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The U.S. government's consolidated financial statements: a primer for CPAs.

How many citizen accountants can claim they have a working knowledge of the financial reporting practices of the U.S. federal government? Federal government accounting is not tested on the CPA exam, even though state and local government accounting is; unless accounting professionals actually work for the federal government or audit a federal agency, they are likely not to have a working knowledge of federal government accounting or financial reporting practices. Many, if not most, federal agencies are audited by the agency's Inspector General's (IG) Office; therefore, the number of CPAs who are familiar with federal government agency accounting is limited.

Most CPAs probably know that the federal deficit has been more than $1 trillion for each of the last few years, but how many know that this deficit, which adds to the national debt (more than $16 trillion as of the end of the 2012 fiscal year), can be traced through accrual-based financial statements, even though the deficit is primarily cash-based? Furthermore, how many citizen CPAs know that this information is relatively accessible online? It is the author's opinion that professional accountants should have a grasp of federal government financial reporting practices, at least on a consolidated level, especially given the alarming developments coming from Washington, D.C., these days.

This discussion will attempt to familiarize accountants who have little experience in federal government accounting affairs with the federal government's Consolidated Financial Statements (CFS). The five individual financial statements explained here include: 1) the Balance Sheet, 2) the Statement of Operations and Changes in Net Position, 3) the Statement of Net Cost, 4) a Reconciliation of Net Operating Cost and Unified Budget Deficit, and 5) a Statement of Changes in Cash Balance from Unified Budget and Other Activities. These five interconnected statements--the first three prepared in accordance with accrual based accounting for expenses and on a modified cash basis for revenues--bear some similarity to financial reporting for commercial operations, although the federal economic environment and circumstances dictate some distinct differences from commercial accounting and financial reporting, as well as from accounting for state and local government and financial reporting.

The CFS contains two other statements, the Statement of Social Insurance and the Statement of Changes in Social Insurance Amounts. Unlike the five statements just enumerated, these two statements are prepared using actuarial estimates. They do not tie into the other statements in the CFS; they are distinct enough that they deserve a discussion all their own, and, consequently, are beyond the scope of this article.

Refining Agency Accounting and Auditability

The accounting and budget focus within the federal government has always been at the agency level. So before consolidated financial reporting could occur, agency accounting had to be refined and be auditable. Until 1994, the federal government never prepared accrual-based consolidated financial reports on federal government operations. Before the mid-1990s, financial statement audits of individual U.S. government operations rarely occurred. Operational, compliance, and efficiency audits might be performed by the agency's IG or Congress's Government Accountability Office (GAO). But according to the Office of Management and Budget (OMB), "in 1990, only three (3) federal entities' financial reports were audited, and only one federal entity received a clean opinion (the Social Security Administration). In 1994, 100 federal entities were audited, and 59 received unqualified opinions." These 1994 audits were scattered among agencies (and subagencies, bureaus, and funds) within federal government departments. Some of these audited entities were very small. These audits occurred during and soon after the federal government's efforts to place federal government financial accounting and control on par with private-sector and state and local government accounting.

The first federal initiative was the CFO Act of 1990, which created an Office of Federal Financial Management within the OMB and required a CFO in each executive department or agency. Along with three later acts--the Government Performance and Results Act of 1993, the Government Management Reform Act of 1994, and the Federal Financial Management Improvement Act of 1996--the CFO Act prompted more consistency in financial management systems across department and agency lines within the federal government, as well as mom reliable and auditable financial reporting among entities. These acts brought about the creation of a FASB-like and GASB-like organization, the Federal Accounting Standards Advisory Board (FASAB), sponsored by the GAO, the Department of the Treasury, and the OMB; in addition, the acts set the stage for the preparation and annual audit of a consolidated financial report of the federal government (Prior to the establishment of the FASAB, accounting principles for the federal government were established by the GAO alone.)

Audits are now a consistent practice among federal agencies; most of these now receive unqualified opinions. ("Agency" is meant to include federal operations of major executive departments. including the Department of Defense, the Department of Health and Human Services, and the Social Security Administration, as well as smaller federal entities, such as the Agency for International Development.) The CFO Act called for agency-wide financial reporting for 24 major federal agencies and soon expanded to include 11 other "significant" federal entities. These 35 federal entities comprise more than 98% of federal government accrual-based net expenses and are listed individually on the Statement of Net Costs. The CFO Act proscribed annual audits of those reports in conformity with GAAS for government operations. Most audits of individual agency financial reports are performed by its IG. Legislation gave these offices additional independence from agency management to qualify it to conduct those audits under GAAS for government operations. Several agencies have their audits performed by independent CPA firms, either because they do not have an 1G or due to constraints on the IG's time.

