UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Washington, DC 20415
Office of the November 17, 2008
[nspector General
Report No. 4A-CF~OO-08-026
MEMORANDUM FOR HOWARD WEIZMANN
Deputy Director _ t'-' J:~/
FROM: PATRICK E. McFARLAND &/-:-/. c!ff!~~-(
Inspector General p~
SUBJECT: Audit" of the Office of Personnel Management's Fiscal Year
2008 Special-Purpose Financial Statements
This memorandum transmits KPMG LLP's (KPMG) report on the Office of Personnel
Management's (OPM) Fiscal Year 2008 Closing Package Financial Statements and the
results of the Office of the Inspector General's (OIG) oversight of the audit and review of
that report. OPM's Closing Package Financial Statement Reports include the reclassified
ba lance sheets, the statements of net cost, the statements of changes in net position, and
the accompanying notes as of September 30, 2008 and 2007; the Additional Note No. 27;
and the trading partner balance sheet, the statement of net cost, and the statement of
changes in net position as of September 30, 2008 (hereinafter collectively referred to as
the special-purpose financial statements). These special-purpose financial statements
directly linl< the entities' audi ted consolidated department-level financial statements to
the Financial Report of the Government (the government-wide financial statements).
We contracted with the independent certified public accounting firm KPMG to audit
OPM's special-purpose financial statements as of September 30, 2008 and 2007. The
contract requires that the audit be done in accordance with generally accepted government
auditing standards and the Office of Management and Budget Bulletin Number 07~04,
Audit Requirements/or Federal Financial Statements.
KPMG reported that OPM's special-purpose financial statements are presented fairly, in
all material respects. KPMG noted no matters involving the "internal control over the
financial process for the special-purpose financial statements that are considered a
material weakness Or significant deficiency. KPMG disclosed no instances of
noncompliance or other matters that are required to be reported. The objectives of
KPMG's audits of the special-purpose financial statements did not include expressing an
opinion on internal controls or compliance with laws and regulations, and KPMG,
accordingly, does not express such opinions.
www.oprn.gov www.usajobs.gov
HOWARD WEIZMA 2
OIG Evaluation of KPMG's Audit-Performance
In cOlll1ection with the audit contract, we reviewed KPMG's report and related documentation
and made inquiries of its representatives regarding the audit. To fulfill our audit
responsibilities under the Chief Financial Officers Act for ensuring the quality of the audit
work perfonned, we conducted a review of.KPMG's audit ofOPM's Fiscal Year 2008 and
2007 special-purpose financial statements in accordance with Government Auditing Standards
(GAS). Specifically, we:
• reviewed KPMG's approach and planning of the audit;
• evaluated the qualifications and independence of its auditors;
• monitored the progress of the audit at key points;
• examined its working papers related to planning the audit and assessing internal
controls over the financial reporting process;
• reviewed KPMG's audit reports to ensure compliance with GAS;
• coordinated issuance of the audit report; and
• performed other procedures we deemed necessary.
OUf review, as differentiated from an audit in accordance with generally accepted
government auditing standards, was not intended to enable us to express, and we do not
express, opinions on OPM's special-purpose financial statements. KPMG is responsible
for the attached auditor's report dated November 17,2008, and the conclusions expressed
in the report: However, our review disclosed no instances where KPMG did not comply,
in all material respects, with the generally accepted GAS.
If you have any questions about KPMG's audit or our oversight, please contact me or
hav~ a me~our staff contact Michael R. Esser, Assistant Inspector General for
Audits, a t _ . .
