Presentation on theme: "1 Introduction to Federal Accounting Presented by: John Reifsnyder, CDFM Graduate School Instructor"— Presentation transcript:
1 Introduction to Federal Accounting Presented by: John Reifsnyder, CDFM Graduate School Instructor
2 Accounting The Systematic - Classification - Recording - Reporting - Analyzing - Interpretation Of the financial records of an enterprise used to - evaluate the progress or failures of an activity - recognize the factors that determine financial condition
3 Common Accounting Terms Accounting Cycle Double Entry Accounting General Journal Ledger Accounts General Ledger Cash and Accrual Basis of Accounting details later
4 The United States Constitution “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 expenditures of all public money... shall be published from time to time.” (Article 1, Sec 9, Clause 7)
5 Accounting Introduction Federal accounting framework Budgetary accounting Financial accounting Managerial cost accounting Users of Federal Financial Information External users (citizens and Congress) Internal users (agency heads and management)
6 Federal Financial Statements UNITED STATES GOVERNMENT CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997 (In billions of dollars) Consolidated Statements Assets: Cash and other monetary assets Accounts receivable Loans receivable Taxes receivable Inventories and related property Property, plant, and equipment Other assets Total assets Commitments and contingencie Net position Total liabilities and net position Liabilities and net position: Accounts payable Federal debt securities held by the Federal employee and veteran ben Environmental liabilities Benefits due and payable Loan guarantee liabilities Other liabilities Total liabilities UNITED STATES GOVERNMENT CONSOLIDATED STATEMENT OF NET COSTS FOR THE YEAR ENDED SEPTEMBER 30, 1997 (In billions of dollars) Consolidated Statements National defense Human resources: Education, training, employme social services Health Medicare Income security Social security Veterans benefits and services Total human resources Physical resources: Energy National resources and enviro Commerce and housing credit Transportation Community and regional devel Total physical resources Net interest: Treasury securities held by th Other functions: International affairs General science, space, and te Agriculture Administration of justice General government Total other functions Total UNITED STATES GOVERNMENT CONSOLIDATED STATEMENT OF CHANGES IN NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 1997 (In billions of dollars) Consolidated Statements Less: Financing sources from non-exchange revenues: Individual income tax and tax withholdings Corporation income taxes Unemployment taxes Excise taxes Estate and gift taxes Customs duties Miscellaneous Total non-exchange revenues Other earned revenues Excess of costs over revenues before unreconciled transactions Unreconciled transactions affecting the change in net position. Change in net position Net position-beginning of period Net position-end of period 1, ,603.3 Net cost of Government operations 1, , ,003.0 Balance Sheet Statement of Net Cost Statement of Change in Net Position Required Supplemental Stewardship Information - Vol 6B, Chapter 11 RSI - Vol 6B, Chapter 12 (DM)
7 Accounting-Related Legislation BUDGET AND ACCOUNTING ACT OF 1921: - ESTABLISHED AN EXECUTIVE BUDGET PROCESS - REQUIRED THE PRESIDENT TO SUBMIT HIS BUDGET RECOMMENDATIONS TO CONGRESS EACH YEAR. TO ASSIST HIM, THE BUREAU OF THE BUDGET WAS CREATED - CONGRESS WOULD BETTER COORDINATE REVENUE AND SPENDING DECISIONS - APPROPRIATIONS COMMITTEES JURISDICTION OVER SPENDING WAS STRENGTHENED - GOVERNMENT ACCOUNTABILITY OFFICE (GAO) WAS ESTABLISHED
8 Accounting-Related Legislation 1950 BUDGET AND ACCOUNTING ACT Amended the 1921 Budget and Accounting Act. Assigned to the executive branch the responsibility for maintaining accounting systems and producing financial reports. The Comptroller General, in consultation with the Director of OMB, was required to prescribe the principles, standards, and related requirements for accounting to be observed by the executive agencies. Each was given the responsibility for establishing and maintaining systems of accounting and internal controls. Established accounting systems of executive agencies were required to conform to the principles, standards, and related requirements prescribed by the CG.
