General Revenue Fund Quarter-end Procedures Fiscal Year 2017-18
General Revenue Fund Quarter-end Procedures Table of Contents Introduction... 3 Recording Accrual Adjustments in MIDAS... 5 Program Segment... 5 Natural Account Segment... 6 Recording Accrual Adjustment Journal Entries... 6 Public Sector Budgeting... 8 Determining Amounts of Accrual Adjustments... 8 Revenues... 9 Taxation... 9 Non-renewable Resources... 9 Transfers from Government Entities... 9 Other Own-source Revenue... 10 Transfers from the Federal Government... 11 Expenses... 12 Salaries and Benefits... 13 Goods and Services... 14 Travel... 15 Transfers... 15 Amortization... 18 Other... 19 Revolving Funds... 19 Prepaid Expenses... 19 Year-end Accounts Receivable... 19 Tangible Capital Assets... 19 Year-end Accounts Payable... 19 Unearned Revenue... 20 Interdepartmental Clearing and Refund to Vote Clearing Accounts... 20 Appendix A - MIDAS Accounts Payable Processes... 21 Appendix B - Natural Accounts... 25
Introduction Revenue and expense transactions of the General Revenue Fund (GRF) are reported in an income statement (Statement of Operations) at the end of each quarter (June 30, September 30 and December 31). These GRF Quarter-end Procedures set out the requirements of ministries at the end of each quarter. At the end of each fiscal year (March 31) GRF financial information is prepared by the Ministry of Finance and is a significant component of the Summary Financial Statements which are audited by the Provincial Auditor and published in Volume 1 of the Public Accounts. GRF Year End Reporting Requirements and Procedures that set out year-end processes and requirements for reporting at year end are provided to ministries separately. During the year, ministries typically record revenues and expenses as cash is received or paid. This is described as cash accounting. Ministries are required to record revenues earned and expenses incurred during the quarter (year to date). This is described as accrual accounting. At the end of each quarter, ministries are required to review their transactions to identify where cash accounting differs from accrual accounting by more than $1 million per revenue stream or program 1 expense (year to date). For these items, ministries are required to record an accrual adjustment in MIDAS by the end of the quarter. Items to be reviewed include the following. Further guidance is provided later in these procedures under the heading Determining Amounts of Accrual Adjustments. Revenues Provision of goods or services by the end of the period for which revenue has not been recorded Transfers (i.e. grants) receivable from others which have been authorized by the transferor and for which the Province has met eligibility criteria (if any), unless the transfer gives rise to an obligation that meets the definition of a liability Expenses Goods and services received by the end of the quarter for which expenses have not been recorded Transfers (i.e. grants) authorized by the end of the quarter for which eligibility criteria (if any) have been met by the recipient Refer to the Government Transfers Application Guidance in Appendix M of the Financial Administration Manual (FAM) for more details and guidance on transfers. 1 Program refers to the allocations in each subvote as presented in the 2017-18 Estimates. Ministries may have chosen to create additional programs in MIDAS to further segregate expenses. 3
There are key differences between the preparation of quarterly financial information and the process for preparing year-end financial information: The quarterly information is income statement focused. Ministries are to focus on revenues and expenses for the period, which means that accrual of tangible capital asset (TCA) additions is not required, except for TCA additions invoiced by the Ministry of Central Services (CS) (see below) and recording the estimated completion costs for TCA additions arising from Public Private Partnership (P3) arrangements (refer to the TCA section within Other); Quarterly information entered in MIDAS does not require supplier detail, which allows the accrual adjustments to be made in the MIDAS General Ledger module; Ministries are not required to submit cut-off schedules to Finance; and Although the quarterly information is expected to be reasonable enough to be useful, it will not be audited, and therefore requires less precision than is required at year end. All expenditures recorded in MIDAS, including accrual adjustments recorded at quarter end, are subject to spending controls. That is, expenditures are to be recorded to a suitable appropriation, as required by The Financial Administration Act, 1993. Ministries will need to monitor spending limits to ensure that any required virements or transfers are processed in time to ensure accrual adjustments can be recorded. Note that virements require approval by the Treasury Board Branch of the Ministry of Finance. Ministries wishing for more precision than a $1 million threshold would provide are welcome to record an accrual adjustment for items below the threshold. As well, ministries may choose to accrue revenues and expenses on a more frequent basis than at quarter end. Transactions between CS and all other ministries are, cumulatively, significant to the GRF. For this reason, ministries are required to accrue all amounts for TCA additions and goods and services invoiced by CS that have not yet been recorded. This means that, for accrual adjustments pertaining to goods and services provided by CS, the $1 million threshold does not apply. A process has been established for CS to provide ministries with estimates of unbilled amounts. Refer to the detailed information provided under the Central Services heading in the Goods and Services section of Determining Amounts of Accrual Adjustments. Each ministry is responsible for ensuring that amounts recorded in MIDAS appropriately reflect revenues earned and expenses incurred to the end of the quarter. While there has been a shift in focus to a Summary basis, it is still important to ensure that accruals for GRF revenues and expenses are appropriately recorded in MIDAS each quarter end, for the management of ministry finances and forecasting purposes. Ministries may wish to create quarter-end accrual checklists and specific procedures for use within their ministry. Ministries may also wish to consider implementing an earlier internal cut-off date or time for accruals to allow time to perform an analytical review of 4
