2. Implementing Shadow Accounting Systems NCURA February 26, 2008 Tim Quigg, Associate Chair for Administration and Finance Department of Computer Science, UNC-Chapel Hill

3. Arguing with an Auditor is Like Wrestling with a Pig in Mud... After a while, you realize the pig ENJOYS it!

4. The Importance of Financial Planning at the Departmental Level Cannot be Overstated! Question 1: Where are we now? Question 2: Where are we going?

5. Financial Planning Question 1: Where are we now? Critical need for accurate, detailed and current view of financial status (by project, lab and department) If central institutional accounting records provide this – fine! If not, you need a departmental system (“shadow accounting”).

6. Financial Planning Question 2: Where are we going? Projecting expenditures/revenue into the future (for fiscal and project year) Special attention to personnel –Plan to cover soft money people for year –Note institutional policy for “layoffs” Special attention to fixed expenses, e.g., equipment, rent, software, service contracts If central institutional system doesn’t help, perhaps you need a departmental system!

7. Are Central Accounting Systems Adequate? “Relying upon poor data from a central system to manage the financial affairs of your department is like relying upon the tide to steer your ship.” It Just Doesn’t Make Sense!

8. Shadow Accounting Systems “A shadow accounting system is a set of records maintained at a local level independent of the official records” Have existed in some form (probably forever) PIs keeping account balances in lab books Personal computers fostered an explosion of shadow systems

9. Central Accounting Systems:  Remember, central systems are first designed to meet institutional needs  Department needs are secondary (or nonexistent)  Central systems often don’t provide everything that is needed to “run a department”, for example: Give you the flexibility to produce the reports that you need ENCUMBER SALARIES THROUGH BUDGET PERIOD

10. When To Implement A Shadow Accounting System?  When central system Does not provide enough detailed information, The information is not readily available in a usable form, When there is too much lag time between incurring an obligation and it being posted to the central records, and If the benefits (dollars and time) out weigh the costs!

11. Additional Advantages  Tracking Extra Information on Transactions Purpose of expense, e.g., graduate student education fund, faculty recruiting Category of expense, e.g., supplies for particular class  Maintaining sub-accounts internally for a single central account Departmental “earmarks” for gift or institutional accounts May be easier to keep in one account (less institutional hassle and paperwork)

12. “Dos”  Do be sure to enter transactions into your system before they “leave your office” (paper or electronic)  Do be sure that your records are secure and stored in a safe form and location  Do perform a regular, thorough reconciliation to official records using a reconciliation worksheet  Do print and store reports in a form that are useful in audit situations  Do train more than one person on the proper use of the system.

13. “Don’ts”  Don’t assume that magnetic files will always be available for printing the report the auditor is going to request!  Don’t assume that just because you recorded the transaction correctly in YOUR system, that it got posted correctly in THEIR system!  Don’t assume that the person who uses the system today will ALWAYS be around tomorrow!

14. Goal Manual or Electronic System Financial Reconciliation Process

15. Step 1 Obtain central data (financial reports and transaction data) in a form that you can match with the shadow system (typically by account for a particular accounting period) Financial Reconciliation Process

16. UNC Central Report

19. Financial Reconciliation Process Step 2 Prepare shadow data (financial reports and transaction data) in the same format as the central data.

20. Computer Science Department Report

22. Step 3 Compare expenditures (or balances) by object code between central and departmental financial reports. Look for particular areas of discrepancy! Summary of Discrepancies Central RecordsDepartmental RecordsDifference Personnel255,069.96248,560.506,509.46 Supplies7,384.004,345.063,038.94 Travel2,137.67593.871,543.80 Financial Reconciliation Process

23. Step 4 Best approach - compare all transactions for the period and “check off” those that match. Compromise approach (use in situations where volume is enormous and accounting staff resources are limited) - compare all transactions for the period in the object codes where discrepancies were noted. Financial Reconciliation Process

24. Every discrepancy must be researched and explained! IMPORTANT

25. What Are Likely Explanations For These Discrepancies?  Timing errors  Posting errors  Processing errors (the form is still sitting on your desk!)

26. Reconciliation  Confirm the timing items by inquiry to the central system. If you can’t find them, you will need to do more research.  Confirm posting errors to the central system and get them fixed.  Correct departmental processing errors.  Keep a list of items that should be corrected in the next accounting cycle.

27. Reconciliation  Unmatched central items “got past you” and need to be recorded in the shadow system, or explained out in a reconciliation worksheet.

28. Bonus System for planning, tracking and presenting salary source information!  Accounting reports don’t get it

29. Personnel Funding Chart