The Federal Accounting Standards Advisory Board

1. The Federal AccountingStandards Advisory Board A Call to Action How You Can Help to Advance Efficient and Effective Reporting on Federal Grant Programs National Grants Management Association March 10, 2010

2. Disclaimer Views expressed are those of the speaker. The Board expresses its views in official publications.

3. Learning Objectives • Who are the FASAB and the AAPC? • How is the FASAB’s AAPC working to assist federal agencies on cost-effective methods for developing and validating reasonable estimates of amounts due to and from grantees? • What agencies and firms are working with the AAPC on this project? • Why do we need your help?

4. Who are the FASAB and the AAPC? U.S. Federal Government Accounting Prior to FASAB: Fragmented Approach • Department of the Treasury (Treasury) • Financial reporting • Office of Management and Budget (OMB) • Budgetary reporting • Government Accountability Office (GAO) • Accounting standards and principles

5. Who are the FASAB and the AAPC? • FASAB Formed by Memorandum of Understanding (October 1990) • Chief Financial Officers Act of 1990 (November 1990) • Established Chief Financial Officer positions • Required audited financial statements for selected agencies

6. Who are the FASAB and the AAPC? • Government Management Reform Act of 1994 • Expanded the CFO Act to more agencies • Required governmentwide audited financial statements • Accountability of Tax Dollars Act of 2002 • Extended the requirement for audited financial statements to most federal entities (low-dollar, low-risk exemptions)

7. Federal Financial Management Federal Accounting Standards Advisory Board (FASAB) Accounting and Auditing Policy Committee (AAPC) Organizations Overseeing Federal Financial Management

8. United States U.S. Accounting Standards-Setting Organizations

9. Who is FASAB? • 9 members • 1 member each from • Department of the Treasury • OMB • GAO • 6 non-Federal members • From the financial, accounting and auditing communities and academia

10. FASAB- Roster of Members Tom Allen Chairman (Former GASB Chair) Nancy Fleetwood Debra Bond Treasury OMB Hal Steinberg Bob Dacey GAO Norwood Jackson Alan Schumacher Michael Granof Scott Showalter Bios available at www.fasab.gov (Current as of March 10, 2010)

11. When does FASAB meet? • Generally six times a year • For 2010: • February 24 – 25 • April 28 – 29 • June 23 – 24 • August 25 – 26 • October 27 – 28 • December 16 – 17 • Open to the public • Agenda and briefing materials on www.fasab.gov

12. What is the AAPC(Accounting and Auditing Policy Committee)? • Permanent Committee of FASAB • Organized in May 1997 by: • Department of the Treasury • OMB • GAO • CFO Council • Council of the Inspectors General on Integrity and Efficiency (CIGIE)

13. What is the AAPC? Mission: • To identify and recommend solutions to • Accounting and auditing issues • Relating to the specific application of existing authoritative guidance

14. Who are the AAPC members? • 11 members • 1 representative each from Treasury, OMB and GAO • 3 representatives from the CFO community • 3 representatives from the Inspector General Community • 1 “At-Large” member • 1 non-voting FASAB staff member

15. AAPCRoster of Members Wendy Payne Chair (FASAB Executive Director) [Vacant] Department of the Treasury Regina Kearney (Office of Management and Budget) Luther Bragg Naval Audit Service Frank Synowiec, Jr. (Government Accountability Office) John Brewer Department of Agriculture Alice Carey DoD OIG [Vacant] At-Large Daniel Fletcher Department of the Interior Donjette L. Gilmore Department of Defense Joseph Marchowsky PBGC OIG

16. When does the AAPC meet? • Generally six times a year • For 2010: • January 21 • March 18 • May 20 • July 15 • September 16 • November 18 • Open to the public • Agenda and briefing materials on www.fasab.gov

17. Where do the FASAB and the AAPC meet? Government Accountability Office 441 G Street, NW Washington, DC 20548 Room 7C13 (Staats Briefing Room)

18. FASAB E-Mail Service • Bi-monthly FASAB newsletter • Requests for comment • Press releases • Agendas • Invitations to serve on task forces How does FASAB inform? • www.fasab.gov • Public meetings • Federal Register Announcements

19. FASAB On-Line Resources www.fasab.gov

20. FASAB Community • Preparers • Auditors • Users • Internal • External

21. Community Involvement • Formal • Serving on the AAPC • Responding to Requests for Comment • Speaking at Public Hearings

22. Community Involvement (contd.) • Informal • Serving on Task Forces • Responding to Surveys • Performing Field Testing

23. “Generally Accepted Accounting Principles” • Significance of “GAAP” • In 1999, the AICPA designated FASAB as the authoritative source of GAAP for the Federal government

24. How does FASAB issue authoritative GAAP guidance? • FASAB Statements of Federal Financial Accounting Standards and Interpretations (Level A GAAP) • FASAB Technical Bulletins (Level B) • AAPC Technical Releases (Level C) • FASAB Staff Implementation Guidance (Level D) • FASAB Statements of Federal Financial Accounting Concepts (“Other Accounting Literature”)

25. What are Grant Accrual Estimates? Agencies must report amounts due to or from grantees based upon estimates of eligible expenses that grantees have incurred as of the reporting date.

26. What are Grant Accrual Estimates? • Advances: Amounts issued as advances must be adjusted, even if grantees have not yet reported expenses incurred. • Accounts Payable: Where there is no advance, agencies must estimate amounts payable to grantees.