the ministry s revenues and expenses recorded in MIDAS each quarter end, and to identify and make any necessary adjustments in MIDAS by 5:00 p.m. on the last day of the quarter. The quarterly GRF financial statements include quarterly budget figures based on budget allocations provided by ministries to the Financial Systems Branch (MIDAS Helpdesk). It is important that careful consideration be given when determining the quarterly budget allocations as these are used as a comparison to the actual GRF revenues and expenses at each quarter end. Recording Accrual Adjustments in MIDAS Accrual adjustments required at quarter end are to be recorded using MIDAS Journal Entries. It is expected that ministries will use reversing journal entries for quarter-end accrual adjustments (see detailed process in the Recording Accrual Adjustment Journal Entries section below). The entry of accrual adjustments at quarter end and the reversal of those entries at the beginning of the new quarter allow ministries to continue with the normal processing of receipts and payments during the year. Quarter-end accrual adjustments must be entered by 5:00 p.m. on the last working day of the quarter (for 2017-18: June 30, 2017; September 30, 2017 and December 29, 2017). The MIDAS General Ledger Module will remain open until 5:00 p.m. on the last working day of each quarter, allowing ministries to record accrual adjustments until the end of the day. Other modules will continue to close at noon. Accrual adjustments recorded in MIDAS are estimates of actuals. This is no different than estimates recorded at year end. As such, all expenditure amounts recorded are subject to spending control. Ministries should consider whether transactions should be recorded at quarter end using normal processes rather than recording a quarterly accrual by journal entry that will be reversed. Examples of transactions that should be recorded using normal processes include: transfers expense where the recipient is known, the transfer has been authorized and eligibility criteria have been met; TCA additions arising from P3 arrangements based on the estimated percentage of completion costs that have not yet been recorded; and amortization expense. Program Segment All accrual adjustments must be recorded to an appropriate subvote. Recording an expenditure to a suitable appropriation (or appropriate subvote) means that expenditures are charged to a subvote that, by its description, allows for the 5
expenditure. Subvotes, including descriptions that establish their purpose, are approved through the estimates process. Ministries may choose to record accrual adjustments to existing programs and subprograms. Alternatively, to minimize the coding required for accrual adjustment entries, ministries may wish to create new programs or subprograms. Note that all new subprograms must be approved by the Treasury Board Branch of the Ministry of Finance. It is important to monitor spending limits remaining in each subprogram and program to ensure that any required virements or transfers are requested, if necessary, and processed in time to allow the recording of accrual adjustments to expenditure accounts. Natural Account Segment Ministries are to use specific natural accounts created for accrual adjustments at quarter end for the following reasons: To allow recording of expenditures by journal entry (since no supplier information is required); and To enable, for reporting and inquiry purposes, segregation of accrual amounts (i.e., to separate from normal day to day transactions), by using a specific range of accounts. The natural accounts for recording accrual adjustments at quarter end are not to be used at year end. The balance in each of these natural accounts must be zero at March 31. Recording Accrual Adjustment Journal Entries Accrual adjustments are to be entered by the last working day of the quarter end (the GL module will close at 5:00 p.m.). Ministries may choose to have most 2 of these entries reversed at the beginning of the next quarter. For all accrual adjustments that will be reversed at the beginning of the next quarter the following process has been established to automate the reversal of the journal entries: 2 Amortization should not be reversed. Refer to the Amortization section under Determining Amounts of Accrual Adjustments in these Procedures) for more information. 6
To create a quarter-end accrual adjustment journal entry: Oracle General Ledger Journals > Enter > New Journal Journal name (prefix): xxx-qa2017-3 Journal category: Quarterly accrual Complete Journal entry header information and create journal entry lines. To create the reversing journal entry: Once the original entry has been POSTED, open the journal and press the reverse button: B > Reverse Enter the reversal instructions: Period: Enter the period in which the reversing journal should be posted, or choose it from the list of values. This should always be the period immediately subsequent to the quarter end (July, October or January). Method: Choose Change Sign. General Ledger creates the reversing journal by changing the sign on the debit and credit amounts of the original journal entry. This method is generally used when reversing accrual adjustments as it allows for easy identification and summing of reversals upon viewing/exporting journals. Status: This is a display only field that will indicate whether the journal is available to be reversed, or whether it has already been reversed. Note: You are not able to edit the Batch/Journal names on the reversing entries. The system generated name continues to be the original journal name in quotations preceded by the word Reverses. Review and post the journal entry. This process creates two journal entries at once: The accrual adjustment journal entry (original entry) which is posted immediately; and The entry to reverse the original entry in the next period, which is posted by FSB. The Financial Systems Branch will, upon closing the quarter-end period and opening the next period (for 2017-18: July 2017, October 2017 and January 2018), identify and post journals that have been created using this process, reconciling to ensure that all temporary accrual accounts have cleared with the posting of the reversing entries. Refer to MIDAS Online Help for detailed procedures on reversing journal entries (MIDAS Desk Manual: Originator, Processing Reversals). 3 For the Journal name (prefix), xxx refers to the vote or entity number. As well, Ministries can assign additional information to the journal name after the required prefix. 7
