Budget Control Setup

Tip of the Day: In Microsoft D365 Finance and Supply Change (D365 F&SC), this is Part 2 of a multi-post blog on Budget Control. This blog shows the setup.

#microsoftdynamics365 #d365fo #d365 #dynamics365 #microsoft #intraclouddynamics #d365fscexpert #aliciakeener #budgetcontol #budgeting

Planning for Budget Control

If you use budget control, you will want to compile some information about the business requirements before beginning setup.

Some of the things that you will want to consider are. . .

- Which financial dimensions should be used

- Which user groups that can post entries that exceed the remaining balances for a budget

- Which source documents and accounting journals do you want to do a budget check for

- You will want to consider financial dimensions and accounts that must have a budget threshold and what that threshold is

What is a Budget Threshold?

A budget threshold is the level of a budget usage at which you can prevent posting or display warnings. For example, if the threshold is 80, you can warn a user during entry that 80 percent of the budget for the selected account has been used.

- You will want to determine the formula for calculating the remaining balance of a budget. The budget funds available calculation can be defined for each legal entity instead of always using the following calculation of original budgets minus actual expenses.

- You will want to think about the interval such as monthly, quarterly, or yearly that is used to determine whether the available budget balance is sufficient to cover the transactions.

Budget Control

Before you begin to use budget control, you must configure several setup components.

Dimensions

You can determine which financial dimensions from the chart of account will be available for budgeting and budget control. This can include or exclude the main account. You can only perform budget checks for dimensions that are included in the basic budgeting financial dimensions.

Intervals

The budget control interval works with the budget cycle to determine how amounts are aggregated for budget checking. For example, if you select fiscal year, all the funds for the fiscal year are aggregated for checking the budget amounts. If you select fiscal year-to-date or budget-to-date, the ending date is determined from the fiscal period and the accounting date of the source document or accounting journal that is being checked.

Time Spans

Time spans define the fiscal year or the number of periods for the budget cycles that are associated with the budget cycle time span. Budget cycle time spans are associated with fiscal calendars to determine the length of each budget cycle.

Thresholds

The threshold is the percentage of the budget that can be spent. The threshold can be used to provide warning messages or to define budget permissions to prevent specific user groups from exceeding the budget threshold. This threshold cannot exceed 100 percent.

Budget Managers

A budget manager is a user who can approve budget workflows. Multiple budget managers can be defined by using a budget control rule. For example, the department manager controls the budget for each individual department.

Budget Groups

You can define budget groups to form a budget pool or a collection of financial dimension values whose budgets will be pooled for a secondary budget check. The financial dimension combinations that are found in the budget control rule are always checked for budget amounts. If a financial dimension combination is also found in a budget group a second budget check is performed at the budget group level.

Available Funds

You can select various checkboxes to determine the amounts that are added to and subtracted from the budget funds that are available. Original budget and actual expenditures are selected by default so that the default calculation is the budget funds available equals original budget minus actual expenditures. The budget funds calculation is displayed underneath the checkboxes so that you can see and view how the calculation changes as you select and clear the various checkboxes.

Source Documents

You will need to select source documents. There are various checkboxes available to determine the source documents that are subject to budget control. You can also select checkboxes to enable budget checks as the lines for each source document are entered and saved. Examples of source documents include purchase orders and purchase order lines.

Accounting Journals

You can select checkboxes to determine the accounting journals that are subject to budget control. In addition, you can select checkboxes to enable budget checks as the lines for those accounting journals are entered and saved. Examples include accounts payable invoice journals and their lines. Budget checking helps make sure that budget funds are available for a plan or future purchases.

Example

For example, main account 606300 for office supplies is in an account structure and is a financial dimension value that is defined for budget control. A budgeting amount of 10,000 has been entered into the main account by using a budget register entry. Purchase orders are configured as a source document for budget control that will check at the line item entry. Next, a purchasing agent creates a purchase order and enters an amount of 5,000 for ledger account 606300 with some departments and business units, for example. A budget check is performed automatically, and the results of the budget check are visible on the purchase order line. If the budget check is successful, the agent can confirm the purchase order. In this example the budget check would pass. Let us say that a second purchase order for the same amount would fail because the budget would be exceeded by $2,000. In some cases, budget may be available for a purchase. However, the amounts may be in different periods or assigned to a different dimension. In this example, we are assuming the budget checking is being performed for the department and cost centers on purchase orders. Because of this, the budget check is failing when the purchase order is created. Let us say that some of the budget from the sales department East Region cost center needs to be moved to the sales department West Region for an upcoming event. The event will cost $9,000. Here, you can see the budget amount and available funds for both the East and West Regions. So, the budget manager creates a transfer from the East to the West Region by using a budget register entry as shown in the table. The result is now that the East Region has a total budget of 12,000 and the West has 11,000 available. After the purchase order is created, the West's available funds will be reduced down to 2,000.

