Statement of Financing

Date: July 8, 2005 To: Greg James and Cindy George From: Statement of Financing Subcommittee Janice Alexander Barbara Clark Kevin Close Martha Cooper Richard Fontenrose Julie Erlichman Bruce Henshel Dolores Huitt Keith Ingram Gail Matthews Melinda Pope Alice Rice David Surti Diane Washington NSF SBA USDA DFAS FASAB DOI, Co. Commerce DOI Education Education Treasury DOD USDA DOI Subject: FY 2006 Updates for Form and Content for the Statement of Financing This memorandum transmits the Statement of Financing (SOF) Subcommittee’s updates for the FY 2006 SOF Form and Content guidance. The updates are shown in the annotated Form and Content, Section 7, at Attachment 1. The Subcommittee also is submitting requests to the Standard General Ledger Division, Financial Management Service, for additional SGL accounts and for a comprehensive review of the SOF Crosswalk, as shown in Attachment 2. The Subcommittee also is providing an ―Issues Statement‖ containing the record of its work on 9 issues during the period March-June 2005 that resulted in the above submissions. The Issues Statement provides a discussion of several issues germane to the work of the Form and Content Committee. The Subcommittee forwarded one issue to each of two other Form and Content subcommittees. One issue involves whether the OMB and Treasury guidance regarding the definition and source for ―Offsetting Receipts‖ is adequate. This issue was referred to the Statement of Budgetary Resources subcommittee because offsetting receipts are reported there first and then merely picked-up on the SOF. The other issue involves a problem with ―parent and child‖ reporting that affects the SOF and the issue was forwarded to the Parent/Child subcommittee. 1 Attachment 1 – Form and Content Changes for the Statement of Financing Attachment 1 – Form and Content Changes for the Statement of Financing Form and Content, Changes for Section 5 and Section 7 (Statement of Financing Form and Content, Section 5, Statement of Budgetary Resources, 5.6 – Other Financing Sources This section displays financing sources and nonexchange revenue that do not represent budgetary resources as reported on the Statement of Budgetary Resources and defined as such by OMB Circular No. A-11. Form and Content, Section 7, Statement of Financing 7.1 General The Statement of Financing is the bridge between an entity’s budgetary and financial (i.e., proprietary) accounting. The Statement of Financing articulates the relationship between net obligations derived from an entity’s budgetary accounts and net cost of operations derived from the entity’s proprietary accounts by identifying and explaining key differences between the two numbers. Most entity transactions are recorded in both budgetary and proprietary accounts. However, because different accounting bases are used for budgetary and proprietary accounting, some transactions may appear in only one set of accounts (e.g., accrual of environmental and disposal liabilities which is recorded only in the proprietary records). Furthermore, not all obligations or offsetting collections may result in expenses or exchange revenue (e.g., purchase of a building is capitalized on the balance sheet in the proprietary accounts but obligated and outlayed in the budgetary accounts). The statement is structured to first identify total resources used by an entity during the period (budgetary and other) and then makes adjustments to the resources based upon how they were used to finance net obligations or net cost. Budgetary resources reported in this statement are those resources as defined in OMB Circular No. A-11 and also reported on the Statement of Budgetary Resources. Other resources reported in this statement are also reflected in the Statement of Changes in Net Position. Preparers of financial statements should refer to FASAB’s Implementation Guide to the Statement of Financing in SFFAS 7: Detailed Information on the Statement of Financing (April 2002)for more detailed guidance useful in preparing the Statement of Financing. Preparers of financial statements have flexibility as to the level of detail presented, e.g., the information should be presented for the reporting entity as a whole and, if the preparer 2 Attachment 1 – Form and Content Changes for the Statement of Financing elects, for the major suborganizations or responsibility segments or for the major budget accounts. With respect to the flexibility regarding detail presented, preparers may present a simplified, three section method. The three sections are for (1) total resources, (2) resources that do not affect net cost of the period, and (3) costs that do not require resources in the current period. The line items within sections 2 and 3 would be determined by the preparer within the framework of SFFAS 7, pars. 80-82. The budgetary information used to calculate net obligations (i.e., lines 1-4) must be presented on a combined basis in the Statement of Financing to enable a direct tie to the Statement of Budgetary Resources. 7.2 Illustrative Statement - Consolidated Statement of Financing Department/Agency/Reporting Entity CONSOLIDATED STATEMENT OF FINANCING (Page 1 of 2) For the Years Ended September 30, 20x2 and 20x1 (in dollars/thousands/millions) 20x2 Resources Used to Finance Activities: Budgetary Resources Obligated 1. Obligations incurred 2. Less: Spending authority from offsetting collections and recoveries 3. Obligations net of offsetting collections and recoveries 4. Less: Offsetting receipts 5. Net obligations Other Resources 6. Donations and forfeitures of property 7. Transfers in/out without reimbursement (+/-) 8. Imputed financing from costs absorbed by others 9. Other (+/-) 10. Net other resources used to finance activities 20x1 $ xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx $ xxx xxx xxx xxx xxx xxx xxx 11. Total resources used to finance activities Resources Used to Finance Items not Part of the Net Cost of Operations 12. Change in budgetary resources obligated for goods, services and benefits ordered but not yet provided (+/-) 13. Resources that fund expenses recognized in prior periods 14. Budgetary offsetting collections and receipts that do not affect net cost of operations 14a. Credit program collections which increase liabilities for loan guarantees or allowances for subsidy 14b. Other 15. Resources that finance the acquisition of assets 16. Other resources or adjustments to net obligated resources that do not affect net cost of operations (+/-) x,xxx x,xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx 3 Attachment 1 – Form and Content Changes for the Statement of Financing 17. Total resources used to finance items not part of the net cost of operations 18. Total resources used to finance the net cost of operations xxx x,xxx xxx x,xxx 4 Attachment 1 – Form and Content Changes for the Statement of Financing Department/Agency/Reporting Entity CONSOLIDATED STATEMENT OF FINANCING (Page 2 of 2) For the Years Ended September 30, 20x2 and 20x1 (in dollars/thousands/millions) 20x2 Components of the Net Cost of Operations that will not Require or Generate Resources in the Current Period: Components Requiring or Generating Resources in Future Periods: 19. Increase in annual leave liability xxx 20. Increase in environmental and disposal liability xxx 21. Upward/Downward reestimates of credit subsidy expense (+/-) xxx xxx 22. Increase in exchange revenue receivable from the public xxx 23. Other (+/-) xxx 24. Total components of Net Cost of Operations that will require or generate resources in future periods xxx xxx Components not Requiring or Generating Resources: 25. Depreciation and amortization xxx 26. Revaluation of assets or liabilities (+/-) xxx 27. Other (+/-) xxx 28. Total components of Net Cost of Operations that will not require or generate resources xxx xxx 29. Total components of net cost of operations that will not require or generate resources in the current period x,xxx 30. Net Cost of Operations 20x1 xxx xxx xxx xxx xxx xxx xxx x,xxx $ x,xxx $ x,xxx The accompanying notes are an integral part of these statements. 