Guidelines for managing encumbrances
This document is designed to give detailed instructions for managing encumbrances on a regular basis. There are five different types of encumbrances:
- Purchasing encumbrances (created when an e-requisition and/or Page 4
purchase order is reserved);
- PO adjustment encumbrances (created when a PO has Page 10
encumbrances remaining after it has been finally closed
[see manual encumbrances]);
- Invoice encumbrances (created when an invoice is received Page 11
and posted by Accounts Payable);
Finding Invoice Payments Page 16
Determining the Encumbrance Category Page 18
- Manual encumbrances (created by endusers either to hold funds Page 23
for a future expense; or to release funds previously set aside for
an expense that will not be realized)
- Compensation/Salary encumbrances (created by mass allocation Page 25
from information downloaded from job assignment screen in
payroll/personnel system). Details for compensation/salary
encumbrances are only available via salary management reports.
Why must encumbrances be managed?
1. All encumbrances must be relieved before a fund can be disabled.
2. Cancelling purchase orders does not always relieve encumbrances. DO NOT cancel all, nor any part of, purchase orders. When a supplier can not fill an order and after there has been communication to that extent between the supplier and the purchaser, ‘finally close’ the purchase order. [If a PO has not been submitted to a supplier and has a status of rejected or incomplete, it should simply be deleted.]
3. When items invoiced are not ‘matched’ to items ordered [by Accounts Payable staff as part of the invoice payment process], the encumbrances for the items ordered are not relieved when the invoice is paid. Therefore, it is possible to have invoices paid equal to the amount of a PO and have an encumbrance remaining. This diminishes funds available, which is a calculation of budget minus actuals minus encumbrances.
The criteria for ‘matching’ items invoiced to items ordered:
- Description of item invoiced is same as description of item ordered on PO; and
- Unit price of item invoiced is no more than 10% greater than unit price on PO or within $25 of the extended line amount on the PO; and
- Quantity invoiced is no more than 10% greater than quantity ordered on PO.
Here is a screen shot of the results of a properly executed PO that was receipted correctly and the invoice ‘matched’* correctly (from the View/control PO screen in the Shipments form in PO Manager):
* Matching of an invoice is a function performed by Accounts Payable and involves linking a line of an invoice to a line in a purchase order, resulting ultimately in the purchasing encumbrance being relieved. Invoices do not have to be ‘matched’ to be paid. Unmatched invoices result in encumbrances remaining on POs.
Identifying open encumbrances
On a monthly basis,
In BEN Financials:
· Run the 163.ORG Open Encumbrances BEN Financials report to obtain detail on all open purchasing, invoice and manual encumbrances for your entire range of responsible ORGs; and/or
· Run the 103.ORG BEN Financials report to obtained summary data on all open encumbrance balances by fund
and
in UMIS:
· Run the GRPA report from UMIS Salary Management to obtain detail on all salary expense and salary encumbrances.
~ or ~
In Business Objects:
· Run the ‘fundsummary’ Business Objects report to identify whether an individual fund has encumbrances; or
· Run the ‘Encumbrances(RESP_ORG) Business Objects report to obtain detail on open purchasing, invoice and manual encumbrances for your entire range of responsible ORGs; or
The ‘Encumbrances(RESP_ORG) and 163.ORG reports both identify purchase order numbers with remaining encumbrances. Start with those first.
Do you anticipate invoices will be submitted? A purchasing encumbrance will exist and the PO should remain opened until the last invoice payment has been made.
Does the PO have invoices on hold? Resolve the holds by entering receipts and/or applying the Approved stamp to the invoices, or apply a hold resolution sticky to cancel the invoice. The invoice encumbrance will be relieved after the payment is made or the invoice is cancelled.
Does the PO have invoice payments pending? Don’t finally close the PO until the check has been mailed. Instructions for finding invoice payments begin on page 16. After the check has been mailed, finally close the PO.
Has the PO been fully invoiced and paid? If so, finally closing the PO will relieve a purchase order encumbrance and prevent most future payments related to the PO and posted to the COA combination(s) used in the PO distribution. Be careful not to finally close a PO until all invoices have been paid.
Is the PO finally closed and have encumbrances remaining? It is necessary to determine whether it is a purchasing encumbrance or an invoice encumbrance so that the appropriate category of manual encumbrance journal entry is posted. Using the appropriate category journal is necessary to also eliminate the PO and encumbrance from the 163.ORG BEN Financials report. Determining the appropriate category and entering the corrective transaction(s) is accomplished in BEN Financials. Instructions for determining the encumbrance category begin on page 18.
a.) Purchase order encumbrances
1. Identifying purchase order encumbrances globally
To manage purchase order encumbrances globally rather than by fund group, from the PO Manager user responsibility of BEN Financials an Open Purchase Orders by Buyer report can be run. Initially, there may be many open purchase orders, so change your copies to 0 in the report submission screen. Once the report is completed, it can be downloaded to allow for sorting. From the View Requests screen, click the ‘View Output’ button. From the Tools drop down menu, select Copy File. This will open a new browser window, from which you will then be able to select Save As from the File drop down menu. Change the Save as Type to Text File in the preferred folder and file name. This file can then be opened from and changed to an Excel spreadsheet. The initial sort is alphabetical by supplier, then numerical by PO number.
Once any backlog of open POs is finally closed, ongoing maintenance will be more manageable.
2. Identifying purchase order encumbrances by fund
To manage purchase order encumbrances by fund, the Business Objects Encumbrances(RESP_ORG) and BEN Financials 163.ORG reports display purchase order numbers. Both reports display data in fund order.
Keep in mind when using these two reports, then, that you will see that part of an encumbrance relative to that fund. When a single purchase order is charged to multiple COA combinations, the report will display partial encumbrances in other funds as well.
