By Brett Driscoll
Administering transactions in an Expense Management Solution requires an understanding of the relationship between the card provider and EMS for financial integrity between all systems.
Card provider statement cycles rarely line up with calendar months.
Due to bank back-office practices, many banks and card providers usually close off their months (statement periods) on approximately the latest common day across all months (the 28th, perhaps the 27th). Some banks use the day the card programme is launched as the cycle date, e.g. the 10th of the month. Some card issuers have competing back-office processes and may make it the 20th or 21st.
What does this mean to the administrator of an EMS?
When the Provider debits the client's bank account to settle the previous month's transactions, it is to pay out the statement period that they have defined in their agreement with the client. So if the cycle date is the 28th of the subsequent month, this does not align with a calendar month. Use the Reconciliation by Accountholder report in ProMaster to confirm the Provider's statement.
Banks settle on an agreed date.
The period cycle date may be the 28th, but the payment might be the following 10th (thus giving 40 days, 45 days etc. of credit). When reconciling a period using a report, it will include last month's payment - by removing the payment amount from the total, the balance will be the month's spend.
Reconciliation is end to end.
If the Provider issues a statement for a cycle period with $X of transactions and fees, this should be found in ProMaster for the same period and for the total of $X.
When posted to the general ledger, the GL should be able to show postings for the same $X. The GL Reconciliation report summarises this relationship. It shows the value of the $X for the period and then clearly describes the status of every transaction. It is a 100% accurate report.
The challenge is aligning all systems.
Reconciliation by calendar month is unsuccessful.
Transactions are issued by the provider and summarised for the defined statement period, based on statement date. The only period that can be successfully reconciled is the bank statement period.
Configuring ProMaster to make this work.
- Using statement cycles: Statement cycle dates must align with the provider's statement cycle periods and not calendar periods. All reports in ProMaster use the same period based on statement date, not transaction or posting date.
- The GL export closing date: The closing date in the GL export must be the closing date of the statement cycle. Therefore all exported data for the month aligns with what the provider is going to settle in the next month.
- Use a suspense account: The GL export should have a contra balance posted to a suspense account and offset by the payment.
- 100% processing compliance: Verify and approve every transaction in ProMaster for the statement period by finance cut off date.
In applying all of the above steps, the relationship between the provider's statement, where the transactions have been actioned in ProMaster and where they end up in the GL can be demonstrated. This enables reconciliation between the transactions loaded into ProMaster and general ledger.
The General Ledger Reconciliation report encompasses this in one report. GL reconciliation links the value of all transactions provided by a card provider for a specified statement period, identifying which status the transactions are at plus those that have been exported to the GL, and confirming the total of the GL reconciliation equals the card statement total.
If you have any questions regarding best practice system reconciliation please contact us.