Preparation and audit of the CFS of the federal government is now a consistent practice within the government as a whole; however, success in achieving an unqualified opinion on the consolidated report has eluded the federal government. The GAO conducts the CFS audit. Although a prototype consolidated report was prepared for 1994, the first consolidated financial report was prepared in 1995, along with comparative figures for fiscal year 1994. (The federal government's fiscal year ends September 30.) The 1995 report, however, was not audited. Audits began with the 1997 fiscal year, and in 1998, the federal government started calling the report the "Financial Report of the United States Government." Since then, the CFS has become larger (from 66 pages in 1997 to 260 pages in 2012, including index and preface material), more informative, and more sophisticated. The number of entities included has almost tripled, from 54 in 1997 to 150 in 2012.

A few substantial organizations have been consistently left out of the CFS, including the Federal Reserve, Freddie Mac, and Fannie Mae. These organizations are supposedly legally separate, although recent events have called into question whether Freddie Mac and Fannie Mae truly are. Certain substantial liabilities to Fannie Mae and Freddie Mac have been reported in the CFS. Information related to the legislative and judicial branches is included in limited form through cash outlays from the Executive Office of the President, because there is no requirement that those branches prepare and have audited accrual-based financial statements. Nevertheless, the GAO, the Government Printing Office (GPO), the Library of Congress, and several other entities voluntarily prepare and provide accrual data anyway. These organizations are part of the "other" 115 organizations, whose total costs amount to less than 2% of the federal government's net costs.

The individual Statements

The analysis below shows that, because these statements tie into the annual federal deficit, the CFS fairly represents the general financial condition of the federal government. Even though 16 years of consolidated financial reporting have occurred since the 1997 report, the GAO has--with-out exception--issued disclaimers of opinion in each of those years. Regardless of those disclaimers, the citizen accountant can generally rely on the representations made in the federal government's CFS.

Balance Sheet

Exhibit 1 presents the CFS balance sheet. The presentation of asset and liability amounts is similar to their presentation on a commercial operation's balance sheet, except that some types of assets and liabilities are unique to federal operations and are somewhat self-explanatory in general. It is unclassified, in that current assets and liabilities are not distinguished from long-term assets and liabilities. The balance sheet represents the federal government's financial position at the end of the fiscal year, its assets; its liabilities, which are substantial; and its ending equity, which is termed "net position." In the assets section of the balance sheet, stewardship land and heritage assets are listed unaccompanied by dollar figures. The federal government recognizes that these assets could be called on for future economic benefits, but placing a dollar value on them would be misleading. (Selling off tracts of federal land was a strategy undertaken during the presidential administration of Andrew Jackson, who was determined to pay off the national debt--but this debt-free federal government did not last long.).
EXHIBIT 1

U.S. Government Consolidated Balance Sheet as of
September 30. 2012

Assets:                                    (in billions of
                                                  dollars)

Cash and other monetary assets                       206.2

Accounts and taxes receivable, net                   111.2

Loans receivable and mortgage-backed                 859.6
securities, net

TARP direct loans and equity investments,             40.2
net

Inventories and related property, net                299.0

Property, plant, and equipment, net                  855.0

Debt and equity securities                           110.2

Investments in government-sponsored                  109.3
enterprises

Other assets                                         157.6

Total assets                                       2,748.3

Stewardship land and heritage assets

Liabilities

Accounts payable                                      65.2

Federal debt securities held by the               11,332.3
public and accrued interest

Federal employee and veteran benefits              6,274.0
payable

Environmental and disposal liabilities               339.0

Benefits due and payable                             166.2

Insurance and guarantee program                      156.4
liabilities

Loan guarantee liabilities                            74.6

Liabilities to government-sponsored                    9.0
enterprises

Other liabilities                                    432.6

Total liabilities                                 18,849.3

Contingencies and commitments

Net position

Earmarked funds                                      665.3

Nonearmarked funds                              (16,766.3)

Total net position                              (16,101.0)