As well, use of recurring journal entries may be beneficial to ministries where the same type of accrual adjustment is required each quarter and only a few of the details change from quarter to quarter (e.g., accrual of in-scope salaries). Refer to MIDAS Online Help for detailed procedures on recurring journal entries (MIDAS Desk Manual: Originator, Processing Recurring Journals). For additional assistance with MIDAS, contact the MIDAS Help Desk at 798-9999 or mhd@gov.sk.ca. Public Sector Budgeting MIDAS Public Sector Budgeting (PSB) will include accrual adjustments recorded at quarter end. That is, account code combinations for the accrued revenue and accrued expenses natural accounts will contain actual values. However, future forecasting for these account code combinations is not necessary, and ministries should forecast -nilbalances for each accrued revenue and accrued expense account. Forecasting should occur at the specific account codes. Determining Amounts of Accrual Adjustments Ministries are responsible for ensuring that the appropriate amount of revenue and expenses are recorded in their Vote. The following procedures provide general guidance on recording revenues earned and expenses incurred by the GRF. The GRF uses accounting guidance for senior governments in Canada provided by the Public Sector Accounting Board of the Chartered Professional Accountants of Canada. Further accounting guidance can be found in the Public Sector Accounting Standards and in FAM. These procedures speak in general to the need for ministries to record accruals. However, for each revenue stream or program expense, ministries will need to assess whether the adjustment is necessary with respect to the $1 million threshold. For each type of revenue and expense described below, MIDAS natural accounts set up exclusively for quarterly reporting have been provided. As well, MIDAS natural accounts have been set up to record the offsetting debits or credits. The following accounts should be used as offsets to revenue or expense when recording accruals: Revenue accruals: #107600 - Accrued Accounts Receivable - General #257200 - Accrued Unearned Revenue Expense accruals: #255005 - Accrued Accounts Payable - General #105200 - Accrued Prepaid Expenses 8
Further information on Unearned Revenue and Prepaid Expenses is provided under the Other heading in this section. Revenues Revenues are to be recorded in the period that they are earned, can be reasonably estimated and collection is reasonably assured. This may not be the same as the period in which the cash is received. Guidance on determining when specific types of revenue have been earned is provided below. Information is also provided on MIDAS natural accounts: those used for transactions throughout the year, and the natural accounts set up for quarterly reporting. Taxation Taxation revenue should be recorded in the period that gives rise to the tax. For example, sales tax revenue is earned in the period the sale occurs. Note that corporate and personal income taxes are recorded as revenue when received from the federal government. Throughout the year, taxation revenues are coded to the 41**** series of natural accounts. Accrual adjustments at quarter end will be coded to natural accounts set up exclusively for quarterly reporting. The natural accounts to be used are within the range of 498100 to 498110. The accounts each indicate the specific type of taxation revenue to be coded to the account (for the detailed accounts see the Natural Accounts section of Recording Accrual Adjustments in MIDAS in these procedures). Non-renewable Resources Non-renewable resource revenue should be recorded as revenue when the production of non-renewable resource occurs. For example, oil royalties are revenue in the period of oil well production. Throughout the year, non-renewable resource revenues are coded to the 49**** series of natural accounts. The accruals recorded for quarterly reporting will be coded to natural accounts set up for quarterly reporting. The natural accounts to be used are within the range of 498120 to 498128. The accounts each indicate the specific type of non-renewable resource revenue to be coded to the account (for the detailed accounts see the Natural Accounts section of Recording Accrual Adjustments in MIDAS in these procedures). Transfers from Government Entities These transfers consist of amounts received from government entities, such as the Liquor and Gaming Authority and Crown Investments Corporation (CIC). They are 9
