the federal accounting standards advisory board

The Federal AccountingStandards Advisory Board

A Call to ActionA Call to ActionHow You Can Help to Advance How You Can Help to Advance

Efficient and Effective Reporting Efficient and Effective Reporting on Federal Grant Programson Federal Grant Programs

National Grants Management AssociationNational Grants Management AssociationMarch 10, 2010March 10, 2010

Disclaimer

Views expressed are those Views expressed are those of the speaker. The Board of the speaker. The Board

expresses its views in expresses its views in official publications.official publications.

Learning Objectives

• Who are the FASAB and the Who are the FASAB and the AAPC?AAPC?

• How is the FASAB’s AAPC working How is the FASAB’s AAPC working to assist federal agencies on to assist federal agencies on cost-effective methods for cost-effective methods for developing and validating developing and validating reasonable estimates of amounts reasonable estimates of amounts due to and from grantees?due to and from grantees?

• What agencies and firms are What agencies and firms are working with the AAPC on this working with the AAPC on this project?project?

• Why do we need your help?Why do we need your help?

U.S. Federal Government U.S. Federal Government Accounting Prior to FASAB:Accounting Prior to FASAB:

Fragmented ApproachFragmented Approach

– Department of the Treasury (Treasury)Department of the Treasury (Treasury)• Financial reportingFinancial reporting

– Office of Management and Budget (OMB)Office of Management and Budget (OMB)• Budgetary reportingBudgetary reporting

– Government Accountability Office (GAO)Government Accountability Office (GAO)• Accounting standards and principlesAccounting standards and principles

Who are the FASAB and the AAPC?


• FASAB Formed by FASAB Formed by Memorandum of Memorandum of Understanding (October 1990) Understanding (October 1990)

• Chief Financial Officers Act of Chief Financial Officers Act of 1990 (November 1990)1990 (November 1990)– Established Chief Financial Officer positionsEstablished Chief Financial Officer positions

– Required audited financial statements for Required audited financial statements for selected agenciesselected agencies


• Government Management Government Management Reform Act of 1994 Reform Act of 1994 – Expanded the CFO Act to more agenciesExpanded the CFO Act to more agencies– Required governmentwide audited financial Required governmentwide audited financial

statementsstatements

• Accountability of Tax Dollars Accountability of Tax Dollars Act of 2002Act of 2002– Extended the requirement for audited financial Extended the requirement for audited financial

statements to most federal entities (low-dollar, statements to most federal entities (low-dollar, low-risk exemptions)low-risk exemptions)

Organizations Overseeing Federal Financial

Management

Principals with Oversight

Treasury DepartmentSecretary

(Executive Branch)

Office of Management and Budget (OMB)

Director(Executive Branch)

Government AccountabilityOffice (GAO)

Comptroller General(Legislative Branch)

Accounting and AuditingPolicy Committee (AAPC)

Federal Accounting StandardsAdvisory Board (FASAB)

Federal Financial Management

U.S. Accounting Standards-Setting

Organizations

Accounting Standards-Setter Organizations

Financial AccountingStandards Board

(FASB)(Private Sector

Business)

Governmental AccountingStandards Board

(GASB)(State & Local Governments)

Federal Accounting Standards Advisory Board

(FASAB)(Federal Agencies &

Governmentwide)

United States

Who is FASAB?

• 9 members9 members• 1 member each from1 member each from

– Department of the TreasuryDepartment of the Treasury– OMBOMB– GAOGAO

• 6 non-Federal members6 non-Federal members– From the financial, accounting and From the financial, accounting and

auditing communities and academiaauditing communities and academia

FASAB- Roster of Members

Bios available at www.fasab.gov(Current as of March 10, 2010)

Nancy FleetwoodTreasury

Debra BondOMB

Bob DaceyGAO

Hal Steinberg

Alan SchumacherNorwood Jackson

Scott ShowalterMichael Granof

Tom AllenChairman

(Former GASB Chair)

When does FASAB meet?

