Accrual Concepts in the
U.S. Federal Budget
Bob Dacey
Chief Accountant
U.S. Government Accountability Office
March 3, 2008
Why Were We Interested
in Accrual Budgeting?
• The U.S. federal government’s financial condition and
fiscal outlook have deteriorated dramatically since 2000.
• Increased information and better incentives to address the
long-term consequences of today’s policy decisions can
help put the U.S. Government on a more sound fiscal
footing.
2
Current Use of Accrual Measurement
in the U.S. Federal Budget
Budget authority and outlays are measured on a
cash/obligations basis except for the following
programs that are measured on an accrual basis:
•
•
•
•
Credit programs
Certain interest payments
Some federal employee pensions (agency level)
Some retiree health care (agency level)
The federal government’s consolidated financial
statements are prepared generally on an accrual
basis
• Most revenue is recorded on a modified cash basis
• Net operating cost is reconciled to the unified budget.
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Some Key Budgetary Objectives
in the U.S.
• Establish national spending priorities and
allocate resources
• Ensure that the government spends
taxpayers’ money in accordance with
applicable laws
• Upfront control over the government’s full
cash commitment
• Provide some information on the
government’s borrowing requirements and
effect on the economy
4
Does Current Budgeting Meet
Budgetary Objectives?
• For most areas, the current cash-/obligationsbased budget supports these objectives and
provides equal or better control than accrual
measurement would, particularly over capital
investment.
• However, for some areas cash measurement
does not support upfront control of resources:
• veterans compensation
• federal employee pensions and retiree health
• insurance
• environmental liabilities
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Potential Benefits of
Accrual Budgeting
• Better information on the cost of annual
operations and performance can:
• Inform tradeoffs between competing programs
or priorities.
• Help policymakers recognize the full cost of
resources used to produce goods or deliver
services during the period regardless of when
cash is used
• Improve efficiency and performance and
management of assets and liabilities
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Potential Challenges With
Accrual Budgeting
• Need reliable financial data and agreed upon
standards.
• Asset identification and valuation can be
cumbersome and difficult for public sector.
• Management and oversight of noncash
expenses, which may signal a need for cash
controls over capital purchases.
• Accrual accounting inherently more complex
than cash accounting and can be more volatile.
• Existence of cash-based fiscal targets may
reduce the focus on accrual measures.
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Range of Accrual Budgeting Use
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GAO Conclusions
• Accrual budgeting only part of the answer
• Useful for recognizing the full annual cost of certain programs
that will require future cash resources; but
• Not useful for recognizing longer-term fiscal challenges that are
driven primarily by aging populations and escalating health care
cost.
• Fiscal sustainability reporting also needed
• Multiple measures needed to understand fiscal sustainability.
• Fiscal sustainability reporting can increase public awareness and
understanding of the long-term fiscal challenges, stimulate public
and policy debate, and help policymakers make informed
decisions.
• Comprehensive picture of the long-term financial condition of the
government as a whole.
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GAO Conclusions
• Fiscal sustainability reporting would:
• Highlight the trade-offs between all federal
programs competing for federal resources, and
• Improve policymaker’s understanding of the tough
choices that will have to be made to ensure that
future generations do not bear an unfair tax or
debt burden for services provided to current
generations.
• Accrual budgeting and fiscal sustainability
reporting are only means to an end; neither can
change decisions in and of itself.
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Matters for
Congressional Consideration
Congress should
• require increased information on major tax and spending
proposals;
• consider requiring increased reporting of accrual-based
cost information alongside cash-based budget numbers
for both existing and proposed programs where accrualbased cost information includes significant future cash
resource requirements that are not yet reflected in the
cash-based budget;
• explore further use of accrual-based budgeting for these
programs to ensure that the information affects incentives
and budgetary decisions; and
• require periodic reports on fiscal sustainability for the
government as a whole.
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Appendix A:
Recent GAO Long-Term Simulations
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Unified Surpluses and Deficits
Under GAO’s Alternative Fiscal Policy Simulations
Percent of GDP
5
0
-5
-10
Baseline
Extended
Alternative
Simulation
-15
-20
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
Fiscal year
Source: GAO’s August 2007 analysis.
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Federal Fiscal Gap Under GAO’s Long-term
Simulations - 2007-2081
(Maintaining Debt-to-GDP at or below current rate)
Options to Close Fiscal Gap
Federal
Fiscal Gap
Trillions
of 2007
Dollars
Baseline
Alternative
$31.1
$54.3
Share
of
GDP
4.3%
7.5%
% Increase
In
Individual
% Increase
Income
in Revenue
Taxes
22.9%
39.9%
50.6%
88.2%
% Decrease
In NonInterest
Spending
23.6%
41.0%
Source: GAO August 2007 analysis.
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Appendix B:
Objectives and
Countries Included in Study
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Objectives
• Where, how, and why accrual budgeting is used in select
OECD countries and how it has changed since 2000;
• What challenges and limitations were discovered and
how select OECD countries responded to them;
• What select OECD countries perceived the effect to have
been on policy debates, program management, and the
allocation of resources;
• Whether accrual budgeting has been used to increase
awareness of long-term fiscal challenges and, if not, what
is used instead; and
• What the experience of select OECD countries and other
GAO work tell us about where and how the increased
use of accrual concepts in the budget would be useful
and ways to increase the recognition of long-term
budgetary implications of policy decisions.
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Countries Included in Study
To address these objectives, we primarily focused on the
six countries:
•
•
•
•
•
•
Australia,
Canada,
Iceland,
the Netherlands,
New Zealand, and
the United Kingdom.
We also did a limited review of two other nations—
Denmark and Switzerland—that have recently expanded
the use of accrual measures in the budget and two
countries—Norway and Sweden—that considered
expanding the use of accrual measurement in the budget
but decided against it.
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