Title 19 | Chapter 4 | Subchapter 5
SUBCHAPTER 5 - FINANCIAL MANAGEMENT SYSTEM
19-4-501. General requirements.
(a) In order to provide necessary financial information for the Governor, members and committees of the General Assembly, and other interested state agencies, the Chief Fiscal Officer of the State is directed to establish a comprehensive financial management system for appropriated and cash funds of agencies.
(b) The financial management system shall provide for an adequate control over receipts, expenditures, and balances to the end that information may always be currently available as to the financial condition of the state and its various subdivisions. The system shall:
(1) Include a modified accrual system embracing encumbrance accounting;
(2) Conform with generally accepted governmental accounting principles; and
(3) Provide a reporting system whereby actual expenditures are compared to those predicted in the agency's annual operations plan described in subchapter 6 of this chapter.
(c) In obtaining any necessary fiscal information, the Chief Fiscal Officer of the State shall have the authority to make an examination of the books and records of any agency to determine the financial condition of the agency and to report on it.
History. Acts 1973, No. 876, § 12; A.S.A. 1947, § 13-338.
INTERNAL ACCOUNTING CONTROL UTILIZING AASIS SECURITY ROLES
R1-19-4-501 Proper Internal Accounting Controls
It is the objective of the State of Arkansas to assure proper internal accounting controls are in place, to safeguard the State's assets and to prevent fraud, errors and defalcations (theft and embezzlements). The Arkansas Administrative Statewide Information System (AASIS) utilizes various accounting roles in order to provide for an adequate segregation of duties to facilitate better business practices and enable an adequate system of internal accounting controls. The assignment of AASIS security roles is at the sole discretion of the Chief Fiscal Officer of the State. Each agency, board or commission that has online access to AASIS shall have a security liaison that is knowledgeable regarding the business and accounting practices of their respective entity, and have a working knowledge of internal accounting controls. Each security liaison will ensure that a particular individual does not have conflicting or an excessive number of security roles assigned.
P1-19-4-501 A complete list of security role titles and conflicts can be found on the AASIS website.
R2-19-4-501 Agency Security Liaison
The security liaison will assign roles to any new accounting team employee upon his/her commencement of employment. New role assignments or revisions to current role assignments will be submitted to the AASIS Security Administrator for review and entry into the AASIS system. If a conflict or an excessive number of security role assignments are discovered in the review process, the AASIS Security Administrator will forward the request to the Department of Finance and Administration, Office of Accounting, CAFR Section (DFA-OA-CAFR Section) for approval of a proposed solution or design of mitigating controls to be implemented.
Changes to current role assignments should be evaluated by the Agency Security Liaison to determine that internal control conflicts will not be created and that excessive roles are not assigned to one individual.
Upon termination or any change in status of employment, the Agency Security Liaison shall immediately remove all roles no longer applicable to an employee’s job duties. There shall be a process in place at each agency to audit the change in role assignments by comparing the human resources data forms to changes in AASIS role assignments. The Agency Security Liaison shall assess security roles annually.
R3-19-4-501 Temporary Security Role Assignments
When circumstances dictate, temporary security role assignments may be utilized by requesting that a security role assignment be granted for a specific time period, even though the assignment would appear to be allowing an individual to have excessive security roles. In the event an agency does not have sufficient staffing to assign security roles so that all park and post capabilities are met, they may request documents be posted by the DFA-OA-Service Bureau Manager. These items must be documented and reviewed by the individual that would otherwise have been required to park or post the documents or their immediate supervisor, as a mitigating control. This documentation must be retained in the files of the agency for review until the individual transaction records involved are destroyed.
R4-19-4-501 Cash Receipts Internal Control
Strict control needs to be maintained during the processing of cash receipts to ensure that they are properly accounted for. The term "cash" includes currency, coin, checks, moneys orders and credit card receipts. Collecting, recording, depositing and reconciling cash receipts should be separated among different individuals. No one person should be in a position to misdirect the accounting or posting of a receipt. Additionally, the internal control procedures should prevent the misappropriation of funds once in the control of the agency.
Where staffing levels do not permit separation of duties, compensating controls such as strict individual accountability and thorough management review and supervision should exist to help safeguard assets and ensure that accounting records are complete and accurate. Any system adopted should include completely separating the handling of cash or checks from the recording function whenever possible. The compensating control procedures must be submitted to the Department of Finance and Administration-Office of Accounting for written approval.
Cash Received in Person
A receipt must be issued for each payment received. The following minimum standards shall be met. Receipts are to be pre-numbered by the printer, and a printer’s certificate obtained and retained for audit purposes. Such certificate shall state the date printing was done, the numerical sequence of receipts printed and the name of the printer.
The pre-numbered receipts shall contain the following information for each item receipted:
Amount of receipt
Name of person or company from whom moneys was received
Purpose of payment
Fund(s) to which receipt is to be credited
Signature of employee receiving moneys
The original receipt shall be given to the party making payment. One duplicate copy of the receipt shall be maintained in numerical order in the receipt book. Additional copies of the receipts are optional with the State agency, board or commission or institution and may be used for any purpose they deem fit.
The use of mechanical receipting devices, such as cash registers, which accomplish the same purpose as pre-numbered receipts, is acceptable and is encouraged.
All checks and other negotiable instruments must be endorsed immediately with a restrictive endorsement stamp.
Cash must be kept in a safe or other locked storage device until deposited.
Cash Received Through the Mail
The mail must be opened in a monitored environment. All checks should be numbered, marked or endorsed as soon as possible.
A list of cash (cash log) must be prepared in duplicate. The list shall include sufficient detail to allow an audit trail of an individual receipt.
One copy of the cash log shall be kept in the area and the other should accompany the deposit.
Cash must be stored in a safe or other locked storage device until deposited.
Balancing of Cash Receipts
All cash receipts must be balanced daily by mode of payment by comparing the total of the cash to the cash register totals, to the pre-numbered receipts totals and to the totals of the moneys received by mail.
All voided transactions are to be approved and initialed by the supervisor. Agencies using the Arkansas Administrative Statewide Information System must run a ZCAJO Cash Journal report on a weekly basis. Enter the cash journal number, document status of "D" and the posting date range. This will generate a list of all deleted documents from the cash journal for the period specified. This list shall include the initials of the supervisor acknowledging authorization of all deleted cash receipt transactions and be available for audit purposes.
Over/short amounts must be separately recorded, and investigated and resolved to the extent possible.
Preparation of Deposits
Someone not involved with collecting, recording or reconciling must prepare the deposit.
Cash must be recorded on the deposit slip in the appropriate space.
An adding machine tape of checks must be included with the deposit slip if the number of checks exceeds the space available to list the checks on the deposit slip.
Good internal controls dictate daily deposits to Treasury and/or a commercial bank account. Weekly deposits are allowable if an agency receives only minimal amounts of cash and/or checks. However, in the last week of the month all deposits keyed into the State’s accounting system must be delivered to the Treasurer of State or the commercial bank for deposit prior to noon on the last business day of the month.
Reconciliation of Cash Collected
Bank accounts should be reconciled by an employee independent of the collecting, depositing or recording functions on a monthly basis. Correcting journal entries must be made to the agency’s books of record to correct prior month’s errors in the current month.
19-4-502. Duties of Chief Fiscal Officer of the State generally.
The Chief Fiscal Officer of the State shall:
(1) Review postaudits of state agencies conducted by the Legislative Joint Auditing Committee and advise the Governor and the Attorney General or prosecuting attorney for legal action, if appropriate, of any improper or illegal practices.
(2) Assist the various agencies in complying with the recommendations of the Legislative Joint Auditing Committee for improving their accounting systems;
(3) Establish a uniform chart of accounts and issue an accounting procedures manual governing statewide accounting and reporting policies and procedures;
(4) Prepare analysis and evaluation reports of the financial management system and fiscal control procedures to determine compliance with generally accepted governmental accounting principles;
(5) Adapt the financial management system to meet the particular needs of each agency while maintaining the overall integrity of the system and comparability of coding and reporting for all agencies utilizing the system; and
(6) Design accounting and reporting forms for use by agencies in effecting proper fiscal control procedures.
History. Acts 1973, No. 876, § 12; 1985, No, 365, § 1; A.S.A. 1947, § 13-338.
19-4-503. Deposit of funds in State Treasury.
(a) The Chief Fiscal Officer of the State shall have the authority, upon request of a state agency having funds on deposit in a depository other than the State Treasury, to authorize the agency to deposit the moneys in the State Treasury.
(b) The Chief Fiscal Officer of the State shall determine the classification of the funds and shall designate or create the State Treasury fund into which the moneys are to be deposited.
(c) The appropriation acts which appropriated the cash moneys shall be construed to be in conformity with Arkansas Constitution, Article 5, § 29, and Arkansas Constitution, Article 16, § 12, for withdrawing moneys from the State Treasury.
(d) All moneys deposited in the State Treasury under the provisions of this section shall be deposited as nonrevenue receipts and shall not be subjected to the provisions of § 19-5-205(e) unless the source of the revenue is specifically classified in § 19-6-201 or § 19-6-301.
(e) If any moneys classified as trust funds under the provisions of this section earn interest, then that interest shall be credited to the trust fund.
History. Acts 1973, No. 876, § 12; 1977, No. 486, § 2; A.S.A. 1947, § 13-338.
