Funds Management for Public Sector

(An End to End Scenario)

Author: Amit Sheth

Reviewer: Santosh Kambli

Date: 10th January, 2014

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Contents
A. Introduction to funds management......................................................................................... 3
B. Business scenario ....................................................................................................................... 4
C. Solution overview ........................................................................................................................ 5
D. Detailed solution .......................................................................................................................... 7
1. Organization structure: .............................................................................................................. 7
2. Master data: ................................................................................................................................... 7
3. Account Assignment: ............................................................................................................... 10
4. CO Assignment: ......................................................................................................................... 11
5. Budget Structure: ....................................................................................................................... 11
6. Derivation Rules: ........................................................................................................................ 13
7. Availability control (AVC): ....................................................................................................... 14
8. Status Management: ................................................................................................................. 15
E. End-to-End Scenario in Funds Management ...................................................................... 16
F. Appendix ....................................................................................................................................... 35

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A. Introduction to funds management
Funds management is part of SAP Public Sector Management (SAP PSM) module which is at large
implemented by public institutions, federal and state authorities, local authorities, public agencies,
nonprofit organizations etc. SAP public sector management integrates various functionalities that need to
be performed by public sector organization right from budget formulation, budget preparation, budget
execution and reporting within the standards set by the management. Execution of budgets is among the
most important tasks of organizations operating in the public sector and monitoring the flow of funds from
the source to application is core process in the SAP Public Sector Management.
The Fund Management component of the SAP PSM helps to plan, create, and execute budgets for
expenses and revenues for the responsibility areas, control the flow of funds as per the budget, and help
monitor the application of funds through an active availability control mechanism. It also provides
provision to change budget by entering supplements, transfers, returns. As with all the SAP components
there are two main things in funds management the organization structure and the master data. The
organization structure and the master data will be discussed in detail in the following sections.

The paper will mainly discuss a business scenario with an end to end cycle in Funds Management.

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B. Business scenario

Lets consider a scenario of Fund management for a local governing body. For better understanding,
each function of the local body is shown as a separate point below.

A local body which is reporting as a single legal entity needs to implement Funds Management
process for better control in its functions.
To carry out the smooth governing, the local body is eligible for funds. There are mainly two
sources: The State Fund and The Central Fund.
The local body receives a central fund called RG Fund and from the state the local body receives
a fund called the VD fund.
These funds are then allocated to various responsibility centers where they are consumed by
different departments. The local body allocates the fund to responsibility center say N-ward and
S-ward.
Under each ward there are different departments which require the funds for the smooth
functioning of the department. For e.g. there is a technology department which looks after the
technology needs for the ward and also there is a HR department which looks after the
salary/wages for the human resources in the ward.

Requirement

1. The requirement for the local body is to track the source of fund and also track its application.
2. Budget (Plan/Actual version) for the different funds and responsibility centers
3. The governing body also has a requirement to track the execution of budgets for expenses for the
responsibility areas and control the flow of funds as per the budget and help monitor the
application of funds through availability control mechanism.
4. It also wants to track changes to budget in case of supplements, transfers, returns etc.
5. A competitive bidding procedure for procuring new hardware is to be initiated during the year. The
requirement is to create a funds reservation in order to take this relevant activity into account.
This reservation should ensure that sufficient budget funds exist at the time of the competitive
bidding. No other projects can make use of these funds.

In the following section we will see how SAP Funds Management can be of use to the local body to
fulfill the above business requirements.

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C. Solution overview
The local government requirements as mentioned in the business scenario (section B) can be met by
SAP Funds Management. This section gives an overview of the solution. The following things form the
solution for the local body.

1. Organization Structure: The organizational unit in Funds Management is called the Financial
Management Area" (FM area). The FM area is assigned to one or more units from financial
accounting (company codes). This is the basic configuration required for using the Funds
Management.

2. Master Data: Master data that is used in SAP Funds Management are as under;
Fund - Fund is used to represent the fund from the source.
Fund Center - A fund center represents a defined responsibility area in SAP Funds
Management.
Commitment item - Commitment item represents revenue & expenditure in Funds
Management.