• Generally six times a yearGenerally six times a year

For 2010:For 2010:• February 24 – 25 February 24 – 25 • April 28 – 29April 28 – 29• June 23 – 24June 23 – 24• August 25 – 26 August 25 – 26 • October 27 – 28 October 27 – 28 • December 16 – 17 December 16 – 17

• Open to the publicOpen to the public

• Agenda and briefing materials Agenda and briefing materials on on www.fasab.govwww.fasab.gov

What is the AAPC(Accounting and Auditing

Policy Committee)?

• Permanent Committee of Permanent Committee of FASABFASAB

• Organized in May 1997 by:Organized in May 1997 by:– Department of the TreasuryDepartment of the Treasury– OMBOMB– GAOGAO– CFO CouncilCFO Council– Council of the Inspectors General on Council of the Inspectors General on

Integrity and Efficiency (CIGIE)Integrity and Efficiency (CIGIE)

What is the AAPC?

Mission:Mission:• To identify and recommend To identify and recommend

solutions to solutions to • Accounting and auditing Accounting and auditing

issues issues • Relating to the specific Relating to the specific

application of existing application of existing authoritative guidanceauthoritative guidance

Who are the AAPC members?

• 11 members11 members• 1 representative each from 1 representative each from

Treasury, OMB and GAOTreasury, OMB and GAO• 3 representatives from the CFO 3 representatives from the CFO

communitycommunity• 3 representatives from the 3 representatives from the

Inspector General CommunityInspector General Community• 1 “At-Large” member1 “At-Large” member• 1 non-voting FASAB staff 1 non-voting FASAB staff

membermember

AAPCRoster of Members

Wendy PayneChair

(FASAB Executive Director)

[Vacant]Department of the Treasury

Regina Kearney(Office of Management and

Budget)

Frank Synowiec, Jr.(Government Accountability

Office)

Luther BraggNaval Audit Service

John BrewerDepartment of Agriculture

Alice CareyDoD OIG

[Vacant]At-Large

Daniel FletcherDepartment of the Interior

Donjette L. GilmoreDepartment of Defense

Joseph MarchowskyPBGC OIG

When does the AAPC meet?

• Generally six times a yearGenerally six times a year

For 2010:For 2010:• January 21 January 21 • March 18 March 18 • May 20May 20• July 15July 15• September 16 September 16 • November 18 November 18

• Open to the publicOpen to the public

• Agenda and briefing materials Agenda and briefing materials on on www.fasab.govwww.fasab.gov

Where do the FASAB and the AAPC meet?

Government Accountability Government Accountability OfficeOffice

441 G Street, NW441 G Street, NW

Washington, DC 20548Washington, DC 20548

Room 7C13 (Staats Briefing Room)Room 7C13 (Staats Briefing Room)

How does FASAB inform?

• www.fasab.govwww.fasab.gov

• FASAB E-Mail ServiceFASAB E-Mail Service– Bi-monthly FASAB newsletterBi-monthly FASAB newsletter– Requests for commentRequests for comment– Press releasesPress releases– AgendasAgendas– Invitations to serve on task forcesInvitations to serve on task forces

• Public meetingsPublic meetings• Federal Register AnnouncementsFederal Register Announcements

FASAB On-Line Resources

www.fasab.gov

FASAB Community

• PreparersPreparers

• AuditorsAuditors

• UsersUsers– InternalInternal– ExternalExternal

Community Involvement

• FormalFormal

– Serving on the AAPCServing on the AAPC

– Responding to Requests for CommentResponding to Requests for Comment

– Speaking at Public HearingsSpeaking at Public Hearings

Community Involvement (contd.)