PLEASE NOTE: Refer to 19-5-104 for additional circumstances under which the Chief Fiscal Officer of the State may establish funds.
19-4-504. Requisites of system.
The financial management system shall, at all times:
(1) Reflect the unencumbered balances of all State Treasury funds, fund accounts, and accounts and appropriations payable from the State Treasury;
(2) Reflect the appropriations and allotments as approved by the General Assembly;
(3) Reflect the distribution and allocation of the state revenues under the Revenue Stabilization Law, § 19-5-101 et seq., and other revenue laws of the state; and
(4) Provide a record of the expenditures, disbursements, and receipts of all state agencies.
History. Acts 1973, No. 876, § 12; A.S.A. 1947, § 13-338.
R1-19-4-504 Overview of the Financial Management System
The State of Arkansas implemented a new financial management system on July 1, 2001. The system is designed to be a database resource management tool that encompasses many types of information for management use in addition to accounting data, such as budgeting, purchasing and human resource management in an integrated fashion. The system is commonly referred to as AASIS, the acronym for "Arkansas Administrative Statewide Information System." The current operating platform is SAP software. The system replaced several of the previous automated systems used by the State since 1971. Upon conversion to AASIS, the State has the ability to report financial results on an individual agency or statewide basis on the modified or full accrual basis of accounting in order to comply with financial reporting requirements promulgated by the Governmental Accounting Standards Board (GASB). The system is utilized on-line by most agencies and departments of Arkansas State Government. There are some small agencies that do not have the resources to utilize the system. For those small agencies, boards and commissions, the DFA-Office of Accounting created the "Service Bureau" Section to process all transactions and produce financial reports.
Reporting agencies, (e.g. colleges and universities, certain constitutional offices, War Memorial Stadium Commission, Arkansas Highway & Transportation Department, etc.) do not use AASIS as their original books of record. They have their own separate and independent accounting systems. These systems must have the capability to present the reporting agency’s trial balances and related financial statements on both the modified accrual and full accrual basis of accounting in order to facilitate preparation of the Comprehensive Annual Financial Report (CAFR) of the State of Arkansas in accordance with the requirements of GASB 34. Reporting agencies interface certain items within AASIS for budgetary control and for other financial reporting purposes. Each reporting agency, excluding the colleges and universities, shall make adjusting journal entries to agree with AASIS trial balance to their books of record, preferably on an interim basis, but not less frequently than annually as of June 30th of each fiscal year.
R2-19-4-504 E-Commerce, Electronic Records and Signatures
ACA § 25-31-101 et seq., known as the "Arkansas Electronic Records and Signatures Act" and ACA § 25-32-101 et seq., the "Uniform Electronic Transactions Act" details the definitions and guidelines relating to the authority and the use of electronic records, signatures and transactions. Acceptance and/or disbursement by State agencies of State funds via electronic means, including Internet transactions, also referred to as electronic commerce (e-commerce) must, at a minimum, be conducted in accordance with the above referenced Arkansas Code sections, the Arkansas Shared Technical Architecture Program policies which can be viewed at http://www.dfa.arkansas.gov/offices/informationServices/Pages/default.aspx and other applicable laws, regulations and policies contained in this Guide. E-commerce includes, but is not limited to, acceptance of credit cards and debit cards, use of purchase cards, receipt and transmittal of purchase orders and invoices.
An agency may establish additional policies and requirements, as long as the agency meets the minimum requirements contained in the Arkansas Code. For example, ACA § 19-11-222 provides for the State Procurement Director to have exclusive jurisdiction over the establishment and maintenance of an electronic commerce procurement solution, to include planning and administration, consistent with the established financial systems of the State. The Department of Finance and Administration-Office of State Procurement (OSP) maintains, on its web site, links to State procurement laws and regulations, including those applicable to e-commerce. http://www.arkansas.gov/dfa/procurement/pro_laws.html
Electronic warrants issued in payment for goods and/or services received by the State and its agencies, boards and commissions are discussed in detail in section R1-19-4-407 of this Guide.
Vehicle tag renewals and fishing and hunting licenses can be obtained via the Internet from the Department of Finance & Administration – Revenue Division and the Arkansas Game and Fish Commission, respectively. Links to these e-commerce transactions can be found at http://www.arkansas.gov/
Other examples of efficient use of e-commerce:
A. The State of Arkansas, Department of Human Services, Division of Child Care and Early Childhood Education, utilizes Internet billing for services provided. They have also developed guidelines for users who wish to take advantage of the conveniences and efficiencies of this type of e-commerce transaction.
B. Other State agencies, colleges and universities, departments and commissions currently utilize e-commerce transactions to receive invoices for services provided to their agency.
Each agency director or his designee shall serve as the security officer with responsibilities including, but not limited to, designating authorized electronic signatures, controlling and continuing maintenance of the assigned signature authority and maintenance of the source documentation to support the electronic signatures and records in compliance with the Arkansas code. E-commerce transactions initiated and/or entered into by the State’s agencies, boards or commissions must have terms and conditions mutually agreeable by all parties involved with the transaction(s) and shall have adequate documentation in order to provide a suitable audit trail for use by internal or external auditors of the State.
19-4-505. Generally accepted accounting principles.
It is the intent of the General Assembly that the state accounting system, as authorized in this subchapter, shall be established in conformity with generally accepted accounting principles as recognized by the Governmental Accounting Standards Board, the American Institute of Certified Public Accountants, the Financial Accounting Standards Board, and any successor governing boards. However, the Chief Fiscal Officer of the State shall consult the Legislative Joint Auditing Committee before proposing, adopting, or recommending compliance with any of the generally accepted accounting principles that conflict with law. It is further recognized that the state accounting system should comply with recognized principles of accounting for and reporting of public moneys in order to properly and fairly discharge to the taxpayers our responsibility of adequately accounting for their moneys.
History. Acts 1973, No. 876, § 12; 1979, No. 833, § 3; A.S.A. 1947, § 13-338; Acts 2001, No. 1453, § 6.
R1-19-4-505 Internal Control and Ethics Requirements
State government agencies must have an established system of internal control that provides reasonable assurance that objectives have been achieved in: 1) the effectiveness and efficiency of operations, 2) the reliability of financial reporting and 3) compliance with applicable laws and regulations. Agencies are also required to establish an effective anti-fraud program that: 1) creates a culture of honesty, 2) evaluates the risks of fraud and implements the processes, procedures and controls needed to mitigate those risks and 3) develops an appropriate oversight process.
The General Accounting and Budgetary Procedures Law of Arkansas (ACA §19-4-101 et seq.) sets the policy for the State of Arkansas to provide an adequate accounting for all fiscal transactions and provide methods of internal accounting control by establishing and supervising the accounting systems of State agencies. The Chief Fiscal Officer of the State is empowered to make, amend, and enforce such reasonable rules and regulations, not inconsistent with law, as he shall deem necessary and proper to effectively carry out these provisions.
ACA §19-4-501 requires the Chief Fiscal Officer of the State to establish a comprehensive financial management system for appropriated and cash funds of agencies. This system shall conform to generally accepted governmental accounting principles.
ACA §19-4-505 requires that the State’s Accounting System be established in conformity with generally accepted accounting principles as recognized by the Governmental Accounting Standards Board, the American Institute of Certified Public Accountants, the Financial Accounting Standards Board, and any successor board. Statement on Auditing Standards #55 and #78 issued by the American Institute of Certified Public Accountants set the standards for an adequate system of internal control. Statement on Auditing Standards #99 sets the requirement for considering fraud in a financial statement audit.
Internal Control Process
To preserve the trust and respect that the public has for the governing process, government entity managers should take the necessary steps to minimize the risk o, waste and abuse occurring within their entity. Fraud can range from minor employee theft to misappropriating of assets and fraudulent financial reporting. The establishment of a strong internal control environment where written policies and procedures are enforced, internal controls are appropriately implemented and employees are educated about fraud and its consequences is one of the best deterrents and methods of curtailing fraud. For internal controls to be effective, they must be periodically evaluated for effectiveness and changed as business processes are changed.
To some extent, everyone in an organization is responsible for ensuring the internal control system is effective. However, the head of each state agency has the ultimate responsibility because he or she has been entrusted with achieving the organization’s mission. To the extent that the head of the agency authorizes other individuals to manage the activities of the organization, those managers then become responsible for the portion of the internal control system that they administer. Managers establish policies and plans, make decisions and create the work atmosphere that influences the internal control system. Therefore, managers should also be held accountable for failures of the internal control system.
Because departments in state government vary in size, complexity and degree of centralization, no single method of internal control is universally applicable. Managers should use this section as a framework for developing their internal control systems, consistent with their department’s operations and agency mission.
Definition of Internal Controls
The expanded focus of both the public and private sectors on internal control has increased the sensitivity of government management, internal and independent auditors, legislators, regulators, academics and the general public to the need for effective internal control to manage an entity’s activities.
The National Commission on Fraudulent Financial Reporting, known as the Treadway Commission, was created in 1985 by the joint sponsorship of different accounting professional organizations. The Treadway Commission had as its major objective to identify the factors of fraudulent financial reporting and to make recommendations to reduce its incidence. The Commission’s Report (Report of the National Commission on Fraudulent Financial Reporting – National Commission on Fraudulent Financial Reporting, 1987) emphasized the importance of the control environment, codes of ethics, competent and involved audit committees and an active and objective internal audit function. Additionally, the Commission called for the sponsoring organizations to work together to integrate the various internal control concepts and definitions and to develop a common reference point. Based upon this recommendation, a task force under the auspices of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) was formed to study internal control. The COSO study and the resulting report (Internal Control-Integrated Framework) was initiated to provide a common understanding of internal control among all parties and to assist management to exercise better control over an enterprise. It is the COSO definition of internal control that is considered the formal definition today.
