AGA Today

Federal Accounting Corner
by Simcha Kuritzky, CGFM CPA              

Reporting Cancellations

Background

Congress passed the "M Account" legislation (Public Law 101-510) in 1991, ending the practice of moving unspent funds to a merged fund or "M" account after they were expired for two years. The new law required that the funds stay in place as expired for five years, then be permanently cancelled. The U.S. Standard General Ledger (SGL) Board created account 4350 Canceled Authority to show the cancellation. Now the SGL Board has also added memorandum accounts 8101 Partial Authority Cancellation and 8102 Offset for Partial Authority Cancellation for the same purpose.

Single- or Multi-Year Fund Logic

For a single- or multi-year fund, the available amount (account 4610 if apportioned, 4620 if not) is moved to 4650 when the fund expires (transaction F312). On the Statement of Budgetary Resources (SBR), this entry moves what had been reported on line 9A to line 10. It remains there for five years, where it generally grows as old orders are closed out (though upward adjustments are permitted to a limited extent). At the end of the fifth expired year, the balance of 4650 is transferred to 4350, and the cash is withdrawn by a posting debit 3106 Unexpended Appropriations. Adjustments and credit 1010 Fund Balance with Treasury (transaction F120). On the SBR, this cancellation moves the balance of line 10 to line 6. Since the cancellation is automatic, the agency simply reports it on the FMS-2108 and Treasury withdraws the funds. The agency may choose to zero out all balances in cancelled funds the following year, or they may choose to leave them in place (SGL transaction D145 for paying previously cancelled liabilities assumes they are left in place).  Since the Fund/Treasury Symbol is no longer included in the SBR, it doesn't matter if there are balances on the agency's books or not.

No-Year Fund Logic

The recent change specifically addresses the partial cancellation of no-year funds. While no-year funds do not expire and are not cancelled automatically, they can be partially cancelled by legislation or administrative action (transaction F122). The posting is virtually the same as for canceling single- or multi-year funds. However, the entry is not posted until the cash has been withdrawn by Treasury. The entry must be entered in a timely manner, because a no-year fund will continue to be reported on the SBR and other financial statements, not only this year, but in subsequent years. Previously, the balance in 4350 would remain in perpetuity as there was no means to reduce it (except when paying a bill using transaction D145, which is an unusual occurrence). Since line 6 of the SBR uses the ending 4350 balance and line 1 uses the beginning 4201 balance, the cancelled portion would show up in next year's unobligated balance brought forward as well as in cancellations. To avoid this problem, Treasury came up with transaction F390, which closes both the balances in 4201 and 4350 after the financial statements have been prepared. However, if one does that then there is no record of the cancellation. So Treasury added transaction F301, which debits 8102 and credits 8101 for the partial cancellation. These are memorandum accounts that never close.

Conclusion

The current solution takes care of the SBR problem, but produces two new wrinkles: the treatment for cancellation of single- and multi-year funds are substantively different from that of no-years even though the legal implications are the same, and if a cancelled payable is subsequently paid, entry D145 will create unnatural balances in 4350 and 4201 for a no-year fund. A solution that would handle the SBR without adding new memorandum accounts and changing how closing entries and cancelled payables are posted would be to adjust the definition of the SBR. Unobligated Balance Brought Forward (currently line 1, originally line 2A) could go back to its original definition, which is the opposite of the balances of accounts 4450, 4620, and 4650 (credits are reported as a positive). Cancellations (line 6) could use the current activity for account 4350 (ending minus beginning balance), rather than just the ending balance.  So balances that begin in 4201 and 4350 and remain unchanged throughout the year would not create a balance in line 1 or 6 (or any other line, for that matter).

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.