Negative Encumbrances (Acquisitions)

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Why do I have negative encumbrances (or commitments)?

Negative encumbrances (commitments) are most commonly discovered at the beginning or end of a fiscal year when they are least likely to be 'masked' by outstanding encumbrances.

For example:
Fund "mmono" has 10 outstanding orders with status 'o', each one $25.00. The encumbrance displays as $200, less than expected.

Staff pay for the outstanding orders. The fund now displays the following balances. (Note that the -$50.00 charge altered the encumbrance so that it appeared to be $200.00 instead of $250.00.)

The staff person uses Funds Mode | Adjustments tab to make a positive encumbrance of $50.00 to fund "mmono" and posts. For information on manually adding encumbrance, see Acquisitions - Changing Appropriations, Encumbrances, and Expenditures/Fund Adjustment Table.

The fund now displays:

There are five ways that negative encumbrances (commitments) usually occur:

1. Receiving and disencumbering (de-committing) after encumbrances (commitments) have been inappropriately zeroed during a fiscal close.

   This is the most common reason why libraries find negative encumbrances on their financial reports. In some cases, negative encumbrances have been carried forward from several fiscal cycles back.

   For example, suppose a library has an outstanding order for $30.00 on fund "nmono" and zeroes the fund appropriations, expenditures, and encumbrances as part of Fiscal Close Method One. The book and invoice arrive the first day of the new fiscal year, and staff pay for it. The system will disencumber $30.00, but since there is no corresponding $30.00 encumbrance on the fund, the fund will actually display a negative encumbrance of -$30.00.

   Note that Fiscal Close Method Two requires that the library zero encumbrances as part of the procedure. As long as the library completes all the steps of Method Two, subsequent payments will disencumber properly without creating negative encumbrances. 

2. Entering an encumbrance (commitment) amount with an x-record payment.

   When making an x-record payment in invoice processing, staff are prompted to remove an encumbrance amount as well as enter the amount being expended. Staff should only remove an encumbrance if they have previously entered a manual encumbrance on the fund to cover the amount that they expect to expend (often done so that the free balance is not inflated) via x-record payments. For information on manually adding encumbrance, see Acquisitions - Changing Appropriations, Encumbrances, and Expenditures/Fund Adjustment Table.

3. Paying for status 'g' orders against a fund without previously entering a lump encumbrance.

   The default behavior for status 'g' orders is to disencumber the amount expended. For this to work properly, staff must manually encumber the fund at the beginning of the fiscal year in the amount that they will be expending for status 'g' orders. They must also be prepared to adjust the fund encumbrance amount before fiscal close in the event of a larger or smaller expenditure than expected.

4. Forcing a negative encumbrance with a fund adjustment.

   If library staff enter a negative encumbrance amount in the Fund Adjustment Table that leaves insufficient remaining encumbrance for outstanding orders, this can result in a negative encumbrance against the fund.

5. Forgetting to enter the number of copies in the order record and leaving it at 0 (to avoid this problem, create an order record template and pre-fill the copies field with "1").

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How do I clean negative encumbrances off of my system?

There are two methods to clean negative encumbrances off of your system.

Method 1:

1. Create review files for all active orders (status 'o', 'q' 'c' 'e'). Create one review file for status 'o' and 'c' orders. Create a second review file for status 'q' and 'e' orders.

2. Run a Sierra Statistics report over the review files of orders to gauge the amount of encumbrance that each fund should have. For partially-paid orders, estimate about how much encumbrance ought to be left on each fund to cover remaining payments.

3. Manually adjust the fund encumbrances by going into Funds mode | Adjustments tab.

4. Post.

While the adjusted encumbrance totals will not be accurate to the penny, each fund will display a free balance that better reflects what staff actually have left to spend when they view Fund Reports.

Method 2:

1. Create review files for all active orders (status 'o', 'q' 'c' 'e'). Create one review file for each status, e.g., a review file for orders with status 'o', a review file for orders with status 'q', etc.

2. Change these orders to status 'z' temporarily.

3. Post.

4. Zero all encumbrances so that there are no negative or positive encumbrances remaining on funds.

5. Post.

6. Change order statuses back to the statuses they had before the clean-up. Orders will re-encumber properly, even those with partial payments.

7. Post.

This method is more time consuming; however, the adjusted encumbrance totals will be accurate to the penny.

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What about status 'g' orders?

If your library uses status 'g' orders, using Create Lists, locate status 'g' orders that do not have a payment in the current fiscal year. One way to estimate how much encumbrance will be required for these outstanding orders is to use Sierra Statistics to generate a Budget Planning report using a fixed percentage increase (for expected cost increases).

1. Create a Sierra Statistics Field Statistics report on the review file of orders. Choose to limit the results by a time range, select one year (specify last year), and tick the 'use fiscal year' radio button.

2. View the report and click 'Budget Planning'. The system defaults to 'Project (Input Field) by' because you used a single year. Leave input field set to 'Date Range 1'. Adjust the 'project by' percentage amount if necessary. Rename the report, for instance 'Projected cost - status g orders'.

3. Save the Budget Planning report. The system will insert a new column using the name you gave your report. The amounts there are what you expect to pay for these orders in this fiscal year. You may manually adjust encumbrances on the funds that pay for these orders as needed. The encumbrance remaining on funds for these titles should be equal to the projected cost totals displaying in your Budget Planning report column.

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