Internal Control is defined as a process, effected by an entity’s board of directors, management and other personnel designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
1. Effectiveness and efficiency of operations,
2. Reliability of financial reporting,
3. Compliance with applicable laws and regulations.
Although this formal definition refers to internal control as a process, it should be viewed as a series of actions that permeate the entire State Government of Arkansas. Internal controls exist in the basic management processes of planning, executing and monitoring. It should not be viewed as an add-on to these basic management processes but should be viewed as an integral part of them and should be placed at strategic points in these processes to ensure that objectives are achieved.
Internal control is at the core of State government fulfilling its mission and achieving its goals while providing safeguards to protect governmental resources. Management of each agency is responsible for implementing appropriate internal control activities that are appropriate to their agency's processes while keeping in mind that effective internal controls benefit rather than encumber management. Costs of implementing internal controls should not exceed the potential loss from fraud or the value of assets that the controls are established to safeguard.
It is vital that everyone understand the concept and importance of internal controls, especially since virtually every State employee has a role in how well the State of Arkansas executes the concept of internal control.
Internal Control consists of five interrelated components. These components are:
1. Control Environment
2. Risk Assessment
3. Control Activities
4. Information and Communication
The control environment can be best summarized as the attitude that management has about internal controls. If management believes that internal controls are important, is committed to implementing controls and communicates this view to employees, then internal controls are more likely to function effectively. However, if management views internal control as not important or as an obstacle, then this attitude will likely be communicated to employees through management's actions. With this attitude, employees will likely view internal controls as "red tape" to be "cut-through" in order to get the job done. An effective control environment is an intangible factor that sets the foundation for all other components of internal control.
All agencies have certain risk involved in meeting their objectives and providing services to internal customers (other State agencies) and external customers (taxpayers of the State). This is based upon the premise that opportunity and risk are related; therefore, State government is exposed to risk by simply fulfilling the opportunity that it has to better serve the citizens of the State. By this definition, it can be seen that risk should not be viewed negatively but simply inherent to the decision of doing business.
Risk assessment is the process used to identify, analyze and manage the potential risks that could hinder or prevent an agency from achieving its objectives.
A risk assessment shall be performed by each agency once every two years. After completion, the assessment shall be forwarded to the DFA-Office of Internal Audit. (DFA-OIA)
See Appendix P1-19-4-505.
Control Activities are the policies, procedures, techniques and mechanisms that enforce management's directives, such as the process of adhering to requirements for budget development and execution. They help ensure that actions are taken to address risks. Internal Control Activities should be an integral part of an entity's processes for planning, implementing, reviewing, ensuring accountability for government resources and achieving effective results.
Internal Control Activities occur at all levels and functions of the entity. They include a wide range of diverse activities such as approvals, authorizations, verifications, reconciliations, performance reviews, maintenance of security and the creation and maintenance of related records that provide evidence of execution of these activities as well as appropriate documentation. Control Activities may be applied in a computerized information system environment or through manual processes.
Click for examples of internal control activities
Click for internal control questionnaire
Information and Communication
For an agency to run and control its operations and achieve its desired objectives, communications relating to both operational and financial data is needed at all levels of an agency in a relevant, reliable and timely fashion.
In addition to internal communications, management should ensure that there are adequate means of communicating with and obtaining information from external parties that may have a significant impact on the agency achieving its goals.
Pertinent information should be identified, captured and distributed in a form and time frame that permits people to perform their duties efficiently.
Additional points related to communication are made as follows:
Personnel should know their job responsibilities and how their activities relate to the work of others;
A means should exist to permit upward communication within any agency; and
Employees should be confident that reprisals will not result from communicating significant information.
Subsequent to implementing internal controls, agencies should periodically monitor and evaluate their effectiveness to ensure that the controls are functioning properly. Potential weaknesses in internal control structure may be identified by Legislative Audit, Internal Audit or by employees of agencies. When members of management are notified of these weaknesses, they should take corrective action to resolve the identified problems in their internal control structure. Although monitoring is a separate component of internal control, it is easy to see how it relates to the component of internal control environment previously discussed.
To support monitoring activities, the DFA-OIA will maintain a database of agency audit findings and will provide agency management with routine reports of all outstanding findings. As audit findings are corrected, agency management must submit documentation of corrective action for the findings to be removed from the database.
As audit findings are brought to the attention of agency management, they will provide information to the DFA-OIA within 30 days of being notified of the finding. Agency audit findings may result from Legislative Audit reports, Internal Audit reports or examinations by the Federal Government, etc. (Findings from sub-recipient audits that receive State or federal funds from agencies are not required to be reported). The information for each finding must be presented on the Audit Finding Form.
Click for the Audit Finding Form P4-19-4-505
Internal Control and Fraud
To preserve the trust and respect that the public has for the governing process, government agency leaders should take the necessary steps to minimize the risk of fraud, waste and abuse occurring within their agency. The establishment of a strong internal control environment where written policies and procedures are enforced, internal controls are appropriately implemented and employees are educated about fraud and its consequences is one of the best deterrents and methods of curtailing fraud.
The impact that strong internal controls has in deterring fraud and limiting exposure if fraud does occur is irrefutable; however, a strong system of internal controls is no absolute guarantee that all cases of fraud will be prevented. Why? Because the best system of internal control can’t prevent collusion between two or more people who are in positions to circumvent the internal control mechanisms, or prevent managers or individuals in key leadership capacities from unduly influencing those responsible for the internal control activities. Therefore, it is important for State government employees to recognize fraud when it is occurring and report the fraudulent activities to the appropriate authority.
Occupational fraud and abuses can be defined as the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of government resources or assets. Occupational fraud and abuses include misappropriation of assets in the form of cash theft, fraudulent disbursements, theft or personal use of inventory or other non-cash assets. Fraud can also take the form of bribery and corruption when kickbacks, gifts or gratuities are offered to government employees from contractors or vendors to influence decisions of government agents or employees.
The fundamental elements of an effective anti-fraud program that should be established by each agency are:
1. Creating and maintaining a culture of honesty,
2. Evaluating the risks of fraud and implementing the processes, procedures and controls needed to mitigate those risks, and
3. Developing an appropriate oversight process
Creating a Culture of Honesty and High Ethics
It is each agency’s responsibility to create a culture of honesty and high ethics. Such a culture is rooted in a strong set of core values (or value system) that provides the foundation for employees as to how the agency conducts its business. It also allows an entity to develop an ethical framework that covers (1) fraudulent financial reporting, (2) misappropriation of assets, (3) corruption, as well as other issues.
Creating a culture of honesty and high ethics should include the following:
1. Setting the tone at the top
2. Creating a positive workplace environment
3. Hiring and promoting appropriate employees
Setting the Tone at the Top
The cornerstone of an effective antifraud environment is a culture with a strong value system founded in integrity. The value system is reflected in a code of ethics. The code of ethics should reflect the core values of the entity and guide employees in making appropriate decisions during their workday. The code of ethics might include such topics as ethics, confidentiality, conflicts of interest, intellectual property, sexual harassment and fraud. Each agency shall develop a code of ethics which shall be communicated to each employee. Each employee shall sign a statement that they have received and understand the code of ethics.
The Code of ethics shall be included in an employee handbook or policy manual so that it can be referred to when needed.
Click for an example of a Code of ethics Appendix P5-19-4-505
Creating a Positive Workplace Environment
Without a positive workplace environment, there are more opportunities for poor employee morale, which can affect an employee’s attitude about committing fraud against an entity. Factors that detract from a positive work environment and may increase the risk of fraud include:
1. Negative feedback and lack of recognition for job performance
2. Perceived inequities in the organization
3. Fear of delivering "bad news" to supervisors and/or management
4. Less-than-competitive compensation
5. Poor training and promotion opportunities
6. Lack of clear organizational responsibilities
7. Poor communication practices or methods within the organization
Hiring and Promoting Appropriate Employees
Each employee has a unique set of values and personal code of ethics. When faced with sufficient pressure and a perceived opportunity, some employees will behave dishonestly rather than face the negative consequences of honest behavior. The threshold at which dishonest behavior starts, however, will vary among individuals. If an entity is to be successful in preventing fraud, it must have effective policies that minimize the chance of hiring or promoting individuals with low levels of honesty, especially for positions of trust.
Proactive hiring and promotion procedures may include:
1. Conducting background investigations on individuals being considered for employment or for promotion to a position of trust
2. Thoroughly checking a candidate’s education, employment history, and personal references
3. Periodic training of all employees about the entity’s values and code of ethics
4. Incorporating into regular performance reviews an evaluation of how each individual has contributed to creating an appropriate workplace environment in line with the entity’s values and code of ethics.
New employees should be trained at the time of hiring about the entity’s values and its code of ethics. This training should explicitly cover expectations of all employees regarding (1) their duty to communicate certain matters, (2) a list of the types of matters, including actual or suspected fraud, to be communicated along with specific examples, and (3) information on how to communicate those matters. In addition to training at the time of hiring, employees should receive refresher training periodically thereafter.
