Xr. Willian Lange, Chief Division of Nanagement Support Engineering and Research Center Bureau of l?.ecl.ar;ration Building 67 Denver Federal Center Denver, Colorado 80225 Dear Hr. Lange: We have completed our review of the adequacy of the accounting pro- cedures and controls employed by the Cureau of Reclamation, Engineering and Research Center, in recording and reporting accrued revenues and expenditures of selected receipt, appropriation, and fund accounts as of June 30, 1970, and July 31, 1370. Our review at the Center was part of a study conducted at selected departments and agencies to determine if they were recording and reportrng accruals in accordance with the concepts of the Office of Emagenent and Iiudget (OlU$) Bulletin No. 68-10, as ai:;ended by the letter from the Director, OPIC, dated Apsil 13, 3.970, and Treasury Fiscal Requirements Pianual (TRGY) Transmittal Letters Kui:ber 1.8, 36, 46, and 49. The data gathered was primrily for the information of ;tZle Steering Comittce of the President's Comxksfon on Xkxdget Concepts. Our revim was Gxited in scope. Ee reviewed instructions and pro- cedures related to the recording aild reporting of accrued reveilues and expenditures. We obtained infomation regarding these procedures through . a test. of transactions, reS~3OilSCZS to a questionnaire submitted to the Center, and discussions trit'ri Center financial personnel. As a result of our review, ve have concluded that the accrual pro- Cedures employed by the Center are generally in coz~pliance with the I0K.D and Departmmt of the Treasury concepts. Hovrever, we identified two problc:,: areas i>hich we have referred to the Steering Coar?.ittec for con- sideration. The first area ?'s the rep02tine of contract holdbacks and the second is trust fur& reporting. Also, se noted seize prob1ern areas for v?hich ~3ct believe the Center should take corrective action. These problem areas are discussed belox. I , * Mr. William Lange, Chief Division of Management Support -2- CONTRMZT I-IOLDB~~CKS L The Center does not report contract holdbacks‘ as a liability on Report of Selected Balances for Stating Budget Results on the Accrual Basis, Appropriation and Fund Accounts (Form No. B&6727). The amount of the holrlbacks are, however, included in the accrued expenditures shown on the form. The reason for this is that the.holdbacks are- recorded as expenditures when transferred to deposit fund 14XG300, Since deposit funds are not in the accrued ek?enditure reporting system, . neither revenues nor liabilities for these are reported. We have referred to the Steering Committee the question of whether deposit funds should be included in the reporting system. REPi)P.TIBG OF TRUST FUND RE:FUN'dS -- On June 30, 1970, the Center included a refund as a negative revenue on the Form Ho. EA-6727 for trust fund account 14X8070 (and thus as an increase in net expenditures) and as an accrued revenue on the Form 17'0. BA-6728 for this fund in order to comply with Bureau instruc- tions that net expenditures and accrued revenues on these forms should be equal. Tlnis refund was not identified as such on these form. We have brought this reporting procedure to the attention of the Steering Committee because we believe it is potentially misleading. TJlTLwDPBED Am U;?!TiEPORTEa -~ PXCEFVABLES-ki~ PAYABLES -.I__- - The Center does not accrue for monthly reporting purposes the cost . of materials received between the monthly cost cut-off date, generally 'the 25th, and the end of the month, except at the end of the fiscal year when the costs are recorded through June 30. 1% were advised by a Center representative that this accrual could be made for Form No. ILk-6727 reportinS purposes. The Center dots not record accounts receivable for the costs incurred in performing work. for Bureau of Beclanation regions between the cut- *' off date and the end of tire mcnth. Howver, contract costs other than those for material are placed-in accrued expenditures during this period, but they are not reported to the regions until the subsequent month. Mr. William Lange, Chief Division of Nanagement Support -3- Bulletin No. 68-10 states that accrued expenditures and receipts arc to be used as the measure for budget reports. By not recording and re- porting the above items we believe the Center is not complying with this policy. The Center also performs work for other governmental organizations. We found that the Center does not set up a receivable for those costs incurred on a job which are in excess of the advance received. Instead in their accounts they show the organization as having a negative advance, and for reporting purposes negative balances are netted against those with positive balances. TFIVI Transmittal Letters Kumber 18 and 36 indicate that such a receivable should be on the Form Ko. M-6727 and the &port of Selected Ealances for Stating Budget Results on the Accrual basis, General, Special and Trust Fund Receipt Accounts (Form I!o. BA-6728). They point out'that accounts receivable on these forms should include receivables from customers for goods and services whether or not they are billed. In addition to t;hc above, tjc found that Center procedures do not provide for the recording and reporting of refund liabilities against receipt account 145000.2. We were told that there could be instances where , at the end of the month, there are refunds payable. We noted one such unrecorded payable at the end of August 1970. These liabilities