OVERVIEW OF account Stale and Negative Balances

Prior to reviewing this standard, it is important to understand the process of closing and the parties responsible for completing the closing process.

Closing refers to the process of finalizing an entity’s financial information and creating reports after a specified accounting period has ended. Closing procedures are performed on an interim and year-end basis to keep accounting data organized and ensure all transactions for the period are properly accounted for and recorded on a timely and accurate basis. The Office of the University Controller requires Constituent Reporting Units (CRUs) to submit closing documentation on an interim and year-end basis. A CRU is determined by meeting a $35,000,000 threshold in revenues, expenses, or net assets for a minimum of 2 consecutive years. A CRU will be removed from the list if the threshold is not met for 3 consecutive years. Review the internal controls and roles and responsibilities IU accounting standards book for a detailed explanation of a UCO-IRR-2.00 Constituent Reporting Unit and a List of Active CRUs at Indiana University. Key fiscal officers within a CRU are responsible for several items at interim close including reviewing IU accounting standards, reviewing system and user roles, financial statement variance analysis, balance sheet balance substantiation, posting and reviewing accruals, and account reconciliation. Key fiscal officer responsibilities included in year-end close procedures consist of interim closing activities in addition to specific year-end items such as org reversion, covering cash balances, and sub-certification. Both interim and year-end closing procedures are accompanied by a checklist to be submitted by the CRU alongside required materials. The list and relevant scope are subject to change annually and individual specific requirements as determined by each campus and/or RC need to be considered in addition to this checklist.

Review the UCO Fiscal Officer Calendar for closing deadlines. It is important to note that several KFS e-docs are due by a specific date. If you use Financial Processing (FP) e-docs in KFS, these documents must be in the system and fully approved by 10:00 p.m. for the entries to be processed by the accounting cycle and reflected in the closing reports. Because some KFS e-docs require additional administrative approvals, on the day of each closing, e-docs should be completed by 12:00 p.m. to allow for all necessary routing and approvals. If you require access to KFS, please contact your RC fiscal officer.

UCO-CLS-5.00: Account Stale and Negative Balances

Prerequisites

Prior to reading the standard on Account Stale and Negative Balances, it is beneficial to review the below items to gain foundational information:

1. Accounting Fundamentals Standards
2. Financial Statements Standards
3. Chart of Accounts Standards
4. Closing Standards
5. Account Negative Balance Report Instructions
6. Account Stale Balance Report Instructions

Preface

This standard discusses the elements of the account stale and negative balance review process and how it is conducted internally within Indiana University (IU). Information presented below will define account stale and negative balances, how to complete this closing procedure, requirements, and best practices related to this process.

Introduction

Stale balances for the purposes of this standard are composed of asset or liability balances, at the account and object code level, that have not changed for an extended period of time. Stale balances must be investigated and potentially adjusted to ensure the balance sheet accurately reflects assets and liabilities.

Negative balances for the purposes of this standard are composed of asset or liability balances, at the account and object code level, whose accumulated balance is negative at the end of the accounting period (month, quarter, or year). Only in rare instances should asset and liability balances be negative. These negative balances may represent errors in the financial statements. Analyzing negative balances may also assists entities in identifying potential issues such as negative cash flows or overpayment of a liability, for example.

Importance and Impact of Account Stale and Negative Balances

Failure to review stale and negative balances may result in both the income statement and the balance sheet misrepresenting the overall financial position of the university. This could result in audit findings and other negative consequences for the institution, including overspending of available university resources.

The review of account stale and negative balances is a fundamental accounting process that ensures the integrity of financial accounts, transactions, and the accuracy of the university’s financial statements. The frequent review of account balances helps to ensure that the balances posted to an account are accurate and appropriate. Performing account balance reviews and reconciliations regularly helps to ensure compliance with Generally Accepted Accounting Principles (GAAP). These reviews also aid in understanding the entity’s financial status, identifying accounting errors and inaccuracies, and ensuring completeness of financial statements. It can also assist in addressing operational accounting issues such as uncollected accounts receivable, which may result in a stale account balance, for example.

Account Stale and Negative Balances Discussed in Detail

Timeline for Reviewing Account Stale and Negative Balances

Stale and negative balance reviews are required as part of the interim and year-end closing process. As a best practice, all fiscal officers should review their accumulated balances on a monthly basis. A fiscal officer must review and address any balances that are either stale or negative at the end of the accounting period. This includes:

• All negative or stale cash balances (system and non-system generated)
• All other non-system generated stale or negative balances

All stale and negative balances by account and object code must be reviewed during closing and any correcting entries processed during the closing period. For Constituent Reporting Units (CRUs), a resolution for any outstanding stale and negative balances should be included in the submission of the quarterly closing documents. Stale and negative balances, including cash, without a documented plan for resolution will be reviewed by the Office of the University Controller (UCO), the University Budget Office (UBO), and the Chief Financial Officer (CFO) after year-end closing. Please review the UCO Fiscal Officer Calendar for specific closing deadlines.

Review Process for Account Stale and Negative Balances

Units must review and address any negative or stale balance, including all cash balances, in accordance with the instructions in the Stale and Negative Balance Template. Begin the review process by running the entity Multi-Year Stale Balance Report and the entity Multi-Year Negative Balance Report for the required period. For detailed instructions on how to run these reports, please review the Account Stale Balance Report Instructions and the Account Negative Balance Report Instructions. Within the Stale and Negative Balance Template, fiscal officers should follow the instructions on the Cover Page tab, and review the Negative Cash Requirements Matrix tab. This template must be submitted to the Campus Controller as part of the CRU closing materials.