sometimes referred to as dividends. The amounts are earned based on the type of transfer, and should generally be recognized as revenue in the period that the transfer is authorized. For example, the dividend from CIC to the GRF is revenue of the GRF when declared by CIC. Throughout the year, transfers from government entities are coded to the 47**** series, however the accruals recorded for quarterly reporting will be coded to natural accounts set up for quarterly reporting. The natural accounts to be used include 498140 - Accrued Revenue - Transfers from other government entities and 498141-Accrued Revenue- Transfers from Liquor and Gaming Authority. Other Own-source Revenue Other own-source revenues are earned based on the type of revenue, described below. Throughout the year, other own-source revenues are coded to the 42****, 43****, 44****, 45****, 469*** and 48**** series. The accruals recorded for quarterly reporting will be coded to natural accounts set up for quarterly reporting. Investment income should be recognized as revenue in the period earned or realized. The natural account to be used for recording accrual adjustments of investment income such as interest, premiums, discounts, and exchange is 498165 - Accrued Revenue Investment income. Other fees and charges include three distinct types of revenue as described below. The natural account to be used for recording accrual adjustments of other fees and charges is 498162 - Accrued Revenue - Other fees and charges. Fines, forfeits, and penalties should be recorded as revenue when they are imposed. Where there is a time lag between the fine being imposed and being paid, the revenue should be recorded as soon as it can be reasonably estimated. Other licences and permits should be recognized as revenue over the time period that the licence or permit relates to. Sales, services and service fees should be recorded as revenue when the sale has occurred or the service has been provided. Miscellaneous Included within Miscellaneous are Transfers from other governments which should be recognized as revenue following the guidelines indicated below for transfers from the federal government. The transfers coded to this account are generally received from municipalities. The natural account to be used for recording accrual adjustments of miscellaneous revenue is 498160 - Accrued Revenue Miscellaneous. To ensure accurate forecasting, this accrual account should not be used for the accrual of other own-source revenue that fits with the accrual accounts above for investment income or other fees and charges or miscellaneous revenue. 10
Transfers from the Federal Government Transfers revenue consists of payments received or obligations owed to a Ministry from the federal government where the federal government does not: receive any goods or services directly in return, as would occur in a purchase/sale or other exchange transaction; expect to be repaid in the future, as would be expected in a loan; or expect a direct financial return, as would be expected in an investment. Transfers should be recognized as revenue in the period that: the transfer is authorized by the federal government; and eligibility criteria, if any, have been met by the recipient; except when and to the extent that there are stipulations that give rise to an obligation that meets the definition of a liability. Eligibility criteria are transfer terms that must be met by the recipient to get a transfer. Stipulations are transfer terms that must be met by the recipient after being eligible for a transfer. Transfers that include stipulations are recognized as revenue when authorized and eligibility criteria are met unless the transfer stipulations create a liability. If a liability has been created, revenue is deferred and recognized as the stipulations are met by the recipient. It would be rare that the existence of transfer stipulations would indicate that a liability is created and deferral of revenue can occur. The natural account to be used for recording accrual adjustments of transfers from the federal government is 498180 - Accrued Revenue - Transfers from the federal government. Transfer revenue usually fits into one of the following categories: Entitlements The federal government has no choice but to provide the entitlement to the provincial government. Legislation or a signed agreement specifies how much the provincial government is entitled to receive. The provincial government may be required to meet certain criteria to become eligible for the transfer, but as soon as those eligibility criteria are met, the federal government has an obligation to pay the transfer. Examples of entitlements are the base amount of the Canada Health Transfer and the Canada Social Transfer. An entitlement should be recorded as revenue in the period that the provincial government meets any eligibility criteria, as long as the legislation authorizing the transfer is in force and there are no stipulations that create a liability. Ministries 11
should accrue Federal entitlements not yet received where the authorizing legislation is in force and eligibility criteria have been met. Shared Cost Arrangements Shared cost arrangements are usually embodied in agreements that require the federal government to reimburse a Ministry for eligible expenses. Shared cost arrangements should be recorded as revenue in the period that eligible expenses are incurred. Ministries will have to review the shared cost agreement and the expenses incurred to date to determine if an accrual is required. Ministries should accrue revenue for the amount of eligible expenses (or portion thereof) that are reimbursable from the federal government, but have not yet been received, unless there are stipulations that create a liability. In financing shared cost arrangements, payment is made ahead of the recipient incurring eligible costs. When this is the case, the eligible costs are deemed to be stipulations. Revenue is recorded for any payments received in advance of incurring eligible costs, unless there are stipulations that create a liability. Other Transfers (Grants) Grants are transfers where the federal government retains discretion over whether a grant will be provided, what the eligibility criteria are and for how much. Grants should be recorded as revenue in the period the transfer is fully authorized by the federal government, eligibility criteria, if any, have been met by the ministry and there are no stipulations that create a liability. Ministries should accrue grants when any eligibility criteria have been met and the grant has been authorized by the federal government, but the grant has not yet been received. If a grant is paid prior to eligibility criteria being met, the payment received is recorded as revenue on the basis that the terms of the transfer have been changed, such that the eligibility criteria are deemed to be stipulations. Refer to the Government Transfers Application Guidance in Appendix M of FAM for more details and guidance on transfers. Expenses Expenses are to be recorded in the period that they are incurred. 12