Total liabilities and net position                 2,748.3


Likewise, in the liabilities section, the federal government lists contingencies and commitments without attaching dollar amounts to them. They do not represent liabilities, but they possess characteristics that could make them become liabilities, and the federal government has enough of them that it would be misleading not to mention them on the balance sheet. The CFS describes these commitments and contingencies in the notes to the balance sheet Similarly to FASB and GASB pronouncements, if a contingency has a probability of being payable, it is booked as a liability if it can be reasonably estimated, but there are other contingencies that do not meet the "probability" criterion. At the end of the 2012 fiscal year, these commitments consisted primarily of orders that had been placed but had not yet been delivered, amounting to almost $1.3 trillion. An additional $384.6 billion of other types of commitments can be added to this amount.

Recorded liability amounts exceed recorded asset amounts by almost 700%. Of the almost $19 trillion in liabilities, more than $11 trillion relates to federal debt owed to the public, and more than $6 trillion relates to federal employee benefits. The $11 trillion in debt owed to the public does not include the almost $5 trillion the federal government owes to trust funds, such as Social Security and Medicare; those liabilities are eliminated through consolidation. If it were not for these two large debts, the federal government's net position would be fairly good. As it is, the total assets of the federal government are not even enough to pay off half of federal employee benefits, the lesser of the two large liabilities.

The ending net position amount (the difference between assets and liabilities) is divided between earmarked funds and nonearmarked funds. Nonearmarked funds show a large negative balance and represent the major operations of the federal government. Earmarked funds show a small positive balance (less than 4% of the large negative nonearmarked funds). The total negative net position of approximately $16.1 trillion nearly represents the amount of the national debt of the federal government. It is not quite the national debt amount, because the annual deficit is mostly (but not entirely) on a cash basis, while these financial statements reflect accrual-based accounting for its expenses and modified cash for its revenues. Obviously, revenues are not entirely on a cash basis, because receivables appear on the balance sheet. For the past several years, however, the national debt and the negative net position have been close, and for this reason, some reliance can be placed on federal government financial reports. More will be explained about nonearmarked versus earmarked funds in the next section, related to the Statement of Operations and Changes in Net Position. Net position balances are also found on the Statement of Operations and Changes in Net Position.

Statement of Operations and Changes in Net Position

Exhibit 2 presents the Statement of Operations and Changes in Net Position, which reports the results of government operations. In general, the costs of government operations are deducted from revenues--in 2012, after elimination of intragovemmental interest, more than 75% of federal revenue consisted of individual income taxes and withholdings--to derive net operating revenue (cost). Except for fiscal years 1999 and 2000, the year-end result has always been a net operating cost. Since fiscal 2005, the Statement of Operations and Changes in Net Position has presented separate sections for operations earmarked and nonearmarked operations and has totaled the two in a consolidated amount. Earmarked operations are programs for which tax revenues are specifically reserved--the most significant being Social Security, but others include Medicare, military and civil service retirement, and a number of other trust funds. Like state and local government, the federal government uses fund accounting. Fund accounting in government operations means recording transactions into a fiscal and accounting self-balancing entity called a fund. The fund is set up for control purposes, especially when a specific governmental activity has received resources, taxes or otherwise, earmarked by law or contract for that activity. Financial reporting for individual agencies, however, reports on the overall entity; that is, an entity's funds are combined for financial reporting.
EXHIBIT 2

U.S. Government Statement of Operations and Changes
in Net Position for the Year Ended September 30, 2012

                       Nonearmarked  Earmarked  Consolidated
                              Funds  Funds (In
                                      billions
                                            of
                                      dollars)

Revenue:

Individual income tax       1,135.2      789.9       1,925.1
and tax withholdings

Corporation income            237.5                    237.5
taxes

Unemployment taxes                        66.5          66.5

Excise taxes                   24.6       56.5          81.1

Estate and gift                13.9                     13.9
taxes

Customs duties                 28.6                     28.6

Other taxes and               114.9       30.9         145.8
receipts

Miscellaneous earned           13.5        6.2          19.7
revenues

Intragovemmental                         185.3         185.3
interest

Total revenue               1,568.2    1,135.3       2,703.5

Eliminations                                         (185.3)

Consolidated revenue                                 2,518.2

Net cost of
government
operations:

Net cost                    2,020.2    1,794.1       3,814.3

Intragovernmental             185.3                    185.3
interest

Total net cost              2,205.5    1,794.1       3,999.6

Eliminations                                         (185.3)

