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SUBJECTEncumbrance Procedure PURPOSETo provide guidelines for the establishment, adjustment, liquidation and review of encumbrances. AUTHORITATIVE REFERENCESK.S.A. 75-3025, 75-3026, 75-3728, 75-3730 GENERAL INFORMATION Introduction K.S.A. 75-3728 requires the Director of Accounts and Reports to formulate a central accounting system that provides records showing "at all times" the un-liquidated obligations and unencumbered balances of allotments or appropriations for each state agency. The Director is also required by K.S.A. 75-3730 to certify that a sufficient unencumbered balance is available before an obligation can be incurred or payment made against any fund, allotment, or appropriation. Each state agency is responsible for ensuring that it does not incur obligations or expend funds in excess of available appropriations. K.S.A. 75-3025 and K.S.A. 75-3026 provide penalties for the misuse of agency funds in incurring obligations in excess of amounts expressly authorized by law. Obligations to be Encumbered The State utilizes a modified encumbrance method of accounting to help ensure that obligations are not incurred or expenditures made in excess of available funds, allotments or appropriations. This method of accounting requires that certain agency commitments be encumbered so that funds and/or spending authority are reserved for the future payment of goods which have not yet been received or for services which have not yet been rendered. Encumbrances are also used at the end of the fiscal year to record obligations that have been incurred during the year but will not be paid before the close of the fiscal year. Obligations that are required to be encumbered or have the option of being encumbered are as follows:
The following table summarizes the documents generally used to establish and adjust encumbrances for the various types of obligations. It also displays reference PPM filings where more information may be found.
* DA-107 may be used for funding changes only Types of Encumbrances Encumbrances may be either firm or contingent. The firm/contingent designation attests to the availability of funds for payment of the obligation at the time the encumbrance is recorded. In addition to firm and contingent, STARS allows for pre-encumbrances. A pre-encumbrance is a memo entry that may be used to record anticipated obligations without reducing the available expenditure limitation or available unencumbered cash balance. If the correct transaction codes are used, a pre-encumbrance can be automatically liquidated when an encumbrance is recorded for the obligation previously pre-encumbered or when a payment is processed against the pre-encumbrance. Use of this feature is at the discretion of each agency. Pre-encumbrance transactions can only be entered on-line using the STARS transaction data entry feature. The firm and contingent encumbrance types are discussed below:
Encumbrance Payment Limitations To provide flexibility when making payments against an encumbrance, final payment limits have been established by the Director of Accounts and Reports. These limits allow the final payment (and only the final payment) against an encumbrance to exceed the remaining encumbrance balance in certain circumstances. Payment limits are only effective on the final payment against an encumbrance (modifier coded "F") and the limit is computed based on the original encumbrance amount. The payment limits are determined by the document prefix assigned to the document that established the encumbrance. The three document prefixes and the limits and usage of each are as follows:
Encumbrance Transactions Specific transaction codes have been established to set up, pay against, adjust and cancel each type of encumbrance. State agencies may request STARS Report DAFR8640, Transaction Code Decision Table, using the normal STARS report request procedures to obtain a current listing of transaction codes. (See table in Procedures.) When setting up encumbrances, each transaction line on the encumbrance document is considered an encumbrance in STARS and is uniquely identified by the current document number and suffix. Transactions entered into STARS involving an established encumbrance must have the encumbrance document number/suffix in the Reference Documents and suffix fields, respectively. Payments made against an encumbrance must use a code "F", "P", or "A" in the M (modifier) column. "F" is used on vouchers submitted to make the final payment, "P" for payments that are not the final payments, or "A" if the encumbrance was previously cancelled or liquidated in error. To use "A," the encumbrance must still be in the STARS document file. "A" can pay up to the amount that would have been allowed if the encumbrance was not cancelled. The use of the "F" code will cancel any remaining encumbrance balance. Note: The "F" code must only be used on the last transaction line of the final payment being made against the encumbrance. Using the "F" code on any transaction line other than the last will result in the encumbrance being cancelled at that point and following transaction lines will not process. Edits on payments against an encumbrance allow flexibility by only requiring that the payment amount falls within the limits indicated by the document number prefix and that the agency number, budget fiscal year, fund and budget unit match those on the encumbrance and that there is sufficient cash in the fund. Failure to meet the established criteria results in a fatal error requiring the encumbrance or the payment to be adjusted before processing the payment. Differences in data elements other than those listed result in a warning message that does not stop the process. An adjustment to an encumbrance is required when a payment against the encumbrance falls outside of the scope of the limitation or when the payment must be funded differently than the original encumbrance. An encumbrance should be cancelled if for some reason the obligation becomes void. Encumbrance balances may be cancelled by use of form DA-107, Encumbrance Authorization or Adjustment, or one of the other various encumbrance adjustment documents shown in the table on page 2. Encumbrance Adjustment Review of Encumbrances Encumbrances that should be liquidated will be left in STARS if by using a modifier code of "P" instead of an "F" on a payment voucher. A "P" may be used if it is not known that a payment is a final payment. Leaving encumbrances active that should be cancelled ties up cash and/or spending authority that could be used for other purposes. Agencies should review each of their encumbrances periodically to determine if there are any that should be cancelled. Encumbrances must be reviewed at the end of each fiscal year. To assist in the review process at the end of a fiscal year, the Audit Services Team of the Division of Accounts and Reports provides each agency with a listing of outstanding encumbrances to be verified and justified. PROCEDURESTo help clarify the use of form DA-107 in STARS, we have outlined below procedures and commonly used transaction codes to be used in processing this document. The requirements for each of the data elements for adjusting an existing encumbrance or for establishing a new encumbrance are also shown on the table that follows. Adjust Existing Encumbrance When increasing, decreasing, or canceling an existing encumbrance line, the following data fields on the adjusting transaction must be the same as those on the encumbrance: Vendor No./Sfx., Reference Doc./Sfx., Fund, BFY, Index, PCA, and Sub-obj. The current document prefix must always be "H". If a encumbrance line is cancelled or liquidated in error, the line may be reactivated by entering "A" in the Modifier (M) field. Please note that only one reference document number should be shown on each form but multiple suffix lines may be indicated, except DA118s which can have adjustments for multiple encumbrances.
Establish New Encumbrance To establish a new encumbrance, the current document prefix must be an "A", "B", or "C". Also, if you want to add new encumbrance lines to an existing encumbrance number, you may do so by using the original encumbrance number as the current document number and numbering the new transaction lines beginning with the next available number after that used on the original encumbrance document. For example, if suffix lines 01 and 02 were used on the original document, the suffix lines on the current DA-107 must be numbered 03, 04, etc.
The purpose of the transaction should be shown on the form. The DA-107 should be submitted with a batch sheet.
CONTACT SOURCESInquiries regarding encumbrances should be directed to: Division of Accounts and Reports
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