cc: Mark Reger
Chief Financial Officer
KPMG LLP
2001 M Street, NW
Washington, DC 20036
Independent Auditors' Report
Acting Director and [nspector General
U.S. Office of p:ersonnel Management:
We have audited the accompanying Closing Package Financial Statement Report - Balance
Sheets of the United States (U.S.) Office of Personnel Management (OPM) as of September 30,
2008 and 2007; the related Closing Package Financial Statement Reports - Statements of Net
Cost and Statements of Changes in Net Position, and the accompanying Financial Report CFR)
Notes Report for the years then ended; the accompanying Additional Note Number (No.) 27; the
accompanying Other Data Report Nos. 16 and 17; and the accompanying Trading Partner
Summary Note Report - Balance Sheets as of September 30, 2008 and 2007; and the related
Trading Partner Summary Note Reports - Statements of Net Cost and Statements of Changes in
Net Position; except for the information included in sections entitled "Threshold" in FR Notes
Report Nos. 3, 8, II and 15; the infoonation included in sections entitled "Text Data" in FR
Notes Reports Nos. 3, 6, 8, II, 15, 18 and 22; FR Notes Repol1 Nos. II i, Ilj, II k, and 110; the
accompanying "previously reported" special-purpose financial statements and the related
"previously reported' data and "line item changes" presented in the FR Notes and Trading
Partner Summary Note Reports, for the years then ended (hereinafter collectively referred to as
the special-purpose financial statements). These special-purpose financial statements are the
responsibility of OPM's management. Our responsibility is to express an opinion on these
special-purpose financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States of America; the standards applicable to financial audits contained in Government Auditing
Standards, issued by the Comptroller General of the United States; and Office of Management
and Budget (OMB) Bulletin No. 07-04, Audit Requirements for Federal Financial Statements.
Those standards and OMB Bulletin No. 07-04 require that we plan and perform the audits to
obtain reasonable assurance about whether the special-purpose financial statements are free of
material misstatement. An audit includes consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of OPM's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence. supporting the amounts and disclosures in the special
purpose financial statements and assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall special-purpose financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The accompanying special-purpose financial statements have been prepared for the purpose of
complying with the requirements of Volume I. Part 2 - Chapter 4700 of the U.S. Department of
the Treasury's Treasury Financial Manual (TFM), as described in Additional Note No. 27,
solely for the purpose of providing financial information to the U.S. Department of the Treasury
and the U.S. Government Accountability Office (GAO) to use in preparing and auditing the
Financial Report of the us. Government, and are not intended to be a complete presentation of
OPM's consolidated financial statements.
KF'MG LLP. a UCS. limited liability partnersrup. IS Ihe U.S
member firm of KPMG Internatjonal, a SwisS cooperalive.
In accordance with TFM Volume 1, Part 2 - Chapter 4700, aPM prepared FR Notes Report Nos.
I through 26, except for FR Notes Report Nos. lOa, lie, Ilf, Ill, 11m, lin, 16,21,23, and 24,
which were not applicable to the OPM. The OPM included Additional Note No. 27, Summary of
Significant Accounting Policies, to disclose other data not contained in the special-purpose
financial statements, but which is necessary to make the special-purpose financial statements
more informative.
In our opinion, the special-purpose financial statemel1ts referred to above present fairly, in all
material respects, the financial position of the U.S. Office of Personnel Management as of
September 30, 2008 and 2007, and i~s net costs and changes in net position for the years then
ended in conformity with U.S. generally accepted accounting principles and the presentation
pursuant to the requirements of TFM Volume I, Part 2 - Chapter 4700, as described in Additional
Note No. 27.
OPM also prepared Other Data Report Nos. I through 17, except for Other Data Report Nos. 3,
4,5,6, 7, 8, 11, 12, 13, and 14, which were not applicable to OPM. The information included in
Other Data Report Nos. t, 2, 9, 10, and 15 is presented for the purpose of additional analysis and
is not a required part of the special-purpose financial statements, but is supplementary
infonnation required by U.S. generally accepted accounting principles and the TFM Volume l,
Part 2 - Chapter 4700. We have applied certain limited procedures, which consisted principally
of inquiries of management regarding the methods of measurement and presentation of this
information. However, we did not audit this supplementary information, and accordingly, we
express no opinion on it.
The accompanying "previously reported" special-purpose financial statements and the related
"previously reported" data and "line items changes" presented in the FR Notes and Trading
Partner Summary Reports were not audited by us and accordingly we do not express an opinion
there on.
The information included in the sections entitled "Threshold" in FR Notes Detail Data Report
Nos. 3, 8, 11, and 15; the information included in sections entitled "Text Data" in FR Notes
Detail Reports Nos. 3, 6, 8, II, 15, 18, and 22; FR Notes Detail Report Nos. Ii i, Ilj, 11 k and
1lo; the information in the Reclassification Audit Trail Report - Statement Summary Level
Balance Sheets; and the information in the Reclassification Audit Trail Reports - Statement
Summary Level- Statement of Net Cost, and Statement of Changes in Net Position are presented
for purposes of additional analysis and are not a required part of the special-purpose financial
statements. This information has not been subjected to the auditing procedures applied in the
audits of the special-purpose financial statements and, accordingly, we express no opinion on it.
