Funds Management

Chapter 2

Funds Management
Basic Data
The budget for public authorities is divided, according to external requirements, into specific revenue and expenditure categories. To represent the organizational structure, another dimension is needed which will make it possible to decentralize responsibility for resources while integrating the budget plan at the same time. Universities, research institutes, associations, foundations, and similar non-profit organizations also need to administer funds from secondary sources. The Funds Management (FM) area is the highest classification characteristic for all administrative units which are subject to joint funds management and controlling. Commitment items are used to classify the contents of budgets and plans. This makes them the base for representing the budget lines in local authorities and enterprises, or budget lines in regional and national authorities. This means that a classification by the budgeting system, such as by groups, is supported. The link between commitment items and the general ledger in Financial Accounting keeps data input work to a minimum (see also: Dual Accounting) since only the commitment item is required for postings which affect both fiscal and financial accounting. For a range of users not primarily concerned with fiscal accounting, the system can be configured in such a way that Funds Management is serviced by the business transactions from Financial Accounting and Controlling. In such cases, the commitment items are either derived directly from the G/L account in Financial Accounting or from the cost element in Controlling by means of a link table. This table can be used to derive the commitment items automatically, thereby passing transaction data directly on to Funds Management without further manual intervention. Both short texts and detailed long texts can be entered for commitment item master records. The system documents all changes to the commitment item master record, which can be evaluated at any time. Under certain conditions, commitment items can be defined as fiscal year dependent. This means that any necessary changes to the functional structure, as depicted by the commitment items, can easily be followed from one budget year to the next (such as when the assignment of commitment items within a hierarchy changes). In addition to the hierarchical classification, commitment items can be grouped according to different criteria. Independent from any such criteria grouping, cost and activity accounting requires classification by internal view. Commitment items are assigned to cost elements so that expenditures can be entered per commitment item. This means they are available for use on a cost element basis in cost and activity accounting without further manual intervention.

Organizational Structure

FM Area Commitment Item

Budget Structure Changes

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Funds Center

Funds centers are organizational structure elements used to identify local offices and authorities in public administrations. Subdividing the funds centers makes it possible to delegate responsibility for resources. If Controlling is used, the link between cost centers, orders, or projects and funds centers makes it possible to derive the relevant funds center. Responsible employees can be identified for funds centers. This enables, for example, availability control to use workflow techniques to notify the pertinent employee when budgets have been or will be exceeded by sending a mail to their inbox.

Figure 2-1: Basic Data in the R/3 System

Fund

Funds can be used to subdivide budgets and funds assignments further, including the management of funds from secondary sources (see also: Funds From Secondary Sources). Funds are linked to a sponsor (customer) and an application of funds. Descriptive texts can be stored here as well.

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To make working with data entry and working with the applications in SAP Public Sector as simple as possible, there is a wide range of flexible links between the basic data of the individual components in the system. Two examples illustrate this: 1. Human Resources: if a funds center or a fund is entered in an HR master record, Payroll Accounting is correctly assigned for budget purposes. 2. Cost centers and cost elements are linked with commitment items, funds centers, and funds using link tables. This means, for example, that Funds Management can take account of overhead cost distribution. These link tables precisely meet the requirements of research institutes and universities, where structure elements from internal and external accounting (such as G/L accounts, cost elements, and cost centers) can be used to monitor budgets.

Integration

Budget Planning
To manage a public body economically requires careful analysis of the relevant framework, factors and prerequisites with which each organizational unit has to operate. Heightened expectations on one side and a lack of funds on the other show what tensions may exist. Given all the restrictions, only detailed budget planning keeps sight of objectives and concentrates on what is feasible. Both budget planning and execution are based on three elements: commitment items, funds centers, and funds (see also: Basic Data). These three elements are then used to determine the following three use these dimensions in budget planning: q What is to be planned? q Which responsibility area is to conduct the planning? q Which funds - such as your own funds, special funds, or funds from secondary sources - are planned? Commitment items classify the budget according to functional criteria. By combining items into summarization levels and creating a commitment item hierarchy, a structure can be created with as many levels as necessary. Budget estimates can be planned for each of these summarization levels. The total planned in one level of the hierarchy must not exceed the amount planned in the superior commitment item (top-down principle). Neither the budget estimates nor the budget allocations are tied to the lowest level in the commitment item hierarchy. Budget planning can stop at any level, depending upon individual requirements or how much information is available. At the same time, allocations can also be made across the organization. Funds centers are the organizational units used in Funds Management. The hierarchical arrangement of funds centers represents a structure of subordinate and superior responsibility areas that are integrated into the budget planning process in this structure. Estimates are often worked out at the lower levels and then merged in superior funds centers. This bottom-up procedure means you can draw up the budget plan locally, before completing and revising it higher up in the hierarchy.

