Time to elaborate over a question that is still asked very frequently. Could public sector organizations use controlling to manage their budget execution (instead of Funds Management)? While you might expect a clear No to this answer, I am a bit cautious and would like to discuss this question in a bit more detail. The question should clearly not be addressed with the existing skill set of the available implementation consultants. I have seen this repeatedly: If your consultants come with a controlling background then controlling is the solution to every requirement in this area. Profit centre accounting is a close contender in this race to position the wrong module for the wrong reasons.
Looking at the budget execution topic from a global public sector point of view (which often includes Defense, Education even more corporate-flavoured entities such as Postal Services), there are many ways how governments must control and account for budget and budget consumption. In some countries, there are vast difference between federal, state and local governments. Over the years, funds management (in combination with grantee management and budgetary ledger) has morphed into a powerful framework which can cater for most government models around the world. On the other side, controlling has clearly never been adjusted for government specific requirements.
Controlling should play a very important role in government accounting strategies and both modules have been designed to work hand-in-hand in order to give you the best of both worlds.
Ok let us now go into the Details:
What Funds Management (FM) offers over Controlling (CO):
- Up to 6 Account Assignments can be update concurrently:
Controlling usually posts to one controlling object and a cost element. While CO offers many types of cost objects (e.g. costs centres, WBS Elements, Internal Orders), you post a cost always to exactly one CO object at a time. In FM on the other side, you can concurrently post to commitment items, funds centres, funded programs, functional areas, funds and budget years. This allows you to cater for requirements such as the US fund accounting, but also lets you slice and dice very differently in reporting.
- Cash View:
Budget consumption in FM can give you a cost and cash view. This means that you can report how much of your budget has been consumed by encumbrances, deliveries, invoices and paid invoices. This distinction is important for year-end processing in many jurisdictions. As for the cash view, it is also possible to document non-cost transaction in FM e.g. down payments or asset acquisitions (rather than cost of depreciations).
- Several Budgets:
Funds Management can update several “ledgers” concurrently. This is required in many countries where a cash and a commitment budget is required. As cash budgets are usually given for the current one or two-year budgets, this mechanism allows budgeting for long term contracts where investments will usually influence future year cash-flow. Without such a budget construct, governments could today commit to more long-term contracts than they could pay in future years. FM allows to define commitment budgets for a certain year with the definition of several cashflow years.
- Special Year End procedures
Within those budgets, governments often have special procedures when it comes to year end processing: What happens to obligations from purchase requisitions, orders, and so on at the end of the year? Are they carried forward into the next year? What happens to the budget that has been reserved for such commitment documents. The carry forward mechanism can also consider special treatment for open-unpaid invoices. FM offers a configurable framework to control the year-end behaviour of the different actual, commitment and budget documents.
Unlike the corporate sector, budget documents are legal document, which might require strict control, approval and documentation for budget updates. As such FM offers a completely different budget document concept than CO. While not often required, you can theoretically also post FM-budget documents concurrently to all the available account assignment and as such budget can be defined across the complete organisation and not only certain ring-fenced controlling objects
- Availability Control:
In FM it is possible to set up several levels of availability control. E.g. you can define that at a lower level an org responsible gets email when his budget is consumed up to 80%, on a higher level an org responsible might receive an email when the combined budget is consumed up to 90%. It is possible to set up several availability control ledgers if required even on different account assignments e.g. on funds centre and funded program.
- Update flexibility:
While CO usually update costs when they occur and commitments when the forecasted cost will occur, FM allows more flexibility. E.g. you can control whether a purchase order updates with a posting, delivery or invoice date. Such controls can be set separately for payment and commitment budget. As for the legal status of a budget document, so do some governments define the status of the budget consumption of a commitment. They regard the budget consumption of a purchase order as a document that can be reversed but not changed, otherwise a budget period closing report would change retrospectively. FM can provide such a view for commitment document via period base encumbrance tracking.
- Budgetary Ledger:
Some public-sector organizations even go a step further and mandate the complete budget cycle in general ledger posting. For this reason, FM has introduced the so call budgetary ledger. Every change in budget, commitment, invoice and payment is accounted for in a separate ledger. This mechanism gives e.g. the US Federal Government the ability to consolidate report across many departments in a standard chart of account.
- Revenue Increasing Budget:
In some jurisdictions the government runs some sub entities such as public swimming pools as profit centres and has allowed these entities to spend more budget in case of increased revenues. Such arrangements can be modelled in Funds Management with Revenue Increasing Budgets.
So, if your government entity requires any of these functionalities today or in the future, then FM is clearly the tool of choices. And vice-versa, if you do not require any of these functions maybe CO is sufficient. To conclude the thoughts, it is also important to define what controlling offers over funds management.
What Controlling (CO) offers over Funds Management (FM):
Unlike CO, FM does not offer any quantities, statistical key figures or product/service prices. As such FM does not have the ability to allocate or transfer cost/planned cost based on quantities, prices or account balances. FM does not know fixed or variable costs and does not offer any project functions (e.g. mile stone tracing). Any of these functions should be satisfied in CO and integrate into the FM. Again, the two modules should supplement each other.
And finally, through S/4 HANA, both modules will not only tremendously benefit from the new FIORI User experience and gain performance/flexibility through the data model simplification, but both will also be reconciled via the universal ledger.
Okumaya devam et...