FY03 ACCRUAL PROCESS 4/25/02

Page 2 ACCRUALS â Definition: Expense Accrual: – A month-end journal entry (either system generated or manual) that accounts for goods or services that were received in a given month but the invoice was not posted by month end – Purpose: To allow monthly expense reports to accurately report actual medical center expenses in the event there are invoicing inconsistencies or delays. Revenue Accrual – Establishment of a collectible receivable – A month end manual journal entry to report revenue that was generated in a given month when the corresponding cash payment was not received by month end. – Purpose: To allow monthly revenue reports to accurately report actual medical center revenue in the event there are delays in receipt or posting of cash.

Page 3 What Causes an Expense Accrual? â Three triggers for expense accruals: A good or service is purchased and received, but invoice has not been processed/matched to purchase order in the system by month end A good or service is invoiced infrequently or inconsistently, and needs to be expensed over multiple periods of a fiscal year A significant invoice was expected and was not received as of month close

Page 4 Accrual TypeEntered in Dept GLReversed from Dept GL ESI (Purchasing) Generated â Automatically generated when goods/services that were ordered via a purchase order are received in ESI â For items covered in “e-entry”, manual intervention by accounting may be necessary to override automatic accrual â Reversed when invoice matched to PO in ESI â Reversed via manual intervention for e-entry items â Automatically reverses if invoice not matched after 6 months â If accrual a result of receiving error (I.e. 10 items received into ESI instead of 1), PO composer should correct receipts in ESI or initiate correction through Purchasing Expense Accruals

Page 5 Accrual TypeEntered in Dept GLReversed from Dept GL E-Entry (Pre-set monthly accruals done in Accounting) â Designed for consistent or predictable goods/services with an annual expense greater than $60,000 that will be paid infrequently or invoiced inconsistently (I.e. annual service agreement) and needs to be expensed across multiple periods â New e-entry items to be created at manager request (either during budget process or ad hoc) â Accounting may help managers identify appropriate e-entry items, but will only create with manager approval â Communications and set-up of e-entry will occur prior to start of the upcoming fiscal year â Beginning In FY03, current e-entry items to continue regardless of dollar amount if department manager approves â E-Entries will automatically occur during the fiscal year without additional approval required unless Accounting notified of an operational change. â Accounting will manually accrue and/or reverse accruals each month based upon criteria agreed upon with manager (I.e. quarterly paid invoices will generate quarterly reversals, etc.) Expense Accruals

Page 6 Accrual TypeEntered in Dept GLReversed from Dept GL Journal Entry (Ad hoc accruals done manually in accounting) Manually generated in Accounting in response to: â Departmental Manager request â Accounting will contact Dept manager quarterly to suggest accrual or budget revision for expense accounts when a positive variance greater than $15,000 has continued for the previous quarter. (January, April, July, September) â Accounting may contact department manager to determine if ad hoc accrual necessary in any month when monthly and YTD variance is significant (I.e. greater than $20,000) â All outstanding expenses greater than $500 will be accrued in September to allow allocation to correct fiscal year. â No Journal entries will be completed without department manager approval. Journal entries automatically reverses the following month unless department manager requests otherwise. Expense Accruals

Page 7 Assumptions â New Check Request Policy will increase use of purchase orders. Purchasing Operations and Systems will work with users to mandate maximum and effective use of electronic receiving. The ESI Task Force will monitor the use of purchase orders to ensure compliance with appropriate policies. It is their expectation that the increased use of purchase orders and current purchasing policies will greatly reduce the number of manual accruals needed. â Accounting will continue to review automatic ESI accruals to implement e-entry accruals and reversals. â FY02 e-entry accruals will be reconfirmed by Accounting staff prior to FY03 to determine if they are still required. â Accrual policies and definitions will be distributed and reviewed during budget process. â NO ACCRUALS WILL BE DONE WITHOUT APPROVAL BY DEPARTMENT MANAGER

Page 8 What Causes a Revenue Accrual? â Revenue Accruals are rare and only done when confirmed revenue could not be posted to the general ledger at month close. â Triggers: No Accruals done for patient revenue Other operating revenue that is confirmed could not be posted to the general ledger (I.e. HMFP monthly parking payment not received prior to month close); typically entered at departmental request Standard revenue accruals for long-term revenue sources (I.e. Rental Income, Resident income, other affiliation agreements) Accounting may contact department to determine if other operating revenue accrual required if significant variance observed, but revenue will NEVER be accrued without department manager approval and proof that revenue is confirmed.

Page 9 â For further information or questions, please contact: Diana Tuttle Director, Support Services Or Stephen Deveau Director, Fiscal Services7-0003