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1101 PR.07 Accounting Corrections and Adjustments
Revision Date:
September 25, 2024
Contents
2. Identifying the Need to Make an Accounting Correction or Adjustment
3. Who Can Prepare and/or Approve an Accounting Correction?
4. Preparation of an Accounting Correction or Adjustment
A. Payroll Accounting Adjustment
C. Accounting Journal / Journal Entry
5. Documentation/Information Requirements
6. Approver’s Review of the Proposed Accounting Correction or Adjustment
This document outlines the procedures and requirements that are necessary to properly correct or adjust a financial transaction in Workday.
For specific information related to executing an appropriate Cost Transfer associated with Sponsored Projects Financial Administration (“SPFA”)-managed awards [FD02/FD28] (i.e. Federal and Non-Federal Grants & Contracts) (as defined in Policy 1305 Cost Transfers Involving Sponsored Projects), reference Procedure 1305 PR.02 Cost Transfers Involving Sponsored Projects.
As outlined in Procedure 1101 PR.02 Financial Transaction Review and Budget Monitoring, there are several steps leading up to, during, and after a month-end close that present an opportunity to review transactions for proper management. Identifying the need for an accounting correction or adjustment may occur during any one of these steps. Refer to Procedure 1101 PR.02 Financial Transaction Review and Budget Monitoring and Form 1101 FR.01 Financial Review Checklist for additional information. The need for an accounting correction may also arise outside of these specific processes.
Accounts must be regularly monitored in accordance with guidelines in Form 1101 FR.01 Financial Review Checklist. Errors should be identified and corrected on a monthly basis by Department Business Offices (“DBO”). DBOs should not wait until the end of a sponsored award or the year-end financial close to perform review and correction.
Lead Administrators, Operations Managers, and DBO staff may be involved in the preparation and/or approval of accounting corrections or adjustments. To fulfill the role of a Preparer or Approver, the individual should be appropriately trained (by completing the below-referenced training requirements) and have the appropriate Workday role assignment(s). It is the Lead Administrator’s responsibility to ensure that all Preparers and Approvers successfully complete the University’s Internal Controls Approval Authority training and pass the accompanying quiz prior to preparing or approving accounting corrections in Workday.
In addition, the Lead Administrator, or designee, should inform all Preparers and Approvers of the following Workday Training Guides relating to accounting corrections and adjustments. These Training Guides provide details regarding system access, data entry, and submission of accounting corrections and adjustments and related information:
- Workday Financials
- Training Guide: Payroll Accounting Adjustments
- Training Guide: Assign Payroll Costing Allocation
- Training Guide: Accounting Adjustments
- Training Guide: Create Manual Journal Entry
- Training Guide: Create ISP Manual Journal Entry
It is important to note that an individual who prepares an accounting correction or adjustment cannot also be the individual administratively approving that accounting correction or adjustment.
To submit an accounting correction or adjustment, the Preparer is expected to read and understand the requirements of Policy 1101 Guiding Principles for University Operations. Consistent with University policy, the Preparer is expected to ensure that the transaction is properly documented. Essential elements of a correction include assembling any source documents related to the adjustment to provide information for required and optional fields in Workday. An appropriate and thorough transaction description that addresses the five elements of “who, what, when, where, and why” that are associated with the transaction is imperative when preparing an accounting correction or adjustment.
See below and refer to Form 1101 FR.03 Non-Sponsored Accounting Correction and Adjustment Documentation Matrix to determine the appropriate transaction to execute the accounting correction or adjustment:
A. Payroll Accounting Adjustment
All retroactive costing changes where the original charge came through payroll must be processed using a Payroll Accounting Adjustment (“PAA”). The need for a PAA should be identified during the monthly financial review process and the resulting PAA should be processed in a timely manner.
There are certain accounting corrections or adjustments related to payroll that are not managed by the DBO via a PAA. These types of adjustments include changing the ledger account (only available via a pay component change), adjusting the expenditure codes for a taxable reimbursement, and performing a fringe adjustment. If a pay component change is needed, a request should be sent to the Employee Service Center (“ESC”) at employee.services@yale.edu. Taxable reimbursement is performed through the payroll system, but as noted in Form 3215 FR.09 120-366 Day Taxable Expense Reimbursement, DBOs are responsible for processing a journal entry to allocate the charges to the appropriate ledger account and spend category. Additionally, when fringe is not cleared automatically by the system, it must be done via journal entry by central users. If a fringe adjustment is needed, a request should be sent to Ask Finance at askfinance@yale.edu.
