AGA Montgomery Chapter CGFM Exam Review
Presented By
Steven H. Emerson, CPA, CGFM, CGAP, CFE, CITP
Authorizing legislation that created the department
authorizes the department to:
 Establish two agencies and lease space for department and
agency operations
 Charge high speed internet and wireless communications
service providers a fee to offset operating costs
 Hire 250 full-time equivalent staff
 Contract for web support and telephone services
 Establish advisory committee to advise staff on its research
and issue final reports on growth and regulation of the
industry
For the first year of operations, appropriations are made
for:
 Salaries and benefits of $22 million
 Leasing office space at $4 million
 Travel funds for advisory board members of $25,000
 Equipment purchases of $375,000
 Furniture purchases of $500,000
 Supplies of $50,000
 Web support and telephone services of $1.7 million
 Exchange Revenue
 A government entity provides goods and services to the
public or another government entity for a price
 Non-Exchange Revenue
 A government’s power to demand payment from the
public in the form of taxes, duties, fines and penalties
 Donations are also classified as non-exchange revenues
 Other Financing Sources
 Appropriations
 Transfers among entities without reimbursement
 Statement
 Exchange Revenue
 Reported on the Statement of Net Costs and where feasible, is
offset against the related program costs
 Non-Exchange Revenue
 Reported on the Statement of Changes in Net Position
 Appropriations Used
 Reported on the Statement of Changes in Net Position
 Recognition
 Exchange Revenue
 When goods and services are provided
 Recognition – continued
 Non-Exchange Revenue
 When a specifically identifiable, legally enforceable claim to
resources arises and the amount is reasonably estimable
 Appropriations Used
 Until used, appropriations are not a financing source. When
made available for apportionment, appropriations are
recognized as an element of net position (unexpended
appropriations) and an asset similar to cash (fund balance
with Treasury). When used, appropriations are recognized as
a financing source (appropriations used)
 Measurement
 Exchange Revenue
 Actual price paid or to be paid less and allowance for returns,
allowances, price redeterminations or other reasons apart
from credit losses
 Non-Exchange Revenue
 Cash collections less refunds and including the accrual
adjustment for net charges in accounts receivable (net of
allowance for bad debts and refunds) during the period
 Appropriations Used
 Actual amount expended
 Disclosures
 Exchange Revenue
 Among others, disclosure is required for pricing policies if
full cost is not charged
 Non-Exchange Revenue
 Among others, the basis of accounting should be described
and changes in asset and liability balances shown
 Appropriations Used
 Most detailed information on appropriations and their status
is provided on the Statement of Budgetary Resources
 What to Do if the Entity Does Not Retain the Revenue for
its Own Use
 Exchange Revenue
 Because exchange revenue results from the entity’s operations,
standards require that the full amount of exchange revenue be
recognized without regard to requirements to transfer collections to
other entities. Transfers out are then recognized as a negative
financing source
 Non-Exchange Revenue
 Non-exchange revenue is most often collected by one entity and
transferred to the Treasury. Collecting entities provide custodial
reporting related to the collections and receivables BUT do not
recognize non-exchange revenue. Non-exchange revenue is
recognized by the entity for which resources were received
 Appropriations Used
 N/A
 Our illustrative department has two sources of
financing:
 Exchange revenues
 Appropriations
 Federal accounting standards provide that regulatory
user fees are exchange revenue
 Because the government may incur costs in order to
regulate the identifiable entity
 Because the revenue charged is closely related to the
cost of operating the entity
 Our department is charged with monitoring activity –
which is an exchange revenue
Appropriations bills are passed for the fiscal year and our
department receives a Treasury warrant for its
appropriations in the amount of $28.65 million. OMB
apportions $8 million to cover equipment and furniture
purchases and about 25% of routine operating funds
Budgetary Entries
Accounts
Debit
Other
appropriations
realized
$28,650,000
Unapportioned
authority –
available
Credit
$28,650,000
To record appropriations of funds by Congress
Budgetary Entries – continued
Accounts
Debit
Unapportioned
authority –
available
$8,000,000
Apportionment
Credit
$8,000,000
To record apportionment of funds by OMB
Proprietary Entries
Accounts
Debit
Credit
Fund balance with $28,650,000
Treasury
Unexpended
appropriations
$28,650,000
To record receipt of an appropriation warrant
Department of Monitoring
Balance Sheet
as of October 1, 200x
(dollars in thousands)
Fund balance
Net Position:
with Treasury $28,650
Unexpended
appropriations $28,650
TOTAL NET
TOTAL ASSETS $28,650
POSITION
$28,650
Department of Monitoring
Statement of Budgetary Resources
as of October 1, 200x
(dollars in thousands)
Budgetary Resources:
Budget Authority:
Appropriations Received
Total Budgetary Resources
$28,650
$28,650
Status of Budgetary Resources:
Unobligated balance – apportioned
Unobligated balance not available
Total Status of Budgetary Resources
$8,000
20,650
$28,650
The department has a fund balance with Treasury at the
outset. This fund balance with Treasury represents the
aggregate amount of funds the department is able to use to
make expenditures and pay liabilities. The fund balance with
Treasury is an intragovenmental asset from the department’s
prospective because it represents a claim to federal resources.