Budget Planning

Top-Down Principle

Bottom-Up Procedure

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Funds are the means of planning and managing special funds and funds from secondary sources. They are not governed by the usual principle of entering data on an annual basis. They are used to define the prerequisites for integrating longer-term funds - such as for investments - into budget planning and execution. Budget estimates can be planned as an overall estimate for the full duration of the fund, and then distributed to the individual budget years.

Budget Structure

Budget estimates are created for a particular responsibility area as part of Funds Management. It is classified using functional criteria and referred to a source of funds. Meaningful combinations of commitment items, funds centers, and funds must therefore be set up for each budget year. Taken together, these combinations make up the budget structure that is binding for budget planning and execution. The budget structure is arranged in a hierarchy. It is a streamlined structure, containing only the required elements, derived from all possible combinations. Depending on individual needs, the budget structure is set up to meet the requirements of local or central budget planning, allocation, and control, or a mixture of the two. The following two diagrams illustrate the local (Figure 2-2) and central (Figure 2-3) model.

Figure 2-2: Local Budget Allocation

With local budget responsibility, responsibility area C1 can plan both at the level of top item I0 as well as of subordinate items I1 and I2. This is not possible with budget planning organized centrally. In this case, funds centers C1 and C2 can only plan at the level of items I1 and I2. In this example, a global budget cannot be planned at level I0.

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Figure 2-3: Central Budget Allocation

Generally speaking, many people from different responsibility areas are involved in drawing up the budget plan. SAP Public Sector offers planning techniques to make their work easier. Among other things, plan values can be adopted from the previous budget year as the first version of the new draft budget. The plan data can be adjusted to reflect such things as rate increases, price increases, and other factors. Percentage rate adjustments can be specified for each commitment item. The individual responsibility areas then work on the first draft. Changes are passed on directly to higher levels in the budget structure using roll-up techniques. If a higher level reduces a budget estimate, this may lead to the estimates of the higher levels not being reconciled with those of the subordinate levels. For this reason, the system supports two procedures: saving an unchecked draft budget that has not yet been reconciled or posting a draft budget once it has been reconciled at all levels. If the interim draft budget should be saved for documentation purposes, the relevant data version is blocked against further changes. This data can be used to create a second, working-copy version of the draft budget. Changes to the budget made during the drafting phase are documented in change documents. These documents are the line items that can later be used to trace the development of the draft budget. In SAP Public Sector there are two types of budget: the payment budget and the commitment budget. The system can control which business transaction commits funds in the payment budget and/or commitment budget and at what point in time.

Planning Techniques

Budgets

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For example, the following combinations are possible: q Payment budget and commitment budget The payment budget forms the financial framework for all the payment requests (invoices) in the current budget year. The commitment budget evaluates the earmarked funds that can be entered in the future, starting with the current budget year. q Payment budget and commitment authorizations In this variant, the payment budget forms the framework for payment requests and earmarked funds in the current budget year, while the commitment authorizations specifically determine the earmarked funds for an identified number of consecutive years.

Budget Types

Generally speaking, public bodies need to differentiate budget estimates according to their varying types - something they can do in the R/3 System using budget types. q Budget carry-forward If budget amounts are carried forward from the previous budget year to the next, these budget amounts are identified separately from the budget amounts for the current year. q Budget advance If the law allows parts of next years budget to be used in the current year, this advance appears as a separate budget type in the current year. q Supplementary budgets Supplements can be used to assign additional budget to Funds Management account assignments where, for example, these accounts are charged with unplanned, yet necessary, tasks. Supplements are effected outside of the general budget creation process. q Budget returns If there are surplus funds in a funds center or commitment item, these funds can be returned to the higher level Funds Management account assignments within their hierarchy. q Budget transfers Transfers help avoid funds bottlenecks by moving budget between elements of the budget structure.

