Pre-Encumbrance
STARS allows you to identify a part of your appropriation that you would like to reserve. There are two ways to identify this amount, pre-encumbrance and encumbrance. There is a significant difference in how STARS posts these two types and uses them in reporting.
Pre-encumbrances are optional. Pre-encumbrances are a means for management to record planned but unobligated expenditures, and are “memo” entries that do not decrease the available appropriation balance (STARS does not include these amounts in the available appropriation and available allocation balance calculations).
When the legal obligation is established, you may convert the pre-encumbrance to an encumbrance. They do not have to become an encumbrance or expenditure. You can cancel them at any time since there are no legal obligations for payment.
Once a pre-encumbrance is recorded, STARS will track any activity against that pre-encumbrance until its final liquidation.
A pre-encumbrance can be added at any time. STARS records a pre-encumbrance as a "memo" entry with an estimated amount. Some of the STARS reports, such as financial plans, will show this “memo” amount after the balance as a reminder that this expense needs to be taken into consideration when authorizing expenditures.
STARS deducts the encumbrance amount, but the pre-encumbrance amount is not deducted. For planning purposes, manually reduce the encumbrance amount by the pre-encumbrance amount.
You can adjust or cancel a pre-encumbrance once it has been set up. You can also change a pre-encumbrance (not committed) to an encumbrance (committed) until you make the payment. You may also go directly to the payment process skipping the encumbrance entry if the transaction takes place right away.
The following is a list of the most commonly used pre-encumbrance transaction codes with a brief description of each. Detail information follows later in this chapter.
Transaction Code
Description
210
PRE-ENCUMBRANCE
211
ADJUST A PRE-ENCUMBRANCE
213
CANCEL A PRE-ENCUMBRANCE
218
ENCUMBRANCE PREVIOUSLY PRE-ENCUMBERED
(changes a pre-encumbrance to an encumbrance/liquidates a pre-encumbrance)
233
EXPENDITURE PREVIOUSLY PRE-ENCUMBERED
(makes a payment while liquidating the pre-encumbrance)
292
SCO EXPEND VOUCHER PREV PRE-ENC MANUAL WARRANT)
The following example describes the process for an agency that has written a purchase requisition in the amount of $950 for office equipment.
Pre-Encumbrance:
Record the cost of the equipment as a pre-encumbrance using a TC 210. The pre-encumbrance is reflected on financial reports as follows:
Original Appropriation
Expenditures
Encumbrances
(Orig – Exp – Enc) Available Balance
(memo only)
1,000,000
175,750
6,500
817,750
950
Notice that the available balance does not include the pre-encumbrance amount. Since the pre-encumbrance is not a formal commitment, it may canceled if the purchase is no longer needed.
Encumbrance:
Once a purchase order is issued or an order placed with the vendor, change the pre-encumbrance to an encumbrance. Liquidate the pre-encumbered amount by using a Reference Document Number when recording the encumbrance using a TC 218. Your financial reports would then reflect the following:
7,450
816,800
0
Notice that the encumbrance amount increases, the available balance decreases and the memo amount of the pre-encumbrance goes to zero. The encumbrance amount is legally committed to a vendor and no longer available for use.
Expenditure:
Liquidate the encumbrance by paying the bill using a TC 236 (regular payment), TC 241 (an interagency billing). Your financial reports would then reflect the following:
176,700
The $950 encumbrance amount moves to expenditures. Available balance remains the same.
The following example describes an agency with utility bills that average $1,000 a month.
For planning future available balances, an agency pre-encumbers the total estimated payments of $12,000. The pre-encumbrance can be liquidated by direct monthly payments to the vendor.
When you record the original pre-encumbrance using TC 210, the financial reports would reflect the following:
1,500,000
180,000
29,550
1,290,450
12,000
Notice that the available balance does not include the pre-encumbrance amount. The pre-encumbrance can be cancelled if service is terminated.
The following month, a utility payment was made in the amount of $976. Use a TC 233 to enter the pre-encumbrance Document Number as the Reference Document Number and enter the modifier on the transaction as blank (default to partial). The financial reports then reflect the following:
180,976
1,289,474
11,024
Notice that the expenditure amount increases, the available balance decreases, and the “memo” amount of the pre-encumbrance decreases showing a remaining pre-encumbrance balance for the next month.
Final June Expenditure:
When the last utility payment is made for the year, enter the original pre-encumbrance Document Number as a Reference Document Number and enter a modifier of "F" for final. STARS will then liquidate the remaining balance of the pre-encumbrance, regardless of whether the final payment is more or less than the outstanding balance. STARS will charge the full amount of the final payment to expenditures.