On the U.S. Department of Treasury’s financial statements it
represents a commitment to make resources available to
federal departments and is recognized as an
intragovernmental liability in the Treasury’s financial
statements. Both of these intragovernmental amounts are
eliminated in the government-wide consolidated financial
statements.
Fund Balance with Treasury is increased by:
 Receiving appropriations, reappropriations,
continuing resolutions, appropriation restorations and
allocations
 Receiving transfers and reimbursements from other
federal entities
 Borrowings from Treasury
 Offsetting collections the entity is authorized to spend
Fund Balance with Treasury is decreased by:
 Disbursements to pay liabilities or to purchase assets,
goods and services
 Investments in U.S. securities
 Cancellation of expired appropriations
 Transfers and reimbursements to other entities of to
the Treasury
 Sequestration or rescission of appropriations
Accounts receivable is established when a federal entity has a
claim to cash or other assets from other entities. An
allowance for estimated losses should be established is credit
losses are “more likely than not” and a bad debt expense
should be recognized. If individual accounts represent a
significant portion of the total receivable, the entity should
estimate the loss for the individual accounts. Factors to
consider include
 The debtor’s ability to pay
 The debtor’s payment record and willingness to pay
 The probable recovery of amounts from secondary sources
such as liens
Federal entities are required to separate entity and nonentity
assets for reporting purposes
 Entity assets
 Those assets available for use by the entity
 Nonentity assets
 Those assets the entity is holding in a custodial capacity
Any receivables arising from fees at the Department of
Monitoring (our case study entity) would be considered
nonentity accounts receivable. Our department would
recognize exchange revenue when it has established its fee
structure and billed companies in the industry. Bad debts
would be estimated periodically and an allowance
established.
Advances
 Cash outlays made my a federal entity to its employees,
contractors, grantees or others to cover all or part of the
recipients’ anticipated expenses or as advance payments for
the costs of goods or services the entity acquires
Prepayments
 Payments made by a federal entity to cover certain periodic
expenses before those expenses are incurred
Advances and prepayments are recorded as assets and are
held as assets until the conditions of the advance or
prepayment are satisfied. Once the conditions are met, an
expense is recognized and the asset is reduced or eliminated.
Federal agencies provide financial support to certain
activities through direct loans or loan guarantees. The
cost to the government arises primarily from:
 Differences in the interest rates paid by the
government and charged to the borrower
 Defaults on scheduled payments
SFFAS 2 as amended by SFFAS 18 and 19 requires that
financial statements present assets, liabilities and costs
for these financial instruments in a manner consistent
with the Credit Reform Act of 1990.
Cost of Direct Loans
 Some direct loans are made at an interest rate that is
less than the rate incurred by the government to
provide the funds
 Department of the Treasury borrows fund on the open
market at 4% and the Department of Education borrows
these funds from Treasury and loans them to a student
at 3%. The interest subsidy is the present value of the
difference
Cost of Loan Guarantees
 A loan guarantee is a pledge to pay a commercial enterprise
all or part of the principal or interest on an obligation of a
third party to that enterprise
 The Department of Education guarantees to a bank that make
a loan to a student that it will pay the difference between the
interest the bank pays to obtain the money and the interest it
can charge the student
 When a third-party disburses a loan that is guaranteed by a
federal agency, a liability and related cost must be
recognized. Liabilities for loan guarantees are valued at the
present value of the cash outflows less the present value of
related inflows.
