Financial Close Process

Contents

Overview

Learning Topics

Roles and Responsibilities

Additional Resources

Overview

Closing the books in the BFS general ledger is a critical accounting process that we undergo for both the monthly accounting periods and at year-end for the entire fiscal year. This is a required process to create financial statements that guide strategy, help University leadership measure progress against financial goals, calculate financial projections for budgeting and financial health purposes, and make budgeting decisions.

UC Berkeley’s general ledger accounts are consolidated with the rest of the University of California (the UC) so they can be used by key stakeholders outside of the UC – such as analysts and investors in the bond market for publicly issued University debt. Auditors, lenders, and regulators also look to these statements to understand the Systemwide University of California’s financial position.

The key takeaways from the financial close process are

  • The financial close process is an essential business activity that produces timely, accurate records of UC Berkeley’s financial performance during a particular accounting period.
  • The close process takes place at regular intervals – monthly and annually.
  • Key internal and external stakeholders rely on the financial data resulting from the financial close process to perform analyses and make strategic decisions.
  • The primary goal of the closing process is to establish a single version of UC Berkeley's financial truth. The financial close includes the accounting procedures involved in recording UCB’s financial activity over a given accounting period.


In this section, you’ll learn the following topics

  • What is the close process?
  • The major steps involved in the close process
  • Major challenges to the close process
  • The Divisional Finance Leader’s (DFL) role and responsibilities in the closing process
  • Additional resources available

Learning Topics

What is the close process?

The financial close is a critical process that leads to the delivery of the financial statements, which reflect UC Berkeley’s financial position during a given accounting period. The purpose of the close is to memorialize our financial records into a single source of financial truth for the University.

UC Berkeley closes the books at a regular cadence, both monthly and annually, as part of fiscal close. The financial statements produced during the close process are especially valuable when they provide accurate and timely insights. The close process demands a level of attention to detail within a narrow window of time. UC Berkeley uses a combination of financial systems and streamlined processes to close the books centrally. At the heart of the closing process is the Berkeley Financial System (BFS).

Closing the books is an essential activity for any business since it creates a consolidated and accurate record of financial activity over a particular reporting period. An organization as large as the University of California, requires an extensive amount of collaboration between the Office of the President, each of the ten campuses and five medical centers, and LBNL. Within UC Berkeley, it requires an extensive amount of collaboration between the Controller’s Office and the many departments, divisions, and schools spread across UC Berkeley. While individual campus departments make up a small number of steps in the fiscal close process, it takes 247 steps across the University of California systemwide to produce the consolidated systemwide financial statements. To produce UC Berkeley’s financial statements, the Controller’s Office performs hundreds of individual steps. Some steps utilize automation built into our financial software (i.e. BFS), while others are manual in nature.

While the general ledger remains open for departments to process financial journals till early July, the Controller’s Office continues to close the books through the middle of September because it’s a painstaking, detailed, and complex process. As is often the case, because of the length of the annual close process, the Controller’s Office is closing both the annual and monthly accounting periods for the next fiscal year at the same time.

The monthly close schedule and annual close schedule (i.e. fiscal close) performed by divisional finance leaders and their respective departments can be found on the Controller’s Office website.

The major steps involved in the close process

While the financial close process can vary depending on if the University is closing a monthly accounting period vs. the annual fiscal period, and changes depending on the type of account, fund, and transaction involved, the process generally includes the following steps:

Record all revenue and incoming cash

The various accounting teams in both the Controller’s Office and UDAR will record any money that’s earned during an accounting period for revenue recognition and review major revenue categories managed by other units (i.e. housing and dining, athletics, auxiliaries, etc.). Generally, revenue is earned when the University performs a service or activity. This can range from teaching courses, conducting research, providing housing to students, etc. The accounting teams are looking for any loose ends to tie up. For example, if the University failed to invoice a research sponsor for work done during the accounting period, or a sponsor neglected to make a payment, those issues will need to be addressed and properly recorded.

Update accounts payable related liabilities

In conjunction with recording revenue, the accounting team will also need to record any expenses that were incurred during the accounting period, including payroll, materials, and supplies that were received but not yet invoiced, invoices received but not entered into BearBuy for services performed or goods delivered during the accounting period, etc. At this stage, the accountants will make sure to cross-check these liabilities with those recorded in the general ledger and ensure every expense has been accounted for by a variety of means, including manual checking, data analysis, and automated controls built into our BearBuy and BFS systems.

Review balances and adjustments from the prior period

In addition to making sure we include all financial activity from the current period in the general ledger, the accounting team will also examine balances and adjustments from the prior period for incurred expenses and prepaid assets. For example, if UC Berkeley paid for a three-year period upfront for licensing and maintenance of our financial system with Peoplesoft, it is recorded as a prepaid asset and amortized evenly over that three-year period.

