In the area of grant administration, the importance of tracking past expenditures is well known. However, it is equally important to track outstanding purchases. The correct fund accounting term for tracking outstanding purchases is encumbrance. The encumbrance is one of the pieces that sets the governmental/not for profit world of accounting apart from the corporate for profit world of accounting.
An encumbrance generally originates when a purchase requisition or purchase order have been finalized. The funds are “set aside” as to not be used for any other purpose. Grant encumbrances are very important tools to use to avoid budget overspending. Purchase orders contain the details of what makes up the encumbrances. There is normally an approval hierarchy associated with Purchase Orders. This hierarchy creates a positive system of checks and balances which aids in fiscal accountability.
As many purchase orders may be issued on each research project, it is necessary to track those in a grant management software system such as the IT Works Department Manager product. The purchase order and associated grant encumbrances are entered in to IT Works upon issue. As data is entered, you have reporting capabilities that allow you to track the purchase orders and encumbrances with ease.
The Department Manager Purchase Order List report is a listing of every purchase order outstanding for a particular grant. You are able to see the amount of encumbrances and then actual expenses associated with the purchase order on this report. You are also able to view such information as vendors, dates and descriptions. This is an ideal report to use to follow the progress of the receipt of supplies and or equipment and also to anticipate and plan for upcoming expenses.
Another report of great use is the Department Manager Purchase Order Activity report. This report shows the detail by Purchase Order. The original grant encumbrances are shown and then liquidated (released) as the parts of the purchase order are received. It is very important to track the progress of a purchase order and not liquidate the entire encumbrance prematurely. If entire grant encumbrances are liquidated when only partial items/services have been received, the door to over spending is open wide.
Similar to tracking purchase orders, you are also able to print reports in IT Works to track all encumbrances. The Department Manager Account Encumbrance Report lists the outstanding encumbrances (not fully liquidated) on a grant. Such information as purchase order number, dates, description, cost center, object code and others are contained in this report. This snapshot of outstanding encumbrances provides a quick way to analyze past and upcoming expenditures.
The end result of effectively managing encumbrances associated with sponsored research is a project that stays within budget and does not have issues related to overspending.
Purchase orders and encumbrances are key in the budgeting process for grants. The comprehensive transaction entry and reporting capabilities in IT Works allow you to track purchase orders and grant encumbrances with ease. For more information on the IT works solution and services, contact the team today.