Details on determining when an expense has been incurred are provided for the expense types below. Information is also provided on MIDAS natural accounts: those used for transactions throughout the year; and those set up for quarterly reporting. Salaries and Benefits Ministries incur salaries and benefits expenses when employees provide employment services (that is, when they work). Salaries and benefits expenses are recorded in MIDAS in the period that the payment is made (on the pay date). M1 employees are paid for the month at the end of the month, and therefore, the expense is already recorded in the appropriate period. For B1 and B2 employees there is a lag time between the pay period (time worked) and pay date, which means that some services have been provided at quarter end, but will be recorded in MIDAS in the subsequent period. At the end of each quarter, an adjustment is required to accrue expenses for unpaid days. B1 employees are typically paid on the 12 th day and B2 employees are typically paid on the 6 th day after the end of the pay period. For B1 employees in 2017-18, the pay period of June 11 th to June 24 th has a pay date of July 7 th and the pay period of June 25 th to July 8 th has a pay date of July 20 th. That means at the end of the first quarter (June 30 th ) there are 20 calendar days (June 11 th to 30 th ) on which B1 employees may have worked for which they have not yet been paid. For B2 employees, the pay dates for these pay period are June 30 th and July 14 th, which means that there are 6 calendar days in June (June 25 th to 30 th ) on which B2 employees may have worked but not been paid. For 2017-18, salaries and benefits for the following number of calendar days may require accrual in the specified month: # of calendar days to be accrued Month B1 B2 June 2017 20 6 September 2017 14 14 December 2017 22 8 Salaries and benefits are normally recorded to the 51**** series of natural accounts. For quarterly reporting, accrual adjustments of Salaries and Benefits should be coded to account #587510 - Accrued Expenses - Salaries and Benefits. 13
Accrued employee leave entitlement Accrual adjustments for employees vacation and other leave entitlements should not be updated in each quarter. These fluctuations during the year have little meaning in the presentation of how the Government is doing to date. Goods and Services Expenses are incurred by the government when goods are received and services are provided. Accrual adjustments may be required where goods have been received by the government, or services have been provided to the government before the end of the quarter, but no invoice is yet recorded in MIDAS. Goods and services are normally recorded to numerous natural accounts. Accrual adjustments of goods and services should be coded at quarter end to one of the following accounts: 587520 - Accrued Expenses - Goods and Services 587521 - Accrued Expenses - Utility costs 587522 - Accrued Expenses - P-cards 587523 - Accrued Expenses - Construction Costs Note that the italicized codes are detailed codes under the general goods and services code. Ministries have the discretion of using a detailed code or the general code. Shared Services For shared service arrangements, the Ministry receiving the service should record an expense in the period the service is provided, and the providing Ministry should record a corresponding reimbursement. Ministries will need to coordinate their efforts to ensure interministerial clearing accounts are cleared prior to quarter end. Reimbursements are normally recorded to the 586*** series of natural accounts. For quarterly reporting, accrual adjustments of internal recoveries should be coded to account #586900 - Accrued Internal recoveries. Refer to FAM Section 3007, Shared Services for detailed information. Information on clearing accounts is provided under the heading Other below. Most ministries have shared service arrangements with the Ministry of Central Services. Ministries are to use the following processes for goods and services provided by this Ministry. 14
Central Services (CS) invoices All CS invoices relating to goods or services received during the quarter (or year to date) will be entered in Markview prior to quarter end. Ministries are responsible for ensuring that these invoices are approved and validated in Markview prior to quarter end. For transactions that have not yet been billed at quarter end, CS will provide an estimate of the outstanding TCA additions and goods and services amounts to ministries. The Executive Directors / Directors of Administration will receive the estimate(s) at least three (3) working days prior to close of MIDAS for the quarter. This should ensure the receiving ministries have enough time to record the accrual adjustment. Accrual adjustments may also be required where CS invoices have not been validated in Markview prior to quarter end. Refer to the detailed information for recording accruals for TCA additions provided under the Tangible Capital Assets heading in the Other section. All CS invoices, including those relating to the Information Technology Division, require accrual (i.e., the threshold does not apply) due to the significant impact of CS transactions across government. Travel Travel expenses are incurred by the Government when the good or service is provided. Ministries should accrue estimated travel expenses incurred by employees and officials, but not yet paid. Travel expenses are normally recorded to the 54**** series of natural accounts. Accrual adjustments of travel expense should be coded to account #587540 - Accrued Expenses - Travel. Transfers Section 3410 of the Public Sector Accounting Standards defines government transfers as transfers of money from a government to an individual, an organization or another government for which the government making the transfer does not: receive any goods or services directly in return as would occur in a purchase/sale or other exchange transaction; expect to be repaid in the future, as would be expected in a loan; or expect a direct financial return, as would be expected in an investment. Transfers should be recognized as an expense in the period that: the transfer is authorized by the Ministry; and eligibility criteria, if any, have been met by the recipient. 15