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Budget Execution
Expenditures
All transactions that trigger expenditures in the R/3 System or lead to payment commitments are recorded online in Funds Management. in transaction and FM area currency using individual documents that show: q The type of expenditure (which commitment item/budget line will be charged) q Who is responisble for the expenditure (budgeting responsibility area/funds center) q Who supplied the funds (which fund/secondary source). In many cases, this account assignment information can be derived automatically from other SAP objects, such as the Employee number (HR master record), G/L account, or cost center. The documents in Funds Management (FM) have two functions: q As part of active availability control, they form the basis for determining how much of the budget has been assigned. When configuring the system, you can specify whether these funds assignments should draw on the payment budget or the commitment budget. q They form the basis for reporting: periodic FM evaluations such as budget/ actual comparison, line item reports, or Workflow lists showing the amounts still to be approved. Each document refers back to the original document so that you can always drill down to the triggering document (purchase orders, payment requests, payments, and so on). Monitoring of assigned funds is an essential element of budget control. The funds manager must always be in a position to compare the assignments (budget usage) with the funds currently available. The update supplies the data for passive availability control, in the form of a budget control report. For active availability control, the update supplies the data that monitors budget usage by recognizing budget limits when posting documents. To determine budget usage, the system automatically takes account of two consecutive business transactions (such as an invoice following earmarked funds). The security of this procedure is backed up system-wide by commitment management, preventing budget from being used twice. The system also supports budgeting levels. The controlling level (assignment level) is specified in the budget structure. This is the level at which availability control is to take place. The level at which postings are made, called the account assignment level, is in this case below the controlling level. Tolerances can be used to define graduated error messages in the form of an early warning or rejection. The budget usage rate or tolerance level (from which point these messages will be issued) can be identified in the system.

Availability Control

Tolerances

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In addition, the system can be configured such that notifications concerning the current budget situation within a responsibility area are automatically sent by E/Mail to the responsible budget manager. Active availability control includes a range of additional checks on expenditure postings: q Checks on posting feasibility in the budget structure q Consistency checks q Authorization checks q Status management checks q Existence checks on basic data.

Figure 2-4: Expenditures in the R/3 System

Expenditures

Figure 2-4 shows an example of SAP standard applications, from which payments or payment commitments may arise. The links between the individual components are the principal advantage of integrated processes that have many possible uses in the public sector. Many of Funds Managements feeder components in the R/3 System produce documents locally, which can later lead to payments. At the time these preliminary documents are created, better control options are available than those which might be available later when, for example, a legal commitment may be in place in the form of a purchase order. Active availability control may be beneficial even at this early stage. The following example illustrates this. An employee enters a travel request in the system. The availability check on the travel budget from this functional area determines that the available funds are insufficient to cover this trip and so the system rejects the travel request. The employee must either opt for a cheaper method of travel or request additional funds. Without the travel request and integrated

