oversight

Audit of the Office of Personnel Management's Fiscal Year 2009 Special-Purpose Financial Statements

Published by the Office of Personnel Management, Office of Inspector General on 2009-11-18.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                         UNITED STATES OFFICE OF PERSONNEl. M;\NI\(;FMENT


                                           November 18,         2009
Office of lhe
~pcClor General
                                                                          Reporl No. Lli\-CF-OO-09-038


           MEMORANDUM FOR JOHN BERRY 

                          Director 


           FROM: 	                   PATRICK E. McFARLAND 

                                     Inspector General 


           SUBJECT: 	                Audit of the Office ofPersonnell"vl,lnClgement's risc<d Year
                                     2009 Special-Purpose Financial Statements


           This memorandum transmits KPMG LLP's (KPMG) repOI1 on the Office or Personnel
           Management's (OPM) Fiscal Year 2009 Closing Package FinanCial Statements and the
           results oflhe Office of the Inspector Ccneral's (OIG) overSight of thc audit ,mel review of
           that rcpOrl. OPf'vrs Closing Package rinancial Statement Reports include the reclassified
           balance sheets, the stZlicmcllls of net cost, the statements of ch<lTlges in net position. and
           the accompanying notes as of September 30,2009 <mo 2008; the Additional Note No 29:
           and the trading p<lrtncr balance sheet, the st<ltcmen! of net cost, and Ihe statement of
           changes in net position as of September yO, 2009 (hereinafter colleclively referrcd to as
           the special-purpose flll<lncial statements). These special-purpose financial stalcmcnts
           uireclly link. thc enlilies' audiled consolidated departmelll-Ievc! financial statements to
           the Financicll Report of the Government (the government- wide fi nallci<ll statements).

           We contracted with the independent certified publJc accounting firm KPMG to audit
           OPM's special-purpose financial statements as of September 30. 2009 and 2008. The
           contract requires Ihal the audil be done in accordance with generally accepted government
           auditing standards and lhe Office of Management and Budget Bulletin No. 07-04, Au(/ir
           Requirements for Federal Financial Sialemenis.

           KPMG reporleclthal OPM"s special-purpose financial st<ltemenlS arc presented fairly, ill
           all material respecls. KPMG nOled no mallers involving the internal control over the
           financial process for the special-purpose financial stalements that are considered a
           maleri<ll weakness or signific<lnt deficiency. KPMG disclosed no instances of
           noncompliance or olher mailers thaI are required to be reporled. The objectives of
           KPMG's audits of the speci<d-purpose financial stMemenlS Jid no! include expressing an
           opinion on inlernal controls or compliance \. . . ith laws ;l1lc! regulat ions. and K PMC.
           accordingly. does not express such opinions.




      WWW·Qrm.gOIJ 	                                                                            \IV'\;\I' .......   u5,-.ioOs.   f!O~ 

Iionorable John Berry                                                                         2


OIG Evaluation of KPMG's Audit Performance

In connection vvith thc audil contr,ICL wt: reviewed KPMG's reporl <mel feinted doclllllcntalion
and made inquiries of its representalives regardmg the audit. To fullin our audit
responsibililies under the Chief Financial Officers Act for ensuring lhe quality orthe audil
'-,.fork performed, we conducted a review of KPMG's audit ofOPM's fiscal Year 2009 and
2008 special-purpose financial stalemcnts ill accordance with Government Auditing Standards
(GAS), Specifically, we:

   •	   reviewed KPMG's appro<lch Jnci planning of the audit;
   •	   evaluated the qualifications and independence of its auditors:
   •	   monitored the progress orthe audit at key points;
   •	   examined its working papers related 10 planning the audit and assessing internal
        controls over the financial reporting process;
    • 	 reviewed KPMG's audit reports 10 ensure compliance with GAS;
    • 	 coordinated issuance of the mldit report; and
    • 	 performed uther procedures we deemed nccesstlry,

Our review, as differentiated from an audit in accordance wilh generally accepled
go"',':'wncnl <wdiling s!<lndards, \Vas not intC'Jlded [0 enable LIS to express, (lncl we do not
express, opinions on OPM's special-purpose financl,t1 slatements, KPMG is responsible
for lhe allachccJ auditor's report daled November 16, 2009, and the conclUSions expressed
in Ihe reporL However, Our review disclosed no instances where KPMG did not comply,
in all male rial respects, wilh the generally Llccepted GAS

