CONFIDENTIAL: To protect the

confidential and proprietary

information included in this

material, it may not be disclosed

or provided to any third parties

without the approval of

Hewitt Associates LLC.

Prepared by:

Mathew George

Accruals Vs Reversals

Page 2

Accruals Technical Overview

What is an accrual and why is it necessary?

Accrual Types at Hewitt

Balancing Accruals at Hewitt

Issues with Accruals

Future Enhancements

Page 3

SEC Requires Accrual Method

The following quote is from Wikipedia:

“The US Securities and Exchange Commission requires that all publicly traded companies follow GAAP, thus all publicly traded companies publish their financial statements using accrual-based method.”

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Accrual - Objective

The objective of accrual basis accounting (recognizing revenues when earned rather than when cash is received, and recognizing expenses when incurred rather than paid) is the measurement of income.

Accrued expenses are items of expense that have been incurred during the period, but have not yet been recorded or paid. To be recorded as an expense the amount must be measurable with sufficient certainty (i.e. product/service was received and the dollar amount of expense for the product/service is determinable).

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Two Types of Accounting in my words

• Accrual – record revenue and expenses in the period that they occurred. For example, record the expense for a consultant in the month that the consultant worked.

• Cash – record revenue and expenses when cash is exchanged. For example, when using a consultant wait for the consulting companies invoice to be received and paid before recording the expense.

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Wikipedia Definition of Accrual vs. Cash

Accrual-basis accounting records financial events based on events that change your net worth (the amount owed to you minus the amount you owe others). Standard practice is to record and recognize revenues in the period in which they incur and to match them with related expenses in a process known as matching or expense matching. Even though cash is not received or paid in a credit transaction, they are recorded because they are consequential in the future income and cash flow of the company. Accrual-basis is GAAP compliant.

Cash-basis accounting is a method of bookkeeping that records financial events based on cash flows and cash position. Revenue is recognized when cash is received and expense is recognized when cash is paid. In cash-basis accounting, revenues and expenses are also called cash receipts and cash payments

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Issues before Accruals Implemented at Hewitt

• Expenses high in the first period of fiscal year because prior fiscal year expenses were recorded late.

• Budget not met because expenses recognized in a later accounting period.

• Invoices were processed late because of the decentralization of receiving invoices in the field and lack of imaging.

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A different view

Accruals is a way to create accounting entries when they actually cannot be created through normal procurement processes (ie, even before booking an expense) . Or Accruals is a way to create accounting entries when it is too early to generate accounting entries in vchr_acctg_line table.

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Accrual Types at Hewitt – See Lotus Notes Doc

• Receipt Accruals

— PS delivered

— Custom

• Vendor Accruals (invoice image)

• Manual Accruals

• Revenue Reclassification

• Expense Report Airline Tickets

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1) Receipt Accruals

Suppose you received 20,000 USD in materials in a month, but were billed for only 5,000 USD. The Receipt Accrual process ensures that your expense accounts reflect the remaining 15,000 USD in upcoming debits.

This helps reduce the impact of unexpected debits to your expense accounts. Without Receipt Accrual, this 15,000 USD is hidden until the debits bill and post to your expense accounts.

Receipt accruals are handled by the following processes.

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Receipt Accruals Cntd ..

a) PS delivered process - is an AppEngine named PO_RECVACCR (FNPORA02-FNPORA03) runs to create an accrual for receipts that exist without a voucher or with a voucher but not fully matched. This populates accounting entries both the accrual as well as its offsetting entry in RECV_LN_ACCTG table (Not H_RECV_LN_ACCTG table). This usually has project information and when project information exists, it is sent to project costing (proj_resource).

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Receipt Accruals cntd ..

If project information doesn’t exist the job FNAPPC04 (hpopcac1.sqr – joins RECV_LN_DISTRIB and RECV_LN_ACCTG) and will bring the data to proj_resource.

PS. Runs on 3rd business day. Can be run manually also. This job is not seen in the current active schedule

b) A custom program runs to modify the recurring services. These are the receipts that are setup with a quantity of monthly, quarterly, yearly, semi-annually or weekly. All the receipts are entered up- front. The custom program adjust the quantity to match how many receipts should have been processed.

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The custom programs - Receipt Accrual

FNPORA01 (hpoacc02.sqr) - This program has to be kicked off before running the receipt accrual process. Interface is developed to calculate, update the correct receipt accrual quantity for PO line items distributed by amount.

FNPORA04 (hpoacc01.sqr) - This program has to be kicked off immediately after running the receipt accrual process. Interface is developed to calculate, update and report the correct receipt accrual for Unit of Measurements equal to Month, Quarterly, Yearly, Semi Annually and Weekly.These Receipt accrual job stream (FNPORA01-FNPORA04) runs on 10 business days before LBD, 3 business days before LBD and also on LBD.