Before finally closing a PO, ensure payments have been mailed (invoice payment will contain a check number and payment date) and no additional invoices will be submitted from the supplier. Once a PO is finally closed, no further invoices can be paid against that PO number. When an invoice arrives in Accounts Payable for a PO that is finally closed, it is returned to the supplier. If the items invoiced are to be paid, a new e-requisition/PO needs to be generated.
Determining the amount matched can be done by viewing each PO. It is this ‘matched’ amount for which purchasing encumbrances are relieved; the different may be an encumbrance that needs to be relieved. Log in to the PO Manager user responsibility and select View/Control PO. Enter the PO number and click [Find]. This will bring you to the Purchase Order Header form where you can see the total dollar amount of the purchase order and, scrolling to the right, the amount matched.
Another area that requires attention is the quantity receipted vs. the quantity ordered and quantity billed.
From the PO Header form, click the Tools drop down menu and select View Shipments. In the PO Shipments form, there are multiple views. Change the view to Quantity Detail by clicking on the Open Folder icon just above and to the left of the first line. Select Quantity Detail. In this screen, you will be able to view quantity ordered, quantity cancelled (don’t ever cancel!), quantity billed, and quantity received (for POs > $5,000).
If a PO is over-receipted, send an email to and include in the email the receipt number(s) and PO number requiring correction (one PO per request). AP will delete the incorrect receipt(s) after which a new receipt should be entered for the correct quantity.
Finally, you can view the active purchasing encumbrance amount remaining for each COA combination used in the PO in the PO Distributions form. Close the PO Shipments form. From the PO Header form, click the Tools drop down menu and select View Distributions. Here you will see the active encumbrance remaining for each COA combination used in the purchase order.
Do purchase order encumbrances remain and no further invoices will be submitted for payment? Finally close the PO. Do not ever select Cancel PO. Cancelling a PO does not always relieve encumbrance. Instead, select Finally Close. To do so, from the PO Header form, click the Tools drop down menu and select Control. Include a note detailing the reason the PO must be finally closed, e.g. ‘no more invoices anticipated, finally closed to relieve encumbrance, report to sponsor, and disable fund.’
· ‘No Control actions found for this document’? All or part of the PO was cancelled, or the PO is on hold, or the PO was already finally closed. A manual encumbrance journal entry is required to relieve this encumbrance.
· No actions are displayed in the Actions list? There is likely an invoice in process. Refer to Invoice Encumbrances on page 11.
· Finally Close is not one of the options? There could be an invoice in process, or the PO could be over-receipted, or the PO has already been finally closed. Refer to Invoice Encumbrances on page 11.
· If the PO has been finally closed, as evidenced in the Closure Status field or the Approval Status indicates ‘On hold’, a manual encumbrance journal entry is required to relieve this encumbrance.
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b.) PO Adjustment Encumbrances
Finally closed purchase orders for which a purchasing encumbrance remains require a PO adjustment manual encumbrance journal entry to relieve remaining encumbrances.
In Journal Entry- General Responsibility:
Select Journals > Encumbrance.
· In the Category field, select “Accounting” from the List of Values - do NOT select “09 Accounting”.
· In the Encumbrance Type field, select “PO Adjustment Encumbrance”.
· After entering the account information, the offsetting debit or credit, and a description, tab to the “Context” box. Select “PO Adjustment Encumbrance” from the list of values then enter the purchase order number. This new encumbrance type links the encumbrance entry to the associated purchase order.
· Reserve funds.
· Send an email to the Comptroller’s Office at and request that your encumbrance journal be posted. The email should include the batch name of the new PO Adjustment Encumbrance journal entry just created.
· When the batch has been posted, you will be notified by email.
The 163.Open Encumbrances report has been modified to match PO Adjustment Encumbrance entries with the associated Purchase Order. With this process, neither the PO Encumbrance nor the PO Adjustment journal that offset the encumbrance will appear on the report.
A column called “Adjustment Amount” appears on the 163.Open Encumbrances report. This column will reflect any adjustments made to the encumbrance amount if the entire purchase order does not net to zero. Otherwise, this column will be blank.
c.) Invoice encumbrances
An invoice encumbrance is created when invoices are received and processed by Accounts Payable. You will not normally see invoice encumbrances because invoice encumbrances are created during the day, then become an expense during posting that evening.
Up until mid-2002, it was possible for purchase orders to be finally closed when invoices were in process. As a result, there may be invoice encumbrances that need to be relieved. Invoice encumbrances in this category must be relieved by processing a manual encumbrance journal entry.
Purchase orders can no longer be closed if there are invoice encumbrances. In that event, Finally Close will not be one of the actions available when attempting to control a PO.
Using the PO Manager user responsibility, expand the Inquiry menu and select Invoices. Enter a PO number in the applicable field and click [Find].
From the PO Manager menu, expand the Inquiry menu and select Invoices to reach the View Invoices form. Populate applicable fields, a PO number for example, to limit the number of invoices returned, then click [Find].
Using your up and down arrow keys to select lines, review the Status and Holds fields. If an invoice is on hold, the Holds field will be populated with a number > 0, and the Status field will indicate something other than Approved.
Click the [Holds] button to identify the type(s) of hold(s) on each invoice.
- A MarkView approval stamp is required in the event the invoice is to be paid AND has holds other than ‘Quantity Received Hold’. Types of holds include:
ü Finally Closed PO Hold (FINAL MATCHING) [Hold is not viewable in MarkView]: Invoice can’t be matched to referenced PO that is “Finally Closed”. The invoice is returned to the supplier with a note to that affect. Usually, supplier contacts department and a new e-requisition/purchase order needs to be generated