7.3 Resources Used to Finance Activities This section reflects the budgetary resources obligated and other resources that are used to finance the activities of the agency. The obligations of budgetary resources are net of offsetting collections, recoveries and offsetting receipts. The other resources are financing sources that increase net position but are not budgetary resources. Budgetary Resources Obligated Obligations incurred. This line item will agree with the obligations incurred as reported on the Statement of Budgetary Resources. This line item will include all budget accounts, including non-budgetary financing accounts. Less: Spending authority from offsetting collections and recoveries. This line item will agree with the spending authority from offsetting collections and recoveries as reported on the Statement of Budgetary Resources. This line item will include all budget accounts, including non-budgetary financing accounts. If the 5 Attachment 1 – Form and Content Changes for the Statement of Financing entity prepares a SOF quarterly, note that SOF line__, ―Less: Spending authority from offsetting collections & recoveries,‖ will not agree with the SBR, lines ―spending authority from offsetting collections‖ and ―recoveries‖, for quarters 1-3, because anticipated resources are not on the SOF. Obligations net of offsetting collections and recoveries. This line item is the difference between the two preceding lines. Less: Offsetting receipts. This line item will agree with the offsetting receipts as reported on the Statement of Budgetary Resources. Net obligations. This line item is the difference between the two preceding lines. Net obligations reflect obligations incurred net of offsetting collections, recoveries, and offsetting receipts. Other Resources. The line items in this section will agree with the corresponding line items as reported on the Statement of Changes in Net Position: Donations and forfeitures of property, Transfers in/out without reimbursement, Imputed financing from costs absorbed by others and Other. These resources increase net position but are not budgetary resources as reported on the Statement of Budgetary Resources or defined as such in the OMB Circular No. A-11. 7.4 Resources Used to Finance Items Not Part of the Net Cost of Operations This section adjusts total resources used to finance the activities of the entity to account for items that were included in net obligations and other resources but were not part of the net cost of operations. This section would include items in which the expense was recognized in a prior period but the budgetary resource and obligation are recognized in the current period (e.g., upward/downward reestimates of subsidy expense accrued in the prior period but obligated in the current period). It would also include budgetary resources and obligations recognized in the current period that do not affect the net cost of operations (e.g., the acquisition of assets reflected in net obligations but not in net cost of operations for the period). Change in budgetary resources obligated for goods, services and benefits ordered but not yet provided. This amount reflects undelivered orders or adjustments thereof, reflected in net obligations but not part of net cost of operations. This line item is typically a reduction to Total resources used to finance activities. 6 Attachment 1 – Form and Content Changes for the Statement of Financing Resources that fund expenses recognized in prior periods. This line item reflects the obligation of resources that were part of the net cost of operations in a prior period. The expense would have been reported on this statement in a prior period as a Component Requiring or Generating Resources in Future Periods (Section 7.5). An example includes the liquidation of a liability with budgetary resources provided in the current period. Such activities include decreases in annual leave and environmental clean-up liabilities. Reporting entities that consolidate multiple sub-entities that prepare statements of financing should consolidate related line items rather than presenting multiple line items. For example, if one sub-entity reports an expense for accrued annual leave (i.e., an expense requiring resources in a future period) and another sub-entity reports resources used to pay accrued annual leave (i.e., ―resources that fund expenses recognized in prior periods‖), the consolidated entity should report the net amount on the appropriate line. Budgetary offsetting collections and receipts that do not affect net cost of operations. This line item reflects offsetting collections and receipts that are not reported as exchange revenue on the Statement of Net Cost. Gross offsetting collections and receipts are offset against obligations incurred to determine net obligations in the Resources Used to Finance Activities section of this statement. Since not all of offsetting collections and receipts are exchange revenue, an adjustment is needed on this line. The adjustment reflects the portion of offsetting collections and receipts that are not reported on the Statement of Net Cost. Credit program collections which increase liabilities for loan guarantees or allowances for subsidy. Certain collections in the financing account represent budgetary resources but do not affect net cost. These collections do, however, adjust amounts on the balance sheet. For example, the accounting for subsidy expense illustrates this reconciling item. In determining net obligations, in the Resources Used to Finance Activities section, subsidy expense is reflected as both a component of obligations incurred and offsetting collections. The program account obligates the subsidy expense and the financing account collects and retains the subsidy until disbursement of a loan or default claim. The subsidy expense is reflected as both an obligation on the Statement of Budgetary Resources and an expense on the Statement of Net Cost. The collection, however, is reflected as an offsetting collection on the Statement of Budgetary Resources but reflected as a contra-asset or liability on the Balance Sheet. 7 Attachment 1 – Form and Content Changes for the Statement of Financing Other. Other transactions generating differences between net obligations and net cost of operations that are reflected on this line include the collection of exchange revenue receivable from the public and advances received for work not yet performed. Resources that finance the acquisition of assets. This line item reflects budgetary resources obligated that are not expenses as reported on the Statement of Net Cost. An example of this activity includes purchases of capitalized assets. Other resources or adjustments to net obligated resources that do not affect net cost of operations. This line item includes activities not otherwise classified above. This activity may include non-cash recoveries of prior year obligations. Recoveries are budgetary resources that offset obligations on the Statement of Budgetary Resources, but are not a proprietary financing source used to offset costs on the Statement of Net Cost. Other examples include donations of property, forfeitures of property and transfers of property. These examples are reported as Other resources in the first section of this statement but are not reported on the Statements of Net Cost or Budgetary Resources. 7.5 Components Requiring or Generating Resources in Future Periods The costs of the Federal Government are not always funded in the period the costs are incurred. This section identifies items that are recognized as a component of the net cost of operations for the period but the budgetary resources (and related obligation) will not be provided (or incurred) until a subsequent period. Increase in annual leave liability. This line item includes the expense related to the increase in annual leave liability for which the budgetary resources will be provided in a subsequent period. Reporting entities that consolidate multiple sub-entities that prepare statements of financing should consolidate related line items rather than presenting multiple line items. For example, if one sub-entity reports an expense for accrued annual leave (i.e., an expense requiring resources in a future period) and another sub-entity reports resources used to pay accrued annual leave (i.e., ―resources that fund expenses recognized in prior periods‖), the consolidated entity should report the net amount on the appropriate line. 8 Attachment 1 – Form and Content Changes for the Statement of Financing Increase in environmental and disposal liability. This line item includes the expense related to the increase in environmental and disposal liability for which the budgetary resources will be provided in a subsequent period. Upward/downward reestimates of credit subsidy expense. This line item includes the expense recognized as a result of an upward/downward reestimate of credit program subsidy cost, for which the budgetary resources (or obligation) will be provided (or incurred) in a subsequent period. While budgetary resources are not provided in the current period, credit subsidy reestimates should be reflected as liabilities covered by budgetary resources since the budget authority to fund the reestimates is permanent and indefinite and no further Congressional action is needed to provide the resources. Increase in exchange revenue receivable from the public. Exchange revenue from the public is reflected as it is earned as a component of the net cost of operations for the period, but will normally not be reflected in net obligations until it is received. Budgetary resources are normally not recognized from the public until collected. Other. This line item includes activities not otherwise classified above. 