The Statement of Financing

1. 1 The Statement of Financing Sandra G. Anderson Defense Contract Audit Agency FY2004 Year-end Conference July 28, 2004 You may ask questions at any time during my presentation if you need additional information. I will be assisted by Tisha Jordan who prepares the Procurement and RDT&E CFO statements. Also, if the questions get really technical we have Mekeisha French from Agency reporting, DFAS-CO. A little background on my experience with preparing the financial statements I joined the DCAA staff as an operating accountant in November, 2003. Prior to that I worked for another small independent agency under the executive branch for almost seven years. One of my many duties there was to prepare the annual financial statements. We received a clean audit opinion each of those years. The DCAA has a audit history. FY 2000 Qualified opinion (auditors couldn’t verify beginning balances) No material weaknesses in internal controls FY 2001, FY 2002, and FY 2003 Financial Statements: Unqualified opinion on all financial statements No material weaknesses in internal controls FY 2004 Financial Statements: Unqualified opinion expected on FY 2004 financial statements No material weaknesses in internal controls expected DCAA was exempt from requirement to prepare an improvement plan on the FY 2007 financial statements because of unqualified audit opinions. You may ask questions at any time during my presentation if you need additional information. I will be assisted by Tisha Jordan who prepares the Procurement and RDT&E CFO statements. Also, if the questions get really technical we have Mekeisha French from Agency reporting, DFAS-CO. A little background on my experience with preparing the financial statements I joined the DCAA staff as an operating accountant in November, 2003. Prior to that I worked for another small independent agency under the executive branch for almost seven years. One of my many duties there was to prepare the annual financial statements. We received a clean audit opinion each of those years. The DCAA has a audit history. FY 2000 Qualified opinion (auditors couldn’t verify beginning balances) No material weaknesses in internal controls FY 2001, FY 2002, and FY 2003 Financial Statements: Unqualified opinion on all financial statements No material weaknesses in internal controls FY 2004 Financial Statements: Unqualified opinion expected on FY 2004 financial statements No material weaknesses in internal controls expected DCAA was exempt from requirement to prepare an improvement plan on the FY 2007 financial statements because of unqualified audit opinions.

2. 2 Defense Contract Audit Agency Mission: Provides audit and financial advisory services to ensure that the Army, Navy, Air Force, and DCMA get the best value for war fighters Provides contract audit services to 40 other Departments and Agencies on a reimbursable basis Staffing: Current staffing of approximately 4,000 people located at more than 300 field audit offices throughout the US, Europe, and the Pacific Funding: O&M, Reimbursable Earnings, Procurement, and RDT&E (prior to FY 2004) Who are we? Mission Formed on January 8, 1965 to establish a single audit capability. The DCAA consists of 7 major organizational components: HQTRS, 5 regions and Field Detachment. Who are we? Mission Formed on January 8, 1965 to establish a single audit capability. The DCAA consists of 7 major organizational components: HQTRS, 5 regions and Field Detachment.

3. 3 Statement of Financing What is the Statement of Financing? What is its purpose? Why do we prepare it? What is the DCAA’s success story? Why is the Statement of Financing a challenge to prepare? What is the purpose of the Statement of Financing. Is it a challenge to prepare? You bet! But here are some tips and hints. How does DCAA do it? Background Information: DCAA retains an Independent Audit (IA) firm which conducts their audit and renders an audit opinion to the agency head on the basis of that audit. What is the purpose of the Statement of Financing. Is it a challenge to prepare? You bet! But here are some tips and hints. How does DCAA do it? Background Information: DCAA retains an Independent Audit (IA) firm which conducts their audit and renders an audit opinion to the agency head on the basis of that audit.

4. 4 Statement of Financing Statement of Federal Financial Standards (SFFAS) #7, Accounting for Revenue and Other Financial Sources, requires a reconciliation explaining the relationship between budgetary obligations incurred by the entity and the net cost of operations of the entity SoF provides that information Shows also that the entity’s budgetary and proprietary information in the financial management system agrees Reconciles budgetary-based Statement of Budgetary Resources to accrual-based Statement of Net Cost In other word: What were the total resources used by the entity and how were those resources used (orders for goods and services, acquire assets and liabilities and fund the net cost of operations.) In other word: What were the total resources used by the entity and how were those resources used (orders for goods and services, acquire assets and liabilities and fund the net cost of operations.)