Configuring Budget Control

There are 10 basic steps to configuring budget control.

1) Define budget control parameters

2) Define default over-budget permissions for user groups

3) Define the calculation that determines the budget funds that are available

4) Select the source documents and accounting journals for budget control

5) Assign budget models and budget cycles

6) Define budget control rules

7) Select main accounts that budget control rules will be enforced for

8) Define the financial dimensions that make up a budget group, and user permissions

9) Define message levels for user groups

10) Activate budget control configuration

Path: Budgeting > Setup > Budget control > Budget control configuration.

Parameters

The first steps in setting up budget control include setting up the basic parameters and configuring the permissions.

It is important to note that right now we are looking at the active version of the budget control. To modify the setup, click Create draft. D365FO will save a version of the current settings on the budget control, and if we want to restore them back to the version that they were, we can do so by clicking the Restore active version button.

The first thing we want to do is select which Account structure will be used for the budget control checking (i.e. Manufacturing P&L).

Next, select which financial dimensions to be used with budget control (Budget control dimensions). The list on the right will only include financial dimensions that are included in the financial dimensions for budgeting form. If all financial dimensions are used for budgeting, then they can all be used for budget control as well. Notice that only main account, business unit, and department are being used with this budget control company. You can also move the dimensions up and down by selecting the particular dimension and then moving them up and down. The system will do the budget check first on the main account, then on the business unit, and then on the department.

On the lower portion of the field, select which Budget control interval you want to use. You can select from one of these following options: Fiscal year, fiscal year-to-date, fiscal period, total budget, budget date, month, quarter, month to date, or quarters to date. When you choose one of the options such as month or quarter, the system will check to see if there's budget funds available in the month that the accounting entry or source document is dated for. When you use an option such as fiscal year-to-date, D365FO will check from the beginning of the fiscal year to the current date or the date of the transaction to see if there are enough aggregated funds available.

Next, select which Cycle budget time span you want to use. The cycle time spans will need to be configured before you can select them from this dropdown box (i.e. Fiscal, Planning).

In the Budget manager field, you can optionally choose an overall budget manager for the budget.

Next, you can see the default Budget threshold is set to 90. This indicates that warnings or errors will be sent to the user when the budget is at 90 percent or more of the budget. If you want to display a message when exceeding the budget threshold, set the Display a message when exceeding budget threshold field to Yes.

Over Budget Permissions

The Over budget permissions setup allows you to create user groups in the system administration module and then select them by adding rows into the over budget permissions. In the group dropdown box, you would select the user group. So, for example, if I wanted to allow department managers to allow over budget permissions, but regular users such as sales users and purchasing agents, to prevent over budget processing, we can do that. Also notice that there is an option to prevent processing at the over budget threshold.

Budget Funds Available

The Budgets funds available is used to define the budget funds available calculation. Under the Amounts to sum section, by default, original budget is selected. The other options that can be included are preliminary budget, budget revisions, draft budget dimensions, budget transfers, draft budget transfers in, and draft budget transfers out.

The original budget register entries that have a document status of completed are included. Also included are the project, fixed assets, demand forecasts, and supply forecast budget types that have a document status of completed, which are also treated as original budget amounts after they are transferred from other modules. The sum of the amounts of budget register entries that have budget types of original budget revision, transferred, carry forward budget, project, fixed asset, demand forecasts, and supply forecasts. Preliminary budgets are used when you have a budget amount that is preliminary. This is only used with public sector configuration key for public sector accounting.

You can decide if you want to include budget revisions. This includes budget register entries of the type of revision that have a document status of completed. You can also include draft budget revisions, which includes budget register entries with the type of revision that have a status of draft. Likewise, you can do the same thing with transfers. However, the draft budget transfers are included as ins and outs separately. So, ins are only budget transfer transactions that increase the budgets and outs are transactions that decrease the budget.

Under the Amounts to subtract section, by default, actual expenditures is selected. The other options that can be included are unposted actual expenditures, budget reservations for encumbrances, budget reservations for unconfirmed encumbrances, reduction to budget reservations for unconfirmed encumbrances, budget reservations for pre-encumbrances, and budget reservations for unconfirmed pre-encumbrances.

Actual expenditures include actual expenditures that are recorded in the general ledger from expense reports, vendor invoices, and accounting journal. The amounts from the source documents or accounting journals are also included in the budget check only when the source document or accounting journal is enabled for budget control. You could also choose to include unposted actual expenditures. So, these are expenditures that are recorded in the general ledger from expense reports, purchase orders, vendor invoices, and accounting journals that have not yet been posted. There are two checkboxes for reservations of encumbrances and unconfirmed encumbrances, which will include amounts that are related to purchase orders or purchase requisitions or travel requisitions and expense reports related to encumbrances. Unconfirmed encumbrances are for those records that are not yet posted.

