The USG has elected to utilize full accrual basis accounting and to comply with generally accepted accounting principles.
This election means that:
- Encumbrances on the books as of June 30 that have not had receipt of goods and/or services will not be converted into expenditures.
- For GAAP/GASB reporting, these encumbrances simply continue into the next fiscal year. The expense occurs during the fiscal year where the underlying obligation for the goods and/or services occurs.
- For the BCR, encumbrances outstanding on June 30 will be reported like expenditures for the purpose of comparing expenditures to budget and for determining “surplus.”
- Normal accounting processes will be based upon GAAP/GASB standards, with reports developed to accomplish required reporting for the BCR. It should be noted that for fund groups subject to lapsing, the normal day-to-day business process is based on the State of Georgia statutory basis of accounting, but the accounting processes are recording transactions on the GAAP/GASB basis. For the BCR, transactions are matched to budget periods rather than fiscal years. For GAAP/GASB reporting, transactions are reported by fiscal year without regard to budget period.
1.6.2 Encumbrance Policies
For all funds except restricted funds, the USG requires that all known obligations for the current fiscal year be encumbered unless the amount is considered immaterial.
Personal Services Encumbrances
By the end of September, each filled position must be properly encumbered in the financial records to reflect the remaining salary and benefit expense amounts for the fiscal year. An accurate method of delivering encumbrance liquidation data into the financial records must be utilized after each payroll, so that only remaining salary and benefit amounts remain encumbered.
Note: Benefit amounts should be encumbered as accurately as possible/practical. Extra pay and/or overtime pay that was not previously encumbered should not provide an encumbrance liquidation transaction. If the extra pay/overtime pay was not encumbered, the payroll posting process should increase the appropriate expense without liquidating the encumbrance amount.
When travel to be taken in a future fiscal year has been formally authorized and the amount is material (greater than $500 per trip), the travel funds may be encumbered or paid and expensed in the current fiscal year for budgetary purposes. These expenses would normally be for travel and/or seminars planned in the first quarter of the subsequent fiscal year.
Note: For travel funds to be encumbered, the travel must be formally authorized. This would include submission of the usual out-of-state travel approval form, or written approval for in-state travel, stating the nature and purpose of the travel, date of travel, and amount.
When the travel or seminar cost to be incurred in the subsequent fiscal year is actually paid in the current fiscal year, a list of these transactions should be maintained and a year-end journal entry should be posted in the GAAP Ledger to move the amount from expense to prepaid expense for financial reporting purposes. This journal entry should be reversed in the subsequent year.
Operating Expenses and Equipment Purchases
Purchase orders issued for goods and services should be encumbered. When underlying obligations occur for goods or services, the encumbrance should be liquidated along with accruing the expense, with a resulting credit to accounts payable.
Note: Purchases by procurement card or petty cash do not need to be encumbered, as these are generally small value and they are promptly expensed into the institution’s records.