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State Agency Guide

Encumbrance Review Process

Encumbrances are as follows:

  • Shall be reported as reductions against appropriations in anticipation of an object code expenditure.
  • Shall be made only for a legally contracted obligation or for the accrued cost of a specific product or service due and payable prior to or as of the end of the current fiscal year or the term of the contract obligation.
  • Shall not be used as a means of reserving a portion of the appropriation of one fiscal year to be used in combination with the appropriation of the following year.
  • Encumbrance requests shall be accompanied by proper identification of the accrued cost which must be adequately covered by appropriated funds from the current fiscal year.

    • See Idaho Code 67-3521(2) for actual language.

    Criteria for encumbrance approval:

    1. Cash must be available at the time the encumbrance is entered into the system in order for the encumbrance to be valid. Should cash balances fall below that needed to liquidate the encumbrance before the end of the fiscal year, DFM will reduce the encumbrance to coincide with the cash available. Expenditures that are reimbursable from grant sources must identify the fund source and timeframe for reimbursement of the expenditure to be approved as an encumbrance.

    2. Encumbrances shall be for ordinary and necessary expenditures of the agency. These encumbrances consist of those expenditures necessary for the ongoing maintenance of operations that are imminent and cannot be postponed into the subsequent fiscal year. Unusual or extraordinary purchases will require additional documentation as noted below.

    3. Legally contracted obligations, or accrued cost of a specific product or service due and payable prior to the end of the current fiscal year or the term of the contract obligation, shall be supported by written and signed documentation detailing the terms and conditions of the contract. In no case shall an encumbrance be used as a means of reserving a portion of the appropriation of one (1) fiscal year to be combined with the appropriation of the following year.

    4. Unusual or extraordinary purchases must be submitted with answers to the following questions:

    1. Was this item previously requested via the budget process?
    2. If so, what was the result of that request?
    3. Did a critical piece of equipment fail unexpectedly?
    4. Was this item planned for replacement in future years?
    5. Does the encumbrance for this item obligate the agency to ongoing costs not addressed in the regular appropriation?
    6. What are the consequences of not funding this item?

    5. Encumbrances will be valid for one year unless justification for extension is provided detailing what efforts were made to liquidate the encumbrance and the impacts of not extending the encumbrance.

    6. Documentation must be available for review by DFM analysts to support the encumbrance. This will include, but may not be limited to, purchase orders, invoices, signed vendor contracts or authorization letters from the Division of Purchasing in the Department of Administration. Agency and vendor representatives must authorize all documentation prior to the end of the state fiscal year.

    7. Any encumbrances not covered by Idaho Code Section 67-3521 or the above guidelines shall be at the discretion of the Administrator of the Division of Financial Management.

     

    Contact Info

    If you have any questions regarding the Encumbrance Review Process please contact a DFM Budget Analyst.