Consolidated net                                     3,814.3
cost

Intragovernmental           (576.5)      576.5
transfers

Unmatched                    (20.2)                   (20.2)
transactions and
balances

Net operating revenue     (1,234.0)     (82.3)     (1,316.3)
(cost)

Net position,            (15,533.6)      748.2    (14,785.4)
beginning of period

Prior period                    1.3      (0-6)           0.7
adjustments--changes
in accounting
principles

Net operating             (1,234.0)     (82.3)     (1,316.3)
(cost)/revenue

Net position, end of     (16,766.3)      665.3    (16,101.0)
period


Two substantial transactions affect the balances shown in the separate sections for earmarked and nonearmarked operations. One relates to intragovernmental interest as revenues for earmarked funds and as a part of government costs for non-earmarked funds. This is done because, by law, trust funds must loan their available balances to the Treasury to help pay for nonearmarked operations. This may seem unwise--and some political commentators criticize the practice--but anyone who participates in a defined benefit pension plan should remember that that pension plan likely includes, to some degree, federal securities as well.

The second substantial transaction concerns intragovernmental transfers. Nonearmarked operations consistently transfer large amounts into earmarked operations to help pay for trust fund purposes, the funding for which is inadequate. If it were not for interest revenues and transfers from nonearmarked funds, earmarked operations would also consistently run deficit balances. Even with the transfers, the earmarked funds occasionally run a net operating cost for the year, 2012 being one of those years. Like debt securities of the federal government held by trust funds, consolidated interest revenue and interest cost are eliminated against each other.

Also shown on this statement are prior-period adjustments and adjustments made to balance the consolidated statement. These "adjustments," unmatched transactions and balances, note the imperfections and problems the federal government's finance operations have had in perfecting its consolidated financial reporting. They are mistakes, but they are also timing differences that occur between agencies. In comparison to overall U.S. government costs, these unmatched transactions are not that substantial, and the federal government has come a long way toward minimizing them. Eliminating them totally would probably unduly delay publication of the CFS.

The total net cost of $3,814.3 billion that appears in a lump sum amount on this Statement of Operations and Changes in Net Position carries forward from the Statement of Net Cost. The $3,814.3 billion is deducted from $2,518.2 billion in revenue, the result is adjusted by the $20.2 billion unmatched transactions (and $0.7 billion prior period adjustment or change in accounting principle), and yields a net operating cost for the year of $1,316.3 billion ($1.3 trillion). More than 90% of the net operating cost is for nonearmarked operations.

While several revenue types are displayed, net cost is a summarized presentation; however, the Statement of Net Cost lists and identifies the agencies that were responsible for federal government costs of $3,814.3 billion.

Statement of Net Cost

Exhibit 3 presents the Statement of Net Cost, which details which major government agency or department incurred the costs. It displays the largest departments first and combines nonearmarked costs with earmarked costs. A reader cannot determine from this statement which costs of a department or agency are earmarked and which are nonearmarked. Nevertheless, examining the Social Security Administration's Statement of Changes in Net Position (a statement similar to the Consolidated Statement of Operations and Changes in Net Position) reveals an earmarked funds net cost of $767 billion. Examining the same statement for the Department of Health and Human Services, which runs Medicare, reveals $476 billion in net earmarked costs. The total of these two on represents almost 70% of the total consolidated earmarked costs.
EXHIBIT 3

U.S. Government Ste Net Cow: for the Year Ended
September 30, 2012

                    Gross Cost       Earned  Net Cost
                                Revenue (in
                                billions of
                                   dollars)

Department or
Agency:

Department of            855.1         56.0     799.1
Defense

Department of            924.3         67.8     856.5
Hearth & Human
Services

Social Security          825.4          0.3     825.1
Administration

Department of the      (150.0)         27.5   (177.5)
Treasury

Department of            362.9          4.1     358.8
Veterans Affairs

Interest on debt         245.4                  245.4
held by the
public

Department of            107.3                  107.3
Labor

Department of            161.0         12.0     149.0
Agriculture

Department of             62.7         20.0      42.7
Education

Department of             79.0          0.8      78.2
Transportation

Department of             58.6          9.9      48.7
Homeland Security

U.S. Postal               72.8         64.2       8.6
Service

Department of             74.5          1.5      73.0
Housing and Urban
Development

Office of                147.1         19.1     128.0
Personnel
Management

Department of             38.9          1.3      37.6
Justice

Department of             60.8          4.3      56.5
Energy

Department of             30.6          3.5      27.1
State

National                  19.0          0.2      18.8
Aeronautics and
Space
Adminstration
(NASA)

Department of the         23.3          2.7      20.6
Interior

Federal Deposit            2.6         19.3    (16.7)
Insurance Corp.