7.6 Components Not Requiring or Generating Resources This section includes items that are recognized as part of the net cost of operations for the period but will not generate or require the use of resources. Depreciation and Amortization. This line item includes the depreciation and amortization of assets reflected as a component of net cost of operations for the period. For capitalized assets, budgetary resources are obligated when the asset is acquired, not when it is depreciated. Revaluation of assets or liabilities. This line item includes gains and losses recognized during the revaluation of assets or liabilities. Other. This line item includes activities not otherwise classified above. 7.7 Net Cost of Operations This amount is the sum of the line items Total resources used to finance net cost of operations and Total components of net cost of operations that will not require or generate resources in the current period. This line item 9 Attachment 1 – Form and Content Changes for the Statement of Financing will agree with the net cost of operations as reported on the Statement of Net Cost. 10 Attachment 2 – Requested SGL Changes Attachment 2 – Requested SGL Changes The SOF Subcommittee recommended and the SGL Division notified the Subcommittee that it will be making the following change to the FY 2005 Crosswalks to Standard External Reports: Statement of Financing: Line 15 -- Revised the note after line 15 so that it refers to Implementation Guide to the Statement of Financing in Statement of Federal Financial Accounting Standards 7…, (April 2002) rather than a special edition newsletter, dated March 1, 1999. For the entire SOF crosswalk – revised note as follows: IMPORTANT NOTE: As with a cashflow statement (no longer required in the Federal sector), the Statement of Financing requires a level of detail beyond that of the USSGL accounts. In some instances, such as capitalized asset acquisition and disposition, agencies must analyze transactions to obtain required data. Additional information regarding preparation of this statement is available as illustrative guidance published by FASAB in Implementation Guide to the Statement of Financing in Statement of Federal Financial Accounting Standards 7…, (April 2002). Also the SOF Subcommittee is requesting the following: Account 5780, Imputed Financing Sources The subcommittee recommends that SGL account 5780, ―Imputed Financing Sources,‖ should be broken into two accounts, one to cover instances where the imputed financing sources results in imputed expenses (SGL account 6730, ―Imputed Costs‖), and one to cover capitalized assets (e.g., SGL account 1720, ―Construction-in-Progress‖). The rationale is that one transaction affects net cost and the other does not and the current SGL accounts and Crosswalk do not provide for this. Account in the 5000 Series The subcommittee recommends that a new SGL account in the 5000 series be established to record the amortization of interest currently recorded in SGL 5310, Interest Revenue, and crosswalk it to the line item "Depreciation and amortization," line 25 on the Statement of Financing. The rationale is that at present the SOF line "Increase in Exchange Revenue Receivable from the Public" (section III, line 22) doesn’t accurately reflect the difference between budgetary and proprietary activities. A Comprehensive Review of the SOF Crosswalk The subcommittee concluded that a comprehensive review of the SOF Crosswalk is needed. Line-by-line documentation regarding why a EB-BB or EB amount indicated for SOF lines meet the intent of SFFAS 7, paragraphs 80-82 would be very helpful. 11 Attachment 3 – Issues Statement Form and Content Committee Subcommittee on the Statement of Financing Issues Statement July 2005 During March-June 2005 the Statement of Financing (SOF) Subcommittee considered 9 issues regarding its work updating the Form and Content (F&C) guidance for the SOF. The issues pertained to the F&C guidance itself or to the Standard General Ledger (SGL) Crosswalk instructions. This paper presents a discussion of nine of these issues along with the SOF Subcommittee’s recommendation. One issue was deleted because it pertained to a major re-structuring of the SOF which the Subcommittee considered but decided not to recommend. The nine issues are summarized in the following table: Form & Referral to Content Other Change F&C Subcommittee N/A N/A SGL Request 1. The relationship between the accounting category ―liabilities not covered by budgetary resources‖ and the SOF line ―changes in components requiring or generating resources in future periods‖ 2. SOF Line 2, ―Less: Spending authority from offsetting collections and recoveries‖ vs. SBR anticipated resources 3. Offsetting receipts 4. Additional of budgetary accounts regarding decreases in public accounts receivable 5. Form and Content edits from initial update 6. Imputed Financing Source, SGL 5780 7. SOF Section regarding ―Components Requiring or Generating Resources in Future Periods‖ 8. Parent/Child issue 9. Interest revenue and interest receivable N/A √ √ √ √ √ √ √ √ Issues 1. The relationship between the accounting category “liabilities not covered by budgetary resources” and the SOF line “changes in components requiring or generating resources in future periods.” The Form and Content guidance requires entities to identify and explain the relationship between ―liabilities not covered by budgetary resources‖ and the SOF line ―changes in components requiring or generating resources in future periods‖ in Footnote 35. Treasury/FMS/USSGL Division refers to ―components requiring or generating resources in future periods‖ as ―future funded expenses.‖ One SOF Subcommittee member raised an issue regarding custodial liabilities, which did not seem to fit either ―covered‖ or ―not covered‖ by budgetary resources. If they are defined as ―not 12 Attachment 3 – Issues Statement covered,‖ then they might be reported in the SOF section for ―components of net cost requiring budgetary resources in the future‖ and be part of the SOF reconciliation. The new draft OMB Circular A-136, Part A, Section 3, includes the prior definition of ―liabilities not covered by budgetary resources‖: Liabilities Covered by Budgetary Resources. Liabilities incurred which are covered by realized budgetary resources as of the balance sheet date. Budgetary resources encompass not only new budget authority but also other resources available to cover liabilities for specified purposes in a given year. Available budgetary resources include: (1) new budget authority, (2) unobligated balances of budgetary resources at the beginning of the year or net transfers of prior year balances during the year, (3) spending authority from offsetting collections (credited to an appropriation or fund account), and (4) recoveries of unexpired budget authority through downward adjustments of prior year obligations. Liabilities are considered covered by budgetary resources if they are to be funded by permanent indefinite appropriations, which have been enacted and signed into law and are available for use as of the balance sheet date, provided that the resources may be apportioned by OMB without further action by the Congress and without a contingency having to be met first. Liabilities Not Covered by Budgetary Resources. This category is for liabilities which are not considered to be covered by budgetary resources, as provided in the previous paragraph. The Defense Department (DOD) reports the balance of SGL account 2980, Custodial Liability, in a footnote to the financial statements as ―liabilities not covered by budgetary resources.‖ OMB Bulletin 01-09, paragraphs 9.35, page 94,1 required the entity to explain the relationship between ―liabilities not covered by budgetary resources‖ and the SOF line ―change in components requiring or generating resources in future periods.