Reconcile balance sheet accounts

The accountants will reconcile balance sheet accounts, including cash, receivables, prepaid accounts, accounts payable, and other liability accounts. Cash is often the easiest to process since reconciling differences can be quickly identified and corrected; however, with the large volume of transactions that flow through our bank accounts, it can be a tedious task requiring patience. Accountants cross-reference bank statements with receipts, bank records, and other outside source information. We also must reconcile our intercompany accounts with the other UC campuses to properly account for payments and receipts that flow back and forth between UCOP, the other campuses, and UC Berkeley.

Manage fixed assets

Fixed assets, such as buildings, equipment, vehicles, and property, add long-term value to the University, so accounting will need to record the cost of these long-term assets on the balance sheet and record any depreciation or amortization evenly over the life of the related assets. This also includes ensuring any dispositions of assets are recorded properly, reassessing the value of the net book value of assets for impairment, and recording impairment charges where necessary.

Review equipment inventory balances

The University regularly performs a physical inventory of equipment acquired and reconciles the results of the review to the University’s asset management system and the related fixed asset ledgers. Accountants ensure that the results of the inventory reconcile to our asset listings and when reconciling differences are identified, they ensure they’re addressed properly.

Compile and analyze financial statements

The accountants regularly upload our general ledger balances to UCOP’s financial reporting and consolidation system so that preliminary financial statements can be compiled. As part of the annual fiscal close, using the UCOP system, the team can analyze balances for errors using automation software and compare them to expected results. Financial statements include an income statement, balance sheet, and cash flow statement.

Finalize reports

Once the financial statements have been reviewed, the accounting team can complete any necessary reporting for management and pull together any documentation required for auditing and regulatory reporting.

Prepare for the next close

The accounting team will freeze the books for the accounting period and open the next accounting period for transaction processing. The team can address any issues or concerns that arose during the close to improve and streamline the process for the next accounting period.

Major challenges to the close process

The financial close can be exhausting on the accounting team, given the requirements to deliver accurate results on time and in compliance with all internal policies, accounting standards and regulatory requirements. Fortunately, we have standardized processes and have invested in automation software like BFS and BearBuy. Some of the major challenges of the close process include:

Lack of standardization of procedures and interdepartmental cooperation

The University needs accurate data to create reliable financial statements. Sometimes, departments receive invoices for purchases directly, receive checks in the mail, or do not review their general ledger reports in a timely manner. We have standardized procedures for all financial cycles (revenues, purchases, timekeeping, etc.), but there’s the risk that they aren’t always followed regularly, which can lead to inaccurate data in our financial systems. Accounting teams charged with closing the books may have to chase down information from other departments.

Ensuring Accuracy

Financial statements are only as reliable as a decision-making tool as the data used to produce them. UC Berkeley is constantly looking for ways to reduce manual processes for tasks because manual processes are more likely to produce errors when closing the books. The accounting team still relies on manual processes in reviewing general ledger data for errors which is why it’s important that divisional finance leaders ensure that their teams use the University’s standardized processes and procedures for transactional processing and review automated reports further described in the next section (DFL’s role and responsibilities in the closing process).

Time pressures

Closing the books can be a time-consuming process, yet the sooner the University’s leaders (Chancellor/Provost, Deans, AVC/AVPs, department heads, etc.) have access to financial insights, the better. Managing the tension between meticulous review and the need for speed to meet expectations from leaders, auditors, and regulators can be a tough balance.

Data Issues

Missing or low-quality data can hinder the financial close process. For example, Inaccurate contract and grant billing invoices due to erroneous costs applied to grant projects, unrecorded payments, and duplicate or incomplete data can cost the University time during the financial close.

Disparate systems

Many organizations use a variety of software programs in different parts of the organization, creating challenges for the accounting team in tracking down the data required to close the books. Lack of integration among systems increases the likelihood of errors and delays. This is why a key objective is to reduce the reliance on shadow systems and utilize our large ERP financial system investments instead. Review this [page/flier/etc] for an index of all of UC Berkeley’s core and tangential financial and procurement systems.

Insufficient resources

The close process involves several repetitive tasks, including double-checking data. Without the right tools to streamline tedious tasks, our accounting teams can be stretched thin during this process, and the resulting financial analysis could be at greater risk of errors and delays.

Roles and responsibilities

The divisional finance leader plays a pivotal role in ensuring the monthly and fiscal close processes are efficient and smooth.