Department of             12.8          2.6      10.2
Commerce

Railroad                  15.3          5.1      10.2
Retirement Board

Environmental             11.4          0.3      11.1
Protection Agency

Pension Benefit           20.2         10.4       9.8
Guaranty Corp.

Agency for                11.4          0.2      11.2
International
Development

Tennessee Valley          11.1         11.3     (0.2)
Authority

Federal                   10.1          0.4       9.7
Communications
Commission

National Science           7.4                    7.4
Foundation

Small Business             1.6          0.4       1.2
Administration

National Credit            1.3          1.0       0.3
Union
Administration

U.S. Nuclear               1.1          0.8       0.3
Regulatory
Commission

Securities and             1.2          1.6     (0-4)
Exchange
Commission

Smithsonian                0.8                    0,8
Institution

General Services           0.5          0.5        --
Administration

Export-Import Bank         1.2          0.8       0.4
of the United
States

Farm Credit System                      0.1     (0.1)
Insurance Corp.

All other                 56.4          0.8      55.6
entities

Total net costs        4,165.1        350.8   3,814.3


The Statement of Net Cost is so termed because it schedules gross costs and then deducts earned revenues from those costs. Almost all departments or agencies have some amount of earned revenue, which comes from providing goods and services to the public. For example, the Department of Defense shows $56 billion in direct revenue, undoubtedly including PX revenues; the general public cannot access those services, but military and retired military personnel can. With other entities, like the U.S. Postal Service, earned revenues represent sales to the general public.

If one agency transacts with another agency in an exchange transaction, their revenues and costs are eliminated against each other in consolidation. On the other hand, if an agency primarily serves other agencies, like the Office of Personnel Management (OPM) and the General Services Administration (GSA) do, an appropriate cost allocation of those services is transferred from the servicing agency to the recipient agencies. Thus, if a reader were to examine individual agency financial statements, those net costs on the individual statements would likely not tie into the consolidated amounts shown. They are usually close. Interest cost on debt issued to the public (i.e., debt not owed by the government to itself when it borrows from earmarked funds) is not allocated to agency operations. It stands alone because of its significance.

The Statement of Net Cost lists the specific 35 entities that are major to federal government finances. These 35 major departments and agencies in 2012 accounted for over 98% of the accrual-based expenses of the federal government. The other 115 entities, lumped together on the last line of the statement, account for less than 2% of the costs. The previously mentioned GAO, GPO, and Library of Congress, along with another 112 entities (including the Executive Office of the President) are included in this line. The entire list of the 115 entities is revealed in an appendix to the CFS.

Interestingly, a reader might notice that the Department of the Treasury's net cost shows a $177.5 billion credit balance, primarily because its gross cost was a $150 billion credit balance. This unusual occurrence happened because the Treasury credited to current-year expenses an unusual and significant reduction of $288.7 billion in contingent liabilities that it had booked in a previous year. This adjustment threw the Treasury's total net cost into a credit balance.

Exhibit 3 contains three columns. It formats the Statement of Net Cost differently from how it appears in the CFS. There are five columns to this statement in the CFS. One of those columns is a subtotal of earned revenue deducted from gross cost. Exhibit 3 eliminates this subtotal column. A fourth column adds or subtracts a gain or loss from changes in assumptions made the current year regarding employee benefits expenses, primarily pension and other retirement benefits. Exhibit 3 adds these adjustments to the gross costs. These adjustments are not that significant overall, although they could be with respect to an individual agency.

The balance sheet, Statement of Operations and Changes in Net Position, and Statement of Net Costs are prepared using full accrual accounting for costs and modified cash basis for revenues. These statements represent the primary sources to readers who seek to assess the federal government's results of annual operations and resulting financial position. The net operating cost amount found on the Statement of Operations and Changes in Net Position is the primary driver of the nation's annual budget deficit. The budget deficit, however, is primarily based on cash. A fourth financial statement reconciles the accrual-based net operating cost of $1,316.3 billion on the Statement of Operations and Changes in Net Position to the federal government's annual budget deficit.

