1. Service Bureau General Ledger Jennifer Duff, CPA Director of Financial Solutions jduff@mpay.com 781.810.9000 ext. 236 How to develop a reconciliation program to account for client funds. 460 Totten Pond Road  Suite 450  Waltham, MA 02451

2. Service Bureau General Ledger  Overview  Processing  Reports 460 Totten Pond Road  Suite 450  Waltham, MA 02451

3. Service Bureau General Ledger Overview  Process payroll in M3  ACH files are created and transmitted  Funds are collected from client and disbursed to employees  M3 ledgers are updated to reflect client cash held and liabilities due to agencies Client’s Bank Service Bureau’s Bank Employees’ Bank ACH Client Balance Sheets 460 Totten Pond Road  Suite 450  Waltham, MA 02451

4. Service Bureau General Ledger Overview  Paying taxes in M3  ACH Credit file, EFT Debit file, or check is created and transmitted  Funds are disbursed to tax agencies  M3 ledgers are updated to reflect new cash balances and relieve liability balances Client’s Bank Service Bureau’s Bank Employees’ Bank ACH Tax Agencies’ Bank Client Balance Sheets 460 Totten Pond Road  Suite 450  Waltham, MA 02451

5. Service Bureau General Ledger Overview 460 Totten Pond Road  Suite 450  Waltham, MA 02451

6. Service Bureau General Ledger Overview  Bank Reconciliation  Electronic bank statement is imported into M3  Transactions are matched automatically  Exceptions are matched manually  Bank reconciliation report is produced Client’s Bank Service Bureau’s Bank BAI Employees’ Bank ACH Client Balance Sheets Reconciliation Reports 460 Totten Pond Road  Suite 450  Waltham, MA 02451

7. Service Bureau General Ledger Overview 460 Totten Pond Road  Suite 450  Waltham, MA 02451

8. Service Bureau General Ledger Overview 460 Totten Pond Road  Suite 450  Waltham, MA 02451

9. Service Bureau General Ledger Overview  Internal Controls  Reports are produced on a daily basis to maintain controls –Balance Sheet –Negative Liabilities –Uncleared items –Returned ACH items Client’s Bank Service Bureau’s Bank Employees’ Bank Tax Agencies’ Bank ACH BAI Client Balance Sheets Reconciliation Reports Internal Control Reports 460 Totten Pond Road  Suite 450  Waltham, MA 02451

10. Chart of Accounts – GL1  Each account number consists of “GL1”, “GL2”, and “GL3”  GL1 designates which of the four client ledgers is affected

11. 460 Totten Pond Road  Suite 450  Waltham, MA 02451 Chart of Accounts – GL1  Billing (GL1 = 1) –Tracks entries made when invoices are created –Only ledger that tracks service bureau, not client, funds  Direct Deposit (GL1 = 2) –Tracks entries made when service bureau impounds direct deposit funds and then sends those funds out to employees  Trust (GL1 = 3) –Tracks third party agency funds impounded by service bureau –Tracks ‘trust’ account checks (checks cut to employees and drawn on service bureau bank account)  Tax (GL1 = 5) –Tracks tax funds held in escrow for the client

12. 460 Totten Pond Road  Suite 450  Waltham, MA 02451 Chart of Accounts – GL2  GL2 designates whether the item is an asset or liability  Cash (GL2 = 1)  A/R (GL2 = 2)  Payable (GL2 = 3 or 4) –GL2 = 3 indicates that the liability has not been assigned a due date (i.e. FUTA, SUI taxes) –GL2 = 4 indicates that the liability has been assigned a due date; however, the deposit has not been created in M3

13. 460 Totten Pond Road  Suite 450  Waltham, MA 02451 Chart of Account – GL3  GL3 is used with liability entries (GL2 = 3 or 4)  Indicates to whom the liability is payable  In the tax ledger (GL1 = 5), GL3 is equal to the tax code  Examples: FITW, FUTA, CA, CASUI

14. 460 Totten Pond Road  Suite 450  Waltham, MA 02451 Chart of Accounts – User Defined Accts  User Defined Accounts  SB can customize chart of accounts  Used for unique needs of service bureau –Example: ZBA Transfers  GL2 = 5  SB defines the GL3  User defined account can be set up as –Asset –Liability –Revenue –Expense

15. 460 Totten Pond Road  Suite 450  Waltham, MA 02451 Chart of Accounts – Suspense Accounts  Suspense Accounts  Clearing accounts  Used by M3 as a temporary holding account  Balance should always be $0 at the end of the payroll processing  GL2 = 9

16. 460 Totten Pond Road  Suite 450  Waltham, MA 02451

17. Closed Reconciliation Program Ledger Entries Entries are posted to the ledger through payroll processing, creating an ACH file or printing a check Items that occur outside of M3 (i.e. wire transfer, NSF) are posted manually to ledger 460 Totten Pond Road  Suite 450  Waltham, MA 02451

18. Internal Control Reports 460 Totten Pond Road  Suite 450  Waltham, MA 02451

19. Internal Control Reports 460 Totten Pond Road  Suite 450  Waltham, MA 02451

20. Internal Control Reports There was no tax deposit created for the 10/1/05 liability created during conversion. Need to draft client or reduce 11/11/05 deposit.

21. Closed Reconciliation Program Ledger Entries Entries are posted to the ledger through payroll processing, creating an ACH file or printing a check Items that occur outside of M3 (i.e. wire transfer, NSF) are posted manually to ledger Bank Reconciliation Bank file is matched against all entries posted to Cash in the ledger Items on the bank statement are marked as cleared An outstanding items report is produced to identify all entries posted to cash that have not cleared the bank 460 Totten Pond Road  Suite 450  Waltham, MA 02451

22. Internal Control Reports 460 Totten Pond Road  Suite 450  Waltham, MA 02451

23. Internal Control Reports 460 Totten Pond Road  Suite 450  Waltham, MA 02451

24. Closed Reconciliation Program Ledger Entries Entries are posted to the ledger through payroll processing, creating an ACH file or printing a check Items that occur outside of M3 (i.e. wire transfer, NSF) are posted manually to ledger Bank Reconciliation Bank file is matched against all entries posted to Cash in the ledger Items on the bank statement are marked as cleared An outstanding items report is produced to identify all entries posted to cash that have not cleared the bank Ledger Reconciliation Bank data is reconciled to ledger: Ending bank balance +/- outstanding item Equals ledger cash balance 460 Totten Pond Road  Suite 450  Waltham, MA 02451

25. Internal Control Reports Ledger Reconciliation: Ending Cash Balance + ZBA Balances (if applicable) +/- Outstanding Items Equals Ledger Cash Balance Ending Cash Balance: 0.00 + ZBA Balances814.28 +/- Outstanding Items: -797.96 Equals Ledger Cash Balance: 16.32 460 Totten Pond Road  Suite 450  Waltham, MA 02451

26. Q & A  Questions?