Guidelines for managing encumbrances

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: a. Purchasing encumbrances (created when an e-requisition and/or Page 4 purchase order is reserved); b. PO adjustment encumbrances (created when a PO has Page 10 encumbrances remaining after it has been finally closed [see manual encumbrances]); c. 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 d. 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) e. 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: i. Description of item invoiced is same as description of item ordered on PO; and ii. 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 iii. Quantity invoiced is no more than 10% greater than quantity ordered on PO. Page 1 of 26

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. Page 2 of 26

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. Page 3 of 26

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. Page 4 of 26

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. Page 5 of 26

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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 apsup@pobox.upenn.edu 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. Page 7 of 26

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. Page 8 of 26

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. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Page 9 of 26

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 benadmin@lists.upenn.edu 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. Page 10 of 26

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 Page 11 of 26

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. Page 12 of 26

1. 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: 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 Items Not Ordered Hold (ITEMS NOT ORDERED HOLD): Items billed on invoice, but not ordered on PO Maximum Shipment Hold (MAX SHIPMENT AMOUNT): Total invoice line > total PO line by $25 Quantity Ordered Hold (QTY ORD): Quantity billed on invoice > 10% of quantity ordered on PO Quantity Received Hold (QTY REC): Created when any invoice is received for a PO that exceeds $5000 and no receipt has been entered in BEN Financials for items invoiced. A QTY REC hold is addressed by entering a receipt against the appropriate line of the purchase order. Only applying an approval stamp in MarkView to an invoice on Quantity Received Hold will result in the invoice remaining on hold. Instead of applying an approval stamp on a Quantity Received Hold invoice, enter a receipt. 2. Keep a hardcopy of the invoice with the grant file and document the date the invoice was receipted. 3. Invoices should be receipted within 30 days in order to meet payment requirements. 4. If the invoice is unacceptable, a green Hold Resolution Sticky (icon with black H on green background) should be applied to the invoice in MarkView detailing why department is disputing the invoice (i.e. duplicate invoice, invalid time period, etc.) [see below for screen displaying stamps] Page 13 of 26

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Tip: Tip: Applying a blue sticky note to the invoice will not transition invoice from your queue, nor will it cancel the invoice, nor will it relieve any invoice encumbrance. Sticky Notes must be applied by the person in whose working folder the invoice resides. Applying notes from the Invoice Inquiry screen on behalf of someone else will not transition the invoice back to Accounts Payable and the invoice will remain on hold. 5. After the Hold Resolution Sticky has been applied, print the invoice and maintain in the grant file. The Sticky text will automatically print following the invoice. When the Hold Resolution Sticky is applied to the invoice and the view is saved, the invoice transitions back to Accounts Payable; Accounts Payable is notified electronically that an invoice is to be cancelled; Accounts Payable incorporates the text of the Hold Resolution Sticky into a cover letter sent, with the invoice, back to the supplier; The invoice encumbrance is relieved. Accounts Payable will release the hold and cancel the invoice. 6. ORSS should be informed of all disputed subcontract invoices by email. Page 15 of 26

Finding Invoice Payments 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, click the [Payments] button. Page 16 of 26

Checks =/> $25,000 are mailed as late as the business day after the payment date (due to the need for a second signature); Checks < $25,000 are mailed on the payment date. Page 17 of 26

Determining the encumbrance category If all of the above steps have been followed and there are still non-compensation encumbrance balances, it is helpful to identify in which COA combination the balance resides, then use the BEN Financials GL Inquiry Account Inquiry screen. To identify the combination in which the balance exists, from the Navigator form in GL Inquiry, doubleclick the ++ icon down the left side; Page 18 of 26

From the Inquiry menu, select Funds Available Page 19 of 26

The Funds Available Inquiry screen contains up-to-the-minute encumbrance balances on all transactions that have been reserved and/or posted. Accept the default Budget, Operating. Change the Amount Type to Project to Date when searching for sponsored project fund information. Change the period field from JUL-94 to the current accounting period when searching for up-to-the minute information. When populating the Find Accounts form, using wildcards as shown below will provide the detail necessary to identify the account combinations in which encumbrances exist, even if the transaction posted to a CNAC or ORG outside your security profile as long as you are the resp ORG for the fund: This is helpful because it will show activity for all COA combinations with balances, making it easier to identify the additional COA segments where encumbrance balances exist. Once the combination(s) with a balance are identified, use the Account Inquiry screen to identify what type of encumbrance exists. Page 20 of 26

When searching for an encumbrance balance and it is unclear when the balance may have originated, use JUL-96 and the current accounting period so that the results show the accounting period(s) in which the balances changed. Encumbrances need to be investigated one type at a time; try encumbrance, invoice encumbrance and PO Adjustment Encumbrance in the Encumbrance type field. Once in the Find Accounts window, enter the COA segments in which the Fund Available inquiry reflects an encumbrance balance. Page 21 of 26

