Federal Government Accounting

1
Federal Government Accounting

• Chapter 19

2
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

3
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

4
Federal vs. SLG Accounting

• Like SLG accounting
• Heavily influenced by law and regulation
• Major tool of fund and appropriation control
• Unlike SLG accounting
• Agency, not the fund, is the primary accounting
  entity
• Provides dual track systems budgetary and
  proprietary accounting reporting

5
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

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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

7
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

8
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

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GAO Accounting Reporting Responsibilities

• Prescribe principles standards for federal
  agency accounting financial reporting, internal
  control, accounting systems, auditing
• Auditing financial statements of federal agencies

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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
• 9 member board, including 3 non-federal members,
  one of which serves as Chairman
• More information available at www.fasab.gov

11
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

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Oversight Overview
13
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

14
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

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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

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Federal GAAP Hierarchy

1. FASAB statements interpretations and AICPA
   FASB pronouncements made applicable by FASAB
   statements interpretations
2. FASAB Technical Bulletins and AICPA Industry
   Audit and Accounting Guides and SoPs (if made
   applicable by AICPA to federal entities and
   cleared by the FASAB)

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Federal GAAP Hierarchy (continued)

• AICPA AcSEC Practice Bulletins if made applicable
  to Federal entities and cleared by the FASAB, and
  Technical Releases of the Accounting Auditing
  Policy Committee of the FASAB
• Implementation guides published by the FASAB
  staff and widely recognized and prevalent
  practices in federal government
• In absence of everything else, may consider other
  accounting literature relevant to the
  circumstances

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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

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Budget Cycle

• Preparation
• Approval
• Execution
• Reporting

20
Preparation 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

21
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

22
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

23
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

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Allotments

• Budgetary authority passed from agency to
  subordinate managers for use
• Suballotments allocate authority still further

25
Commitment

• Administrative reservation of budgetary authority
  for goods and services
• Charge to allotment based on preliminary estimate
• Useful planning tool to initiate spending process

26
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

27
Expended Appropriation

• Amount of goods and services received and
  accepted
• Formal use of budgetary authority
• Equivalent to expenditures in SLG accounting

28
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

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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 years budget from President to
  Congress

30
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.
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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

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Proprietary Equation
Assets Liabilities Net Position

• Variations that cause differences with private
  sector model
• Cash account and disbursements
• Net position accounts
• Unique nature of and interrelationships between
  the components of Net Position

33
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

34
Components of Net Position

• Cumulative results of operations
• Unexpended appropriations
• Trust Fund balances

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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

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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

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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

38
Changes in Net Position components

• Enacting Appropriations
• Incurring Expended Appropriations
• Incurring Unfunded Expenses

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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

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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

41
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

42
Standard General Ledger

• Developed in 1986 and implemented in 1988
• Integration of budgetary and proprietary accounts
  required same transaction will require entries
  in both sets of accounts

43
Federal Fund Structure

• Government-Owned or Federal Funds
• General Fund
• Special Funds
• Revolving Funds
• Management Funds
• Trust Agency Funds
• Trust Funds
• Deposit Funds

44
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

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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

46
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)

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Agency Year-end Financial Statements

• Balance Sheet
• Statement of Net Cost
• Statement of Operations and Changes in Net
  Position
• Statement of Budgetary Resources
• Statement of Financing
• Statement of Custodial Activity

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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

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Preparation requirements

• Includes all the federal governments
  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

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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 x

