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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
Cash account and disbursements
Net position accounts
Unique nature of and interrelationships between the
components of Net Position
Assets = Liabilities + 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 Asset Accounts
2000s Liability Accounts
3000s Net Position Accounts
4000s Budgetary Accounts
5000s Revenues and Other Financing Sources
6000s Expenses
7000s Gains and Losses
Budgetary AccountsBudgetary 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 Appropriations Realized
Unapportioned Authority
xxx
xxx
Proprietary Fund Balance with Treasury
Unexpended Appropriations
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
Budgetary Entry
Appropriations Realized
Unapportioned Authority
225,000
225,000
225,000
225,000
#2a OMB apportionment [Page 769–770]
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.
#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
Budgetary Entry – None
25,000
25,000
#8 $12,000 in checks ordered in 20X0,
issued in 2X01 [Page 772]
Proprietary Entry
Deposits in Transit
Fund Balance with Treasury – 20X0
Budgetary Entry
Expended Appropriations – Unpaid
Expended Appropriations – Paid
12,000
12,000
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
Budgetary Entry – None
1,000
1,000
#11 Travel advances paid [Page 773]
Proprietary Entry
Disbursements in Transit
Fund Balance with Treasury – 20X1
Budgetary Entry
Undelivered Orders – Unpaid
Undelivered Orders – Paid
1,000
1,000
1,000
1,000
#12 Paid travel vouchers [Page 773]
Proprietary Entry
Operating/Program Expenses – Travel
Advances to Others
Accounts Payable
Unexpended Appropriations – 20X1
Appropriations Used
1,050
1,050
880
170
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
Budgetary Entry – None
170
170
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
Budgetary Entry
Undelivered Orders – Paid
Expired Authority
800
800
800
800
#15 Checks ordered issued by Treasury[Page 774]
Proprietary Entry
Disbursements in Transit
Fund Balance with Treasury – 20X1
Budgetary Entry – None
1,170
1,170
#16 Expenses not previous accrued [Page 774]
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
#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
Unexpended Appropriations – 20X1
Appropriations Used
8,000
126,000
126,000
8,000
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
Budgetary Entry
Undelivered Orders – Unpaid
Expended Appropriations – Unpaid
3,000
3,000
3,000
3,000
3,000
3,000
#23 Checks requested from Treasury [Page 775]
Proprietary Entry
Accounts Payable
Disbursements in Transit
Budgetary Entry – None
95,200
95,200
#24 Checks issued by Treasury[Page 776]
Proprietary Entry
Disbursements in Transit
Fund Balance with Treasury – 20X0
Fund Balance with Treasury – 20X1
Budgetary Entry
Expended Appropriations – Unpaid
Expended Appropriations – Paid
85,000
85,000
30,000
55,000
85,000
#25 Depreciation recorded [Page 776]
Proprietary Entry
Operating/Program Expenses –
Depreciation
Accumulated Depreciation
Budgetary Entry – None
2,500
2,500
#26 Accrual of salaries & benefits [Page 776]
Proprietary Entries
Operating/Program Expenses – Salaries &
Benefits
Accrued Funded Payroll & Benefits
Unexpended Appropriations – 20X1
Appropriations Used
Budgetary Entry
Allotments – Realized Resources
Expended Appropriations – Unpaid
7,000
7,000
7,000
7,000
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]
Recommended