The encumbering process has the principal purpose of preventing the creation of liabilities in excess of approved appropriations. It further aids in identifying line item accounts where unencumbered appropriations are available for transfer and also helps in the forecast of year-end fund balance.
In order for a school district to maintain budgetary control and to arrive at an accurate estimate of its uncommitted appropriations, it is necessary to encumber all of its known obligations. An encumbrance against an appropriation is required before an obligation can be created. Mass encumbering of all known obligations along with salaries should be made to insure that the budget is not overspent, to project and arrive at an estimated June 30 fund balance and to maintain budgetary control. The obligations that should be mass encumbered are salaries, debt service, utilities, fringe benefits, BOCES contracts, and all other known obligations.
Perhaps 85% of a budget should be mass encumbered as soon as these obligations are known and liquidated as they are expended, payroll by payroll, and claim by claim. It will be also necessary to make adjustments periodically to the encumbrances to reflect where expenditures are processed below or above expectations. An example would be where staff replacement salaries are below those who have left; or when a mild winter has reduced utility costs. The Business official should direct the Treasurer to implement mass encumbering of all known contractual commitments at latest by the end of the first quarter of each fiscal year and update the mass encumbering monthly.
In order for the district to determine its financial condition accurately, it is necessary to continue full encumbrance accounting as suggested by the following practices:
a. The object codes for equipment (".2"), supplies and materials (".4(5)"), and contracted (".4"), should be encumbered from purchase orders prior to release. In addition, there should be mass encumbering early in the fiscal year for all known contractual expenses such as salaries, debt service payments, contracted services, utilities, employee benefits, and the like, in the amount needed for the entire year.
b. When requests for travel or attendance at conferences, workshops, or conventions have been approved, the appropriate account(s) should be immediately encumbered for the estimated cost of the trip.
c. The physical education department should be contacted for a list of referee assignments at the beginning of each sports season so that proper codes can be encumbered.
d. Amounts for mileage reimbursement for approved staff travel should be encumbered monthly based upon previous payments.
e. Service agreements and BOCES and outside contracts should be encumbered at contract amounts.