ENCUMBRANCES - OPERATING EXPENSES AND EQUIPMENT - 8342

(New: 09/2020)

The manner of recording encumbrances for the operating expense and equipment category varies, depending upon the type of expenditure involved. Explanations below are intended to clarify the manner of accounting for various types of expenditures.

Traveling-in-State or (In-State Travel)

Agencies/departments may encumber at the beginning of each fiscal year an amount equal to their best estimate of the amount of expenses actually incurred as of the end of a month but not reflected on the records because the traveling expense claims either have not been submitted or having been invoiced, but not processed for payment.

Utilities

Agencies/departments may encumber at the beginning of each fiscal year an amount equal to their best estimate of the amount of expenses actually incurred as of the end of a month but not reflected on its records because the bills either have not been received or, having been received, have not been processed for payment.

Rent-Building Space

Agencies/departments may encumber, either at the beginning of each fiscal year or on an as-needed basis, an amount equal to commitments made for that fiscal period, as shown on the rental or lease agreement. Encumbrance may be made to reserve funds for renewal of leases containing such an option if the agency/department intends to exercise this right of renewal.

General Expense and all other types of expenditures where commitments are made

Agencies/departments may encumber at the beginning of each fiscal year an estimate of the amount of expenses actually incurred at the end of the month for which specific encumbrance documents have been issued and which are not reflected, due to the delay in receiving invoices and scheduling claims for payment.

Agencies/departments shall encumber estimated expenses for each item or service of $500,000 or greater. However, if the full amount is payable within 90 days the expense does not need to be encumbered.

Estimating Encumbrances  

While many types of expenditures can be encumbered from purchase estimates, printing estimates, leases, contracts, etc., many cannot. Unencumbered balances of certain appropriations would be over-stated if charges to appropriations were made at the time invoices were filed for payment. For the unencumbered balances shown in accounts and on reports to accurately reflect the true financial condition of the appropriations, agencies/departments may encumber certain types of expenditures at the beginning of each fiscal year. These amounts should represent their best estimates of obligations outstanding as of the end of an average month but not otherwise encumbered by estimates, leases, etc. 

This estimated amount may be encumbered using an internal departmental requisition, purchase order or other purchasing documentation with the appropriate explanation stated thereon. Agencies/departments will prepare the estimates using internal documentation. 

The amount of the estimate will vary among appropriations within an agency/department and among agencies/departments depending on promptness in receiving and processing invoices for payment. 

Agencies/departments will be responsible for determining the proper encumbrance estimate to meet their own circumstances. Agencies/departments will make revisions, as required, based on experience. Agencies/departments that account appropriations on a quarterly basis, for management purposes, may encumber the estimate at the beginning of each quarter and reverse it on the first day of the subsequent quarter. Reversal of the estimate has the effect of disencumbering estimated amounts, thereby increasing unencumbered balances to permit charging invoices to appropriations after the end of the quarter.