9 Accounting-Related Legislation THE CONGRESSIONAL BUDGET AND IMPOUNDMENT CONTROL ACT OF Changed the fiscal year to October 1 through September 30 - Established the Congressional Budget Office (CBO) -Established to provide data to the Congress on and analysis of the federal budget - Established the House and Senate Budget Committees -Charged with development of a “Concurrent Resolution on the Budget”
10 Accounting-Related Legislation 1982 Federal Managers’ Financial Integrity Act: Each agency reports the results of a self-evaluation of the adequacy of systems of internal control Assurance that agencies are managed properly Obligations and costs comply with applicable laws Funds, property and other assets are safeguarded against waste, loss, and unauthorized use
11 Accounting-Related Legislation Prompt Payment Act of 1982 Pay vendors on time or pay interest
12 Accounting-Related Legislation Chief Financial Officers Act of Required the establishment of CFOs in cabinet departments and specified agencies - CFOs charged with overseeing financial management activities
13 Accounting-Related Legislation Government Performance and Results Act of 1993 Requires agencies: to submit 5-year strategic plans…DoD must update at least every 4 years to submit annual performance plans Now part of Performance Budget to report prior year program performance by November 15 th of each year Performance and Accountability Report (PAR) or separate Performance and Accountability reports Shifts focus of programs from workload activities to performance metric outputs and outcomes.
14 Accounting-Related Legislation Government Management Reform Act – Required systems to: -- support the control of cost of government -- support full cost reporting and full disclosure of financial data - Required application of accounting standards to produce consistency in financial reporting
15 Accounting-Related Legislation Federal Financial Management Improvement Act – 1996 Each agency head establish, evaluate, and maintain adequate systems of accounting and internal control Incorporate accounting standards and reporting objectives Each audit of an agency’s financial statements shall report if the agency is in compliance with the preceding requirements
16 Federal Accounting Standards Advisory Board (FASAB) Develops and recommends federal accounting concepts and standards established in Concepts 36 Standards Federal Generally Accepted Accounting Principles (GAAP)
17 Implementation of Federal Accounting Standards Office of Management and Budget (OMB) Government Accountability Office (GAO) Department of Treasury
18 Types of Government Funds Department of Defense: Appropriated Funds Reimbursable Funds Revolving Funds Trust Funds Nonappropriated Funds
19 Budgetary Accounting Budgetary accounting is often referred to as fund accounting. Budgetary accounts are a set of accounts that are self-balancing and represent different levels of obligational authority for different units.
20 Budgetary Accounting Purpose Record appropriation status Record subdivisions of budgetary authorities Record valid commitments, obligations, expenditures, outlays Control use of budgetary authorities Use for appropriate purpose Use during time provided Use within amount provided
21 Budgetary Definitions Appropriations Congressional authorization to obligate government and make payment from the Treasury Apportionment Distribution of congressional budgetary authority to a federal agency by OMB Allotment Distribution of apportioned budgetary authority to organizational activities Commitment Administrative reservation of budgetary authority
22 Budgetary Definitions (cont’d) Obligation Legally encumbers a specified sum of budgetary authority that requires future payment Outlays/Disbursements Payment for costs incurred, goods and services received Expended Authority Budgetary authority used to fund goods and services received Expired Authority Budgetary authority that is no longer available for new obligations Canceled Authority Budgetary authority that has been closed
Flow of Funds CONGRESS THE PRESIDENT PRESIDENT AND CONGRESS AGREE ON THE BUDGET PRESIDENT SIGNS APPROPRIATIONS BILLS OMB APPORTIONS THE APPROPRIATIONS TREASURY ISSUE TREASURY WARRANTS AND CREATES “BANK ACCOUNTS” Agency Hqs. Agency Divisions BUDGET EXECUTION BEGINS Units A, B, C
25 Fiscal Law An agency may obligate and expend appropriations: Only for a proper purpose Only within the authorized time limits Within the amounts established by Congress for a bona fide need
26 Proper Purpose Rule: For the purposes for which they were appropriated per 31 U. S. C (a): “ Appropriations shall be applied only to the objects for which the appropriations were made except as otherwise provided by law ” Purpose
27 Time Within the authorized time limits: Expenditure of funds must be incurred within the time for which the appropriation was made available. Do not execute current year funds for prior or future year expenditures. (31 USC 1502)
28 Time A valid obligation must be made to an appropriation within the period the funds are available. O&M: One fiscal year RDTE: Two fiscal years Procurement: Three fiscal years MILCON: Five fiscal years SCN: Five fiscal years No Year: Dollar specific, indefinite expiration
29 Amount Within the amounts established by Congress: The obligation may not exceed the amount appropriated by statute, nor may it be incurred before the appropriation becomes law (31 U.S.C. 1341)
30 No-Year Appropriations 31 U.S.C A No-Year Account is to be Closed If: Agency Head or President Determines Purpose Fulfilled No Disbursements Have Been Made for Two Years
