Module 3, Competency 3 Accounting

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Federal accounting framework

Back 1

budgetary accounting, financial accounting, managerial cost accounting

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Users of Federal Financial Information

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External Users: Citizens and Congress
Internal Users: Agency Heads and Management

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Federal Accounting History
1) Merely tracked expenditure of government funds
2) Need to account for assets & liabilities, like private businesses
3) Requirement for performance-based budgeting and reporting

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Budgetary accounting
Proprietary accounting
Managerial cost accounting

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"No money shall be drawn from the Treasury but in consequence of appropriations made by law..." and "A regular statement and account of receipts and expenditure of all public money... shall be published from time to time"

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U.S. Constitution

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CFO Act -1990

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Required audited financial statements for business activities of the 24 designated CFO agencies.

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The Government Management Reform Act of 1994

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Amended CFO Act to required audited financial statement for the 24 CFO Agencies and an audited financial report of US Govt commencing with FY 1997

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Accounting Transactions are in the following statements:

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Balance sheet (snapshot in time, A+L=Net Positon), Statement of Net Cost, and Statement of Change in Net Position

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1949 Federal Property and Administrative Services established

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GSA

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1950 Accounting and Auditing Procedures Act- Apportionment, allocation systems

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Expanded anti-deficiency, required reporting, mandated principles/standards, established JFMIP

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1982 Prompt Payment Act

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Pay bills when due and pay interest

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1982 Debt Collection Act

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Strengthened ability to collect receivables, amended in 1996 by Debt-Collection Improvement Act

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1982 Federal Managers' Financial Integrity Act (FMFIA)

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Annual reporting -any aspects of accounting systems not conforming to GAO's principles/standards

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1990 Chief Financial Officers (CFO) Act

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Appointment of CFO in 24 major Federal Agencies & required financial reports for business operations

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1993 Government Performance and Results Act (GPRA), amended in 2010

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Define long-term goals, Set performance targets, report actual performance,

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1994 Government Management Reform Act (GMRA)

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Required financial management systems to support full-cost reporting and full disclosure of financial data

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2002 Accountability of Tax Dollars Act

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Requires each covered Executive Branch to prepare and submit AFS

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Federal Financial Management

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Office of Management and Budget (OMB) -President
Government Accountability Office (GAO) -Watchdog of Congress
Department of Treasury -President
Federal Accounting Standards Advisory Board (FASAB)

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Department of Treasury -Banker of Federal Government

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Manages balances and flow of funds , recommends economic, financial, tax, and fiscal policies, serves as US Govt financial agent, publishes US Standard General Ledger

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FASAB -Federal Accounting Standards Advisory Board, 1990

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Established by Comptroller General, Sec of Treasury, and OMB Director; Responsible for codifying GAAP (Generally Accepted Accounting Principles)

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Basis of Federal GAAP

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Statements of Federal Financial Accounting Standards form this

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Accounting Standards Boards- independent boards establish GAAP (a concept that encompasses conventions, rules, and procedures necessary to define an accepted accounting practice and which accounting systems must comply with to ensure consistency of results)

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FASB (issues standards of accounting (GAAP) for non-governmental, not-for-profit entities), GASB (issues GAAP principles for state and local governmental, not-for-profit entities, FASAB (1999, AICPA formally recognized FASAB as body designated to establish GAAP for Federal Government)

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A concept that encompasses conventions, rules, and procedures necessary to define an accepted accounting practice and which accounting systems must comply with to ensure consistency of results

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GAAP

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Dept of Treasury USSGL

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Feeds all financial reports and makes consolidated financial statements possible

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Federal Financial Accounting Concepts -consider financial and budgetary information needs of:

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Citizens of USA, Congressional oversight, Executive agencies, Needs of other users of federal financial information

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SFFAC No 1: (obj of federal financial reporting)
SFFAC No 2: (Entity and display)
SFFAC No 3: (Mgmt's discussion/analysis)
SFFAC No 4: (for Qualitative characteristics for consolidated financial report of US Gov)
SFFAC No 5: (Elements of accrual-basis FS & recognition
SFFAC No 6: (Distinguishing basic info, required supplemental, and other)
SFFAC No 7: (Measurement of elements of accrual basis FS in periods, after initial recording)

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Federal Financial Accounting Concepts, SFFAC Numbers 1-7

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SFFAC No 1: (obj of federal financial reporting)
BOSS

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Focuses on uses, users needs, and objectives of financial reporting
Budgetary integrity, Operating performance, Systems and control, concept of Stewardship

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Concept of Stewardship

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Links to Preamble of the Constitution requirement of promoting general welfare

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Not the only source of information that supports decision-making and accountability; cannot ensure the government operates as it should; however can make useful contribution toward fulfilling these goals

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Financial Reporting

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FASAB audience for CFR

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SFFAC No 4; citizens, citizen intermediaries, Congress, Federal Executives, and Program Mgrs; CFR should be general purpose report