• InformalInformal

– Serving on Task ForcesServing on Task Forces

– Responding to SurveysResponding to Surveys

– Performing Field TestingPerforming Field Testing

“Generally Accepted Accounting Principles”

• Significance of “GAAP”Significance of “GAAP”

• In 1999, the AICPA In 1999, the AICPA designated FASAB as the designated FASAB as the authoritative source of authoritative source of GAAP for the Federal GAAP for the Federal governmentgovernment

How does FASAB issue authoritative GAAP

guidance?

• FASAB Statements of Federal FASAB Statements of Federal Financial Accounting Standards and Financial Accounting Standards and Interpretations (Level A GAAP)Interpretations (Level A GAAP)

• FASAB Technical Bulletins (Level B)FASAB Technical Bulletins (Level B)

• AAPC Technical Releases (Level C)AAPC Technical Releases (Level C)

• FASAB Staff Implementation FASAB Staff Implementation Guidance (Level D)Guidance (Level D)

• FASAB Statements of Federal FASAB Statements of Federal Financial Accounting Concepts Financial Accounting Concepts (“Other Accounting Literature”) (“Other Accounting Literature”)

What are Grant Accrual Estimates?

Agencies must report Agencies must report amounts due to or from amounts due to or from grantees based upon grantees based upon estimates of eligible estimates of eligible expenses that grantees expenses that grantees have incurred as of the have incurred as of the reporting date.reporting date.

What are Grant Accrual Estimates?

• Advances: Amounts issued as Advances: Amounts issued as advances must be adjusted, advances must be adjusted, even if grantees have not yet even if grantees have not yet reported expenses incurred.reported expenses incurred.

• Accounts Payable: Where Accounts Payable: Where there is no advance, agencies there is no advance, agencies must estimate amounts must estimate amounts payable to grantees.payable to grantees.

Why do we need accrual estimates for federal programs?

• Operating PerformanceOperating Performance—Information to —Information to evaluate:evaluate:– The service efforts, costs and The service efforts, costs and

accomplishments of governmentaccomplishments of government– The manner in which these are The manner in which these are

financedfinanced– Management of the entity’s assets Management of the entity’s assets

and liabilitiesand liabilities

How do grant accrual estimates affect agency financial

statements?

• Statement of Net CostStatement of Net Cost – Cost to the taxpayer by program and Cost to the taxpayer by program and

responsibility segmentresponsibility segment

• Balance SheetBalance Sheet– Compares what is owned versus what Compares what is owned versus what

is owedis owed

Grants Project History

Scope of this project:Scope of this project:• Annual Federal grants toAnnual Federal grants to

– State, local & tribal governments,State, local & tribal governments,– Colleges and universitiesColleges and universities– Other non-profit organizationsOther non-profit organizations

• Over $500 billion Over $500 billion annually, about 1/6 of the annually, about 1/6 of the annual Federal budgetannual Federal budget

• In 2009, ARRA added an In 2009, ARRA added an additional $400 billionadditional $400 billion


• FASAB Staff held 3 FASAB Staff held 3 roundtables in April 2009roundtables in April 2009– Federal Agency Financial Statement Federal Agency Financial Statement

PreparersPreparers– Federal Agency Auditors (OIGs)Federal Agency Auditors (OIGs)– Independent Public Accounting and Independent Public Accounting and

Consulting FirmsConsulting Firms

• Formed a volunteer Task Formed a volunteer Task Force toForce to– Identify areas where guidance is neededIdentify areas where guidance is needed– Help FASAB staff to develop guidanceHelp FASAB staff to develop guidance


Primary Issue Identified:Primary Issue Identified:

Guidance to support cost-Guidance to support cost-effective development of effective development of reasonable estimates for reasonable estimates for grant accruals for: grant accruals for:

• AdvancesAdvances• Accounts PayableAccounts Payable

Grant Project History

Challenges:Challenges:• Agencies generally have to Agencies generally have to

report grant-related accruals report grant-related accruals before grantee reports are duebefore grantee reports are due

