FINANCIAL PROCEDURE 11
ACCOUNTING
This Procedure forms part of the Financial Regulations and Procedures in the Constitution of
Lincolnshire County Council.
CONTENTS - In relation to both revenue and capital expenditure and income
1.
2.
3.
4.
5.
6.
7.
8.
Reference Documents
Contacts for Advice
Purpose of the Procedure
Statement of Accounts
Closure of Accounts (including accruals of income & expenditure)
Accounting Policies
Accounting Concepts
Accounting Records and Returns (including records management & retention of
records)
Journal Transfers
Internal Recharges
Holding and Suspense Accounts
SAP Goods Receipt / Invoice Receipt (GR / IR) Account
Balance Sheet Reviews
Maintaining accuracy and reliability
Accounting Codes
Prime Account Schools
9.
10.
11.
12.
13.
14.
15.
16.
1.
REFERENCE DOCUMENTS
Reference to the following documents may be required. The majority of these can be either
found on George or LCC Connects:











Lincolnshire County Council’s Constitution
Financial Regulations
Statement of Accounts
Code of Practice on Local Authority Accounting in the United Kingdom
Closure of Accounts Guidance
LCC/Mouchel Protocols
Individual Directorate Schemes of Authorisation
Budget Holder Handbook
SAP Business Process Procedures
Records Management Policy – retention and disposal
Scheme for Financing Schools
SAP forms & Guidance Notes
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September 2010
2.
CONTACTS FOR ADVICE
Advice on this financial procedure can be sought from:

Treasury & Financial Strategy Team and/or
Mouchel Accountancy Services Teams
For respective roles and contact details for advice, please go to the following link on
George:http://george/section.asp?catId=16578
3.
PURPOSE OF THE PROCEDURE
A local authority is required, by statute, to publish statements of accounts which shall give a
true and fair view of the financial position, financial performance and cash flows of the
Council.
The statement of accounts must be prepared on the basis of proper practices.
Proper accounting practices, which ensure that statement of accounts meet the true and fair
view requirement, are set out in the Code of Practice on Local Authority Accounting in the
United Kingdom Based on International Financial Reporting Standards which has been
developed/published by the CIPFA/LASAAC. This Code is the first to be based on
International Financial Reporting Standards (IFRS) commencing 1 April 2010. The Code is
based on Approved accounting standards issued by the International Accounting Standards
Board.
This Financial Procedure on Accounting will:
Provide guidance on principles of best accounting practice.

Inform officers of mandatory requirements, including those embodied in the County
Council’s Constitution (including Financial Regulations).
Mandatory elements of the Financial Procedure are printed in bold type.
The Executive Director (Resources & Community Safety) has statutory duties in relation to
the financial administration and stewardship of the Council which cannot be overridden.
These statutory duties include setting and monitoring compliance with corporate standards
and advising on the key financial controls necessary to secure sound financial management.
Other parts of this procedure represent best practice and provide guidance. There should be
a convincing justification for any departures from this guidance.
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September 2010
4.
STATEMENT OF ACCOUNTS
Purpose
To give electors, those subject to locally levied taxes and charges, members of the authority,
employees and other interested parties, clear information about the authority’s finances. It
should answer such questions as:
What did the authority’s services cost in the year of accounts?

Where did the money come from?

What were the authority’s assets and liabilities at the year end?
The Council’s Responsibilities
The Full County Council is required to:

Make arrangements for the proper administration of its financial affairs and to
secure that one of its officers has the responsibility for the administration of
those affairs. In this Council, that officer is the Executive Director-Resources &
Community Safety.

Manage its affairs to secure economic, efficient and effective use of resources
and safeguard assets.

Approve the Statement of Accounts.
The Executive Director-Resources & Community Safety Responsibilities
The Executive Director-Resources & Community Safety is responsible for the
preparation of the Council’s Statement of Accounts in accordance with proper
practices as set out in:
Code of Practice on Local Authority Accounting in the United Kingdom – Based
on International Financial Reporting Standards (IFRS)- (the Code): – 2010/11
accounts and onwards
In preparing the Statement of Accounts, the Executive Director-Resources &
Community Safety is required to:
Select suitable accounting policies and then apply them consistently

Make judgements and estimates that are reasonable and prudent

Comply with the local authority Code
The Executive Director-Resources & Community Safety is also required to:
keep proper accounting records which are up to date
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September 2010

take reasonable steps to secure the prevention and detection of fraud and other
irregularities

sign and date the Statement of Accounts, stating that it gives a true and fair
view of the financial position of the Council at 31 March and of its expenditure
and income for the year ended 31 March.

draw up the timetable for final accounts preparation and to advise staff and external
auditors accordingly – see Closure of Accounts
Approving and publishing the Statement of Accounts
The accounts must be approved by 30 June and published by 30 September:
The Audit Committee scrutinises the Statement of Accounts in June.

Full Council must approve the statutory annual statement of accounts by 30
June.

