| AwardYear: 1995-1996 ChapterNumber: 7 ChapterTitle: Reconciliation PageNumbers: 1-8 CHAPTER 7 - RECONCILIATION Essential Questions - How often does a school need to reconcile? - Are loan records reconciled as well as cash? - Can the reconciliation process be handled through the software, or is it a manual process? General Information Reconciliation is a new school activity under Direct Loans, although many schools perform a similar function under other programs, most notably the Federal Pell Grant Program. Direct Loan reconciliation consists of two parts: - Cash management reconciliation, and - Loan record reconciliation. A school and the Direct Loan Servicing Center reconcile monthly. - A school has a designated reconciliation period (that the school and the Department determine jointly) that will end on the same date each month. - All activity as of the date agreed to is subject to reconciliation. The school will most likely transmit information at a later date, but the school must include all specified activity conducted by the as-of date. - Even though reporting activities occur monthly, reconciliation is performed for any transaction that has not previously been reconcilednot just the activities of the preceding month. The Departments software offers a menu item that allows you to create a reconciliation file. It is important to understand what the software does before turning to the actual process of reconciliation. Cash Management Functions. The software performs specific cash management functions. Initially, all schools will begin with a cash balance of zero. When there are multiple school codes at one location, the software tracks multiple cash balances. Each transaction that occurs is stored against the cash balance or school code at the school. For each transaction, the following balances are kept: - Total cash receipts, - Total cash disbursements, - Total cancelled disbursements, - Total adjusted disbursements, - Total return of cash on hand, and - Cash on hand balance. The chart on the following page explains each activity and its affect on cash. Cash Management Functions ------------------------------------------------------------------------------ Cash Receipts ------------------------------------------------------------------------------ This will be a manual entry that will add or subtract from the cash receipt balance. A positive amount would normally be entered, however, if a mistake was being rectified, the amount could be negative. The School Will enter: · Date of receipt of cash or date of entry being corrected; · Amount received (positive or negative); and · Reasons for entry (Cash Receipt). The system will then calculate (or capture): · New cash on hand balance; · New balance cash receipt; · UserID that made the entry; and · Date of entry on the system ------------------------------------------------------------------------------ Actual Disbursements ------------------------------------------------------------------------------ When the actual disbursements are recorded into the school system on individual student records, the system will subtract these amounts from the cash on hand. The system will automatically update the balances when the record is saved. The cash data base will contain one record for each disbursement. The school will provide: · Date of disbursement; · Gross amount disbursed; · Reason for entry (Disbursement); · Loan identification number; and · Disbursement number (1-4). The system will then calculate (or capture): · New cash on hand balance; · New total cash on hand disbursements balance; · UserID that entered disbursement; and · Data of entry on the system. ------------------------------------------------------------------------------ Cancelled Actual Disbursements ------------------------------------------------------------------------------ If a disbursement is cancelled after it has been made, the system will automatically add the amount cancelled back into the cash balance. This will be done at the individual loan level immediately after updates to the record are saved on the data base. The cash data base will contain one entry for each cancelled disbursement. The system will place the following data elements into the cash data base and adjust the cash balance: · Date of disbursement calculation; · Net amount cancelled; · Reason for entry (Cancelled Disbursement); · Loan identification number; and · Disbursement number (1-4). The system will then calculate (or capture): · New cash on hand balance; · New balance for cancelled disbursements · UserID that initiated cancelled disbursement; and · Date of entry on the system. ------------------------------------------------------------------------------ Return of Excess Cash ------------------------------------------------------------------------------ This will be a manual entry. The system will subtract the amount of the returned cash from the cash balance. Most of the time, a negative amount would be entered, however, if a mistake was being rectified, a positive amount could be entered. The school will enter: · Date of return of the cash or date of entry being corrected; · Amount returned (positive or negative); and · Reason for entry (Excess Cash Return). The System will then calculate (or capture): · New cash on hand balance; · New balance for total return of cash on hand; · UserID that made the entry; and · Date of entry on the system. ------------------------------------------------------------------------------ Adjustments ------------------------------------------------------------------------------ When an actual disbursement has been made and must be changed, an adjustment to the cash balance must occur. When the net amount is modified, the system will determine if the amount is being increased or decreased. For increases, the system will verify that, with this new amount, all disbursements totaled do not exceed the total loan amount approved. If the approved total loan amount is exceeded, the change will not be accepted. If the change is within the approved total loan amount and is accepted, the adjusted amount will be placed on the loan data base and cash data base when the record is saved. The system will record each adjustment on the cash data base and recalculate