Eligibility criteria are transfer terms that must be met by the recipient to get a transfer. Stipulations are transfer terms that must be met by the recipient after being eligible for a transfer and do not delay the recording of transfers expense. Professional judgment is required to apply the recognition criteria to the circumstances of a particular transfer. The following guidance on the three main categories of transfers will assist ministries in determining when a transfer should be recorded as an expense. Entitlements The government has no choice but to provide an entitlement to the specified recipient. Legislation specifies who is entitled to receive the transfer and how much the recipient is entitled to receive. The recipient may be required to meet certain criteria to become eligible for the transfer, but as soon as those eligibility criteria are met, the government has an obligation to pay the transfer. An entitlement should be recorded as an expense in the period that the recipient meets any eligibility criteria, as long as the legislation or agreement authorizing the transfer is in force. Ministries should accrue any unpaid entitlements at the end of a quarter if the legislation authorizing the entitlement is in force, and recipients have met any eligibility criteria. Shared Cost Arrangements Shared cost arrangements are usually embodied in agreements that require the government to reimburse an individual or organization for eligible expenses. Shared cost arrangements should be recorded as an expense in the period that the recipient incurs eligible expenses. However, in some cases, the recipient may be required to present proof of eligible expenses prior to receiving reimbursement. Ministries will have to review the shared cost agreements to ensure the correct timing of the expense. Ministries should accrue an estimate of eligible expenses incurred by recipients, but not yet paid at the end of the quarter. In financing shared cost arrangements, payment is made ahead of the recipient incurring eligible costs. When this is the case, the eligible costs are deemed to be stipulations. An expense is recorded for any payments made in advance of the recipient incurring eligible costs. Other Transfers (Grants) For grants, the government retains discretion over whether an amount will be provided, what the eligibility criteria are, to whom and for how much. 16
Grants typically require two actions by the transferring government. First, the enabling authority must be in place by the financial statement date (i.e. the statute or regulation that establishes the transfer is in force). Second, the transferring government must exercise the authority provided it by the enabling authority. Often, the legal authority only enables the government to provide the grant, and at some point in the future, a decision is made or an action is taken that means the government has given up its discretion to make a transfer. This decision or subsequent action is the exercise of authority and is often evidenced by the signing of an agreement or transfer approval form (e.g., the signature of the Deputy Minister or a Program Manager who is delegated to authorize). Sometimes the signing of a contract or agreement will be the final authorization required, because recipients are entitled to receive the transfers as soon as they meet eligibility criteria embodied in the agreement. The government lost its discretion of whether to provide the transfer when the agreement was signed. Grants should be recorded as an expense in the period the transfer is fully authorized by the Ministry, and eligibility criteria, if any, have been met by the recipient. Ministries should accrue grants that have been fully authorized for recipients that have met eligibility criteria (if any), but remain unpaid at the end of the quarter. If a transfer is paid prior to eligibility criteria being met, the payment is recorded as an expense on the basis that the terms of the transfer have been changed, such that the eligibility criteria are deemed to be stipulations. Capital transfers are to be recorded and reported separately from operating transfers. Capital transfers are shared cost arrangements or grants provided to a third party such as a school board, regional health authority, university or municipality to acquire or develop capital assets. All other transfers should be considered as operating transfers. Capital transfers should be accrued following the same guidelines as provided for operating grants. For each transfer program, ministries will need to review the legislation establishing and/or agreements governing the program to ensure that transfers expense is recorded in the appropriate quarter. Ministries should record any required accrual to the appropriate payable and expense accounts and only use the quarterly accrual accounts when the recipient is unknown or significant estimation is required. Where the recipient is known, the transfer has been authorized and the eligibility criteria have been met, the transfer should not be recorded to the quarterly accrual account but should be recorded following the same processes normally used to record a transfer. For additional information, refer to the Government Transfers Application Guidance in Appendix M of FAM. 17
Transfers expense is normally recorded to the 57**** series of natural accounts. Accrual adjustments of transfers that are reversed after the quarter end should be coded to either account #587570 - Accrued Expenses - Operating Transfers or #587560 - Accrued Expenses - Capital Transfers, as appropriate. MIDAS Processes Ministries need to ensure that transfers are recorded in the period that they are fully authorized and any eligibility criteria have been met by the recipient. Payment processes in MIDAS can be used to facilitate the recording of transfers expense in the appropriate period. Refer to Appendix A for detailed information on MIDAS Accounts Payable processes. Note that recording an expense in MIDAS is not the same as encumbering an appropriation. The MIDAS processes in Appendix A set out how to ensure that an expense is recorded in the MIDAS General Ledger module. Shared Grants Ministries participating in shared grant and shared program arrangements need to ensure transactions are processed on a timely basis, and must ensure that when nonpaying ministries have recorded an expense, the reimbursement is recorded by the paying Ministry in the same period. That is, interministerial clearing accounts are required to be cleared prior to quarter end. Coordination between ministries is important. If a Ministry determines it is necessary to accrue a grant or program expense, the other ministry/ministries need to be made aware, and provided with enough time to make an accrual adjustment. Refer to FAM Section 3008, Shared Grants and Programs. Amortization Amortization expense allocates the cost of tangible capital assets over the estimated useful life of the assets. The amortization expense recorded during a period estimates the usage of that asset in the period. Ministries should record amortization in each quarter using the guidance set out in FAM Section 2150. Amounts recorded as amortization expense do not need to be reversed, as no other cash-type entry (i.e., payment) will be made. Amortization expense recorded at quarter end should be coded to the normal amortization natural accounts in the 588*** series. Amounts determined for annual amortization at the beginning of the year may need to change for amortization of new capital items incurred during the year. 18
Other Revolving Funds Subsidies provided by ministries to Revolving Funds must be recorded in MIDAS by both the Ministry (as expense) and the Revolving Fund (as revenue) in the same period. Prepaid Expenses Prepaid expenses are payments that are made during a period, where part of the cost relates to a subsequent period (e.g., annual professional dues, memberships and subscriptions). Ministries should record the part of the cost that relates to a subsequent quarter as a prepaid expense in account 105200 Accrued Prepaid Expenses at the end of the quarter. This process is important in ensuring that only expenses incurred in the quarter get recorded as an expense in the quarter. Year-end Accounts Receivable Account 107000 Accounts Receivable General may contain uncleared receivables set up at year end. Ministries need to monitor these receivables and review the account at quarter end to ensure that amounts received during the quarter have been recorded as a reduction to account 107000 rather than coded to revenue. Tangible Capital Assets (TCAs) Account 199900 Accrued Capital Assets Current Year Additions should be used to record all TCA additions included on invoices from CS that have not yet been recorded (i.e. CS invoices not approved and validated in Markview prior to quarter end). Ministries may choose to accrue other TCA additions for any dollar amount in account 199900, however, it is not a requirement. Ministries should record TCA additions arising from P3 arrangements at quarter end based on the estimated percentage of completion costs in excess of $1 million that have not yet been recorded. Ministries should record the TCA additions arising from P3 arrangements using the normal TCA current year addition accounts and account 270000 Obligations Under Long-Term Financing Arrangements. Account 199900 should not be used to record TCA additions arising from P3 arrangements and the amounts recorded at quarter end should not be reversed. Year-end Accounts Payable Account 255099 contains uncleared payables set up at year end (see GRF 2016-17 Year End Reporting Requirements and Procedures, F2a#3). When the related invoices are received throughout the year, ministries are to use the MIDAS Accounts Payable module for payment processing. However, the payment is debited to account 255099 rather than an expense account. 19
This process is important in ensuring that only expenses incurred in the quarter get recorded as an expense in the quarter. Where ministries have chosen to adjust account 255099 only at year end, it is important that 255099 be reviewed at quarter end, and any required accrual adjustments made. Unearned Revenue Unearned revenue consists of amounts received by the Ministry that have not yet been earned. The Revenue section of Determining Amounts of Accrual Adjustments in these procedures provides guidance on determining when revenue is earned. The balance of revenue received by the end of the quarter, where goods and services will not be provided by the Ministry until a subsequent quarter, should be recorded as unearned revenue at the quarter end. Examples of unearned revenue include the proceeds from annual or multi-year licenses and other licenses and fees received in advance. The portion of the revenue that relates to a subsequent quarter is recorded as unearned revenue in account 257200 Accrued Unearned Revenues. This process is important in ensuring that only revenues earned in the quarter get recorded as revenue in the quarter. Amounts recorded in account 257020 Unapplied Receipts should be reviewed at quarter end to ensure receipts are appropriately matched to receivables and cleared out of the account. Interministerial Clearing and Refund to Vote Clearing Accounts Interministerial and refund to vote clearing accounts should be monitored and reconciled on a monthly basis and reasonable efforts should be made to clear these accounts to zero for the quarter end. 4 Ministries will need to ensure that when the purchase of goods and services or the provision of transfers is under a shared arrangement that an appropriate amount of time is provided to the receiving Ministry to make an accrual. 4 With the exception of #253022 Payroll Refund to Vote Clearing Account. This account may include amounts that will be processed in the next payroll run. 20