32 Accounting Classification Identifies the source of funding and purpose for which used Creates an audit trail
33 What is an Obligation?
34 Orders placed, Contracts awarded, Grants issued, Services received, etc that will require payments (“outlays”) during the same or a future period. Government Definition
35 Obligations are Classified as: OBLIGATION Undelivered OrderDelivered Order Unpaid 4801 Paid 4802 Paid 4902 Unpaid 4901
36 What is an “Accrued Expenditure”? Charges…that reflect liabilities incurred and the need to pay for: services… goods…received… amounts becoming owed under programs for which no current service or performance is required (such as annuities, benefit payments..)* Expenditures accrue regardless of when cash payments are made…* *GAO, “Glossary of Federal Terms Used in the Federal Budget Process”, 1981.
37 OBLIGATION Delivered Order UNPAID PAID Expenditures in the Budget Expenditure
38 Accrual Accounting Events Timing of the Recording of Purchase of Materials Under Accrual Method of Accounting Records in Accounting Records in Month in Which: TransactionOrder is PlacedMaterials are Delivered Bill is PaidMaterials are used Placing an order for materials As an obligation Materials DeliveredAs an accrued expenditure Payment made for materials As a disbursement of cash Materials used or consumed As an applied cost
39 What is an Outlay ?
40 A payment of an obligation Once all payments are made, the obligation goes away (is “liquidated”) Outlays during a fiscal year may be for payment of obligations incurred in prior years or in the same year
41 Outlays are Paid Obligations OBLIGATION Undelivered OrderDelivered Order UNPAID PAID UNPAID OUTLAY
42 Reimbursements Project Order (41 U.S.C. 23): Placed with and accepted by: A DoD Government Owned and Government Operated (GOGO) establishment. Shipyard, arsenal, ordinance plant or other manufacturing plant or shop.
43 Project Orders Same as a commercial contract to the customers’ appropriation Extends beyond the life of the appropriation. Up to five years after the appropriation expires for new obligations Over-billing may create a 31 USC 1517 violation Normally issued for the overhaul or manufacturing of a specific number of items within a specific time frame for a specific price Performing activity should incur costs of not less than 51% of the total costs of performing the work The performing activity must not accept the project order if the requirements of the project order regulations are not met A Military Interdepartmental Purchase Request (DD 448 Form) is used to issue project orders
44 Project Order Characteristics Specific regarding work to be done Single purpose with identification to a final product or end item Includes a production schedule Includes funded cost per item Usually mission oriented Be performed in house Bona fide need in the year executed Commence work within a reasonable time (90 days) Return orders for cancellation if work financed by an expiring appropriation is not started by 1 January
45 Economy Act Orders Must be closed-out by 30 September. Change in dollar amount requires: An amendment to the original MIPR (DD Form 448). Acceptance (DD Form 448-2) of the amendment by the performing activity. Adjust the obligation in accounting based on the acceptance of (DD Form 448-2).