• Grantee reports are often Grantee reports are often cash-based, not accrual-basedcash-based, not accrual-based

• New or revised grant programs New or revised grant programs have no historical datahave no historical data


Task Force Working Group Task Force Working Group and FASAB staff developed and FASAB staff developed draft Exposure Draft for a draft Exposure Draft for a proposed AAAPC Technical proposed AAAPC Technical Release (TR)Release (TR)

• TR is authoritative GAAP TR is authoritative GAAP (Level C GAAP)(Level C GAAP)

• Subject to “due process”Subject to “due process”

Project Milestones

Project Milestones:Project Milestones:• April 2009: Roundtables heldApril 2009: Roundtables held• August 2009: Task Force Kickoff August 2009: Task Force Kickoff

MeetingMeeting• December 2009: Proposed Draft December 2009: Proposed Draft

ED to AAPC Agenda CommitteeED to AAPC Agenda Committee• January 2010: AAPC approved January 2010: AAPC approved

projectproject

Project Milestones

Planned Future Milestones:Planned Future Milestones:• March 2010: Issue Exposure March 2010: Issue Exposure

Draft for Public CommentsDraft for Public Comments• April 2010: Comments DueApril 2010: Comments Due• June 2010: Final TR to June 2010: Final TR to

FASAB for reviewFASAB for review• July 2010: Issue TRJuly 2010: Issue TR

Grants Project Goal

Primary Goal for this Primary Goal for this project:project:

Authoritative guidance Authoritative guidance (formal FASAB/AAPC (formal FASAB/AAPC issuance) that supports:issuance) that supports:

• Cost-effective methodsCost-effective methods• ““Reasonable” estimatesReasonable” estimates

Grants Project Goal

Why do we need your help?Why do we need your help?• Sole purpose of this Sole purpose of this

guidance is to help guidance is to help preparers and auditorspreparers and auditors

• FASAB staff are acting as FASAB staff are acting as facilitators, not subject-facilitators, not subject-matter experts on grants matter experts on grants managementmanagement

Preview of Exposure Draft

Preview of Exposure DraftPreview of Exposure Draft

• Scope: grants (as defined Scope: grants (as defined in 31 USC 6304)in 31 USC 6304)

• Effective Date: Would be Effective Date: Would be effective immediately effective immediately upon issuanceupon issuance


Topics addressed in the ED:Topics addressed in the ED:• Preparing accrual estimatesPreparing accrual estimates• Validating accrual estimatesValidating accrual estimates• Balance Sheet display of Balance Sheet display of

advances and payablesadvances and payables• Internal controlsInternal controls• Training and monitoring of Training and monitoring of

granteesgrantees• Materiality considerationsMateriality considerations


Preparing accrual estimates:Preparing accrual estimates:

Proposed guidance for two Proposed guidance for two different situations:different situations:

• For established grant programs For established grant programs with sufficient relevant and with sufficient relevant and reliable historical data, andreliable historical data, and

• In the absence of sufficient In the absence of sufficient relevant and reliable historical relevant and reliable historical data data


Preparing accrual estimates for Preparing accrual estimates for grant programsgrant programs– Illustrative Decision Tree (Figure 1, Appendix B) Illustrative Decision Tree (Figure 1, Appendix B) – The draft ED provides guidance listing specific The draft ED provides guidance listing specific

documentation, includingdocumentation, including• Procedures used (including sampling process)Procedures used (including sampling process)• Assumptions usedAssumptions used• Historical data usedHistorical data used• Trend analysisTrend analysis• Procedures for error checkingProcedures for error checking• Procedures for subsequent validationProcedures for subsequent validation

– Reason: facilitate both agency review and Reason: facilitate both agency review and auditor validation of estimatesauditor validation of estimates


What can agencies do in the What can agencies do in the absence of sufficient reliable absence of sufficient reliable historical data?historical data?