3. Account Assignment: The commitment item master data will be used in GL account master for
the expenditure and revenue items to track the budget and carry out active availability control.

4. CO Assignment: The fund center master data will be assigned to the cost center.

5. Budget Structure: Once the master data is in place we define the budget structure which provides
a function specific structure of the relevant Funds Management assignment objects which can be
budgeted and posted.

6. Derivation Rules: The derivation rules for the account assignment objects Fund, Fund Center and
Commitment from GL and cost center are defined for determining the budget addresses.

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7. Availability control: This is used to check the consumable budget against the consumed budget.
The availability control mechanism will trigger a message when the tolerance limits are about to
be breached or are breached and thus helps control postings within the assigned budgets.

8. Status Management: Status management is used to control the commercial transactions. A status
can permit or forbid a commercial transaction, or have no effect on it. The system distinguishes
between system status and user status.

Once configuration is done and above 8 points are set up, the 5 requirements for Funds of the
business scenario can be fulfilled which will be discussed later in the paper by running the end-to-
end cycle.

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D. Detailed solution
1. Organization structure:
The organizational unit in Funds Management is called the Financial management area" (FM area).
You can assign one or more units from financial accounting (company codes) to an FM area. The FM
area currency and a fiscal year variant must be defined as global parameters.

Client

FM Area 1 FM Area 2

Company Company Company Company

Code 1 Code 2 Code 3 Code 4

Controlling Area

Purchasing Sales
Plant Org Organization

The following scenarios are possible for an organization structure

a. A company code (company code 4 in the above diagram) that does not have an
assignment to an FM area can be assigned to a controlling area that is integrated in
Funds management via the assignment of FM area to company code.

b. Four company codes are assigned to the controlling area, of which two company codes
are assigned same FM areas, one company code is assigned to another FM area, and
one company code does not have an assignment to an FM area

c. However, if one of the account assignment elements is activated, all company codes
assigned to the controlling area must be assigned to the same FM area or there is no
assignment of these company codes to an FM area

2. Master data:

Master data that is used in SAP Funds Management are as under;

Fund
Fund Center
Commitment item
Grant
Funded Program

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 a. Fund:
A fund is a separate and distinct fiscal or accounting object containing a complete self-balancing
set of accounts used to distinguish cash and other financial resources, together with associated
1
liabilities and residual equities . Thus it is very important to track and account for the source of
fund and its application. SAP Funds Management helps in doing this.

Fund is used to represent the fund from the source. Also the fund as a master data helps in
defining the time availability of the fund, application of fund, classify fund and use it for evaluation
purpose. Thus funds are used to Track Sources & Application of Funding.

Fund Master: In our business scenario VD51 is the fund from state government (Fund Type:
STAT51) and is to be used for infrastructure development (Funds Application: INFRA51). The
dates, valid from and valid to define the availability of fund.

b. Fund Center:
A fund center represents a defined responsibility area in SAP Funds Management. Funds centers
in Funds Management are arranged in hierarchies. You can define one funds center hierarchy
per FM area. There is only one top funds center in a funds center hierarchy. Every other funds
center has one superior funds center. One can assign budget to funds centers. Budget is used up
as postings are made to funds centers, giving rise to commitment and actual values.

Funds Center Hierarchy: In our business scenario the NS WARD represents the superior funds
center which further assigns responsibility to 2 other funds center NWARD and SWARD as
shown below

1
mySAP Public Sector IN SAP R/3 Enterprise

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 Funds Center Master Data: The funds center is defined for a company code and a person
responsible is also assigned to the master data. The hierarchy is assigned to the fund center if it
is not a superior fund center. Basic data tab contains general details, validity period and
organizational elements while Hierarchy tab contains hierarchy variant.

c. Commitment Item:
Commitment item represents Revenue & Expenditure in FM. Commitment items in Funds
Management are arranged in hierarchies. We can create more than one commitment item for a
FM area. Example: one hierarchy for revenues and another for expenditures.

Commitment items classify budget transactions and business transactions into revenue,
expenditure, and cash balance items. You can assign budget for particular responsibility areas
(funds centers) to the commitment items. Budget is cosumed as postings are made to
commitment items and funds centers, giving rise to commitment and actual values. There are two
types of commitment item:-

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 Account assignment items: These are at lowest level in the hierarchy and one can post to and
budget these items.

Summarization items: These are the hierarchy nodes in commitment hierarchy and these can
only be budgeted, but cannot be posted. Summarization items are used to set up the hierarchy.

Commitment item hierarchy

Commitment item master: In the master data we define the type of commitment item it is i.e.
expenditure, revenue etc. and the financial transaction type is also assigned.

If it is a hierarchy node then we define it as not directly postable.

3. Account Assignment:

The commitment item master data will be assigned to the GL account master for the expenditure
and revenue items to track the budget and carry out active availability control. If the funds
management is activated in the system and we are using it for all expenditure items then in the
GL account of the expenses we have to maintain the corresponding commitment item. If the
availability control is activated and amount is entered while posting an invoice for the GL account,

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 then it checks the amount available with the commitment item assigned and allows/disallows
posting. The screenshot below shows the tab of GL account master that has to be maintained
with commitment item.

4. CO Assignment:

The fund center assignment to the cost center helps in linking the FM master data object with the
controlling master object and serves the purpose of internal cost accounting for the business
transactions. The cost center and the fund center are linked using the derivation rule which
discuss in section 6.

5. Budget Structure:

The budget structure provides a function specific structure of the relevant Funds Management
assignment objects which can be budgeted and posted. The combination defined in the budget
structure can also be used further for the availability control and status management. In the
budget structure we can define
i. Budget address and
ii. Posting address.
The budget objects are the one which are just budgeted and the combination cannot be posted.
The posting objects are the one which can be budgeted as well as posted.

Depending on the business requirement one can define the combination as a budget object or
posting object. The budget structure can be defined on an annual basis if the funds have an
annual validity. For our business scenario we define budget structure for the combination of fund,
fund center and commitment item.
For e.g. if we want to budget the application of VD fund for the S ward for buying the hardware for
the ward we need to define the budget object having the combination of VD Fund, Fund Center
S Ward, and commitment item HARDWARE. This same combination is also to be defined as a
posting object so that when commercial transactions are posted in the system, the system tracks
and also checks for availability.

Budget Structure:

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Budget Combinations (Budget Address) FMBSBO

Budget Structure with different combinations

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6. Derivation Rules:

The derivation rules for the account assignment objects Fund, Fund Center and Commitment
from GL and cost center are defined for active availability control. A derivation strategy containing
the derivation rules to determine the account assignment for budget addresses is defined first.

Once a derivation strategy is defined we define the derivation rules in the strategy. These rules
will help in account assignment derivation for the budget addresses.

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 Derivation Rule for Fund and Fund Center

By defining the above settings along with the budget structure, one can budget and post data to
the defined posting and budget addresses. Also the commitments posted made to the posting
address consume the budget of budget address that are assigned through the account
assignment derivation.

7. Availability control (AVC):

This is used to check the consumable budget against the actual consumption. The availability
control mechanism will trigger a message when the tolerance limits are about to be breached or
are breached and thus helps control postings within the assigned budgets.

When a posting is done the update in the AVC is done through two derivation steps. Firstly, the
budget address is derived from the posting address as in step 6. Secondly, the AVC control
object is derived from the budget address using a derivation strategy.

Control Object AB

Control object address is derived based on the

derivation rule in availability control system

Budget Address B1

Budget address is derived based on the

derivation rule in budget control system

Posting Address A1

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8. Status Management:
Status management is used to control the various sub-processes within budgeting process.
These processes are typically planning, budget entry, budget update, year-end/closing activities.
A status can permit or forbid a transaction, or have no effect on the transaction within the sub-
process. The system distinguishes between system status and user status.

