The origin of an encumbrance is a purchase order entered into the computer system. (Payroll is encumbered by the Business Office)
The availability of funds is determined and the electronic purchase order is reviewed for compliance with law and procedures. If the purchase order complies and funds are available a purchase order becomes committed into the system. This committed encumbrance/purchase order reduces the available balance of a budgeted account even though cash has not yet been disbursed.
Purchase orders entered into the system will immediately be reflected in the budgeted accounts that were designated by the purchase order.
Changes to originally encumbered amounts will take place only when the following transactions occur:
1. Payments - An adjustment to the difference between an original encumbrance and the actual amount of the invoice will occur upon processing of the invoice as a payment.
Final Payments - If an invoice is greater than the amount of the order, the encumbrance will be adjusted for the additional amount and the appropriation balance will be reduced accordingly. The amount will then be encumbered for the full invoice amount and transferred to an expenditure. If an invoice is less than the original encumbered amount, the reduction to the encumbrance will be made and the appropriation balance will be increased. The encumbrance will then be transferred to an expenditure.
Partial Payments - The amount of the invoice noted as a partial payment will be transferred from an encumbrance to an expenditure with no change or adjustment to the encumbrance other than the reduction for the amount paid. Upon final payment, all adjustments will be made. Adjustments can be made upon request.
2. Cancellations - If the person who has entered the requisition decides to cancel an order in whole or in part they must contact the vendor to insure that the order has not been shipped or that further shipments are not made on the order. Vendors are to be notified in writing. If a cancellation is verbal, the name of the person receiving your notice should be noted by the supervisor on the records of the order. The green copy of the purchase order should be forwarded to Accounts Payable noting that this purchase order is to be canceled or any balance thereof so that the encumbrance can be deleted and the available balance increased.
3. Credit Memo- When a credit memo is received from a vendor, it must be forwarded with all invoices and vouchers for payment to the Business Office. Any unusual condition necessitating the handling of a credit memo after a payment has been made in full should be brought to the attention of the Business Office as soon as possible for appropriate handling.Prior year purchase orders - Open purchase orders that have been encumbered by the end of a fiscal, but have not yet been paid will be rolled over into the new fiscal year. These purchase orders should only consist of items that were ordered and are waiting for delivery or invoicing. The corresponding appropriation will also roll over into the new year using a “P” as the first digit in the fund code for the new year by the amount of the rolled over purchase order. If the purchase order is not paid by September 30th of the subsequent year, it will be cancelled and any outstanding invoices will be paid using the current years budgeted funds.