‖ It was asserted that, if DOD continues to report custodial liabilities as ―liabilities not covered by budgetary resources,‖ then changes in ―liabilities not covered‖ will not equal future funded expenses because the offset to a custodial liability is not an expense account and this relationship (future funded expenses = change in unfunded liability) is shown in the SGL Crosswalk. Custodial liabilities are usually offset by an asset account. DOD currently establishes a custodial liability (2980) to offset receivables from cancelled appropriations because the funds will be immediately turned over to Treasury when received. DOD assumes that budgetary resources will never be needed for custodial liabilities and classifies them as ―not covered by budgetary resources‖ and as ―unfunded liabilities.‖ It was also asserted that the SGL Crosswalk for the balance sheet also classifies custodial liability as ―not covered by budgetary resources.‖ On the other hand, the Commerce Department considers a liability "covered" when Congressional action (i.e. budgetary resources) is not needed to liquidate a liability. Bulletin 01-09, Form and Content (section 9.12) defined ―liabilities not covered by budgetary resources‖ as those liabilities for which Congressional action is needed before budgetary resources can be provided. Since custodial liabilities do not require such action, Commerce considers them ―covered. For example, Commerce considers custodial liability and customer deposits liability to be "covered" because budgetary resources will never be needed to liquidate the liability. 1 9.35 Note 35 Explanation of the Relationship Between Liabilities Not Covered by Budgetary Resources on the Balance Sheet and the Change in Components Requiring or Generating Resources in Future Periods. – Identity and explain the relationship between amounts reported as Liabilities not covered by budgetary resources on the Balance Sheet and amounts reported as Components requiring or generating resources in future periods on the Statement of Financing. 13 Attachment 3 – Issues Statement The Balance Sheet Subcommittee was working on a similar issue, Issue 2.1, ―Clarify definitions treatment for Covered vs. Not Covered Liabilities.‖ Subcommittee Conclusion and/or Recommendation The SOF Subcommittee concluded that custodial activity should not affect either obligations or net cost. It should affect assets and liability only, or be reported separately on a statement of custodial activity. But if custodial liabilities are reported on the SOF, for example, as ―other financing sources,‖ then they would have to be removed in a subsequent section of the SOF because they would not (or should not) affect the entity’s net cost. 2. SOF Line 2, “Less: Spending authority from offsetting collections and recoveries” vs. SBR anticipated resources A subcommittee member submits that the Form and Content guidance, page 47, paragraph 7.3 needs to be revised. The paragraph states in part, Less: Spending Authority from offsetting collections and recoveries. This line item will agree with the spending authority from offsetting collections (line 3) and recoveries (line 4) as reported on the Statement of Budgetary Resources. This line item will include all budget accounts, including nonbudgetary financing accounts. The subcommittee member notes that the above is a true statement for year end only. The SOF Line 2, ―Less: Spending authority from offsetting collections & recoveries,‖ will not agree with the SBR, Lines 3 and 4, for quarters 1-3, because anticipated resources are not on the SOF (ref. SGL Crosswalk). The Form and Content guidance should reflect that the above statement is applicable to 4th quarter (year-end) only. The SOF is required only for the fourth quarter. The balance sheet, statement of net cost, and statement of budgetary resources are due quarterly. Subcommittee Conclusion and/or Recommendation: The SOF subcommittee recommends the following wording for paragraph 7.3: Less: Spending authority from offsetting collections and recoveries. This line item will agree with the spending authority from offsetting collections (line 3) and recoveries (line 4) as reported on the Statement of Budgetary Resources (SBR). This line item will include all budget accounts, including non-budgetary financing accounts. If the entity prepares a SOF quarterly, note that the SOF line item ―Less: Spending authority from offsetting collections & recoveries,‖ will not agree with the SBR, line items for offsetting collections and recoveries, respectively, on the SBR, for quarters 1-3, because anticipated resources are not on the SOF. 14 Attachment 3 – Issues Statement 3. Offsetting Receipts An SOF Subcommittee member raised an issue regarding SOF line 4, ―Less: Offsetting receipts.‖ Line 4 is derived directly from statement of budgetary receipts (SBR) line 16, ―Less: Offsetting receipts.‖2 It was asserted that OMB and Treasury guidance regarding offsetting receipts is inconsistent. Some receipts that are required to be reported as ―offsetting receipts‖ do not meet the ―official‖ definition of offsetting receipts. It was asserted that DOI is required to report offsetting receipts on the SOF that do not crosswalk to offsetting receipts reported on the SBR. Melinda Pope of FMS provided an SGL Division DRAFT scenario that addresses this concern. It addresses exchange revenue that is collected and transferred to the miscellaneous receipt account.3 There are still some outstanding issues that the SGL Division needs to address and the Division is still awaiting some decisions from FASAB. As a result of these outstanding issues, there may be some changes to the scenario. The scenario was developed for the broad use of all Federal 2 See SOF Implementation Guide, (April 2002) p. 20, figure 5. The SOF Implementation Guide says that line 4 is derived from line 16, ―Offsetting Receipts,‖ on the statement of budgetary resources. 3 The term ―miscellaneous receipt‖ is not defined by OMB. Circular A-11 notes that a law generally referred to as the ―Miscellaneous Receipts Act‖ required an official or agent of the Federal Government who receives money for the Government to deposit it in the Treasury as soon as possible. The FASAB Glossary defines ―collections” as follows: budget receipts or off-budget receipts are collections from the public based on the government’s exercise of its sovereign powers, including collections from participants in compulsory social insurance programs. Offsetting collections are collections from government accounts (intra-governmental transactions) or from the public that are offset against budget authority and outlays rather than reflected as receipts in computing the budget and off-budget totals. They are classified as (a) offsetting receipts (i.e., amounts deposited to receipt accounts), and (b) collections credited to appropriation or fund accounts. The distinction between these two major categories is that collections credited to appropriation or fund accounts are offset within the account that contains the associated disbursements (outlays), whereas offsetting receipts are in accounts separate from the associated disbursements. Offsetting receipts are deducted from gross disbursements in calculating net outlays. The FASAB Glossary is based on A Glossary Of Terms Used in the Federal Budget Process; and Related Accounting, Economic, and Tax Terms, Third Edition, General Accounting Office, March 1981.) Offsetting Receipts Offsetting collections that are not authorized to be credited to expenditure accounts are credited to general fund, special fund, or trust fund receipt accounts and are called offsetting receipts. Offsetting receipts are deducted from budget authority and outlays in arriving at total budget authority and outlays. However, unlike offsetting collections credited to expenditure accounts, offsetting receipts do not offset budget authority and outlays at the account level. In most cases, such deductions are made at the subfunction and agency levels. Offsetting receipts are subdivided into three categories, as follows:  Proprietary receipts from the public.