 Nonmarketable Par Value Treasury Securities
 Special series debt securities that the U.S. Treasury issues to
federal entities at face value. The securities are redeemed at
face value on demand. The investing entity recovers the full
amounts invested
 Market Based Treasury Securities
 Debt securities that the U.S. Treasury issues to federal entities
without statutorily determined interest rates. Their terms
mirror the terms of marketable Treasury securities, however
they are not marketable
 Marketable Treasury Securities
 Treasury bills, notes and bonds initially offered by Treasury to
the marketplace and can then be bought and sold on
securities exchange markets
Inventory
 Tangible personal property that is held for sale, used in the
production of other goods to be sold or in the process of being
developed for sale
Operating Materials and Supplies (OM&S)
 Goods that have been acquired for use in normal operations
Consumption method
 Recognition of the historical cost including all costs to bring the
item to its current condition and location as an asset when
received
 Use of flow assumptions to assign costs to the items consumed
 FIFO
 Weighted and Moving Average
 LIFO is not permitted for federal entities
Disclosures of inventory and OM&S are required
 Regular or normal inventory levels
 Held in reserve for future use or sale
 Excess, obsolete or unserviceable
 Held for repair
Value of Inventory and OM&S
 At cost
 Regular or normal inventory & OM&S held & OM&S held in reserve
for future use or sale
 At net realizable value
 Excess, obsolete and unserviceable inventory & OM&S
 Historical cost less an allowance for cost to repair
 Inventory held for repair
 There is no classification for OM&S held for repair
OM&S may be accounted for under the purchases
method instead of the consumption method if any of
the following criteria are met:
 OM&S are not significant amounts
 The end user controls the OM&S
 i.e. the OM&S are stored in a program office closet
 It is not cost-beneficial to apply the consumption
method
The purchases method allows the entity to expense
OM&S upon receipt of the OM&S rather than
consumption of the OM&S
Stockpiles
 Strategic and critical materials held due to statutory
requirements for use in national defense, conservation
or national emergencies
 Are to be recognized as an asset upon receipt of title of
goods and expensed upon disposal, use or sale
 Valued at historical cost or other valuation methods
that approximate historical cost unless they have
suffered a permanent decline in value to an amount
less than cost. They would then be reduced to net
realizable value
Seized and Forfeited Property
 Seized Property
 Monetary instruments, real property and tangible personal
property
 Valued at its market value when seized
 Forfeited Property
 Monetary instruments, intangible property, real property and




tangible personal property acquired through forfeiture proceedings
Property acquired by the government to satisfy a tax liability
Unclaimed and abandoned merchandise
Revenue should be recognized when the property is sold
Property not held for sale may be:




Placed into official use
Transferred to another federal government agency
Distributed to a state or local law enforcement agency
Distributed to a foreign government
Commodities
 Items acquired, held, sold or otherwise disposed of to
stabilize or support market prices
 Upon receipt, they are recognized as an asset and
valued at the lower of cost or net realizable value
 If the net realizable value is less than cost, a loss is
recognized upon receipt of the commodities
 An expense is recognized upon disposal or use
Property, Plant and Equipment (PP&E)
 Tangible assets, including land, that meeting the
following characteristics
 Estimated useful live of two years or more
 Not intended for sale in the ordinary course of
operations
 Have been acquired or constructed with the intention of
being used or being available for use by the entity
Capital Leases
 Leases that transfer substantially all of the benefits
and risks of ownership to the lessee
 Capital Lease Criteria (One of the following is met)
 Ownership is transferred at the end of the lease
 Option to purchases the PP&E at the end of the lease at
a bargain price
 Lease term is equal to or greater than 75% of the
estimated economic life of the lease property
