Federal Government Accounting Chapter 19
Learning Objectives Understand federal financial management environment, including the roles and responsibilities of various federal organizations Identify sources of GAAP for the federal government financial report Understand the federal accounting model
Learning Objectives (continued) Explain basic budgetary process & terminology used by the federal government Prepare basic budgetary accounting entries and basic proprietary entries for a federal agency Understand the financial statement requirements for federal agencies Understand the financial statements presented for the U.S. Government as a whole
Basis for Federal financial management found in Constitution No money shall be drawn from the treasury, but in consequence of appropriations made by law; and a regular statement and account of the receipts and expenditures of all public money shall be published from time to time. Article I, Section 9
Financial Accounting Responsibilities Oversight agencies Department of the Treasury Office of Management and Budget (OMB) Government Accountability Office (GAO) Federal Accounting Standards Advisory Board (FASAB) Individual agencies
Department of the Treasury Acts as chief accountant and banker Primary functions Central accounting & reporting, including developing government-wide consolidated financial statements Cash receipt & disbursement management Management of the public debt Supervision of agency borrowing from the Treasury Maintenance of government-wide Standard General Ledger (SGL) Issue Treasury Financial Manual which contains agency proprietary reporting requirements and requirements to implement the SGL
Office of Management & Budget Broad financial management powers, including preparing executive budget Primary duties: Apportion enacted appropriations among agencies and establish reserves in anticipation of cost savings, contingencies, etc. Set requirements for accounting & reporting on budget execution Prescribe form & content of financial statements Provide guidance on all matters related to budget preparation & execution
Government Accountability Office Headed by Comptroller General of US Primary duties Serves Congress in the general oversight of the executive branch Independent legislative auditor of federal government
GAO Accounting & Reporting Responsibilities Prescribe principles & standards for federal agency accounting & financial reporting, internal control, accounting systems, & auditing Auditing financial statements of federal agencies
Financial Accounting Standards Advisory Board Created jointly by Treasury, OMB, and GAO in 1991 Promulgates accounting principles and standards to be followed by federal agencies 10 member board One each from Treasury, OMB, GAO, and Congressional Budget Office (CBO) 6 non-federal members, one of whom serves as Chairman More information available at www.fasab.gov
FASAB Accounting Standards Recognized as GAAP for federal agencies by AICPA SAS No. 91, Federal GAAP Hierarchy As of early 2008, FASAB has issued 5 Statements of Federal Financial Accounting Concepts 32 Statements of Federal Financial Accounting Standards 7 Interpretations Numerous Technical Bulletins and other documents
Federal Agencies responsibilities Prepare agency budget requests for submission to President through OMB Establish & maintain effective accounting & financial reporting systems and internal control in compliance with GAO requirements Implement and operate SGL Prepare and submit proprietary reports and budget execution reports
Overview of Accounting & Reporting Congress establishes guidelines for accounting & reporting through legislation Treasury, OMB, and GAO responsible for setting principles, standards, & requirements (PSR) in two major categories Budgetary PSR Proprietary PSR
Budgetary PSR Budgetary requirements set by OMB Requirements for reporting certain budgetary amounts included in standards from FASAB Implementation mandates set by OMB, but agencies must implement them Treasury sets requirements to help implement fiscal reporting and management
Proprietary PSR By law, are responsibility of the GAO Current practice has principles and standards set by FASAB GAO sets requirements for accounting systems and internal control OMB has legal authority to set requirements for form and content of financial statements Treasury implements PSR by requiring periodic reports
Federal GAAP Hierarchy A. FASAB Statements and Interpretations, as well as AICPA and FASB pronouncements specifically made applicable to federal governmental entities by FASAB Statements or Interpretations. FASAB Statements and Interpretations will be periodically incorporated in a publication by the FASAB. B. FASAB Technical Bulletins and, if specifically made applicable to federal governmental entities by the AICPA and cleared by the FASAB, AICPA Industry Audit and Accounting Guides and AICPA Statements of Position.