Generally the system status is fixed for a particular phase and the user status helps in imposing
further limits in addition to those by system status. There are 3 statuses which are predefined in
SAP, and these are created, released, and closed.

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E. End-to-End Scenario in Funds Management
Requirement: Budget (Plan/Actual version) for the different funds and responsibility
centers

a. Set Planner Profile FMPLSET

A planner profile is used to plan tasks. Before the tasks are planned the planner has to be
assigned to the planner profile. A plan task is a combination of planning layout and default
parameters.

After this we define the planning layout and edit the tolerance profile for the availability control
mechanism.

b. Budget planning in planning version FMPLCPD

For our business scenario we plan the budget in the planning version 21. We also decide to
plan allocate the budget for the Fund, Fund center and commitment item combination. After
the planning layout is defined the default parameters defined for the layout, using the
transaction FMPLCPD we upload the budget for the combination

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c. Enter Plan Values for the budget combination

In this activity we define the planned budget for the budget combination which is defined in
the BCS. As we see in the screenshot the budget process in PREP in this case and the
planning version is 21.

d. Plan Budget check for the planning version in budget review FMRP_RW_BUDGET

Once the planned budget is defined in for the budget combination of fund, fund center and
commitment item we check the values using the budget review function. In this case since
the combination is budgeted for $ 45000 as in the previous step, on running this transaction it
displays the same.

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e. Generate Budget Data FMCYLOAD (From planning version to plan/actual version)

Once the planned budget is finalized the budget amount can be transferrerd to the actual
version where it can be tracked on a day to day basis. The transaction FMCYLOAD is used
to load the budget from the planning version to the plan/actual version. Please note the
version after this transaction is run the version 0 which is plan/actual version has the budget
of $45000 for the above budget combination.

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f. Budget report: We run the budget report to check the available budget for the the
combination

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Requirement: The governing body also has a requirement to track the execution of budget
for expenses for the responsibility areas and control the flow of funds as per the budget
and help monitor the application of funds through availability control mechanism. The
following addresses this requirement;

g. Before posting an AP invoice we check the available amount and the consumed
amount for the budget combination FMRP_RW_BUDCON

Post an invoice with amount >= 90% of available amount (To check the availability control)

The SWARD in our business scenario has a requirement for Hardware in their technology
department and for this the necessary process to procure the hardware has been in place
and hardware worth $99000 has been approved for procurement. When a vendor invoice is
generated using the transaction FB60 in SAP, the following message is shown by the system
as the availability check is on;

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Based on the derivation rules set up in the configuration on providing the GL account and the cost
center the corresponding Fund, Fund Center and commitment items are derived as below

The current budget consumption is 10,000.00 USD (FM PB Availability Control) less than the
annual budget for the document item. Budget control on outgoing amounts raised this warning
message for the above combination of availability control ledger, fiscal year and control object.
Since it is a warning message it will allow posting the document. The settings are such that if the
amount is greater than 90% of the available budget then system throws the warning message.

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h. Document Posted

i. After posting an AP invoice we check the available amount and the consumed amount for
the budget combination FMRP_RW_BUDCON

j. Posting an MM invoice and checking the available amount and the consumed amount for the
budget combination

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 The annual budget of the availability control ledger FM PB Availability Control is exhausted for the
document item. Budget control on outgoing amounts (ceiling type Expenditures) raised this
message for the following combination of availability control ledger, fiscal year and control object:
9H/2012/VD51/SWARD51/HARDWARE51. The document will be posted as the budget amount
is still available.

k. After posting an MM invoice we check the available amount and the consumed amount for
the budget combination FMRP_RW_BUDCON

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 The document journal above gives us the details of how the available budget was consumed by
specifying the value type where it was consumed. For the scenario we discussed above the
budget was consumed mainly via the AP invoice and the MM invoice (through purchase order).
The highlighted section above describes these details.

