Accruals
September 2008

Accrual Accounting: It's the Law!

• 31 U.S.C. 3512 mandates accrual accounting for all Federal Agencies.
• FMFIA of 1982 requires reports of non-compliance.
• CFO Act, GPRA, GMRA, etc.
• FASAB Standards & Concepts
• Audited Financial Statements (OMB Directed)

Prior Financial Audit Finding:

“Some accounts payable and related expenses are overstated, and some are not accrued at year-end.”

Accounts Payable

• are amounts owed by a Federal entity for goods and services received, for contract progress under certain contracts, and as a result of rental agreements.  When an entity accepts title to goods, whether the goods are delivered or in-transit, the entity should recognize a liability for the unpaid amount of the goods or services.

Accrual Accounting

• An accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged. The term “accrual” refers to any individual entry recording revenue or expense in the absence of a cash transaction.
  • If a good/service was received as of September 30, 2008, 11:59:59 PM, it’s an Accrual
  • If a good/service was NOT received as of September 30, 2008, It’s an Undelivered Order (UDO)
  • Both (Accruals & UDOs) are considered Obligations

Understanding the Difference: Budget versus Accounting

• Budget: Undelivered Orders + Accruals + Disbursements = Total Obligations
• Accounting: Undelivered Orders + Accruals + Disbursements = Total Costs

So what does all this mean? Do I have to do accruals for everything?

• Object Class 11xx and 12xx: Personnel Comp & Benefits
  • Accruals computed by CBS system based on prior pay period
  • Finance Office enters NOAA-wide accruals
• Object Class 41xx:Grants and Subsidies (To States, Universities and Others)
  • Finance Office and the Grants Management Division do these accruals

Recording Accruals

• Receiving Reports
• Invoice
• PerformanceReports
• Use Estimates from COTR, Contractor, and/or Company
• Prior Month, Qtr., Year
• UDO Amount
• Use Common Sense

Examples of Accruals - #1

1. NOAA contracts with XYZ company to hire his employee, Bernard Elf, to work from January 1 to December 31.
2. Bernard Elf is paid $12,000 annually.
3. Santa doesn’t bill NOAA until the next year.
4. What is the accrual amount as of September 30?

If a good/service was received as of September 30, 2008, 11:59:59 PM, It’s an Accrual.
If a good/service was NOT received as of September 30, 2008, It’s an Undelivered Order (UDO).
Both (Accruals & UDOs) are considered Obligations.

$12,000 / 12 months = $1,000 a month. $1,000 x 9 months = $9,000 Accrual Amount

Examples of Accruals - #2

• NOAA contracts with Lakadasical Billing Company to count dolphins in the Atlantic Ocean from January 1 to December 31.
• NOAA pays them $5,000 a week.
• Lakadasical’s last invoice was dated August 17 and NOAA paid it.
• What is the accrual amount as of September 30?

$5,000 week x 6 weeks = $30,000 Accrual Amount

Examples of Accruals - #3

• NOAA contracts with Seymour Skies to monitor weather in Climate, Kansas, from October 1 – September 30.
• He has to submit quarterly progress reports.
• He is paid $24,000 annually.
• His last progress report was paid and was through June 30.
• What is the accrual amount as of September 30?

$24,000 annually / 4 quarters = $6,000 Accrual Amount

Examples of Accruals - #4

• NOAA contracts with Billsontime Scuba Services (BSS) to check out damage to a reef in Florida.
• All of BSS’s bills have been paid except one.
• The only unpaid bill is for the month of September for $20,000.
• What is the accrual amount as of September 30?

$20,000 Accrual Amount

Line/Staff Offices responsibilities...

• The Period of Performance must be identified clearly on Contracts, Purchase Orders,and Interagency Agreements.
• Contact Person on Purchase Orders and Interagency Agreements is the person responsible for estimating the accrual. The COTR on Contracts is the person responsible for estimating the accrual.
• The Contact People on Purchase Orders, Interagency Agreements, and Contracts should know how to estimate an accrual.
• The contact person must give us a written explanation of how he/she estimated the accrual.

Finance Office responsibilities...

• We will continue to emphasize the importance of accruals in the Year End Closing Instructions memo. http://www.corporateservices.noaa.gov/~finance/FOAOD.html

August 2008

Finance Offices reviewed UDOs over $100K and sent out emails requesting the contact person to estimate an accrual for year end.

Is there anything else the Line/Staff Offices should do?
Yes.

1. Review Instructions: www.corporateservices.noaa.gov/~finance/FOAOD.html
2. Remember what was Accrued

QUESTIONS ?????????????? www.corporateservices.noaa.gov/~finance/FOAOD.html