Management needs to clearly articulate that all employees will be held accountable to act within the entity’s code of ethics. All employees within senior management and the finance function, as well as other employees in areas that might be exposed to unethical behavior (for example, procurement, disbursement and receipting), should be required to sign a code of ethics annually.
Requiring periodic confirmation by employees of their responsibilities will not only reinforce the policy but may also deter individuals from committing fraud and other violations and might identify problems before they become significant. Such confirmation shall include statements that the individual understands the entity’s expectations, has complied with the code of ethics and is not aware of any violations of the code of ethics. The confirmation shall reiterate the employee’s obligation to report fraud, waste and abuse of government resources.
At the time of performing annual employee performance evaluations, a signed confirmation should be obtained from the employee that they have read and understand the entity’s code of ethics.
A thorough investigation should be conducted for each alleged incident of fraud. If allegations of fraud are substantiated, then appropriate and consistent actions should be taken against violators. When allegations of fraud are brought to entity management, these allegations shall be reported to the DFA-OIA. The DFA-OIA will coordinate the review of the allegations to determine if the allegations are substantiated.
Expectations about the consequences of committing fraud must be clearly communicated throughout the entity. For example, a strong statement from management that dishonest actions will not be tolerated, that violators will be terminated and referred to the appropriate authorities clearly establishes consequences and can be a valuable deterrent to wrongdoing.
State employees also have the option of reporting allegations of fraud directly to the DFA-OIA. They can contact the DFA-OIA at (501) 682-0370 or complete a Fraud Reporting form and mail to the DFA-OIA.
State agency management must be familiar with the Arkansas Whistle-blower Act and their responsibility not to take adverse action against a public employee because the public employee or a person authorized to act on behalf of the employee communicates in good faith the existence of waste of public funds, property or manpower, including federal funds, property, or manpower administered or controlled by a public employee, or a violation or suspected violation of a law, rule or regulation adopted under the law of this State or a political subdivision of the State to an appropriate authority. Click for the Fraud Reporting Form P6-19-4-505 .
Click for Arkansas Whistle-blower Act
Evaluation Processes and Controls
Neither fraudulent financial reporting nor misappropriation of assets can occur without a perceived opportunity to commit and conceal the act. Organizations should be proactive in reducing fraud opportunities by (1) identifying and measuring fraud risks, (2) taking steps to mitigate identified risks and (3) implementing and monitoring appropriate preventive and detective internal controls and other deterrent measures.
Identifying and Measuring Fraud Risks
Management has primary responsibility for establishing and monitoring all aspects of the entity’s fraud risk-assessment and prevention activities. Fraud risks often are considered as part of an agency-wide risk assessment program, though they may be addressed separately.
The fraud risk-assessment process should consider the vulnerability of the entity to fraudulent activity (fraudulent financial reporting, misappropriation of assets and corruption) and whether any of those exposures could result in a material misstatement of the financial statements or material loss to the organization.
The nature and extent of management’s risk assessment activities should be commensurate with the size of the entity and complexity of its operations. For example, the risk assessment process is likely to be less formal and less structured in smaller entities. However, management should recognize that fraud can occur in organizations of any size or type. Accordingly, management should develop a heightened "fraud awareness," an appropriate fraud risk-management program and appropriate oversight.
Managing the risk of fraud is the same in principle as managing any other business risk. When considering fraud risks in specific operations, agency management must determine which operational areas are most susceptible to fraud risk. Areas with previous losses, areas handling cash and areas distributing and administering grants are examples of areas that may be more susceptible to fraud.
The fraud risk assessment shall be performed by each agency once every two years.
Mitigating Fraud Risks
Once risk areas are identified by management, it is necessary to evaluate the adequacy of existing internal control activities and determine if further controls or changes to existing controls are required to reduce or eliminate the risk. Although there may be high risk fraud indicators in certain instances, other compensating measures may exist to mitigate the weakness in controls. It may be possible to reduce or eliminate certain fraud risks by making changes to the entity’s activities and processes. For example, the risk of misappropriations of funds may be reduced by implementing a central lockbox at a bank to receive payments instead of receiving moneys at the entity’s various locations. The risk of corruption may be reduced by closely monitoring the entity’s procurement process, etc.
Developing an Appropriate Oversight Process
To effectively prevent or deter fraud, an entity should have an appropriate oversight function in place. Agency management is responsible for overseeing the activities carried out by employees and typically does so by implementing and monitoring processes and controls such as those previously discussed.
Management is encouraged to utilize an internal audit function in carrying out their oversight responsibility. An effective internal audit team can be extremely helpful in performing aspects of the oversight function. Internal auditors have the opportunity to evaluate fraud risks and controls and to recommend action to mitigate risks and improve controls.
Internal auditors can be both a detection and a deterrence measure. Internal auditors can assist in the deterrence of fraud by examining and evaluating the adequacy and the effectiveness of the system of internal control, commensurate with the extent of potential exposure or risk in the various segments of the organization’s operations. In carrying out this responsibility, internal auditors should, for example, determine whether:
1. The organizational environment fosters control consciousness.
2. Realistic organizational goals and objectives are set.
3. Written policies exist that describe prohibited activities and the action required whenever violations are discovered.
4. Appropriate authorization policies for transactions are established and maintained.
5. Policies, practices, procedures, reports and other mechanisms are developed to monitor activities and safeguard assets, particularly in high-risk areas.
6. Communication channels provide management with adequate and reliable information.
7. Recommendations need to be made for the establishment or enhancement of cost effective controls to help deter fraud.
Agencies that are governed by a board or commission are also encouraged to establish an audit committee to support the oversight function. One way that public officials can enhance accountability and demonstrate proper stewardship over public funds is to establish and support an adequate internal environment within their organizations. A critical element of the internal control environment is an effective audit committee that provides oversight of matters of financial reporting, auditing and internal control. An effective audit committee can provide several important aspects of control, including: ensuring the independence of the internal auditing function and ensuring appropriate action is taken on audit findings. The audit committee serves in a unique capacity as an important communication link among external and internal auditors and operating management and as a means of reducing the risk of management override of key elements of the agency’s internal control structure.
19-4-506. Accounting and reporting capabilities.
A governmental accounting system must make it possible both to:
(1) Present fairly and with full disclosure the financial position and results of financial operations of the funds and account groups of the governmental unit in conformity with generally accepted accounting principles; and
(2) Determine and demonstrate compliance with finance-related legal and contractual provisions.
History. Acts 1973, No. 876, § 12; 1979, No. 833, § 3; A.S.A. 1947, § 13-338.
R1-19-4-506 Reporting Capabilities of System
AASIS has the ability to produce many reports. A table which outlines the available reports is located at appendix P1-19-4-506 . The table is categorized by report type and includes the following: financial and accounts payable reports, funds management reports, accounts receivable reports, asset management reports, fiscal control reports, human resources reports and procurement reports. More information can be found on these reports at http://www.dfa.arkansas.gov/offices/informationServices/aasis/Pages/default.aspx
R2-19-4-506 General Reporting and Year End Closing Procedures
This portion of the Guide establishes the State reporting policies and procedures governing the accumulation of accounting data for reporting purposes and the preparation of the State of Arkansas Comprehensive Annual Financial Report (CAFR).
PLEASE NOTE: A table of reports available from AASIS is in appendix P1-19-4-506 .
Applicability & Responsibility
Each of the State of Arkansas’ agencies, boards, commissions, departments and institutions is primarily responsible for the collection, maintenance, recording and transmission of financial information and other necessary disclosures to permit the Department of Finance & Administration – Office of Accounting – CAFR Section (DFA-OA-CAFR Section) to prepare financial statements and the related footnotes in accordance with Generally Accepted Accounting Principles (GAAP) and official pronouncements of the Governmental Accounting Standards Board (GASB). Each agency, board, commission, department and institution is also required to provide supplementary information and statistical summaries as requested to allow the DFA-OA-CAFR Section to compile schedules and disclosures to be presented in the CAFR. The DFA-OA-CAFR Section is responsible for assisting each entity with its compliance with these reporting requirements, including:
1. Assistance regarding communication methods; notification of missing or erroneous data where possible. Detailed written communications will be distributed prior to fiscal year end from the DFA-OA-CAFR Section, complete with the comprehensive closing package instructions, electronic spreadsheet templates, examples of closing accrual and reversing journal entries and detailed transactional year-end cutoff requirements and their related deadlines. Access the DFA-OA web site for further guidance at the following link (http://www.arkansas.gov/dfa/accounting/index.html);
2. Assistance in resolving certain processing problems; and
3. Training and continuing education regarding State policies, procedures and regulations for accounting and related topics.
Each agency, board, commission, department and institution is responsible for:
1. Ensuring that it is in a position to respond to problems encountered with the integrity and/or transmission of data during critical times, such as fiscal year-end cutoff;
2. Exercising appropriate control over data security;
3. Completion of a management representation letter that certifies the completeness, accuracy, and integrity of data submitted, signed by the Director and Chief Fiscal Officer;
4. Notifying the DFA-OA or AASIS support staff if data problems arise;
5. Notifying the DFA-OA-CAFR Section when the Arkansas Division of Legislative
Audit or any external financial auditor commences field work, so the DFA-OA-CAFR Section agency liaison can assist with accounting issues which may arise and make arrangements to be present at the audit exit conference in order to be knowledgeable of audit findings which are communicated by the auditor so resolution or solutions can be accomplished on a timely basis.