Non-Economy Act Orders Non-Economy Act orders are for intra- governmental support, where a DoD activity needing goods and services obtains them from a Non-DoD agency. Specific statutory authority is required to place an order with a Non-DoD agency for goods or services, and to pay the associated cost. If specific statutory authority does not exist, the default will be the Economy Act, 31 U.S.C
47 Customer/Provider Scenario Customer (ordering agency) prepares MIPR requesting the repair and overhaul of 400 widgets for a total cost of $ 1,300,000. The MIPR was issued as a Project Order and is funded with an annual O&M appropriation Performing agency accepts the MIPR and prepares a MIPR acceptance, DD Form Based on the MIPR acceptance the ordering agency records an obligation in their accounting records and the performing agency records an order received in their accounting records in the amount of $1,300,000
48 Order Impact On Customer/ Provider Books $ 84 Should complete work by 30 Sept $ 84 Must be de-obligated if not Completely liquidated by 30 Sept Unfilled Orders Unliquidated Obligations Provider Books Customer Books $ 1.216M 4252/4251 R.E. COLL./R.E 1010/1310 FWTT/A.R. $ M 4901/ /1010 Collections Payment / Liquidation $ 1.216M Billed to Customer based on Cost In support of the Project (SF 1080 bill submitted) 4251/4220 R.E./UFO 1310/5200 A/R - REV $ M Based on SF 1080 Bill 4801/ / /5700 Reimbursements Earned Cost MIPR ACCEPTANCE$ 1.3M FY ’10 – 15 – Available To complete Work thru 30 Sept., 2015 Assumes O&M customer 4220/4210 Unfilled Orders/Anti. Reimb & Other Income MIPR ACCEPTANCE$ 1.3M Project Order (DD 448-2) 4610/4801 Orders Received Obligations
49 How do we Link to the Budget? Accounting events are assigned unique identifiers from a standard government-wide list (U.S. Standard General Ledger) All federal agencies are required to use these standard accounts in order to properly link to the Budget
50 USSGL Chart of Accounts 1000Assets 2000Liabilities 3000Net Position (Capital) 4000Budgetary 5000Revenues and Financing Sources 6000Expenses 7000Gains and Losses 8000Memorandum Accounts
51 Flow of Budget Authority President signs appropriation into law, thereby creating budget authority - the authority for an agency to obligate the government to pay for goods and services OMB prepares to apportionTreasury prepares agency warrant OMB apportionment Agency request apportionment Agency headquarters allotment Major Organizations Sub-allotment or allocation Subordinate organizations Accounting processes now come into play
52 Flow of Budget Authority (continued) Organizational element with allotment or allocation Organization may commit to reserve budget authority for actual obligation later in the fiscal period Obligate for goods and services Expenditure Receipt of goods/services: cancellation or undelivered orders Cost Consumable supplies = cost Supplies for inventory issued/consumed = cost Equipment in revolving fund: Capitalized/depreciated = cost(in some accounting systems) Outlay Cash from the Treasury pays for goods/services
54 Proprietary Accounting Purpose Accounting for assets and liabilities Accounting for revenues and expenses Determining financial position Determining results of operations SFFAS NO. 7
55 Proprietary Accounting Balance Sheet Assets = Liabilities + Net Position 1000 Assets = 2000 Liabilities Net Position (Capital) Statement of Net Cost Expenses – Exchange Revenue = Net Cost of Operations
56 The Historical Cost Concept Generally accepted accounting principles (GAAP) requires that assets always be stated at their actual cost rather than at their current market values Accounting is concerned with what you paid for something, not what it is worth today
