A prepayment is used when a supplier requires partial or full payment for goods or services prior to the delivery/provision of the goods or services. Examples would include one-off transactions for individual contracts, refundable deposits, construction works and long-term agreements (LTAs) for health products.
When paid, prepayments reflect as amounts due to UNDP and are recorded in the asset account 16065 (Prepaid Voucher Modality). As the goods or services are provided, the prepaid asset balance must be reduced and an expense recorded for the amount of goods or services received by UNDP. This is achieved by receipting and vouchering against the relevant Purchase Order (PO) and offsetting the prepayment against the Accounts Payable (AP) PO voucher. Such offsets need to be communicated to the vendor. Accounting procedures in Atlas are as follows:
- Account 16065 Prepaid Expense is debited and AP credited for the amount of the prepayment.
- When a PO-AP voucher is created, the prepaid voucher is automatically offset against the PO-AP voucher, reducing the amount to be disbursed to the vendor.
- A PO must be created for the full amount of the purchase or contract (as if no prepayment is being made).
- Once PO exists, a Prepaid Voucher needs to be created for the amount of the prepayment. The PO ID must be entered as a reference in the Prepaid Voucher.
- Balance sheet account 16065 should be monitored on a monthly basis to ensure timely clearing of prepayments.
- Spot checks of payments to vendors with prepayments should be performed regularly to verify that no overpayments were made.
For transactions such as rent, maintenance and service contracts, and insurance premiums, where contracts are annual and amounts are relatively stable from month to month and from year to year, it is not necessary to raise a prepayment, even though payment will be made prior to receiving the services. These items can be processed via a regular PO with immediate receipting for the value of the prepayment required. At year end, the Office of Financial Resource Management (OFRM) will provide necessary guidance for any adjustments needed to reallocate expenses to prepaid assets, depending on materiality.
In addition, the following payments should not be treated as prepayments: security deposits; staff advances; non-refundable deposits; and advances to Sub-recipients.
Further guidance regarding prepayments can be found in the UNDP Programme and Operations Policies and Procedures (POPP) on Prepayments.
Standard Operating Procedures (SOPs), focusing on the procedures for processing prepayments to the United Nations Children’s Fund (UNICEF) under the LTA for the procurement of health products for Global Fund projects managed by UNDP where prepayment is required in full, are currently being finalized.