If you have any questions about KPrv1G's audit or our oversight pJeJSC conlact me or
hah' a member of your staff contaci Michael R, Esser, Assistant Inspector General for
ALidits, al 606-2143,

cc: Mark Reger
    Chief Financial Officer
                              KPMG LLP
                              200 I M Street, ~JV'J
                              \i\lastHnglDn DC 20036·3:189




                                  Independent Auditors' Report


Director and Inspector General
U.S. Office of Personoe I 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,
2009 and 2008; the related Closing Package Financial Statement Reports - Statements of Net
Cost and Statements of Changes in Net Position, and the accompanying Financial Report (FR)
Notes Report for the years then ended; the accompanying Additional Note Number (No.) 29; and
the accompanying Trading Partner SummaI}' Note Report - Balance Sheets as of September 30,
2009 and 2008; and the related Trading Partner Summary Note Repor1s - 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, 6, 8, 11, 15 and 19; the information included in
sections entitled "Text Data" in FR Notes Reports Nos. I, 3, 6, 8, 11, 15, 18, 19 and 22; FR
Notes Report Nos. I I i, I Ij, II k, and 110; the accompanying "previously reported" Financial
Statement Reports and the related "previously reported' data and "line item changes" presented
in the fR Notes and Trading Partner SummaI}' 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 Governmenl Audiling
Standards, issued by the Comptroller General of the United States; and Office of Management
and Budget (OMB) Bulletin No. 07-04, Audit Requirements jor Federal Financial Statements,as
amended. 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 llsed 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 Chapter 4700 of the u.s. Depal1ment of the Treasury's
Treasury Financial Manual (TFM), as described in Additional Note No. 29, 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 lise in preparing and auditing the Financial Report
(?f the U.)'. GOl'erllll1enl, and are not intended to be a complete prcscntation of OrM's
consolidated financial statements.




                              KPMG LlP. a     u.s.   hmlled hoblt~l.,. pannefS\",ip. IS the LI S
                              m-err.b.;!r Ilrni oj KPrv1G IntOfO''lIIonal. .; S"nlSS COope{l=!ilv,=
[n accordance with TFM Chapter 4700, aPM prepared FR Notes Report Nos, I through 28B,
except for FR Notes Report Nos. lOa, II e, 1 1f, I II, I 1m, 11 n, 16, 21, 23, and 24, which were not
applicable to the OPM. The OPM included Additional Note No. 29, 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 statements referred to above present fairly, in all
material respects, the financial position of the U.S. Office of Personnel Management as of
September 30, 2009 and 2008, and its 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 Chapter 4700, as described in Additional Note No. 29.

OPM also prepared Other Data Report Nos. I through 16, except for Other Data Report Nos. 3,
4,5,6,7,8, II, 12, 13, and 14, which were not applicable to OPM. The information included in
Other Data Report Nos. I, 2, 9, 10, 15 and 16 is presented for the purpose of additional analysis
and is not a required part of the special-purpose financial statements, but is supplementary
information required by U.S. generally accepted accounting principles and the TFM Chapter
4700. We have applied cel1ain limited procedures, which consisted principally of inquiries of
management regarding the methods of measurement and presentation of this information.
However, we did not alldit 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 item changes" presented in the FR Notes and Trading
Partner Summary Reports were not audited by us and accordingly we express no opinion on it.

The information included in the sections entitled "Threshold" in FR Notes Detail Data Report
Nos. J, 6, 8, II, and 15; the information in sections entitled "Text Data" in FR Notes Detail
Reports Nos. J, 6,8, II, 15, 18, 19 and 22; FR Notes Detail Report Nos. Iii, llj, Ilk and 110;
the information in the Reclassification Audit Trail Report - Statement Summary Level - Balance
Sheets; and the infonnation 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 Chapter 4700 requires agencies to use the Governmentwide Financial Reporting
System 10 input certain data as described in Additional Note No. 29. Except as discussed in this
report, we express no opinion on information maintained in that system.

In accordance with Governmenl Auditing Standards and OMB Bulletin No. 07-04, we have also
iSSLIed a combined auditors' report dated November 10, 2009, 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 shects of OPM as of Scplembcr 30, 2009 and 2008, and the related
consolidated statements of lIel cos!. and changes in net position. and combined statements of
budgetary resources (collectively referred 10 as the consolidated financial statements) for the
years then ended, performed in accordance with Government Audiling Standards and OMB
Bulletin No. 07-04, and should be read in conjunction with this report in considering the results
of Ollr 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, 2009, disclosed the following
significant deficiencies and other ~atter:

Significant Deficiencies:

    1.   Information systems general control environment
    2.   Financial management and reporting process of the Office of the Chief Financial Officer
However, none of the signi ficanl 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 2009 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 deficiencies, significant deficiencies or
material weaknesses.

