Fiscal Year-End Close

Fiscal Year-End Close

The fiscal year-end close process is required to prepare the general ledger accounts for financial statement presentation and for the start of the next accounting process.  The closing process consists of steps to transfer income statement accounts to balance sheet accounts.  Since income statement accounts record current year activity, they must be zeroed out or closed in preparation of the next accounting period.  This process begins after June 30, UCSF’s fiscal year-end close date.  The process continues until the financial statement audit and various reporting to the Office of the President are complete. At the end of the fiscal close, the income statement accounts are closed into net position for the beginning of the next accounting period.

Department Responsibilities

Departments prepare for fiscal year-end close by reviewing their financial transactions to ensure that revenues and expenses are recorded in the proper period. This includes recording accruals for revenues earned but not received or expenses incurred but not yet paid.  Refer to the Financial Calendar for year-end deadlines, which may differ from normal monthly deadlines.  The Controller's Office hosts Year-End Close Presentations each year to help departments understand the year-end close activities, timelines, and expectations.  Department managers, financial administrators, financial analysts, post-award research services analysts, and anyone else involved in the year-end close process should plan to attend one of these presentations, watch the live broadcast, or the recorded presentation (see resource links below). 

Fiscal Close Certification

Who Must Certify

Campus senior management (Vice Chancellors, Vice Provosts, and Deans) are required to complete a Fiscal Close Certification Letter annually.

Each year the University of California prepares financial statements which represent the financial position of the institution. The campuses and the Office of the President provide important financial information for incorporation into the University's financial statements and annual financial report. In addition to providing information to a variety of users for economic decisions, the statements fulfill an important responsibility of the University to the citizens of California as a State institution.

In common with many other institutes of higher education and other nonprofit entities, the University has adopted best practices relating to documenting management representations assuring the accuracy of its financial statements. As part of the fiscal closing process, the Chancellor, Executive Vice Chancellor and Provost, Senior Vice Chancellor Financial and Administrative Services, Vice Chancellor - Finance, and Controller sign a Campus Management Representation Letter that is provided to the external auditors. This letter certifies that the campus information which is incorporated into the financial statements and report is a fair representation conforming to generally accepted accounting principles.

The decentralized nature of the University of California, San Francisco necessitates that the Chancellor, EVCP, Sr. VC Financial and Administrative Services, VC - Finance, and Controller obtain written confirmations from Deans and other campus senior management regarding their financial responsibilities for the campus information which is incorporated into the annual financial statements. This is accomplished through the Fiscal Close Certification Letter.

The Campus Management Representation Letters and supporting certifications are then used to provide assurance for the assertions made in the overall University of California Management Representation Letter signed by the President, Senior Vice President, Vice President – Financial Management and Assistant Vice President – Financial Management.

Campus Process

  • August - Fiscal Close Certification Letters are sent via e-mail by the Controller to senior management.
  • September - Fiscal Close Certification Letters (hard copy with signature) are due from senior management to the Controller's Office.

    Send to:
    Shannon Turner
    Controller's Office
    1855 Folsom Street, Suite 425
    Box 0815

  • September - Management Representation Letter signed by Chancellor, EVCP, Sr. VC Financial and Administrative Services, VC - Finance, and Controller.
  • September - Certification letters forwarded to the external auditors.

Text of Fiscal Close Certification Letter

The following Fiscal Close Certification Letter is used across all campuses.

To Campus Controller:

The following representations are being provided to you in connection with the University of California, (name of campus) fiscal-year-end close process and audit of the consolidated financial statements of the University of California, as of June 30, 20XX.

Except as otherwise disclosed in writing to (Campus Controller), I acknowledge my responsibility for the following representations as they relate to (School/College/Administrative Unit):

  1. I am responsible for the application of University policies and procedures to ensure efficient and effective use of resources and to prevent and detect fraud in the operation of (School/College/Administrative Unit).
     
  2. I am responsible for establishing and maintaining an effective system of internal controls for business practices and systems developed and used in (School/College/Administrative Unit). I am also responsible for ensuring appropriate use of control systems that are developed and maintained elsewhere but that apply to (School/College/Administrative Unit).