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availability check, there would have been no means of controlling the expenditure early enough because the costs would already have been incurred by the time they were entered in the system. However, when using travel requests with integrated availability check, the budget from the functional area is assigned for the amount of the travel request as soon as the document is saved in the system. The system displays all the travel requests and trip costs for the relevant functional area. At year-end, open earmarked funds can be carried forward, along with the budget, according to carry-forward rules you can define yourself. Locking mechanisms prevent unauthorized budget carry-forwards to the next budget year. Example from Materials Management: q An employee from a user department requires three copies of a software product for his PCs and therefore enters a purchase requisition. This product normally costs $110 per unit. The total of $330 is charged against the user department budget. q The central purchasing and procurement department converts the purchase requisition into a purchase order. The department knows of several companies who can supply the product. Using evaluation criteria in the Materials Management component, it picks one who can supply the units for $315. The difference, $15, is credited to the user department. q When the goods are received, one of the units is damaged. The company returns it and procures a replacement elsewhere. The system writes a credit memo for $105 that is credited to the user department budget. q The supplier apologizes for the damaged goods and grants a discount of $10. The company also takes a 3% discount. $16 is credited to the user department. q The cashiers office pays the amount invoiced. You can tailor a scenario like this to suit your own requirements. For example, purchase orders can be entered without purchase requisitions or invoices can be entered that do not reference purchase orders. Customizing is used to determine how Funds Management documents are produced and thus how budgets are assigned. Customizing options for expenditure update include: q Period/fiscal year determination q Tax processing q Timing of funds assignment in Funds Management. The preliminary documents produced in the system will at some point be cleared by actual payments or will be canceled. Funds Management keeps track of all the preliminary levels of the payment which remain accessible at all times. Payments, down payments, or partial payments are usually fully automated using the payment program. Budget transfers can be triggered by postings in the feeder components as well as by postings in Funds Management itself. These include expenditure postings in Financial Accounting, internal activity allocation in Controlling, or funds transfers in Funds Management.

Expenditure Update

Actual Data /Payments

Transfers

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Commitments

The budget contains authorizations that restrict expenditures to the current budget year. SAP Public Sector provides various models for setting up business transactions that are directed towards future budget years. These models basically differ in the form in which the different business transactions lay claim to the two budgets (payment budget and commitment budget). For example, transactions which generate commitments (such as purchase requisitions, purchase orders, and invoices) are checked against the commitment budget whereas payments are checked against the payment budget.

Figure 2-5: Commitments in SAP Public Sector

Earmarked Funds

As part of budgetary execution, the assigned budgets are consumed by different business transactions. SAP Public Sector manages several types of earmarked funds. These types differ in terms of: q The time from which they apply q Their usage q The accompanying legal obligations q Their integration with the management process. Earmarked funds form the link in the business process chain between the budget and accounting. You can use them to reserve budget funds for a particular purpose. SAP Public Sector has functions specially designed to support all the processes in this area. Integrated workflow processes increase their efficiency.

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SAP Public Sector offers a number of earmarked fund types: q Funds blocking q Funds reservation q Funds pre-commitment q Funds commitment. You can use funds blocking to claim budget so that nobody else can use it. You can later remove the block on some or all of the funds, thereby increasing the available budget. You can use funds reservations to reserve parts of the budget early, even if you do not yet know exactly what you will use them for or when. The funds reservation is the preliminary stage of the funds pre-commitment and funds commitment. The funds pre-commitment can reference a funds reservation. By the time you make a funds pre-commitment, you know more about what you will need the funds for but without a definite contractual agreement. The funds commitment covers both what the funds are used for and the accompanying legal obligations. Such legal obligations might be in the form of purchase orders made to a supplier or other contractual agreements. A funds commitment can - but need not refer to funds made available in a funds reservation or funds pre-commitment. You can enter additional data, such as the supplier or particular contract numbers, in the funds commitment. An earmarked funds document consists of a document header and as many line items as you wish. With some exceptions, changes are possible after document entry. The system checks and logs these changes. When entering earmarked funds, you must first enter the data for the document header. The most important data is the document type, posting date, company code, currency (rate), document header text (and long text). No subsequent changes are possible to the document type, company code, and currency, but you can correct the rate, posting date, and document header text if necessary. The document type controls, among other things, how the document number is assigned and determines whether a transaction process that triggers Workflow is available for this document. An earmarked funds document contains the document header and at least one line item. The most important data in a line item is the amount requested and the relevant Funds Management account assignment. Active availability control against the relevant budget is also possible. With some restrictions, the amount and Funds Management account assignment can be changed after entry. You can also add more line items, but cannot delete those already in the document. The open (unused) portion of the earmarked funds is displayed. You can display detailed change histories as required. If your funds commitment refers to a funds pre-commitment, the commitment takes over the Funds Management account assignment and checks that the required amount is still available in the budget. If budget overruns are allowed, the system checks whether the additionally required funds are still available in the budget.

