Page 1 of 11
I have used the standard functionality of Oracle Budgetary Control and Encumbrances. I have only demonstrated the functionality using standard invoice in payables. The same can be extended to show the encumbrances process flow for requisitions and purchase orders.
Note: I have done the demonstration on Vision Instance and have also copied the screenshots wherever relevant. Created a new ledger ADPC01 and new OU ADPCOU. I then created GL and Payables responsibilities to access the new ledger and Operating Unit.
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As a 1st step, ensure that the ledger is defined completely with correct setups. SLAM used is “Encumbrance Accrual”. Budgetary Control is enabled for the ledger. Require Budget Journal is Enabled (This is optional setup. There are other ways of entering budget amounts, but this option allows audit trail).
Step 2: Complete Payables Setups
The next step is to complete financials and payables options for the new OU created for this ledger. Enable the 3 options on the “Encumbrance” tab on the Financials Options.
In R12, Financials option does not have the LOV to choose the encumbrance type. By default, Requisition encumbrance will be "Commitment", PO encumbrance will be "Obligation" and invoice encumbrance will be "INVOICE". If any of these 3 encumbrance types is not enabled in GL, then the respective document REQ/PO/Invoice will throw budgetary control exception and will fail funds check.
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Step 3: Define Budget and Budget Organization
Define a Budget and open the budget periods.
Define Budget Organization and assign account ranges
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Note: Budgetary Control has been defined as “Absolute” for this case study. It can be defined as any of the 3 – Absolute, Advisory, None depending on the requirements.
The funds checking feature allows / rejects the transaction based on the availability of funds based on the setup as listed below: Absolute: Allows only when the funds are available. Advisory: Allows the transaction with a warning when the funds are not available. None: No funds’ checking is performed and thereby allows the transaction to commit whether or not the funds are available.
Upload Budget Journal for this account with an amount of USD 100 per month for 12 months between JAN-10 and DEC-10.
In the Budgetary Control Options, I have defined Account Type as YTD and Boundary as Year. This means that Oracle will allow the invoice to be booked even when monthly amount exceeds USD 100, but the year till date amount for this account should not exceed USD 1200. These options can be defined per business needs.
Check the “Funds Available” screen for this account which will show budgeted amount and encumbrance and actual amounts will be zero.
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Demonstration
Step 1: Create a Invoice
I have created a standard invoice in accounts payable using the distribution account same
as used above for defining the budget. I have tested multiple scenarios to demonstrate the
pass and fail cases. I have copied the screenshots below.
Case 1: Created invoice using amount as USD 1000
Since the invoice amount is less than the total budgeted amount for this year, it should
pass the funds check. Below screen shot shows the invoice distribution screen and the
funds checks status.
Attached below is the budgetary control report published by Oracle on checking the
funds availability.
Budgetary Control
Checks Report - Pass.pdf
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Now check the “Funds Available” option again in GL. It will show encumbrance amount now.
Note: Invoice has not been transferred to GL yet.
Case 2: Created invoice using amount as USD 1500
Since the invoice amount is more than the total budgeted amount for this year, it should fail the funds check. Below screen shot shows the invoice distribution screen and the funds checks status.
Since we setup the budgetary control option as “Absolute”, Oracle will not allow to bypass the funds check and the invoice is placed on SYSTEM hold “Insufficient Funds”. To release hold and validate the invoice, either increase the budget amount or reduce the invoice amount.
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Attached below is the budgetary control report published by Oracle on checking the
funds availability.
Budgetary Control
Checks Report - Failed.pdf
For further testing, I have changed the invoice amount back to USD 1000 to allow it to
pass funds check and get accounted in GL.
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Step 2: Transfer Invoice to GL
When this invoice is accounted and transferred to GL, 2 set of journals are created – encumbrances and actual.
Encumbrance Journal is shown below. Please note that RFE account comes from the ledger setups.
Actual Journal is as below.
Liability Account is same as defined in financials options: 01-000-2225-0000-000.
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Check Funds Available again and it will show actual amount now. Encumbrance amount is showing zero.
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Now, try creating another invoice with amount as USD 300 and it will again fail funds check since the total amount for this account (1000+300) exceeds the budgeted amount for the year (1200).
You can use “Variances” functionality on the Account Inquiry form to find out difference between Actual and Budgeted amount on a PTD/QTD and YTD basis.
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Note: If the budgetary control is “Advisory”, the invoice is not placed on hold and below message is displayed. Oracle will validate this invoice successfully.
Results, Conclusion and Learning
This way, I have demonstrated the requirements and setups using R12’s functionality of Encumbrances and Budgetary Control. It is a very useful feature to control the expenses within the budgeted amount and be able to compare actual expenses v/s budgeted on a period to date or year till date basis. FSG reports can be created to compare the actual v/s budgeted amounts.
References
Oracle General Ledger User Guide
Case Study on Encumbrances and Budgetary Control in Oracle R12
Author: Vishal Goyal – Oracle Financials Functional Consultant
Fujitsu Consulting India Private Limited
Case Study Abstract
The case study discusses about how I configured Encumbrances and Budgetary Control setups in Oracle R12 (12.1.3). The document discusses about the basic setups performed and transactions done to reflect the functionality available.