The TFM Volume I. Part 2 - Chapter 4700 requires agencies to use the Governmentwide
.Financial Reporting System to input certain data as described in Additional Note No. 27. Except
as discussed in this report, we express no opinion on information maintained in that system.
In accordance with Government Auditing Standards and OMB BulIetin No. 07-04, we have also
issued a combined auditors' report dated November 14, 2008, on our consideration of OPM's
internal controls over financial reporting; and the results of our tests of its compliance with
certain provisions of laws, regulations, contracts, and other matters that are required to be
reported under Government Auditing Standards. That report is an integral part of the audits of the
consolidated balance sheets of OPM as of September 30, 2008 and 2007, and the related
consolidated statements of net cost, and changes in net position, and combined statements of
budgetary resources (collectively referred to as the consolidated financial statements) for the
years then ended, performed in accordance with Government Auditing Standards and OMB
Bulletin No. 07-04, and should be read in conjunction with this report in considering the results
of our audits of the special~purpose financial statements. Our audit of the consolidated financial
statements of OPM as of and for the year ended September 30, 2008, disclosed the following
significant deficiencies and other matter:
Significant Deficiencies:
I. Information systems general control environment
2. Financial managemerit and reporting process of the Office of the Chief Financial Officer
However, none of the significant deficiencies are believed to be material weaknesses.
Other Matter:
3. Other matter related to Federal Financial Management Improvement Act of 1996
Management is responsible for establishing and maintaining effective internal control. In
planning and performing our audit of the fiscal year 2008 special-purpose financial statements,
we also considered OPM's internal control over financial reporting as a basis for designing our
auditing procedures for the purpose of expressing our opinion on the special-purpose financial
statements, but not for the purpose of expressing an opinion on the effectiveness of OPM's
internal control over financial reporting. Accordingly, we do not express an opinion on the
effectiveness of OPM's internal control over financial reporting.
Our consideration of internal control over financial reporting for special-purpose financial
statements was for the limited purpose described in the preceding paragraph of this section and
would not necessarily identify all deficiencies in the internal control over financial reporting for
special-purpose financial statements that might be significant deficiencies or material
weaknesses.
A control deficiency exists when the design or operation of a control does not allow management
or employees, in the normal course of perfonning their assigned functions, to prevent or detect
misstatements on a timely basis. A significant deficiency is a control deficiency, or combination
of control deficiencies, that adversely affects OPM's ability to initiate, authorize, record, process,
or report financial data reliably in accordance with U.s. generally accepted accounting principles
such that there is more than a remote likelihood that a misstatement of OPM' s special-purpose
financial statements that is more than inconsequential will not be prevented or detected by
OPM's internal control. A material weakness is a significant deficiency, or combination of
significant deficiencies, that results in more than a remote likelihood that a material misstatement
of the special-purpose financial statements will not be prevented or detected by OPM's internal
control.
In our fiscal year 2008 audit, we did not identify any deficiencies in internal control over
financial reporting for the special-purpose financial statements that we consider to be material
weaknesses as defined above.
Management is responsible for complying with laws, regulations (including TFM Volume It Part
2 - Chapter 4700), and contracts applicable to OPM. As part of obtaining reasonable assurance
about whether OPM's fiscal year 2008 special-purpose financial statements are free of material
misstatement, we perfonned tests of its compliance with certain provisions of laws, regulations,
and contracts, noncompliance with which could have a direct and material effect on the
detennination of financial statement amounts. However, providing an opinion on compliance
with those provisions or on compliance with TFM Volume I. Part 2 - Chapter 4700 requirements
was not an objective of our fiscal year 2008 audit of the special-purpose financial statements and,
accordingly, we do not express such an opinion.
The results of our tests of compliance with TFM Volume I, Part 2 - Chapter 4700 disclosed no
instances of noncompliance or other matters that are required to be reported under Government
Auditing Standards or OMB Bulletin No. 07-04.