5. 5 Statement of Financing:The DCAA Process DFAS and DCAA share responsibility for the financial information in the reports which represent the financial effects of the DCAA’s operations The DCAA prepares the monthly reports (SF133, 1002, 725) independent of servicing DFAS Center in Columbus for 3 general fund appropriations Both are responsible for the accuracy of the reported information and for taking corrective actions, as needed, to improve the timeliness and quality of the financial reports (DoD Financial Management Regulation, Volume 6A, and Chapter 2). Although this is a shared responsibility, the DCAA has ultimate responsibility for reliability and accuracy of the information contained in the financial Statements. The DFAS-CO in conjunction with DCAA prepares the financial statements from data contained in the Defense Business Management System, the official accounting system for accounting support and financial management information. We receive from DFAS-CO the trial balances, cash reports from disbursing offices and other information used by their office to prepare the monthly reports. One other accountant and I. This is a crucial element. Both are responsible for the accuracy of the reported information and for taking corrective actions, as needed, to improve the timeliness and quality of the financial reports (DoD Financial Management Regulation, Volume 6A, and Chapter 2). Although this is a shared responsibility, the DCAA has ultimate responsibility for reliability and accuracy of the information contained in the financial Statements. The DFAS-CO in conjunction with DCAA prepares the financial statements from data contained in the Defense Business Management System, the official accounting system for accounting support and financial management information. We receive from DFAS-CO the trial balances, cash reports from disbursing offices and other information used by their office to prepare the monthly reports. One other accountant and I. This is a crucial element.

6. 6 Statement of Financing: The DCAA Process cont’d This step includes: Review and compare line items in completed reports with the monthly reports received from DFAS- CO Resolve differences Research discrepancies Make corrections and/or adjustments. When mutual agreement is reached, the reports are released to DFAS-IN When we have completed the monthly reports the DCAA and DFAS-CO then review and reconcile.When we have completed the monthly reports the DCAA and DFAS-CO then review and reconcile.

7. 7 Statement of FinancingThe DCAA Process cont’d Using the information from the final SF133s and the DBMS trial balances, the DCAA independently prepares the CFO Statements in Excel worksheets The process is as follows: For each open year, the DCAA “crosswalks” the data from certain individual lines on the SF133s to an Excel worksheet We complete the first step of labor intensive process to produce the CFO statements when the SF 133s are final. Our accounting records are maintained in a system that is not USSGL compliant. As a work around we produce off line a USSGL compliant trial balance using the final SF 133s as the basis for the the budgetary accountsWe complete the first step of labor intensive process to produce the CFO statements when the SF 133s are final. Our accounting records are maintained in a system that is not USSGL compliant. As a work around we produce off line a USSGL compliant trial balance using the final SF 133s as the basis for the the budgetary accounts

8. 8 Statement of FinancingThe DCAA Process cont’d The individual lines are matched with the corresponding USSGL account to create beginning balances for those budgetary accounts The DCAA has a checklist of other budgetary GLAC accounts that are to be included with adjustments and “crosswalked” to the compatible USSGL account

9. 9 Statement of FinancingThe DCAA Process cont’d When the account balances for each of the years are combined we have a preclosing combined budgetary trial balance for each general fund appropriation All data is checked for accuracy For the prior years, when the total of the individual lines taken from the SF133s are combined, they should equal the brought forward balance for USSGL account 4201 We adjust for PY the differences in the Beginning and ending balances for USSGL 4901, 4221, 4251 and 4252 to SGL 4201. DBMS does not have an account We adjust for PY the differences in the Beginning and ending balances for USSGL 4901, 4221, 4251 and 4252 to SGL 4201. DBMS does not have an account

10. 10 Statement of FinancingThe DCAA Process cont’d DFAS-CO uses a similar process to produce the USSGL account information for each reportable year and fund Include on worksheets PY pre-closing and post closing TB account information The DCAA and DFAS will mutually agree upon these preliminary account balances before moving on to the next step

11. 11 Statement of FinancingThe DCAA Process cont’d Next, we include the amounts for the proprietary accounts. We have now built a USSGL compliant trial balance, and the basis for the CFO statements. Parity checks are performed to make sure certain budgetary accounts match with proprietary accounts. Adjustments are made for differences. Agreement is again reached with DFAS-CO. Proprietary and budgetary accounts are self-balancing. Although on the trial balance debits and credits may equal, there may still be errors within the trial balance which will cause the statements not to balance with each other. Proprietary and budgetary accounts are self-balancing. Although on the trial balance debits and credits may equal, there may still be errors within the trial balance which will cause the statements not to balance with each other.

12. 12 Statement of FinancingThe DCAA Process cont’d DFAS-CO will post these by journal voucher to the USSGL trial balance for correct Financial Statement presentation : trading partner eliminations, future funded expenses, correction of posting errors due to system limitations, reclassifications between federal/nonfederal, imputed costs/financing, etc USSGL accounts are “crosswalked” to appropriate line numbers on the Statement of Financing. If the two Net Costs of Operations do not balance we double check the crosswalks Included in this group of JVs are also JVs that correct posting errors due to system limitations. Advances received from others should be shown as unearned revenue. Our system allows us to post these advances only as a reduction to accounts receivable. We use the crosswalk on the USSGL website to . In it you will find the crosswalk of the USSGL accounts to the individual lines to the annual external reports.Included in this group of JVs are also JVs that correct posting errors due to system limitations. Advances received from others should be shown as unearned revenue. Our system allows us to post these advances only as a reduction to accounts receivable. We use the crosswalk on the USSGL website to . In it you will find the crosswalk of the USSGL accounts to the individual lines to the annual external reports.

