1. The Envelope System © Dale R. Geiger 20111

2. Questions to Consider Does “the Government” overspend its budget? Who decides how much to spend? How do managers make sure they don’t overspend? © Dale R. Geiger 20112

3. Terminal Learning Objective Task: Calculate Unobligated Balance Condition: You are a cost advisor technician with access to all PCAM course handouts, readings, and spreadsheet tools of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors. Standard: With at least 80% accuracy: Describe steps in budgetary process Explain budgetary terminology Demonstrate the purchasing process Explain “good financial management” © Dale R. Geiger 2011 3

4. Financial Planning and Control Financial Planning and Control You have been hired as a budget consultant by the Simmons family Gomer, Madge, Bert, Lacy and Maddie estimated Gomer’s monthly paycheck is estimated to be $1000. How should they spend it? © Dale R. Geiger 20114

5. The Envelope System Predetermines amounts to be spent for various needs Sets money aside for specified purpose Prohibits spending for other than intended Purpose--can’t take money from one envelope and put in another © Dale R. Geiger 20115

6. Proposing the Budget © Dale R. Geiger 20116

7. Regarding Budgets legalaccounting event. The budget is legal and an accounting event. What does this mean? propose Many entities propose budgets enacts Who enacts the budget? Budgets authorize spending based on estimated revenue Where is the real money? Can we plan to spend more than we expect to receive? © Dale R. Geiger 20117

8. Enacting the Budget © Dale R. Geiger 20118

9. The Budgetary Equation Estimated Revenues =Appropriations+ Planned Change In Fund Balance © Dale R. Geiger 20119

10. Recording the Budget If Estimated Revenues > Appropriations, Fund Balance will Increase If Appropriations > Estimated Revenues, Fund Balance will Decrease © Dale R. Geiger 201110

11. Learning Check What is the first step in the budget process? If estimated revenues are $50 and appropriations are $55, what is the planned change in Fund Balance? © Dale R. Geiger 201111

12. The Budgetary Accounts Exist solely for the purpose of recording and tracking the budget Budget = a legally binding spending plan Account Titles: Estimated Revenue = Expected Income Appropriations = Authorized Spending Budgetary Fund Balance = Planned Change Unreserved Fund Balance = Savings © Dale R. Geiger 201112

13. Spending Authority Allotment (HQDA) Apportionment (OMB) Appropriation (Congress) Army Q1Major CommandFunctional AreaFunded ProgramQ2Q3Q4 © Dale R. Geiger 201113

14. Controlling the Budget Appropriations, Obligations  Expenditures Appropriations ensure that funds are spent as the voting body intends The obligation process ensures that appropriations are not overspent Estimated Revenues  Revenues Estimated revenues give a basis of comparison for actual revenues © Dale R. Geiger 201114

15. Spending Process ExpenditureObligationCommitmentLiabilityPayment © Dale R. Geiger 201115

16. Budgetary Accounting Provides a control mechanism to prevent overspending funds Does proper budgetary accounting prevent deficits? Why or why not? It DOES prevent overspending It does NOT prevent revenue shortfalls It does NOT prevent over-appropriating by the legislative body © Dale R. Geiger 201116

17. Learning Check What mechanisms exist to control expenditures? What is the step in the spending authorization process that releases funding quarter by quarter? © Dale R. Geiger 201117

18. Gomer Makes a Purchase Signs up for 3-month trial membership to the Doughnut of the Month Club, $60 Remove $60 from Gomer’s envelope Place in the “Obligated” envelope Key Point: Ordering triggers an obligation © Dale R. Geiger 201118

19. Gomer Makes a Purchase Receives first month’s shipment of Doughnuts with invoice for $25: Remove $20 from the “Obligated” envelope and replace in Gomer’s envelope Remove $25 from Gomer’s envelope and place in “Expenditures” envelope Key Point: Receiving goods and services triggers an expenditure © Dale R. Geiger 201119

20. Tracking Gomer’s Unobligated Balance How much does Gomer have left to spend? Assume his original appropriation was $100 Appropriations- Open Obligations -Expenditures Unobligated Balance = © Dale R. Geiger 201120

21. Tracking Gomer’s Unobligated Balance © Dale R. Geiger 201121

22. Key Points obligation Ordering goods or services triggers an obligation  Prevents over-expending of funds expenditure Receiving goods or services triggers an expenditure  Reverse obligation  Record expenditure Salaries, wages and other recurring expenditures are not obligated, but may be committed © Dale R. Geiger 201122

23. Learning Check What is the equation to calculate unobligated balance? What is the event that triggers and expenditure? © Dale R. Geiger 201123

24. Good Financial Management If Gomer’s budget is $100, what happens if he spends more than $100? What happens if he spends less? What accounting mechanisms exist to measure the quality of Gomer’s spending? © Dale R. Geiger 201124

25. Practical Exercises © Dale R. Geiger 201125

26. The Envelope System Spreadsheet Enter estimated revenue and the appropriation for each item. The spreadsheet calculates the planned change in the Fund Balance. © Dale R. Geiger 201126

27. The Envelope System Spreadsheet The Unobligated Balance tab shows the result of Gomer’s activity on the entire family’s unobligated balance © Dale R. Geiger 201127

28. The Envelope System Spreadsheet To see only Gomer’s activity, enter only his info on the “Create Budget” tab. © Dale R. Geiger 2011 28

29. Practical Exercises © Dale R. Geiger 201129