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Federal Government Accounting

Federal Government Accounting

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Federal Government Accounting

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  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

  6. 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

  9. GAO Accounting & Reporting Responsibilities • Prescribe principles & standards for federal agency accounting & financial reporting, internal control, accounting systems, & auditing • Auditing financial statements of federal agencies

  10. 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

  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

  12. 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

  15. 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

  16. Federal GAAP Hierarchy • FASAB statements & interpretations and AICPA & FASB pronouncements made applicable by FASAB statements & interpretations • 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)

  17. 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

  18. 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

  19. 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

  24. 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

  29. 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

  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.

  31. 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 Budgetary Equation =

  32. 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

  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

  35. 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

  36. 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

  37. 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

  39. 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

  40. 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

  45. 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)

  47. 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

  48. 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

  49. 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

  50. 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