new balances. The school will provide: · Date of adjustment; · Adjusted gross disbursement amount; · Reason for entry (adjustment); · Loan identification number; and · Disbursement number (1-4). The system will then calculate (or capture): · New cash on hand balance; · New balance for total adjustments; · UserID that made the disbursement; and · Date of entry on the system. Reconciliation Functions. Each school and the Department jointly agree to an as-of date for monthly reconciliations; for example, the last date of each month or the 15th of each month. Remember, the actual reconciliation is performed for any transaction that has not been previously reconciled through the as-of date. The software offers a menu item to create a reconciliation file. This file contains two types of information: - the cash management information, summary, and detail; and - loan level record detail. Cash Information (Summary and Detail). The school software calculates and reports the following information not reconciled through the as-of date: - beginning cash balance for the period - ending cash balance for the period - cash receipts total for the period - cash receipts detail for the period - total actual disbursements for the period - total cancelled actual disbursements for the period - total adjustments to actual disbursements for the period - return of excess cash total for the period - return of excess cash detail for the period and - prior months unreconciled total Detail Loan Records. The detail records that are submitted consist of one record for each type of transaction associated with disbursements, actual disbursements cancellations and adjustments that have not been reconciled up to the reconciliation date. Servicing Center Actions. When the Servicing Center receives this file, the Servicing Center compares the cash information as well as the detail loan records with the Servicing Center data. - The Servicing Center responds to the school with a file containing all records that were transmitted from the school, indicating for each record whether or not it reconciles. - For each unreconciled record, the Servicing Center provides a reject code specifying why the record was unreconciled as well as any Servicing Center data that are unmatched or mismatched. - When the school receives that information from the Servicing Center, the school should either correct the individual loan records, which will systematically correct the cash information, or correct the cash information (the manual transactions for cash receipts and return of excess funds). - Once everything is corrected, if time allows, the school creates and sends another reconciliation file (with the same ending date as the previous file), which includes the cash summary detail and any detail loan records which have not been reconciled. Unreconciled Cash Information. For unreconciled manual cash transaction data (cash receipts and return of excess cash), the school must determine the error and make an appropriate correction. - For example, if a school failed to record a cash receipt, a cash receipt entry must be input with the appropriate dates. - If an erroneous amount was input, a manual transaction with a negative amount (the erroneous entry) as well as another transaction containing the correct amount must be input. - The system then calculates new cash information balances form the new detail records. - Do not combine drawdowns into one cash receipt transaction. Each drawdown request is unique and a cash detail record needs to be created for each one. For unreconciled automated cash transaction data (disbursements, cancellations, and adjustments), the school must research unreconciled detail records and reconcile them as described below. Detail Loan Records. There are two reasons why a detail record could not be reconciled by the Servicing Center. - Unmatched data. The Servicing Center never received one or more of the following: · the loan origination record · the promissory note · disbursement information · disbursement cancellation information · disbursement adjustment information - Mismatched data. The amount of the disbursement, disbursement cancellation, or adjustment does not match. This would be caused by the Servicing Center not receiving the disbursement, disbursement cancellation, or adjustment information. Once the school has corrected the errors, it must transmit or send to the Servicing Center the required information in the same manner as it would normally transmit or send this information. - If time permits, the school then sends another file containing the cash summary and detail records and any detail loan records of disbursements, cancellations, or adjustments that remain unreconciled. These records are through the as-of date that is still being reconciled. - The Servicing Center then repeats the comparison process for the cash information as well as for the detail loan records. The Servicing Center returns the same records to the school, indicating those that are unreconciled and their reject codes, just as with the first reconciliation file. This iterative process continues, if time permits, until reconciliation is achieved, or the unreconciled records will become part of the next monthly reconciliation. Implementation Issues and Management Tips TIP * Review The Reconciliation Guide, which explains the reconciliation process in greater detail. TIP * Review any reconciliation procedures you may have in place for other federal programs to see what procedures could be applied to Direct Loans. . TIP * Initiate the three-way reconciliation process among the Servicing Center, the Direct Loan software, and the schools official accounting system. - For public schools under the jurisdiction of the Governmental Accounting Standards Board (GASB) or the American Institute of Certified Public Accountants (AICPA) College and University Model, Direct Loans will be recorded in the current restricted fund. - For other schools under the jurisdiction of the Financial Accounting Standards Board (FASB), Direct Loans will be recorded in the agency fund. - The Direct Loan Program may require several individual ledger accounts to be set up to distinguish Direct PLUS, Direct Subsidized, and Direct Unsubsidized loans. |