You cannot post a pre-encumbrance to a prior year. Use the following transaction code to set up a pre-encumbrance. You can then liquidate it in different ways.
(Approval level 2)
This transaction code records a new pre-encumbrance. If the pre-encumbrance appears on a report, it will show as a “memo” entry only. STARS does not include this in the balance totals.
A TC 210 posts to memo-type general ledger accounts 5100 (DR-pre-encumbrances) and 5110 (CR-reserve for pre-encumbrances).
A pre-encumbrance left at the end of the year will roll forward into the next year, unless cancelled by your agency. A pre-encumbrance that is rolled forward will be created with a BFY of the new year.
You must enter, at a minimum, the following elements to enter a TC 210.
Data Element
CUR-DOC/SFX
Enter an eight-character current document number and a two-digit suffix. NOTE: STARS uses this number on the Document File to identify the pre-encumbrance.
TRANS-CODE
Enter transaction code 210 (record a pre-encumbrance). To do an adjustment, see the Pre-Encumbrance – Transaction Codes to Adjust or Cancel section later in this chapter.
BFY
STARS will fill in the current BFY. (Prior years not allowed.)
INDEX or PCA
Enter a four-character alphanumeric Index if you are Index-driven or a five-character alphanumeric PCA if you are PCA-driven. Your Index or PCA usually looks up a fund and budget unit, which are also required elements.
EXP-SUB-OBJ/DET
Enter a four-digit expenditure subobject (you can also use a two-digit detail) to identify the payment category, such as office supplies, accounting services, etc. The subobjects you use will show on your financial plan reports and determine the appropriation record the pre-encumbrance posts.
AMOUNT
Enter the estimated amount of the pre-encumbrance.
DOC-DATE
Enter the six-digit document date (MMDDYY). This is usually the date of the purchase requisition (normally an internal document from an employee or manager requesting an item to be purchased).
INV-DESC
Not required, recommended. Enter up to a thirty-character invoice description to identify the pre-encumbrance. The invoice description shows on daily and expenditure reports.
VEND-NO
OPTIONAL. Not normally available since a pre-encumbrance is an uncommitted obligation and the vendor is not normally known. You can enter the nine-character vendor number and two-character suffix if you know the vendor from whom you will probably buy.
NOTE: The system will have already filled in the current BFY and effective date.
We recommend you leave RDOC – reference document numbers blank when you enter TC 210.
Important tips for entering TC 210:
Use the following transaction codes to liquidate a pre-encumbrance.
Liquidating Pre-Encumbrance Transaction Code Description
changes a pre-encumbrance to an encumbrance)
(pays for a pre-encumbrance)
SCO EXPEND VOUCHER PREV PRE-ENC MANUAL WARRANT
Once you establish a pre-encumbrance, there are two ways you can liquidate it:
(Approval level 3)
This TC changes an uncommitted pre-encumbrance to a legally obligated (committed) encumbrance. Use this TC if you have pre-encumbered the amount and now have issued a purchase order or committed to a vendor for the purchase or service. The vendor must be on the Vendor Edit Table before you can enter the TC 218.
A TC 218 posts to general ledger accounts 4300 (DR-encumbrances) and 3001 (CR-reserve for encumbrances). At the same time, this transaction code liquidates the pre-encumbrance by posting to general ledger accounts 5110 (DR-reserve for pre-encumbrances and 5100 (CR – pre-encumbrances).
You must enter, at a minimum, the following elements to enter a TC 218.
Enter an eight-character current document number and a two-digit suffix. NOTE: STARS uses this number on the Document File to identify the encumbrance.
Enter transaction code 218 (record an encumbrance previously pre-encumbered).
REF-DOC/SFX
Enter the eight-character reference document number and two-digit suffix of the pre-encumbrance. This is the “current document number” you used when you did the original TC 210 to set up the pre-encumbrance. This tells STARS which existing pre-encumbrance document to liquidate.
STARS will pull this data from the pre-encumbrance record. If the information is different, enter the new Index or PCA.
STARS will pull this data from the pre-encumbrance record. If the information is different, enter the new expenditure subobject.
Enter the estimated amount of the transaction for this encumbrance. This may be different from the pre-encumbrance amount and could show the vendor’s estimated cost.
Not required, but recommended. Enter up to a thirty-character invoice description to identify the encumbrance. Include enough information to later identify the encumbrance. The invoice description shows on daily and expenditure reports.
