STATE OF CONNECTICUT
NANCY WYMAN COMPTROLLER	OFFICE OF THE STATE COMPTROLLER 55 ELM STREET HARTFORD, CONNECTICUT 06106-1775	MARK OJAKIAN DEPUTY COMPTROLLER

MEMORANDUM NO. 2010-05

January 25, 2010

TO THE HEADS OF ALL STATE AGENCIES

I. Authority: Article Four, Section 24, Connecticut State Constitution

II. Purpose: To redefine the account code for Interest Expense and add two new account codes to properly separate the charges currently recorded under Interest Expense.

The Interest Expense account code, 54730, is currently used for several different interest related expenditures. To properly account for the various charges and enable OSC to accurately report those charges, the current account code has been redefined and two new account codes have been established in Core-CT.

54730 - Interest on Late Payments - interest charges incurred because a payment was late. This type of interest is based on the amount owed to the vendor in addition to the period of time the amount was owed. It is based on a percentage of the amount owed and not a fixed-fee.

 

54731 - Finance Charges - interest charges incurred to finance the purchase or lease of goods or services. Payments of this type are typically made monthly or quarterly over a specified period of time to the vendor or a financial institution. The interest is not incurred because a payment was late.

 

54860 - Penalties/Late Fees - charges incurred on an outstanding balance because of a late payment. These are generally fixed fees, not based on the amount owed, but the date a payment was due versus the date it was received. Such fees include charges by a bank for a late payment of a credit card bill. A fixed-fee for a late payment may be billed by the vendor as well as interest for a late payment. The charges should be recorded separately.

As with all account coding, careful consideration should be applied in determining the proper account code to charge. Do not code an expenditure based solely on the vendor's description of the charge.

The account code for Interest on Late Payments differs from the new account code for Finance Charges. Although both charges are based on the amount owed, a period of time, and a percentage, charges recorded under Interest on Late Payments could have been avoided if the original payment was made timely. Alternatively, finance charges are known up-front as part of a purchase or lease agreement and should in fact be encumbered on the purchase order. Account Code 54730 shall be used only for charging the portion of interest paid on late payments to vendors in accordance with Connecticut General Statute 4a-71. Please refer to OSC Memorandum 2005-33 for specific instructions on calculating the interest due.

III. Questions:

Contact Mark Aronowitz, Director - Accounts Payable Division at 860-702-3399 or mark.aronowitz@po.state.ct.us

NANCY WYMAN
STATE COMPTROLLER

NW:MKA

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