Then click [Show Balances] button. If there are no balances for the entire period, continue this process changing the encumbrance type until you have identified the category of encumbrance so that the encumbrance can be properly relieved, i.e. PO adjustment encumbrance entry, manual encumbrance entry, finally closing a PO. Page 22 of 26

d.) Manual encumbrances A manual encumbrance is a journal entry created, for example, to manually encumber temporary salary and EB expense because these transactions are not automatically encumbered. Another example may be a manual encumbrance is created for a piece of equipment to be purchased in the future. By managing encumbrances, there is a more accurate reflection of funds available when requested. Remember, budget balance available is a calculation of budget minus actuals minus encumbrances. To create a manual encumbrance journal entry, select the Journal Entry-General user responsibility, Journals > Encumbrance, then click the [New Journal] button. Page 23 of 26

Using the same naming convention as a manual journal or budget journal, enter a name for this journal; use the current accounting period; use Accounting as the category (not 09 Accounting); type a description. A note about the Control Total field: If you are entering a one-sided transaction, that is a transaction with only credits or only debits, do not enter an amount in the Control Total field. Once the journal entry lines are completed, save (Ctrl S), then check funds and reserve funds. Unlike a manual journal entry, the Context Descriptive Flexfield does not require population. Encumbrance journals do not post automatically every night. After the above steps are done, send an email containing the journal entry name to benadmin@lists.upenn.edu with a request to post the encumbrance journal. Page 24 of 26

e.) Compensation/Salary encumbrances Compensation encumbrances are created by mass allocation via a feeder from the Job Assignment screen(s) of the payroll/personnel system. Up to four Job Assignment screens, each containing up to eight COA combinations, can be created for each person. An example appears below: IS0404P UNIVERSITY OF PENNSYLVANIA DATE: 10/03/03 PERSONNEL ***JOB ASSIGNMENT DATA*** TIME: 12:32:42 999999999 GUILIANI,RUDOLPH JOB(S): 1,2,3 JOB #: 1 BEGIN DATE: 03/01/17 END DATE: 99/99/99 POSITION #: 0 JOB CLASS: 216000 - PROFESSOR A PAY PER.AMT/RATE: 36629.167 RATE CODE: P CLASS ENTRY DATE: 03/01/17 % FULL-TIME: 100.00 TERM: 0 PAY CYCLE: M1 JOB ORG: 4999 TIME RPT CODE: E COMPA-RATIO: 0.879 DM-MEDICAL GENETICS ADMINI HOURLY RATE: 0.000 HOURS: 35.00 EMP TYPE: 1 ANNUAL SALARY: 100000.000 TRF SORT CD: CNAC ORG B/C FUND OBJ PGM CREF ERN PER.AMT PERCENT START STOP 1 400 4999 4 511111 5010 2001 1000 RMO 716.250 0.00 07/01/03 09/30/03 2 400 4999 4 522222 5010 2001 1000 RMO 716.250 0.00 07/01/03 06/30/04 3 400 4999 4 533333 5010 2001 1000 RMO 716.250 0.00 01/01/03 02/29/04 4 400 4999 4 544444 5010 2001 1000 RMO 2148.750 0.00 09/01/03 08/31/04 5 400 4999 4 555555 5010 2001 1000 RMO 716.250 0.00 07/01/03 09/30/03 6 400 4999 4 566666 5010 2001 1000 RMO 716.250 0.00 07/01/03 06/30/04 7 400 4999 4 577777 5010 2001 1000 RMO 2865.000 0.00 01/01/03 02/29/04 8 400 4999 4 588888 5010 2001 1000 RMO 716.250 0.00 03/01/03 02/29/04 A few tips on accurate compensation encumbrances: 1.) Remove any obsolete or blank distribution lines among current distribution lines. Salary will not be encumbered for any accounts following an obsolete or blank line. 2.) Salary will not be encumbered beyond the Account End Date, as reflected in the View Grant Attributes screen (see page 26). 3.) The UMIS GRPA report reflects encumbrances. Compensation encumbrances are updated in salary management on Monday nights when payroll runs. Salary management updates the GL on Thursday nights. Therefore, compensation encumbrances can be out of sync with the GL every week from Tuesday morning through Thursday night. 4.) To match encumbrances on the UMIS GRPA report with GL reports for a given accounting period, the UMIS GRPA report must be run during a small window each month. Count back to Tuesday from the last weekly check date in a given month and forward to Monday following that last weekly check date. E.g., in November, 2003, the GRPA run from 11/25/03 through 12/1/03 will reflect the same compensation encumbrances as those on the NOV-03 GL reports; in July, 2003, the GRPA had to be run between 7/22/03 and 7/28/03 to match Jul-03 GL reports. Page 25 of 26

a. For project period funds, the distribution stop date should equal the Account End Date or the last day the employee is working on that project, whichever is sooner. b. For fiscal year funds, the distribution stop date should equal the last day of the fiscal year, 6/30/XX or the last day the employee is to be paid from that fund, whichever is sooner. 5.) Changes in distribution and payroll reallocations are posted in salary management once each week on Monday nights. Salary management posts to the general ledger once each week on Thursday nights. Therefore, changes made in the payroll system will not be reflected in the general ledger until up to 10 days later, i.e. Friday morning a week after the payroll record is changed. 6.) As a result of the delay between updating a payroll record and posting to the general ledger, encumbrances will also be out of sync for up to 10 days. Page 26 of 26