 Present value of lease payments is equal to or exceeds
90% of the fair value of the leased property
Three Categories of PP&E
 Heritage Assets
 Stewardship Land
 General PP&E
 Could be used for alternative purposes, but is used in
government operations to produce goods and services
 Used in a business-type activity
 Used by entities in activities whose costs can be
compared to those of other entities performing similar
activities
Internal Use Software
 Software that is internally developed, contractor
developed or purchased off-the-shelf
 Accounted for in a manner similar to general PP&E
 Full cost incurred to develop the software is capitalized
and depreciated
 Data conversion costs are an expense not a
capitalizable cost amortized in a systematic and
rational manner over the expected useful live of the
software
Liability
 Probable future outflow or other sacrifice of resources
resulting from past transactions or events
 Federal financial included liabilities as a result of:
 Past exchange transactions
 Accounts payable, salaries payable
 Non-exchange transactions
 Welfare benefits payable
 Government-related events
 Cleanup costs related to operation of government programs
 Government-acknowledged events
 Commitment to restore nonfederal property damaged in a
hurricane
 Amounts owed by a federal entity for goods and
services received from other entities
 Other liability accounts are established for large
ongoing continuous expenses such as employee’s
salaries and benefits
 Federal entities must report intragovernmental
liabilities separately from liabilities to nonfederal
entities
Contingency
 An existing condition, situation or set of circumstances involving
uncertainty as to the possible gain or loss to the entity
When a loss contingency exists, the likelihood that the future event
or events will confirm the loss or the incurrence of a liability can
range from probable to remote
 Probable
 Future confirming event or events are more likely than not to occur
 Reasonably Possible
 The chance of the future confirming event or events occurring is
more than remote but less than probable
 Remote
 Chance of future event or events occurring is slight
Pensions and post-employment and retirement benefits
other than pensions are a cost of the agency for which the
employee works but are administered by the Office of
Personnel Management (OPM).
Actuarial methods are applied to determine the accrued
liability retirement benefits
The amount paid to OPM is on average less than the annual
costs.
Accounting standards require recognition of the actuarially
determined cost of benefits
 Imputed cost
 The difference between the actual resources transferred to
OPM and the actuarially determined cost
Federal accounting standards require:
 Entities to accumulate and report the cost of activities on a regular
basis
 Cost information to be collected by responsibility segments identified
by management
 Recognition of the full cost of outputs including the cost of resources
consumed by the responsibility segment that directly or indirectly
contribute to the output and cost of identifiable support services
provided by other responsibility segments within the reporting entity
or by other reporting entities
 Recognition of costs of goods and services it receives from other
entities (inter-entity costs)
 A costing methodology that makes cost assignments – in the following
order of preference – by directly tracing costs whenever feasible and
economically practical, assigns costs on a cause-and-effect basis, or
allocates costs on a reasonable and consistent basis
 An allotment is issued making the full apportionment available
for central operations
 A team of 20 detailed employees is working out of another
agency’s offices. The estimated rental cost of the space is $25,000
per quarter. The quarterly salary of the detailed staff is $400,000.
Staff members are detailed without reimbursement for the first
quarter
 The federal benefit rate is 22%. This rate includes current
benefits and post-retirement benefits. Employing entities are
required to reimburse OPM for benefits at the rate of 17.33%
 Supplies are ordered in the amount of $12,000. The supplies are
received and only cost $10,000 due to a pricing error by the
ordering clerk. Payment is made during the quarter
Budgetary Entries for the Allotment
Accounts
Debit
Apportionment
