Account Reconciliations. Security Classification Account Reconciliation Process Policy The Four Types of Recons Warning Signs Roll-Forwards

Account Reconciliations

Security Classification

• Account Reconciliation Process Policy

The Four Types of Recons

Warning Signs

Roll-Forwards

Accountability

• CARS Tips

• Best Practices

• Statutory Account Reconciliations

2

Account Reconciliations

Security Classification3

Foundation of Financial Accuracy

• SEC Reporting Control ProcessesOngoing Control &Monitoring Activities

File 10Q

Quarterly Accounting Close Reviews

Controller’s Roundtable

Trial balance submissions

Divisional Sub- Consolidation

Tax & Corp. consolidation

Prelim. Financial Results

SOX/KMC Certification

Audit Committee

Post ClosingAdjustments

PrepareFinancial

Statements & Exhibits

Management review & analysis

Disclosure Committee

Review

Executive Review

Monthly account reconciliations

Judgmental reserves (warranty and restructuring) roll forwards

Pre-close accounting issue reviews

DGM Restructuring Approvals

Annual SOX Assessment

Accounting memos

Warranty Council

FAS 5 Legal Analysis

Internal audit procedures

Environmental reserve analysis

Bi-weekly CAO calls with divisional and regional controllers


Reconciliation Process: Policy Basics• Every balance sheet account -- Every month

Reconciliations completed by workday 13 or 18 (quarter vs. non-quarter end)

All accounts are required to be in CARS

• Every account must be assigned a reconciler and a reviewer

Reconciler and reviewer must be appropriate

3rd party (Genpact) reconciled accounts have a Delphi owner (“Approver”)

• Reconciliations must have sufficient supporting documentation

Must support the balance and the reconciling items / activity

• Outstanding reconciling items must be addressed on a timely basis

$100,000 or more must be resolved by the next month close

Under $100,000 must be resolved within 60 days (2 months after) or written off

• Zero balance accounts must be monitored and reconciled

Ensure that no balances are present and, generally, no activity occurred

• All accounts in local ledger must be represented in CARS

Note: Account Reconciliation policy available on the DCAP (Corporate Accounting Policy page)


Reconciliation Process: Policy Basics

• Reconciliations are a key control to ensuring that:

General ledger balances match the local supporting detail records

Any differences between the GL and detail are properly explained

• To be considered reconciled, all reconciling differences must be identified, investigated and resolved

$100,000+ resolved within 30 days (i.e. next month)

Under $100,000 resolved within 60 days (i.e. 2 months)

If an insignificant item remains unexplained for more than two months an adjusting entry should be recorded to clear (i.e. write-off) the amounts

• Reconciliations should not focus on just the activity in the account, but also on the account balance

The accounts assigned to you are your responsibility

In your personal bank account, do you care just about the activity, or do you also care about the balances?


Reconciliation Process: Accountability

• Finance Directors have the ultimate responsibility for ensuring that all divisional accounts are reconciled.

Responsibility may be formally delegated (in a written document) to Assistant Finance Directors

• Each division should have a formal account reconciliation review and sign-off process.

Documented (in writing) and maintained in the record of the division’s accounting procedures.

Reviews of reconciliations should focus on ensuring the quality and completeness of the reconciliation.

Divisional review process must include a detailed supervisor review of the account reconciliations (i.e. agreeing to source documents, etc.) on monthly basis.



• Preparer self-review should include the following steps:

Review of nature and purpose of activity

Verification of accuracy of amounts recorded (e.g., agrees to related support)

Verification of appropriate accounts and classification (e.g., P&L line item, current vs. long-term, asset vs. liability, etc.)

Verification that timing of activity is appropriate (e.g. accrual not cash basis, out of period adjustment, etc.)

Ensure that appropriate (objective, verifiable) support is included

Ensure that no extraneous information is included with the final support package

Provide information to supervisor for review

Address any supervisor review points or questions prior to finalization



• First-line supervisor review should be as if the reviewer was preparing the account reconciliation, the following additional elements should be included:

Provide review points to preparer

Ensure review points are appropriately addressed prior to finalization

Document supervisor review through formal sign-off of work product

• Certain accounts or other items may require additional review beyond the preparer and supervisor. These include:

Unusual or non-recurring items

Subjective items

All inventory reserves

Items for which there were differing viewpoints on the appropriate accounting treatment



• Each division / trial balance / site is responsible for appropriately reconciling and reviewing the accounts assigned to them

Reconciler: Completes the reconciliation by the required due date. Completes a self-review to ensure that you have:

• Accounted for the balances • Investigated reconciling items• Attached sufficient supporting documentation

Reviewer: Review the account to ensure that:• Balances and activity are accounted for • Proper documentation is attached• Review is completed in a timely manner

Approver (Third Party Reconciled)• Ensure proper and timely reconciliation and review• The Delphi approver is the owner of this account – not the outside party

Accounts assigned to you are your responsibility!

You are the expert on these accounts. These accounts are pieces of the total puzzle that eventually become our financial statements.


Reconciliation Process: Types of Recons

• The assigned reconciler and reviewer are responsible for the accounts assigned to them – they must understand the nature of the account, what type of activity flows through it, the unique risks, etc.

• Four types of account reconciliations

Sub-ledger to general ledger

General ledger to specific source documents

General ledger to estimates / calculations

Statutory to U.S. GAAP (covered separately)



• Sub-Ledger to General-Ledger

• A/R, A/P, inventory, PP&E, etc. accounts are based on information contained in the local sub-ledger. The balances must equal the balances in the general ledger

• For some accounts based in SAP, or other systems, there can be no manual adjustments – the balances are generated automatically

In these cases, you may not need to reconcile the activity in the account, but you do need to ensure that the sub-ledger equals the GL and that there are no reconciling items

• Some account balances are system set and only change annually (retained earnings, PP&E beginning balances, etc.)

Review monthly to confirm that the account has not changed (system errors do happen)

Document which accounts meet this criteria – an exemption is not needed

If accounts have unexpected changes, you must perform monthly reconciliations until it is confirmed that the system issues have been corrected



• Account to Specific Source Documents

• Accounts such as cash are based on source documents. The account must be reconciled to the bank statement and properly adjusted, if needed. The balance in the GL must agree to the source documentation, plus or minus reconciling items

• Example: Cash

Balance per bank statement $2,000

Add: Deposits in transit 1,000

Deduct: Outstanding checks (600)

Adjusted bank balance $2,400

Deduct: Service charges (100)

Balance per general ledger $2,300


Reconciliation Process: Types of ReconsAccounts Involving Estimates

• Certain accounts involve management estimates in addition to sub-ledger or other details

Example: Reconciliation of the A/R reserve for doubtful accounts:

Balance as of January 31 $ (775,000)

February credit activity posted to ledger (100,000)

Balance at February 28 $ (875,000)

Balance at February 28 is compared to management analysis supporting required level of reserves:

GM & outside customers 90+ days past due (reserve at 25%) $ (312,500)

GM & outside customers 31-89 days past due (reserve at 10%) (375,000)

Additional specifically identified accounts (reserved at 100%) (175,000)

Required level of reserve $ (862,500)

Additional adjustment required to A/R Allowance reserve $ (12,500) 1

1 Reconciliation should contain adequate detail to support the adjustment made by management. including copies of G/L screen prints, A/R sub-ledger detail, credit manager sign-off and approval forms and journal vouchers.



Source Document Type of Reconciliation

• Bank Statements Cash Accounts

• Subledger Detail Inventory

Accounts Payable

Accounts Receivable

Plant & Equipment

• Debt Agreements Accrued Interest Payable


Reconciliation Process: No Source Documents Exist

• Need to calculate what the balance should be Do not confuse a calculation with detail of the account activity!

Compare calculated balance with ledger balance

Do not assume the ledger balance is correct

• Transactions can be recorded in the wrong account• Journal entries can be missed or forgotten• Entries can be made for the incorrect amount


Reconciliation Process: Accounts Reconciled to Calculations

Accrued liabilities Prepaid items Reserves and allowances

Taxes Insurance Excess and obsolete

Interest Rent Warranty

Retirement benefits Impaired assets

Allowance for doubtful accounts


Reconciliation Process: Warning Signs & Issues

• Warning Signs: Balances that appear incorrect at first review

• Debit balances in a liability account or credit balances in an asset account• Significant change from the prior period• No change at all from the prior period

Aged reconciling items that are not being explained or written-off• Items that linger well past the 60 day cut-off without any reason or

documentation to support

Reconciliations that have inadequate or missing supporting documentation• Unexplained screen prints of activity• Unidentified reconciling items• No supporting detail – either of activity or balances