Reconciliation of Net Operating Cost and Unified Budget Deficit

Exhibit 4 presents the Reconciliation of Net Operating Cost and Unified Budget Deficit. It explains why the accrual-based net operating cost of $1,316.3 billion differs from the government's annual budget deficit of $1,089.4 billion. Note that this budget deficit is an annual amount; it adds to, but does not equal, the national debt. The deficit is primarily a cash deficit, although certain accrual transactions do go into making up the budget deficit, primarily interest accruals on debt held by the public. An examination of this statement reveals many noncash accruals being added back to net operating costs, increases in liabilities being added back while decreases are deducted from net operating costs, increases in inventories being deducted from net operating costs, depreciation adding back to net operating costs, and other items. In other words, although the statement is not divided into cash flows from operations, cash flows from investing, and cash flows from financing--as would be found on a commercial operation's statement of cash flows--individual elements are similar to those found on a commercial operation's cash flow statement. But not quite: it does not reconcile between beginning cash and ending cash on the balance sheet. This function is handled by the Statement of Changes in Cash Balance from Unified Budget and Other Activities.
EXHIBIT 4

U.S. Government Reconciliation of Net Operating Cost to
Unified Budget Deficit for the Year Ended September
30, 2012

                                 (in billions of dollars)

Net operating cost                              (1,316.3)

Components of net operating
cost not part of the budget
deficit:

Increase in liability for
military employee benefits

Increase in military pension                        120.7
liabilities

(Decrease)/increase in military                     (9.0)
health liabilities

(Decrease)/increase in other                        (0.6)
military benefits

Increase in liability for                           111.1
military employee benefits

Increase/(decrease) in                              227.9
liabilities for veteran's
compensation

(Decrease)/increase in                              142.8
liabilities for civilian
employee benefits

Increase/(decrease) in                               14.9
environmental and disposal
liabilities

Depreciation                                         59.1

Property, plant, and equipment                        9.4
disposals and revaluations

(Decrease)/increase in benefits                     (4.8)
due and payable

(Decrease)/increase in
insurance and guarantee program
liabilities

Increase in other liabilities                         5.6

(Decrease)/increase in accounts                       1.8
payable

(Increase)/decrease in net                          (4.9)
accounts and taxes receivable

TARP year-end upward/(downward)                     (9.0)
re-estimate

(Decrease)/increase in                            (307.2)
liabilities to
government-sponsored
enterprises (GSE)

Increase /(decrease) in                              42.3
valuation loss on investments
in GSEs

Capitalized fixed assets:

Department of Defense                              (33.6)

All other agencies                                 (37.1)

Total capitalized fixed assets                     (70.7)

Effect of prior year TARP                          (23.3)
downward re-estimate

(Increase) in inventory                             (2.9)

(Increase) in investments in                       (18.6)
government-sponsored
enterprises

Decrease/(increase) in debt and                       0.4
equity securities

Decrease/(increase) in other                         21.7
assets

Credit reform and other loan                         38.6
activities

All other reconciling items                         (2.0)

Unified budget deficit                         (1,089.4)


Statement of Changes in Cash Balance from Unified Budget and Other Activities

Exhibit 5 presents the Statement of Changes in Cash Balance from Unified Budget and Other Activities. The statement explains how the budget deficits were financed. It is here that interest accrued on debt held by the public is added back to the unified budget deficit, and a reader realizes that accrued interest on the national debt is considered part of the budget deficit. The beginning figure on this statement is the ending figure on the Reconciliation of Operating Cost and Unified Budget Deficit--that is, the annual budget deficit of $1,089.4 billion. Other major transactions depict that borrowings from the public are added and repayments of debt an deducted. It comes down to a decrease/increase in cash that is added to beginning cash, which results in an ending cash balance of $206.2 billion, the amount also found on the balance sheet. In a way, this statement completes the Reconciliation of Net Operating Cost and Unified Budget Deficit, and the reader may think of them together as similar to the more familiar statement of cash flows, without the familiar categories of operating, investing and financing.
EXHIBIT 5

Statement of Changes in Cash Balance from Unified Budget Deficit
and Other Activities for the Year Ended September 30, 2012

                                             (in billions of dollars)