Requirement: The governing body wants to track changes to budget in case of

supplements, transfers, returns etc.

l. Now there is some additional requirements for the department, but the allocated budget is alreay
used. The department gets approved the additional budget for the technology needs.Since the
budget is exhuasted we now supplement the budget for the current combination. It is
supplemented using the budget workbench - FMBB

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Requirement: A competitive bidding procedure for procuring new hardware is to be
initiated during the year. The requirement is to create a funds reservation in order to take
this relevant activity into account. This reservation should ensure that sufficient budget
funds exist at the time of the competitive bidding. No other projects can make use of these
funds.

Create a funds reservation (10000 USD) in order to take this budget relevant activity into account.
You define the Funds Management account assignment (the corresponding commitment item,
funds center and fund) the amount and if desired, additional text information in the funds
reservation document. This reservation ensures that sufficient budget funds exist at the time of
the competitive bidding. No other projects can make use of these funds. After viewing the offers,
you specify the business partner for example a supplier for the hardware and a partner for
services. Using the additional information now available, you create a funds commitment that
refers to a funds reservation. The Funds Management account assignment is transferred from the
funds reservation. You enter a document item with the appropriate amount for each business
partner. You can define more detailed business partner (vendor) specifications per line item. This
entire process is related to the earmarked funds.

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m. Create Earmarked Funds Reservation

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n. Earmarked funds commitment

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o. Using Earmarked commitment during the invoice generation

Requirement: Track changes to budget in case of supplements, transfers, returns etc.

p. Funds Transfer FMBB

The fund RG21 is short of funds and the fund VD51 is in excess of fund and it has been decided
that the excess fund allocated to the VD51 fund can be transferred to the RG21 fund. SAP funds
management can be used to track this transaction as well as under;

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q. Check fund transfer in budget consumption report FMRP_RW_BUDCON

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r. Report for the fund to which transfer is made

s. Before carrying the commitment carry forward and budget carry forward to the next fiscal
year we create a commitment by creating a PO for the budget combination

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t. Checking the residual budget before carry forward

u. Budget carry forward for the budget combination FMMPCOVR

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v. Budget Carryforward document

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w. Report Check

x. Commitment Carryforward FMJ2

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This completes the entire cycle for funds management addressing all the requirements of the
local governing body from planning to actual use of funds with availability control to carryforward
to the next year.

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F. Appendix

Public Sector Management Activation

Activation of Business Function EA-PS (SFW5) is a pre requisite. After activating business function
EA-PS then you can see the path of Public sector management module.

Run Program FMGL_CHANGE_APPL_IN_LEDGER using SE38

1. Maintain FM Area

The Funds Management Area (FM Area) is the primary structural component that is required to be
maintained to implant Public Sector Funds management solution

IMG Menu Enterprise Structure Definition Financial Accounting Maintain

FM Area.

Transaction SPRO
Code

2. Assign Company code to FM Area

The Funds Management area must be assigned in the enterprise structure.

IMG Menu Enterprise Structure Assignment Financial Accounting Assign

Company code to Financial Management area

Transaction SPRO
Code

3. Activate Account Assignment Elements

This task activates the accounts assignment elements (Fund, Functional Area, Grant, and Funded
Program) for use in Fund Management.

IMG Menu Public Sector management General settings for Public Sector
Management Basic settings: Account assignment Elements
Activate Account Assignment Elements

Transaction SPRO
Code

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4. Activate Global Funds Management

This task activates Public Sector Management functions in the system.

Access the activity using one of the following navigation options:

IMG Menu Public Sector management Funds Management Government

Basic Settings Activate Global Funds Management Functions (PSM-
FM)

Transaction SPRO
Code
Change application subcomponent from FI_GLF to FI-PSM through report
FMGL_CHANGE_APPL_IN_LEDGER

5. Activate Global Functions of BCS

In this IMG activity, you activate the Budget Control System (BCS) as an operative budgeting tool
of the component Funds Management Government.

The Global Funds management (PSM FM) should be active before BCS may be activated.

IMG Menu Public Sector Management Funds Management Government

Basic settings > Activate Global Functions for Budget Control System
(BCS)

Transaction SPRO
Code

Run Program RGZZGLUX using SE38

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