This report is intended solely for the information and use ofOPM's management, OPM's Office
of [nspector General, Department of Treasury, OMB, and GAO, in connection with the
.preparation and audit of the Financial Report of the Us. Government, and is not intended to be
and should not be used by anyone other than these specified parties.
November 17,2008
U.S. Office of Personnel Management
Government Financial Reporting System
Additional Note to the Special-Purpose Financial Statements
Entity - 2400 Office of Personnel Management
Note 27 ~ Summary of Significant Accounting Policies
A. Basis of Presentation
The Budget and Accounting Procedures Act of 1950 allows the Secretary of the Treasury to
stipulate the format and requirements of executive agencies to furnish financial and operational
infonnation to the President and the Congress to comply with the Government Management
Reform Act of 1994 (GMRA), which requires the Secretary of the Treasury to prepare and submit
annual audited financial statements of the executive branch. The Secretary of the Treasury
developed guidance in the U.S. Department of Treasury's Financial Manual (TFM) Volume I,
Part 2, Chapter 4700 to provide agencies with instructions to meet the requirements of GMRA.
The TFM Volume I, Part 2 - Chapter 4700 requires agencies to:
I. Reclassify all items and amounts on the audited consolidated, balance sheet, statements
of net cost, changes in net position/income statement and custodial activity, if applicable,
to the special-purpose financial statements;
2. Disclose special-purpose financial statement line item amounts identified as Federal by
trading partner and amount (amounts should be net of intra-agency and intra
departmental eliminations);
3. Disclose notes required by the special-purpose financial statement line items and other
notes required in the Financial Report of the Us. Government (FR); and
4. Disclose other data not contained in the primary FR financial statements and notes
required to meet requirements of accounting principles generally accepted in the United
States of America. .
The TFM Volume I, Part 2 - Chapter 4700 requires agencies to use the Govemmentwide
Financial RepOit System (GFRS) to input the above information. For purposes of the special
purpose financial statements, the Closing Package is comprised of the following GFRS Modules:
I. Audited FS Report (GF002A)
2. Closing Package Financial Statement Reports (GF003)
3. Trading Partner Summary Note Report (GF004F)
4. FR Notes Report (FR Notes) (GF006G)
5. Other Data Report (Other Data) (GF007G)
The generic format for the special-purpose financial statements is based on the U.S. Standard
General Ledger (USSGL) crosswalk to the FR financial statements and notes.
B. Reporting Entity
The United States Office of Personnel Management (OPM) is the Federal Government's human
resources agency. It was created as an independent agency of the Executive Branch of
Government on January I, 1979. Many of the functions of the former Civil Service Commission
were transferred to OPM at that time.
The accompanying special-purpose financial statements present OPM's financial position, net
cost of operations and change in net position, as required by the Chief Financial Officers Act of
1990 (CFO Act), the Government Management Reform Act of 1994 (GMRA) and TFM Volume
L Part 2 - Chapter 4700. The special-purpose financial statements include all accounts
appropriation, trust, trust revolving and revolving funds - under OPM's control. The special
purpose financial statements do not include the effect of any centrally-administered assets and
liabilities related to the Federal Government as a whole, which may in part be attributable to
OPM.
The special-purpose financial statements are comprised of the following major programs
administered by OPM. The funds related to the operation of the Retirement Program, the Health
Benefits Program, and the Life Insurance Program are "earmarked funds", as defined by the
Statement of Federal Financial Accounting Standards (SFFAS) Number 27, Identifying and
Reporting Earmarked Funds. Eannarked funds are financed by specifically identified revenues,
often supplemented by other financing sources, which remain available over time. These
specifically identified revenues and other financing sources are required by statute to be used for
designated activities, benefits, or purposes and must be accounted for separately from the
Government's general revenues.
Retirement Program. The Program consists of two defined-benefit pension plans: the Civil
Service Retirement System (CSRS) and the Federal Employees' Retirement System (FERS).
Together, the two plans cover substantially all full-time, permanent civilian Federal employees.
The CSRS, implemented in 1921, is a stand-alone plan, providing benefits to most Federal
employees hired before 1984. The FERS, established in 1986, uses Social Security as its base
and provides an additional defined benefit and a voluntary thrift savings plan to most employees
entering the Federal service after 1983; OPM does not administer the Thrift Savings Plan. Both
plans are operated via the Civil Service Retirement and Disability Fund (CSRDF), a trust fund.
Title 5, United States Code, Chapters 83 and 84, provide a complete description of the CSRDF's
provisions.
Health Benefits Program. The Program provides hospitalization and major medical protection
to Federal employees, retirees, fanner employees, family members, and fonner spouses. The
Program, implemented in 1960, is operated through two trust revolving funds: the Employees
Health Benefits Fund and the Retired Employees Health Benefits Fund. Title 5, United States
Code, Chapter 89, provides a complete description of the funds' provisions. To provide benefits,
OPM contracts with two types of health benefits carriers: feefor-service, whose participants or
their health care providers are reimbursed for the cost of services, and health maintenance
organizations (HMOs), which provide or arrange for services on a prepaid basis through
designated providers. Most of the contracts of carriers that provide fee-far-service benefits are
experience-rated, with the amount contributed by and for participants affected by, among other
things, the number and size of claims. Most HMO contracts are community-rated, so that the
amount paid by and for participants is essentially the same as that paid by and for participants in
similarly-sized subscriber groups.
On December 20, 2006, President Bush signed into law the Postal Accountability and
Enhancement Act, (the Postal Act), P.L. 109-435. Title VIII of the Act made significant changes
in the laws dealing with CSRS benefits and the funding of retiree health benefits for employees
pf the U.S. Postal Service (USPS), including the requirement for the USPS to make scheduled
payments to the new Postal Service Retiree Health Benefits Fund (PSRHB Fund). The PSRHB
Fund is included in the Health Benefits Program.
Life Insurance Program. The Program provides group teon life insurance coverage to Federal
employees and retirees. The Program was implemented in 1954 and significantly modified in
1980. It is operated through the Employees Group Life Insurance Fund, a trust revolving fund,
and is administered, virtually in its entirety, by the. Metropolitan Life Insurance Company under
contract with OPM. Title 5, United States Code, Chapter 87, provides a complete description of
the fund's provisions. The Program provides Basic life insurance (which includes accidental
death and dismembennent coverage) and three packages of optional coverage.
Revolving Fund Programs. OPM provides a variety of human resource-related services to other
Federal agencies, such as pre~employment testing, security investigations, and employee training.
These activities are financed through an intragovemmental revolving fund.
Salaries and Expenses. Salaries and Expenses provides the budgetary resources used by aPM to
administer the OPM. These resources are furnished by annual, multiple-year, and no-year
appropriations. Annual appropriations are made for a specified fiscal year and are available for
obligation only during that fiscal year. Multiple-year appropriations are available for a definite
period in excess of one fiscal year. No-year appropriations are available for obligation without
fiscal year limitation.
C. Basis of Accounting and Presentation
These special-purpose financial statements have been prepared to report the financial position,
net cost, and changes in net position, of aPM as required by the CFO Act, GMRA and TFM
Volume I. Part 2 - Chapter 4700. These special-purpose financial statements have been
prepared from the books and records of OPM in accordance with accounting principles generally
accepted in the United States of America (GAAP), Office of Management Budget (OMB)
Circular No. A-l36, Financial Reporting Requirements and TFM Volume I, Part 2 - Chapter
4700. GAAP for Federal entities are the standards prescribed by the Federal Accounting
Standards Advisory Board (FASAB), which is the official standard-setting body for the Federal
Government. These special-purpose financial statements present proprietary information. OPM,
pursuant to OMB directives, prepares additional financial reports that are used to monitor and
control OPM's use of budgetary resources.
OPM has presented comparative special-purpose financial statements for the Consolidated
Balance Sheets, Consolidated Statements of Net Cost, and Consolidated Statements of Changes
in Net Position, in accordance with TFM Volume I, Part 2 - Chapter 4700.
The special-purpose financial statements should be read with the realization that they are for a
component of the United States Government, a sovereign entity. One implication of this is that
liabilities cannot be liquidated without legislation that provides resources and legal authority to
do so.
Under the accrual method of accounting, revenues are recognized when earned, and expenses, are
recognized when incurred, without regard to receipt or payment of cash.
D. Use of Management's Estimates
The preparation of financial statements in accordance with GAAP requires management to make
certain estimates. These estimates affect the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of earned revenues and costs during the
reporting period. Actual results could differ from those estimates.