57 The Matching Principle Concept Expenses of a period that are recorded and reported are only those incurred to produce the revenues generated for the same period Some expenses require periodic adjustment to reflect only the amount of expenses for the financial period Examples: Prepaid Insurance Prepaid Rent Depreciation of Capital Assets
58 Cash versus Accrual Accounting Cash accounting -- revenue is recorded when cash is received and expenses when cash payment is made fails to match revenue with related expenses, therefore does not lead to logical income measurement
59 Cash Accounting
60 Accrual Basis of Accounting
61 Accrual Accounting (cont.) Example: $10,000 payroll that is split between two reporting periods: A portion is earned but not paid at end of the month: 4 days ($4,000) earned in September 6 days($6,000 to be earned in October) $4,000 is recorded as a payroll expense in September. $4,000 is recorded as a liability (salaries payable)
62 Flow of Accounting Data Recognized A Transaction Has Occurred Prepare A Source Document Analyze and Prepare a Journal Entry Process (Record) Into Accounting Records Prepare A Trial Balance Make Period End Adjustments and Accruals Prepare Financial Statements (Reports) Close the Books
63 The Accounting Process (Cycle) The Cycle Involves: Work Performed During The Period JOURNAL ENTRIES POSTING TO LEDGER ACCOUNTS DETERMINING UNADJUSTED BALANCES ESTABLISHING A TRIAL BALANCE AND COMPLETING WORKSHEET Work Performed At The End Of The Period JOURNALIZE AND POST ADJUSTING AND POST CLOSING ENTRIES PREPARE POST CLOSING TRIAL BALANCE AND FINANCIAL STATEMENTS
64 General Journal “Original” day-to-day record showing the “debit” and “credit” effect of each event Includes a brief explanation for each event Used to update the general ledger accounts
65 Ledger Account Means of accumulating in “one place” all information regarding changes in a specific account Comprised of three elements title left side which is called the debit side right side which is called the credit side Commonly referred to as a “T Account”
66 General Ledger All ledger accounts are maintained within the general ledger Federal government general ledger account structure is established, maintained, and updated by the Treasury Department
67 Accounts And Ledgers Accounts Are Classified As Follows: Assets - (What Is Owned) Liabilities - (What Is Owed) Costs/Expenses - (What Is Spent) Revenue/Income - (What Is Earned) Equity - (Assets –Liabilities = Net Worth) Gains/Losses Budget Memorandum
68 The Accounting Equation Assets = Liabilities + Equity Or A = L + E Or A – L = E Given The Accounting Equation, With Any Two Of The Three Factors, We Can Determine The Third Factor
69 Double Entry Accounting Forms the basis for most current day accounting operations Every business transaction affects two or more accounts Equal debit and credit entries are made for every transaction Total of all debit entries must equal the total of all credit entries
70 Normal Account Balance Refers to the Debit (left side) or Credit (right side) of a ledger account Assets normally have debit balances Liabilities and net position accounts normally have credit balances Expense accounts normally have debit balances Revenue accounts normally have credit balances
71 Debit and Credit Guide Account Type Affected By Transaction Effect of Transaction on Account How You Record Normal Balance DebitCredit Assets + DR - CR Liabilities + CR - DR Net Position + CR - DR Budgetary CR*DR / CR ** - DR Revenues + CR - DR Expenses + DR - CR * = To increase the budgetary account “Other Appropriations Realized” you debit (DR) ** = Budgetary Accounts have either a debit or credit balances, depending on the account.
