparent within the transaction or supporting documentation.
Units must record transactions accurately, in a timely manner, and completely within financial system guidelines and applicable external agency rules (including federal agencies funding University programs, the Internal Revenue Service, and the Minnesota Department of Revenue). Accurate recording includes adequate descriptions of transactions, as well as the correct use of chart of account codes and all other chart fields.
Reason for Policy
University financial transaction documentation for sponsored and non-sponsored activity must consistently meet and comply with legal, governmental and auditing requirements. Providing thorough and complete transaction justifications and supporting documentation protects and benefits the University in the following ways:
- Minimizes the risk of penalties and fines due to unsubstantiated business expenses.
- Ensures compliance with legal and regulatory requirements.
- Establishes adequate and consistent documentation standards for all financial transactions.
- Provides an independent and efficient source for obtaining transactional information.
- Complies with tax regulations that specify requirements for nontaxable reimbursements under an accountable plan versus reimbursements taxable to employees.
- Minimizes reputational risks and adverse public perception.
|General Document Instructions||University Financial Helplinefirstname.lastname@example.org|
|Policy Questions||Mollie Violaemail@example.com|
- Accountable Plan
- An accountable plan requires that reimbursements and/or other expense allowance arrangements meet certain IRS requirements related to business-connection and substantiation, and requires that amounts in excess of substantiated expenses be returned in a timely manner. Amounts paid under an accountable plan are excluded from the individual's income. Reimbursements made that do not meet the requirements of the accountable plan are taxable.
- Allocable Costs
- Expenses for goods or services which can be charged to (or allocated to) a particular unit, activity or function because the goods or services provide a commensurate benefit to that unit, activity or function.
- Allowable Costs
- Expenses for goods or services which can be charged to a particular source of funds. Expenses may be deemed allowable by law or regulation; by external parties such as donors or sponsors; or by the University, based on the institution’s risk management profile.
- Documentation Standards
- Common rules and guidelines that establish the form, type and amount of documentation that is reasonable and appropriate to establish the justification for a transaction. Documentation requirements may include (but are not limited to) the following, depending on the type of transaction:
- Written explanations containing relevant financial data elements (such as emails) Detailed receipts, or confirmation of payment;
- Bill of sale, invoice, etc.
- Non-Sponsored Funds (NS)
- Includes general operations and maintenance, miscellaneous unrestricted, auxiliaries, internal service organizations, federal appropriations, state specials, and miscellaneous restricted. See funds included in this fund type ( see http://www.finsys.umn.edu/coa/coa_b_acct.html).
- Sponsored Project
- An externally funded activity that is governed by specific terms and conditions. Sponsored projects must be separately budgeted and accounted for subject to terms of the sponsoring organization. Sponsored projects may include grants, contracts, and cooperative agreements, as well as other public service activities.
- The IRS requires that records be provided on a timely basis that show details of the Who, What, Where, When and Why to substantiate all expenses reimbursed under an accountable plan. For hospitality expenses, including entertainment and meals with non-university attendees, the nature, timing and duration of the business discussion and the names of the persons who took part in the entertainment activity must also be part of the substantiation.
- Transaction Justification
- Explanations that delineate a transaction’s legitimate business purpose or benefit to the University regardless of funding source, May be supplied by supporting documentation and/or written explanation when documentation does not provide adequate clarity or transparency.
- Approver/Certified Approver
- Ensures all documents submitted for approval contain adequate justification and supporting documentation as required by this policy, job aids, and related procedures.
- Controller's Office
- Ensures accuracy and appropriateness of policy. Responsible for timely updates, policy maintenance and related communications; compliance oversight.
- Department Manager
- Communicates policy requirements and ensures compliance for their area(s). Oversees and monitors all transaction activity in their area.
- Oversees and monitors all transaction activity in their units.
- Transaction Initiator
- Requests the purchase of goods, services or travel; initiates process of procurement. Provides supporting documentation and clear and complete business justification for the transaction preparer.
- Transaction Preparer
- Prepares transaction in the financial system in accordance with policies and procedures. Obtains appropriate approvals.
- Sponsored Projects Manual
- CA Program Reference for paying individuals: Payments To Individuals Grid
- Administrative Policy: Budget Development and Oversight for Current Non-Sponsored Funds
- Administrative Policy: Effort Certification
- Administrative Policy: Processing Internal Accounting Transactions
- Administrative Policy: Using the University Procurement Card
- Administrative Policy: Purchasing Goods & Services
- Administrative Policy: Traveling on University Business
- Administrative Policy: Paying Human Subjects and Maintaining Confidentiality and 1099 Reporting
- Administrative Policy: Hospitality and Special Expenses
- Certified Approver Community of Practice (CoP)
- November 2014 - Comprehensive Review, Minor Revision. Comprehensive review. New appendices to assist in determining what additional information should be added to a transaction to satisfy the 5 Ws. Minor changes to language to improve clarity.
- July 2008: Job Aid and Responsibilities updated to reflect EFS changes.
- June 2004 - Transaction Justification Job Aid was published in December 2003. The job aid has been updated to reflect that "How" justifications only required when the account relationship is unclear. Notes were added or enhanced for Budgeting; and Entertainment, Hospitality & Recruiting sections. Examples were added to several sections. Justification requirements changed for Payment to External Vendors & Individuals and Sponsored Accounts (Purchases from Internal Vendors, External Vendors & External Vendors and Individuals) only section.
- July 2004