Federal GAAP Hierarchy (continued) C. AICPA AcSEC Practice Bulletins if specifically made applicable to federal government entities and cleared by the FASAB, as well as Technical Releases of the Accounting and Auditing Policy Committee of the FASAB. D. Implementation guides published by the FASAB staff, as well as practices that are widely recognized and prevalent in the federal government. In absence of a pronouncement covered by Rule 203, auditor can consider other accounting literature, depending on its relevance in the circumstances.
Budgetary Process: Complicating factors Agency authority to incur obligations for future disbursement not based on revenue estimates Budget authority to incur obligations is granted by Congress under three types Appropriations 1-year, multi-year, no-year, or permanent Contract authority Borrowing authority Process of spending budget authority has five distinct steps: apportionment, allotment, commitment, obligation, & expended appropriations
Budget Cycle 1. Preparation 2. Approval 3. Execution 4. Reporting
#1 Preparation & #2 Approval Preparation begins in executive branch and ends when presented to Congress long and continuous process Budget approval rests with Congress, which is a long process in itself Starts with a concurrent resolution to establish spending limits Ends with appropriations 1,200 to 1,400 individual bills
#3 Execution Based on appropriation approval, Treasury gives agency appropriation warrant Agency submits request for apportionment to OMB OMB makes apportionments to the agency (holding some back for contingencies, savings, timing or policy reasons) Agency carries on activities with apportionments through allotments for programs & activities Programs commit, obligate and expend money to acquire goods & services
Warrants Document that verifies an appropriation amount contained in public law Signed by Treasury Secretary Contains amount of appropriation for the agency Treasury uses warrant to monitor agency to ensure amount is not exceeded
Apportionment Divisions of appropriations granted by OMB to agencies based on their warrants Used to allocate appropriations on a quarterly basis While agencies record entire amount of appropriation in records, it can only spend the amount of the apportionment Apportionment control maintained by OMB
Allotments Budgetary authority passed from agency to subordinate managers for use Suballotments allocate authority still further
Commitment Administrative reservation of budgetary authority for goods and services Charge to allotment based on preliminary estimate Useful planning tool to initiate spending process
Obligation Legal (formal) reservation of budget authority Based on latest estimate of cost of goods and services Recorded when the goods and services are ordered Very similar to an encumbrance in SLG accounting
Expended Appropriation Amount of goods and services received and accepted Formal use of budgetary authority Equivalent to expenditures in SLG accounting
Expired Authority Unexpended, unobligated appropriation authority from prior years Used for variations when prior year orders are filled in current year Lapses 5 years after appropriation became expired FY 2005 appropriation becomes expired at start of FY 2006 FY 2005 lapses at end of FY 2010
#4 Reporting Budget execution reported periodically and annually to OMB agencies report amount(s) of Authority Expended appropriations Obligations Unobligated apportionment Disbursement incurred OMB reports centrally for government forms basis for next year s budget from President to Congress
Exceeding Budget Authority: Conditions causing problems Apportionment exceeds appropriation Allotment exceeds appropriation or apportionment Obligation exceeds allotment, apportionment, or appropriation Expended appropriation exceeds appropriation, apportionment, or allotment There are criminal penalties for those who exceed budget authority.