If the original transaction did not originate in the payroll system, first seek to use an Accounting Adjustment (“AA”). AAs should be used whenever possible and are available to modify the accounting and costing (i.e., the core COA or charging instructions) on supplier invoices, supplier invoice adjustments, and expense report transactions subject to the following conditions:
Accounting Adjustments can:
- Modify COA segments on all three transaction types.
- Modify the Spend Category on supplier invoices and supplier invoice adjustments (as long as that Spend Category is not associated with Moveable Equipment Inventory (“MEI”) or noted as trackable) – this may change the resulting ledger account.
- Be initiated only after the original transaction is in Paid status.
- Modify budget date.
Accounting Adjustments cannot:
- Modify the Spend Category (or expense item) on an expense report – in this case a journal entry must be used.
- Split a single transaction line into two or more COA combinations – in this case a journal entry must be used.
- Modify a trackable MEI spend category – in this case, the system automatically initiates the MEI asset process and requires special attention. Please send a request for assistance to the Capital Asset Accounting team at mei.admin@yale.edu.
- For a listing of Spend Categories and to understand what Spend Categories are trackable, run the Workday report Spend Category Details – Yale. Either select the “Track Items” box on the prompts list or filter on the “Track Items” column in the results. Refer to Policy 4202 Capitalization, Depreciation and Disposal of Capital Assets and Policy 4209 Moveable Equipment and related procedures for further information regarding the University’s capitalization policies.
- Adjust any transactions associated with a capital project. Please send a request for assistance to the Capital Asset Accounting team at capitalmgnt@yale.edu.
C. Accounting Journal / Journal Entry
As noted above, AAs and PAAs should be used whenever possible. An Accounting Journal or Journal Entry (“JE”) is used as a last resort to make retroactive adjustments to non-payroll charges when an AA is not possible. It is expected that this is primarily to:
- Allocate a single line from a supplier invoice/adjustment or expense report to multiple COAs.
- Change an expense report Spend Category and possibly the ledger account.
- Modify or correct a transaction that was originally posted through an Accounting Journal rather than an operational transaction.
When JEs are used instead of AAs, there is a lack of standardized process. There are also impacts on local reporting and metrics including:
- When a JE is used, the JE is disconnected from the original transaction. With an AA, the connection is maintained.
- Inconsistent use of the AA functionality limits the ability to monitor the types of changes being processed via AA/JE.
- Certain fields of the AA are prepopulated with the existing transaction information, reducing the potential for errors.
- Submitting an AA is more streamlined than creating a JE. Unposted AAs are not canceled during the month-end process like JEs are. Therefore, use of AAs when possible is more streamlined and can potentially reduce rework.
Additional factors to consider when a JE is used for an accounting correction:
- Revenue and expense corrections are made using the original ledger account.
- In instances where a revenue or expense is charged to the wrong ledger account, the correction should be made between the impacted ledger accounts (keeping the other correct COA segments the same on both debits and credits).
For errors or corrections associated with University Service Provider (“USP”) transactions refer to Procedure 1410 PR.03 University Service Providers: Accounting and Billing for additional information on USP charges and correcting billing errors.
The DBO, Preparer, and Approver are each responsible for ensuring that all required documentation that properly supports the accounting correction is entered, selected, and/or attached to the AA or JE. Please refer to Policy 1101 Guiding Principles for University Operations for additional details.
A properly documented accounting correction or adjustment includes necessary elements as detailed in Form 1101 FR.03 Non-Sponsored Accounting Correction and Adjustment Documentation Matrix. All relevant documents or information related to the PAA, AA, or JE should be attached (or included in notes fields for things like simple clerical errors).
Proper supporting documentation will ensure that any internal or external individual reviewing, approving, or auditing the accounting correction or adjustment has a clear understanding of the following:
- Change Reason – All PAAs and AAs require a change reason. The corresponding drop-down lists in Workday contain both non-sponsored and sponsored reason codes. The non-sponsored reason codes are on top and include a numerical prefix. The sponsored reason codes have two parts made up of the prefix, which defines when the need for an error correction was identified, followed by what type of error the correction represents.