A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to
prevent, or detect and correct misstatements on a timely basis. A significant deficiency is a
deficiency, or combination of deficiencies, in internal control that is less severe than a material
weakness, yet important enough to merit attention by those charged with governance. A material
weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a
reasonable possibility that a material misstatement of the entity's financial statements will not be
prevented, or detected and corrected on a timely basis.

In our fiscal year 2009 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 Chapler 4700),
and contracts applicable to orM. As part of obtaining reasonable assurance about whether
OPM's fiscal year 2009 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 determination of
financial statement amounts.      However, provid ing an opin ion on com pI iance with those
provisions or on compli<Hlce with TFM Chapter 4700 requirements was not an objective of ollr
fiscal year 2009 audit  or the special-purpose financial statements and, accordingly, we do not
express such an opinion.
The results of our tests of compliance with TFM 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 of OPM's management, OPM's Office
of Inspector 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 J6, 2009
                             U.S. Office of Personnel Management 

                           Government Financial Reporting System 

                  Additional Note to the Special-Purpose Financial Statements 

                        Entity - 2~OO Office of Personnel Management 


Note 29 - Summary of Significant Accounting Policies

A. 	 Basis of Presentation

The Budget and Accounting Procedures Act oj 1950 allows the Secretary of the Treasury to
stipulate the fonnat and requirements of executive agencies to furnish financial and operational
information to the President and the Congress to comply with the Government Management
Reform Act of /994 (GMRA), which requ ires 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 US Department of Treasury's Financial Manual (TFM) Chapter 4700
to provide agencies with instructions to meet the requirements of GMRA. The TFM 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 ofthe 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
        Stales of America.

The rFM Chapter 4700 requires agencies to use the Govemmentwide Financial Report System
(GFRS) to input the above infonnation.        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 (GF003F)
    J. 	 Trading Partner Summary Note Report (GF004F)
    4. 	 FR Notes Report (FR Notcs) (GF006)
    5. 	 Other Data Report (Other Data) (GF007)


The generic format for the special-purpose financial statements is based on the US St<lfldard
General Ledger (USSGL) crosswalk to the FR financial statements <1nd notes,
B. Reporting Entity

The United States (U.S.) Office of Personnel Management (OPM) is lhe Federal Government's
human resources agency. It was created as an independent agency of the Executive Branch of
Government on January 1, 1979. Many of the functions of the former Civil Service Commission
were transferred to arM at that time.

The accompanying special-purpose financial statements present OrM's financial POSItIon, net
cost of operations and change in net position, as required by the Chief Financial Officers Act of
1990 (CFO Acl), the Government Management Reform Act of 1994 (GMRA) and TFM 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 slatements arc comprised of the following major programs
administered by OPM. The funds related to lhe 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, ldent{fying and
Reporting Earmarked Funds. Earmarked funds are financed by specifically identified revenues,
often supplemented by other financing sources, which remain available over time. These
specifically identi fied revenucs and other financing sources arc requ ired 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; aPM docs not adminisler the Thrift Savings Plan. Both
plans are operated via the Civil Service Retirement and Disability Fund (CSRDF), a l.rust 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, former employees, family members, and former 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 lypes of health benefits carriers: fee-for-service, whose participants or
their health care providers arc reimbursed for the cost of services, and health maintenance
organizations (lTMOs), 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-rafed, with the amount contributed by and for participants affected by, among other
things, the number and size of claims. Most HMO contracts arc community-rated, so that the
amount paid by and for parliciprmls is essentially the same as thar paid by and for participants in
similarly-sized subscriber groups.
In December 20, 2006, President Bush signed into law the Postal Accountability and
Enhancement Act (the Postal Act), Public Law (Pol.) 109- 435. Title VlII of the Postal Act made
significant changes in the laws dealing with CSRS benefits and the funding of retiree health
benefits for employees of the U.S. 'Postal Service (USPS). The Postal Act required the USPS to
make scheduled payments to a new Postal Service Retiree Health Benefits (PSRJ'JB) Fund. The
PSRHB Fund is included in the Health Benefits Program. On October \,2009, President Obama
signed into law, P.L. 111-68, Division B - Continuing Appropriations Resolution 20 to which
contained significant changes to the funding requirements and scheduled payments of P.L. 109­
435, retroactive to December 20, 2006, when the Postal Act became law. Section 164 of P.L.
111-68 amends P.L. 109-435 such that the USPS scheduled payment for FY 2009 is $1.4 billion
rather than $5.4 billion.