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Congress enacted appropriation (763)Entry 1
Proprietary Entry Fund Balance with the Treasury 20X1 Unexpended Appropriations 20X1 Budgetary Entry Appropriations Realized Unapportioned Authority 225,000 225,000 225,000 225,000
52
OMB apportionment (764)Entry 2
Proprietary Entry none Budgetary Entry 1st 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.
53
Agency administrative allotments (765)Entry 3
Proprietary Entry None Budgetary Entry Appropriations Allotments Realized Resources 214,000 214,000
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Preliminary requests (765)Entry 4
Proprietary Entry None Budgetary Entry Allotments Realized Resources Commitments 48,000 48,000
55
Purchase orders for supplies approved
(765)Entry 5
Proprietary Entry None Budgetary Entry Commitments Undelivered Orders 37,000 37,000
56
Received supplies (766)Entry 6
Proprietary Entries Inventory of Materials Supplies Accounts Payable Unexpended Appropriations 20X1 Appropriations Used Budgetary Entry Undelivered Orders Allotments Realized Resources Expended Appropriations 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.
57
Used supplies (766)Entry 7
Proprietary Entry Operating/Program Expenses Materials and Supplies Inventory of Materials Supplies Budgetary Entry None 25,000 25,000
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12,000 in checks ordered in 20X0, issued in 2X01
(763) Entry 8
Proprietary Entry Deposits in Transit Fund Balance with Treasury 20X0 Budgetary Entry None 12,000 12,000
59
Travel orders issued (766)Entry 9
Proprietary Entry -- None Budgetary Entry Allotments Realized Resources Undelivered Orders 1,200 1,200
60
Request for travel advance checks (767)Entry 10
Proprietary Entry Advances to Others Disbursements in Transit Budgetary Entry None 1,000 1,000
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Travel vouchers received (767)Entry 11
Proprietary Entry Operating/Program Expenses Travel Advances to Others Accounts Payable Budgetary Entry Unexpended Appropriations 20X1 Appropriations Used 1,050 1,050 880 170 1,050
62
Travel checks ordered (767)Entry 12
Proprietary Entry Accounts Payable Disbursements in Transit Budgetary Entry None 170 170
Since travel advances of 880 had already been
paid, the travelers only need another 170 to
complete the reimbursements.
63
Collected prior year travel advances (767)
Entry 13
Proprietary Entry Fund Balance with the Treasury 20X0 Advances to Others Budgetary Entry None 800 800
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Checks ordered issued by Treasury (767)Entry 14
Proprietary Entry Disbursements in Transit Fund Balance with Treasury 20X1 Budgetary Entry None 1,170 1,170
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Expenses not previous accrued (767)Entry 15
Proprietary Entries Operating/Program Expenses Rent Operating/Program Expenses Utilities Operating/Program Expenses Misc Accounts Payable Unexpended Appropriations 20X1 Appropriations Used 13,000 8,200 3,500 24,700 24,700 24,700
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Expenses not previous accrued (768)Entry 15
(continued)
Budgetary Entry Allotments Realized Resources Expended Appropriations 24,700 24,700
67
Purchase orders approved placed (768)Entry 16
Proprietary Entry None Budgetary Entry Commitments Allotments Realized Resources Undelivered Orders 10,500 300 10,200
68
Equipment received (768)Entry 17
Proprietary Entries Equipment Accounts Payable Unexpended Appropriations 20X1 Appropriations Used Budgetary Entry Undelivered Orders Allotments Realized Resources Expended Appropriations 10,000 10,000 10,200 10,000 10,000 200 10,000
69
Salaries wages paid (768)Entry 18
Proprietary Entries Accrued Funded Payroll Benefits Operating/Program Expenses Salaries Benefits Fund Balance with Treasury 20X0 Fund Balance with Treasury 20X1 Unexpended Appropriations 20X1 Appropriations Used 8,000 126,000 126,000 8,000 126,000 126,000
70
Salaries wages paid (768)Entry 18
Budgetary Entry Allotments Realized Resources Expended Appropriations 126,000 126,000
71
Commitments placed for services (768)Entry 19
Proprietary Entry None Budgetary Entry Allotments Realized Resources Commitments 3,000 3,000
72
Services contract approved (769)Entry 20
Proprietary Entry None Budgetary Entry Commitments Undelivered Orders 3,000 3,000
73
Received contracted services (769)Entry 21
Proprietary Entries Operating/Program Expenses Contractual Services Accounts Payable Unexpended Appropriations 20X1 Appropriations Used Budgetary Entry Undelivered Orders Expended Appropriations 3,000 3,000 3,000 3,000 3,000 3,000
74
Checks requested from Treasury (769)Entry 22
Proprietary Entry Accounts Payable Disbursements in Transit Budgetary Entry None 95,200 95,200
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Checks issued by Treasury (769)Entry 23
Proprietary Entry Disbursements in Transit Fund Balance with Treasury 20X0 Fund Balance with Treasury 20X1 Budgetary Entry None 85,000 30,000 55,000
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Depreciation recorded (769)Entry 24
Proprietary Entry Operating/Program Expenses Depreciation Accumulated Depreciation Budgetary Entry None 2,500 2,500
77
Accrual of salaries benefits (769-770)Entry
25
Proprietary Entries Operating/Program Expenses Salaries Benefits Accrued Funded Payroll Benefits Unexpended Appropriations 20X1 Appropriations Used Budgetary Entry Allotments Realized Resources Expended Appropriations 7,000 7,000 7,000 7,000 7,000 7,000
78
Increased liability for accrued annual leave
(763) Entry 26
Proprietary Entry Operating/Program Expenses Salaries Benefits Accrued Unfunded Annual Leave Budgetary Entry None 10,000 10,000
79
Agency Financial Statements

• Based on case study, the statements are
• Balance Sheet
• Statement of Net Cost
• Statement of Operations and Changes in Net
  Position
• Statement of Budgetary Resources
• Statement of Financing (not shown)
• Statement of Custodial Activity (not shown)

1
2
3
4
80
Government-Wide Financial Statement Examples

• Statements of Net Costs
• Statements of Operations and Changes in Net
  Position

A
B