OPTIONAL. You can enter the nine-character vendor number and two-character suffix if you know the vendor you will be buying from. If you cannot locate a number, you may need to add one to the Vendor Edit table before the invoice arrives.
Enter the document date (MMDDYY). This is the document date you put on the pre-encumbrance when it was established. You can find this document date on the pre-encumbrance using screen 64.
NOTE: The system will have already filled in the BFY and effective date.
Important tips for entering TC 218:
2. Enter the invoice description for when you need information for future reference.
3. Double-check your vendor number, name, and address to be sure it belongs to the vendor you wish to pay. You can change this when the payment is made, if necessary.
4. This will post to a grant and/or project.
5. This will be included in your balance totals as an encumbered expenditure.
This TC changes an pre-encumbrance to an expenditure payment. This bypasses the encumbrance process. Use this TC if you have pre-encumbered the amount and then receive an invoice for payment. The vendor must be on the Vendor Edit Table before you can make the TC 233 posting, similar to the regular TC 230 payment.
A TC 233 posts to general ledger accounts 4200 (DR-expenditures) and 1003 (CR-cash in treasury). This TC issues a warrant using the third-set of GL postings. At the same time, this transaction code liquidates the pre-encumbrance by posting to general ledger accounts 5110 (DR-reserve for pre-encumbrances and 5100 (CR – pre-encumbrances).
You must enter, at a minimum, the following elements to enter a TC 233.
Enter an eight-character current document number and a two-digit suffix. Use any document number you wish.
NOTE: STARS uses this number on the Vendor Payment File, listing the payments to a vendor in alphabetical order using this CUR-DOC/SFX number. You can also look up information on a warrant using this document number. To keep the numbers in date order, you may want this number to be consecutive from the first of the year to the end. (E.g.: EXP000001, EXP000002, etc.)
Enter transaction code 233
MOD
Enter the one-character modifier to finalize the document.
F or C – final payment/cancel (both work the same). Put this on the last payment against the document.
Blank – not finalizing a document.
A – If you finalized a pre-encumbrance document, you can re-open the document with this modifier.
Enter the amount of the transaction for this payment. This may be different from the pre-encumbrance amount.
PROP# / COMP#
If the subobject used requires posting to the Fixed Asset System, enter the ten-character property number and the two-digit component number. These may be inventory numbers used by your agency. STARS requires this number on most of the Capital Outlay subobjects and transfers this transaction information to the Fixed Asset System.
INV-NO
Not required, recommended. Enter up to a fourteen-character invoice number that will print on the warrant stub for the vendor STARS posts this information to the Vendor Payment File for future reference. This invoice number shows on daily and expenditure reports.
Not required, recommended. Enter up to a fourteen-character invoice number that will print on the warrant stub for the vendor. STARS posts this information to the Vendor Payment File for future reference. This invoice number shows on daily and expenditure reports.
Enter the nine-character vendor number and two-character suffix of the vendor you are paying. STARS will post the TC 233 payment to this vendor number on the Vendor Payment File. STARS uses the vendor number to look up the name and address on the Vendor Edit Table (table 21) in order to send the payment to the correct vendor and location. This is the number STARS uses for tax reporting to the IRS. See the Vendors subchapter for more information.
Important tips for entering TC 233:
2. Double-check your expenditure subobject to be sure it is correct for the type of payment you plan to make, including whether the payment should be 1099 reportable.
3. Enter the invoice number and description so the vendor has enough information to post the payment to their records without additional backup documentation. This will also help when you need information for future reference.
4. Double-check your vendor number, name, and address to be sure it belongs to the vendor you wish to pay.
5. This will post to a grant and/or project.
6. This will be included in your balance totals as an expenditure payment.
(Approval level 6)
This transaction code is for use by SCO only. It is identical to the TC 233 above except it requires the additional entry of the manual warrant number and the due date (issue date of the manual warrant).
You can adjust or cancel a pre-encumbrance at any time since there are no legal obligations for payment. A pre-encumbrance balance will automatically carry forward into the next year, unless the balance is zero. On the Document File, the “balance” of the pre-encumbrance becomes the “original amount” on the next year’s pre-encumbrance record. If you do not wish it to carry forward, cancel the pre-encumbrance.
The following are transaction codes to adjust (increase or decrease) or to cancel an established pre-encumbrance already on the Document file.
This transaction code adjusts an existing pre-encumbrance. Use this TC if you have a pre-encumbered amount to adjust. This transaction will post an entry on the Document file to the “adjustments” bucket.