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2) Manual Accruals

There are two scenarios in which we need to do Manual Accruals.

a) If the invoice has not been received prior to month-end processing.

b) If a PO doesn't have a Req-id or Contract (say a non-regular vendor provided some service like training), the invoice has to be accrued manually.

There is also a data entry page for AP to enter manual accrual journal entries. The accounting entries are stored in ps_h_man_ln_acctg table. There was a new custom interface (starts with the process hapmanac.sqr) built as part of the CP project to interface manual accruals to project costing (ps_proj_resource). This interface/process sequence (hmanacst.sqr & hmanacld.sqr manually run by users (on 1st, 2nd & 3rd Business days)

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3) Vendor Accruals

This is based on the invoices that have been imaged but not created into vouchers and not accrued by the receipt accrual process. The accounting entries are stored in the ps_h_exp_ln_acctg table. There was a new custom interface (hapvenac.sqr, run by users manually

on 3rd Business day) built as part of the CP project to interface project data from the vendor accruals distribution table to proj_resource.Run on day - 1. Takes one AP FTE's a half day to complete ??.

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Accruals Cntd ….

4) Revenue reclassifications

Revenue re-classification accounting entries were created from receipt, vendor and manual accruals. The accrual job hexpac03.sqr populates data into ps_h_acc_634500 table. This nightly month-end job runs on the second business day of the month. There was a new custom interface (hap634500) built as part of the CP project to interface revenue re-class projects to proj_resource.

5) Expense Report and Airline Ticket Accruals

Submitted and Approved expense that have not been sent to accounts payable. The data is in Lotus Notes. The airline tickets includes travel that has occurred but the airline ticket is not on an expense report.

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The accrual tables

The accrual entries are created in different ln_acctg tables depending on the type of accrual (Manual, Vendor, Receipt).

Manual = h_man_ln_acctg

Vendor = h_exp_ln_acctg

Receipt = recv_ln_acctg

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Reversals: Here you go ……

There are mainly 3 processes that creates accrual reversals in ps_proj_resource

HAPMANAC --> For manual Accrual reversals (hapmanac.sqr - Custom program to load data from ps_h_man_ln_acctg to proj_resource as accrual and its reversal (ARV) entry for the next period with a new accounting date and by negating the transaction amount values...

HAPVENAC --> For vendor accrual reversals (hapvenac.sqr - Custom program to load data from ps_h_exp_ln_acctg to proj_resource as accrual and its reversal (ARV) entry).

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Reversals Cntd ….

HAP63450 --> For Receipt/Manual and Vendor accrual reversals (hap63450.sqr - Custom program to load data from ps_h_acc_634500 to proj_resource as accrual and its reversal (ARV) entry). All these 3 jobs are run manually by users on 3rd Business day.

HPOPCAC1 --> For receipt accrual reversals (Sqr will upload Receipt Accrual rows of the previous period from the Procurement Sub System (RECV_LN_ACCTG/DISTRIB) into the PROJ_RESOURCE table of the Project Costing Sub System. Offsetting reversal entries (ARV) will be created for rows that were inserted by the previous run (n-1) of this process.PS. This job (FNAPPC04 -Runs on 3rd bus day run either by manually or from batch stream) is not seen in the current active schedule.

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Accruals and Distribution tables

Do accrual reversals exist in distribution tables?

No, There are only offsetting entries with -ive amount values (created in the following distribution tables)

PS_H_MAN_ACC_STG staged by hmanacst.sqr. The credit offset entries are created later by HEXPAC03 (Run by users manually on 3rd business day, The job name is FNAPAC04)

PS_H_MAN_LN_ACCTG - Populated by hmanacld.sqr that also creates Manual Accrual rows (debit) for data in the above staging table

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Accruals & Distrib Cntd …

PS_H_EXP_LN_ACCTG - Populated by hexpac01.sqr/hexpac11.sqr that creates double sided (DST for Credit and ACC for Debit entries) Expense Accrual rows for data in the imaging workbaskets (H_INVC_IMAGE table). Runs on LBD, job names FNAPAC01 (U.S) & FNAPAC11 (Canada).

PS_RECV_LN_ACCTG - An AppEngine named PO_RECVACCR (Jobs FNPORA02-FNPORA03, Runs on LBD-10, LBD-3, LBD) that creates both the accrual as well as its reversal entry in RECV_LN_ACCTG table (Not H_RECV_LN_ACCTG).

Entries are added into PS_H_ACC_634500 table from the above tables for journal generator to create accounting entries.

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The HEXPAC03

The SQR HEXPAC03 (job FNAPAC04)(job FNAPAC04) creates

a) Create credit offset entries for manual accrual rows in the PS_H_MAN_LN_ACCTG table (debit entries were already created by the load process - hmanacld.sqr).

b) Inserts account 634500 rows (both Cr & Dr rows) from PS_H_EXP_LN_ACCTG, PS_H_MAN_LN_ACCTG & PS_RECV_LN_ACCTG tables into PS_H_ACC_634500 table for journal generator to create accounting entries.