Unified budget deficit                                      (1,089.4)

Adjustments for noncash outlays
included in the budget:

Interest accrued by Treasury on                                 240.1
debt held by the public

TARP year-end re-estimates                                       32.3

TARP subsidy expense/(income)                                  (10.8)

Other Federal entity subsidy                                   (29.4)
expense/(income)

Subtotal                                                        232.2

Items affecting the cash balance
not included in the budget:

Net transactions from financing activities:

Borrowings from the public                                    7,766.9

Repayment of debt held by the public                        (6,614.0)

Agency securities                                               (0.4)

Subtotal                                                      1.152.5

Transactions from monetary and
other activities:

Interest paid by Treasury on debt                             (234.3)
held by the public

Net TARP direct loans and equity                                 52.3
investments activity

Net GSE mortgage--backed securities
activity 70.6

Net loan receivable activity                                  (153.7)

Allocations of special drawing rights                           (0.7)

Other                                                           (0.3)

Subtotal                                                      (266.1)

(Decrease)/increase in cash and other                            29.2
monetary assets

Cash balance, beginning of period                               177.0

Cash balance, end of period                                     206.2


Individual Agency Financial Reporting

The first three statements described above--Balance Sheet, Statement of Changes in Financial Position (not a Statement of Operations and Changes in Financial Position), and Statement of Net Cost--have counterparts on the agency level. There is often more detail in an agency's financial statements. For example, an agency's Statement of Net Cost will not be a lump sum total. It will often break out earmarked from nonearmarked expenses, and it will often detail costs by program efforts. Due to the consolidation processes described above related to eliminating sale and expense transactions with other agencies and to cost allocations from such departments as the OPM, an individual agency's costs will likely not equal what appears in the consolidated report for it. Although many agencies do have revenue-producing activities, they generally are minimal in comparison to the overall activities of the agency, and federal government accounting practices reduce overall agency costs with direct revenues earned. Instead of a Statement of Operations and Changes in Net Position, an individual agency will prepare a Statement of Changes in Net Position (with some exceptions; the U.S. Postal Service, for example, prepares a Statement of Operations). This statement shows the appropriations granted to an individual agency and perhaps some other minor resources and shows the costs deducted. Unless an accountant has had some prior education in federal government accounting, the statement can be more difficult to understand and follow than the consolidated Statement of Operations and Changes in Net Position. The balance sheets of individual agencies are very similar to the consolidated balance sheet.

An individual agency is not going to prepare a Reconciliation of Net Operating Cost and Unified Budget Deficit, but it will prepare a Statement of Budgetary Resources. Federal agencies, like state and local government entities, book their budgets. They also book against their budget, including commitments made for goods and services that have yet to be delivered. (Commitments for goods and services not yet delivered can be found in the almost $1.3 trillion on the balance sheet under the contingencies and commitments that appear in the liabilities section without dollar amounts associated with them.) The Statement of Budgetary Resources presents the status of an agency's budget. It explains what budgetary resources the agency has available, appropriations and otherwise; how much has been obligated against its available budgetary resources; and the status is of those obligations (e.g., goods and services received and paid, received but not paid, not yet received).

Becoming Informed

Although a solution to the federal government's financial problems will undoubtedly require some form of macroeconomic event, attention to the details found in the financial reports on the part of citizens is also required. If citizen accountants want to know more than just the oratory provided by Washington, they need only turn to their computers. Interested readers may find the reports presented here, along with prior years' reports, at the U.S. Department of Treasury's Bureau of Financial Management Services website (http://www.fms.treas.gov). Furthermore, in most circumstances, one can also find the audited financial statements of individual agencies online.

Federal financial officials are doing some remarkable work in flying to provide financial transparency to federal operations. Whether Congress or the President uses the information wisely, or at all, is subject to interpretation. Rhetoric that comes out of Washington seems to be high on talking points--including alarmist talking points--but low on constructive specificity. There is no reason, not even inconvenience, for the citizen accountant to not become better informed on the state of public finances.

Sidney R. Ewer, PhD, CPA (inactive--Tenn.), is a professor of accountancy at Missouri State University, Springfield, Mo.
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Title Annotation:IN FOCUS; certified public accountants
Author:Ewer, Sidney R.
Publication:The CPA Journal
Geographic Code:1USA
Date:Aug 1, 2013
Words:5629
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