In addition, except as otherwise disclosed in writing to (Campus Controller), I confirm to the best of my knowledge and belief, the following representations as they relate to (School/College/Administrative Unit):

  1. There are no material transactions, accounts or agreements, including the accrual of liabilities, that have not been properly recorded in the campus accounting records.

    In general, items are considered material, regardless of size, if they involve an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement.
     
  2. Communications from regulatory agencies, donors, or other entities concerning noncompliance with laws, regulations, applicable guidelines, directives or with an appropriate standard of care have been disclosed in writing to (Campus Controller).
     
  3. All known allegations of fraud or suspected fraud, particularly with regard to management or staff with internal control responsibilities, have been disclosed to the appropriate campus official or workgroup.
     
  4. (School/College/Administrative Unit) manages its funds in compliance with laws, regulations, provisions of contract and grant agreements, and donor restrictions that apply to these funds.

Sincerely,

(Vice Chancellor, Vice Provost, Dean)

(Date)

FAQs

  • What does the term "to the best of my knowledge and belief" mean in terms of the scope and level of detail of information that a dean could reasonably be expected to possess when signing his/her certification? The use of the term, "to the best of my knowledge and belief," recognizes it is impossible for any person to legitimately provide absolute assurances or guarantees. Individuals can only make assertions on what they know or have knowledge of, not to what they don't know. This terminology is intended to provide a reasonable and rational framework for providing the required fiscal closing certifications to the Campus Controller, Vice Chancellor – Finance, Senior Vice Chancellor Financial and Administrative Services, Executive Vice Chancellor and Provost, and Chancellor. Administrators manage their departments in many different ways and can have varying tolerances for levels of detail and day-to-day involvement. This terminology is designed to respect those differences without attempting to change the manner in which different administrators may carry out their responsibilities, or to require a level of managerial involvement that is inconsistent with their typical managerial style.It is certainly appropriate for administrators to acknowledge the general administrative responsibilities that come with the positions they hold as they relate to financial management. They can also affirm they aren't aware of inappropriately recorded or unrecorded transactions, communications from regulatory agencies regarding noncompliance, fraud that hasn't been reported to the appropriate authorities, funds that are being used in a noncompliant manner, etc. However, if a dean or department head is aware of any situations in these particular areas that the Campus Controller should be aware of, he/she has a responsibility to let the Controller know as soon as possible. The Controller can then evaluate that information within the context of his/her responsibilities for accurate financial reporting and the management representations he/she must make to the external auditors.
  • What is the materiality threshold for the deans? The University's policy must be that all transactions are required to be properly recorded. The policy isn't that "most are properly recorded", or the "large transactions are properly recorded." All are expected to be properly recorded and, "to the best of their knowledge and belief," deans and department heads should ensure that all transactions are recorded properly, incorporating any specific guidance received from the Campus Controller. To answer the question directly, there is no bright line "materiality threshold" for deans or department heads as it may relate to the activities discussed in the fiscal closing certification letter. In a decentralized environment, judgment decisions related to what is, or is not, material must not be made at a department level. Judgment decisions with respect to individual transactions may seem to be immaterial, but in the aggregate may become material. In general, however, items are considered material, regardless of size, if they involve an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement. The Campus Controller may communicate certain materiality thresholds for various transactions in conjunction with fiscal closing instructions. The dean or department head must comply with this guidance. Notwithstanding the above, in a practical sense, given the millions of transactions in the year, it is recognized that it is not possible for every transaction to be recorded properly. So the certification doesn't imply that the dean or department head is providing absolute assurance that all transactions in their area, regardless of dollar amount, are properly recorded. They are only asserting that "to the best of their knowledge and belief," they aren't aware of any transaction that isn't properly recorded, regardless of the dollar amount, or if they are aware of a transaction that isn't properly recorded, they have disclosed it to the Campus Controller for evaluation. We are not asking for information on items such as expense reports that relate to business conducted in June, yet are completed and processed in July. We are, however, asking whether significant revenue has not been recorded, such as grant or auxiliary enterprise revenue, large donations, etc. or whether large expenses that were incurred in the current fiscal year were mistakenly processed and recorded in the next fiscal year. There is also no bright line "materiality threshold" with respect to instances of communications from regulatory agencies regarding noncompliance, fraud that hasn't been reported to the appropriate authorities, funds that are being used in a noncompliant manner, etc. The Campus Controller (and Campus Counsel or the Office of the General Counsel) must be made aware of any such circumstances so they can then evaluate that information within the context of their responsibilities for accurate financial reporting and the management representations they must make to the external auditors.