72 General Journal Appropriations-Realized Resources ,000 Unapportioned Appropriations ,000 ReferenceDebitCredit Account Title and Explanation APPROPRIATIONS Unexpended Appropriations 100, Funds With Treasury ,000
73 General Journal Unapportioned Authority ,000 Apportionment ,000 ReferenceDebitCredit Account Title and Explanation OMB APPORTIONMENT
74 General Journal Apportionments ,000 Allotments-Realized Resources ,000 ReferenceDebitCredit Account Title and Explanation ALLOTMENT
75 General Journal Allotments-Realized Resource ,000 Commitments ,000 ReferenceDebitCredit Account Title and Explanation COMMITMENT
76 General Journal Commitments ,000 Undel. Orders – Obligs. Unpaid ,000 ReferenceDebitCredit Account Title and Explanation OBLIGATION
77 General Journal Undel. Orders – Obligs. Unpaid48012,000 Del. Orders – Oblig. Unpaid4901 Operating Materials Held for Use2, Accounts Payable21102,000 Unexpended Appropriation31072,000 ReferenceDebitCredit Account Title and Explanation RECEIPT OF MAT’LS ORDERED 2,000 Expended Appropriation 5700
78 General Journal Delivered Orders Oblig - Paid49022,000 Accounts Payable21102,000 Fund Balance With Treasury1010 2,000 Delivered Orders Oblig. Unpaid49012,000 ReferenceDebitCredit Account Title and Explanation PAYMENT OF INVOICE
83 Managerial Cost Accounting Is the process of: - Accumulating - Measuring - Analyzing - Interpreting - Reporting Cost Source: SFFAS No. 4
84 Managerial Cost Accounting Full Cost Direct Costs (Direct Labor/Direct Material) Indirect Costs (Overhead) Intra-entity Costs (General and Administrative) Inter-entity Costs Cost of goods and services received from other entities Providing entity responsible for providing cost data Recognition limited to material amounts
85 Working Capital Funds Established to satisfy recurring DoD requirements using a businesslike buyer-and- seller approach. Have a goal to breakeven over the long term. Use the funds collected to pay for acquisition of resources needed to operate the fund. Reference - 10 U.S.C., Section 2208 DoDFMR Volume 3, Chapter 19
86 CUSTOMERS OPERATING FORCES READINESS COMMANDS APPROPRIATES $ FUNDS CONGRESS APPROPRIATED $ WORKING CAPITAL AT INCEPITON OF THE FUND REVOLVING FUNDS WORKING CAPITAL $$ LABOR COSTSDIRECT MATERIAL PRODUCTION OVERHEAD GENERAL & ADMINISTRATIVE PLACE ORDERS PAY BILL FOR COSTS/ SERVICES FINANCES COST OF PERFORMING WORK DEFENSE WORKING CAPITAL FUND How it Works
87 Objectives of Federal Financial Reporting Budgetary Integrity Funding properly spent? Operating Performance Outputs and outcomes? Controls Safeguarding assets?
88 Federal Financial Reporting DoDFMR Volume 6B Balance Sheet (Chapter 4) Statement of Net Cost (Chapter 5) Statement of Changes in Net Position (Chapter 6) Statement of Budgetary Resources (Chapter 7) Statement of Custodial Activity (Chapter 9)
89 Statement of Net Costs Also Referred to as: Statement of Operations Income statement Purpose intended to provide revenue and expense details reports results (net profit or net loss) Prepared on basis of general ledger 5000 and 6000 account balances
90 Statement of Net Costs
91 Statement of Changes in Net Position Reports the beginning net position effect of those transactions that caused the net position to change ending net position Prepared on the basis of the Statement of Net Costs and the “Financing Sources”
92 Statement of Changes in Net Position ITEMS THAT INCREASE NET POSITION Excess of revenue over cost (net income) Legislative appropriations Property obtained from another govt. agency for which no reimbursed is required ITEMS THAT DECREASE NET POSITION Excess of cost over revenue (net loss or net cost of operations) Property provided to another agency for which no reimbursement is expected Funds returned to the Treasury Appropriations returned
93 Statement of Financial Position Also referred to as the Balance Sheet assets dollar amount of future economic benefits owned and managed by the agency liabilities dollar amounts owed by the agency net position (equity) the difference between assets and liabilities
94 Statement of Financial Position Summarizes the net worth or liquidity of an entity at a particular time Changes from day to day Accounts on this statement are permanent accounts Is a summary of accounting equation Assets = Liabilities + Government Equity
95 Statement of Financial Position
96 Statement of Budgetary Resources Provides information on how budget resources were made available as well as their status at the end of the reporting period. Should be reconcilable to the budget execution information reported on the SF 133 Report on Budget Execution and Budgetary Resources.
SF 133 Report on Budget Execution and Budgetary Resources The SF 133 consists of the following sections: