FACTS Financial Transaction Categories

FACTS Financial Transaction Categories

It is convenient to categorize Transactions in FACTS into three categories: Fund Level Transactions (deposits or withdrawals from the Pool), Intra Pool Transfers (transfers from one investment entity to another within a Pool), and Investment Returns / Fees.

Fund Level Transactions

Almost all Fund level Transactions originate as General Ledger Journal entries to the Pooled Asset account, which automatically create FACTS Transactions. The default Confirm Date for the Transactions is the same as the General Ledger Apply Date but can be changed. The default Document Number is the same as the Journal number associated with the General Ledger Journal entry. Refer to Recording and Confirming Fund Level Transactions for more information.

An item in transit can be moved out of the current Cycle by changing the Confirm Date (usually to the first day of the next Cycle). During Pool Allocation Processing, the dated Transactions buy or sell units in the Pool at the estimated daily unit cost, which affects the daily average units held by the Fund and the share of earnings it is allocated. Refer to Running Pool Allocation Processing for more information.

A FACTS Pool may have almost any number of Investment Accounts. General Ledger Journal entries made to the Pooled Asset Account contain no information about which investment entities are affected by the Transaction. Since an Investment Account must be identified for each Transaction, a default Deposit Account Code and Disbursement Account Code must be established for the Pool. Refer to Creating Pool Records for more information.

If the entire Pool is invested in one account or via a single manager (from which a consolidated statement is received), the default is the only Investment Account. If the Pool has multiple Investment Accounts, but one is the usual deposit and disbursement account, there is a natural default.

However, if your organization alternates deposits and disbursements among investment entities, you should set up a Dummy Investment Account record in FACTS and use that account as the default Deposit and Disbursement account. All Transactions from General Ledger will be assigned to the Dummy account. You then have two options for confirming the Transactions:

• Confirm the Transactions from all Investment Account statements against the Transaction list for the Dummy account. Then enter the total of all these Transactions to the Pool (sign reversed) on the Reconcile tab for the Dummy account The Disbursement line is usually used for this purpose. As each of the actual Investment Accounts is reconciled, the portion of the Transactions that actually affected each account is entered on its Disbursement line. Refer to Reconciling Investment Accounts for more information.

NOTE: The value entered on the Disbursement line can also reflect intra Pool transfers between Investment Accounts

NOTE: The values you enter on the Disbursement line across all the Investment Accounts should net to zero. This means that FACTS will have nothing to allocate from the line. This has an important implication for error checking – if the line is not mapped to a General Ledger account, and the entries on the line do not net to zero as they should, the FACTS Allocations Edit Report will return an error (Missing G/L Account) when it tries to distribute the net difference among participating Funds. Refer to Running the FACTS Allocations Edit Report for more information.

• Manually re-code the Transactions so they will be listed and confirmed under the correct Investment Account. Refer to Editing Transactions and Viewing Journal History for more information. Changes to the Investment Account field are permissible because they do not affect the Fund balances in FACTS.
• Change the default Deposit or Disbursement account before posting the Journal entries in General Ledger. This causes the newly posted Transactions to flow to the correct Investment Account. You can use this option in conjunction with manually re-coding the Transactions to facilitate recording the Transactions to the appropriate Investment Account.

Tip: Allocated Disbursements from the Pool

A relatively infrequent source of Fund level Transactions originates in FACTS and is posted to General Ledger. A value is entered on the Disbursement field on the Reconcile tab as a negative, and the disbursement line is mapped to an asset account other than the asset account for the Pool.

NOTE: If you use the Disbursement field for this purpose, do not use it for intra Pool transfers, for which an unused Fee field can be employed.

The value you enter will be allocated among participating Funds. When you post your allocations to General Ledger, the mapped asset account will be debited, and a corresponding credit will be made to the asset account for the Pool – the effect will be a Fund level disbursement from the Pool.

You can use this technique to move a sum from one Pool to another. Most General Ledger Journal entries created during the FACTS post have Journal Key code of FA. When you post the General Ledger Journal, entries to the Pooled asset account that are marked FA do not create FACTS Transactions, which keeps them from being recycled back into the FACTS process.

NOTE: The entries created from the Disbursements line are given the Journal Key code of FD, so if the disbursement goes to another Pool’s asset account, it will create a Transaction in that Pool.

NOTE: Some organizations make regular disbursements from one Pool to another and leave the Disbursements line mapped to the other Pool. If you do this, you must fully process the Pool that is transferring the assets before you can start processing the Pool receiving the assets. The posted General Ledger Journal entries from the first Pool are required to reconcile the second Pool.

Intra Pool Transfers

If the Pool has a multiple Investment Accounts, you may periodically need to move dollars from one of these accounts to another. Such Transactions are intra Pool and inter investment Account. For example, if one investment entity is a Money Market account that is also the default Deposit / Disbursement account, and Gifts have outpaced Grants over a period of time, you should buy securities with the excess dollars. From the perspective of the Pool, or from the Fund perspective, there is no change in market value, but the Transaction must be recorded between Investment Accounts. There are two methods of doing this, which correspond to the methods for tracking which Investment Account is affected by Fund Level Transactions.

• Inter account transfers can be entered as a total amount to a consistent field on the Reconcile tab (for example, the Disbursement field). If there are numerous transfers, you may wish to keep a schedule of them on a spreadsheet (one sheet for each Investment Account). There should always be a pair of entries (a positive to one account and a negative to another). The total at the end of the Cycle for each account is the amount entered on the Reconcile tab. If you are also using this amount to enter the total of Fund level Transactions to the Investment Account, these sums must be netted. The inter account values should always net to zero across all Investment Accounts in the Pool.

You can use manually entered Transactions to record each transfer between Investment Accounts. If you make numerous transfers among your Investment Accounts and would like to track them in detail in FIMS, rather than using a spreadsheet, you can add a pair of Transactions for each transfer (a negative one for the disbursing account and a positive for the receiving account).

NOTE: This method is necessary if the transferring Transactions do not clear both investment statements during the Cycle. You must confirm one side of the Transaction and move the other side to the following Cycle. To help avoid this situation, you should not make intra Investment Account transfers during the last few days of the Cycle.

Keep the following in mind if you use this method:

• Clear the Prevent Manual Transactions checkbox on the Pool tab.

IMPORTANT: This increases your responsibility for ensuring that FACTS stays in balance with General Ledger. You should never add a Transaction for a participant Fund or change the total amount for a Fund-level Transaction from General Ledger. Make sure that you re-select the checkbox as soon as you are finished creating the entries. Please contact FIMS Support for more information before you clear this checkbox.

• Make sure all Transactions are assigned to a Fund ID (even though they are essentially Fund neutral). The best way to achieve this is to create a Dummy Fund in the Fund Management module. Do not create any General Ledger Accounts for the transfer Fund. Refer to Creating a Fund Record in the Fund Management module for more information. If you do not want to use a Dummy Fund, you can also assign the Transactions to a General Endowment Fund, the Operating Fund, or the largest Fund participating in the Pool.
• When you add a pair of Transactions on the Transaction tab, you should always enter or select the FACTS Transfer Fund’s Fund ID for both Transactions. The easiest way to enter the Transactions is to create the first (positive) one and then click the Copy button on the toolbar to immediately create the second one. Change the sign of second Transaction to negative.

NOTE: If the Transactions you enter this way do not net to zero, Pool Allocation Processing will allocate earnings to the Fund. If you do not notice it on the Unitization report, the FACTS Allocations Edit Report will return an error (Missing G/L Account) when it tries to book the allocations back to General Ledger. Refer to Running the FACTS Allocations Edit Report for more information.

Make sure all of the Transactions are numbered. The next available General Ledger Journal number will be used by default. However, you could also devise and follow a numbering scheme (Doc. No.) for manually added Transactions so they will not conflict with the Transactions created automatically from General Ledger.

NOTE: The Doc. No. must be unique in each Cycle.

Earnings and Fees

Statements from investment entities normally include Realized Gains / Losses, Interest Income, Dividends, and Custodial or Management Fees. Unrealized Gains / Losses frequently must be inferred from the statement. Other values might have to be totaled from the Transactional detail.

These values are entered into the Reconcile tab for the appropriate Investment Account. When you run Pool Allocation Processing, these entries are totaled by category (for example, Interest Income) across all Investment Accounts, and allocated to Fund balance records for the Cycle. When you run the FACTS Allocation Edit Report and post the allocations, each allocated value is booked to the General Ledger account that you mapped for that value. Refer to Running Pool Allocation Processing and Running the FACTS Allocation Edit Report for more information.

Sometimes Investment Fees are paid by check, rather than deducted from the account balance. If all fees are borne by a single Fund, this works well. The fee is ignored in FACTS, and a check is cut from Accounts Payable. If the fee is paid proportionally by all participating Funds, however, this practice causes considerable complications. It is not feasible to write a check that is funded proportionally by all Pool participants (setting aside the math involved, you would have to enter a separate Voucher line item for each participating Fund).

If you pay the check from the Operating Fund, you will then need to reimburse it. You could use Allocation and Entries to distribute the payment among the Pooled Funds. Refer to Running Allocation and Entries in the General Ledger module for more information.

NOTE: You should generally try to arrange to have the fee deducted, so it can be allocated along with the earnings.