Budgetary Equation Budgetary Resources Appropriations + Borrowing Authority + Contract Authority + Reimbursement Authority +Collections from Other Sources = Status of Authority Unapportioned Appropriations + Apportionments + Allotments + Commitments + Obligations + Expended Appropriations + Expired Authority
Proprietary Equation Variations that cause differences with private sector model Assets = Liabilities + Net Position Cash account and disbursements Net position accounts Unique nature of and interrelationships between the components of Net Position
Cash & Disbursements Most agencies have very little cash except for imprest funds Predominant amounts represented by line-of-credit with the Treasury in amount of warrants received Known as Fund Balance with the Treasury Handled similar to a bank account balance for a business Request for payment creates a liability, Disbursements in Transit When agency is notified by Treasury payment has been made, Disbursements in Transit and Fund Balance with Treasury are both reduced
Components of Net Position Cumulative results of operations Unexpended appropriations Trust Fund balances
Cumulative Results of Operations Net difference between Expenses and losses from the inception of an agency or activity and Financing sources (appropriations used and revenues) and gains from inception of an agency or activity to the reporting date For revolving fund or business-type activity, essentially the same as total equity Unexpended Appropriations would be zero
Cumulative Results of Operations (continued) For agencies financed exclusively or almost exclusively from appropriations, component is the difference between Cumulative expended appropriations of the agency over the years, and Cumulative expenses and losses over the same period
Unexpended Appropriations Budgetary fund balance of an agency Amounts of obligation authority that have neither been expended or withdrawn as of the reporting date Equal to the sum of unapportioned appropriations, unallotted apportionments, unobligated allotments, obligations at the reporting date, and expired authority For agency operating on business-type basis and receives no appropriations, component equals zero
Changes in Net Position components Enacting Appropriations Incurring Expended Appropriations Incurring Unfunded Expenses
Enacting Appropriations Most difficult aspect of federal agency accounting is interrelationship among appropriations and components of net position Effect of appropriation on net position components Receipt of appropriation increases Unexpended Appropriation (and net position of agency) Appropriation withdrawn by OMB or Congress before used, Unexpended Appropriation decreases by this amount
Effect of Incurring Expended Appropriations on Proprietary Accounts Unexpended appropriations account is reduced Appropriations used increased by same amount Either Fixed asset, inventory, or other assets acquired are capitalized, or Expenses incurred are recorded in amount of expended appropriations
Incurring Unfunded Expenses Agencies may incur some expenses to be funded in future years Pension costs Contingent liabilities Employees annual leave earned but not taken In proprietary accounts, expense and liability are recognized
Standard General Ledger (SGL) Developed in 1986 and implemented in 1988 Integration of budgetary and proprietary accounts required same transaction will require entries in both sets of accounts
Principal SGL Accounts 1000s 2000s 3000s 4000s 5000s 6000s 7000s Asset Accounts Liability Accounts Net Position Accounts Budgetary Accounts Revenues and Other Financing Sources Expenses Gains and Losses
Budgetary Accounts Budgetary Resources Accounts (normal debit balance) Appropriations Realized Total Actual Resources Collected Status of Authority Accounts (normal credit balance) Unapportioned Authority Apportionments Allotments Realized Resources Commitments Undelivered Orders Paid Undelivered Orders Unpaid Expended Appropriations Paid Expended Appropriations Unpaid Expired Authority
Sample entry: Receipt of warrant Budgetary Proprietary Appropriations Realized Unapportioned Authority Fund Balance with Treasury Unexpended Appropriations xxx xxx xxx xxx
Federal Fund Structure Government-Owned or Federal Funds General Fund Special Funds Revolving Funds Management Funds Trust & Agency Funds Trust Funds Deposit Funds
Effect of Fund Structure Different influence than with SLGs Budgetary reporting Appropriations are the basis of accounting Each appropriation for each year has a complete SGL