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Recognition requirement, SFFAC No 5, Elements are "building blocks" of financial statements

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1) Item must meet definition for recognition of element
2) must be measurable, $$ reasonable certainty, if not disclosure

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November 1995
May 2003

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Accounting for Property, Plant & Equipment
Eliminating category National Defense Property, Plant, and Equipment

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Amending SFFAS 4 (intended audience), August 2005

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Inter-Entity Cost implementation

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FASAB Statements and Interpretations
FASAB Technical Bulletins
AICPA Accounting Standards Executive Committee Practice Bulletins
Implementation guides published by FASAB staff
Standards and guides published by other authoritative setting bodies

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Federal GAAP Hierarchy-
FASAB 1st then AICPA, then FASAB guides

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Secretary of Defense Does NOT

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Set per diem rates

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The accounting entity that maintains central general ledger to:
1. Account for DoD resources
2. Determine cost of operations
3. Report DoD financial position and cost of operations

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DFAS

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DoD Financial Management

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Under Secretary of Defense (Comptroller)
>formulates DoD-wide financial management policies
>Directs DFAS
>Directs DCAA, which audits contractors

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Under Secretary of Defense (Comptroller) (USD(C),

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Principal advisor to the Secretary and Deputy Secretary of Defense for budgetary and fiscal matters; Serves as CFO of DoD; responsible for formulating & promulgating DoD-wide financial mgmt. policies, overseeing accounting & finance operations & systems; implementing initiatives for improving financial mgmt., and performing financial mgmt. analysis; represents DoD on Chief Financial Officers Council.

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General Funds

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Greater part of budget and record receipts not earmarked by law; includes proceeds of general borrowing.

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General Fund Appropriation accounts

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record General Fund expenditures

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Special Funds (of receipt accounts)

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for Federal fund receipts that laws earmark for specific purposes and associated appropriation accounts for expenditure of earmarked receipts.

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Public enterprise funds (Post Office)

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Revolving funds, which outlays generate collections; business-like operations

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Intra-governmental funds

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business-like operations; primarily within and between government agencies. Budget records the collections and the outlays of revolving funds in same account.

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Trust revolving funds

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cycle of business-type operations; Different from non-government, Federal govt owns the assets of most Federal trust funds and it can raise or lower future trust-fund collections and payments or change the purposes for which the collections are used, by changing existing laws.

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No substantive difference between

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Trust fund and special fund, or between trust-revolving fund and public-enterprise revolving fund

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Deposit funds (unclaimed personal property), not included in the budget

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Government acts as trustee

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Clearing accounts, maybe Undistributed

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NOT a Type of FUND; temporarily account for transactions that belong to the government but cannot be matched to specific receipt or expenditure account

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Types of Government Funds, DoD

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Appropriated Funds (Congress-provided)
Reimbursable Funds (Customer-provided)
Revolving Funds (Work like for-profit business, CORPUS establishes this)
Trust Funds (held in trust for use in carrying out specific purpose and programs within statute)
Non-appropriated Funds (NOT Congress-appropriated)

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Non-appropriated funds

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1. Sale of goods/services to DoD military & civilian personnel
2. For morale, welfare, recreation, and religion
3. Separate from funds that are recorded in books of Treasury
4. Considered government funds and governed by specific DoD regulations even though they are not appropriated.

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Categories of Appropriations

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1. Annual appropriations (one fiscal year), ex O&M
2. Multi-year appropriations
3. No-year appropriations (WCF funded through this type)
4. Permanent (Indefinite) appropriations (covered by basic laws that allow Sec of Treasury to pay without further enactment by Congress. Ex. Interest, Social Security. Note: Don't know amount until needed.

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Legal limit within which to obligate funds.

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1 Year Military Personnel (MILPERS)
1 Year Operation and Maintenance (OM&N)
2 Years Research, Development, Test and Eval (RDT&E)
3 Years Procurement, excluding SCN
5 Years Shipbuilding and Conversion, Navy (SCN)
5 Years Military Construction (MILCON)

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Flow of Resources

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Commitments
Obligations (bona fide need
Obligating Documents (contracts, MIPRs, POs, Economy Act Orders
Outlays

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Commitment Non-binding intent to procure or purchase goods/services

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Administrative Reserve of Funds; Can be cancelled without penalty if done before legal contract has been completed; Requires legal signature, relates to fiduciary certification

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Obligation-
Bona Fide Need Rule comes into play
Occurs when contract has been accepted and signed by government.

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Legally binding agreement for purchase of goods or services. Amounts of orders placed, contracts awarded, services received; Entered in accounting system when adequate documentary evidence is provided to support the obligation.

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Bona Fide Need Rule

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FY appropriation may be obligated only to meet a legitimate (bona fide) need arising in FY for which appropriation was made; Applies to multi-year and annual appropriations but not to no-year funds.

