Accounting ManualDisbursements: Advance PaymentsUC Accounting ManualVI. Accounts Payable OperationsD-371-11 (TL 39, 11/01/83)***************************************************************** DISBURSEMENTS: ADVANCE PAYMENTS I. INTRODUCTION A. SCOPE This chapter sets forth the University guidelines for advance payments on procurements, and is intended primarily as a practical guide for the disbursing sections of the accounting offices. B. LISTING OF ADVANCE PAYMENTS Advance payments to which the procedures described in Section II.B. below may be applied according to the magnitude of the amounts involved included, but are not limited to, those listed below which are the most common types of advance payments. If, however, the procedures outlined in Section II.B. (transaction may be treated as in Section I.C. below), are not applied, it will be advisable that supporting documentation be required in order to assure that there is appropriate evidence of receipt of goods or services paid for. 1) Foreign orders of low value--under $500 (those in excess of this amount should be procured through a commercial letter of credit. (See Accounting Manual Chapter C-555-42, Commercial Letters of Credit.) 2) Government and Library of Congress publications purchased from U.S. Superintendent of Documents the cost of which warrants special treatment in the judgment of the accounting officer. [In some cases campus departments which are volume users have established prepayment draw-accounts against which they place orders.] 3) Items manufactured to order or to meet special tolerances (require purchase order)--advance payment may be made based on the terms of the purchase order. 4) Library materials--advanced payment may be made when required by dealer or publisher. 5) Payment for collection of specimen, etc., in the field. 6) Payment [partial or full] to individuals for caterers for food and beverage service for official functions such as commencement exercises, administrative meetings, and student-faculty programs. 7) Research expeditions--charters for boats and reservations for other transportation and for expenses. 8) Special order items for trade and professional publications. 9) Subjects in research where a large number of people are paid small amounts. Check for entire amount is paid to investigator or experiment controller. 10) Vendors who offer substantial prepayment discounts. 11) Vendors who require prepayment if order is less than a certain minimum amount. 12) When a purchase order requires a unique product or service and the vendor is the only distributor or source, advance payment may be made if approved by the campus material manager. 13) Travel advances. ** 14) Removal or moving advances. C. LOW EXPENDITURE OUTLAY Because of the low expenditure outlay per transaction in relation to the costs of accounting for each transaction, the following types of advance payments are ordinarily excluded from the policy contained in this chapter. However, where in the opinion of the accounting officer and/or the campus materiel manager the expenditure outlay per transaction is considered to be material, the procedures described in Section II.B. below may be applied. 1) Subscriptions. 2) Honoraria--sometimes requested in advance of lecture or program. 3) Memberships dues. 4) Performing artists--where contract requires payment before performance begins. 5) Seminars and colloquia registration fees. 6) Other like transactions where in the judgement of the accounting officer and/or campus materiel manager the costs of accounting (as described in Section II.B. below) and/or handling are excessively high in com- parison to the expenditure outlay for the transaction. II. POLICY AND PROCEDURES A. POLICY 1. Avoidance of Advance Payments Advance payments or prepayments are to be avoided whenever possible for three primary reasons: a) It is prudent business practice (The University Terms and Conditions of Purchase provides (Article VI.), "Seller shall be paid, upon submission of acceptable invoices, for materials and supplies delivered and accepted or services performed and accepted.") not to pay for goods or services until they have been received in good order or rendered satisfactorily; b) The certifications on forms U FIN 161 (State Claim for Reimbursement) and U FIN 162 (No Warrant State Claim) prescribe that the signer, under penalty of perjury, certify that goods and/or services mentioned in the claim have in part been received or rendered in accordance with the contract (Purchase Order, etc.) and law; and c) The loss of interest on funds used to make advance payments, especially if delivery of materials or performance of services ordered is to take place at some distant future date. NOTE: Ordinarily, University [current] funds are invested by the Treasurer of The Regents in short- term notes, etc. Monies drawn from these funds and used to make advance payments therefore lose interest they would have otherwise earned. 2. Approval Authority Where advance payments are required (unavoidable), approval authority for advance payments will be effected as follows: a. Purchase Orders Where purchase orders are prepared, advance payments requested by vendors and accepted (approved) by the campus materiel manager (or the campus librarian) are to be entered on the purchase order as one of the terms of the purchase. It may be requested that the vendors send invoices directly to the ordering departments. b. Direct Charges When an advance payment is required for a direct charge transaction, the individual processing the direct charge must obtain the approval of the Vice Chancellor--Business and Finance/ Administration or his/her designee. Such approval will be effected by an appropriate approval signature on Form U FIN 5 (Check Request). c. Low-Value Procurements Advance payments are not authorized under the Low-Value Purchase Authorization Program unless approved by the campus materiel manager. B. PROCEDURES 1. Accounting for Cash Advances a. Account Recordation An appropriate cash advance account (for example, account number 112XXX, Receivable-- Other) is to be charged. The fund block or purchase order block may be used to project the date the invoice is expected to be received (this date control procedure will enable the disbursement section of the accounting office to follow-up on each cash advance). When the advance payment is recorded in the receivable account, a lien may be placed against the expense or other account to which the charge eventually will be made. b. Invoice Processing The invoice is double-tagged with a credit to the receivable account and a debit to the expense or other account; the lien, if any, is concurrently removed from the account previously charged. III. RESPONSIBILITIES A. CAMPUS MATERIEL MANAGERS, ETC. Campus materiel managers (or campus librarians) are responsible for the preparation and processing of purchase orders where they are required. B. CAMPUS ACCOUNTING OFFICERS Accounting officers are responsible for processing Forms UFIN 5 initiated by campus departments, for issuing checks, and for processing invoices for payment.IV. REFERENCES Accounting Manual Chapters: D-371-16 Disbursements: Approvals Required. D-371-23 Disbursements: Discount Terminology. D-371-28 Disbursements: Freight. D-371-35 Disbursements: Honorarium Payments. D-371-36 Disbursements: Invoice Processing. Business and Finance Bulletins: BUS-43 Materiel Management. A-53 Official Documentation Required in Support of University Financial Transactions._________________________________Historical note: Original Accounting Manual Chapter firstPublished 07/01/80; analyst--Quint Doroquez.Back to Accounting Manual Table of Contents