—Collections from the public, deposited in receipt accounts, that arise from the business-type or market-oriented activities of the Government. Most proprietary receipts are deducted from the budget authority and outlay totals of the agency that conducts the activity generating the receipt and of the subfunction to which the activity is assigned. For example, fees for using National Parks are deducted from the totals for the Department of Interior, which has responsibility for the parks, and the Recreational Resources subfunction. Proprietary receipts from a few sources, however, are not offset against any specific agency or function and are classified as undistributed offsetting receipts. They are deducted from the Government-wide totals for budget authority and outlays. For example, the collections of rents and royalties from outer continental shelf lands are undistributed because the amounts are large and for the most part are not related to the spending of the agency that administers the transactions and the subfunction that records the administrative expenses. Intragovernmental transactions — Collections from expenditure accounts that are deposited into receipt accounts. Most intragovernmental transactions are deducted from the budget authority and outlays of the agency that conducts the activity generating the receipts and of the subfunction to which the activity is assigned. In two cases, however, intragovernmental transactions appear as special deductions in computing total budget authority and outlays for the Government rather than as offsets at the agency level—agencies’ payments as employers into employee retirement trust funds and interest received by trust funds. The special treatment for these receipts is necessary because the amounts are large and would distort the agency totals, as measures of the agency’s activities, if they were attributed to the agency. Offsetting governmental receipts — Collections that are governmental in nature but are required by law to be treated as offsetting and are not authorized to be credited to expenditure accounts. Form and Content, revised draft, March 2005, pp. 56-7   15 Attachment 3 – Issues Statement agencies versus the interest of one or two agencies. The scenario will be officially submitted to the Issues Resolution Committee (IRC) for review and comment in the near future. However, the SGL Division welcomes the SOF Subcommittee’s and other comments at this time. The subcommittee referred this issue to the SBR subcommittee. The SOF derives the amount reported as offsetting receipts directly from the SBR. Thus, the SBR subcommittee presumably has jurisdiction over the definition of and guidance for ―offsetting receipts.‖ The following note was sent to the SBR subcommittee May 12th: Elodia, During our work on the statement of financing re Form and Content guidance, an issue has come up regarding "offsetting receipts." Offsetting receipts are reported on the SOF (currently line 4) and the amount is taken directly from the statement of budgetary resources (currently, or previously, line 16). The guidance - definitions, reporting instructions - regarding offsetting receipts appears to be inconsistent. It's been reported that some receipts that OMB and Treasury require to be reported as ―offsetting receipts‖ on the SBR/SOF are not listed in Treasury Combined Statement, Part 4, where agencies are instructed to go to determine what to report; and vice versa. The Interior Department (DOI) representative on our subcommittee says that what DOI is required to report as offsetting receipts on the SOF does not crosswalk to offsetting receipts reported on the SBR, although, per the guidance, it must. The SOF Implementation Guide says that Line 4 is derived from Line 16, ―Offsetting Receipts,‖ on the statement of budgetary resources (SBR). Since "offsetting receipts" originate on the SBR, we felt the issue should be forwarded to your group for analysis. FYI, Melinda Pope at FMS provided our group with a copy of a SGL Division draft "miscellaneous receipts" scenario. The scenario that applies to DOI's concern is a small section of that scenario and may or may not prove helpful. It addresses exchange revenue that is collected and transferred to the miscellaneous receipt account. Melinda notes that this scenario is a DRAFT. There are still some outstanding issues that the SGL Division needs to address and the Division is still awaiting some decisions from FASAB. As a result of these outstanding issues, there may be some changes to the scenario. Additionally, the scenario was developed for the broad use of all Federal agencies versus the interest of one or two agencies. The scenario will be officially submitted to the IRC for review and comment in the near future. However, the SGL Division says it welcomes the comments at this time. Bruce Henshel is a member of both our subcommittees and should be able add context re this issue, if necessary. Best regards, Richard Richard Fontenrose FASAB Subcommittee Conclusion and/or Recommendation: The subcommittee referred this issue to the SBR subcommittee. 16 Attachment 3 – Issues Statement 4. Additional of budgetary accounts regarding decreases in public accounts receivable. An SOF Subcommittee member raised an issue regarding the changes DOD proposed for the FY 2005 SOF SGL Crosswalk. The change would address an issue with respect to reporting decreases in public accounts receivable as requested by DOD. The SGL Division was working on revising the FY 2005 SGL Crosswalks based on DOD recommendations. DOD requested additional budgetary accounts for SOF line 14b, ―Other,‖ so that it could report decreases in public receivables on that line.4 It was asserted that the SGL Crosswalk is inconsistent with the Form and Content guidance, Section 7.4, ―Resources Used to Finance Items Not Part of the Net Cost of Operations,‖ sixth paragraph, "Other resources …", and with FASAB's SOF Implementation Guide paragraphs 101 - 106. To accommodate DOD's request to be consistent with Form and Content (Section 7.4) and the SOF Implementation Guide, the SGL Division has discussed adding the budgetary accounts to the SOF SGL Crosswalk for budgetary collections that are not also earned revenue in the current year to capture data for SOF line 14b as indicated in the Implementation Guide. The SGL Division provided the Issues Resolution Committee (IRC) with changes to SOF SGL Crosswalk on April, 28, 2005. [Those changes included a recommendation from the Commerce Department for SOF line 9, ―Other Resources,‖ and line 26, ―Revaluation of Assets and Liabilities.‖] In Melinda Pope’s review of DOD’s recommendation she suggested that, in addition to these accounts, USSGL accounts 4221, ―Unfilled Customer Orders without Advance,‖ and 4222, ―Unfilled Customer Orders with Advance,‖ should be moved from SOF line 12, ―Change in budgetary resources obligated for goods, services and benefits ordered but not yet provided,‖ to SOF line 14b, ―Other,‖ to be consistent with SOF Implementation Guide, paragraph 61. Subsequently it was agreed that adding the accounts would add to the confusion that agencies already have concerning pulling particular amounts from an account balance. After discussion with the USSGL Division it was agreed that DOD’s proposal for adding the budgetary accounts would not work for three reasons: (1) budgetary accounts are not segregated between public and federal, thus it would be difficult to map the accounts properly. In this case, the amounts in question relate to public collections only. (2) SOF line 22, ―Increase in public accounts receivable,‖ would be easier to modify and use. Simply change the title of the line and all changes in public accounts receivable (except increases in bad debts) would be reported on line 22. And, (3) line 22 uses proprietary accounts which are already segregated between public and federal. Representatives of Treasury/FMS and DOD agreed to table any changes to the SOF SGL Crosswalk until the proposed changes had been discussed by the SOF subcommittee and the committee had made a recommendation. A DOD representative agreed to suggest to the SOF subcommittee to a change to the ―increase in receivables‖ line to make it "change in receivable" in Form and Content to address DOD's issue. The DOD representative suggested the change 4 Line 14 is, of course, in the SOF section for ―Resources Used to Finance Items not Part of the Net Cost Operations.‖ A decrease in a public account receivable presumably would result from a debtor’s payment, i.e., an inflow of cash. Such a decrease in a receivable presumably would not affect net cost. In would be an exchange of assets. The receivable presumably would have originated in a prior year when the associated revenue was recognized as earned revenue on the statement of net cost. But conceivably a reduction in a receivable could be due to recognition of estimated bad debt expense, which would be a cost of the current year. 17 Attachment 3 – Issues Statement but the subcommittee decided not to adopt it. The word ―changes‖ would not be descriptive of the type of activity that was occurring, and the current Crosswalk effectively places the increases and decreases on the appropriate SOF lines. The group also discussed whether there was a problem with the current Crosswalk guidance. The standard approach for the Crosswalk is to derive the expense and revenues amounts and/or resource flow amounts for certain SOF lines using either an ending-balance-minus-beginningbalance (EB-BB) formula for asset and liability accounts, or alternatively, an ending balance (EB) in expense, revenue and resources accounts. For example, for SOF line 19, ―Increase in annual leave liability,‖ the Crosswalk recommends either the EB-BB of account 2220 (IF AN INCREASE) or EB of account 6800 (IF A DEBIT BALANCE). If the EB-BB of 2220 is a decrease (negative) amount, or the EB of 6800 is a credit balance, then the Crosswalk instructs the preparer to put the amount on SOF line 13, ―Resources that finance expenses recognized in prior periods.