Budgetary Controls allows you to check to see if the expenditure is within your budget constraints, i.e. if there are funds available for that expenditure. That is to say, “do we have enough money (funds available) to incur this expenditure”? Budgetary controls help to control and analyze spending practices.
Budgetary Controls consists of two processes: Funds Checker and Funds Reservations.
Funds Checker is a feature of budgetary controls that helps prevent overspending budgets by verifying available funds online
before processing a transaction. Funds Checker both checks and reserves funds and is shared by Oracle Payables, Oracle Purchasing and Oracle General Ledger.You can elect to do funds checking with encumbrance accounting. Funds Checking used with Encumbrance Accounting immediately updates the accounts and verifies that funds are available.
Funds Reservation reserves the funds for the expenditure and immediately updates the funds available. You can view Funds Available in GL (Inquiry –> Funds Available) this screen is automatically updated when funds are reserved.
The formula for funds availability is:
- Budgetary Controls have three levels:Absolute, Advisory and None.
- Absolute – funds reservation will not take place unless there are funds available. This prevents overspending the budget.
- Advisory – funds reservations will take place even if there are insufficient funds. This will produce a warning message on the screen advising that this expenditure will cause you to exceed the budget.
- None – funds reservation will take place even if there is insufficient funds, although no message will be produced. This level is the most likely to allow overspending.
Summary and Detail Level Control:
Detail Budgetary Control is used to control expenditures against a budget amount for a particular GL account. When using this method of control you must budget to each account for which you enable budgetary controls. Summary Budgetary Control is used to control budget expenditures at a less detailed level, such as department or cost center. The advantage here is that each account does not need a budget.
Budgetary Control Setup:
1. Assign Reserve for Encumbrance Account and Enable Budgetary Control Options in Oracle General Ledger (Setup -> Set of Books)
2. Open the latest Encumbrance year (Setup - > Open/Close)
3. Define the Budget which will be the Funding Budget (Budgets -> Define Budgets)
4. Define a Budget Organization and specify the accounts for which Funds Checker will take place including the level of checking, i.e. absolute vs. advisory (Budgets -> Define Organizations)
5. Click the MAINTAIN button to submit the program – Maintain Budget organization (Budget -> Define Organizations)
6. Select Budget Organization and Budget for steps 2 & 5. Enter accounts to budget and amounts for each period. Click on the “Create Journals” button and go to the Check and Reserve Funds Screen. Reserve Funds (Budgets -> Enter Journals)
7. Query the journal batch created in step 6 and post it. (Journals -> Post)
8. Select Encumbrances to be created (i.e. Requisition, PO), and select the type of encumbrance (obligation, commitment)
(Payables –> Setup -> Options -> Financial, Encumbrance Region)