The next checkbox for reduction to budget reservations for unconfirmed encumbrances means that the system will show the amount of the unconfirmed obligations that customers must pay. Since a correction to a purchase order can be reverted, this option is intended to prevent a reduction in budget reservation amount because of a correction to a purchase order until the correction is confirmed. The last two checkboxes are related to preencumbrances and unconfirmed preencumbrances, which relate specifically to travel requisitions or purchase requisitions.

As you mark various checkboxes, the lower portion of the screen will show the budget funds calculation. So here you can see that budget funds available equals all these amounts added together minus all the expense amounts added together.

Budget funds available = (Original budget + Budget revisions + Budget transfers) - (Actual expenditures + Unposted actual expenditures + Budget reservations for encumbrances + Budget reservations for unconfirmed encumbrances + Reduction to budget reservations for unconfirmed encumbrances + Budget reservations for pre-encumbrances + Budget reservations for unconfirmed pre-encumbrances)

You can select the include Carry-forward amounts checkbox to indicate amounts that are carried forward as part of the purchase order year-end process and also carry forward budget register entries that have a budget type of carry-forward budget should be included in the amount to sum up. As a part of the purchase order year-end process, budgets amount to the open purchase orders can be carried forward into the next fiscal year. This is very typical when you are using encumbrances or pre-encumbrances. Any budget reservation for encumbrances are also carried forward. When invoices are recorded against the purchase orders that are carried forward, budget control can treat the actual expenditures as carry forward amounts also. Therefore, inquiries and reports can display those amounts separately from the amounts that are not carried forward.

The last checkbox is use only apportioned amount. This is only used with public sector accounting if the public sector configuration key is enabled.

Documents and Journals

Budget control is available for source documents and accounting journals.

The documents/journals include the following:

- Advance ledger entries

- Allocation journals

- Daily journals

- Expense reports

- Fixed asset journals

- General budget reservation

- Payroll pay statements

- Project expense journals

- Purchase orders

- Purchase requisitions

- Travel requisitions

- Vendor invoices

Depending on how you configure budget control, source documents and accounting journals can be prevented from additional processing when a budget check indicates that the budgeted amounts are not available.

Notice that we are still in edit mode because the restore active version button is enabled.

First, look at the source documents by clicking this select source documents link on the left. Notice that the purchase requisitions checkbox is enabled. Also notice that purchase orders and vendor invoices are selected, and they are disabled. This is because when you enable the source document checking for purchase requisitions all downstream documents must also be enabled. So, purchase orders are a downstream document to the purchase requisitions and vendor invoices. Also notice that there is a line item entry checkbox available. This will automatically check the checkboxes for each of the downstream options as well.

Next, you can see travel requisitions and expense reports. Travel requisitions and expense reports are related to each other and you can enable the budget control checking at the line level of each of these documents as well.

Also notice that advance ledger entries, advanced reports, and payroll pay statements can be enabled. Next, click the select accounting journals link on the left. Here, you will notice you can select daily journals, allocation journals, project expense journals, and fixed asset journals. Each of the different journals also allows the line item level checking to be performed as well.

Assign budget models

A budget cycle time span defines the length of a budget cycle. Budget cycles are associated with the periods in a fiscal calendar and can be shared across legal entities. Budget cycles determine the starting and ending periods for budget control. You can map a budget cycle time span to a fiscal year, or you can specify the number of periods for part of a fiscal year or to span multiple fiscal years. You can assign the budget model to a budget cycle to perform budget checking for that budget cycle. Only one budget model can be used for a specific budget cycle.

A budget check is performed when the accounting data for a source document or accounting journal that is enabled for budget control is within the budget cycle. It is important to note that the budget cycle must be defined before you associate the budget cycle with a budget model. In the assigned budget models area, you can click the budget models link to open the budget model form and use the budget cycle time spans link to open the budget cycle time span form.

There are two budget cycle time spans options: Fiscal, and Planning. The fiscal time span typically has budget cycle of one year and the planning time span is typically a year or multiple years.

Define Budget Control Rules

Budget control rules are required for budget control. They determine the financial dimension value combinations for budget control.

If you select the department and cost center financial dimensions for budget control, you can define rules for specific combinations of departments and cost centers that are subject to budget control.

