One of the standard requirements of grant accounting is monthly reconciliation.  This process requires validating that all accounting transactions for the grant have gone through the general ledger system properly.  Reconciliation can be difficult when there are delays between the dates when a purchase is initiated and when its transactions are posted to the general ledger.  This delay creates “intransient transactions” that exist only on paper or in another purchasing or accounts payable system, (but not yet the general ledger).  Two of the problems created by “intransient transactions” include:  one, the transactions themselves are more apt to be lost; and two, the current balance of the grant is not up to date which can easily result in overspending.

A solution to this problem is to use what is often referred to as a shadow system or parallel system.  This system works a lot like a checkbook record* and is a component of many grant management software packages.  As purchasing transactions occur, they are immediately recorded in your shadow accounting system (usually as an encumbrance).  This puts all your “intransient transactions” in one place where they can be easily located.  Later, when you receive your bank statement, which in this case will be a monthly statement from your general ledger or University accounting system, they will be reconciled.

The reconciliation process becomes a comparison of the general ledger statements to the information in your shadow accounting system.  During reconciliation, transactions may be discovered on the general ledger statements that are not in your shadow accounting system.  If they are valid, they can be entered into the shadow system at that time.  If not, they can be investigated and a correction to the general ledger can be initiated.  This way you can track all transactions, those that have posted to the general ledger, and those intransient.  At first glance, it may appear that a shadow system carries a burden in that extra manpower is required to double enter transactions.   However, a good shadow accounting system includes procedures such as reports, specialized search mechanisms, and electronic interfaces to the general ledger for aiding in the reconciliation process.  We will talk more on these and other benefits of a shadow system in a later article.

*A shadow system differs from a checkbook however, in that by supplementing the general ledger, it is much more informational, and also, it doesn’t actually cut checks.

Posted by Linda Lejnar September 21, 2008 blogger@itworks-inc.comm