Federal Government Accounting

8/3/2019 Federal Government Accounting

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Federal Government

AccountingChapter 19


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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


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Learning Objectives(continued)

Explain basic budgetary process & terminology used

by the federal government

Prepare basic budgetary accounting entries and basicproprietary entries for a federal agency

Understand the financial statement requirements for

federal agencies

Understand the financial statements presented for theU.S. Government as a whole


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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 systemsbudgetary andproprietary

accounting & reporting


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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 GeneralLedger (SGL)

Issue Treasury Financial Manual which contains agencyproprietary reporting requirements and requirements toimplement the SGL


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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 budgetpreparation & execution


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Government Accountability Office Headed by Comptroller General of US

Primary duties

Serves Congress in the general oversight of the executivebranch

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 tobe 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


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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 budgetexecution reports


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Oversight Overview

Oversight

Agencies

Cash receipts/disbursements;central proprietary accounting& reporting; SGL, prepare &present (with OMBcoordination) audited,government-wide financial

statements; debt management.

Treasury Department

Prescribe accounting &auditing standards and auditagency financial statements.

Government

Accountability Office

Budget preparation;apportionment; centralbudgetary accounting &reporting; form and content offinancial statements.

Office of

Management & Budget

Develop & recommendaccounting and finanicalreporting principles, standards,and related requirements.

Federal Accounting

Standards Advisory Board

Maintain adequate accounting systems; implement andoperate the SGL; prepare and submit proprietary andbudget execution reports required by oversight agencies.

Federal Agencies


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Overview of Accounting & Reporting

Congress establishes guidelines for accounting &

reporting through legislation

Treasury, OMB, and GAO responsible for settingprinciples, standards, & requirements (PSR) in two

major categories

Budgetary PSR

Proprietary PSR


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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

A. FASAB statements & interpretations and AICPA &

FASB pronouncements made applicable by FASAB

statements & interpretations

B. 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)

C. 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

D. Implementation guides published by the FASAB

staff and widely recognized and prevalent practices

in federal governmentIn 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 futuredisbursement not based on revenue estimates

Budget authority to incur obligations is granted by

Congress under three types Appropriations1-year, multi-year, no-year, or

permanent

Contract authority

Borrowing authority

Process of spending budget authority has fivedistinct steps: apportionment, allotment,commitment, obligation, & expended appropriations


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Budget Cycle

Preparation

Approval

Execution Reporting


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Preparation & Approval

Preparation begins in executive branch and endswhen presented to Congresslong and continuousprocess

Budget approval rests with Congress, which is a longprocess in itself Starts with a concurrent resolution to establish spending

limits

Ends with appropriations1,200 to 1,400 individual bills


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Execution

Based on appropriation approval, Treasury givesagency appropriation warrant

Agency submits request for apportionment to OMB

OMB makes apportionments to the agency (holdingsome back for contingencies, savings, timing orpolicy reasons)

Agency carries on activities with apportionmentsthrough allotments for programs & activities

Programs commit, obligate and expend money toacquire goods & services


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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


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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


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Commitment

Administrative reservation of budgetary authority for

goods and services

Charge to allotment based on preliminary estimate

Useful planning tool to initiate spending process


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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


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Expended Appropriation

Amount of goods and services received and accepted

Formal use of budgetary authority

Equivalent to expenditures in SLG accounting


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Expired Authority

Unexpended, unobligated appropriation authorityfrom 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 FY2006

FY 2005 lapses at end of FY 2010


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Reporting

Budget execution reported periodically and annually

to OMBagencies report amount(s) of

Authority

Expended appropriations

Obligations

Unobligated apportionment

Disbursement incurred OMB reports centrally for governmentforms basis

for next years budget from President to Congress


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Exceeding Budget Authority:

Conditions causing problems

Apportionment exceeds appropriation

Allotment exceeds appropriation or apportionment

Obligation exceeds allotment, apportionment, orappropriation

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

Variations that cause differences with private sectormodel

Cash account and disbursements

Net position accounts Unique nature of and interrelationships between the

components of Net Position

Assets = Liabilities + Net Position


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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


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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) andgains from inception of an agency or activity to the

reporting date

For revolving fund or business-type activity,

essentially the same as total equityUnexpendedappropriations would be zero


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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


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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 beforeused, 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


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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


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Standard General Ledger

Developed in 1986 and implemented in 1988

Integration of budgetary and proprietary accounts

requiredsame transaction will require entries in

both sets of accounts


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Federal Fund Structure

Government-Owned or Federal Funds

General Fund

Special Funds

Revolving Funds

Management Funds

Trust & Agency Funds

Trust Funds Deposit Funds


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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


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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 NetPosition

Statement of Budgetary Resources

Statement of Financing

Statement of Custodial Activity


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Government-Wide Statements

Balance Sheet


Statement of Operations and Changes in NetPosition

Reconciliation of Net Operating Revenue (or Cost)

and Unified Budget Surplus (or Deficit)

Statement of Changes in Cash Balance from UnifiedBudget 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 Treasury20X1

Unexpended Appropriations20X1

Budgetary Entry

Appropriations Realized

Unapportioned Authority

225,000

225,000

225,000

225,000


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OMB apportionment (764)[Entry 2]

Proprietary Entrynone

Budgetary Entry1st 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 beenapportioned.