Governmental accounting standards prescribe two methods for reporting component units of the State in the CAFR. Depending on the component unit’s relationship with the State, it is either blended or reported discretely.
Blended component units are reported as part of the primary State government just like a normal State agency, board, commission, department or institution.
Discretely reported component units are reported in a column separate from the primary State government. Component units discretely reported must submit audited financial statements to DFA-OA-CAFR Section.
DFA-OA-CAFR Section personnel assigned to agencies identified as (or having) component units will work with agency personnel to provide additional information and assistance as needed to satisfy reporting requirements.
19-4-507. Fund accounting systems.
Governmental accounting systems should be organized and operated on a fund basis. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations.
History. Acts 1973, No. 876, § 12; 1979, No. 833, § 3; A.S.A. 1947, § 13-338.
19-4-508 - 516. [Repealed.]
19-4-517. Interim and annual financial reports.
(a) Appropriate interim financial statements and reports of financial position, operating results, and other pertinent information should be prepared to facilitate management control of financial operations, legislative oversight, and, where necessary or desired, for external reporting purposes.
(b) A comprehensive annual financial report covering all funds and account groups of the governmental unit, including appropriate combined, combining, and individual fund statements; notes to the financial statements; schedules; narrative explanations; and statistical tables should be prepared and published.
(c) General purpose financial statements may be issued separately from the comprehensive annual financial report. These statements should include the basic financial statements and notes to the financial statements that are essential to fair presentation of financial position and operating results and changes in financial position of proprietary funds and similar trust funds.
History. Acts 1973, No. 876, § 12; 1979, No. 833, § 3; A.S.A. 1947, § 13-338.
19-4-518. Design of system.
(a) The financial management system shall be designed to record assets, liabilities, net assets, revenues, expenditures, and other similar transactions in accordance with generally accepted accounting principles. The financial management system shall provide a suitable analysis of the operation, maintenance, and improvement of all state agencies and their functions. This system shall furnish a breakdown and itemization of all financial transactions in accordance with the appropriations and allotments of the General Assembly, federal grants, and bank funds of the agencies.
(b) The Chief Fiscal Officer of the State shall prepare a general ledger manual covering the system of classifying financial transactions and shall supply all agencies with a copy of this manual.
History. Acts 1973, No. 876, § 12; A.S.A. 1947, § 13-338; Acts 2001, No. 1453, § 8.
R1-19-4-518 General Ledger Chart of Accounts
The Financial Management System General Ledger Chart of Accounts contains the asset, liability, fund equity, revenue, expense, operating transfer, other financing sources/uses and prior period adjustment accounts necessary for operating purposes and financial statement presentation for the State of Arkansas. These accounts record the dollar value of the business transactions completed by State agencies.
The general ledger accounts are generic in nature and are established and titled for use by all State agencies. The general ledger accounts will not be set up to record specific transactions of an individual agency unless extraordinary circumstances justify the request.
The following is a general discussion concerning general ledger accounts, their characteristics and purposes. Procedures related to uses for specific transactions are located in other sections of this Guide. Types of General Ledger Accounts:
Assets are a probable future economic benefit obtained or controlled by a particular entity as a result of past transactions or events. These economic resources can be tangible or intangible.
Assets are recorded in the general ledger account number range 1000000000 to 1999999999.
Asset accounts may have budget relevant commitment items.
Run AASIS report S_KI4_38000036 to obtain the commitment item for all accounts.
Liabilities are probable future sacrifices of economic benefits, arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. The term does not include encumbrances.
Liabilities are recorded in the general ledger account number range 2000000000 to 2999999999.
The commitment items for all liability accounts are non-budget relevant, also referred to as statistical. One exception to the statistical posting is on the sales/use tax liability, which is non-statistical.
Fund Equity Accounts
Equity accounts are the difference between a fund's assets and liabilities. In governmental funds, it is referred to as fund balance.
Fund equity is recorded in the general ledger account number range 3000000000 through 3999999999.
The commitment items for all fund equity accounts are non-budget relevant, also referred to as statistical.
Revenues are inflows or other enhancements of assets during a period from delivering or producing goods, rendering services or carrying out other activities that constitute an agency’s operations. Revenues are recognized in the accounting period in which they become measurable and available for modified accrual and when they become measurable and earned for full accrual. Moneys receipted should be recorded as revenue upon the first receipt. Generally movements of moneys between state agencies or an agency’s fund groups should not be recorded as revenue. They should be recorded as transfers. The Governmental Accounting Standards Board (GASB) requires that, if goods or services are provided between agencies and the value is approximately what it would be to receive the same goods or services from an outside source, the transaction be recorded as an expense to the paying agency and revenue to the receiving agency.
Revenues are recorded in the general ledger account number range 4000000000 through 4999999999.
The commitment items for all revenue accounts are non-budget relevant, also referred to as statistical.
Expenses are outflows, consumption of assets or incurrence of liabilities during a period from delivering or producing goods, rendering services or carrying out other activities that constitute an agency’s operations. Expenses are generally recognized in the period when incurred regardless of the timing of the related disbursements with the following exception. Certain expenses are recognized when due for modified accrual such as debt service payments, claims and judgments, accrued leave and net pension obligations. Moneys that are moved between State agencies or fund groups are generally not an expense but a transfer. However, the Governmental Accounting Standards Board (GASB) requires that, if goods or services are provided between agencies and the value is approximately what it would be to receive the same goods or services from an outside source, the transaction be recorded as an expense to the paying agency and a revenue to the receiving agency.
Expenses are recorded in the general ledger account number range 5000000000 through 5999999999.
Expense accounts may have either budget relevant or non-budget relevant commitment items. Run AASIS report S_KI4_38000036 to obtain the commitment item for general ledger accounts.
Period ending accrual entries are made to non-budget relevant general ledger accounts that are ties to statistical commitment items. However, all warrants, checks and inter-agency transfers for expenses must be coded to budget relevant general ledger accounts with a non-statistical commitment item.
Operating Transfer Accounts
Operating transfers are used to record transfers of funds. They are legally authorized transfers from a fund receiving revenue to the fund through which the resources are to be expended. They include inter-fund transfers (transfers between two or more State agencies) and intra-fund transfers (transfers within a State agency).
Operating transfers are recorded in the general ledger account number range 6000000000 through 6999999999 along with Other Financing Sources/Uses and Prior Period Adjustments.
At the present time, all Operating Transfers have non-budget relevant commitment items.
Other Financing Sources/Uses Accounts
Other Financing Sources/Uses Accounts are used to record inflow/outflow of resources that are not revenue/expense.
Other Financing Sources/Uses are recorded in the general ledger account number range 6000000000 through 6999999999 along with operating transfers and prior period adjustments.
All Other Financing Sources/Uses accounts for use by agencies other than certain accounts set up for use by DFA Employee Benefits Division only are non-budget relevant.
Prior Period Adjustments
Prior Period Adjustments are the net effect of changes resulting from the correction of errors which occurred in prior fiscal years. No Prior Period Adjustment shall be recorded by an agency without prior authorization from Department of Finance and Administration – Office of Accounting (DFA-OA).
Prior period adjustments are recorded in the general ledger account number range 6000000000 through 6999999999 along with operating transfers and other financing sources/uses.
All Prior Period Adjustment accounts are non-budget relevant.
AASIS Reports S_ALR_87012333, S_ALR_87012326 and S_ALR_87012328 all can be used to produce lists of the Chart of Accounts. In order to receive an accurate report, Chart of Accounts and Company Code must both reflect ARK.
Contact DFA-OA for additional information concerning the Chart of Accounts.
R2-19-4-518 Journal Entries
Journal entries are used to change the posted value of a general ledger account balance or sub-ledger balance that is specific to a single business transaction. Generally, these include correcting the posting of a cash receipt, check or warrant to an improper account. Journal entries are also used to adjust the ending or beginning balance of an account so that the general ledger, as well as sub-ledgers is maintained in accordance with Generally Accepted Accounting Principles (GAAP), State policies, and audit requirements, such as year-end accruals for financial reporting.
Most transactions do not originate in the general ledger but rather in one of the modules (sub-ledgers) that feed the general ledger, such as the Accounts Payable and Accounts Receivable modules. In order to maintain module integrity, proper audit trails and to comply with external audit requirements, it is imperative that adjustments or corrections be made in the module from which a transaction originated whenever possible. Thus, adjustments or corrections made directly in the general ledger should be relatively few in number.
In AASIS, a journal entry is prepared, checked and parked by one staff member; and it is approved and posted by another staff member. The approving staff member is responsible for ensuring that each journal entry is:
1. Coded accurately.
2 . Fully substantiated with the reason for processing a request clearly identified by the supporting documentation. This could include correspondence, notes, copies of documents, working papers detailing the basis of any calculations, the source of supporting data and the name of the preparer of the calculations. Retain supporting documentation for audit verification and review.
3. Explained clearly on the journal entry document. The text field in AASIS is approximately (50) characters long on each line. Double click on the text field if more room is needed to ensure that each journal entry contains a description that is clear, concise and logical to readers of general ledger reports.
PLEASE NOTE: Do not use simple one and two word explanations, such as "correction error," "transfer," "recovery," etc. It is critical that an accurate and meaningful description be provided for accounting, reporting and audit purposes.