A TC 211 posts to memo-type general ledger accounts 5100 (DR-pre-encumbrances) and 5110 (CR-reserve for pre-encumbrances).
You must enter, at a minimum, the following elements to enter a TC 211.
NOTE: STARS does not post this number on the Document File.
Enter transaction code 211
RVS
Enter a one-character reversal indicator, if needed.
R – Decrease the pre-encumbrance amount
Blank – Increase the pre-encumbrance amount.
NOTE: If you enter an “R” and need to remove it, put a space in this field.
Enter the eight-character reference document number and two-digit suffix of the pre-encumbrance. This is the “current document number” you used when you did the original TC 210 to set up the pre-encumbrance. This tells STARS which existing pre-encumbrance document to adjust.
STARS will pull this data from the pre-encumbrance record.
Enter the amount you want to increase or decrease the pre-encumbrance. EX: If the pre-encumbrance is $60.00 and it should be $70.00. Enter the $10.00 difference.
Not required, recommended. Enter up to a thirty-character invoice description to identify why you need to change the pre-encumbrance amount.
Important tips for entering TC 211:
This transaction code cancels an existing pre-encumbrance. Use this TC if you have a pre-encumbered amount to cancel. This transaction will post an entry on the Document file to the “liquidations” bucket. Using this removes the amount from the “memo” entry on some of the reports.
A TC 211 posts to memo-type general ledger accounts 5110 (DR-reserve for pre-encumbrances) and 5100 (CR-pre-encumbrances). This is the opposite posting of the original TC 210.
You must enter, at a minimum, the following elements to enter a TC 213.
Enter an eight-character Current Document Number and a two-digit Suffix. Use any document number you wish.
Enter transaction code 213
Enter the eight-character Reference Document Number and two-digit suffix of the pre-encumbrance. This is the “Current Document Number” you used when you entered the original TC 210 to set up the pre-encumbrance. This tells STARS which existing pre-encumbrance document to cancel.
Enter the one-character Modifier to cancel the document.
F or C – final payment/cancel (both work the same)
Enter the balance amount of the pre-encumbrance. If a different amount is entered, STARS closes the record so you cannot post to it, but retains the remaining balance amount. You can find the balance amount on the document file screen 64.
Not required, recommended. Enter up to a thirty-character Invoice Description to identify why you are canceling the pre-encumbrance.
NOTE: The system will have already filled in the BFY and EFF-DATE (Effective Date).
Important tips for entering TC 213:
2. Double-check the amount to be sure it is the balance amount of the document.
3. This will reverse the entry from a grant and/or project.
4. This will not be included in your balance totals, but reverses the amount from the “memo” fields of reports.
STEPS
PRE-ENCUMBERANCE
ENCUMBRANCE
EXPENDITURE
Using pre-encumbrances for internal management control of internal purchase requests:
Normal 3-step process
TC 210 (setup a pre-encumbrance)
TC 218 (change a pre-encumbrance to an encumbrance)
TC 236 (change an encumbrance to an expenditure)
TC 241 (change an encumbrance to an expenditure by IAB)
Skip encumbrance step
TC 233 (change a pre-encumbrance to an expenditure)
Starting at the encumbrance process for committed only requests:
Normal 2-step process
TC 215 (setup an encumbrance)
Adjusting or canceling pre-encumbrance or encumbrance postings:
Adjust
TC 211 (adjust a pre-encumbrance)
TC 220 (adjust an encumbrance)
Cancel
TC 213 (cancel a pre-encumbrance)
TC 225 (cancel an encumbrance)
Report
DAFR6530
Encumbrance Status by Vendor
Lists the status and balance amounts of encumbrances, grouping the encumbrances by vendor number/suffix. Totals by vendor, then organization, then by GL account (4300), and then by fund.
DAFR6840
Encumbrance Status by Fund, Program, and Object
Lists the status and balance amounts of encumbrances. This is the view of the encumbrance using the Program/PCA structure. It sorts by Fund, then Program, and then Object.
DAFR8070
Encumbrance Status by Fund, Org, and Object
Lists the status and balance amounts of encumbrances. This is the view of the encumbrance using the Organization/Index structure. It sorts by Fund, then Organization, and then Object.
DAFR8140
Encumbrance Aging
Lists encumbrances, showing a balance amount for each encumbrance by 0-180 days, 180-360 days, and over 360 days. Totals by GL account (4300), then by fund, and then for agency.