$8,000,000
Allotment –
realized resources
Credit
$8,000,000
To record allotment of funds to finance first quarter
activities at headquarters
Budgetary Entries for the Supplies Order
Accounts
Debit
Allotment –
realized resources
$12,000
Undelivered
orders – unpaid
Credit
$12,000
To obligate funds for supplies ordered but not delivered
Budgetary Entries for the Supplies Received
Accounts
Debit
Undelivered
orders – unpaid
$10,000
Delivered orders –
unpaid
Credit
$10,000
To record expenditure of a portion of allotment and
restore unused funds to allotments (de-obligate funds)
Proprietary entries for the Supplies Received
Accounts
Debit
Supply expense
$10,000
Accounts payable
Credit
$10,000
To record receipt of supplies accounted for under the purchases
method
Accounts
Debit
Unexpended
appropriations
$10,000
Appropriations
used
Credit
$10,000
To record use of appropriations to finance purchases of supplies
Budgetary Entries to De-obligate Funds
Accounts
Debit
Undelivered
orders – unpaid
$2,000
Allotments –
Realized resources
Credit
$2,000
To de-obligate the portion of the original estimated
obligation that was not needed to fund the final invoice
Budgetary Entries when the Disbursement Schedule is
Sent to Treasury to Pay for the Supplies
Accounts
Debit
Delivered orders –
unpaid
$10,000
Delivered orders –
paid
To reflect the obligation as paid
Credit
$10,000
Proprietary Entries when the Disbursement Schedule is
Sent to Treasury to Pay for the Supplies
Accounts
Debit
Accounts payable
$10,000
Disbursements in
transit
Credit
$10,000
To record request to Treasury to pay an accounts payable
Proprietary Entries when Treasury Notifies the
Department that Payment has been Made to Pay for the
Supplies
Accounts
Debit
Disbursements in
transit
$10,000
Fund balance with
Treasury
Credit
$10,000
To reduce fund balance with Treasury for outlays made
Proprietary Entries at the End of the Quarter to
Recognize Costs Financed by other Entities on Behalf of
the Department
Accounts
Debit
Salaries expense
$400,000
Benefits expense
$88,000
Rent expense
$25,000
Imputed financing
source
Credit
$513,000
To recognize the cost of resources provided by other
entities for salaries, benefits and rent
Department of Monitoring
Balance Sheet
as of December 31, 200x
(dollars in thousands)
Fund balance
Net Position:
with Treasury $28,640
Unexpended
appropriations $28,640
TOTAL NET
TOTAL ASSETS $28,640
POSITION
$28,640
Department of Monitoring
Statement of Net Costs
for the period ending of December 31, 200x
(dollars in thousands)
Costs not Attributable to Programs
Net Cost
$523
$523
Department of Monitoring
Statement of Changes in Net Position
as of December 31, 200x
(dollars in thousands)
Net Cost
Budgetary Financing Sources:
Appropriations used
Nonbudgetary Financing Sources:
Imputed financing from costs absorbed by others
Net results of operations
$523
10
513
$0
Department of Monitoring
Statement of Budgetary Resources
as of December 31, 200x
(dollars in thousands)
Budgetary Resources:
Budget Authority:
Appropriations Received
Total Budgetary Resources
Status of Budgetary Resources:
Obligations incurred
Unobligated balance – apportioned
Unobligated balance not available
Total Status of Budgetary Resources
Relationship of Obligations to Outlays:
Obligations incurred
Total Outlays
$28,650
$28,650
$10
7,990
20,650
$28,650
$10
$10
Activities for the Remaining Three Quarters
 Remaining funds are apportioned
 An allotment is issued making the full apportionment available for central
operations
 All detailed staff members return to their home agencies on the morning of the
first day of the second quarter. Staff members hired during the first quarter
begin work on the first day of the second quarter. Salary expense is $18 million
for the remainder of the year
 The federal benefit rate is 22%. This rate includes current benefits and postretirement benefits. Employing entities are required to reimburse OPM for
benefits at the rate of 17.33%. OPM is paid $3.12 million for benefits
 Office space is acquired by leasing space on a month-to-month basis to carry
the department through until a headquarters is built. Rent is due at the
beginning of each quarter in the amount of $1 million
 Supplies are ordered in the amount of $40,000. The supplies are received
shortly before the end of the year and cost $40,000. Payment is made during
the year.