‖ The Crosswalk theoretically should reflect a consistent logic from line to line, and have intelligible explanation for each line. After considerable discussion of this topic the subcommittee concluded that a comprehensive review of the SOF Crosswalk is needed. Line-by-line documentation regarding why a EB-BB or EB amount indicated for SOF lines meet the intent of SFFAS 7, paragraphs 80-82 would be very helpful. Regarding credit balances in account 6800 as mentioned immediately above, one subcommittee member questioned how account 6800, an expense account, could have a credit balance. Another subcommittee member noted that although it is identified as an expense account in the SGL, with a debit normal balance, account 6800 is used in the transaction posting logic. Agencies normally use account 6800 for the change in a future funded expense, not just the entire expense. Hence, the possibility of a net credit balance, if a liability is decreasing, because in the year of funding, the unfunded expense is re-classified to funded expense in the general ledger. For example: Debit 2990, Other Liabilities Credit 6800, Future Funded Expenses To reverse out unfunded expense/payable in year of funding Debit 6100, Operating Expenses/Program Costs Credit 2110, Accrued Funded Payroll and Leave Debit 4610, Allotments – Realized Resources Credit 4901, Delivered Orders – Obligations, Unpaid To record budgetary delivered order-paid (in year of funding) A subcommittee member noted that this could lead to a net credit expense in this account, depending on what other activity is in SGL 6800. There does not appear to be a standard USSGL transaction code for this. Another member commented that crediting of 6800 and debiting of 6100 in the year the funds are provided is unnecessary and potentially confusing and, in any case, it's a wash transaction. Account 6800 is an expense account and as such is or should be closed out at the end of the year. He asserted that crediting it when the next year's funding is received distorts the balance in both 6800 and 6100. He asked, if it doesn't matter whether the transaction is recorded in 6800 or 6100, why have a 6800? 18 Attachment 3 – Issues Statement Another member relied that the problem the unfunded liability needs to be reversed out and he did not know another way to do it. He said that, basically, you have an unfunded expense in one year, and a reversal of an unfunded expense in the subsequent year, in the year of funding. He asserted that this is actually a reasonable and proper way to handle it in the SGLs. It is similar to a de-obligation in a subsequent year, where you would record a positive expense - 6100 in the year of obligation, and then a negative expense - 6100 - in the year of de-obligation. In the year of funding, you still have an unfunded liability on the books that needs to be taken off the books. He could only think of one option, the pro forma entries previously set forth. Another member said he did not think the 6800 example is similar to a de-obligation in a subsequent year. It is not a de-obligation but rather a subsequent obligation to cover an accrued expense. A de-obligation suggests that the expense in the prior year is being reversed. He asserted that the distinction between an expense and a liability is critical and hoped the SGL would help with that. He did not think the account title "future funded expense" helps. The subcommittee representative from the SGL Division noted that the following changes were being made to the Crosswalks to Standard External Reports, FY 2005: Statement of Financing: Line 15 -- Revised comment. a special edition newsletter, dated March 1, 1999 Implementation Guide to the Statement of Financing in Statement of Federal Financial Accounting Standards 7…, (April 2002). Line 16 -- Added USSGL accounts 7110, 7111, 7112, 7180, 7190, 7210, 7211, 7212, 7280 and 7290. Line 26 -- Revised attribute indicator. For the entire SOF crosswalk – revised note as follows: IMPORTANT NOTE: As with a cashflow statement (no longer required in the Federal sector), the Statement of Financing requires a level of detail beyond that of the USSGL accounts. In some instances, such as capitalized asset acquisition and disposition, agencies must analyze transactions to obtain required data. Additional information regarding preparation of this statement is available as illustrative guidance published by FASAB in a special edition newsletter, dated March 1, 1999 Implementation Guide to the Statement of Financing in Statement of Federal Financial Accounting Standards 7…, (April 2002). Subcommittee Conclusion and/or Recommendation: The issue of additional of budgetary accounts regarding decreases in public accounts receivable has been tabled. The subcommittee concluded that a comprehensive review of the SOF Crosswalk is needed. Line-by-line documentation regarding why a EB-BB or EB amount indicated for SOF lines meet the intent of SFFAS 7, paragraphs 80-82 would be very helpful. 19 Attachment 3 – Issues Statement Also see related Issue 8 below. 5. Form and Content Edits from Initial Update. Rich, I told Maryla that the SOF work group would look at her comments (#s 8, 9 and 10) below for when we actually update the SOF. Cindy I. George Executive Office of the President/OMB Office of Federal Financial Management 202 395-0786 (Phone) 202 395-3952 (Fax) cgeorge@omb.eop.gov From: Engelking, Maryla, Ms, OSD-COMPT [mailto:Maryla.Engelking@osd.mil] Sent: Tuesday, April 26, 2005 1:29 PM To: 'James, Greg - OCFO' Cc: George, Cindy I.; Doyle, Joseph, OSD-COMPT Subject: RE: Revised A-136 Importance: High GregI have the following comments regarding the Revised A-136: *** 8. Section 7.3, Resources Used to Finance Activities, Less: Spending authority from offsetting collections and recoveries -- The line references to the SBR only pertain to the FY2005 version. Line 3 is equivalent to Line 3.D. in the FY2006 version and Line 4 is equivalent to Line 2 in the FY2006 version. I suggest that the line number be removed from this paragraph. 9. Section 7.3, Resources Used to Finance Activities, Less: Offsetting receipts -- The line reference to the SBR only pertains to the FY 2005 version. Line 16 is equivalent to Line 19C. in the FY2006 version. I suggest the line references be removed from the paragraph. 10. Section 7.5, Components Requiring or Generating Resources in Future Periods, Increase in exchange revenue receivable from the public -- the reference to OMB Circular A-61 should be removed. This circular does not appear to be valid any longer. I was unable to locate it on the OMB website. *** Feel free to contact me if you have any questions. 20 Attachment 3 – Issues Statement Maryla Engelking, CPA Office of Under Secretary of Defense (Comptroller) Accounting and Finance Policy and Analysis (703) 697-3192 Subcommittee Conclusion and/or Recommendation: The SOF subcommittee incorporated these suggestions in the Form and Content update. 