Run financial review reports

  • General Background: DFLs play a critical role in reviewing the financial activity over a given accounting period and since the close is performed both monthly and annually, reviewing monthly results gives the University assurance that the financial activity is complete and accurate for the time period. There are key reports that DFLs should review on a regular basis to ensure the data reported for their respective divisions, schools, and departments are complete and accurate. Below is a list of the various reports that DFLs review to ensure the data is clean before the Controller’s Office closes the books for the accounting period.
  • Financial Reporting Review: DFLs should review financial reports at a minimum on a quarterly basis, as described in the Internal Controls onboarding chapter. Analyzing the department’s ledger transactions provides reasonable assurance that the charges and credits are valid and they align with management’s expectations for what should be charged to their department’s general ledger.
    • Reports reviewed:
      • CalPlanning GL Summary Monthly Comparative Actuals report
      • CalAnswers General Ledger Compensation by Accounting Period report
    • Best Practices:
      • DFLs are required to review these reports quarterly at a minimum, but it’s advised that they review them and any other relevant general ledger reports more regularly.
      • Recommend DFLs have their department heads review reports more frequently on a monthly basis at the L4, L5, or L6 level to coincide after reports are released in CalAnswers on a monthly basis to give DFL’s reasonable assurance about the quarterly reports
  • Purchasing Financial Reports (BearBuy):
    • On a monthly basis, department heads and DFLs should review BearBuy for any vouchers waiting for review. If there are open questions or outstanding issues with the vouchers in BearBuy, it’s important they are resolved before month-end close.
    • On a monthly or quarterly basis, department heads should review old, unused Purchase Orders and close them from the system if no longer necessary.

Confirm Financial Transactions

Confirm staff have entered all financial transactions into UC Berkeley’s financial and procurement systems for the accounting period before the monthly close. The following are the major areas to pay attention to.

  • Ensure all vouchers are reviewed in BearBuy so expenses can be posted to the department’s general ledger for the accounting period. Unapproved vouchers will not be posted.
  • Ensure all reimbursements related to the accounting period have been submitted to the Travel Reimbursement system in accordance with policy and have been reviewed and approved timely. Reimbursements must be submitted within 45 days after the end date of a meeting, event, or the completion of travel to be excluded from taxable wages to the individual, but for complete and accurate cost accounting, the transactions should be entered into the reimbursement system before the close of the accounting period (monthly, annual) to be included in the general ledger financial reports (see financial reporting review above). It’s critical we make every best effort to ensure they are entered timely into the reimbursement system. For more information about reimbursements, see the Controller’s website.
  • Payroll Expenses: To ensure all payroll expenses for the accounting period are complete and accurate on the compensation reports (see Financial Reporting Review above), DFLs should ensure that the following occurs each monthly accounting period
    • All personnel transactions for new hires, terminated employees, or changes in personnel information are entered into the UCPath system by BRS or staff personnel in the same accounting period the transaction was approved by the department.
    • All timecards during the accounting period have been reviewed and approved in CalTime. Even if the employee does not complete their timecard, supervisors should fill in the hours worked or leave taken to the best of their knowledge before the timesheet deadline.

The above two activities are critical to ensuring compensation expenses are complete and accurate, as reported in the CalAnswers Compensation reports (see above financial reports requiring review).

Note: The risk that costs included in compensation expenses are not complete or accurate increases if there are missing personnel transactions from UCPath or if timesheets do not reflect all hours worked or leave taken. By ensuring all personnel transactions have been entered, and all timesheets are reviewed/approved in the same accounting period reduces errors and the need for salary cost transfers. The high number of salary cost transfers indicate a substantial amount of rework is necessary to correct errors which cost the University time and money. Errors can easily be avoided if we proactively monitor financial reports and ensure all transactions are entered timely.

Resolve all deficits

Units are expected to resolve operating deficits on their own throughout the year. When a deficit remains, the campus implements a technical Deficit Clearing Process (DCP), which will force a resolution of an operating deficit. As best practice, Units are highly encouraged to resolve deficits through their own intervention before the DCP process runs.

Resolving deficits may involve reclassifying expenses or redistributing resources through an operating transfer. The appropriate resolution will differ by fund and circumstance. All deficit remediation should follow procedures established by the Controller’s Office and can be referenced in the full policy document.

To see a report of funds at the org level 4 that are currently in deficit, go to the Fund Deficits Reporting dashboard in Cal Answers and run the Deficits to be Cleared report.

The Deficit Clearing Processes are managed by Contracts & Grants Accounting for C&G awards and by the Campus Budget Office for non-C&G funds. To learn more about the deficit clearing program or to request a waiver to exempt a Fund-L4 combination from the automated process for non-C&G funds, see the following websites

The DFL is responsible for clearing deficits and approving waiver requests. Fund deficits can be viewed in the Cal Answers Finance subject area in the Fund Deficits Reporting dashboard.

Fiscal Close Certification Letter

Because the University of California is decentralized, each campus must make certain representations to UCOP. In turn, because UC Berkeley’s financial management is decentralized, DFLs are required to make certain representations to the AVC/Controller about the following;

  • There are no material transactions or agreements that have not been properly recorded in the campus’ accounting records
  • All known allegations of fraud or suspected fraud, if any, have been disclosed to the appropriate campus officials
  • Their respective areas are following all laws, regulations, provisions of contracts and grants, and donor restrictions to the extent applicable
  • They take responsibility for the application of University policies and procedures

These letters are extremely important, and the DFL is required to sign the report with their respective campus senior management team members (Deans, Vice Chancellors, Vice Provosts). It’s up to the DFL to collect signatures from their respective dean, VC, and Vice Provost where relevant. More information about the Fiscal Close Certification Letter can be found on the Controller’s Office website.

Additional resources: