oversight

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)

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,