Sarah and Daniel now discuss earmarked funds. Let's see what they have to say! Select the following video.
Introduction
In public sector organizations, no business activity (which leads to a future payment) can be posted/approved without an available budget. Early (as soon as possible) earmarking of the budget consumption is paramount to plan accordingly. This means that as soon as governments foresee future payments because of an operative commitment document, they need to reserve their budget. This reservation of the real budget consumption is documented through earmarked funds documents in case no procurement of material and services are involved. The earmarked fund documents lead to the creation of a budget consumption document.
Earmarked funds documents are reduced by follow-on documents, which replace the reservation of funds.
An example of this is as follows: an earmarked funds document was reduced by an invoice. In this case, the earmarked funds document reserved the budget for a specific invoice. When the invoice has been posted with reference to the earmarked funds, the earmarked funds release the reserved budget for the invoice.
In order to use earmarked funds, the scope item must be activated. The commitment updating of the budget consumption is described in a separate chapter (Unit 4, Lesson 1, Recording Commitments and Actuals). All validation/derivation and availability checking (AVC) topics fully apply to earmarked funds documents.
Types of earmarked funds
There are 4 types of earmarked funds:
- Reservations (optional usage)
Reservations are used if funds are to be reserved for a contractual agreement. Reservations are reduced by a precommitment, a purchase requisition, or a purchase order.
- Precommitments (optional usage)
Precommitments are being used in order to reserve funds for an internal demand. Precommitments are reduced by a commitment document.
- Commitments
Commitments are being used in order to reserve funds for an upcoming expense posting. Commitments are reduced by FI expense or down payment postings.
- Forecast of Revenues (optional usage)
Forecast of Revenues are being used in order to forecast future revenues. Forecast of Revenues are reduced by Customer Invoices in Accounts Receivable.
Integration with Material Management
It is also possible to integrate the reservation with purchase requisition and purchase orders, meaning a reservation can be reduced from those procurement documents.
Structure of an earmarked funds document
Each earmarked funds document is described with a header and one or several line items. The header consists of a document type, transaction currency, reference number, description, document, and posting date. The document type does influence the number range of the document and its workflow behavior. The document date is the budget consumption date for all lines during the creation of the document.
Each line item consists of the amount to be reserved, account assignments, and control data. The earmarking of funds and the reduction of earmarked funds happens for each line item separately. The amount values are totaled up (and displayed) on the header level.
The following figure depicts a typical earmarked funds document.
Consuming earmarked funds documents
Each line of an earmarked funds will be reduced by one or more follow-on documents. Each follow-on document is being written in the consumption history. The sum of all follow-on documents of each line item cannot exceed the earmarked amount of the line item. However, it is possible to exceed the amount within configured tolerances. The account assignment is usually inherited into the follow-on document, however, it is possible to allow usage of a different account assignment (Account Assignment Changeable option needs to be selected).
If it is evident that the earmarked funds amount reserved is not needed anymore, then it is possible to set a Completion indicator in order to release the remaining amount.
An example of this is as follows: a commitment document has earmarked an amount of $100. The invoice was posted with an amount of $99 against that commitment, so then it is possible to complete the commitment document, which means $1 is given back to the budget. The completion indicator can be set directly when the follow-on document is being posted against the earmarked funds, or at a later stage by changing the earmarked funds document.
It is also possible to manually reduce an earmarked funds document line. The following figure depicts the consumption history of earmarked funds.
Tolerance Checks
The following message appears if a follow-on document tries to exceed the line item amount of an earmarked funds document (and no tolerance has been configured).
Display of Corresponding Commitments
Intend-based navigation is being used in order to drill-down from the earmarked funds to the corresponding commitment documents (Display Commitments).
Display Process Flow
It is also possible to show the document chain of the follow-on documents of an earmarked funds document using the Display Process Flow option.
Earmarked Funds Workflow
The following figure provides you with an outline for the workflow process for earmarked funds.
Earmarked funds can be subject to a workflow approval. In this case, the document type needs to be marked for workflow processing in configuration.
Workflow routing conditions to specific users are configured using the user, BPC_EXPERT. It is possible to make the workflow subject to the overall amount (or change amount) of the earmarked funds document. It is possible to route the workflow to specific users - for example, the responsible user for the cost center of the earmarked funds document. The following figure depicts a configured earmarked funds workflow.
Principle of Prudence During the Workflow
If an earmarked fund is pending for approval, the document cannot be reduced by a follow-on document, but the budget is already reserved (so that no other process can claim the budget in the meantime). Only if the earmarked funds document is rejected, the budget reserve is deleted. As soon as the earmarked funds document generates a workflow item, it is visible in the earmarked funds document under Approval Details (see the figure, Principle of Prudence during the Workflow):
Usage of Earmarked Funds Documents in other Integration Scenarios
Earmarked funds documents are being used in other integration scenarios in order to control earmarked budget.
- Position Budget Control (PBC)
Here financed persons or positions generate earmarked funds which are reduced during payroll processing.
- Contract and Lease Management (CLM)
Here a lease contract can reserve budgets through the generation of earmarked funds documents. The documents are reduced using the corresponding invoice processing.