Life Insurance Program. The Program provides group term 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 lnsurance 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 intragovernmental revolving fund.

Salaries and Expenses. Salaries and Expenses provides the budgetary resources lIsed by OPM to
administer the agency. These resources are furnished by annual, mUlliple-year, and no-year
appropriations. Annual appropriations arc made for a specified fiscal year and are available for
obligation only during that fiscal year. Multiple-year appropriations arc 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 OPM as required by the CFO Act, GMRA and TFM
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-136,
Financial Reporting Requirements and TFM Chapter 4700. GAAP for Federal entities are the
standards prescribed by the Federal Accounting Standards Advisory Board (F ASAB), which is
the official standard-setting body for the Federal Government. These special-purpose financial
statements present proprietary infonnation. OPM, pursuant to OMB directives, prepares
additional financial reports that are used to monitor and control OPM's usc of budgetary
resources.

OPM has presented comp:lfalive special-purpose financial statements for the Consoljd(lted
Balance Sheets, Consolidated Statements of Net Cost, and Consolidated Statements of Changes
in Net Position, in accordance with TFM Chapter 4700.
The special-purpose financial statements should be read with the realization that they arc for a
component of the United States Government, a sovereign entity. One implication of this is that
liabilities cannot be liquidated wit.hout legislation that provides resources and legal authority to
do so.

The accounting structure of Federal agencies is designed to reflect both accrual and budgetary
accounting transactions. Under the accrual method of accounting, revenues are recogn ized when
earned, and expenses are recognized when incurred, without regard to receipt or payment of cash.
The budgetary accounting principles, on the other hand, are designed to recognize the obligation
of funds according to legal requirements, which in many cases is prior to the occurrence of an
accrual-based transaction. The recognition of budgetary accounting transactions is essential for
compliance with legal constraints and controls over the use of Federal funds.

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 rcporting entity has the legal authority
to use in its operations. Accordingly, all of OPM' s assets are entity assets.

Intragovernmental and Other Balances. Throughout these special-purpose financial
statements, intragovermnental assets, liabilities, revenues and costs have been classified
according to the type of entity with which the transactions are associated. OPM classifies as
intragovernmental those transactions with other Federal entities, including the USPS. In
accordance with Federal accounting standards, OPM classifies employee contributions to the
Retirement, Health Benefits and Life Insurance Programs as exchange revenues "from the
public." OPM's entire gross cost to provide Retirement, Health and Life Insurance benefits,
however, is classified as costs "with the public" 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 there are no intragovemmental gross costs to provide retirement, health
and life insurance benefits. The consolidated Statements of Net Cost provides 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 enlity 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 Reliremenl, Health
Benefils and Life Insurtll1cc Programs and the scheduled payment contributions 10 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. OPM 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 OrM
liabilities are disclosed as being "covered by budgetary resources."

Net Position. OPM's Net Position is classified iota two separate balances: the Cumulative
Resulls of Operations comprises OPM's net results of operations since its inception~
Unexpended Appropriations is the balance of appropriated authority granted to OPM against
which no outlays have been made. The Statements of Changes in Net Position separately
disclose cannarked revenue and other financing sources, including appropriations, as well as net
cost of operations and cumulative results of operations attributable to eannarked funds.

F. Net Cost of Operations

To derive its net cost of operations, OPM 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. AI! Program costs (including Salaries and 

 Expenses) are directly traced, assigned, or a\[ocaled 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. OPM 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. p.·ogram Funding

Retirement Program. Service cost represents an estimate of the amount of contributions which,
if accumulated aoJ invested over the careers of participants, wiJI be sufficient to fund fuJIy their
future CSRS or FERS benefits. OPM's pension actuary applied the set of economic assumptions
adopted by the Board of Actuaries of the Civil Service Retirement and Disability Fund to derive
the FY 2009 cost factors for CSRS and FERS. For FY 2009 the service-cost for most or
"regular" CSRS participants is 25.8 percent of basic pay, an increase of 0.6 percent from FY
2008. For FY 2009, the service c<?st for most or "regular" fERS participants is 12.3 percent of
basic pay, an increase 0[0.3 percent from FY 2008.