PLEASE NOTE: the CFO or his designee shall give written approval for the use of journal entries to record anything other than a summarized monthly recording of cash receipts or commercial bank activity.
PLEASE NOTE: Agencies not using AASIS shall retain original copies of journal entries processed, complete with original authorization signatures and supporting attachments, for audit verification and review.
Recurring accounts payable and accounts receivable entries may be entered by agency personnel when normal operation of the State’s accounting system resumes each fiscal year, as well as during the fiscal year. Items that require payment before mid-July should be paid as a direct invoice for the July payment only. Refer to AASIS web site at http://www.dfa.arkansas.gov/offices/informationServices/aasis/Pages/default.aspxand their transaction training tutorials for detailed instructions regarding the proper procedures to enter recurring entries.
Recurring entries must be reviewed and approved in writing by the agency Chief Fiscal Officer (CFO). A list of recurring entries can be obtained and printed with transaction ZF_15 in the State’s accounting system. The listing must be forwarded to the DFA - Office of Accounting-CAFR Section with the agency’s CFO’s signature and the date of the review prior to processing. Requests to change or delete recurring documents must also be sent to the DFA – Office of Accounting-CAFR Section by the agency CFO. Include the document number and a reason for the change or deletion.
The DFA – Office of Accounting is responsible for the processing of recurring entries. Office of Accounting personnel will review for unauthorized entries. Unauthorized recurring entries will be deleted prior to the monthly posting of the recurring entries.
Expense Error Corrections
An Expense Error Correction is made by entering a journal entry that reclassifies an expense paid to/from:
- The wrong fund.
- The wrong funds center.
- An incorrect commitment item.
- An incorrect general ledger account.
- An incorrect Work Breakdown Structure (WBS) Element.
- An incorrect Internal Order.
- Or any combination of the list above.
Certain restrictions apply to Expense Error Corrections:
- No prior fiscal year expenses may be corrected through an Expense Error Correction.
Expense Error Corrections cannot be made between funds held at the Treasurer of State and a cash fund .
- Expense Error Corrections cannot be made between Treasury appropriations and cash appropriations.
- Expense Error Corrections cannot be made between business areas. Errors of this type must be handled on a case by case basis by the Department of Finance and Administration-Office of Accounting (DFA-OA).
Error corrections within the same fund, funds center and commitment item
If the correction is only a reclassification of general ledger expense accounts or cost center and the expense accounts have the same commitment item (character code), fund and funds center (appropriation), a two-sided journal entry is needed. Debit the correct general ledger expense account and credit the incorrect general ledger expense account. This posts the expense to the correct general ledger account/internal order/WBS element and deducts the expense from the wrong general ledger account/internal order/WBS element without expensing the item a second time and overstating the business area’s expenses. There is no funds transfer generated. The affected business area may park and post this type of expense error correction.
Error corrections crossing commitment items within the same funds/funds center:
For expense error corrections where ONLY the commitment item is changing (the fund and funds center remain the same), a two-sided entry is all that is needed between the two expense general ledger codes. These types of error corrections must be posted by DFA-OA so that they can be sent to the Auditor of State to ensure the appropriation totals between the two systems are always in balance.
Error corrections from one Fund and Funds Center to another Fund and Funds Center
If the expense to be corrected is incorrectly posted to an inappropriate fund, funds center (appropriation) and/or commitment item (character code), a four-sided entry is needed. These expense error corrections involve funds center (appropriation) restoration and must be posted and sent to the Auditor of the State by DFA-OA. The first two sides of the entry debit the correct general ledger expense account and cost center/fund/funds center (appropriation) combination and credit the incorrect general ledger expense account and cost center/fund/funds center (appropriation) combination. The last two sides of the entry reduce cash in the fund that should have paid the expense and restores cash in the fund that incorrectly paid the expense.
Elements needed for the journal entries are:
- The original document number that was incorrect as a reference number. This number is used as a search criterion when displaying or changing documents in the State’s Accounting System.
- A brief description providing justification for the expenditure correction.
- Use document type ZE for all expense error corrections.
The transaction to process error corrections is FB50. The document generated by this transaction must be parked. The document is not complete when parked, and the current appropriation amounts will not be updated until the document is approved and posted. After parking the expense error correction documents, the agency must notify DFA-OA-Funds Group via e-mail with the parked document number or the "Expense Error Correction Request" Form to complete the processing.
Service Bureau agencies should complete the "Expense Error Correction Request" Form and submit it to DFA-OA-Service Bureau (DFA-OA-SB). DFA-OA-SB will enter and park the document and then notify DFA-OA Funds Manager.
After the document has been reviewed for correctness and the reference document has been reviewed, the error correction will be posted and adjustments can be seen in the State’s accounting system depending on the type of error correction being processed.
Expense Error Correction Matrix
Does Not Change Fund
Changes Funds Center (same fund)
Changes Funds Center (different fund)
Add or change WBS Element or Internal order (same fund)
Changes Commitment Items (same fund)
Changes Commitment Item (different fund)
Two line journal entry - parked and posted by agency
Do not use
Do not use
Do not use
Do not use
Do not use
Two line journal entry - parked by agency, posted by DFA – OA
Do not use
Do not use
Do not use
Do not use
Do not use
Four line journal entry – parked by agency, posted by DFA – OA
Do not use
Do not use
Do not use
Do not use
19-4-519. Appropriations code manual.
(a) After the General Assembly has enacted the various appropriation measures for the support and operation of state government and its agencies, the Chief Fiscal Officer of the State shall prepare a complete code manual setting out all of the appropriations of the General Assembly, the purpose of the appropriations and the funds, fund accounts, or accounts from which the appropriations are made and shall classify them in accordance with the titles and definitions as enumerated in this chapter.
(b) After establishing the appropriation items and classifying them under the provisions of this chapter in strict conformity to the intent and purposes of the appropriation acts and within the limitations of the revenues and funds available for these purposes, it shall then be unlawful for the Chief Fiscal Officer of the State or any disbursing officer of any state agency to transfer from an appropriation item, the purpose of which is defined under the provisions of this chapter, to any other appropriation item of a different classification and purpose as defined in this subchapter except when permitted by law.
History. Acts 1973, No. 876, § 12; A.S.A. 1947, § 13-338; Acts 2001, No. 221, § 4; 2003, No. 1463, § 8; 2005, No. 237, § 2.
(a) After the General Assembly has enacted the various appropriation measures for the support and operation of state government and its agencies, the Chief Fiscal Officer of the State shall prepare a complete code manual setting out all of the appropriations of the General Assembly, the purpose of the appropriations and the funds, fund accounts, or accounts from which the appropriations are made and shall classify them in accordance with the titles and definitions as enumerated in this chapter. (b) After establishing the appropriation items and classifying them under the provisions of this chapter in strict conformity to the intent and purposes of the appropriation acts and within the limitations of the revenues and funds available for these purposes, it shall then be unlawful for the Chief Fiscal Officer of the State or any disbursing officer of any state agency to transfer from an appropriation item, the purpose of which is defined under the provisions of this chapter, to any other appropriation item of a different classification and purpose as defined in this subchapter except when permitted by law. History. Acts 1973, No. 876, § 12; A.S.A. 1947, § 13-338; Acts 2001, No. 221, § 4; 2003, No. 1463, § 8; 2005, No. 237, § 2.
19-4-520. Classification of appropriations.
(a) (1) For the purpose of establishing the proper accounts, for budgetary control, for accounting, and for other provisions of this chapter, the appropriations of the General Assembly shall be classified under one (1) or more of the classifications prescribed in §§ 19-4-521 - 19-4-525.
(2) The purposes for which these appropriations may be used are defined as prescribed in §§ 19-4-521 - 19-4-525, but not necessarily limited thereto.
(b) However, the state's financial management system may invoke additional budget control using features of the system that are in addition to the appropriations of the General Assembly.
History. Acts 1973, No. 876, § 12; 1977, No. 813, § 1; 1979, No. 833, §§ 1, 2; 1981, No. 741, § 1; 1981, No. 924, § 1; 1983, No. 628, § 1; 1985, No. 365, §§ 2, 3, 12; A.S.A. 1947, § 13-338; Acts 2001, No. 1453, § 9.
19-4-521. Personal services.
The personal services classification shall be for regular full-time, part-time, and extra-help employees, employer matching costs, employer special or extra compensation, overtime earnings, and other employee benefits that are legally authorized:
(1) REGULAR SALARIES. This subclassification shall be applicable to all salaries and compensation, except as provided in this section, for state employees when the number of employees and maximum amounts of compensation are statutorily authorized as provided by Arkansas Constitution, Article 16, § 4, irrespective of the financial resources compensating such employees within this subclassification and when the method of salary disbursing of the institutions of higher learning involves payment from state agency bank funds of the institution, subject to reimbursement to the institution for such amounts as are properly payable from funds in the State Treasury. However, the state's financial management system may include in the subclassification of regular salaries the following:
(A) EXTRA SALARIES. This description includes all special remuneration received by state employees in addition to regular salary that is authorized by law. Any state agency which receives an appropriation for extra salaries may pay eligible employees at the following rates:
(i) Physicians who are certified by the American specialty boards, at a rate of pay not to exceed four thousand five hundred dollars ($4,500) per fiscal year;
(ii) Physicians who are eligible to be certified by the American specialty boards, at a rate of pay not to exceed two thousand five hundred dollars ($2,500) per fiscal year; and
(iii) Physicians certified in child psychiatry or forensic psychiatry, an additional two thousand five hundred dollars ($2,500) per fiscal year will be allowed with the total additional compensation not to exceed seven thousand dollars ($7,000) per fiscal year;
(B) SPECIAL COMPENSATION. This description includes special remuneration when authorized by law for employee suggestion awards; and
(C) The payment of extra salaries and special compensation when authorized by law shall be considered to be in addition to the maximum amounts of compensation set by law for regular salaries;
(2)(A) EXTRA HELP. This subclassification shall be used for payment of all salaries and compensation of part-time or temporary employees, as authorized by law, who are employed one thousand (1,000) hours per fiscal year or less.