E. Financial Statement Classifications
Entity vs. Non-entity Assets. Entity assets are those the reporting entity has the legal authority
to use in its operations. Accordingly, all of OPM's assets are entity assets.
Federal and Non-Federal and Other Balances. Throughout these special-purpose financial
statements, Federal assets, liabilities, revenues and costs have been classified according to the
type of entity with which the transactions are associated. OPM classifies as Federal, those
transactions with other Federal entities (trading partners), including the USPS. In accordance
with Federal accounting standards, aPM classifies employee contributions to the Retirement,
Health Benefits and Life [nsurance Programs as exchange revenues "from the public." OPM's
entire gross cost to provide Retirement, Health and Life Insurance benefits, however, is classified
as Non-Federal costs because the recipients of these benefits are Federal employees, retirees, .and
their survivors and families. As a consequence, on the accompanying consolidated Statements of
Net Cost and in other notes to OPM's financial statements, aPM reports that there are no Federal
gross costs to provide Retirement, Health and Life Insurance benefits. The consolidated
Statement of Net Cost provides its users with the ability to ascertain whether OPM's exchange
revenues are sufficient to cover the total cost it has incurred to provide Retirement, Health and
Life Insurance benefits.
Exchange vs. Non-exchange Revenue. Exchange or earned revenue is an inflow of resources to
a Government entity that the entity has earned; it arises when each party to a transaction
sacrifices value and receives value in return. All of OPM's revenues are classified as exchange
revenues. Federal reporting standards require that earnings on investments be classified in the
same manner as the entity's "predominant source of revenue;" OPM, therefore, classifies' it as
earned revenue. Employing agency and participant contributions to the Retirement, Health
Benefits and Life [nsurance Programs and the scheduled payment contributions to the PSRHB
Fund are classified as exchange revenues, since they represent exchanges of money and services
in return for current and future benefits.
Liabilities Covered by Budgetary Resources. aPM has no authority to liquidate a liability,
unless budgetary resources have been made specifically available to do so. Where budgetary
resources have not been made available, the liability is disclosed as being "not covered by
budgetary resources." Since no budgetary resources have been made available to liquidate the
Pension, Postretirement Health Benefits, and Actuarial Life Insurance Liabilities, they are·
disclosed as being "not covered by budgetary resources." With minor exception, all other aPM
liabilities are disclosed as being "covered by budgetary resources."
Net Position. OPM's Net Position comprises of OPM's net results of operations since its
inception and the balance of appropriated authority granted to aPM against which no outlays
have been made. The Statements of Changes in Net Position separately disclose earmarked
revenue and other financing sources, included appropriations, as well as net cost of operations
and cumulative results of operations attributable to eannarked funds. The balance of aPM's net
position is negative because of the recognition of actuarial liabilities that will be liquidated in .
future periods.
F. Net Cost of Operations
To derive its net cost of operations, aPM deducts the earned revenues associated with its gross
cost of providing benefits and services on the consolidated Statements of Net Cost.
Gross Cost of Providing Benefits and Services. OPM's gross cost of providing benefits and
services is classified by responsibility segment. All Program costs (including Salaries and
Expenses) are directly traced, assigned, or allocated on a reasonable and consistent basis to one
of five responsibility segments. The following table associates OPM's gross cost by Program to
its responsibility segments:
Program Responsibility Segment
Provide CSRS Benefits
Retirement Program
Provide FERS Benefits
Health Benefits Program Provide Health Benefits
Life Insurance Program Provide Life Insurance Benefits
Revolving Fund Programs
Provide Human Resources Services
Salaries and Expenses
Earned Revenue. aPM has two major sources of earned revenues: earnings on its investments
and the contributions to the Retirement, Health Benefits and Life Insurance Programs by and for
participants.
G. Program Funding
Retirement Program. Service cost represents an estimate of the amount of contributions which,
if accumulated and invested over the careers of participants, will be sufficient to fund fully their
future CSRS or FERS benefits. For fiscal years 2008 and 2007, the service cost for most or
"r~gular" CSRS participants is 25.2 and 25.0 percent of pay, respectively; for most oi "regular"
FERS participants, 12.0 percent of pay. Federal accounting standards require that employing
agencies recognize an imputed cost for the difference between the amount contributed by and for
their participating employees and the service cost of the CSRS and FERS.
CSRS. Both CSRS participants and their employing agencies, with the exception of USPS, are
required by statute to make contributions to CSRS coverage. Regular CSRS participants and their
employers each contributed 7.0 percent of pay in both fiscal years 2008 and 2007. The combined
14.0 percent of pay does not cover the service cost of a CSRS benefit. To lessen the shortfal1, the
Treasury is required by statute to transfer an amount annually from the General Fund of the
United States to the CSRDF; for fiscal years 2008 and 2007, this amount was $30.9 and $31.0
billion, respectively.
The Postal Accountability and Enhancement Act, P.L. 109-435 eliminated the requirement for
the USPS to make contributions to CSRS and canceled the Postal Normal Cost payments to the
CSRS retroactively to October 1, 2006.
FERS. Both FERS participants and their employing agencies are required by statute to make
contributions for FERS coverage. The FERS participant contribution rate is equal to the CSRS
participant contribution rate less the prevailing Old Age Survivor and Disability Insurance
deduction rate; (0.8 percent for most participants for fiscal years 2008 and 2007). The employer
contribution rate is equal to the FERS service cost less the participant contribution rate (11.2
percent of pay in fiscal years 2008 and 2007 for most participants). The total contributions by
and for FERS participants (12.0 percent), therefore, fully funded the FERS service cost in both
fiscal years 2008 and 2007.
Health Benefits Program. The Program (with the exception of the PSRHB) is funded on a "pay
as-you-go" basis, with both participants and their employing agencies making contributions on
approximately a one-quarter to three-quarters basis (OPM contributes the "employer" share for
Retirement Program annuitants via an appropriation). The Program continues to provide benefits
to active employees (or their survivors) after they retire (post-retirement benefits). With the
exception of the USPS, agencies are not required to make contributions for the post-retirement
coverage Of their active employees. These agencies, therefore, must recognize the service cost of
providing post-retirement health benefits for active employees ($5,520 and $5,572 per participant
for fiscal years 2008 and 2007, respectively) as an imputed cost.
P.L. 109-435 requires the USPS to make scheduled payment contributions to the new PSRHB
Fund ranging from approximately $5,4 to $5.8 billion per year from fiscal year 2007 through
fiscal year 2016, according to the legislation. Therefore, the USPS will make annual payments of
the sum of the normal cost payments.
Life Insurance Program. The Program is funded on a "pay-as-you-go" basis, with both
participants and their employing agencies making contributions to Basic life insurance coverage,
generally on a two-thirds to one-third basis (OPM contributes the "employer" share for
Retirement Program annuitants via an appropriation). The Program is funded using the "level
premium" method, where contributions paid by and for participants remain fixed until age 65,
but overcharge during early years of coverage to compensate for higher rates of expected
outflows at later years. A portion of post-retirement life insurance coverage (0.02 percent of the
pay of participating employees in fiscal years 2008 and 2007) is not funded. Employing agencies
must recognize this amount as an imputed cost.
Revolving Fund Programs. OPM's Revolving Fund Programs provide for a continuing cycle of
human resource services primarily to Federal agencies on a reimbursable basis. Each program is
operated at rates established by OPM to be adequate to recover costs over a reasonable period of
time. Receipts derived from operations are, by law, available in their entirety for use of the fund
without further action by Congress. Since the Revolving Fund Programs charge full cost,
customer agencies, as well as responsibility segments within OPM, do not recognize imputed
costs.
H. Financing Sources Other Than Earned Revenue
aPM receives inflows of assets from financing sources other than earned revenue. These
financing sources are not deducted from OPM's gross cost of providing benefits and services on
the consolidated Statements of Net Cost, but added to its net position on the consolidated
Statements of Changes in Net Position. OPM's major financing sources other than earned
revenue are:
Transfer-in from the General Fund. The U.S. Treasury is required by law to transfer an
amount annually to the Retirement Program from the General Fund of the U.S. to subsidize in
part the under-funding of the CSRS.
Appropriations Used. By an act of Congress, OPM receives appropriated authority allowing it
to incur obligations and make expenditures to cover the operating costs of the agency ("Salaries
and Expenses") and the Government's share of the cost of health and life insurance benefits for
Retirement Program annuitants. aPM recognizes appropriations as "used" at the time it incurs
these obligations against its appropriated authority.