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Agency administrative allotments (765)[Entry 3]

Proprietary EntryNone

Budgetary Entry

Appropriations

AllotmentsRealized Resources

214,000

214,000


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Preliminary requests (765)[Entry 4]


Budgetary Entry


Commitments

48,000

48,000


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Purchase orders for supplies approved(765)[Entry 5]


Budgetary Entry

Commitments

Undelivered Orders

37,000

37,000


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Received supplies (766)[Entry 6]

Proprietary Entries

Inventory of Materials & Supplies

Accounts Payable


Appropriations Used

Budgetary Entry

Undelivered Orders


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.


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Used supplies (766)[Entry 7]

Proprietary Entry

Operating/Program ExpensesMaterials

and Supplies

Inventory of Materials & Supplies

Budgetary EntryNone

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 Treasury20X0

Budgetary EntryNone

12,000

12,000


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Travel orders issued (766)[Entry 9]

Proprietary Entry -- None

Budgetary Entry


Undelivered Orders

1,200

1,200


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Travel vouchers received (767)[Entry 11]

Proprietary Entry

Operating/Program ExpensesTravel

Advances to Others

Accounts Payable

Budgetary Entry


Appropriations Used

1,050

1,050

880

170

1,050


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Travel checks ordered (767)[Entry 12]

Proprietary Entry

Accounts Payable

Disbursements in Transit

Budgetary EntryNone

170

170

Since travel advances of $880 had already been paid, the travelers only needanother $170 to complete the reimbursements.


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Collected prior year travel advances(767) [Entry 13]

Proprietary Entry

Fund Balance with the Treasury20X0

Advances to Others

Budgetary EntryNone

800

800


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Checks ordered issued by Treasury (767)[Entry 14]

Proprietary Entry



Budgetary EntryNone

1,170

1,170


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Expenses not previous accrued (767)[Entry 15]

Proprietary Entries

Operating/Program ExpensesRent

Operating/Program ExpensesUtilities

Operating/Program ExpensesMisc

Accounts Payable


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



24,700

24,700


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Purchase orders approved & placed (768)[Entry 16]


Budgetary Entry

CommitmentsAllotmentsRealized Resources

Undelivered Orders

10,500300

10,200


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Equipment received (768)[Entry 17]

Proprietary Entries

Equipment

Accounts Payable

Unexpended Appropriations20X1Appropriations Used

Budgetary Entry

Undelivered Orders



10,000

10,000

10,200

10,000

10,000

200

10,000


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Salaries & wages paid (768)[Entry 18]

Proprietary Entries

Accrued Funded Payroll & Benefits

Operating/Program ExpensesSalaries &

BenefitsFund Balance with Treasury20X0



Appropriations Used

8,000

126,000

126,000

8,000

126,000

126,000


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Salaries & wages paid (768)[Entry 18]

Budgetary Entry



126,000

126,000


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Commitments placed for services (768)[Entry 19]


Budgetary Entry

AllotmentsRealized ResourcesCommitments

3,0003,000


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Services contract approved (769)[Entry 20]


Budgetary Entry

CommitmentsUndelivered Orders

3,0003,000


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Received contracted services (769)[Entry 21]

Proprietary Entries

Operating/Program Expenses

Contractual Services

Accounts PayableUnexpended Appropriations20X1

Appropriations Used

Budgetary Entry

Undelivered Orders


3,000

3,000

3,000

3,000

3,000

3,000


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Checks requested from Treasury (769)[Entry 22]

Proprietary Entry

Accounts Payable


Budgetary EntryNone

95,200

95,200


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Checks issued by Treasury (769)[Entry 23]

Proprietary Entry




Budgetary EntryNone

85,000

30,000

55,000


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Depreciation recorded (769)[Entry 24]

Proprietary Entry

Operating/Program Expenses

Depreciation

Accumulated Depreciation

Budgetary EntryNone

2,500

2,500


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Accrual of salaries & benefits (769-770)[Entry 25]

Proprietary Entries


Benefits

Accrued Funded Payroll & BenefitsUnexpended Appropriations20X1

Appropriations Used

Budgetary Entry



7,000

7,000

7,000

7,000

7,000

7,000

I d li bilit f d l


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Increased liability for accrued annual

leave (763) [Entry 26]

Proprietary Entry


Benefits

Accrued Unfunded Annual Leave

Budgetary EntryNone

10,000

10,000


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Agency Financial Statements

Based on case study, the statements are:

Balance Sheet


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

Go ernment Wide Financial Statement
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Government-Wide Financial Statement

Examples

Statements of Net Costs

Statements of Operations and Changes in Net

Position

A

B
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Federal Government Accounting