The Audited Statement of Accounts must be published by 30 September.
Budget Holders/Directorates must:
Comply with accounting guidance provided and

Supply information for the Statement of Accounts when required
5.
CLOSURE OF ACCOUNTS
The Executive Director-Resources & Community Safety sets/agrees the Closure of Accounts
process/timetable.
Mouchel Accountancy Services will then issue annually to budget holders and staff, the
Closure of Accounts:




letter
timetable
guidance notes on procedures and timescales
detailed “Closedown Guidance”
Service specific guidance will also be circulated as appropriate
Closure of Accounts guidance can also be found in the Financial Information area on
George. Please click the following link:http://george/section.asp?catId=20716
Budget Holders will ensure that:
year end closure of accounts procedures are followed and that the timescales
are complied with
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September 2010

actual expenditure and income is test checked to ensure that it is charged to
the correct accounts and is lawful

actual expenditure and income is charged to the financial year in which the
goods and services were received/delivered
ACCRUALS OF INCOME AND EXPENDITURE
Income and expenditure needs to be accrued in the accounts in accordance with the
matching concept described in this procedure.
Goods and services received or provided during a financial year should be taken into
account in that financial year even if the money has been spent or received in a different
financial year.
No adjustments to the accounts are required for the majority of financial transactions since
the expenditure or income recorded in the year is attributable to the same year.
Adjustments are required where:

Goods or services have been received in the year but expenditure is not recorded in
that year’s accounts e.g. because invoices have not been settled
Expenditure or income is recorded in the accounts but goods or services were not
received in that year e.g. prepayments
There are 4 types of accruals:



Manual Creditor
Payment in Advance
Manual Debtor
Receipts in Advance
These forms are issued electronically by Mouchel Accountancy Services and should be
completed/returned electronically.
Automatic SAP accruals
SAP ensures that most creditors and debtors will be raised automatically.
The creation of the goods received document for payments and the creation of the billing
document for income, automatically creates the accrual.
The payment of the invoice or receipt of the income cancels the accrual.
Every effort must be made to use SAP correctly at the year end in order to set up automatic
creditors and debtors in the system. This will mean the need for any manual accruals will be
considerably reduced. Therefore, it is essential that Closedown Guidance is followed.
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September 2010
Minimum levels for each accrual entry
For the 4 types of accruals detailed above, the materiality limit for each entry (i.e. each
invoice) is £1,000. The minimum level for accruals on capital is £5,000. It is not necessary to
make accruals in the accounts where these are less than the amounts quoted.
Manual Accruals review/authorisation
All manual accruals, both revenue and capital, for amounts of £50,000 and above, will be
reviewed by the relevant Heads of Finance/Financial Advisor.
Estimated Adjustments
It may be necessary to estimate a manual accrual. A proforma “Estimated Adjustments”
must be used to record the basis of the estimates used and attached to the accrual form.
Manual Creditor
Items where the work has been completed, or substantially so, by 31 March but the invoice is
or will be coded to the new financial year. This does not include items where orders have
been placed but no work done by 31 March.
It is expected that manual creditors will only be used where framework orders have been
used to order goods or services. In all other cases, a purchase order should be raised on
SAP.
The completion of a manual creditor form enables an adjustment to be made to a charge in
the new financial year. The effect of the form is to adjust the accounts to ensure that the
expenditure appears in the old financial year. This is done by crediting the new financial year
and debiting the old financial year with the amount of the invoice.
When the invoice is eventually received, it should be coded to the expenditure code listed on
the manual creditor form and paid as normal.
Manual Creditors should not be raised if goods or services have not been received by 31
March.
Payment in Advance
Items where the payment has been coded to the old financial year but where the goods or
services are received after 31 March.
Payments in Advance should only be made in exceptional circumstances, for example where
a discount is given for paying in advance.
SAP is unable to identify where invoices have been paid in advance of the goods or services
being received or provided. It is therefore very important that such items of expenditure are
identified by budget holders and entered onto a Payments in Advance form.
Where an invoice has already been paid in the old financial year, but relates to goods or
services to be delivered after 31 March, a Payments in Advance form must be completed
(subject to minimum amounts shown above).
Page 6 of 24
September 2010
The effect of the form is to adjust the accounts to ensure that the payment appears in the
new financial year. This is done by crediting the old year and debiting the new financial year
with the amount of the invoice. When completing the form the purchase order number must
be recorded on the form.
Manual Debtor
Items where goods or services have been provided before 31 March but the coding of the
income has gone, or will go, to the new financial year.
Manual Debtor forms are used to record income expected for goods or services supplied
before or on 31 March but for which a debtor account was not raised until after the year end
deadline, or for cash received from events held before the end of the old financial year, which
was not entered on SAP until after the year end deadline and not banked until after 31
March.
The effect of the form is to adjust the accounts to ensure the income appears in the old
financial year. This is done by crediting the old financial year and debiting the new financial
year with the amount of income.
Receipt in Advance
Items where the income has been coded to the old financial year but where goods are
received after 31 March.
SAP is unable to identify where income has been received which relates to the following
financial year. It is therefore very important that such items of income are identified by
budget holders/operators and entered onto a Receipts in Advance form.
Where income has already been received in the old financial year, but is in respect of goods
or services to be provided after 31st March, a Receipts in Advance form must be completed
(subject to the minimum amount shown above).
The effect of this is to adjust the accounts to ensure that the income appears in the new
financial year. This is done by debiting the old financial year and crediting the new financial
year with the amount of income received. When completing the form the billing document
reference must be recorded on the form.
6.
ACCOUNTING POLICIES
Accounting policies are the specific principles, bases, conventions, rules and practices
applied by the Council in preparing and presenting its Statement of Accounts. These
accounting policies are set out in the statement of accounts.
The Executive Director-Resources & Community Safety is responsible for:

selecting suitable accounting policies and
ensuring that these are applied consistently.
Accounting policies will comply fully with the International Financial Reporting
Standards and statutory regulations as set out in the Code of Practice on Local
Page 7 of 24
September 2010
Authority Accounting in the UK. The annual statement of accounts will give a true and
fair view of the financial position and transactions of the Council in the opinion of its
external auditor.
Budget Holders should:
7.
adhere to the accounting policies and guidelines approved by the Executive
Director-Resources & Community Safety. Budget holders can ensure they do
this by following the requirements and guidance in this financial procedure.
ACCOUNTING CONCEPTS
Statements of accounts must be prepared in accordance with basic accounting concepts and
accounting policies which are described in the Code of Practice on Local Authority
Accounting.
The basic accounting concepts are:Prudence
Sometimes there is uncertainty either about the existence of assets, liabilities, income and
expenditure, or about the amount at which they are measured. Such uncertainty is a normal
part of the accounting process.
Prudence is the inclusion of a degree of caution in the exercise of judgements required in
making accounting policies and estimates in recognising and measuring those assets,
liabilities, income and expenditure.
Going Concern
An authority’s financial statements shall be prepared on a going concern basis; that is, the
accounts should be prepared on the assumption that the functions of the authority will
continue in operational existence for the foreseeable future.
Matching (accrual basis)
Income and expenditure should be matched to the services provided in the same accounting
period. This requires compliance with the concept of accruals for revenue and capital
income and expenditure.
The accruals basis of accounting requires the non-cash effects of transactions to be reflected
in the financial statements for the accounting period in which those effects are experienced
and not in the period in which any cash is received or paid.
Materiality
The relevance of information contained in the financial statements is affected by its nature
and materiality. Omissions or misstatements of items are material if they could, individually
or collectively, influence the decisions or assessments of users made on the basis of the
financial statements.
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September 2010
Materiality depends on the nature or size of the omission or misstatement judged in the
surrounding circumstances. The nature or size of the item, or a combination of both, could
be a determining factor.
Substance over form
The financial statements must be prepared in accordance with their substance and economic
reality and not merely their legal form. This is normally relevant only to more complex
transactions, often involving the acquisition of assets by unconventional means.
In determining the substance of a transaction, it is necessary to identify all of the
transaction’s aspects and implications. A group or series of transactions that achieves or is
designed to achieve an overall economic effect should be viewed as a whole.
Consistency and Comparability
In considering the accounting policies to be adopted and their disclosure, authorities should
have regard to the importance of consistency and comparability. Nevertheless, consistency
is not an end in itself and therefore does not impede the introduction of improved accounting
practices.
Application of the terms of the Code and of the Best Value Accounting Code of Practice
where relevant, will ensure adequate disclosure and consistency, and thus comparability.
8.
ACCOUNTING RECORDS AND RETURNS
Maintaining proper accounting records is one of the ways in which an authority discharges its
responsibility for stewardship of public resources.
The Executive Director-Resources & Community Safety is responsible for:
Determining the accounting procedures and records for the authority

Arranging the compilation of all accounts and accounting records

Ensuring the proper retention of financial documents in accordance with the
requirements set out in the authority’s document retention schedule
Strong financial controls will be maintained with the Assistant Director – Finance &
Asset Management responsible for determining or agreeing all financial process,
systems and financial records used by the Council.
Budget Holders/Directorates must:
consult and obtain approval of the Executive Director-Resources & Community
Safety before making any changes to accounting records and procedures

maintain adequate records to provide a management trail leading from the
source of income/expenditure through to the statement of accounts
Page 9 of 24
September 2010

supply information required to enable to statement of accounts to be completed
in accordance with the closure of accounts guidelines issued
ACCOUNTING RETURNS
Mouchel Accountancy prepare the following accounting returns (subject to statutory
deadlines):Department for Communities and Local Government (DCLG) accounting returns:-.

General Fund Revenue Outturn (RO) Return. An annual return which reports the
Councils actual total expenditure at year end. A suite of returns/forms including:o
o
o
o
o
o

Grants (RG)
Service Analysis Return (SAR)
Revenue Summary (RS).
TSR
RO1-RO6 – identifying each service
RSX
General Fund Revenue Account Budget (RA) Return. An annual return which reports
the Councils estimated total expenditure for the following financial year and also
includes:o Specific and Special Revenue Grants (SG) Return
o Business Improvement District (BID) Return.

Whole of Government Accounts (WGA) Return. An annual return which provides
Central Government with information allowing them to produce a set of consolidated
financial accounts for the entire UK public sector on commercial accounting principles
(accruals based accounts). Central Government will consolidate the accounts of
about 1300 bodies from within the central government, health service, local
government and public corporation sectors. The accounts are audited by the National
Audit Office.

Local Government Quarterly Accrued Revenue Expenditure. A quarterly return which
reports actual expenditure for the year to date, plus projected expenditure for the
remainder of the year, for the Council’s Services.

Capital Forecast Return. An annual return giving summarised information on the
planned capital programme and funding for the coming year.

Capital Estimates Return. An annual return giving information on the planned capital
expenditure & funding for each Council Service over the next three years.

Capital Outturn Return. An annual return giving information on the actual capital
expenditure & funding for each Council Service in the previous year.

Capital Payments and Receipts Returns. A quarterly return giving summarised
information on the actual capital expenditure to date. In quarter 4 each year, the
Page 10 of 24
September 2010

Wages and Salaries, Interest Receipts and Payments Returns. Quarterly.
Other Accounting Returns

Section 251 Schools. This is produced twice a year, once on budget information and
once on actual information. The returns are intended to provide a clear picture of the
authority’s planned spending and actual spending on:o the LEA budget outside the Schools Budget and other children’s social care
o centrally retained budgets within the Schools Budget for schools services and
o budget shares for each school in the authority

Standards Fund Monitoring Return. This is an annual return which reports actual
expenditure over a 17 month period for specific Standards Funds allocations.

Adult Social Care Self Assessment Survey. This is an annual return collecting finance
and performance data for The Care Quality Commission (CQC) enabling them to
evidence about how a council is improving outcomes for people who use services and
support.

PSS-EX – this is an annual return collected jointly by The NHS Information Centre for
health & social care and CIPFA. It collects actual spend and performance data on
Adult Personal Social Services and uses the information to calculate unit costs.

IRMP – Fin2 – Fire pay, pensions and capital. From 2010/11, the additional detail
analysis which included pensionable/non pensionable pay, payments to Fire-Fighter
Pensioners and capital is not now a separate return. The information that was not
already provided on other statutory returns (CO, RO, RA etc) has been incorporated
into the Fire CIPFA statistics.
The above returns are signed off by the Council – signatories are detailed in Schemes of
Authorisation.

CIPFA returns
Mouchel Accountancy also collate actual and estimated statistical information for
inclusion in CIPFA’s Statistical Information Service publications:o
o
o
o
o
o
o
o
o
o
Culture, Sport & Recreation
Leisure
Local Authority Balance Sheet
Fire & Rescue
County Farms
Libraries
Archives
Highways & Transportation
Planning & Development
Waste Disposal
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September 2010
RECORDS MANAGEMENT AND RETENTION OF RECORDS
Records Management is all about "Good housekeeping" with the records and data we all
have. Records come in all formats; paper, email, maps and plans, photographs and
electronic files. They all need active management so that we to do not keep too much for too
long. They also need security and safeguards, e.g. to help prevent loss of personal data.
Policies and procedures have been developed to help with the process of managing the
records more effectively.
For further information regarding the Council’s Record Management Policy, please click the
George link below:http://www.lincolnshire.gov.uk/section.asp?sectiontype=fileattachment&catid=18929&docid=
64529
Retention and Disposal Schedules
Within the Records Management area on George, there are the:
retention and disposal schedules for each Directorate as well as the

standard categories and other guidance common to all Directorates e.g. invoice
retention etc
Please click on the George link below to access information regarding retention and disposal
of documents information.
http://www.lincolnshire.gov.uk/section.asp?catid=18929&docid=64535
Should further information be required regarding records management/retention and disposal
of records, you can email:[email protected]
9.
JOURNAL TRANSFERS
Journal transfers are used to transfer ACTUAL income or expenditure between accounting
codes. This may be necessary for a number of reasons, for example:
to correct errors/miscodings in the accounts

to clear suspense and holding accounts (as described below)

to effect the accounting entries necessary to close the accounts

and occasionally, to make prime entries in the accounts e.g. Prime Account Schools
Journals must NOT:
be used to effect charges for services provided to other establishments, divisions or
Directorates – these should be done through internal recharging
Page 12 of 24
September 2010

be confused with virements. A virement is the movement of budget from one budget
heading to another, whereas journals relate to the movement of actual expenditure
and income.

be used to move expenditure onto codes where there is a spare budget!
Journal requests
Budget Holders should request Mouchel Accountancy to process any necessary
journals.
Mouchel Accountancy are responsible for actioning journal requests within one
month of being notified.
There are rare exceptions within the Council where certain users in Directorates (primarily
Finance and Asset Management) have the ability to action journals themselves. These rare
exceptions must be agreed by the Council and Mouchel Accountancy.
Journal requests can be made via:

the journal request form (see below)
in writing e.g. email
However, any journal request should, as a minimum, provide the following
information:




Company Code
Transfer from – Debit/credit value, cost/profit centre/gl code/WBS element
Transfer to – Debit/credit value, cost/profit centre/gl code/WBS element
Meaningful description
Reason for requesting the journal
Consideration should also be given to providing sufficient narrative in order to:



Identify clearly the purpose of the journal
Trace the journal between accounting codes
Identify the originator of the journal
Specify location of supporting documentation
Journal request forms are available in the SAP Forms Index on George. Please click the
following link to access the journal request form:http://george/upload/private/attachments/626/LCCGL002V23RequestforJournalTransfer.doc
Journals in excess of £100k

Mouchel Accountancy are responsible for authorising journals where they are
less than £100k.
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September 2010

Mouchel Accountancy must seek authorisation from Heads of Finance/Financial
Advisors for journals in excess of £100k.
Journal Validity
Mouchel Accountancy will notify appropriate Heads of Finance/Financial Advisors
where there is any doubt as to the validity of the journal requested. The Head of
Finance/Financial Advisor will determine the correct accounting treatment in these
exceptional cases.
10. INTERNAL RECHARGES
Internal recharges (previously known as IDTs – Interdepartmental Transfers) are used where
services are provided (by the “seller”) at a charge to internal users (the “buyer”) in other
establishments, divisions or Directorates.
Internal recharges provide the basis for notifying internal purchasers of charges for services
and the basis for actioning the related accounting entries.
Internal recharging should be used for all internal charges for services – and only for that
purpose – except where charges are made to schools with their own bank accounts.
Important – Internal recharging is not normal practice and should not be considered unless
there is a clear case for it. In most cases, it should be achieved by the transferring of
budgets. Internal recharging can create unnecessary work and confusion which can be
avoided.
Internal Charging principles/procedures:
The budget holder (buyer) should be aware that, if a service is provided, a charge will
be made by the seller.

The budget holder (buyer) should have the option not to receive the service.

The budget holder (buyer) should be given advance notice (28 days is regarded as
reasonable) of the amount of the charge, together with such supporting information as
the budget holder may reasonably require. The notification should include a reference
which will appear subsequently as a journal narrative and date of issue.

The budget holder (buyer) must provide a valid SAP code for the charge.

The budget holder (buyer) should have the opportunity to challenge a charge during
this 28 day period before it is processed in the accounts.

The internal recharge will be processed 28 days after the issue date.

A charge will be made if a service has been provided e.g. insufficient budget is not a
valid reason for non-payment.

Appropriate authorisation and documentation arrangements need to be maintained as
already described above in relation to journal transfers.
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September 2010

General Ledger/cost elements codes for internal recharging all begin with a ‘9’.
Internal Recharge Requests
Currently there is no Internal Recharge Request form on SAP. Internal Recharge requests
are currently actioned from a proforma in the form of a memorandum.
Internal Recharge Authorisation
Budget holder raising the charge (seller) and budget holder (buyer) accepting the charge.
11. HOLDING & SUSPENSE ACCOUNTS
Holding Accounts
An account in which the expenditure/income of an activity are collected temporarily prior to
their reallocation or apportionment across a number of accounts.
Suspense Accounts
An account which is used primarily for income items (but can be used for expenditure) that
cannot immediately be allocated because of inadequate information.
Principles of using Holding and Suspense Accounts
Approving the account
Creation of Holding and Suspense accounts must be approved by either the:


Head of Treasury and Financial Strategy or
Heads of Finance or
Financial Advisors
Naming the account
The account name should clearly state in its title that it is a “................Holding Account” or
“................Suspense Account”.
File maintenance
A file should be maintained for each account which should contain:


clear guidance on the operation of the account
basis on which expenditure/income is reallocated
working papers supporting the associated journal transfers
Clearing the account


accounts will be cleared by journal transfers
the account should be reviewed and cleared on a regular basis:Page 15 of 24
September 2010

o Holding Accounts - at least quarterly
o Suspense Accounts – within one month of initial posting and preferably
prior to the production of monthly monitoring reports
the account should be cleared to a NIL balance at year end
Responsibility for clearing the account
Mouchel Accountancy are responsible for clearing holding and suspense accounts in liaison
with directorates.
12. SAP GOODS RECEIPT / INVOICE RECEIPT (GR / IR) ACCOUNT
The Goods Receipt / Invoice Receipt (GR / IR) Account records the transactions of:

Goods receipting and
Invoice receipting (i.e. payment of the corresponding invoice)
It is a key control account whereby the review and reconciliation of this account ensures:

the integrity of the data in the SAP purchasing module
orders and invoices are matched and cleared correctly
If the value of the invoice differs to that of the order, a balancing entry is automatically
generated with the GR / IR account.
Quantity differences between goods receipt and invoice receipt for a purchase order will
result in a balance on the GR / IR account if the:

Quantity invoiced is larger than the quantity received, SAP then expects further goods
receipts for the purchase order to clear the balance.
Quantity received is larger than the quantity invoiced, the system then expects further
invoices for this purchase order to clear the balance
SAP GR / IR Monitoring
ZF62 - Running SAP report ZF62 will identify quantity imbalances between a purchase order
and the goods receipt.
ME2K/ME2L – Running SAP reports ME2K (works on profit centre ranges) or ME2L will
identify:

Goods/services not yet goods receipted on SAP and
Purchase orders no longer valid and requiring deletion – this is important as
outstanding purchase orders or part orders will automatically be carried forward into
the next financial year as commitments
Budget operators should ensure that these reports are run and reviewed on a monthly basis.
At year end, it is particularly important that SAP licence holders review their GR/IR reports to
ensure that:-
Page 16 of 24
September 2010

the goods receipt is entered into the correct financial year as this creates the
accounting accrual in the GR/IR account.
The invoice is not important for year end and can be paid whenever it comes through.
Further information can be found in the Closure of Accounts Guidance.
GR / IR Monitoring undertaken by Mouchel Accountancy
Mouchel Accountancy (Central Team) will run GR / IR reports for each Accountancy Team
showing details of GR / IR imbalances greater than:
6 weeks old. The relevant Accountancy Team will then contact the SAP transaction
originator with regards to clearance.

6 months old. The relevant Accountancy Team will contact the relevant Head of
Finance/Financial Advisor
13. BALANCE SHEET REVIEWS
In order to assist with the year end closure of accounts process and not leaving tasks until
year end, balance sheet codes will be reviewed quarterly by those who are responsible for
balance sheet codes.
Each quarter, Mouchel Accountancy Services will provide a balance sheet download from
SAP requesting the responsible officer to:

validate/agree (sign off) the opening and closing balances on balance sheet codes
and
identify issues and arrange to make corrections where necessary.
14. MAINTAINING ACCURACY AND RELIABILITY
Accurately maintained and reliable accounts are essential as the basis of:







Financial information to inform the Council’s policy decisions
Financial control and accountability
Financial management
Councillor scrutiny of the Council’s financial affairs
External reporting of the Council’s financial affairs including the Council’s published
Statement of Accounts, freedom of information requests and providing information to
council tax payers and electors
Statutory accounts and returns
Grant claims
Tax returns, including VAT claims
Accuracy in accounting is promoted in a number of ways:-
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September 2010

Firstly, the entry of data into the accounts is restricted. Data can only be accepted in
the accounting system after authorisation by an officer approved to certify the
transaction. The data must be entered by the use of an accounting code and the
source and date of the entry are recorded.

Data entered into the accounts is reconciled to input records. The accounts are also
reconciled continuously to the Council’s bank accounts

The means of making changes to the accounts (journal transfers) are controlled

The accounts are monitored throughout the year and balanced at year end.
These arrangements should prevent widespread errors arising. However, in view of the
large number of transactions entered in the accounts and the number of certifying officers, it
is inevitable that some errors will arise such as:
The accounting code on which data is entered into the accounts is invalid. Valid
accounting codes are specified and recognised in SAP. Valid accounting codes are
listed in code books which should be updated at least manually and distributed widely.

Other types of error are more difficult to detect. For example, the use of valid but
incorrect accounting codes, or the failure to make the accounting entries necessary to
comply with the Council’s accounting policies.
o Mouchel Accountancy Services undertakes checks to validate the general
accuracy of the accounts.
o Budget holders should also check the accuracy of the accounts on a regular
basis, for example to ensure that the expenditure charged to their budgets is
appropriate and accurate.
15. ACCOUNTING CODES
Importance of Accounting Codes
The details of Lincolnshire County Council’s financial transactions are recorded within the
authority’s general ledger. The general ledger for Lincolnshire County Council is held
on SAP. The general ledger must be maintained as a proper record of the County
Council’s income and expenditure. The general ledger is the prime financial record of the
County Council.
This record of the accounts needs to satisfy both the external and internal information
requirements of the Council. Externally, the accounts must be produced for publication,
statutory requirements and External Audit. Internally the records are the provider of financial
management information, allowing income and expenditure to be recorded against the
correct budget head, performance to be monitored and decisions to be made about services.
The accounts also provide information for other purposes, for example as the basis for grant
claims and ensuring that VAT is accounted for correctly.
They are also used for the preparation of statistical returns and for answering ‘Freedom of
Information’ requests.
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September 2010
Every financial transaction is allocated an accounting code. These codes are structured to
meet the above requirement.
What is SAP?
SAP stands for Systems Application Products in Data Processing. It is not only the
software’s name but also the name of the company who develops the software.
SAP (the company) is the largest business application vendor in the world.
SAP (the software) is best described as an integrated suite of financial systems. SAP is
made up of integrated sub-systems also known as modules. SAP is integrated which means
that the modules talk to each other. The modules cover areas like Payments (Accounts
Payable), Income (Sales & Distribution) and Payroll. The results of the entries in these
modules link together into the general ledger so that they can be reported on. It is a real
time system which means that the system is updated as soon as the user clicks on the
‘enter’ or ‘save’ key.
SAP enables Lincolnshire County Council to maintain a coding structure to ensure the
accounts are produced in the various formats needed for both external and internal
requirements.
What is a Company Code?
This is the highest level of coding and identifies the organisation. As well as holding financial
information for Lincolnshire County Council, SAP also holds information relating to other
specified entities. A Company Code, consisting of 4 digits, represents a legal or logical
entity. There are 5 company codes used at present:1000
2000
5000
6000
7000
Lincolnshire County Council
Lincolnshire Pension Fund
External Payroll Companies (MOUCHEL)
External Payroll Companies (LCC)
Trust Funds (LCC)
A Company Code is also known as a Controlling Area in certain parts of SAP.
Objective / Subjective Split
Financial data can be looked at in two different ways, the objective and the subjective.
The objective view provides a split over the functional areas within the accounts (e.g.
between the different services).
The subjective view is used for the detailed expenditure analysis (e.g. between different
types of expenditure such as employee expenditure or supplies and services expenditure).
This is structured in accordance with the Chartered Institute of Public Finance and
Accountancy (CIPFA) guidelines so that expenditure can be identified across the Directorate
or Council as a whole (e.g. total expenditure on electricity) and allows Local Authorities to be
compared.
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September 2010
In SAP, Cost Centres, Profit Centres, WBS elements and Internal Orders provide the
objective view, with the General Ledger or Cost Element codes providing the subjective view.
What is a Cost Centre?
A Cost Centre is used to identify a particular area of responsibility, or a particular
establishment or site for which expenditure can be posted to and analysed. Because only
expenditure is posted to a Cost Centre, reporting on Cost Centres will not show any income
records.
What is a Profit Centre?
A Profit Centre is used to identify a particular area of responsibility or a particular
establishment or site for which income can be posted to and analysed. Every Profit Centre
will also have a Cost Centre linked to it. Therefore reporting on a Profit Centre enables
income and expenditure to be viewed within the same report. Usually the actual code set up
will be the same for the Profit Centre and Cost Centre.
What are Internal Orders?
An Internal Order is used to further breakdown a Cost or Profit Centre. An Internal Order is
set up linked to a Cost/Profit Centre. Therefore all postings to an Internal Order will
automatically post against the relevant Cost/Profit Centre. They are used to provide a
breakdown of expenditure/income for a specific project or event.
What is a GL Code?
A GL code is a 7 digit code which provides a breakdown of the type of expenditure / income
incurred.
The first digit of the GL code signifies the following:1
2
3
4
5
6
7
8
9
0
Assets (Fixed and Current)
Liabilities (Long Term and Current)
Reserves
Income
Payroll (HR System generated)
Expenditure (Non Payroll)
Unused
Unused
Recharges
Unused
Balance
Sheet
Accounts
Revenue
Accounts
It is the Revenue Account GL codes beginning with a 4 (income), 5 (payroll), 6 (expenditure)
and 9 (recharges) which provide the breakdown of expenditure and income coded to a Profit
Centre and a Cost Centre.
Digits 2 and 3 of these GL codes provide a further split as follows:00-09
10
11
Unused
Other Revenue
Employee Related Expenditure
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September 2010
12
13
14
15
16
17
18
19
20-98
Premises Related Expenditure
Transport Related Expenditure
Supplies and Services
Agency and Contracted Services
Transfer Payments
Central, Departmental and Technical Support
Capital Expenditure & Financing Costs
Income
Unused
All capital expenditure codes start with 6185***
All capital income codes start with 4195***
What is a Cost Element?
A Cost Element is basically another term for a GL code. SAP has a number of different
modules. e.g. FI (Financial) and CO (Controlling). In FI module this 7 digit code is called a
GL code, where as in the CO module it is called a Cost Element. The GL codes for
recharges (beginning with a 9) are also known as Secondary Cost Elements.
GL codes and Cost Elements are sometimes also referred to as Accounts in Reporting.
What are Hierarchies?
All codes are set up in various hierarchies on SAP. Every Budget Holder will have a Profit
Centre Group. This group is useful for reporting on the overall picture of a particular Budget
Holder’s area. By reporting on this group every individual Profit Centre a particular Budget
Holder has responsibility for will be included. It is easier to run one report that includes all
your Profit Centre codes as opposed to running lots of individual reports. Hierarchies can
also be used for internal orders. To display a hierarchy the following transactions can be
used:
KCH3
KSH3
KOH3
Display Profit Centre Hierarchy
Display Cost Centre Group
Display Internal Order Group
What is a Cost Element Group?
A Cost Element Group can be used to view a group of General Ledger (GL) codes for a
particular Cost/Profit Centre or Profit Centre Group.
It is useful for reporting on particular types of expenditure. For example, group 1100 will
show all staffing expenditure, group 1200 will show all premises expenditure, etc.
One useful Cost Element Group code is ‘110’ this will exclude Non Target codes. The code
should be entered in the ‘Revenue and Cost Element’ box when entering report parameters.
Non Target codes are codes where expenditure is charged to your profit centre but where
the budget is managed by another committee. It therefore has no effect on your budget and
shouldn’t be included in your reports.
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September 2010
To display a cost element hierarchy the following transaction can be used:
KAH3 – Display Cost Element Group
What is a Project code?
A project code is used to identify a particular area of responsibility or an individual project to
which income and expenditure can be posted and analysed. Project codes are primarily
used for capital projects.
What is a Work Breakdown Structure (WBS element)?
A WBS element is a sub division of a project code which used to identify the type of
expenditure incurred. (e.g. land, fees, contract payments). This is the code that must be
used for purchase orders. WBS elements are primarily used for capital projects.
What is a Capital Block? And What is a Capital Category?
All capital projects are set up in various hierarchies (blocks and categories) on SAP.


A Block can represent a service line or subdivision of a service line.
A Category is a further subdivision of a capital Block. These hierarchies are useful for
budget management and reporting.
Control of Accounting Codes

Mouchel Accountancy Services are responsible for:o maintaining the Council’s accounting codes on SAP ensuring compliance with
CIPFA subjective analysis requirements
o controlling/maintaining the standard subjective gl code list to secure
consistency of subjective coding across the Council and to facilitate inter
authority comparisons
o providing and maintaining up to date code books for areas of expenditure and
providing these to budget holders and staff.
o reviewing the activity on codes (in liaison with Council staff) thereby ensuring
that “redundant” codes are made inactive on SAP
o controlling Balance Sheet codes

Any proposal to change the structure/chart of accounts must be approved by
the Head of Treasury and Financial Strategy

Creating, amending and deleting SAP codes (profit/cost centres, internal orders
and balance sheet codes) should be authorised by:o Heads of Finance or
o Financial Advisors or
o Assistant Heads of Finance/Assistant Financial Advisors
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September 2010
SAP code request forms are available on George for:
Create/amend/delete cost centre and profit centre (click link)
http://george/upload/private/attachments/625/LCCCO001V22CreateAmendDeleteCostandPr
ofitCentre.doc

Create/amend/delete/ internal orders or internal order groups
http://george/upload/private/attachments/625/LCCCO002V23CreateAmendDeleteInternalOrd
erorGroup.doc

Guidance notes for completing the above forms can be found at:-
http://george/section.asp?catId=5635
16. PRIME ACCOUNT SCHOOLS
Prime account schools are schools which operate their accounts separately from the main
body of the Council’s accounts. They will have separate bank accounts and they are
required to be separately and independently audited.
The Code of Practice on Local Authority Accounting requires that the Local Authority include
in its published accounts expenditure incurred by those schools maintained by it.
Consequently the income and expenditure incurred by these schools will need to be
consolidated with the accounting records of the Local Authority.
In addition to this, the Local Authority is required under the School Standards and
Framework Act 1998, to monitor school expenditure and, therefore, needs a reporting /
monitoring framework for schools operating their own local accounting systems.
The accounting records maintained by these schools are, therefore, the prime accounting
records of the Local Authority and as such are the records that may be inspected by the
Local Authority’s auditors, Inland Revenue and other agencies.
Prime Account Schools will also need to ensure accurate returns are prepared in accordance
with the requirements of the Consistent Financial Reporting Framework (CFR) which is
required under Consistent Financial Reporting (England) Regulations 2003
Detail of schools accounting and reporting requirements and arrangements are contained
within the County Council’s ‘Scheme for Financing Schools’. Key clauses which relate to
Prime Account Schools are set out below:
A school which maintains its own accounts is required to submit the following
financial statements to the Local Authority in order that the authority’s accounts
represent a true and fair position:
o Statement of Income and Expenditure (returned quarterly)
o School Bank Reconciliation Statement (returned quarterly)
o School Balance Sheet (returned once per year)
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September 2010
o School VAT Return (returned monthly)

All schools are required to submit Annual Declaration Statements and Annual
Notification of Audited Account Statements in relation to private funds,
including school funds.

Schools are required to comply with the accounting policies specified by the
Local Authority in preparing the returns described above.

Schools are required to maintain accounting records and supporting
documentation as specified by the Local Authority and to make all such
financial records available to officers of the Council, to the Council's external
auditors and to others with legitimate rights of access to information, for
example HM Revenue and Customs in relation to financial records related to
Value Added Tax. This will include access to financial records held by third
parties where necessary, for example payroll details held by a contractor
supplying payroll services to a school.
During the year, after the returns specified above are received, the prime account schools
control accounts are balanced to provide assurance that correct vendors are being used to
pay the monthly bank deposit and record the income and expenditure from the returns.
This regime needs to be effective in providing early warning of any serious problems and to
allow the Executive Director (Resources and Community Safety) to fulfil his statutory
responsibilities in relation to proper financial administration. All of the returns are analysed
critically and schools contacted promptly if explanations are needed or if the returns have not
been completed by the due dates.
At the end of the financial year the control accounts within the County Councils accounts
should be fully reconciled and any “inter company” transactions eliminated.
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September 2010