Proposed guidance: Use the best Proposed guidance: Use the best available data at the time the available data at the time the estimates are made. estimates are made. Suggested sources include:Suggested sources include:– Relevant experience from other agenciesRelevant experience from other agencies– Extrapolation from programs with similar Extrapolation from programs with similar

granteesgrantees– Information from program managersInformation from program managers– Opinion of qualified expert(s)Opinion of qualified expert(s)


Validating accrual estimates Validating accrual estimates for grant programs (“look-for grant programs (“look-back”)back”)– Necessary part of internal controlNecessary part of internal control– Does not require data from 100% of Does not require data from 100% of

granteesgrantees– Judgment is neededJudgment is needed– Estimates are inherently uncertain)Estimates are inherently uncertain)– Illustrative Decision Tree (Figure 2 of Illustrative Decision Tree (Figure 2 of

Appendix B) for validation processAppendix B) for validation process


Display: “to net or not to net”?Display: “to net or not to net”?Proposal: When estimates are Proposal: When estimates are

prepared on an aggregate (“top-prepared on an aggregate (“top-down”) level, down”) level,

• Agencies may display a net Agencies may display a net amount on the balance sheet, but amount on the balance sheet, but

• Must report the breakout of Must report the breakout of advances and payables in a noteadvances and payables in a note

• Illustrative example note in Illustrative example note in Appendix CAppendix C


Internal ControlsInternal ControlsRecommended procedures and Recommended procedures and

documentation, for example:documentation, for example:• What are the sources of data used?What are the sources of data used?• What is the rationale for selecting What is the rationale for selecting

the model(s) used in calculating the the model(s) used in calculating the estimates?estimates?

• Who is responsible for each step of Who is responsible for each step of calculation and review?calculation and review?


Training and Monitoring of Training and Monitoring of GranteesGrantees

Suggested (not required) methods for Suggested (not required) methods for training grantees such as:training grantees such as:

• Agency-sponsored conferencesAgency-sponsored conferences• Workshops and/or seminarsWorkshops and/or seminars• Customer service centers and help Customer service centers and help

desksdesks• Computer-based sources such as Computer-based sources such as

webcastswebcasts


Materiality ConsiderationsMateriality Considerations• Materiality decisions require Materiality decisions require

judgment judgment • Materiality is not strictly Materiality is not strictly

defined in the accounting defined in the accounting communitycommunity

• Proposal: Agencies should Proposal: Agencies should consider the materiality of the consider the materiality of the grant programs relative to the grant programs relative to the agency’s statement of net costagency’s statement of net cost

How will you know when the Exposure Draft is Released

for Public Comment?

Three possible options:Three possible options:• Check the FASAB website Check the FASAB website

at at www.fasab.govwww.fasab.gov• Sign up for FASAB’s e-mail Sign up for FASAB’s e-mail

notification, also at notification, also at www.fasab.govwww.fasab.gov

• Send an e-mail to me,Send an e-mail to me,[email protected]@fasab.gov

How do I know who at my federal agency/ private-sector firm has been involved in this

project?

• Look at the list of participating Look at the list of participating agencies and firms on pages 25 and agencies and firms on pages 25 and 26 of the draft ED.26 of the draft ED.

• If your agency or firm is a member If your agency or firm is a member of the TF but not the Working of the TF but not the Working Group, send me an e-mail and I will Group, send me an e-mail and I will provide contact info for your provide contact info for your agency/firm’s participants.agency/firm’s participants.

• If your organization is not listed in If your organization is not listed in the ED, your org. has not yet been the ED, your org. has not yet been involved, and your comments and involved, and your comments and suggestions are most welcome! suggestions are most welcome!

Contact Information

Eileen W. ParlowAssistant Director

[email protected]

www.fasab.gov

Questions?Questions?

the federal accounting standards advisory board

Documents

aapc members

fasabs aapc

federal financial managementu

federal agencies

federal government accounting

audited financial statements

chief financial officers

cfo act