I. Fund Balance with Treasury
Fund Balance with Treasury (FBWT) comprises the aggregate total of OPM's unexpend{ld,
uninvested balances in its appropriation, trust, revolving, and trust revolving accounts. All of
OPM's collections are deposited into and its expenditures paid from one of its FBWT accounts.
aPM invests FBWT balances associated with the Retirement, Health Benefits, and Life
Insurance Program that are not immediately needed to cover expenditures.
J. Investments
The Federal govemment does not set aside assets to pay future benefits or other expenditures
associated with earmarked funds. aPM invests the excess FBWT for t.he earmarked funds
associated with the Retirement, Health Benefits, and Life Insurance Programs in securities
guaranteed by the United States as to principal and interest.. The Retirement and the PSRHB
Fund portion of the Health Benefits Programs' monies are invested initially in Certificates of
Indebtedness ("Certificates"), which are issued by the Treasury at par value and mature on the
following June 30. The Certificates are routinely redeemed at face value to pay for authorized
Program expenditures. Each June 30, all outstanding Certificates are "rolled over" into special
Government account series (GAS) securities that are issued by the Treasury at par-value, with a
yield equaling the average of all marketable Public Debt secu"rities with four or more years to
maturity.
The Retirement Program also carries, but does not routinely invest in, securities issued by the
Federal Financing Bank (FFB) and a small amount of other securities.
Health Benefits and Life Insurance Program monies are also invested, some in "market-based"
securities that mirror the terms of marketable Treasury securities; monies that are immediately
needed for expenditures are invested in "overnight" market-based securities. These market·based
securities have some market value risk.
lnvestments are stated at original acquisition cost net of amortized premium and discount.
Premiums and discounts are amortized into interest income over the tenn of the investment,
using the interest method.
K. Accounts Receivable, Net
Accounts receivable consist of amounts owed to aPM by Federal entities ("intragovemmental")
and amounts owed by the public (<<from the public"). The balance of accounts receivable from
the public is stated net of an allowance for uncollectible amounts, which is based on past
collection experience and an analysis of outstanding amounts. OPM regards its
intragovemmental accounts receivable balance as fully collectible.
L. Other Assets
This represents the balance of assets held by the experience-rated carriers participating in the
Health Benefits Program and by the Life Insurance Program carrier, pending disposition on
behalf of OPM. Due to recent economic conditions, these balances reflect unrealized but
permanent losses resulting from a reduction in the market value of assets held by our life
insurance carrier.
M. General Property and Equipment
aPM capitalizes major long-lived software and equipment. Software costing over $500 thousand
is capitalized at the cost of either purchase or development, and is amortized using a straight-line
method over a useful life of five years. Equipment costing over $25 thousand is capitalized at
purchase cost and depreciated using the straight-line method over five years. The cost of minor
purchases, repairs and maintenance is expensed as incurred.
N. Benefits Due and Payable
Benefits due and payable is comprised of two categories of accrued expenses. The first reflects
claims filed by participants in the Retirement, Health Benefits and Life Insurance Programs that
are unpaid in the current reporting period and includes an estimate of Health Benefits and Life
Insurance claims incurred but not yet reported. The second is a liability for the amount owed as
premiums to community-rated carriers participating in the Health Benefits Program that are
unpaid in the current reporting period.
O. Actuarial Liabilities and Associated Expenses
aPM records actuarial liabilities (the Pension Liability, Postretirement Health Benefits Liability
and the Actuarial Life Insurance Liability) and associated expenses. These liabilities are
measured as of the first day of the year, with a "roll-over" or projection to the end of the year.
The "roll-forvvard" considers all major factors that affect the measurement that occurred during
the reporting year, including pay raises, cost of living allowances, and material changes in the
number of participants.
P. Tax Status
As an agency of the Federal Government, aPM is generally exempt from all income taxes
imposed by any governing body, whether it be a Federal, state, commonwealth, local, or foreign
government.
Audit of the Office of Personnel Management's Fiscal Year 2008 Special-Purpose Financial Statements
Published by the Office of Personnel Management, Office of Inspector General on 2008-11-17.
Below is a raw (and likely hideous) rendition of the original report. (PDF)