Funds Blocking Funds Reservation Funds Pre-commitment Funds Commitment

Document Structure Document Header

Line Items

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Workflow
Integrating Workflow processes automates the approval process for all types of earmarked funds and any changes made to them. When entering an earmarked funds document, workflow is triggered by the chosen (Workflow-dependent) document type. The transaction must be approved before the budget can be used. Budget usage is only provisional in nature during the approval phase. Furthermore, funds (pre)commitments cannot reference a funds reservation until that reservation has been approved. To ensure that the amount in a funds reservation will be available after the reservation has been approved, budget is reserved in advance. The reserved amount can be changed after approval, but this will restart the approval process which in turn can be integrated into Workflow. Prudence dictates that increases be treated differently from decreases. If the amount is to be increased, the consumed budget is immediately increased by the relevant amount. This ensures that the budget amount cannot be used by other earmarked funds during the approval phase. If the amount is to be reduced, on the other hand, prudence dictates that the budget is not changed until the new reduced amount has been finally approved. Once approved, the Funds Management account assignment can only be changed if no portion of the funds reservation has been used. Making such a change voids the approval already given, meaning that the funds cannot be used until new approval is granted. Workflow also runs in parallel with the processes involved in changing the account assignment. Workflow can be configured such that the assignment of transactions (e.g. funds reservation for approval) to particular employees is dependent upon information contained in the document itself, such as the Funds Management account assignment and the amount.

Incoming Invoices/Payment requests

Incoming invoices can be entered in either the Purchasing or Financial Accounting components (see the corresponding functional brochures for more information). The invoices entered are checked by the system to make sure that the contents are correct. You can add any account assignments and then approve them. This procedure is the one used in the private sector and all transactions are fully integrated into Funds Management. As an alternative to this, SAP offers another option for entering vendor invoices and credit memos, the payment request. This method is mainly oriented towards users with fiscal accounting interests.

Payment Request

Payment orders effect the entry of vendor invoices and any appropriate credit memos. There are many advantages to this procedure in SAP Public Sector, the most important being that you assign transactions directly to objects in the Funds Management component, not straight to a G/L account as is usual for document entry in commercial accounting systems.

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The Funds Management account assignment is comprised of a commitment item, funds center, and fund (see also: Basic Data). The system uses this account assignment to determine the G/L account to which the posting is made in the background. If a transaction does not reference a budget, you can post it directly to a G/L account. This assignment to Funds Management provides different views of the overall document: the fiscal accounting view with its emphasis on the Funds Management account assignment and the double-entry bookkeeping view that concentrates on the G/L account (see also: Dual Accounting). The payment request is based on document parking (preliminary posting), meaning that the document entry procedure can be interrupted at any point. It is not a precondition of document entry that, for example, the payment request must show a zero balance. When you flag the document as complete, extensive checks get under way. The data is recorded in Funds Management and the budget funds are committed. Active availability control verifies that the funds needed to make the payment are actually available. When you create or change a payment request, you can reference a funds commitment and reduce it. If the payment and commitment budgets for a budget year differ from each other, the used budgets for these two budget types are managed separately. You can flag a funds commitment as complete from the payment request entry transaction. This means, for example, that you can flag a purchase order as complete even if not all of the goods have been delivered, and release the difference compared with the amount originally assigned. You can branch directly to the funds commitment display transaction if you need to list the funds still available or any other information.

Automatic Payment
The payment program automates all payment transactions with customers and vendors, starting with selection of the open items due, such as payment requests, payment method and bank determination, and generation of payment media which it also manages. The functions which process cross-company code payment transactions, discount entitlement, offsetting of customer and vendor payments, down payments (advance payments), and credit memos complete the comprehensive functions available in this application component. The process covers three levels: q Determining the payment proposal list q Processing payment proposals q Posting payment documents and creating payment forms and data media.

Process Flow

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Figure 2-6: Payment Program Flow

The system determines the payment proposal list using document information, customer and vendor master records, specific control tables, and selection criteria you enter yourself. If there are payment proposals to be processed, several employees can work on them simultaneously. For example, different employees can work on changing the proposed payment methods, bank details, terms of payment, or payment blocks on individual items. The system actions the payments based on the proposal list and creates corresponding posting documents. It clears payables and receivables and links them to the relevant payment before printing forms or creating data media. The system logs the whole payment run, giving you an overview of the process at all times.

