AGA Today
Federal Accounting Corner
Prior-Year
Adjustments in FACTS II
The U.S. Department of the Treasury’s
Financial Management Services (FMS) has been preparing the consolidated
Financial Report of the U.S. Government for a few decades now, and is
still struggling to get clean data. It's hard enough to consolidate the
activity from dozens of agencies, but since FMS has little control over
what data is submitted and even less ability to research discrepancies,
it is a nearly impossible task. What accountants working with one
entity's books take for granted is only a fond wish for FMS. So FMS has
been tweaking the FACTS interface to capture the information necessary
for consolidation. The latest change is the Prior-Year (PY) Adjustment
field, which allows FMS to compare the beginning balance agencies report
now with what they had reported as their ending balance last year.
How the Field Works
There are three values for the PY
Adjustment field: X, P and B. Most data should be
coming in with value X, which means that it reflects only
current-year activity. If an agency finds transactions that should have
been reported in a prior year but were not, they would correct the error
in their system and report that activity with a flag of P. This
would let FMS know that, in a perfect world, this would have been
reported in a prior year, but the world isn't perfect so the agency is
only reporting it now. The important value for FMS is B. This
value indicates that the agency manually adjusted their FACTS submission
to reflect transactions that were not yet in their system of record,
then entered the transactions in their system in the subsequent year.
News Edits
FMS has adjusted edit 12 and added a
new edit 13 to work with PY Adjustments. Amounts associated with a value
of B are ignored. Edit 12 compares activity in the budgetary cash
accounts with cash activity on FMS' books (in their central accounting
system). Cash activity that FMS reported but didn't get into the
agency's books could be posted in the current year with a B PY
Adjustment flag so it doesn't throw the current year comparison off. The
new edit 13 compares the beginning balance of accounts with their ending
balance from the previous year.
Example
An agency receives an IPAC of $100,000
on Sept. 30, but doesn't figure out what this entry represents in time
to book it. So they adjust the FACTS II entry by debit 4222 Unfilled
Customer Orders With Advance credit 4221 Unfilled Customer Orders
Without Advance. Previously, the agency had a $4 million balance in 4221
and $2 million in 4222.
Option 1
If the agency's system retains the
FACTS II adjustment for the last year and moves it to the current year
(i.e., it generates the beginning balance entries from the prior-year
FACTS II submission and not from the system's records), then the agency
would post the actual entry during the new year with a value of B.
They don't have to post to the same accounts as they had reported the
previous year, as long as the net cash budgetary posting is the same, so
they could instead post debit 4252 Reimbursements and Other Income
Earned - Collected credit 4251 Reimbursements and Other Income Earned -
Receivable. The ending balances will be correct, the net ending
budgetary cash will be correct, and the artificial increase to cash
collections in the new year will be ignored by edit 12. Since the agency
generates the beginning balances from the prior-year FACTS II
submission, they will always pass edit 13.
Option 2
If the agency's system recalculates
FACTS II beginning balances for the current year from the system's
records, then the agency will have to post the adjustment to the
beginning system balance with a value of P. The reason they
should use P and not B is that this adjustment brings the
system balance up to what FMS has, so it has to be included in the edit.
The correcting entry to back out the 4221 / 4222 posting and enter 4252
/ 4251 instead should also use a value of P, though as long as
both postings use the same flag value it won't matter because they will
net out for edit 12. Since both 4221 and 4222 do not close at year end,
the balances of these accounts will be compared with what had been
reported in FACTS II for the previous year, requiring the update to
beginning balances.
Option 3
Another option would be to post a
double adjustment in beginning balances, so the net effect would be zero
to the agency's records but still pass edits 12 and 13. In the example,
the agency would post debit 4222 credit 4221 with PY Adjustment Flag of
P, then the reverse entry debit 4221 credit 4222 with PY
Adjustment Flag of B. This last entry would be backed out during
the year. This way, the agency's beginning balance equals the post-close
ending balance in both FMS's system and their own. I suspect this is
what FMS may have had in mind when they set up the three different
values for the PY Adjustment flag. The following table summarizes the
entries in FMS's central accounting system and the agency's system for
all three options:
|
Account |
FMS balance |
Option 1 |
Option 2 |
Option 3 |
|
4221 begin |
$3,900,000 |
$4,000,000 X but $3,900,000 in the interface |
$4,000,000 X ‑100,000
P |
$4,000,000 X ‑100,000
P +100,000 B |
|
4221 activity |
- 0 - |
‑100,000
B |
- 0 - |
‑100,000
B |
|
4222 begin |
$2,100,000 |
$2,000,000 X but $2,100,000 in the interface |
$2,000,000 X +100,000 P |
$2,000,000 X +100,000 P ‑100,000
B |
|
4222 activity
|
- 0 - |
+100,000 B |
- 0 - |
+100,000 B |
What SGL Accounts are Affected
Almost all SGL accounts require the PY
Adjustment flag. The only accounts not affected are anticipated amounts
which should have a zero balance at year end anyway, 4139/4149 contract
and borrowing authority carried forward, 4195 Transfer of Obligated
Balances, 4201 Total Actual Resources - Collected, and certain types of
authority that shouldn't exist past year end (such as 4420 Unapportioned
Authority - Pending Rescission or 4700/4720 Commitments).
Conclusion
How an agency implements the PY
Adjustment flag depends on how they record adjustments and how their
system generates the beginning balances reported to FACTS. Some agencies
will only record adjustments as current-year activity using a value of
B, other agencies will adjust their beginning balances directly
and use a value of P, and others will do both. —Simcha Kuritzky,
CGFM, CPA
This column is provided as part of a
free exchange of ideas in federal accounting, and is not reviewed
substantively before publication. Please send all comments, queries, or
corrections to Simcha.Kuritzky@CGIFederal.com