should be reported is r'$f;;$ to include any liability arising CO~UI~R in accordant e with TFPJf Transmittal which states that the accounts payable Letter Number 36 on the Form. No. BA-6728 in relation to receipt accounts." We recommend that the Center record and report the above items to conform to the Cl?!!: and Department of the Treasury accrual and reporting concepts. Along with recording and reporting these transactions, the Center must make provision for notification of Bureau of Reclamation regions and other governmental agencies ahout the work performed for them . or the refunds due them in time for then: to report the proper data during the ap~ropriatc accoullting period. A contract administrator told us that he does not use any particular procedure to arrive at his monthly estimates of contract earnings for accrual purposes. We made a test of contract administrators" estimates and found that they were usually much higher than the contractors' billings. Bulletin 110. 68-19 states that it is important that the reported accruals be a sensitive reflection of the transactions and performance which actually occur. . .* -I . * L t I. Mr. William Lange, Chief Division of Planagenent Support --4- We do not believe that the Center's monthly earnings estimates are providing the Treasury with a sensitive reflection of the monthly contract performance which has occurred. Accordingly, WC suggest that the Center L study the matter to determine a practicable procedure for arriving at more reliable estimates. ~JwxxKxLIATIOB OF -- hCC%?JEi:,RJwwJE: -- The Center used the formula per TPFZ+Transmittal Letter No. 1s as the c source for rather than as a validation of the aount of accrued revenue reported 02 its Forms No. EA-672S for accounts 145000.2 and 14XSO70. A Center representative told us that accrued revenue for receipt account 945000.2 can be readily developed from account 494.1 (Kiscel- laneous Incomes . We believe the anount of accrued revenue shoxn on the Form No. U-6728 for 14XCO70 should be taken from account 245.4 (EF?ended Trust Appropriation, Current Year), since this account represents the revenues earned by the Center. We were told by a center representative that as a result of our review account 494.1 is ncx being used as a control. to insure that the amount of accrued revenue for receipt account 145000.2 derived by using the forn;ula is correct. IJe ~~~CX~3l~lld that the Center continue this procedure and that account 245.4 be used as the source of accrued revenue for account 14X&070, with the formula being used as a validation of the amount. TP&VEL ADVMTC~S At the end of fiscal year 1970 per instructions from the Chief, Division of Prograin Coordination and Finance, the Center reclassified its outstanding travel advances in account 14X5061 as accounts receivable because they were not supported by valid obligations. TJe were told that th:is is the case at .the end of each fiscal year. Other ttian at yearend these advances are re- ported as advances oil the Form No. Eh-6727. Therefore, ir, order to make full disclosure in the Treasury reports, we recommend that the amount of outstanding travel advances included in accounts rcccivzhle be disclosed by footnote. li??CSC~~;ASSIFIC~~%LON OF -- ACCOUNTS ---- ETCEFVtlllLE The final. Fox! $20. BA-672S for receipt account 145000.2 as of June 30, 1970, showed the accounts receivable from Government agencies as being from the pz13lic on the basis of paragraph SC of TFRX Transmittal Letter lhm3er 49. This paragraph states that "*fik receivables from and psyables to deposit funds are to be reported as relating to the public." We learned from the Departi;?ent of the Treasury that tL-'iz~s paragraph sa0ul.d apply to l45000.2 only if deposit funds TEE owzd to it. De detcrmi.ned that 145000.2 had no such receivables. + * II *u* I c. _I * Nr. William Lange, Chief Division of Management Support -5- We discussed this matter w-ith a responsible Center representative, and he said that there had been a misclassification. $50 000 P~VOLVIliG mJBD --.A.- The Form Ko. B&6727 for account 14X5061 as of June 30, 1979, included as unearned revenue $45,258 from account 253.5 (Miscellaneous Deferred Credits). This represented the remainder of a $50,000 fund estab- lished by the Center in 1959 to finance work performed by the Center for other Government agencies when advances are not received. We were told that the fwd is alxays reimbursed to $50,000. We feel that the $50,000 was improperly classified as unearned revenue because it was actually used as a revolving fund. Also, we question the legality of win g this as a revolving fund. In OctoSer 1970 tiit? Chief, Division of Program Coordination and Pinance directed the Center to apply the $50,000 to General. Distributive Expense, and this was done. ---- Please notify us as soon as possible regarding the corrective actions you have taken for the areas nentioned above. \Je wish to express our appreciation for the cooperation received from your staff. We will be glad to discuss t;ze rcsul.ts of our work with you or your staff if you so desire. CopieZ 0: this letter are being sent to the Corim;issioner, Bureau of Ezclanation, and the Director: Office of Survey and Review, Department of the Interior. Sin/cgrel.y yours,
Test of Non-Grant Accrued Expenditures--Civil Agencies
Published by the Government Accountability Office on 1971-05-06.
Below is a raw (and likely hideous) rendition of the original report. (PDF)