Effect of Fund Structure (continued) Proprietary entity is broader, but may still use appropriations Treasury requires 650-750 sets of proprietary financial statements which are consolidated to form agency- and department-wide statements SGL maintains two proprietary accounts on an appropriation basis by year Fund Balance with the Treasury Unexpended Appropriations
Financial Reporting Includes both agency-level and government-wide statements Major agency reports due by March 1 of the following year Government-wide statements due to Congress from President within one year (i.e., FY 2004 reports would be due by 3/1/2006)
Agency Year-end Financial Statements 1. Balance Sheet 2. Statement of Net Cost 3. Statement of Operations and Changes in Net Position 4. Statement of Budgetary Resources 5. Statement of Financing 6. Statement of Custodial Activity
Government-Wide Statements Balance Sheet Statement of Net Cost Statement of Operations and Changes in Net Position Reconciliation of Net Operating Revenue (or Cost) and Unified Budget Surplus (or Deficit) Statement of Changes in Cash Balance from Unified Budget and Other Activities
Preparation requirements Includes all the federal government s departments, agencies, and other units All interdepartmental and interagency balances and transactions are eliminated Depreciation recorded, as required Other adjustments, as necessary, to get a consolidated statement
Case Illustration Prepared for fiscal year 20X1 Activities financed with single-year appropriation Simplifications for examples Assume general ledger control accounts are employed Presentation is only general ledger entries Summary entries presented Closing entries not shown on overheads Effects of transactions on budgetary and proprietary accounts
#1 Congress enacted appropriation [Page 768] Proprietary Entry Fund Balance with the Treasury 20X1 Unexpended Appropriations 20X1 225,000 225,000 Budgetary Entry Appropriations Realized Unapportioned Authority 225,000 225,000
#2a OMB apportionment [Page 769 770] Proprietary Entry none Budgetary Entry 1 st Quarter entry Unapportioned Authority Appropriations 68,000 68,000 Similar budgetary entries would be made each quarter. By the end of the year, a total of $220,000 will have been recorded in these accounts [$225,000 appropriation less the $5,000 holdback by OMB]. Further illustrative entries will assume the entire $220,000 has been apportioned.
#3 Agency administrative allotments [Page 770 771] Proprietary Entry None Budgetary Entry Appropriations Allotments Realized Resources 214,000 214,000
#4 Preliminary requests [Page 771] Proprietary Entry None Budgetary Entry Allotments Realized Resources Commitments 48,000 48,000
#5 Purchase orders for supplies approved [Page 771] Proprietary Entry None Budgetary Entry Commitments Undelivered Orders Unpaid 37,000 37,000
#6 Received supplies [Pages 771 772] Proprietary Entries Inventory for Agency Operations Accounts Payable Unexpended Appropriations 20X1 Appropriations Used Budgetary Entry Undelivered Orders Allotments Realized Resources Expended Appropriations Unpaid 30,500 30,500 30,000 500 30,500 30,500 30,500 Estimated cost was $30,000; $7,000 still outstanding; invoice was for $30,500.
#7 Used supplies [Page 772] Proprietary Entry Operating/Program Expenses Materials and Supplies Inventory for Agency Operations 25,000 25,000 Budgetary Entry None
#8 $12,000 in checks ordered in 20X0, issued in 2X01 [Page 772] Proprietary Entry Deposits in Transit Fund Balance with Treasury 20X0 12,000 12,000 Budgetary Entry Expended Appropriations Unpaid Expended Appropriations Paid 12,000 12,000
#9 Travel orders issued [Page 772] Proprietary Entry None Budgetary Entry Allotments Realized Resources Undelivered Orders Unpaid 1,200 1,200
#10 Request for travel advance checks [Page 773] Proprietary Entry Advances to Others Disbursements in Transit 1,000 1,000 Budgetary Entry None
#11 Travel advances paid [Page 773] Proprietary Entry Disbursements in Transit Fund Balance with Treasury 20X1 1,000 1,000 Budgetary Entry Undelivered Orders Unpaid Undelivered Orders Paid 1,000 1,000
#12 Paid travel vouchers [Page 773] Proprietary Entry Operating/Program Expenses Travel Advances to Others Accounts Payable 1,050 880 170 Unexpended Appropriations 20X1 Appropriations Used 1,050 1,050
#12 Paid travel vouchers [Page 773] Budgetary Entry Allotments Realized Resources Undelivered Orders Unpaid Undelivered Orders Paid Expended Appropriations Paid Expended Appropriations Paid 50 120 880 170 880
#13 Travel checks ordered [Page 773] Proprietary Entry Accounts Payable Disbursements in Transit 170 170 Budgetary Entry None Since travel advances of $880 had already been paid, the travelers only need another $170 to complete the reimbursements.