Reconciliations that just are inconsistent with underlying business processes• Often indicates an account that has been assigned to someone who is not

familiar with the balances, processes, etc.• Not every account is the same – some accounts require specific skills or

knowledge to properly reconcile. Make sure employees assigned to accounts are appropriate for those accounts


Reconciliation Process: Roll Forwards

• Roll-Forward vs. Reconciliation: A common mistake is to perform a roll-forward that summarizes activity as opposed to a true reconciliation that substantiates the balance in the account

• Roll-Forward Summary of debits and credits in the account

Does not provide assurance regarding the balances

• Reconciliation Explains the balances – provides evidence and comfort that balances are

accurate

Explains differences between the local sub-leger and the general ledger balances - including supporting documentation

Will include activity summary as well as additional information about the account and the balances


Reconciliation Process: Best Practices

• Assign resources to ensure adequate time to complete Make account reconciliations a priority for staff

Make sure staff are not just “doing the easy ones”

Consider authorizing overtime or short-term contract staff

Consider adding staff – perhaps co-op or intern

• Have process to resolve complex issues Call team together

Schedule weekly report-outs on status

Quickly elevate concerns to management

• Have process to flag potential income statement impacts Work to resolve all accounts

Forecast and address concern

Keep divisional management and CAO informed



• Set up periodic review sessions Best practice – Each month finance executive should randomly select

accounts for detail review with the account owner and manager

• Managers should keep logs of accounts that they are responsible for reconciliation

Finance Executives should review regularly

Focus should be on high risk accounts

• Consider “independent” review of accounts Switch accounts between Finance Executives

Rotate account reconcilers



• Divisional Internal Control should perform account reconciliation tracking

Verify list is complete and accurate including third party reconciliations (i.e., ACS/Accenture)

Spot check sample of reconciliations

• Set divisional policies on thresholds for required adjustments

• Close accounts that are not needed

• Combine accounts if possible

• Have documented issue resolution process


CARS: Tips & Ideas• All accounts are required to be reconciled in the CARS system

Key sites are required to review data quarterly to ensure that all accounts present in the local ledger are present in CARS

• CARS does not force a person to do high quality reconciliations, it is simply a tool to use

Just because you see something noted as ‘reconciled’ in the system, doesn’t mean it is necessarily correct – it is still up to the account owners to ensure quality

• CARS offers many features that may be underutilized by sites Detailed reporting Review / Audit capabilities Contact your local Super-User or the CARS team for support / help

• CARS performance is often limited by network capabilities Limit / eliminate large attachments, but be sure to indicate where back-up

documentation can be located for future review Work with your local accounting team to close and eliminate unnecessary accounts in

your local ledger• Additional accounts, even zero balances, drives additional traffic


Best Practices / SummaryAccount reconciliations are the foundation of our financial records. Accurate and

complete reconciliations help to ensure that we present accurate financial information and that management has the correct information to help make decisions.

• Make sure you allocate sufficient time to give the account reconciliation process the attention it deserves

Make accurate, high-quality reconciliations a priority for your staff

• Develop a local process or key contact to help resolve complex or difficult issues – designate a local expert

• Monitor your completion, outstanding reconciling items, timeliness, total accounts, etc. – all available from CARS

Including “Accounts Pending Modification” (returned to reconciler by reviewer)

• Consider implementing an independent review Rotate review responsibilities within your staff – make sure the review process does

not become a ‘check-the-box’ exercise


Best Practices / Summary

• Close accounts that are not needed – both in your local ledger as well as the CARS system

Consider combining similar or related accounts if feasible

• If you can’t comply with the reconciliation policy requirements, follow the proper steps for obtaining a deviation (refer to Section IV. Policy Deviations in the Account Reconciliation Policy)

• Ensure that accounts are assigned to the correct staff – don’t expect everyone to be able to manage every account

• Reconciliations are about the activity and the balances – a roll-forward of activity is only half of the job

Remember, this process is your responsibility. Every reconciliation performed rolls up to the corporate financial statements. Mistakes or

neglect of your accounts has a direct impact on the company. Your efforts make a difference.


Statutory Account Reconciliations

• Each trial balance Finance Manager has the ultimate responsibility for ensuring that all statutory accounts have been reconciled to the U.S. GAAP accounts as required by this policy.

• Each trial balance location should have a formal review and sign-off process. This process must be formally documented and maintained in the accounting records of the trial balance location. The location of these records is at the discretion of the location.

• Reviews should focus on ensuring the quality and completeness of the reconciliation.