6. Statement of Financing, Imputed Financing Source, SGL 5780 The Interior Department records imputed expenses (e.g., OPM pension payments) that are sometimes capitalized in ―Construction in Progress,‖ Standard General Ledger Account (SGL) 1720, and something expensed as ―Imputed Expenses,‖ SGL 6730. The SOF requires that the imputed financing source, SGL 5780, be reported. Because some of the imputed financing source is related to change in capital assets, it is reversed on line 12. The Standard General Ledger Account SGL 5780 be broken into two accounts, one to cover imputed expenses (SGL 6730), and one to cover capital assets under construction (SGL 1720). Subcommittee Conclusion and/or Recommendation The subcommittee recommended to the FMS’s Standard General Division that SGL account 5780, ―Imputed Financing Sources,‖ should be broken into two accounts, one to cover instances where the imputed financing sources results in imputed expenses (SGL account 6730, ―Imputed Costs‖), and one to cover capitalized assets (e.g., SGL account 1720, ―Construction-in-Progress‖). The rationale is that one transaction affects net cost and the other does not and the current SGL accounts and Crosswalk do not provide for this. 7. Statement of Financing, Section regarding “Components Requiring or Generating Resources in Future Periods,” Lines 19-23 Currently a net increase in unfunded liabilities and/or receivables from the public related to components of net cost is required to be recorded in the SOF section for ―Components Requiring or Generating Resources in Future Periods,‖ lines 19-23. This section captures expenses of the current period that will be funded in future periods, e.g., annual leave expense, or revenue recorded in the current period that will generate cash flow (i.e., budgetary resources) in future periods. The SOF Implementation Guide and the SGL Crosswalk illustrate how an increase in a payable or receivable account can be a surrogate for increases in expense and revenue, respectively, to populate lines 19-23. Similarly, the SOF Implementation Guide illustrates how a decrease in a payable or receivable account can be a surrogate for cash flow (i.e., budgetary resources reported on SOF lines 1-4) that do not relate to the current accounting period, to populate SOF lines 12-16. However, increases in payables and receivables do not always represent increases in expense and revenue. Likewise decreases in payables and receivables do 21 Attachment 3 – Issues Statement not always represent ―budgetary resources that do not relate to the current accounting period.‖ The current guidance says that the decreases in payables are to be reported on line 13, ―Resources that finance expenses recognized in prior periods.‖ The Crosswalk also offers alternative procedures, e.g., ―credit balance‖ expense accounts. Some SOF Subcommittee members argue that reporting increases in unfunded liabilities and receivables from the public in one SOF section and decreases in another is undesirable for several reasons. They argue that,  If financial statements are prepared at the transactional or sub-entity levels, there would be balances on both Line 13 and 22, ―Increases in exchange revenue receivable from the public,‖ that offset. Moreover, if the SOF is prepared quarterly, there could be balances on line 13 for one quarter and the next quarter balances on 22 that would not add up to the ending SOF presentation. When the auditors add up the sub-entity’s SOF to equal the entity’s presentation, they do not add up. This causes some concern to the auditors even after explanations were given. They want to crosswalk the trial balances numbers to the report. For comparative financial statements presentation, the statement becomes meaningless for the SOF lines 13 and 19-23. The decrease [in items reported on line 13?] is not always resulting from the funding of the unfunded expense or a change in unfunded liability. For example, if an employee transfers to another entity, the decrease in unfunded expense does not generate any resources that were funded by budgetary resources in Section I of the SOF.    On the other hand another SOF Subcommittee member notes that, per his understanding of the public receivables situation and what sections the reconciling item should go to: Increase in exchange revenue receivable from the public:    Typically no entry in line 2, because, the general rule is you don't record a budgetary resource from the public (4251) until collected. But, the increase in proprietary A/R is typically caused by revenue - debit A/R, credit revenue, so we need to add the reconciling revenue for the proprietary Statement of Net Cost (SNC) revenue to the 3rd section of the SOF (line 22). This is good, no problem here. Decrease in exchange revenue receivable from the public:   Typically an entry in SOF line 2 (4252) for the budgetary resource upon collection. The decrease in proprietary A/R is not caused by revenue on the SNC, so we need to subtract out, as a reconciling item, the budgetary offsetting collections reported in line 2 this is done in line 14. He submits that there is no problem or issue here. If the SGL E-B calculation (at the reporting level, i.e. agency) is an increase, go to line 22, if a decrease it goes to line 14. Sometimes, the SOF won't balance for this or a myriad of other reasons, and transactional research is required. Sometimes, that cannot be avoided. The SGL crosswalks are for a straightforward ending-less-beginning-balance in 22 Attachment 3 – Issues Statement those accounts. Another SOF Subcommittee member replied that the problem is: 1. SGL E-B calculation (net change in the asset account) cannot be used to determine SOF lines 14 or 22, e.g., bad debt write off. 2. There is no SGL account on SOF line 14 for decreases in public A/R. Which SGL account would be used (the budgetary or proprietary?) to record this decrease? Budgetary account 4252, ―Reimbursements and Other Income Earned – Receivable,‖ cannot be used. It is not broken out between federal or nonfederal. SGL account 1310, ―Accounts Receivable,‖ is not mapped to line 14 for decreases to go there. Even if it was there would be an issue with taking the net change in that account. It was asserted that reconciling would be much easier and finding errors would be simpler if total public collections reported on SOF line 2 were reversed on line 14 and if total public revenues earned during the period are reported on line 22. This member suggested that the SOF Subcommittee recommend using the 5000 series of SGLs to populate line 22 and budgetary collection accounts to populate line 14. This would require an additional attribute for the collection accounts to segregate federal collections from nonfederal and map only nonfederal to line 14. The subcommittee noted that the SGL Crosswalk needs to incorporate the accounts necessary to report decreases in lines 19-23. Subcommittee Conclusion and/or Recommendation 1. The subcommittee decided not to recommend changing the title of lines 19-20 or line 22 from ―increases in‖ to ―changes in‖ certain liabilities and assets. The word ―changes‖ would not be descriptive of the type of activity that was occurring, and the current Crosswalk effectively places the increases and decreases on the appropriate SOF lines. 2. The subcommittee recommended wording for the Form and Content guidance instructing entities with multiple divisions to consolidate SOF lines rather than presenting both positive and negative amounts. 8. An SOF Subcommittee member submitted a SOF-related issue to the Parent/Child Subcommittee. See Appendix A. Subcommittee Conclusion and/or Recommendation SOF Subcommittee decided that forwarding the issue to the Parent/Child Subcommittee was sufficient. See Appendix A. 23 Attachment 3 – Issues Statement 9. Department of Education representatives submitted an issue regarding interest revenue and interest receivable. It was asserted that at present the SOF line "Increase in Exchange Revenue Receivable from the Public" (section III, line 22) doesn’t accurately reflect the difference between budgetary and proprietary activities. SOF line 22 is for increases in receivables for exchange revenue from the public over the reporting period. Unless the law specifies otherwise, public receivables do not count as budgetary resources until they are collected. Hence, the revenue related to accruals of those resources is not reflected in offsetting collections activity at the time they are accrued.5 The SGL SOF Crosswalk for SOF line 22 recommends the use of the net change in SGL account 1340, ―Interest Receivable‖ (i.e., ending balance minus beginning balance). However, they point out that activity in account 1340 may not affect the net cost of operations or budgetary resources under some circumstances. For example, when interest receivable is converted to loan principal or ―capitalized.‖ Current DOEd Solution The following example was offered (assume all transaction occur in the same accounting period): (1) $100 accrual of interest revenue, debit/increase 1340, Interest Receivable, and credit/increase 5310, Interest Revenue. The interest is exchange revenue and therefore is reported on the statement of net cost (as a negative amount), which has to be included in the SOF reconciliation. Dr. 1340, Interest Receivable Cr. 5310, Interest Revenue 100 100 [At this point, to derive SOF line 22 per the Crosswalk, the preparer reports the ending balance of 1340 ($100) minus the beginning balance of 1340 ($0). Although the Crosswalk does not include it, an alternative would be to report the ending balance of 5310 ($100) on SOF line 22. Either way the amount would be $100 on SOF line 22.] (2) A collection of $75 of interest from the borrower. This is a budgetary offsetting collection. Debit/increase 1010, Fund Balance with Treasury, and credit/decrease 1340, Interest Receivable. Debit/increase account 4263, Actual Collection of Loans, and credit/decrease another appropriate budgetary account, e.g., 4060, Anticipated Collections. Dr. 1010, FBwT Cr. 1340, Interest Receivable 75 75 [At this point, per the Crosswalk, the ending balance of account 4263 ($75) would be reported on SOF line 2, ―Less: Spending Authority from Offsetting Collections …,‖ and the increase in Interest Receivable of $25 [ending balance of 1340 ($25) minus the beginning balance of 1340 ($0)] would be reported on SOF line 22. Thus, the total of $100 would be included in SOF net cost ―bottom line.