Payment

It is the due date that decides whether or not an open item is cleared. The due date is calculated using the payment period and cash discount base date stored in the document. The general rule is that payments are processed at the latest possible date without loss of discount and discount is included in the case of customers. However, you can configure the system differently to meet your own individual needs. The payment program supports all the common methods of processing incoming and outgoing payments, including payment by check, bank transfer, direct debit, bill of exchange, postal check, and a range of country-specific methods. You choose how many of these methods you want to use and can store up to ten in a vendor/ customer master record. The system can use payment documents to pay groups of due items, or to pay them individually.

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In the last step of the payment run, the program prints the required forms or creates the file for data medium exchange. The system contains the different payment forms required for each country and bank. You can use these unchanged, change them, or create new ones of your own. The file provided for data medium exchange (DME) contains all the payment information. It conforms to the requirements of banks in the relevant country. The data can be transferred to a PC, stored on diskette, or transferred directly to the house bank. All the information flows into DME management via the data media created. This information includes the payment run ID, house bank, clearing house, amount paid, and so on. You can display the documents contained in the data media online or print them out.

Payment Forms and Data Media

Revenues
In the revenue area, the emphasis is on planning (see also: Budget Planning) and the processes associated with it. The figure below illustrates this:

Revenues

Figure 2-7: Flow of Revenues

Availability control plays a minor role in monitoring revenue budgets. Forecasts of revenue are revenues that are expected and included in the budget planning process but by which method or when these revenues will be received is not yet certain. Forecasts of revenue always include a Funds Management account assignment. The recovery order controls reduction of the forecast of revenue. When you post a recovery order, you can reference a forecast of revenue. This is then reduced by the amount of the recovery order. If you set the Complete indicator in the recovery order, the system clears the whole of the forecast of revenue, regardless of the amount entered in the recovery order. Use of the forecast of revenue is optional. You can enter recovery orders without referencing a forecast of revenue. You can also enter a forecast of revenue that simultaneously references a customer from whom revenue is expected. This does not, however, update items in the customer account in Financial Accounting.

Forecasts of Revenue

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You can also define a forecast of revenue as increasing the expenditure budget. This way the values from the forecast can be made available in the expenditure budget. The integration with workflow processes opens efficient paths to very detailed processes for controlling and monitoring expected revenue entry.

Recovery Order

Recovery orders record the receivables due from third parties. They are billing documents based on contracts or other receivables with their basis in law (such as taxes, royalties, and deductions). They always reference a particular Funds Management account assignment, the relevant G/L account, and a customer. This is how Financial Accounting and sub-ledger accounting are integrated with Funds Management. If you are managing the revenue budget on the basis of invoices, the budget is updated when you post the recovery order. If you are using document parking, the update takes place when you park the document. Recovery orders are also part of the dunning procedure that you can use to call in due items.

Cash Receipt

Receipt of the cash in the bank account clears the matching open item from the customer account. You can use Electronic Banking, which updates bank statements automatically, for this process. If you are managing the revenue budget cash based, posting the cash receipt triggers the budget update.

Dunning

A dunning program is available to handle dunning of customers who do not meet their obligations on time. The program determines the customers and open items to be dunned as well as the account dunning level, then uses this information to print the appropriate dunning letter. All dunning data is stored in the open items and customer accounts. You define the details of the dunning process, such as the number of dunning levels and the content of the dunning texts, to suit your own requirements. You can define as many dunning procedures as you want and can set up different dunning areas, which you can then assign when posting an open item. This means you can then process the items for each dunning area separately later on. You can calculate interest on items that have not yet been paid but are already overdue, or on items which were paid too late. The following interest calculation variants are available: q The interest is to be posted; interest is only calculated on cleared items. The interest calculation starts from the due date for net payment. q The interest is to be posted; interest is calculated on both cleared and open due items. The interest calculation starts from the upper limit of the last interest run. q The interest is not to be posted. The interest calculation always starts from the due date for net payment. The system also supports a correspondence function with which business partners can be informed of relevant interest data.