(B) This subclassification may be used to pay part-time or temporary employees who are employed for more than one thousand (1,000) hours per fiscal year if specific authorization is provided by law and if such use is within standards established by the Director of the Department of Finance and Administration.
(C) In no case shall any extra-help funds be used for the purposes of paying additional compensation to a full-time state employee.
(D) A "state employee" means any employee occupying a regular salaried position for a state agency, board, commission, department, or institution of higher education;
(3) OVERTIME. This subclassification is applicable for payment of services performed in excess of normal hours of work during a specific time when specifically authorized by law; and
(4)(A) PERSONAL SERVICES MATCHING. This subclassification shall represent the state agency's proportion of the amounts necessary to contribute the state agency's share or to match the deductions from the salaries of state employees for:
(i) Social security;
(iii) Group employee insurance programs;
(iv) Workers' compensation;
(v) Unemployment compensation contributions; and
(vi) A state contribution for state employee retirees who are eligible to participate in the health and life insurance programs offered by the state as defined by § 21-5-411 and as authorized by the Chief Fiscal Officer of the State.
(B) The Chief Fiscal Officer of the State may make appropriate reclassifications of the state agency's appropriation for maintenance and general operation to effect the payment of personal services matching as described in this section.
History. Acts 1973, No. 876, § 12; 1977, No. 813, § 1; 1979, No. 833, §§ 1, 2; 1981, No. 741, § 1; 1981, No. 924, § 1; 1983, No. 628, § 1; 1985, No. 365, §§ 2, 3, 12; A.S.A. 1947, § 13-338; Acts 1987, No. 646, § 1; 1999, No. 1280, § 11; 2001, No. 1453, § 10; 2005, No. 251, § 2.
19-4-522. Maintenance and general operation.
(a) The maintenance and general operation classification shall cover items of expense necessary for the proper and efficient operation of the state agency, authority, board, commission, department, or institution of higher education, except as otherwise classified in this subchapter.
(b) It is recognized that in those instances where the maintenance and general operation line-item classification is not sub classified, the state agency is authorized to expend moneys for operations in compliance with the intent of this subchapter.
(c) In the event an appropriation for maintenance and general operation authorized for a state agency, board, department, or institution is restricted in its use by budget classification as set out in subsection (d) of this section, transfers between such classifications may be made subject to the procedures set out as follows:
(1) In the event the amount of any of the budget classifications of maintenance and general operation in an agency's appropriation act are found by the administrative head of the agency to be inadequate, then the agency head may request, upon forms provided for such purpose by the Chief Fiscal Officer of the State, a modification of the amounts of the budget classification. In that event, he or she shall set out on the forms the particular classifications for which he or she is requesting an increase or decrease, the amounts thereof, and his or her reasons therefor. In no event shall the total amount of the budget exceed either the amount of the appropriation or the amount of the funds available, nor shall any transfer be made from the capital outlay or data processing sub classification unless specific authority for such transfers is provided by law, except for transfers from capital outlay to data processing when determined by the Department of Computer Services that data processing services for a state agency can be performed on a more cost-efficient basis by the Department of Information Systems than through the purchase of data processing equipment by that state agency;
(2) In considering the proposed modification as prepared and submitted by each State agency, the Chief Fiscal Officer of the State shall make such studies as he or she deems necessary. If the requested transfer would, when added to other transfers previously approved during the fiscal year for the same classification with the same appropriation, result in a deviation of any kind in the affected classifications of less than five percent (5%) up to a maximum of two thousand five hundred dollars ($2,500) from the classifications established by law, the Chief Fiscal Officer of the State shall approve the requested transfer if in his or her opinion it is in the best interest of the state. If the requested transfer would, when added to other transfers previously approved during the fiscal year for the same classification within the same appropriation, result in a deviation of five percent (5%) or more, or more than two thousand five hundred dollars ($2,500), the Chief Fiscal Officer of the State shall submit the request, along with his or her recommendation, to the Legislative Council for its advice prior to approving the request;
(3) In the event any state agency shall expend or obligate any approved budget in excess of the maximum classification, the Chief Fiscal Officer of the State shall study the reasons for such excess expenditures and shall take immediate steps to correct such excess spending as he or she deems necessary after notification of such actions has been sent to the Legislative Council.
(d) Maintenance and general operation may be further categorized into the following sub classifications and the expenses thereof to be used according to the sub classification:
(1) OPERATING EXPENSES. This sub classification shall entail the following, but not necessarily be limited thereto:
(A) Postage, telephone, and telegraph;
(B) Transportation of commodities or objects;
(D) State-owned motor vehicle expenses;
(F) Minor and major repairs;
(G) Maintenance contracts;
(H) Utilities and fuel;
(I) Insurance premiums, surety and performance bonds, and association dues and memberships;
(J) Contractual services not otherwise classified;
(K) Consumable supplies, materials, and commodities;
(L) Books, publications, and newspapers;
(M) Court costs;
(N) Equipment not capitalized;
(O) Applicable petty cash reimbursements, laundry, and taxes;
(P) Travel, subsistence, meals, lodging, transportation of state employees or officials, and nonstate employees traveling on official business;
(Q)(i) Uniforms the agency requires its employees to wear as part of the job.
(ii) Clothing items purchased for its employees and not required to be worn during working hours, or which are purchased for the promotion of the agency, shall not be sub classified as an operating expense; and
(R) Such other items of operating expense as shall be provided by the appropriation act, or under reasonable rules, regulations, and procedures issued by the Chief Fiscal Officer of the State.
(2) CONFERENCE AND TRAVEL EXPENSES. This sub classification shall include:
(A) The costs of an employee attending a conference, seminar, or training program;
(B) The costs of a state agency-sponsored or hosted conference, seminar, or training program where the expenses are not otherwise classified according to this section;
(3) PROFESSIONAL FEES. This sub classification shall include the expenses for contractual agreements entered into by the state agency with an individual, partnership, corporation, or anyone other than a state employee to provide a particular document, report, speech, study, or commodity other than those contractual agreements that by their nature would be classified elsewhere in this subchapter;
(4) CAPITAL OUTLAY. This sub classification is to include the following expenses, but is not necessarily limited thereto by virtue of other classifications recognized by this subchapter:
(A) Purchase of land, buildings, equipment, furniture, and fixtures; and
(B) Contractual agreements, all of which are to be capitalized from the maintenance and general operation classification of appropriation;
(5) DATA PROCESSING. This sub classification includes purchase of data processing services from the Department ofInformation Systems, or others, and other expenses that are not necessarily classified elsewhere in this section by virtue of the appropriation based upon budgets presented for consideration.
(e) Notwithstanding § 19-4-522 or any other law to the contrary state-supported colleges and universities may utilize maintenance and operation appropriations for the payment of moving expenses of employees, including new hires.
History. Acts 1973, No. 876, § 12; 1977, No. 813, § 1; 1979, No. 833, §§ 1, 2; 1981, No. 741, § 1; 1981, No. 924, § 1; 1983, No. 628, § 1; 1985, No. 365, §§ 2, 3, 12; A.S.A. 1947, § 13-338; Acts 1987, No. 646, § 2; 1997, No. 342, § 40; 1997, No. 1211, § 29; 2001, No. 163, § 1; 2001, No. 1453, § 11.
R1-19-4-522 Continuing Professional Education
Continuing Professional Education – For the efficiency and effective operations of the agency, a division at their discretion may pay for continuing professional education for their employees as long as the courses do not lead to a degree.
19-4-523. Grants, assistance, and special aid.
This classification shall be applicable to all appropriations made by the General Assembly from State, federal, or other moneys for educational assistance, welfare grants, rehabilitation services, aid to counties and municipalities, and to all other special appropriations which have for their purpose the appropriating of State, federal, or other moneys for public benefits.
History. Acts 1973, No. 876, § 12; 1977, No. 813, § 1; 1979, No. 833, §§ 1, 2; 1981, No. 741, § 1; 1981, No. 924, § 1; 1983, No. 628, § 1; 1985, No. 365, §§ 2, 3, 12; A.S.A. 1947, § 13-338.
19-4-524. Construction and permanent improvements.