13. 13 Statement of FinancingFour Steps to Success 1. Independently prepare and thoroughly review monthly SF 133 reports 2. System posting errors lead to problems within the reports. Review transactions. Review trial balances 3. Establish a good working relationship with your servicing DFAS center partner 4. Perform all required reconciliations In summary four critical elements to note about what we do at DCAA. In addition: -Develop internal milestones. Accelerated schedules leave little room for rework. -Internal policies and procedures are a must. In summary four critical elements to note about what we do at DCAA. In addition: -Develop internal milestones. Accelerated schedules leave little room for rework. -Internal policies and procedures are a must.

14. 14 Statement of Financing Obligations Less: Current-year obligations which are not expenses Add: Expenses which are not current- year obligations Equals: Net Cost of Operations We saw this slide earlier The Statement of Financing: Reconciles budgetary-based Statement of Budgetary Resources to accrual-based Statement of Net Cost Here are some helpful tips and hints.We saw this slide earlier The Statement of Financing: Reconciles budgetary-based Statement of Budgetary Resources to accrual-based Statement of Net Cost Here are some helpful tips and hints.

15. 15 Statement of Financing 1. Obligations, net of offsetting collections, recoveries and offsetting receipts 2. Add: Nonbudgetary resources 3. Resources That Do Not Fund Net Cost of Operations 4. Components of Net Cost of Operations That Do Not Require or Generate Resources (current period) 5. Net Cost of Operations Now that we have looked at the DCAA’s process let’s look at the individual lines on the SoF. These are the five parts of the SoF. What are offsetting receipts, recoveries and and offsetting receipts? What are nonbudgetary resources? Lines 3 & 4 are a mouth full. What types of resources are these? Net cost of operations is:Now that we have looked at the DCAA’s process let’s look at the individual lines on the SoF. These are the five parts of the SoF. What are offsetting receipts, recoveries and and offsetting receipts? What are nonbudgetary resources? Lines 3 & 4 are a mouth full. What types of resources are these? Net cost of operations is:

16. 16 Tips & Hints:1. Obligations Obligations = Obligations on Statement of Budgetary Resources Obligations = Line 8 of SF-133 Obligations = new obligations + upward adjustments of prior-year obligations

17. 17  Net of Collections and Receipts Offsetting collections = Offsetting collections on Statement of Budgetary Resources Offsetting collections = Line 3 of SF-133 Offsetting receipts includes only amounts collected in offsetting receipt accounts = Line 16 of SBR

18. 18 Tips & Hints:2.Nonbudgetary Resources Resources that increase net position but are not part of budgetary resources on the Statement of Budgetary Resources Donations (other than cash) Transfers in/out without reimbursement Imputed financing Examples are: Donations, excluding cash (property) Transfers in/out without reimbursements (investments, inventory, etc) Imputed Financing (certain after retirements benefits costs paid by OPM) Gains/losses for Foreign currency Fluctuations Examples are: Donations, excluding cash (property) Transfers in/out without reimbursements (investments, inventory, etc) Imputed Financing (certain after retirements benefits costs paid by OPM) Gains/losses for Foreign currency Fluctuations

19. 19 Tips & Hints:3. Resources That Do Not Fund Net Cost of Operations Obligations which are not expenses: Unexpended obligations (undelivered orders) Unfilled orders Net decreases in annual leave Advances for work yet to be performed. Costs capitalized on the balance sheet, such as purchases of inventory

20. 20 Tips & Hints:4. Costs That Do Not Require or Generate Resources Depreciation and amortization do not require current-year budgetary resources Exchange transaction gains and losses from revaluation of assets or liabilities

21. 21 4. Costs That Do Not Require or Generate Resources (cont’d) Future Funded Expenses Net increases in accrued unfunded annual leave liability Upward/downward reestimates for credit program subsidy cost Net increases in FECA actuarial liability

22. 22 Line 5: Net Cost of Operations If this line equals the Net Cost of Operations on the Statement of Net Cost, you’re done! If not: review the USSGL crosswalk; analyze your transactions to compare budgetary and proprietary impact Good luck!! Line 18, Total resources used to Finance the net cost of operations Plus Line 29 Total components of net cost of operations that will not require or generate resources in the current period Equals Line 29 Net Cost of Operations (Statement of Financing) Should equal Line 4, Net Cost of Operations (Statement of Net Costs) An important note to remember about the Statement of Financing is that it requires a level of detail beyond that found in the USSGL accounts. Some analyses of transactions may be required to obtain the necessary dataLine 18, Total resources used to Finance the net cost of operations Plus Line 29 Total components of net cost of operations that will not require or generate resources in the current period Equals Line 29 Net Cost of Operations (Statement of Financing) Should equal Line 4, Net Cost of Operations (Statement of Net Costs) An important note to remember about the Statement of Financing is that it requires a level of detail beyond that found in the USSGL accounts. Some analyses of transactions may be required to obtain the necessary data

23. 23 Statement of Financing? The End ? Any Questions????? Sandra G. Anderson Defense Contract Audit Agency Fort Belvoir, VA 22060-6219 sandra.anderson@dcaa.mil (703) 767-2229