Federal Government Accounting - MCCChorowitk/documents/Chapter19D.pdf · Learning Objectives (continued) Explain basic budgetary process & terminology used by the federal government

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


xxx

xxx

Proprietary Fund Balance with Treasury


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


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


225,000

225,000

225,000

225,000

#2a OMB apportionment [Page 769–770]

Proprietary Entry – none

Budgetary Entry – 1st Quarter entry


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


214,000

214,000

#4 Preliminary requests [Page 771]


Budgetary Entry


Commitments

48,000

48,000

#5 Purchase orders for supplies approved [Page 771]


Budgetary Entry

Commitments


37,000

37,000

#6 Received supplies [Pages 771–772]

Proprietary Entries

Inventory for Agency Operations

Accounts Payable


Appropriations Used

Budgetary Entry

Undelivered Orders


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



12,000

12,000

12,000

12,000

#9 Travel orders issued [Page 772]


Budgetary Entry



1,200

1,200

#10 Request for travel advance checks [Page 773]

Proprietary Entry

Advances to Others

Disbursements in Transit


1,000

1,000

#11 Travel advances paid [Page 773]

Proprietary Entry



Budgetary Entry



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


Appropriations Used

1,050

1,050

880

170

1,050

#12 Paid travel vouchers [Page 773]

Budgetary Entry






50

120

880

170

880

#13 Travel checks ordered [Page 773]

Proprietary Entry

Accounts Payable



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


Expired Authority

800

800

800

800

#15 Checks ordered issued by Treasury[Page 774]

Proprietary Entry




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


Appropriations Used

13,000

8,200

3,500

24,700

24,700

24,700

#16 Expenses not previous accrued (continued)

Budgetary Entry



24,700

24,700

#17 Purchase orders approved & placed[Page 774]


Budgetary Entry

Commitments



10,500

300

10,200

#18 Equipment received [Page 774]

Proprietary Entries

Equipment

Accounts Payable


Appropriations Used

Budgetary Entry




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




Appropriations Used

8,000

126,000

126,000

8,000

126,000

126,000

#19 Salaries & wages paid (continued)

Budgetary Entry




126,000

8,000

134,000

#20 Commitments placed for services [Page 775]


Budgetary Entry


Commitments

3,000

3,000

#21 Services contract approved[Page 775]


Budgetary Entry

Commitments


3,000

3,000

#22 Received contracted services [Page 775]

Proprietary Entries

Operating/Program Expenses –

Contractual Services

Accounts Payable


Appropriations Used

Budgetary Entry



3,000

3,000

3,000

3,000

3,000

3,000

#23 Checks requested from Treasury [Page 775]

Proprietary Entry

Accounts Payable



95,200

95,200

#24 Checks issued by Treasury[Page 776]

Proprietary Entry




Budgetary Entry



85,000

85,000

30,000

55,000

85,000

#25 Depreciation recorded [Page 776]

Proprietary Entry

Operating/Program Expenses –

Depreciation

Accumulated Depreciation


2,500

2,500

#26 Accrual of salaries & benefits [Page 776]

Proprietary Entries

Operating/Program Expenses – Salaries &

Benefits

Accrued Funded Payroll & Benefits


Appropriations Used

Budgetary Entry



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


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]

Documents

Federal Government Accounting - MCCChorowitk/documents/Chapter19D.pdf · Learning Objectives (continued) Explain basic budgetary process & terminology used by the federal government