Appendix A MIDAS Accounts Payable Processes Expensing Transfer Payments Ministries need to review the authority for making specific grant payments (e.g., legislation, agreement, contract) to assess the appropriate timing of the transfer expense. The invoice processing should be reviewed to ensure that the transfer is expensed in the proper period in MIDAS. In MIDAS, the timing of the expense (i.e., the period in the General Ledger Module that the expense is posted) is driven by the GL Date, which is populated by the Goods and Services Received Date. For example, if the Goods and Services Received Date (GSR) is entered as September 15, 2017, the GL date will automatically be September 15, 2017 and the expense will be recorded in the General Ledger module of MIDAS in the September 2017 period. Validating an invoice immediately encumbers the ministry s appropriation. This is not the same as recording an expense. Ministries need to ensure expenses are recorded in the appropriate period. To Record Expense Prior to Payment Being Made The following example shows how invoice entry can be used to ensure the proper accounting happens in the General Ledger: A $32,000 grant to an organization is authorized by Order in Council and approved by the delegated signing authority at the beginning of the fiscal year. The agreement requires that the grant be paid in quarterly installments to the organization. An invoice needs to be entered for each payment. Because the expense must occur in the first quarter (all approvals have occurred), the invoices need to be entered and posted to the GL in the first quarter. The following invoices were entered June 20, 2006 after the full year s budget was available. 21
To ensure that each invoice is expensed in June 2006, the GL Date must be in June 2006 (see third column from left). To ensure the payments are made on the appropriate dates, ministries have two entry options: Preferred option: change the Terms Date to the intended payment date (see third column from right) and the Terms to Immediate. This option is preferred because the adjusted payment date is shown on the invoice entry screen, and the information is readily available during invoice inquiry. 22
Second option: the payment date for each invoice can be changed using the Scheduled Payments button (do not schedule more than 1 payment per invoice amount). After invoices are validated and MIDAS processing is complete, the General Ledger module will be updated. The following MIDAS General Ledger screen shows that the full $32,000 expense has been appropriately recorded in June 2006: Ministries are able to monitor outstanding invoices using the Invoice Register: 23
To Record Expense as Payments are Made Some grants may need to be expensed when payment is made during the year; that is, full authorization does not happen until a delegated signing authority has approved the amount for payment. This may be once in a year, or quarterly, or monthly. It is important for ministries to ensure that the process used to initiate payment also records the expense in MIDAS in the appropriate period. GL Date on the invoice is the trigger for expense recording, and should not be changed. This also includes the GL Date within Accounting Distributions. Date of Authorization and Recipient Eligibility = Goods and Services Received Date = GL Date It is important, when entering invoices, to remember that expenses cannot be back dated. That is, any invoices that should be expensed in a period must be entered and validated in that period. Option to Accrue If it does not seem appropriate, or would require additional work to align payment processes with timing of expense, ministries still have the option to accrue transfers expense by journal entry at the end of each quarter. 24
Appendix B Natural Accounts Quarter-end Accrual Adjustments The following natural accounts have been established to record accrual adjustments. These accounts must not be used at year end (i.e., must have zero balances at March 31). Natural Account # Description Revenue 498101 Accrued Revenue - Corporation Capital Tax 498102 Accrued Revenue - Corporation Income Tax 498103 Accrued Revenue - Individual Income Tax 498104 Accrued Revenue - Fuel Tax 498105 Accrued Revenue - Liquor Tax 498106 Accrued Revenue - PST 498107 Accrued Revenue - Tobacco Tax 498108 Accrued Revenue - Insurance Premium Taxes Accrued Revenue - Drivers Licences, Registrations and 498109 Permits 498110 Accrued Revenue - Mineral Rights Tax 498120 Accrued Revenue - Non-renewable resources 498121 Accrued Revenue - Natural gas 498122 Accrued Revenue - Oil 498123 Accrued Revenue - Potash 498124 Accrued Revenue - Uranium 498125 Accrued Revenue - Sodium Sulphate 498126 Accrued Revenue - Coal 498127 Accrued Revenue - Other non-renewable resources 498128 Accrued Revenue - Resource Surcharge 498140 Accrued Revenue - Transfers from other government entities Accrued Revenue - Transfers from Liquor and Gaming 498141 Authority 498160 Accrued Revenue - Miscellaneous 498162 Accrued Revenue Other fees and charges 498165 Accrued Revenue Investment income 498180 Accrued Revenue - Transfers from the federal government 25
Expense 586900 Accrued Internal Recoveries 587510 Accrued Expenses - Salaries and Benefits 587520 Accrued Expenses - Goods and Services 587521 Accrued Expenses - Utility costs 587522 Accrued Expenses - P-cards 587523 Accrued Expenses - Construction costs 587540 Accrued Expenses - Travel 587560 Accrued Expenses - Capital transfers 587570 Accrued Expenses - Operating transfers 587580 Accrued Expenses - Other expenses Balance sheet (to offset revenue/expense recording) 105200 Accrued Prepaid Expenses 107600 Accrued Accounts Receivable - General 199900 Accrued Capital Assets - Current Year Additions 255005 Accrued Accounts Payable - General 257200 Accrued Unearned Revenue 26