• There is no exemption from the statutory reconciliation requirement. If circumstances arise that prohibit a statutory reconciliation, the respective trial balance Finance Manager or delegate must contact the Divisional Finance Director.


Statutory Account Reconciliation - Example• Assume the machine tool was placed in service on January 1, 20x5. The reconciliation is

for the year 20x5. This example is simply an example; units are permitted to complete statutory to U.S. GAAP reconciliations in any format that provides the information clearly.

• Local Statutory Accounts

Machine Tool with a cost of $3,500 was capitalized

The current gross book value of property, plant and equipment is $5,503,500

1 year of depreciation on this asset has been charged to expense $350.

The current balance in accumulated depreciation is 2,300,350

Local Statutory Net Income is $1,255,350

• U.S. GAAP Accounts

The Machine Tool was expensed

No depreciation expense was charged

The current gross book value of property, plant and equipment is $5,500,000

The current balance in accumulated depreciation is 2,300,000

U.S. GAAP Net Income is 1,252,200


Statutory Account Reconciliation - Example• Delphi XYZ would prepare the following reconciliation within 45 days

after the accounting period ends: Property, Plant & Equipment Account

• Amount per Statutory Books $5,503,500

• Balance per US GAAP Books $5,500,000

• Difference $3,500

Reconciling Item:

• Machine tool capitalized for local statutory purposes ($3,500)

• Remaining difference $0

Accumulated Depreciation Account


• Balance per US GAAP Books $2,300,000

• Difference $350

Reconciling Item:

• Depreciation expense on machine tool capitalized

for Local statutory purposes ($350)



Statutory Account Reconciliation - Example Net Income


• Balance per U.S. GAAP Books $1,252,200

• Difference $3,150

Reconciling Items:

• Machine tool capitalized for local statutory purposes ($3,500)

• Depreciation expense on Machine tool – local statutory $350



Questions?

• For more information, please contact Technical Accounting or Internal Audit

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Account Reconciliation Examples


Good ExampleCash Asset Account

Delphi Corporation

Reconciliation of Account

March 2005

Account Numbers: EW 1001 00000 12000 000 000 0000

Description: Cash ***Subledger/

General LedgerDetailed Records

Ending Balance: 527,545$ 534,045$

Reconciling Items:Mar. Stop payments booked by Bank not adjusted to G/L:

#481 $3,000; #482 $1,000; #484 $5,000 9,000 Mar. Outstanding checks:

#401 $10,000; #410 $2,500 12,500 Mar. Deposits in Transit:

Dep#123 $15,000 (15,000) -

Reconciled Balance (G/L should equal detailed records) 534,045$ 534,045$

Variance -$ *** - Please Specify: Bank Statement

(e.g. bank statement, Physical inventory records, DACOR, Olimpic, etc.)

Prepared by: Approved by:

GL balance reconciled to bank statement

No unreconciled differences


Good ExampleEquipment Asset Account

Delphi CorporationReconciliation of Account

March 2005

Account Numbers: EW 3264 00000 62001 000 000 0000 IT Hardware Beginning BalanceEW 3264 00000 62012 000 000 0000 IT Hardware Current Year AdditionEW 3264 00000 62501 000 000 0000 Accum Depr Beginning BalanceEW 3264 00000 62507 000 000 0000 Accum Depr Current YearEW 3264 00000 62596 000 000 0000 Accum Depr Other Current Year Adjustments

Description: Capitalized IT Hardware & Accumulated Depreciation

March 2005 Balance:EW 3264 00000 62001 000 000 0000 3,177,272$ EW 3264 00000 62012 000 000 0000 -

EW 3264 00000 62501 000 000 0000 (1,208,459) EW 3264 00000 62507 000 000 0000 (267,727) EW 3264 00000 62596 000 000 0000 -

Book Value per DGL 1,701,086

Book Value per SAP 1,704,041

Variance (2,955)$ A

Reconciling Item:March 2005 EWF93 reversing - IT accrual of depreciation asset to be booked in SAP in April 2005 2,955$ A

Net unreconciled difference -$


Balances should agree to the general ledger.

Balance should agree to SAP (sub-ledger).

One reconciling item explains the difference. Plan to resolve is documented.


