Internal Transactions and Year-End Close (GA101)

Process Group/Policy Details

• Subject: General Accounting

• Process Group: Internal Transactions

• Title of Policy: GA_ Internal Transactions

• Effective Date: 07/01/2014

• Approved/Revision Date: 12/09/2014

• Approved by: State Controller

Process Group Description

• This process group includes an internal transaction, which is an accounting event where moneys move between cabinets, departments, funds/subfunds, or appropriation types (Long Bill cell or equivalent), and the accounting for both the provider and receiver is recorded in CORE. These movements may be in the form of grants, internal sales, transfers, or other reimbursement-type events.

• The internal transaction process group includes information necessary for the proper recording of internal transactions, including the appropriate use of IET, ITI/ITA, PRCI, and PRMI transactions in CORE as well as the required fields and information necessary to properly report internal transactions for the State’s financial reporting purposes.

Rationale or background to policy:

• CORE provides varied functionality related to the types of internal transactions that may be processed. In order to ensure that the functionality is properly and consistently applied, and to ensure that the appropriate information is available to comply with GAAP reporting requirements, this policy is required.

Policy Statement:  

Internal Transactions

• CORE operates under two different methods for internal transactions:

  • One-Transaction Method – one party completes information for both parties to the transaction. An IET transaction or a PR transaction type is used under this method.

  • Two-Transaction Method – one party initiates the internal transaction, using an ITI transaction, and the second party “agrees” to the transaction, using an ITA transaction.

• Some basic concepts underlie both transaction methods. The first is the concept of “initiator”. On every internal transaction, the role of the transaction(s) initiator must be defined as either Buyer/Receiver or Seller/Provider. The selection of the initiator’s role is key to the transaction and is defined based on the flow of cash. The following table outlines the definition of the initiator’s role as either Buyer/Receiver or Seller/Provider, based on the combination of the underlying transaction and the provision or receipt of cash.

Transaction Description Buyer/Receiver Seller/Provider

Internal Sales & Expenditure Reimbursements Provider of Cash               Receiver of Cash

Transfers Receiver of Cash Provider of Cash

Grants (e.g., Federal subrecipient or State grant) Receiver of Cash Provider of Cash

Loans Receiver of Cash Provider of Cash

On every internal transaction, the initiator is also the 1st Party to the transaction, regardless of whether the initiator is the
    Buyer/Receiver or the Seller/Provider.

• Departments shall use transfer codes (within object codes 7xxx and revenue source codes 9xxx) for payments from one cabinet/department to another or between funds or appropriation types which do not involve the exchange of money for goods or services. These payments are generally of an involuntary nature and mandated by budget, statute, or other administrative requirements such as indirect cost recoveries.

  • • Statutory transfers

      • • All internal transactions involving statutory transfers must include either a statutory reference or a bill reference at the beginning of the Transaction Description field in the General Information tab of the transaction Header.

        • Statutory transfers with a specified payback date will be recorded using event type IN22, as shown in the event type table that follows.

• When goods or services are exchanged, and the value received is commensurate with the value paid, an exchange transaction exists. In these situations, departments shall use non-transfer accounts. Accounts used in these situations may include, but not be limited to:

  • • •  Internal sales – examples include fleet vehicle charges, Correctional Industries purchases, various information technology related charges, or legal services to State agencies. These exchanges are recorded in various object codes by the buyer/receiver, depending on the nature of the service being provided. The sales shall be recorded in the 445x, 5312, 5315, 6300, or 6301 revenue source codes by the Provider/Seller.

      • Cost reimbursement – examples include interdepartmental agreements to procure goods and services on behalf of another department and legal case costs in excess of $500 per case. These are recorded as decreases to the object code used by the seller/provider, and as original expenditures by the buyer/receiver.

      •  Other Reimbursements – Certain reimbursements are coded to revenue source codes rather than a reduction of expense. Reimbursements for Risk Management claims shall be recorded in revenue source codes 5860 or 5861. Reimbursements for WSCA rebates shall be recorded in 830D or 830E.

• Subrecipient and grant transactions with other state departments should not be confused with transfers, and therefore transfer accounts should not be used for these transactions. Departments shall code disbursements to other state agencies for federal or State grants to object codes 5770 and 5775, respectively. Recipients of federal or State grants as a subrecipient from other departments should be coded to specific revenue source codes in the 75xx and 76xx ranges, respectively. Grant related advances from State sources shall be coded to 7312.

• With the exception of transfers and payments to central billing cabinets, internal sale and grant activities occurring between Institutions of Higher Education and State departments will not use internal transaction transactions. Departments will use the appropriate transaction as used for external receipts or disbursements and will reference the institution by vendor/customer number.

• The State Controller will monitor the use of account codes on all internal transaction transactions to ensure consistent use between object and related revenue source codes, as well as appropriate use of transfer codes.