For example, you could specify that the department equals sales, and the cost center is set to a star, which indicates that is a wild card, and it could mean any cost center. The criteria in two or more rules that cover the same financial dimensions are not allowed. If all financial dimension value combinations will be enabled for budget control, you can define a budget control rule without criteria. The budget control rules are validated against the ledger accounts that are being used on a source document, accounting distribution, and accounting journals. If the financial dimensions in the ledger accounts match the final financial dimensions in the budget control rules, a budget check error occurs.

Notice that we are still in edit mode because the restore active version button is enabled.

Example

If there are two budget control rules, one for the sales department and one for the information technology department. For sales, the budget manager is the sales manager. The interval is fiscal year, and the budget cycle time span is set to the fiscal year with a budget threshold of 110 percent. This means that the sales department can exceed their budget by 10 percent before they will receive warnings for error messages. For the information technology department, the budget manager is set to be the IT manager and the interval is set to fiscal year-to-date. This means that the budgeted amounts can only be used up through the point of the year that you are making the transaction for. The time span is set to fiscal year and the threshold is 95 percent, which indicates that warnings or error messages would be received when five percent is remaining in the budget.

Once the budget control rule is created, you can override the user group budget permissions for that control rule. So, for example, on the selling expense rule, I could go into the user group budget permissions and override the user groups and say for this particular rule I want department managers to prevent over budget processing, allow, or prevent the over budget threshold. We can also select if we want budget group checks to be performed and when. You can choose from perform budget group check when budget funds are not available or prevent budget group check when budget funds are not available.

Select Main Accounts

If the main account financial dimension is not defined for budget control on the Define parameters section, you must select the main accounts that budget control rules will be enforced for.

If the main account financial dimension is defined as a budget control dimension on the Define parameters section, the main account financial dimension is included in the budget control rules and this setup is not required and the Select Main Accounts screen options will be disabled.

Notice that we are still in edit mode because the restore active version button is enabled.

To perform the budget check, mark the checkbox next to each main account that you want to do perform the check for. Only main account types of total, profit and loss, and expense can be selected because these are the accounts that typically are used for actual expenditures. Accounts that have a total type are included because you can enter budget accounts in main accounts that have a total type.

Define Budget Groups

In the defined budget groups tab of the budget control configuration form, you can define optional budget groups to form a budget pool or a collection of financial dimension values whose budgets will be pooled for a secondary budget check.

The financial dimension combinations that are found in the budget control rule are always checked for the budget amounts. If a financial dimension combination is also found in a budget group, a second budget check is performed at the budget group level.

For example, if there is a budget control rule for all combinations of the department and cost center financial dimensions, you could also define a budget group for Department 10, which includes all of the cost centers for that department. This budget group would pool all the budgets of all the cost centers for Department 10. So, if an initial budget check failed for cost center in Department 10, a second budget check would be performed on the aggregate budget for all cost centers in Department 10.

It is important to note that multiple criteria can be specified for a budget group. All the criteria are used to determine the financial dimension combinations for the budget group. No overlapping criteria is allowed across budget groups and budget group members.

Notice that we are still in edit mode because the restore active version button is enabled.

If I wanted to, I could override each of these budget groups and select a different budget manager or specify a different department or threshold.

When adding a new record, it is important that you select the correct node. Also, when adding, you have the option of linking this to a specific budget manager and changing the budget threshold. We can also use the user group budget permissions button at the top to override the user group permissions for this particular budget group. Here, we can select a group that was setup in the system administration module, and then choose if we want to prevent over budget processing, allow over budget processing, or prevent it at the threshold. This threshold and prevention are at the budget group level. Not at the budget control rule level.

Define Message Levels

In the Define message levels section, you can specify that budget control warning messages will not be displayed for selected user groups. Users in that selected group will continue receive error messages based on their over budget permissions. Note, if the user belongs to multiple user groups and you select one user group that indicates the user, no warning messages will be displayed for that user.

Notice that we are still in edit mode because the restore active version button is enabled.

Here, a list of all the different user groups that have been pre-created in the system administration module. By marking the checkbox, the system will suppress budget control warning messages. The users inside of this user group will continue receiving error messages based on their over budget permissions, which are defined in the Over budget permissions section. However, they will not receive warning messages.

Activate Budget Control

When you are finished making changes for setting of the budget control configuration, you must activate it. In addition, budget control must be enabled so that you can start using the settings. Use the Activate budget control section to activate the configuration or to start or stop using budget control. If the budget control is activated, but not turned on, you can manually perform a budget check by clicking the button in the related source document or accounting journal forms. However, the check will not be performed automatically until the budget control configuration is turned on.

When the setup is finished, you will need to activate and turn on the budget control. To activate the budget control, click the activate button and the system will update with the user that last activated it and the date. Once the budget control is activated, you can turn it off or on. You can see that right now it is turned on. If I wanted to turn it off, I would click the turn off button.