Interest Calculation

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Managing Funds From Secondary Sources

Universities, research institutes, associations, foundations, and similar non-profit organizations are financed by funds from different sponsors in the public sector and private sector, as well as from private individuals. Particular projects often draw funds from more than one source. The sponsors involved expect their instructions to be adhered to and to be able to view a complete record of how their money was spent. SAP Public Sector uses funds to represent the various sponsors and applications of funds. Funds represent financial resources (own or external funds) that are available to cover expenditures on a particular project, together with the financing period and application of funds. Each fund includes a descriptive short text and a long text. The master records in Accounts Receivable are used to manage sponsors. More than one fund can be assigned to a customer; there is no need for multiple data entry in respect of sponsors who finance more than one fund. Master records have been specifically designed to represent applications of funds. Both short texts and long, more detailed texts regarding the application of funds can be entered, along with a time interval covering the period financed. The application of funds can also be assigned to more than one fund; there is no need for multiple data entry in respect of applications of funds financed by more than one fund. If the project you want to manage is more complex, use the R/3 Project System component.

Basic Data

Figure 2-9: Link Between Fund, Sponsor, and Application of Funds

Funds that a sponsor provides for a particular project are usually tied to particular expenditure categories, which are defined in accordance with the wishes of the sponsor or the organization. To ensure that only particular organizational areas or departments call on the financial resources in a fund, you must assign the funds to the appropriate organizational units.

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Budgeting

Once funds have been promised by a secondary source and you have set up an appropriate fund, customer, and application of funds in the system, you can start budgeting the funds. To do this, you first define a budget structure. This specifies which responsibility area (funds center) may spend the promised funds on which expenditure categories (commitment items). You can set up an overall budget covering the whole financing period; you can then distribute this to the relevant budget years. A budget release process enables you to delay making budgets available until you actually receive the money from the sponsor or other prescribed conditions are met. You can also differentiate by budget type, that is original budget, supplements, returns, and transfers. You can use line items, for which you can enter explanatory texts, to document your budgeting work. Regardless of whether, for example, you are posting the funds received from a sponsor in Financial Accounting or from an invoice receipt in Materials Management, the system monitors the complete account assignment for each document. You can derive these account assignments from other account assignments, such as the project number (if you are using the Project System component). The fundoriented total of revenues and expenditures illustrates the current financial situation in a fund. You can include purchase requisitions, purchase orders, and funds reservations to make the picture even clearer. When you post, availability control is activated. With the management of funds from secondary sources, the check can be against the overall budget or the annual budget. You can define these checks per fund in Customizing.

Availability Control

Reports to Sponsors

SAP Public Sector reporting gives you, among other things, an overview of the funds available, along with funds assignments and any funds remaining. You can opt to have this display reference expenditures, expenses, or investments. To ensure that the audit trail for the assigned funds is complete, the documents contain all the relevant information on expenditures, such as the fund, funds center, commitment item, amount, posting date, controlling object, and so on.

Year-End Closing
Budgets are usually processed and controlled in relation to a particular budget year. This means you must accrue for open documents at the year-end and the system must take a special view of transactions that last for more than a year. The most important matter to consider is what to do with unused residual budgets, including whether to carry budget forward to the next year. This may mean reassigning funds or changing your budgeting systems. SAP Public Sector allows for complex, detailed rules to be established up front for the carry-forward of commitments and budget, permitting a smooth transition to the new budget year.

Open Commitments

Transactions not completed at the end of a budget year are breaking the principle of annual budgeting. If the invoice for some ordered goods is delayed or the payment period ends in the new year, you may have to assign the document to the new year. Your own specific requirements and rules will determine which document types are carried forward or how often a document is allowed to be carried forward.