#14 Collected prior year travel advances [Page 773] Proprietary Entry Fund Balance with the Treasury 20X0 Advances to Others 800 800 Budgetary Entry Undelivered Orders Paid Expired Authority 800 800
#15 Checks ordered issued by Treasury [Page 774] Proprietary Entry Disbursements in Transit Fund Balance with Treasury 20X1 1,170 1,170 Budgetary Entry None
#16 Expenses not previous accrued [Page 774] Proprietary Entries Operating/Program Expenses Rent Operating/Program Expenses Utilities Operating/Program Expenses Misc Accounts Payable 13,000 8,200 3,500 24,700 Unexpended Appropriations 20X1 Appropriations Used 24,700 24,700
#16 Expenses not previous accrued (continued) Budgetary Entry Allotments Realized Resources Expended Appropriations Unpaid 24,700 24,700
#17 Purchase orders approved & placed [Page 774] Proprietary Entry None Budgetary Entry Commitments Allotments Realized Resources Undelivered Orders Unpaid 10,500 300 10,200
#18 Equipment received [Page 774] Proprietary Entries Equipment Accounts Payable Unexpended Appropriations 20X1 Appropriations Used Budgetary Entry Undelivered Orders Unpaid Allotments Realized Resources Expended Appropriations Unpaid 10,000 10,000 10,200 10,000 10,000 200 10,000
#19 Salaries & wages paid [Page 774 775] Proprietary Entries Accrued Funded Payroll & Benefits Operating/Program Expenses Salaries & Benefits Fund Balance with Treasury 20X0 Fund Balance with Treasury 20X1 8,000 126,000 8,000 126,000 Unexpended Appropriations 20X1 Appropriations Used 126,000 126,000
#19 Salaries & wages paid (continued) Budgetary Entry Allotments Realized Resources Expended Appropriations Unpaid Expended Appropriations Paid 126,000 8,000 134,000
#20 Commitments placed for services [Page 775] Proprietary Entry None Budgetary Entry Allotments Realized Resources Commitments 3,000 3,000
#21 Services contract approved [Page 775] Proprietary Entry None Budgetary Entry Commitments Undelivered Orders Unpaid 3,000 3,000
#22 Received contracted services [Page 775] Proprietary Entries Operating/Program Expenses Contractual Services Accounts Payable Unexpended Appropriations 20X1 Appropriations Used 3,000 3,000 3,000 3,000 Budgetary Entry Undelivered Orders Unpaid Expended Appropriations Unpaid 3,000 3,000
#23 Checks requested from Treasury [Page 775] Proprietary Entry Accounts Payable Disbursements in Transit 95,200 95,200 Budgetary Entry None
#24 Checks issued by Treasury [Page 776] Proprietary Entry Disbursements in Transit Fund Balance with Treasury 20X0 Fund Balance with Treasury 20X1 85,000 30,000 55,000 Budgetary Entry Expended Appropriations Unpaid Expended Appropriations Paid 85,000 85,000
#25 Depreciation recorded [Page 776] Proprietary Entry Operating/Program Expenses Depreciation Accumulated Depreciation 2,500 2,500 Budgetary Entry None
#26 Accrual of salaries & benefits [Page 776] Proprietary Entries Operating/Program Expenses Salaries & Benefits Accrued Funded Payroll & Benefits Unexpended Appropriations 20X1 Appropriations Used 7,000 7,000 7,000 7,000 Budgetary Entry Allotments Realized Resources Expended Appropriations Unpaid 7,000 7,000
#27 Increased liability for accrued annual leave [Page 776] Proprietary Entry Future Funded Expenses Accrued Unfunded Annual Leave Budgetary Entry None 10,000 10,000
Agency Financial Statements Based on case study, the statements are: Balance Sheet [Page 779] Statement of Net Cost [Page 779] Statement of Operations and Changes in Net Position [Page 780] Statement of Budgetary Resources (not shown) Statement of Financing (not shown) Statement of Custodial Activity (not shown)
Government-Wide Financial Statement Examples Balance Sheet [Page 780 781] Statements of Net Costs [Page 781] Statements of Operations and Changes in Net Position [Page 782]