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Issues with Accruals

• Invoices without an order number can not be accrued automatically with vendor accruals. Need the PO or vendor contract number to link in the accounting information.

• Business Analyst required to make manual accruals

— knowledge of the business

— communication with people in the business

— good estimates

• Associates not creating a requisition delays the accruals and payment.

• Hourly contractor accruals are manual and inconsistent. A best practice is to setup contractors on HA time card and use this data to create an accrual. This is not always followed.

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Conclusion

Generally for all Accruals (Manual, Vendor and Receipt) the offsetting rows/entries are created by the same instances of the same programs which inserts the accounting entry but with a different accounting_dt (next month's beginning date) and amt ( = amount * -1), except in the following cases

a) For accruals loaded by hmanacld.sqr, the credit offset entries are created later in PS_H_MAN_LN_ACCTG table by HEXPAC03 (now seen as online process – can be run online as well, process name FNAPAC04 runs on 3rd business day ).

b) Process FNAPPC04 (SQR name - HPOPCAC1 Runs on 3rd bus day either manual or stream) will upload Receipt Accrual rows of the previous period from the Procurement Subsystem (obtained by joining PS_RECV_LN_DISTRIB and PS_RECV_LN_ACCTG) into the PROJ_RESOURCE table of the Project Costing Sub-system (with DESCR as 'PO RECEIPT ACCRUAL', and System source = 'APO'). Offsetting reversal entries will be created for rows that were inserted by the previous run(n-1) of this process.)

Job Stream FNAPAC04 --> FNAPAC05 --> FNAPPC04

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Summary - Accruals

(no voucher/invoice yet) no invoice or invoiced non-regular vendor

(i.e., PO doesn't have a Req-id or Cntrct)

Imaged Invoice but not originally receipt accrued

The accrual data is processed from staging tables to corresponding XXXXX_LN_ACCTG tables and then processed in to

a) Project costing (through PS_PROJ_RESOURCE table after directing reclassification entries to H_ACC_634500 table)

b) GL tables

Receipt Manual and/or

Vendor Accruals

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APPENDIX

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Vendor Accrual process flow

1) Imaging sends daily dump of invoices to the UNIX box. One file is created for US (appo_new.txt ) and another for Canada (canimage.txt ).

2 ) Two SQRs run to pull each file into People soft:

h_apimag.sqr ==> pulls imaging file 'appo_new.txt' into people soft table PS_H_INVC_IMAGE.

h_apimgc.sqr ==> pulls imaging file 'canimage.txt' into people soft table PS_H_CAN_INV_IMAGE.

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VA process flow – cntd…3) On the Last Business Day of the month, the Vendor Accrual batch schedule kicks off the following batch stream:

• FNAPAC01 -> kicks off hexpac01.sqr (Vendor Accrual Exception Report US)• FNAPAC02 -> kicks off hexpac02.sqr (Vendor Accrual Report US)• FNAPAC03 -> kicks off hexpac05.sqr (Excel Report by Workbasket)• FNAPAC11 -> kicks off hexpac11.sqr (Vendor Accrual Exception Rpt CAN)• FNAPAC12 -> kicks off hexpac12.sqr (Vendor Accrual Report CAN)• FNAPAC13 -> kicks off hexpac05.sqr (Excel Report by Workbasket).

4) Create Excel spreadsheet and mail to defined mailbox.

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Imaging & Invoice flow

PeopleSoft Tables: h_invc_image and h_can_inv_imageFunctional purpose: Used as an interface into the vendor accrual process. Data is also for auditing.

Load Type: Full loadFrequency: M-F 7:00pm

Contacts: AP – Kathie DeMay, Diane Schwahn PO – Ken Kohler, Kate Thilges Imaging Team - Penny Wetherall

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Imaging & Invoice Cntd…

FNPOIR01h_apimag.sqr(load table)

FNAPIMAGSend Data to Unix

appo_new.txt

Mainframe

Unix

REQMAPPOImaging Data Pull

(USA)

REQMAPOCImaging Data Pull

(Canada)

FNAPIMGCSend Data to Unix

FINAPPO.P.IMAGEDB.EXT FINAPPO.P.CANADA. IMAGDB.EXT

canimage.txt

FNPOIR02h_apimgc.sqr(load table)

ps_h_invc_imageps_h_can_inv_image

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Customization done for Manual accruals

PeopleSoft

Custom pageto edit

exceptions /load errors

Existing Accrualprocessescontinue

uneffected

Manual Accrual Records(H_MAN_HDR,

H_MAN_LN_ACCTG)

Accrual Staging Record(Clone of Existing

H_MAN_LN_ACCTG)

ExcelTemplate for

Accruals

Save XLS fileto CSV file

Process to loadStaging record in

PeopleSoft

File saved/moved to batchdatadirectory

Process to loadManual Accrual

records

Processpotentially couldbe automated torun monthly

Process ran afterall load errors arecorrected