In this case study, I have discussed in detail the basic setups needed to setup encumbrances. Sample transactions with applicable screenshots are shown to demonstrate the functionality.
The setups demonstrated in this document totally reflect my understanding of Oracle setups.
AnalysisI have used the standard functionality of Oracle Budgetary Control and Encumbrances. I have only demonstrated the functionality using standard invoice in payables. The same can be extended to show the encumbrances process flow for requisitions and purchase orders.
Note: I have done the demonstration on Vision Instance and have also copied the screenshots wherever relevant. Created a new ledger ADPC01 and new OU ADPCOU. I then created GL and Payables responsibilities to access the new ledger and Operating Unit.
Page 2 of 11
Setup Steps
Step 1: Complete ASM setupsAs a 1st step, ensure that the ledger is defined completely with correct setups. SLAM used is “Encumbrance Accrual”. Budgetary Control is enabled for the ledger. Require Budget Journal is Enabled (This is optional setup. There are other ways of entering budget amounts, but this option allows audit trail).
Step 2: Complete Payables Setups
The next step is to complete financials and payables options for the new OU created for this ledger. Enable the 3 options on the “Encumbrance” tab on the Financials Options.
In R12, Financials option does not have the LOV to choose the encumbrance type. By default, Requisition encumbrance will be "Commitment", PO encumbrance will be "Obligation" and invoice encumbrance will be "INVOICE". If any of these 3 encumbrance types is not enabled in GL, then the respective document REQ/PO/Invoice will throw budgetary control exception and will fail funds check.
Page 3 of 11
Step 3: Define Budget and Budget Organization
Define a Budget and open the budget periods.
Define Budget Organization and assign account ranges
Page 4 of 11
Note: Budgetary Control has been defined as “Absolute” for this case study. It can be defined as any of the 3 – Absolute, Advisory, None depending on the requirements.
The funds checking feature allows / rejects the transaction based on the availability of funds based on the setup as listed below: Absolute: Allows only when the funds are available. Advisory: Allows the transaction with a warning when the funds are not available. None: No funds’ checking is performed and thereby allows the transaction to commit whether or not the funds are available.
Upload Budget Journal for this account with an amount of USD 100 per month for 12 months between JAN-10 and DEC-10.
In the Budgetary Control Options, I have defined Account Type as YTD and Boundary as Year. This means that Oracle will allow the invoice to be booked even when monthly amount exceeds USD 100, but the year till date amount for this account should not exceed USD 1200. These options can be defined per business needs.
Check the “Funds Available” screen for this account which will show budgeted amount and encumbrance and actual amounts will be zero.
Page 5 of 11
Demonstration
Step 1: Create a Invoice
I have created a standard invoice in accounts payable using the distribution account same
as used above for defining the budget. I have tested multiple scenarios to demonstrate the
pass and fail cases. I have copied the screenshots below.
Case 1: Created invoice using amount as USD 1000
Since the invoice amount is less than the total budgeted amount for this year, it should
pass the funds check. Below screen shot shows the invoice distribution screen and the
funds checks status.
Attached below is the budgetary control report published by Oracle on checking the
funds availability.
Budgetary Control
Checks Report - Pass.pdf
Page 6 of 11
Now check the “Funds Available” option again in GL. It will show encumbrance amount now.
Note: Invoice has not been transferred to GL yet.
Case 2: Created invoice using amount as USD 1500
Since the invoice amount is more than the total budgeted amount for this year, it should fail the funds check. Below screen shot shows the invoice distribution screen and the funds checks status.
Since we setup the budgetary control option as “Absolute”, Oracle will not allow to bypass the funds check and the invoice is placed on SYSTEM hold “Insufficient Funds”. To release hold and validate the invoice, either increase the budget amount or reduce the invoice amount.
Page 7 of 11
Attached below is the budgetary control report published by Oracle on checking the
funds availability.
Budgetary Control
Checks Report - Failed.pdf
For further testing, I have changed the invoice amount back to USD 1000 to allow it to
pass funds check and get accounted in GL.
Page 8 of 11
Step 2: Transfer Invoice to GL
When this invoice is accounted and transferred to GL, 2 set of journals are created – encumbrances and actual.
Encumbrance Journal is shown below. Please note that RFE account comes from the ledger setups.
Actual Journal is as below.
Liability Account is same as defined in financials options: 01-000-2225-0000-000.
Page 9 of 11
Check Funds Available again and it will show actual amount now. Encumbrance amount is showing zero.
Page 10 of 11
Now, try creating another invoice with amount as USD 300 and it will again fail funds check since the total amount for this account (1000+300) exceeds the budgeted amount for the year (1200).
You can use “Variances” functionality on the Account Inquiry form to find out difference between Actual and Budgeted amount on a PTD/QTD and YTD basis.
Page 11 of 11
Note: If the budgetary control is “Advisory”, the invoice is not placed on hold and below message is displayed. Oracle will validate this invoice successfully.
Results, Conclusion and Learning
This way, I have demonstrated the requirements and setups using R12’s functionality of Encumbrances and Budgetary Control. It is a very useful feature to control the expenses within the budgeted amount and be able to compare actual expenses v/s budgeted on a period to date or year till date basis. FSG reports can be created to compare the actual v/s budgeted amounts.
References
Oracle General Ledger User Guide
