Financial Process Narrative

Prerequisites

Prior to reading the standard on Financial Process Narrative, it is beneficial to review the below sections to gain foundational information:

  1. Internal Controls Standard
  2. Internal Controls Policy (FIN-ACC-470)

Preface

This standard defines what a financial process narrative is and how they are used by both internal Indiana University constituents and external parties affiliated with Indiana University. Information presented below outlines a general understanding of financial process narratives and requirements for when financial process narratives are needed.

Introduction

Per IU Policy, Internal Controls (FIN-ACC-470), “All units are responsible for ensuring internal controls exist for all critical operations or activities. Financial controls must adhere to the internal control procedures outlined in the IU Accounting Standards, including required documentation for existing and new financial activities.

Those charged with campus and unit-level fiscal oversight are responsible for the following:

  • Ensuring a structure of internal controls is established, documented and functioning to achieve university and unit-level mission(s) and objectives.
  • Implementing a structure of internal controls and proper segregation of duties to avoid mismanagement, fraud, theft or personal use of system resources/assets.
  • Ensuring staff are appropriately credentialed for their financial roles.* Ensuring staff are well-versed in university financial policies and IU Accounting Standards.
  • Adhering to and implementing procedures set forth in the IU Accounting Standards.

All documented financial internal control procedures are subject to review upon request by the Office of the University Controller, Internal Audit, and any external auditors/agencies.

All employees are responsible for safeguarding university financial resources and assets to ensure they are used only for authorized purposes. All employees are also responsible for reporting fraudulent activities or misconduct according to IU Fraud (FIN-ACC-35) and Fiscal Misconduct (FIN-ACC-30) policies.”

Importance and Impact of Financial Process Narrative

Financial process narratives are an essential part of the internal controls review process. They help to identify potential control weaknesses and gaps, clarify responsibilities and document expectations. Compiling a financial process narrative can also help improve efficiency and productivity by outlining the process in detail.

Financial Process Narrative Discussed in Detail

Overview of Financial Process Narrative Process

  • Departments will determine if the below criteria are met.
  • If criteria are met, the department will reach out to UCO Internal Control Manager to start a process narrative.
  • A kickoff meeting will be held if needed with the responsible department and UCO employees.
  • The department will then draft a first version of the financial process narrative using the Financial Process Narrative Outline and Financial Process Narrative Template and send to UCO for review and comments. This review process is iterative and may involve several versions.
  • Once the financial process narrative is complete and all review comments are resolved, the Internal Control Manger will review the financial process narrative and complete a control matrix to identify potential control weaknesses.
  • When financial process narratives are considered complete a distribution email with the final financial process narrative and control matrix will be sent to the department, department’s respective Campus Controller, and University Controller.
  • Financial process narratives are required to be reviewed by the department and updated on an annual basis for audit purposes or as changes to processes occur.

Department Process Narrative Flowchart

Requirements and Best Practices

Requirements

  1. Departments must complete an Internal Control financial process narrative and submit to UCO for the following:
    • Significant Routine Financial Processes
      • Major processes with over $10 million in annual activity or transactions.
    • Payment or billing processes that deviates from enterprise-wide processes.
      • All payments should be processed through BUY.IU and all billings should be processed through the KFS AR module.
      • Any deviations require prior UCO approval and a process narrative.
    • Significant Financial Subsidiary Systems
      • In advance of technical development or software acquisition, any non-enterprise-wide system that is expected to feed into the general ledger or serves as source documentation for transactions requires a process narrative and prior approval by UCO.
      • Examples include but are not limited to the following:
        • API Feeds
        • System Integrations
        • Significant enterprise level workflow, system access management, and/or functional changes
        • Subsidiary systems that serve as source documentation for GL transactions
      • For additional information on API’s and Integrations please see API’s and Integrations and to request a new API or Integration please utilize the API and Integration Request Form
    • Significant Automated Processes Affecting Financial Compliance or Controls
      • Any significant automated process which may affect financial compliance or controls should be documented in a process narrative.
      • Examples include:
        • Robotic Process Automation (commonly referred to as software robots or bots) within subsidiary systems.
        • Data collection and management tools which may house documentation supporting general ledger activity, tax compliance, and/or other financial compliance.
    • Tangible Cash and Payment Card Handling Processes
      • Any process involving tangible cash or cash equivalents requires a financial process narrative.
      • Examples include but are not limited to the following:
        • Cash tender/petty cash
        • Gift Cards
        • Research participant/human subject payments
        • Custodial Funds
        • Purchasing Card (P-Card), Meeting Card (MC) and Ghost Card (GC)
  2. Departments are required to review and update financial process narratives on an annual basis for audit purposes, as changes to processes occur, and prior to the annual sub-certification process.

Best Practices

  1. Departments should document and retain any financial processes over $1 million and review with their respective Campus Controller.
  2. As a general control, departments should maintain instructional documentation for all fiscal processes.