Activities for the Remaining Three Quarters – continued
 Equipment is purchased for $375,000 and the expected useful life is five years
with no residual value. Delivery and payment occur during the year
 Furniture is purchased for $400,000 and the expected useful life is eight years
with no residual value. Delivery occurs during the year but not payment
 A fee schedule is established and invoices for $32 million are submitted to
companies. During the year, the industry experienced negative growth and
management believes some companies will declare bankruptcy and invoices for
about 10% of billings will not be paid
 One of the detailed employees files a grievance against the department because
he was not hired for a permanent position that would have been a promotion
for him. General counsel for the department believes it is probable that the
department will lose the case and estimates the award to be $250,000
 Cost-finding techniques were used to make cost assignments to the two
agencies. Each agency identified two programs – collecting revenue and
monitoring industry
Budgetary Entries for the Apportionment
Accounts
Debit
Un-apportioned
Authority
$20,650,000
Apportionment
Available
Credit
$20,650,000
To record appropriations apportioned by OMB
Budgetary Entries for the Allotment
Accounts
Debit
Apportionment
Available
$20,650,000
Allotment –
realized resources
Credit
$20,650,000
To record allotment of funds for the remainder of the
year
Budgetary Entries for All Activity
Accounts
Debit
Allotment –
realized resources
$24,935,000
Credit
Delivered orders –
unpaid
$400,000
Delivered orders –
paid
$24,535,000
To record expenditure of a portion of allotment
Proprietary Entries for All Activities
Accounts
Debit
Unexpended
appropriations
$24,935,000
Appropriations
used
Credit
$24,935,000
Proprietary Entries for All Activities – continued
Accounts
Debit
Salaries expense
$18,000,000
Benefits expense
$3,120,000
Rent expense
$3,000,000
Supply expense
$40,000
Equipment
$375,000
Furniture
$400,000
Credit
Fund balance with
Treasury
$24,535,000
Accounts payable
$400,000
To record expenses for the remainder of the period
Proprietary Entries to Recognize Exchange Revenues
Billed to Companies
Accounts
Debit
Nonentity
Accounts
receivable
$32,000,000
Exchange Revenue
Credit
$32,000,000
To recognize exchange revenue earned not yet collected
and a receivable that is nonentity since the department
does not retain the revenue
Proprietary Entries to Recognize Expected Bad Debt
Expense on Exchange Revenues Billed to Companies
Accounts
Debit
Bad debt expense
$3,200,000
Allowance for bad
debt
Credit
$3,200,000
To recognize losses that are probable due to bad debt
Proprietary Entries at the End of the Quarter to
Recognize Costs Financed by Other Entities on Behalf of
the Department
Accounts
Debit
Benefits expense
$840,000
Imputed financing
source
Credit
$840,000
To recognize the cost of resources provided by other
entities for benefits – this is the difference between the
actual benefits cost rate of 22% and the reimbursement
to OPM at 17.33%
Proprietary Entries at the End of the Quarter to Recognize
Depreciation Expense
Accounts
Debit
Depreciation
expense
$125,000
Credit
Accumulated
depreciation –
equipment
$75,000
Accumulated
depreciation –
furniture
$50,000
To recognize depreciation expense on furniture and equipment
Proprietary Entries at the End of the Quarter to
Recognize Contingent Liabilities Related to Litigation
Accounts
Debit
Miscellaneous
expense
$250,000
Liability for
litigation
Credit
$250,000
To recognize a contingent liability for litigation losses
that are probable and measurable
Department of Monitoring
Balance Sheet
as of September 30, 200y
(dollars in thousands)
Assets
Liabilities
Fund balance with Treasury
$4,105 Accounts payable
Accounts receivable, net
28,800 Liability for litigation
Equipment, net of accum. depr.
300
Total liabilities
Furniture, net of accum. depr.
350
Net position
Cumulative results
Unexpended
appropriations
Total liabilities and
Total assets
$33,555 net position
$400
250
650
29,200
3,705
$33,555
Department of Monitoring
Statement of Net Costs
for the year ending of September 30, 200y
(dollars in thousands)
High Speed
Wireless
HQ
Agency
Agency
Collecting Program
Costs
Earned Revenue
Net costs
Monitoring Program
Costs
Costs not Attributable to
Programs
Net Cost
$523
$523
Total
$4,287
16,000
(11,713)
$4,288
16,000
(11,712)
$8,575
(32,000)
(23,425)
10,000
10,000
20,000
$(1,712)
523
$2,902
$(1,713)
Department of Monitoring
Statement of Changes in Net Position
for the year ending of September 30, 200y
(dollars in thousands)
Net Cost
$2,902
Budgetary Financing Sources:
Appropriations used
24,945
Nonbudgetary Financing Sources:
Imputed financing from costs absorbed by others
1,353
Net results of operations
$29,200
Department of Monitoring
Statement of Budgetary Resources
for the year ending of September 30, 200y
(dollars in thousands)
Budgetary Resources:
Budget Authority:
Appropriations Received
$28,650
Total Budgetary Resources
$28,650
Status of Budgetary Resources:
Obligations incurred
$24,945
Unobligated balance – apportioned
3,705
Total Status of Budgetary Resources
$28,650
Relationship of Obligations to Outlays:
Obligations incurred
$24,945
Accounts payable
(400)
Net Outlays
$24,545
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