  • Is there a working definition for determining what is required to be accrued or deferred? Expenses are reported to the extent they are incurred during the year, regardless of when they are invoiced or paid. An entry is made in the accounting records to reflect the cost of the goods or services that were incurred during the year but the cost has not yet been paid. This process of recording expenses incurred that have not yet been paid is known as accruing expenses. In some cases, expenses need to be paid in advance of incurring the services or receiving the goods. In these cases an entry is made in the accounting records to defer the expense; this is known as a deferral of expense. Similarly, income is reported to the extent it is earned, regardless of when the cash is received. This also may require accrual or deferral of income.The Campus Controller provides guidance through fiscal closing instructions to departments specifying the procedures to be followed on each campus to ensure transactions are reported on an accrual basis as of June 30.
  • Must disclosure always be made in writing to the Campus Controller, or can it be made to the dean's own financial officer, campus legal counsel or others? Disclosures must be made in writing to the Campus Controller. The Campus Controller must be able to evaluate any exceptions that are brought to his/her attention in conjunction with the fiscal closing certification letter process. This is a form of due diligence the Controller performs to evaluate the integrity of the fiscal closing process, the accuracy of the reported financial information contained in the general ledger, and the adequacy of disclosures associated with the preparation of the University's financial statements. This due diligence must be performed to support the assertions contained in the overall campus Management Representation Letter signed by the Chancellor, Executive Vice Chancellor and Provost, Senior Vice Chancellor Financial and Administrative Services, Vice Chancellor - Finance, and Controller and provided to the external auditors.
  • How do deans treat their knowledge of central control weakness in their certifications if the deans have received a presentation disclosing central internal control weaknesses and plans for addressing them? The deans and department heads are providing assertions to the Campus Controller solely related to the business practices and systems developed and used in their specific school/college/administrative unit, not to central processes. Responsibility with respect to control systems developed and maintained elsewhere, such as campus-wide systems, extend only to ensuring that the systems are used appropriately. However, if the deans or department heads feel compelled to sign the fiscal closing certification letter, subject to the identified control weaknesses in campus-wide systems (such as accounts payable, for example) that have been discussed with them in a campus presentation, that would be reasonable. The Campus Controller will evaluate that exception in their consideration of the assertions they make in the campus Management Representation Letter.
  • What is a dean's personal and professional exposure if he/she signs the certification letter and then the PriceWaterhouseCoopers (PwC) audit team turns up a control deficiency in his/her school? Assertions can only be made "to the best of their knowledge and belief." In addition, the dean and department head fiscal closing certification letter is addressed to the Campus Controller, not PwC (the University's external auditors). We believe that there is no personal or professional exposure on the part of a dean or department head so long as the certification letter is signed with a good faith belief that the information provided is accurate. In the private sector, company executives have been held only to a standard of exposure where their representations were knowingly and intentionally untrue, or were reckless (reckless means beyond simple or even inexcusable neglect – an extreme departure from the standard of ordinary care). Cases holding company executives liable almost always involve intentional fraud or other deliberate illegal conduct. The fiscal closing certification letter is intended to provide only reasonable assurance to the Campus Controller that transactions have been properly recorded and the appropriate disclosures have been made, subject to any exceptions noted by the dean or department head. Absolute assurance by the dean or department head is not attainable, nor is it being requested in any covert or overt fashion. The dean or department head is not insuring anything, other than his or her good faith belief in the matters covered by the letter. The signed fiscal closing certification letter does not constitute a guarantee. If there are exceptions noted, it is the responsibility of the Campus Controller to evaluate the nature of the exception in order to judgmentally determine the overall effect on the integrity of the fiscal closing process, the accuracy of the reported financial information contained in the general ledger or the adequacy of disclosures associated with the preparation of the University's financial statements.