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How open commitments are carried forward is determined as part of fiscal year change closing operations. The system uses your specifications to determine the open documents and display them. You can decide, for each individual document, whether to carry it forward to the new budget year. The last step is the actual carry-forward. Both processes (determining the open commitments and carrying them forward) can be carried out in a number of stages and need not depend on the date when the budget year actually ends. Since you can, for example, carry forward particular documents early or others later if you forget them, it helps keep your year-end closing operations correct. There is also a simulation facility that enables you to identify the steps necessary in year-end closing operations earlier.

Figure 2-10: Commitments and Budget Carried Forward

However carefully you plan your budget, certain variances are inevitable in practice. Projects for which you have entered concrete budgets may be delayed while others may be finished under budget. In both cases, there will be unused funds at the end of the budget year. You will have to decide what to do with them. Strictly interpreted, the principles of taking the annual view specify that unused budget funds may not be made available for non-investment expenditure in the new year. This means they would lapse. However, in most cases it is a good idea to carry funds forward to the next year, at least those budgeted for particular purposes, so that they will continue to be available for the original purposes instead of simply being redirected. How much of the residual budget may be carried forward depends on various factors. Practice varies from one public sector market segment to another. When carrying forward residual budget, you may need to consider changes to areas of responsibility or functional changes. In some cases, you may have to return some or all of the residual budget to the higher-level administrative authority so that it can redistribute the funds in light of the new requirements.

Residual Budgets

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Funds Management

In many cases, there are statutory rules governing how budget funds may be carried forward. Similar rules restrict how funds may be used once carried forward to the new budget year and over how many years funds may be carried forward. The closing operations function covers all the requirements for carrying forward residual budget. The system determines how much budget remains and displays this. These figures form the basis for deciding how much budget to carry forward and who/what will receive it. Specific carry-forward rules enable the carry-forward process to be as detailed as required. This means that you can exclude individual commitment items from the carry-forward or distribute particular amounts, or partial amounts, to different recipients. The next step is to actually execute the carry-forward. In addition, any special rules laid down in budget memos are also taken into consideration. Regardless of when the year actually ends, you can carry budgets forward to particular points in time. The amounts are always determined on the basis of the latest budget and funds assignment data, and the carry-forward is updated according to the rules currently in force. There is a simulation function which can be used to experiment with different scenarios for the same budget.

Information System
The information system in SAP Public Sector supports the evaluation of summarized records using drilldown reports, and of line items using line item reports. In addition, there are a number of logical databases you can use to create reports of your own.

Drilldown Reporting

Interactive drilldown reporting in the SAP information systems offers an easy way to display commercial objects, such as commitment items, funds centers, or funds. You can use any key figures you want in the process, such as the total of the payment requests in Workflow. The system also supports various forms of variance analysis: plan/actual comparisons, fiscal year comparisons, or object comparisons. Drilldown reporting includes easy-to-use functions for navigating through the data, permitting quick and easy movement between levels and objects. You can also hide levels and display detailed lists. There are also many other functions you can use to process lists online, including conditions, exceptions, sorting, hit lists, and so on. Integration with SAP Graphics, SAP Mail, SAP-XXL Listviewer, and Microsoft Word for Windows adds to the information systems wide range of functions and uses. With the drilldown tool, you can incorporate data from SAP systems and from other systems to prepare the information base needed for a Data Warehouse. You can create and display lists with complex or simple formats within drilldown reporting. The facility for storing the data selected for a report leads to better response times when you access the same report later.

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Funds Management

The drilldown reporting functions are divided into three levels; you use the function level best suited to your information needs. As well as the online functions, the information system includes a facility for printing out reports in bulk. Line items are produced each time you post. They contain information on the Funds Management account assignment, amount posted, posting date, and as to who made the posting. When you start a line item report, you can restrict the line items the system will read to particular commitments items, funds centers, funds, or posting periods. In addition, you can enter various settings to vary the format of the report and can branch from the list of line items directly to a display of the relevant document. This might, for example, be a Financial Accounting document produced by a G/L account posting. Most documents have more than one line item. If you need more evaluations, you can use the logical database and the ABAP/4 programming language to create your own reports. The logical database supports various selection options, collects data, and carries out central authorization checks. Logical databases also make a user dialog interface available and you can check user input and the error dialog.

Line Item Reporting

Logical Databases

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