Good ExamplePrepaid Asset Account

Account Number: EW-2690-02138-00000-000-000-0000

Description: Prepaid Expense - Sundry - IT Department

5/1/2005 Beginning Balance 89,200.00$

May ActivityEWE10 AMR Amortization 9 of 12 (4,300.00)$

Gartner Amortization 7 of 12 (12,000.00)$

5/31/2005 Ending Balance 72,900.00$

AMR - 3 months remaining at $4,300 per month 12,900.00$ Gartner - 5 months remaining at $12,000 per month 60,000.00$

5/31/2005 Calculated balance 72,900.00$

Notes

EWE10 - Setup AMR $51,600.00 invoice in prepaid to be expensed 1/12 September 2004 through August 2005 ($4,300/month)

EWE10 - Setup Gartner Group $144,000 invoice in prepaid to be expensed 1/12 of November 2004 through October 2005 ($12,000/month)


Calculated expected balance


Good ExampleAllied A/P Liability Account

Delphi Corporation


March 2005


Description: Accounts Payable - Allied ***Subledger/

General Ledger Detailed RecordsEnding Balance: (10,769,639)$ (17,363,876)$

Reconciling Items:Mar. 2005 wire transfers to Asia and Europe, not recorded in DACOR 6,646,082

Mar. Rebills not invoiced to the customer 75,121 Mar. 2005 Packard cross charge incorrectly classified to 4201 - 00280 11,143 Mar. 2005 Mexico cross charge not booked in DACOR (102,102) Mar. 2005 Singapore receipts not booked in DACOR (79,122) Account classification error posted in March (should be 00266) 43,064 Difference in Mar. wire transfer to Asia to be written off Apr. 2005 - 51

Reconciled Balance (G/L should equal detailed records) (10,769,639)$ (10,769,639)$

Variance -$ *** - Please Specify: DACOR



GL balance reconciled to sub-ledger

No unreconciled differences

All reconciling items current


Bad ExampleAllied A/R Asset Account

Delphi Corporation


March 2005


Description: Accounts ReceivableSubledger/

General Ledger Detailed RecordsEnding Balance: 8,268,412$ 15,625,035$

Reconciling Items:Incorrect posting to 1601-00501 (Will be reclassified to 1601-00577 in April) (2,949,694)

Material in transit (FOB Destination) (9,228,792) Warranty receivable from vendors, not processed by A/R - Approval pending 212,338 Sales for last 2 days of month un-invoiced 628,824 A/P - correcting entry to be done in April 897,035 Unapplied credits/payments (Cannot identify invoices being paid) (1,326,267) Debit balances as a result of short paid invoices or unidentified deductions by customer 304,615

- -

Reconciled Balance (G/L should equal detailed records) 6,215,753$ 6,215,753$

Variance -$



Contains unidentified reconciling

items


Bad ExampleAudited Accrued Liabilities

Non-SAP Account Number Sub Account DescriptionAudited Accrued Liabilities (SAP Account S441199997)

Month and YearSAP SAP Account Profit Center Feb-05

S441199997 All

Month-end Balance per General Ledger (attach copy) $72,393,074.72

Details of Month-end Balance (use attachments if required)

Month Booked Journal/Document Explanation of Entry Debit/Credit

Dec-04 102865965 Doc was input into wrong account - Joe Delphi to correct ($700,000.00)

Jan-05 102918735 Mfg. Doc was entered as perm - should be an accrual (Jane Delphi) ($937.16)

Feb-05 102936590 Holt Module System - Jim Delphi - booked as perm entry s/b accrued ($10,682.80)

Prior month entries to be reversed $62,977,591.77

Total Reversals from Prior Month ($62,977,591.77)

Total Current Month Activity less recons above $73,104,694.68

Total (must equal month-end balance) $72,393,074.72

Delphi CorporationAccount Reconciliation

February 2005

Contains old reconciling item (December 2004)

Contains unexplained reconciling items (no detail for last 3 items)

Does not support balance


Bad ExampleAccrued Accounts Receivable

Non-SAP Account Number Sub Account DescriptionAccrued Accounts Receivable - NAFTA Custom Refunds

SAP SAP Account Profit CenterS221000NFT H201

Month-end Balance per General Ledger (attach copy) $197,741.47

Details of Month-end Balance (use attachments if required)

Month Booked Journal/Document Explanation of Entry Debit/Credit

NAFTA Recievable Balance $197,741.47

MEMO: Delphi A Tax Staff Maintains detail of theoutstanding expected refunds. Account representsexpected refunds for 2003 forward.

Total (must equal month-end balance) $197,741.47

Delphi CorporationAccount Reconciliation

April 2005

Should attach tax staff detail

Does not show preparer understands account