  • Is there a standard of due diligence that deans should meet to sign the letter? At this point, such a standard has not been set because this practice is new. Case law in the private sector suggests that responsible individuals need only check matters that are easily verifiable and investigate matters within their actual knowledge. We suggest that you discuss this issue with the Campus Controller. A best practice for individuals who sign the letter is to meet regularly with their staff directly responsible for day-to-day operation of financial and accounting systems to discuss items outlined in the Fiscal Close Certification Letter:
    1. The department has applied University policies and procedures to ensure efficient and effective use of resources and to prevent and detect fraud.
    2. The department maintains an effective system of internal controls for business practices and systems used in the department whether developed by the department or elsewhere.
    3. That all material transactions, accounts or agreements, including the accrual of liabilities, have been properly recorded in the campus accounting records.
    4. Communications from regulatory agencies, donors, or other entities concerning noncompliance with laws, regulations, applicable guidelines, directives or with an appropriate standard of care have been disclosed in writing to the Campus Controller.
    5.  All known allegations of fraud or suspected fraud have been disclosed to the appropriate campus official or workgroup.
    6. The department manages its funds in compliance with laws, regulations, provisions of contract and grant agreements, and donor restructions that apply to these funds.
  • What happens if a dean refuses to sign his/her certification letter or signs it with certain qualifications? These are two distinctly different circumstances and the ramifications are very different. Signs with exceptions or qualifications If a dean or department head signs the fiscal closing certification letter, subject to certain specific exceptions or qualifications, it is the responsibility of the Campus Controller to evaluate the nature of the exception in order to determine the overall effect on the integrity of the fiscal closing process, the accuracy of the reported financial information contained in the general ledger or the adequacy of disclosures associated with the preparation of the University's financial statements. After a discussion with the dean or department head to ensure proper understanding of the exception, the evaluation may result in a conclusion that no additional audit work is required. On the other hand, the exception may result in a decision to expand the scope of audit work performed in a particular area. The additional procedures may be undertaken by department staff, controller's staff, internal audit staff or the external auditor. Refusal to sign If a dean or department head refuses to sign the fiscal closing certification letter, the Campus Controller must evaluate this lack of response and presume the underlying rationale is indicative of systemic exception in the specific school/college/ administrative department or unit. After a discussion with the dean or department head, the evaluation may result in a conclusion that no additional audit work is required. On the other hand, the conclusion may be to expand the scope of audit work performed in a particular area. The additional procedures may be undertaken by department staff, controller's staff, internal audit staff or the external auditor. The lack of a response should be brought to the Chancellor's attention. The "tone at the top" set by campus management is obviously extremely important in terms of exhibiting the appropriate leadership in the areas of responsibility and accountability. See University of California Statement of Ethical Values and Standards of Ethical Conduct.
  • How can a dean certify if he/she was appointed mid-year and was not responsible for the entire fiscal year? Certifications cover an entire fiscal year (from July 1 to June 30). In addition, any events that occur between the end of the fiscal year (June 30) through the signing of the certification letter in August that relate to fiscal year being certified should be disclosed. Hence, deans and department heads will certify and have disclosed exceptions for a 15-month period for each fiscal year. Regardless of the effective date of their appointment, a dean or senior manager should certify for the period in question to the best of "my knowledge and belief" based on their discussion with their staff, former dean, other administrators, and their current awareness of situations that require disclosure. For example: in an August meeting, a new dean hired on July 1st becomes aware of a litigation settlement that relates to an event that occurred in the college in December of the fiscal year in question (i.e., prior to the arrival of the new dean.) The new dean should disclose this event in the current certification process for the prior fiscal year, even though the dean was not in his/her current position when the event occurred.

Contact Nick Freyaldenhoven if you have any questions about Fiscal Close Certification.