27. Why do we need accrual estimates for federal programs? • Operating Performance—Information to evaluate: • The service efforts, costs and accomplishments of government • The manner in which these are financed • Management of the entity’s assets and liabilities

28. How do grant accrual estimates affect agency financial statements? • Statement of Net Cost • Cost to the taxpayer by program and responsibility segment • Balance Sheet • Compares what is owned versus what is owed

29. Grants Project History Scope of this project: • Annual Federal grants to • State, local & tribal governments, • Colleges and universities • Other non-profit organizations • Over $500 billion annually, about 1/6 of the annual Federal budget • In 2009, ARRA added an additional $400 billion

30. Grants Project History • FASAB Staff held 3 roundtables in April 2009 • Federal Agency Financial Statement Preparers • Federal Agency Auditors (OIGs) • Independent Public Accounting and Consulting Firms • Formed a volunteer Task Force to • Identify areas where guidance is needed • Help FASAB staff to develop guidance

31. Grants Project History Primary Issue Identified: Guidance to support cost-effective development of reasonable estimates for grant accruals for: • Advances • Accounts Payable

32. Grant Project History Challenges: • Agencies generally have to report grant-related accruals before grantee reports are due • Grantee reports are often cash-based, not accrual-based • New or revised grant programs have no historical data

33. Grants Project History Task Force Working Group and FASAB staff developed draft Exposure Draft for a proposed AAAPC Technical Release (TR) • TR is authoritative GAAP (Level C GAAP) • Subject to “due process”

34. Project Milestones Project Milestones: • April 2009: Roundtables held • August 2009: Task Force Kickoff Meeting • December 2009: Proposed Draft ED to AAPC Agenda Committee • January 2010: AAPC approved project

35. Project Milestones Planned Future Milestones: • March 2010: Issue Exposure Draft for Public Comments • April 2010: Comments Due • June 2010: Final TR to FASAB for review • July 2010: Issue TR

36. Grants Project Goal Primary Goal for this project: Authoritative guidance (formal FASAB/AAPC issuance) that supports: • Cost-effective methods • “Reasonable” estimates

37. Grants Project Goal Why do we need your help? • Sole purpose of this guidance is to help preparers and auditors • FASAB staff are acting as facilitators, not subject-matter experts on grants management

38. Preview of Exposure Draft Preview of Exposure Draft • Scope: grants (as defined in 31 USC 6304) • Effective Date: Would be effective immediately upon issuance

39. Preview of Exposure Draft Topics addressed in the ED: • Preparing accrual estimates • Validating accrual estimates • Balance Sheet display of advances and payables • Internal controls • Training and monitoring of grantees • Materiality considerations

40. Preview of Exposure Draft Preparing accrual estimates: Proposed guidance for two different situations: • For established grant programs with sufficient relevant and reliable historical data, and • In the absence of sufficient relevant and reliable historical data

41. Preview of Exposure Draft Preparing accrual estimates for grant programs • Illustrative Decision Tree (Figure 1, Appendix B) • The draft ED provides guidance listing specific documentation, including • Procedures used (including sampling process) • Assumptions used • Historical data used • Trend analysis • Procedures for error checking • Procedures for subsequent validation • Reason: facilitate both agency review and auditor validation of estimates

42. Preview of Exposure Draft What can agencies do in the absence of sufficient reliable historical data? Proposed guidance: Use the best available data at the time the estimates are made. Suggested sources include: • Relevant experience from other agencies • Extrapolation from programs with similar grantees • Information from program managers • Opinion of qualified expert(s)

43. Preview of Exposure Draft Validating accrual estimates for grant programs (“look-back”) • Necessary part of internal control • Does not require data from 100% of grantees • Judgment is needed • Estimates are inherently uncertain) • Illustrative Decision Tree (Figure 2 of Appendix B) for validation process

44. Preview of Exposure Draft Display: “to net or not to net”? Proposal: When estimates are prepared on an aggregate (“top-down”) level, • Agencies may display a net amount on the balance sheet, but • Must report the breakout of advances and payables in a note • Illustrative example note in Appendix C

45. Preview of Exposure Draft Internal Controls Recommended procedures and documentation, for example: • What are the sources of data used? • What is the rationale for selecting the model(s) used in calculating the estimates? • Who is responsible for each step of calculation and review?

46. Preview of Exposure Draft Training and Monitoring of Grantees Suggested (not required) methods for training grantees such as: • Agency-sponsored conferences • Workshops and/or seminars • Customer service centers and help desks • Computer-based sources such as webcasts

47. Preview of Exposure Draft Materiality Considerations • Materiality decisions require judgment • Materiality is not strictly defined in the accounting community • Proposal: Agencies should consider the materiality of the grant programs relative to the agency’s statement of net cost

48. How will you know when the Exposure Draft is Released for Public Comment? Three possible options: • Check the FASAB website at www.fasab.gov • Sign up for FASAB’s e-mail notification, also at www.fasab.gov • Send an e-mail to me, ParlowE@fasab.gov

49. How do I know who at my federal agency/ private-sector firm has been involved in this project? • Look at the list of participating agencies and firms on pages 25 and 26 of the draft ED. • If your agency or firm is a member of the TF but not the Working Group, send me an e-mail and I will provide contact info for your agency/firm’s participants. • If your organization is not listed in the ED, your org. has not yet been involved, and your comments and suggestions are most welcome!

50. Contact Information Eileen W. Parlow Assistant Director 202.512.7356 ParlowE@fasab.gov www.fasab.gov