- Non-sponsored reason codes are being added to the Cost Transfer reason code list for journal entries which while not required, may be used as a best practice.
- See below for guidance on how to select the correct prefix for the change reason/reason code:
- Non-sponsored – Refer to Form 1101 FR.04 Non-Sponsored Change Reason and Code Usage for further guidance on selecting the appropriate reason code.
- Sponsored – Refer to Form 1305 FR.04 Cost Transfer Change Reason and Code Usage for further guidance on selecting the appropriate reason code.
- Description – Provide a detailed description of the accounting correction or adjustment in layman’s terms. It is not always clear what the correction is, and providing a full description is needed to ensure that the Reviewer and Approver are clear on the nature and purpose of the transaction to determine allowability and reasonableness. Addressing the “5 W’s”—who, what, where, when, and why- in the description is essential for someone unfamiliar with the transaction to understand the intent. An explanation defining the accounting correction or adjustment should be included in the ‘Memo’ field for an AA or within an attachment for a PAA (see details below). A line-item description should be included via the ‘Memo’ field of the Create Journal screen in Workday for a JE.
- Attachments – Every accounting correction or adjustment should include any attachments which are necessary to support the correction or adjustment (where the required information is not included in other transaction fields). Supporting documentation is anything that provides evidence for a transaction and may include the person(s) who performed an action related to a transaction or who may have authorized an activity to take place. It can consist of source documents, supportive calculations and/or other items necessary to substantiate the accuracy and appropriateness of a JE.
- Examples of support include:
- Approval from appropriate department personnel and/or Principal Investigator if transaction is moving activity to a COA over which the initiator is not responsible.
- Financial reports and/or detail transactions that show the balance of the activity in its current COA.
- Invoices or contracts.
- For corrections or adjustments, specify original transaction numbers (supplier invoices, cash sales, expense reports, ad hoc bank transactions, etc.) where the correction could not be performed from the original operational transaction.
- Support should not include:
- Confidential information, such as sensitive personal or legal documents, although it should be noted in the journal memo where this information is kept so that it may be readily available to provide as requested. For information regarding retention of supporting documentation that is confidential in nature, refer to Policy 1105 Retention of University Financial Records.
- Examples of support include:
- Late Rationale / Remediation – AAs and PAAs adjusting transactions older than 12 months will have special routing to the Controller’s Office for an additional review; this occurs automatically in Workday based on the transaction information. Initiators must provide additional information:
- For non-sponsored accounts, this documentation may be included in notes or attached to the transaction as a word or PDF file.
- Information around the changes made and/or controls in place to avoid similar oversights in the future.
- Explanation of why the need for the correction/adjustment was not identified/corrected timely.
- Detailed explanation why the correction/adjustment is needed.
When evaluating an accounting correction or adjustment submitted by the Preparer, the Approver (Cost Center Manager) must confirm that the entry is correct, in compliance with Policy 1101 Guiding Principles for University Operations and that all entered information and supporting documentation accurately and completely satisfies the requirements specified in Section 5, above.
If an accounting correction needs to be modified (e.g., COA segment entered is incorrect, justification needs additional explanation, documentation is inadequate, change reason/reason code are inappropriate, etc.), the Cost Center Manager must send the proposed accounting correction back to the Preparer for updates. After the Preparer completes all necessary modifications, the accounting correction can be resubmitted to the Cost Center Manager for review and approval.
Once the Cost Center Manager approves the accounting correction, they will either receive a confirmation that the JE (including ISPADJ), AA, or PAA was posted, or that the accounting correction was routed to the Controller’s Office for central review and approval.
A. Controller/Controller-Sponsored
Late AAs and PAAs (older than 12 months) will automatically route to the Controller’s Office for review and approval (see Section 5, above). Under normal circumstances, the Controller’s office initial review is performed within approximately 2 business days.
If an AA or PAA does not meet all policy and procedure requirements, the Controller’s office returns the proposed adjustment back to the Preparer to revise and update. After the Preparer completes all necessary modifications, the AA or PAA can be resubmitted for review and approval by the Cost Center Manager and Controller’s Office.