‖] 5 Implementation Guide to the Statement of Financing... (April 2002), paragraph 70. 24 Attachment 3 – Issues Statement (3) ―Capitalization‖ or conversion of the remaining $25 balance in account 1340 to loans receivable (debit/increase account 1350, Loans Receivable, and credit/decrease account 1340. Dr. 1350, Loans Receivable Cr. 1340, Interest Receivable 25 25 [At this point there’s a problem. Per the Crosswalk, the ending balance of account 4263 ($75) would be reported on SOF line 2, ―Less: Spending Authority from Offsetting Collections …,‖ and the ending balance of 1340 ($0) minus the beginning balance of 1340 ($0) would be reported on SOF line 22, i.e., $0 on line 22. Thus, only $75 of the total of $100 would be included in SOF net cost ―bottom line.‖ However, the increase in account 1350 [E-B ($25 – $0 = $25)] might be reportable on line 22, although this is not illustrated in the Crosswalk.] Thus, the example shows an ending balance in account 1340 of zero and a delta between the beginning balance ($0) and ending balance ($0) of zero. Thus, if we focus only on 1340 and use the Crosswalk, SOF line 22 is zero. See table below. Interest Receivable Beginning Balance Interest Earned Interest Collected Interest Converted Ending Balance A. B. C.1 C.2 D. $0 100 75 25 $0 So how would the additional $25 of interest revenue come from and where would in be reported? Above we have suggested the increase in account 1350 [E-B ($25 – $0 = $25)] might be reportable on line 22. DOEd is currently ―correcting‖ the SGL Crosswalk via a ―statement presentation entry‖6 for SOF line 22 that offsets the account 5310, Interest Revenue, ($100) against 4263, Actual Collection of Loan Interest ($75). DOEd Recommended Solution To permanently resolve this issue, DOEd representatives recommend a new SGL account to record the amortization of interest currently recorded in SGL (5310-Interest Revenue) and crosswalk it to the line item "Depreciation and amortization" (Section III, line 25 on the Statement of Financing). Subcommittee Conclusion and/or Recommendation The subcommittee recommended a new SGL account in the 5000 series to record the amortization of interest currently recorded in SGL 5310, Interest Revenue, and crosswalk it to the line item "Depreciation and amortization," line 25 on the Statement of Financing. 6 We’ll have to describe exactly how DOEd uses ―statement presentation entries.‖ 25 Appendix A – Parent/Child Allocation Reporting Appendix A – Parent/Child Allocation Reporting PROPOSAL May 10, 2005 SUBJECT: Parent/Child Allocation Reporting BACKGROUND: The OMB Bulletin No. 01-09 and I TFM 2-4700 require that the budgetary balances resulting from allocation transfers be reflected in the Parent’s Statement of Budgetary Resources and the proprietary balances in the Child’s other statements. This has been timely and painful for preparers of financial statements who want to have timely and auditable results. There should be another way to satisfy the reason for this requirement through a footnote or compilation of the data in FACTS II by the main account for comparison to the President’s Budget. DISCUSSION: The segregation of budgetary and proprietary reporting creates a whole gamut of problems related to timeliness and meaningfulness of the statements: Fund Balance with Treasury (FBWT): All cash balances and current year cash transactions are reconciled with the Department of Treasury’s Bank Statements (TFS 6653, 6654, and 6655). These cash balances are also reconciled to the budgetary balances that are used to prepare the Report on Budget Execution (SF133s) and Statement of Budgetary Resources (SBR). If the Child reports the cash on its Balance Sheet and the parent reports the child’s budgetary balances on its SBR, the Parent has to add the budgetary accounts to its accounting system and the child has to remove the balances from its system to prepare automated statements. Thus, there is no assurance that cash will equal the budgetary balance in the final statements. The footnote for the FBWT on the Balance Sheet requires reconciliation to the unobligated and net obligated balances on the Statement of Budgetary Resources. Of course, this is not possible if we break them out as explained above. DOI New JFMIP Compliant Accounting System: The new DOI accounting system that is being phased in by bureau in FY 2006 has an automated FACTS I and II upload capability to Treasury’s FACTS System. Of course, FACTS I requires that the cash balances be loaded. The child’s balances are included in this upload because the cash balances reconcile to Treasury’s FBWT. The system also has a FACTS II automated upload capability. To use these automated processes, the parent would have to add the child cash balances and budgetary balances temporarily and remove them afterwards for proper closing and carryover of balances. Of course, the parent would also have to remove the child’s cash balances to run the FACTS I program and subsequently add them back. The child on the other hand would have to do the opposite. Of course, the alternative is to load all data into an auxiliary system multiple ways and manually load the data for FACTS I and II. Statement of Financing: This statement requires that the budgetary resources realized offset by those used (adjusted for non-budgetary affects) must equal the Net Results of Operations on the Statement of Net Cost. To prepare this statement, the preparers have to back into the numbers ―plug‖, estimate results, and prepare a substantial time consuming footnote for the parent/child differences. This also distracts from the meaningfulness of this statement. 26 Appendix A – Parent/Child Allocation Reporting Other Reconciliations: Many other reconciliations have been developed to insure the Balance Sheet, Statement of Net Cost, and the Changes in Net Position Statements are consistent with the Statement of Budgetary Resources. This is an on-going year round process. There are budgetary accounts that have a direct correlation to the proprietary accounts. But, when one or the other are either removed or added, the accuracy and reliability of the data is difficult to ensure. These reconciliations as well as the above stated cash reconciliations are mandatory for internal control purposes. Audit Trail: The audit trail for all transactions for parent/child allocations are in the child’s accounting records. Therefore, the question of whether the child’s accounting/budgetary balances are audited properly was raised by the Government-wide Parent/Child Group. Because the budgetary balances for the child are not in its statements, the auditors are under no obligation to audit them. However, the budgetary balances for the parent/child balances are not supportable in the parents’ accounting system at the transaction level (FFMIA). If there is a problem with the child’s FBWT, this could jeopardize the audit opinion of the parent. Timeliness of Financial Statements: The financial statements due dates have been continually being accelerated over the last few years. To get the information from the child to the parent initially and following up with any subsequent changes is making the parent totally dependent on the child to meet the entity’s due dates. Also, the adding in and backing out of data and supporting information further delays the preparation of the financial statements. When everyone is trying to do a timely and efficient job, this is frustrating especially if the entities’ financial statements have been completed and audited and the child has a subsequent change. RECOMMENDATION: The recommendation consists of three parts so that all requirements can be met: (1) The Parent/Child Group recommends that the child entity be responsible and accountable for the reporting of the data in its system. (2) Department of the Treasury can use FACTSII to group all the parent and child submissions by the main account in a report for OMB to compare to the President’s budget. (3) The parent will footnote information relating to the budgetary allocation distributions based on the Non-Expenditure Transfers (SF1151) and input from the child. 27