CU*BASE Investments: Overview and Step-by-Step Procedures

Introduction

Like all CU*BASE subsidiary products, the Investments system is designed to maintain detailed investments data that can be summarized and easily balanced against the general ledger, balance sheets, and income statements. More importantly, CU*BASE Investment management features create a shared database of investment information that communicates to all investment staff, managers, and regulators/auditors for better investment management.

One of the most valuable functions that the system can provide is to monitor the expected income flow from investments versus the actual income received from the credit union's various investment firms. Were the interest and dividend checks correct? Were maturing funds sent back to the credit union on time? Although CU*BASE won't tell you what to buy and when to sell, it does give the investment manager the data needed to make informed decisions and validate investment activity against what is expected.

From the everyday investment servicing activities, to the monthly processing of investment income, to Board reports and the annual investment audit, CU*BASE Investments processing provides the tools required to manage your credit union's current investment position.

The CU*BASE Investment Life Cycle

The CU*BASE Investments system handles the accounting of an investment from the day it hits the balance sheet through the last year where income is accrued to the credit union's income statement.

Investment purchase and setting up a record in CU*BASE
Servicing the investment in CU*BASE throughout its life, including:
Regular balancing and reporting of income activity
Accounting for annual investment income for auditors and regulators
Removing the closed investment from the subsidiary system

A Quick Look at Key System Features

The Investment Vendor Database: Identifying the Players

In addition to data about the investments themselves, an important part of the credit union's investment database is complete information about all of the outside vendors that are involved in each investment transaction. The CU*BASE Investment Vendors database is used to record key contact information and instructions for working with your credit union’s brokers, safekeeping agents, issuing institutions, and other vendors involved in the investing process. When you need to talk to a key player about an investment decision, the click of a button displays everything you need to know quickly.

Understanding Subsidiary Processing

Subsidiary processing provides the ability to track the detailed accounting life of investments separately from the general ledger history. Subsidiary processing gives two distinct benefits:

First, the system can also track and maintain a detailed history of “non-accounting” issues such as the broker and safekeeping agents, project yields and credit ratings, call dates, FASB category, etc.
Second, subsidiary items can be grouped so they can be tracked using a limited set of general ledger account numbers. This summary of the detail is much more concise and effective as an analytical tool, showing trends and the gross effect of similar subsidiary items (such as all US Government instruments or certificates) versus the independent detail.

$images\investledgerexample_shg.gif$

Subsidiary processing is one more example of centralized data that can be shared throughout several credit union departments for inquiry and control. Management should understand that these programs are for the management of key credit union investments, not only the accounting of their associated income.

Why Use a Subsidiary Clearing Account?

The responsibility of processing and maintaining investment subsidiary data is generally best left to a single person or department. However, throughout the month, investment activity such as purchases, sales, and incoming principal and income checks may need to be handled by other credit union personnel who do not need direct access to the investment database. Amounts from these transactions can be debited and credited through a specially-designated investment clearing account, to be handled later by the investments team.

For example:

ABC Credit Union receives a check for a maturing investment that includes $100,000 principal and $64,000 in accrued income. It is important that the $164,000 be immediately credited to the credit union’s account at Corporate Central. The accounting clerk can simply take the check to the teller line and have the teller run the check through Miscellaneous Receipt processing with her daily deposit, using an M/R code that debits the bank and credits the investment clearing account.

Later that month, the investment manager would “clean up” the investment clearing account with a debit to the clearing account and a corresponding closing entry to the maturing investment.

Each investment entry can be run through the clearing account until the clearing account is zero and the investment manager is sure that each investment entry for the month has been entered into the subsidiary system and the correct GL account.

Monthly Investment Processing: Sequence of Events

Following is a summary of the normal sequence of events that take place each month to manage investment subsidiary processing:

Perform monthly creation and servicing of investment records - Tool #993 INV 1: Work With CU Investments

Throughout the month, add investment items, perform needed maintenance to investment data, and make debit/credit adjustments to account for miscellaneous investment activity. As described above, an investment subsidiary clearing account should be used to funnel incoming activity such as purchases, sales, principal and income payments, etc., until the account is zero. Income accrual dates are monitored carefully before the monthly accrual work file is created and posted.
- NOTE: Opening, Closing and Adjustment entries generated in the subsidiary system will also generate a corresponding entry for the General Ledger. See Step 5.
Calculate and create the monthly investment income accrual work file -Tool #316 INV 2: Create/Work Income Accr Work File

This takes a “snapshot” of the investment subsidiary ledgers and calculates the income accrual and discount/premium accretion amounts for each item. The amounts in the work file can be modified for individual investments before posting, if needed.
Print a copy of the work file report - Tool #651 INV3: Print Invest. Income Accrual Work File

This shows each investments accrual and accretion amount that was calculated for the work file, for verification prior to posting.
- NOTE: If desired, this step can be bypassed when the work file is being created and the system can automatically proceed to the posting stage.
Post the monthly accruals to the subsidiary ledgers - Tool #316 INV 2: Create/Work Income Accr Work File

This enters the monthly accrual and accretion amounts into the subsidiary ledgers, updates the Last Accrued Date on the investment records, and generates journal entries which will later be posted to the G/L.
Post the journal entries to the G/L - Tool #61 Create/Post Journal Entries (Shortcut glpost)

This takes the journal entries created in Step 1 and Step 4 and posts them into the General Ledger. SEE ALSO: Create/Post Journal Entries
Generate monthly reports (Tool #652 Print Investment Register, Tool #407 Investment Maturity Report, Tool #408 Investment Trial Balance Report and Tool #405 Investment Activity Report).

Generate investment activity and status reports for Board review.
Periodically evaluate and re-price investments to reflect market conditions -Tool #895 Update Investment Market Price

In this step, the investment manager compares the current book value to the market value of the current investment portfolio to reflect pricing based on today’s marketplace. Adjustments are made to prices and necessary reserves.

Annual Investment Activity

Purge closed investments - Tool #704 Purge Previous Year Closed Investments

After all income from a closed investment has been accounted for and reported, the system can be instructed to purge the closed item to keep the investment database up to date and clean.
Reset YTD Income for the current year - Tool #764 Reset YTD Investment Income Tracking

This step removes all previous year activity from the YTD income amount for each investment and resets it to reflect current year transactions only.