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Obligating Documents

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Contracts (Extensive rules, (Federal Acquisition Regulation) (FAR)
Military Inter-departmental Purchase Requests (MIPR), PR from another govt. entity. Should be Obligated when accepted
Project Order (can cross FYs)
Economy Act Orders, routine work of recurring nature usually within one FY. Obligation when accepted.

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Refunds

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Refunds- Recovery of excess payments and are credited to appropriation that made the payment. (REDUCTION in PAYMENT), keep in mind appropriation status on accounting treatment of refund) (Closed account requires deposit in Treasury misc account

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Outlays

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Include issuance of checks, disbursement of cash, or electronic transfer of funds made to liquidate a Federal obligation.

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Independently self-balancing (total debits equal total credits)

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Proprietary and budgetary sets of general ledger accounts

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Resources =

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Status of Resources

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Budgetary Accounting (Cash Basis)

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with legal requirement to control and properly manage budget authority provided to entitles in appropriations. (self-balancing 4000 series accounts)

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Proprietary accounting
Assets + Liabilities =

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Net Position

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Budgetary Accounting
Resources =
GL Account 4119, Other Appropriations Realized
GL Account 4201, Total Actual Resources Collected

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Status of Resources
GL 4450, Unapportioned
GL 4510, Apportionments
GL 4610, Allotments
GL 4700, Commitments
GL 4801, Undel. Order, Unpaid
GL 4901, Del. Order, Unpaid
GL 4902, Del. Order, Paid
GL 4650, Expired Authority
GL 4350, Canceled Authority

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As other events occur

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transactions usually just change resource status and move among these account categories.
Apportioned, allotted, committed, obligated (through undelivered orders), obligated (through delivered orders), Expired, Canceled

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Statement of net cost

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Expenses-Exchange Revenue = Net Cost of Operations

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Selected Asset Accounts

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FBWT; Undistributed Disbursements; Imprest Fund; Accounts Receivable; Advance

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Fund Balance with Treasury (FBWT)

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Aggregate amount of funds an entity has at Treasury to make expenditures and to pay liabilities or to purchase assets, goods, and services. (similar to bank balance)

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Undistributed Disbursements
As long as there are undistributed disbursements, the appropriation is required to track the amounts and determine where the charges should be posted.

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Federal government funds that have been paid, but for whatever reason, have not yet been identified to a specific organization; Therefore, they are placed in a suspense account.

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Accounts Receivable (AR)

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Amounts owed the entity; from reimbursable agreement or from overpayment to a vendor

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Advances

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When entity has given funds to others in anticipation of receiving a future benefit.
Payment to contractors
Travel advances to employees

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Accounting for Travel Advances

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still happens but government credit card and travel regulation changes have reduced travel advances

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General Plant, Property, and Equipment (PP&E)
Amount paid for asset + transportation + installation + other related costs of obtaining the asset and preparing for use. Depreciated of full acquisition value over its expected useful life (recovery period)

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Tangible asset; Estimated useful life of 2 or more years; not intended for sale in ordinary course of business; intended to be used or available for use by entity; $100K criteria

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Categories of Property, Plant, and Equipment (PP&E)

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General PP&E (tangible assets that are not heritage asset or stewardship land)
Heritage Assets
Stewardship Land

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FASAB issued SFFAS 23, Eliminating the Category National Defense property, Plant, & Equipment.

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May 20003; Standard weapon systems considered General PP&E ex. ships, combat vehicles

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Stewardship PP&E

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Tangible assets classified as either Heritage Assets (Pentagon, physical properties resemble General PP&E and traditionally capitalized in commercial-type financial statements; In balance sheet at acquisition cost less depreciation) or Stewardship Land (Acquired via public domain); Disclosure

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Federal Financial Reporting footnotes

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Financial information is also conveyed with accompanying footnotes, which are an integral part of the financial statements. More informative and not misleading

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Statement of Budgetary Resources

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1. Budgetary Resources
2. Status of Resources
3. Outlays

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Managerial Cost Accounting, Full Cost (SFFAS #4)

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Direct Costs
Indirect Costs (Overhead)
Intra-entity Costs (G&A0

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Managerial Cost Accounting
Also provides useful information directly to management

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Process of accumulating, measuring, analyzing, interpreting, and reporting cost; Basic part of financial mgmt. system in that it supports and provides data to budgetary and financial accounting functions and by itself, provides useful information for both internal and external users.

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Managerial Cost Reporting Requirement

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Direct Costs, Indirect Costs, Intra-Entity Costs, Inter-Entity Cost

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Ration Analysis
Current Ratio (working capital ratio) Desired 2 to 1
Quick Ratio(test of immediate solvency)Desired 1 to 1 (acid-test ratio)

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Cash + A/R + Inventory/Current Liabilities
Cash + A/R/Current Liabilities