(a) The construction and permanent improvements classification shall be determined by the language of the appropriation acts which make available funds for construction and new improvements. For the purpose of classifying the expenditures under any such appropriation, all the necessary expenses in connection therewith shall be deemed to be part of the construction costs. Such items of expense shall be deemed to include, but are not necessarily limited to, the following:
(1) Advertising for bids;
(2) Architects, engineers, and other professional services in connection with the proposed projects; and
(3) The payment of estimates on the various contracts in connection with such construction programs. All construction and improvements of whatever nature shall be subject to the provisions of §§ 19-4-1401 - 19-4-1412 and to the rules and regulations promulgated by the Chief Fiscal Officer of the State. No State agency for which appropriations have been made by the General Assembly for construction or improvements shall make any contract or incur any indebtedness payable from such appropriations unless and until there are sufficient funds on hand, for the benefit of any agency, to pay for the proposed obligations under such contracts. However, any such agency shall have the power to accept and use grants and donations and to use its unobligated cash income or other funds available to it for the purpose of supplementing the appropriations for construction purposes. The appropriations and funds otherwise provided by the General Assembly for personal services, maintenance, and general operation of the agency shall not be used in connection with any proposed construction projects for which specific appropriations have been made by the General Assembly, except for minor repairs and maintenance.
(b) The restrictions of this section shall not apply to contracts approved by the State Highway Commission for construction of roads and bridges in the highway system.
(c) The Chief Fiscal Officer of the State is authorized to reclassify but not consolidate an agency's appropriation for construction to effect the payment of construction-related costs in the appropriate classification as described in this subchapter using the state’s financial management system to invoke budget control.
History. Acts 1973, No. 876, § 12; 1977, No. 813, § 1; 1979, No. 833, §§ 1, 2; 1981, No. 741, § 1; 1981, No. 924, § 1; 1983, No. 628, § 1; 1985, No. 365, §§ 2, 3, 12; A.S.A. 1947, § 13-338; Acts 2001, No. 1453, § 12.
R1-19-4-524 Construction and Permanent Improvements
The Arkansas Building Authority (―ABA‖) was established to oversee and manage capital improvements, real estate transfers and leases. ABA has established policies and guidelines governing the acquisition, construction, equipping, maintenance and operation of public buildings and other real property. The Boards of Trustees of the University of Arkansas, Arkansas State University, University of Central Arkansas, Henderson State University, Arkansas Tech University, Southern Arkansas University and other governing boards of public institutions of higher education with the approval of the Department of Higher Education, as well as the State Highway Commission, are not required to obtain approval or any other form of advice for projects from Arkansas Building Authority (ABA). All other agencies, departments and institutions should refer to ABA policies and procedures in addition to the guidelines provided herein. The ABA policies and procedures, known collectively as ABA Minimum Standards and Criteria, are located on ABA’s web site http://aba.arkansas.gov/Pages/default.aspx(ACA §22-2-101 et seq., ACA §6-62-302)
State agencies, departments and institutions are required to obtain legislative authorization prior to the construction and or acquisition of any lands, buildings, structures, utility systems or similar facilities to be financed in whole or in part by State Treasury Funds, Cash Funds, Federal Grants, Revenue Bonds, or Revenue Notes provided by law, agency or institutional receipts, donated funds from private sources or a combination of the above sources. (ACA §22-2-108(2) (B), ACA §22-2-108(7) (B), ACA §22-9-103(b), ACA §22-9-104)
Construction Approved by the General Assembly (During Session)
All state agencies, except the Arkansas State Highway and Transportation Department, must submit a Method of Financing (MOF), P1-19-4-524, to the Department of Finance and Administration-Office of Accounting-Funds Group (DFA-OA-FG) before entering into any contract or making any commitment of funds against a construction and permanent improvements appropriation. (ACA §19-4-1403, ACA §19-4-1407, ACA 22-2-102)
Construction Not Approved by the General Assembly (Between Sessions)
If prior legislative authorization has not been received and a state agency, department or institution, excluding the Arkansas State Highway and Transportation Department, desires to make a capital expenditure for construction and/or acquisition of lands, buildings, structures, utility systems or similar facilities between sessions of the General Assembly, the agency, department or institution must submit a request for such expenditure to the Chief Fiscal Officer of the State. The request must include a MOF Form. The request shall be reviewed for approval by the Chief Fiscal Officer of the State. Project requests $250,000 or less may be reviewed by the Governor. Project requests in excess of $250,000 require the Chief Fiscal Officer to submit the MOF to the Legislative Council for its review. Upon favorable review, the requesting agency, department or institution may proceed with the capital expenditure. (ACA §19-4-1407, ACA §22-9-103, ACA §22-9-104)
Upon certification of the availability of appropriations, if applicable, and funds, the DFA-OA approves the MOF. A copy of the approved MOF is returned to the originating agency. The agency making the request is responsible for providing its contracting parties with a copy of the MOF. (ACA §19-4-1403, ACA §19-4-1407, ACA §19-4-1409)
If the project’s estimated costs or funding sources change, a revised MOF must be submitted. Revisions to approved MOF shall be submitted in the same form and manner as that of the original MOF. (ACA §19-4-1407)
Processing of Payments
Payments to contractors may be made at the conclusion of the contracted work or may be in the form of progress payments. Progress payments are payment for a portion of work completed on public construction contracts in connection with estimates submitted by a prime contractor to the state agency, department or institution. Such estimates shall be reported by measurable units of the contract completion and compared to the actual progress of project completion. Prior to payment, the estimate must be approved by the architect, contractor or his representative.
When a contractor submits a properly prepared estimate of work completed on a construction project and such request for payment conforms to the provisions of the construction contract and laws of the State of Arkansas, the following allowable time for the processing of the estimate is permitted, excluding time required for transmittal to each party, for each of the respective parties involved:
- Architect or other design professional – Five (5) working days
- State agency or institution of higher education exempt from ABA review & approval – Five (5) working days
- Department of Finance and Administration — Five (5) working days
Each of the parties above is to make a notation on the request for payment completed to indicate the date and time of receipt as well as a notation to indicate the date and time of forwarding for further processing to aid in the investigation of delays in processing, if necessary.
In the event that a delay occurs during payment processing, the agency where the delay occurs is responsible for notifying the contractor that payment has been delayed and the related reasons. If the delay is attributable to one of the parties listed above, a penalty of 8% per annum of the amount of the request for payment shall be assessed against the parties responsible for the delay. The Chief Fiscal Officer of the State shall direct such payment rendered to the contractor. (ACA §19-4-1411)
Retainage on Public Construction Contracts
An invoice for payment must include the total amount of the estimated completed project to date less total previous payments. The contractor is entitled to 95% of the progress payment when due. The remaining 5% is held by the state agency to assure faithful performance of the contract. After the architect and/or engineer certify the construction project is 50% complete, no additional retainage will be withheld. Because the retainage is not applicable to those materials and/or equipment required by the construction contract to be stored on the job site or in a bonded warehouse, the invoice for payment must provide enough detail to identify the portion of the payment attributable to such materials and/or equipment from the balance of the invoice total. (ACA §22-9-604)
Upon completion of a contract, the originating agency will notify DFA-OA-Funds Group of the conclusion of the contract; no further expenditures or obligations will be incurred and all unexpended or unobligated funds will be blocked. Within thirty (30) days after the contract has been substantially completed, the portion of the progress payments withheld by the state agency for retainage shall be paid to the contractor. (ACA §22-9-601 et seq, ACA §19-4-1410)
PLEASE NOTE: Only the provisions of this regulation related to payment and retainage are applicable to projects of public institutions of higher education where funds from private sources exceed $5 million dollars and are sufficient to finance 80% of the estimated cost of such project. (ACA §19-4-1413)
Assets Under Construction should be recorded on each agency’s books of record. If the agency is using the State’s accounting system, expenditures for Assets Under Construction should be recorded using Work Breakdown Structure (WBS) Elements. All WBS Elements containing construction cost should be settled to an Assets Under Construction Asset Shell when the asset is complete or at the end of each fiscal year if the asset is not complete at the end of the fiscal year. For additional information on the use of WBS Elements see Appendix P2-19-4-524.
19-4-525. Special appropriations.
(a) All other appropriations made by the General Assembly which do not come under any of the classifications mentioned in this section shall be considered to be special appropriations and shall be used only for the specific purposes for which such appropriations are made. Except as otherwise provided by law, an agency receiving a special appropriation may not expend funds from any appropriation other than from the special appropriation for the special purpose covered by the special appropriation. However, the State’s financial management system may invoke additional budget control using features of the system that are in addition to the appropriations of the General Assembly. (b) In order to allow for full disclosure of investment transactions, to make available special reports on investment transactions, and to isolate investment expenditures from normal expenditures, the Chief Fiscal Officer of the State is authorized to establish separate appropriation codes for investments and to transfer to such appropriations from the investment line item as established in the agency appropriation acts.
History. Acts 1973, No. 876, § 12; 1977, No. 813, § 1; 1979, No. 833, §§ 1, 2; 1981, No. 741, § 1; 1981, No. 924, § 1; 1983, No. 628, § 1; 1985, No. 365, §§ 2, 3, 12; A.S.A. 1947, § 13-338; Acts 2001, No. 1453, § 13.
19-4-527. Authority of Treasurer of State to use certain funding for operations.
(a) The Treasurer of State is authorized to utilize the funding for maintenance and general operations provided for in the Constitutional Officers Fund and State Central Services Fund to allow for reconciling items which may occur in the operations of the office.
(b) Policies and procedures for proper accounting of reconciling items shall be developed by the Treasurer of State with the advice and approval of the Legislative Joint Auditing Committee.
History. Acts 1983, No. 702, §§ 1, 2; A.S.A. 1947, § 13-338.4.