Agencies will not be required to pay these new normal costs until FY 2011 because of budgeting
considerations. Therefore the contributions for FY 2009 remains the same as fiscal year 2008, as
shown below:

    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 2009 and 2008.
    The combined 14.0 percent of pay does not cover the service cost of a CSRS benefit. To
    lessen the shortfall, the Treasury was required by statute to transfer an amount annually from
    the General Fund of the United States to the CSRDF [See Note lH.]; for FY 2009 and 2008,
    this amount was $31.4 and $30.9 billion, respectively.

    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 Disabi lity
    Insurance deduction rate (0.8 percent for most participants for fiscal years 2009 and 2008).
    The employer contribution rate is equal to the FERS service--{:ost, less the participant
    contribution rate (11.2 percent of pay in FY 2009 and 2008 for most participants). The total
    contributions by and for FERS participants (J 2.0 percent), therefore, fully funded the FERS
    service-cost in both FY 2009 and 2008.


Health Benefits Program. The ProgrcuTI (with the exception of the PSRI-ID) 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.

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. The payment for FY 2009 was reduced to $1.4
billion by P.L. 111-68, signed into law on October 1,2009, and retroactive to when P.L 109-435
was originally signed into law on December 20, 2006.

Life Insurance Program. The Program is funded 011 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 lIsing (he "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 2009 and 2008) 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 al 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. OPM provides receiving entities of such services with full cost information through
billings based on reimbursable agreements for services rendered.

H. Financing Sources Other Than Earned Revenue

OPM 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
Statemenls 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. OPM 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 unexpended,
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.
OPM 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 government does not set aside assets to pay future benefits or other expenditures
associated with earmarked funds. OPM invests the excess FBWT for the 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 I3enefits 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
Progr<llll expenditures. Each June 30, all outstanding Cenificatcs are "rolled over" inlo special
Government <lccollnt serics (GAS) securities that are issued by the Treasury at par-valuc, with a
yield equaling the average of all marketable Public Debt securities with four or more years to
maturity.

The Retirement Program also carr!es, 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 va lue risk.

Investments are stated at original acquisition cost net of amortized premium and discount.
Premiums and discounts are amortized into interest income over the term of the investment,
using the interest method.

K. Accounts Receivable, Net

Accounts receivable consist of amounts owed to OPM by Federal entities ("intragovernmental")
and amounts owed by the public ("from the public"). The balance of accounts receivable from
tbe public is stated net of an allowance for uncollectible amounts, which is based on past
collection experience and an analysis of outstanding amounts. aPM regards its
intragovernmental accounts receivable balance as fully collectible.

L. Other Assets

This represents the balance of assets held by the experience-rated carriers participating in lhe
Health Benefits Program and by the Life Insurance Program carrier, pending disposition all
behalf of OPM.

M. General Property and Equipment

OPM 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 Bcnefits and Life Insurance Programs that
are unpaid in the current reporting period and includes an estimate of Health Benefits and Life
rnsurance claims incurred but nol 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

OPM records actuarial Iiabi Ii ties (the Pension Liabil ity, Postretiremcnt !-lea Ith Benefits Lia bd ity
and the Actuarial Life Insurance Liability) and associated expenses. These liabilities arc
m';<l.smed as of the first day of the year, with a "roll-over" or projection to the cnd of the year.
The "roll-forward" 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. Cumulative Results of Operations

The balance ofOPM's Cumulative Results of Operations is negative because of the recognition
of actuarial liabilities that will be liquidated in future periods.

Q. Tax Status

As an agency of the Federal Government, OPM is generally exempt from all income taxes
imposed by any governing body, whether it be a Federal, state, commonwealth, local, or foreign
government.

R. Parent - Child Reporting - Salaries and Expense Fund Allocation Transfer

The Office of Personnel Management (OPM) is a party to allocation transfers with another
federal agency, General Services Administration (GSA), the parent, as a receiving (child) entity.
Allocation transfers are legal delegations by one department of its authority to obligate budget
authority and outlay funds to another depattment. A separate 'Building Fund' account,
2447X0600, was created in the U.S. Treasury as a subset of the GSA fund account for tracking
and reporting purposes. All allocation transfers of balances are credited to this account, and
subsequent obligations and outlays incurred by the OPM are charged to this allocation account as
aPM executes the delegated activity on behalf of the GSA. The financial activity related to these
allocation transfers is reported in the financial statements of the parent entity, GSA, from which
the underlying legislative authority, appropriations and budget apportionments are derived.