AGA Today
Federal Accounting Corner
by Simcha Kuritzky, CGFM, CPA
Reimbursement
Surpluses and Shortfalls
Whether
authorized by a revolving fund or the Economy Act, reimbursable activity
is becoming more common in the federal government. Reimbursements should
include all associated costs, but figuring those costs and funding them
up front can be problematic. The description below on financial
statement entries assumes that, at the end of the year, all outstanding
agreements and obligations are closed out.
The Base
Case
In the
simplest case, all funding is current and expenses equal expenditures.
For cash flow purposes, the reimbursable projects either receive
advances or borrow cash from an appropriation that uses the same
Treasury Symbol. What this all means is that, at year end, the Statement
of Net Costs (SNC) shows zero net cost for reimbursable activity, and
the Statement of Budgetary Resources (SBR) shows line 3D1 (earned
spending authority) equal to 8B (reimbursable obligations incurred).
There is no surplus or shortfall.
This model
assumes that the agency bills exactly what is spent. This can be done
within an agency, where transfers are reported on the SF-224 Statement
of Transactions and can be adjusted easily, or if the only contracts are
for discrete work or materials that are easily accounted for. When an
agency incurs a variety of costs that are all for reimbursable activity,
they may choose to use a standard cost model based on their projected
costs, and adjust the charges periodically to meet actual costs. Where
standard costs are charged, there will inevitably be a small surplus or
shortfall each year on both the SNC and SBR.
Unfunded
Expenses
Full-cost
pricing demands that unfunded expenses also be included in the costs
charged. These are generally recorded with an entry such as debit 6800
Future Funded Expenses credit 2610 Actuarial Pension Liability, so the
SNC would show a net zero effect, but on the SBR, line 3D1 earnings
would exceed line 8B spent. While I understand the desirability of
charging full costs, I question the logistics of charging an
appropriation for, say, unfunded pensions, when the agency collecting
the charges doesn't have to pay for them. Of course, in an economy-act
fund which expires, the excess collections will be returned to the
General Fund after six years and so will end up in basically the same
pot from which the pensions are paid. However, a revolving fund would
get to keep and reuse the surplus collections, unless Treasury or OPM
assesses a charge against them—and I don't know that anyone has done
that yet (though there's been talk of budgeting full costs).
Fixed
Assets
Another
problem is how to account for fixed assets. It is clear that, unless an
asset is specific to a customer or set of customers who agree to pay for
it up front, the clients should be billed for depreciation rather than
the cost of acquiring a fixed asset. This, of course, causes a cash flow
problem, since the agency has to lay out funds and won't collect the
reimbursement for several years (unless they use a capital lease). Some
agencies cover the cash deficiency by collecting advances from their
customers (which would be outstanding for a few years). Others use
appropriated funding, either as part of the set-up of a revolving fund
or from the direct portion of the same Treasury Symbol the reimbursable
authority uses. Agencies generally choose this latter solution when the
assets will be used for both the appropriated activity and reimbursable
activity.
When
covered by an appropriation, the reimbursable project can "rent" the
asset, and pay for only the amount they use. In this way, the asset
acquisition does not affect the reimbursable activity reported in the
financial statements, and the depreciation is actually a funded expense,
so SNC nets to zero and the SBR line 3D1 equals 8B. The reimbursement
side should show an expenditure and expense transaction with the agency
as the Trading Partner, and the appropriation should show the exact
opposite (a reduction to expenditures and expenses). In this way, the
elimination of internal activity is automatic—there's no offset of
revenues against expenses or collections against expenditures.
Conclusion
These are
just a few of the basic issues with accounting for reimbursements. In
addition to accounting issues, agencies have to deal with requirements
embedded in the authorizing legislation, cost allocations, and IPAC wars
with their clients.
Comments,
suggestions and critiques are welcome. Send them to
Simcha.Kuritzky@cgi.com,
and not to AGA.