• Every internal transaction will include the accounting information for both parties to the transaction. This will allow for the determination of intrafund versus interfund (under the State's definition), which is a requirement for statewide financial reporting. The intra/interfund determination will be made by the State Controller and does not affect the selection of object or revenue source codes. 

• Departments shall use event types related to the internal processor for such events for all internal transactions.

Reimbursement:

• Expenditure Reimbursement with Cash Offsets

IN30

Internal reimbursement where the seller/provider records a credit to expenditure/expense with cash as the offset for both parties.

Earned Revenue:

• Earned Revenue with Cash Offsets

IN32 

Internal sales where the seller/provider receives a credit to revenue with cash as the offset for both parties.

Transfers and Loans:

• Transfers and Grant Disbursements with Cash Offsets

IN20 

Operating transfers out and in and interagency grant disbursements with cash as the offset for both parties.

• Loan with Cash Offsets

IN22 

Internal loans, which must be paid back, are unlike operating transfers. This event type results in loans receivable and payable with cash as the offset for both parties.

Receivables and Payables:

• Expenditure Reimbursement with Receivable/Payable Offsets

IN31 

Internal reimbursement where the seller/provider records a credit to expenditure/expense with offsets to receivable and payable accounts maintained by the Clearing Account Maintenance functionality as the offset for both parties.

• Earned Revenue with Receivable/Payable Offsets

IN33 

Internal sales where the seller/provider receives a credit to revenue with offsets to receivables and payables accounts (rather than cash) maintained by the Clearing Account Maintenance functionality as the offset for both parties.

• Transfers and Grant Disbursements with Receivable/Payable Offsets

IN21 

Operating transfers out and in and interagency grant disbursements with receivables and payables as the offset rather than cash.

Distributions to Agency Funds:

• Redistributions of Revenue to an Agency Fund

XN47 

Revenue redistribution from a non-Agency to an Agency fund with cash as the offset.

• Expenditures to Agency Funds

XN49 

Expenditure to an Agency fund with cash as the offset.

Treasury Interest distributions to Agency:

• Treasury Interest Distribution

XN25, XN45 andXN47

Interest distributions with cash offset

• Treasury Transaction Fees

XN33 

Treasury transaction fees with cash offset

For Use in Transactions Generated from Cost Accounting Module for Internal Reimbursement:

• Expenditure Reimbursement with Cash Offsets

IN36 

Used with transactions generated from the cost accounting reimbursement functionality. This results in a credit to expenditure/expense with cash offsets for both parties.

• Expenditure Reimbursement with Receivable/Payable Offsets

IN37 

Used with transactions generated from the cost accounting reimbursement functionality. This results in a credit to expenditure/expense with receivable/payable offsets maintained by the Clearing Account Maintenance functionality as the offset for both parties.

• Reimbursement of expenditures/expense, and the related event types, shall only be applied for incidental and non-recurring activities that involve a routine departmental function and for which the refund/reimbursement occurs within the same fiscal year as the original expenditure. If a refund/reimbursement of expenditure/expense is made in a subsequent fiscal year, an event type that recognizes revenue shall be used and revenue credited to a non-augmenting revenue account in the 83xx revenue source codes.

• Departments shall use internal transactions that involve event types which create receivables or payables rather than cash (except for IN22) only at fiscal year-end, when cash balances should not be updated. These event types (IN21, IN31, IN33) are used on internal transactions in lieu of event types with cash offsets.

• When recording internal transactions July 1st or later, the service date must be entered as June 30th or earlier on IET or related ITI/ITA transactions to properly reflect the activity (services provided or goods received) as occurring prior to fiscal year-end.

Procedure(s):

GA.PR.05.01 Internal Exchange Transaction (IET) Transaction

• IET transactions are available for use by departments for internal transactions between departments, funds/subfunds, and appropriation types within a single cabinet without central approval. Additionally, billing and revenue distribution cabinets (e.g., Personnel & Administration, Governor’s Office of Information Technology, Judicial, Law, Revenue, and Treasury) may use an IET transaction that crosses cabinets, and Health Care Policy and Financing may use an IET crossing between its cabinet and Human Services. Transaction type IET3 is a cloned transaction type specially designed for Treasury to use. Treasury will use IET3 transactions to perform monthly interest allocations (event types XN25, XN45 and XN47) and to charge transaction fees (event type XN33). IET3 transaction will have its unique workflow and will allow the transaction to go to final when submitted. The use of IET transactions for transactions that cross cabinets is available only with prior approval by the State Controller.

GA.PR.05.03 Location for IET/ITI/ITA Supplemental Information

• Communication between and within agencies is key to the consistent treatment of internal transactions. Contact information for the individual creating the IET, ITI/ITA, and internal PR transactions must be provided in the Extended Description Field. At a minimum this information must include the individual’s name, phone number, and email address. Departments may also wish to include back-up contact information to facilitate timely transaction processing at fiscal year-end.