Account Stale and Negative Balance Review

When analyzing account stale and negative balances, it is important to review the details provided within the stale and negative balance report including the account number, corresponding financial object code, financial object type code, and the fund and sub-fund group tied to the stale or negative balance. This can aid the user in determining the reasoning for the account stale or negative account balance.

For account negative balances, review to see if the object code typically contains a recurring negative balance. For example, the allowance for doubtful accounts or accumulated depreciation object codes typically have recurring negative balances.

After analyzing the account, review the originating transaction or group of transactions to determine the cause for the stale or negative balance. Consider the following information when reviewing the transaction(s) that make up the stale or negative balance:

• Investigate the purpose of each transaction related to the stale or negative balance. For example, review to see if the transaction was tied to routine or non-routine activity. Assess the specifics of the activity to see if it takes place over multiple reporting periods or fiscal years. Reviewing the Multi-Year Account Stale and Negative Balance Reports with ten years of data can help with identifying the originating transaction tied to the account stale or negative balance. Analyze the activity to confirm whether it is tied to a contract, grant, or external agreement. If so, review the agreement to see if the stale or negative balance is purposeful and related to the agreement terms.
• Verify the details of the transaction are accurate. Analyze the transaction to determine the specific methodology utilized. Verify the calculations completed for the transaction are accurate and that the substantiation and source documentation supports the amounts input within the financial system. Confirm the account and object codes utilized are accurate and align with the purpose of the transaction.
• Determine the individuals that were involved with the transaction. Review the transaction information to determine the individuals who initiated and approved the transaction. Verify the individuals involved with the transaction were the appropriate parties to initiate and approve the transaction based on their roles and authority at the university. Confirm whether the individuals are still active in the system and maintain the appropriate access to approve and initiate adjusting transactions. If not, note the individuals who would be responsible for an adjusting transaction.

Additional analysis is typically required for negative or stale cash balances based on the account fund group. Review the negative cash account matrix within the Stale and Negative Balance Template. This matrix provides detailed guidance for account negative cash balances based on the fund and sub-fund groupings.

Account Stale and Negative Balance Reconciliation

After reviewing the account stale and negative balances, it may be necessary to submit an adjusting journal entry. Adjusting entries can be done via the General Accounting Adjustment (GAA), Distribution of Income and Expense (DI), or Transfer of Funds (TF) document.

If an adjusting journal entry is not required, then a resolution plan or an explanation for the stale or negative balance is necessary. Submit the resolution plan or explanation to the Campus Controller via the Stale and Negative Balance Template.

Balances that are both stale and negative may require additional explanation and follow up from UCO. The unit is responsible for keeping any relevant documents and emails tied to the review of account stale and negative balances in the event of an audit.

Appropriate Account Stale and Negative Balance Explanations

• The stale and negative balance explanations should be as detailed as possible. Suitable explanations will provide details answering the questions who, what, when, where, and why the stale or negative balance occurred and has not been reconciled prior to the closing period.
  • If the stale or negative balance is related to a specific transaction, or an accounting error, indicate the relevant amount, the document (transaction) number, any corresponding invoice numbers, the correcting document (transaction) number, explain why the transaction occurred, why it is showing as a stale or negative balance on the account, and all relevant details specific to the transaction.
  • If the stale or negative balance is necessary for the account, clarify how the balance is tied to the operations for the account, provide details as to why the stale or negative balance exists, the department and individuals involved in the operations for the account, the start date for the account, and the end date for the account, if available.
  • If the account stale or negative balance is tied to an account managed outside of the Responsibility Center (RC), provide detailed information from the responsible party about the account and why the stale or negative balance is necessary.

  Review the Account Stale and Negative Balances Explanation Examples reference document for examples of appropriate account stale and negative balance explanations.

Requirements and Best Practices

Requirements

1. Run the unit Multi-Year Stale Balance Report and the unit Multi-Year Negative Balance Report prior to interim and year-end close and include ten years of data.
2. Units must address any stale balances that have remained unchanged for at least three years.
3. Complete an account stale and negative balance review for all stale and negative system-generated asset and liability cash balances and all stale and negative non-system generated asset and liability balances prior to the interim and year-end closing.
4. Ensure all accounts are adjusted as necessary prior to year-end.
5. Rerun the entity Multi-Year Stale Balance Report and the entity Multi-Year Negative Balance Report after the final closing period.
6. Input the results of the reports and account balance explanations into the Stale and Negative Balance Template. Please refer to the cover page of the Stale andNegative Balance Template for more information on where to input the report results and explanations within this template.
7. Provide detailed explanations of account stale and negative balances answering the questions who, what, when, where, and why the stale or negative balance occurred. An internal investigation will allow the entity to better explain why the stale or negative balance occurred and if any additional steps should be taken to avoid future account stale or negative balances. The University Accounting and Reporting Services team can be consulted if needed at uars@iu.edu.
8. Submit explanations for any remaining stale and negative system-generated asset and liability cash balances and non-system generated asset and liability balances to the Campus Controller.
9. Ensure documentation/substantiation related to the investigation of this balance is available upon request for account stale and negative balances.

Best Practices

1. Ensure all accounts are adjusted as necessary on a quarterly basis.
2. Evaluate that all transactions are reasonable and appropriate for the period and that no expected transactions are missing.
3. Follow up internally with the appropriate departments for any unexplained account stale and negative balances.