Accounting and Reporting for the Federal Government

1. 16 Chapter Accounting and Reporting for the Federal Government

2. Federal Government Financial Management Structure • “Three principals” of the Joint Financial Management Improvement Program (JFMIP) • Comptroller General – Audit Division of Congress (legislative division) • Appointed by president and confirmed by Senate for a 15 year term • Secretary of the Treasury - Financial condition of gov. • President Cabinet with consent of senate to an indefinite term • Director of the OMB – Budget • Appointed by president • Executive branch

3. Federal Government Financial Management Structure • Director of Congressional Budget office • Appointed by the Speaker of the House of Representatives • 4- year term • Works with both the house and Senate on Bill appropriations

4. FASAB • In 1990, the three principals established the Federal Accounting Standards Advisory Board (FASAB) • To date the FASAB has issued: • 3 Statements of Federal Financial Accounting Concepts (SFFAC) • 22 Statements of Federal Financial Accounting Standards (SFFAS) • Several reports, technical releases, interpretations.

5. SFFAC No. 1 - Objectives • SFFAC No. 1 identifies four objectives of federal financial reporting, based on the foundation of accountability, which are to assist report users in assessing • budgetary integrity • operating performance • stewardship • adequacy of systems and controls

6. SFFAC No. 3 - MD&A • SFFAC No. 3, issued in 1999, requires that an Management Discussion and Analysis (MD&A) to be included in the general purpose federal financial report (GPFFR). • Its purpose is to • communicate managers’ insights • increase understandability and usefulness of the GPFFR • provide accessible information about the entity

7. Funds used in Federal Accounting • Derived from general taxing and revenue powers and from business operations • General fund (one for entire federal government) • Special funds (receipts earmarked for a specific purpose) • Revolving funds (similar to internal service funds) • Management funds (including working funds) • Held by the government as custodian or trustee • Trust funds (both expendable and nonexpendable) • Deposit funds (similar to agency funds)

8. Balance Sheet: Asset Classification • Most federal entities do not have their own cash. • They draw against their “Fund Balance with Treasury” account. • Checks are sent by the Department of Treasury to pay the entity’s obligations

9. Balance Sheet - Property Plant and Equipment (PP&E) • Four categories: • General PP&E (used to provide general government goods and services) • National defense PP&E (e.g., military weapon systems) • Heritage assets PP&E (e.g., Lincoln Memorial; Statue of Liberty that possess educational, cultural, or natural characteristics) • Stewardship land PP&E(e.g., Yellowstone National Park)

10. Balance Sheet: Liabilities • FASAB standards provide nine criteria for recognition of liabilities, including • Generally, accrual basis recognition including amortization of premiums/discounts on Federal debt and pensions • Contingencies are generally recognized in the notes, except for government-acknowledged events (e.g., those arising from natural disaster) • Capital lease obligations follow essentially same criteria as for-profit organizations and state and local governments

11. Required Financial Statements • OMB Bulletin 01-09 requires a: • Balance sheet • Statement of net cost • Statement of changes in net position • Statement of budgetary resources • Statement of financing • Statement of custodial activity • Required supplemental information • Summary information on stewardship property, plant, and equipment

12. Social Insurance • SFFAS No. 17 presents accounting standards for Social Security, Medicare and Supplementary Medical Insurance (Part B), Railroad Retirement benefits, Black Lung benefits, and Unemployment Insurance • Recognize a liability when payments are due and payable to beneficiaries or service providers

13. Dual-Track Accounting System • Federal agencies are required to comply both with budgetary accounting requirements and accrual basis proprietary accounting requirements • Many transactions require an entry to record the budgetary effect and a separate entry to record the proprietary effect (i.e., the effect on net position of the entity)

14. Government-wide Statements • The Government Performance and Results Act of 1993 expanded the requirements of the Chief Financial Officers Act of 1990 and required 24 federal agencies to be audited and comprehensive government-wide financial statements be prepared. • The Financial Report of the United States Government has been produced since FY97 by the Department of Treasury, after years of prototype Consolidated Financial Statements.

15. Government-wide Statements (Cont’d) • The report follows FASAB standards. • The Comptroller General of the GAO issued a disclaimer of opinion on these statements. Difficulties arise in accounting for • environmental liabilities • military postemployment health benefits of the DOD • Loans receivable of the Dept of Agriculture • inventorying capital assets (e.g., Dept of Defense) • Each year more of the 24 federal agencies receive unqualified opinions on their individual statements.

16. Concluding Comments • Much progress is being made in the quality of federal financial management, accounting, and reporting through federal initiatives. • The three principals of the Joint Financial Management and Improvement Program (the Comptroller General, Secretary of Treasury, and Director of the OMB) created the FASAB, whose statements become GAAP upon approval by the principals. • A variety of unique financial statements are required of federal agencies, including both budgetary and proprietary accounting requirements. Thus, they practice a dual-track system of accounting.