ACCOUNTING AND AUDITING POLICY COMMITTEE MEETING

Final MINUTES

January 11, 2001

 

The meeting was convened at 1:30 PM in room 6802, of the GAO Building, 441 G St., NW, Washington, D.C.

   

ADMINISTRATIVE MATTERS

    

• Attendance

    

Present:  Ms. Payne, Messrs. Dacey (for Ms. Krell), Doggett (for Mr. Friedman), Eisenhart, Ms. Jordan, Messrs. Lane, Pugh, Stout, Ms. Wolff (for Mr. Ritchie), and Mr. Zavada.

 

Absent: Ms. Krell, and Messrs. Friedman, Ritchie and Taylor.

 

    

• Minutes

 

The minutes of November 9, 2000 were previously approved as final, having been circulated by e-mail to members.

 

·  AAPC Charter and Operating Procedures 

 

The latest draft of the AAPC Charter and Operating Procedures were distributed to the members for review. The Charter was pending final approval from the FASAB.  Ms Payne noted that the FASAB members had been balloted on 12/26/00 to gain final approval of the revised Charter; to date, there was only one ballot outstanding.  Ms. Payne asked the AAPC members to review the current draft of the Operating Procedures and submit comments by 1/19/01 and balloting to gain final approval would follow. She also noted that the most significant changes to the Operating Procedures represented clarifications with regard to the approval process and the scope of guidance.


 

· Project Agenda Status:

 

            Issue #11 Inter-entity Costs

 

Ms. Payne noted that the Inter-Entity Costs survey had been mailed to the members of the Federal CFO and IG communities July 2000 and that comments were due back October 30, 2000. The survey is made up of a series of questions directed to inter-entity costs that are not fully reimbursed by the receiving entity or are not reimbursed at all. The survey will assist the AAPC in identifying specific inter-entity costs that are being incurred by agencies, study their nature, and determine whether they meet the recognition criteria specified in SFFAS 4. 

 

Ms. Payne noted that some agency responses were very thorough and others have not responded at all.  She also informed the Committee that the staff has distributed the survey again to those agencies that did not originally respond urging them to respond and extended the deadline to March 15, 2001.

 

Ms. Payne noted that Richard Mayo, FASAB staff member, had prepared an Interim Report on Responses to the Inter-entity Cost Survey.  The document had been distributed to the members prior to the meeting.  The report includes a summary of the responses received, including questions raised by respondents, as well as, questions raised by FASAB/AAPC staff.

 

Mr. Mayo noted that many respondents stated that their agencies had no material inter-entity costs to report.  He also highlighted two possible issues noted from his review of the responses:  (a) to what extent material inter-entity costs should be recognized by reporting entities, and (b) whether and how “materiality” could be clarified and applied to the recognition of inter-entity costs.  He noted that once all of the responses are received and summarized after the 3/15/01 deadline, the task force would meet to discuss the issues to be addressed in the project.  Mr. Zavada, AAPC Inter-entity Cost Task Force Chair, stated that there definitely is a need for additional guidance in this area.  One member noted that many agencies may not be able to respond to the survey until after the 3/1/01 financial statement reporting deadline.

 

One member asked for clarification on the type of inter-entity costs being addressed by the survey. Another member reiterated that the survey is addressing only those inter-entity costs that are not fully reimbursable.  The member also noted that there are problems reconciling inter-entity cost between entities in cases when the costs are material to one entity and not to the other entity involved in the transaction.

 

 

 

In summary, Ms. Payne provided two points to note. 

            -The CFO Council has encouraged agencies to enter into more reimbursable contracts as opposed to non-reimbursable contracts. 

            -The FASAB understood when they issued the inter-entity cost standard the variety of cases and complexities of the issue and therefore provided for very thoughtful implementation methods and studies to take place before additional costs are added to the standard.

Ms. Payne concluded by noting that this survey is the first step by AAPC in the effort to implement the inter-entity cost provisions of SFFAS 4.

 

                        Issue #24 Supplemental Guidance to SFFAS 10, “Accounting for Internal Use Software”

 

In June 2000 the Chief Financial Officers Council (CFOC) requested that the AAPC consider issuance of an implementation guide, SFFAS 10 Implementation Topics/Issues, that was developed by a CFO Council task force.  The guide provides supplemental guidance to agencies implementing SFFAS 10.

 

Ms. Payne noted that the Bulk Purchases (Question #6) issue has been addressed and language had been provided for the Committee review. Ms. Valentine, FASAB staffer, informed the Committee that the document had been posted on the AAPC web-site for a two-week informal comment period that will end January 19, 2001.  She also noted that once the comment period ended staff would summarize the responses and provide them to the full Committee for review. The proposed technical release would then be balloted to the AAPC members and then sent to the FASAB for final approval and release.

 

           

            Issue # 20 Draft Proposed Technical Release on Accounting and Reporting of Allocable Costs and Liabilities Resulting from Legal Claims against the Federal Government

 

Ms. Payne noted that in mid-1999 the AAPC had been asked to provide guidance to Federal entities on the accounting and reporting of costs and liabilities as they relate to allocating those cost and liabilities resulting from legal claims against the Federal government.  In addition, a proposed technical release had been balloted to the Committee in March 2000 with a count of 8 out of 11 members voting in favor of the draft version at that time.  However, the draft could not move forward because two votes from the same voting block were still outstanding, which rendered the vote incomplete.  Since that time OMB & GAO have been trying to resolve a few issues of concern.  The current version of the draft TR reflects material changes to the original draft based on issues raised by GAO. 


 

The following are the issues raised by Mr. Dacey in opposition to the original proposed TR.

 

1.                  The government-wide consolidated financial statements are a summation of agency financial statements, with elimination of intragovernmental transactions.  Therefore, all costs, including legal costs, must be “allocated” to a specific entity or entities.  As such, this technical release can not be applied as written.  In effect, Judgment Fund expenses not eliminated remain as a Treasury Department expense and are classified in the consolidated financial statements according to Treasury’s cost functions.

2.                  There may be cases that affect more than one agency that are not fully paid by the Judgment Fund.  (The Judgment Fund is only available if no other appropriated funds may be used to pay the claim.)   Because these costs would have to be allocated to the affected agencies, which ultimately paid the claim, the proposed technical release could result in inconsistent treatment of legal claims affecting more than one agency.

3.                  The proposed technical release may provide incentives for agencies to “pass” decisions to OMB, with the hope that OMB will not allocate any costs to them.  Such incentives would be counterproductive to a meaningful resolution of these types of issues by the affected entities.

Mr. Zavada noted that in substance he agreed with the points raised by GAO.  However, he believes that a situation would not arise where OMB could not properly allocate the costs in accordance with the standards.  He also stated that OMB would prefer the wording stated in the previous version, because it provided the flexibility to address all possible situations.  He would also prefer to have further deliberations on the issue by the task force before any draft moves forward.

 

The following are some of comments made by other members of the Committee.

 

--The original draft ensures that when allocation of costs can be made they will, but it also allows for an alternative in those special cases when allocation can not be made.

 

-- If costs are allocated arbitrarily, how can we ever say the statements “present fairly.”  The third option provides an alternative to an arbitrary allocation.

 

-- Disclosures will be important in any situation.

 

--The default in the third option will result in allocation of the costs to the Treasury Judgment Fund.

 

-- The basis for conclusions in the original draft TR demonstrates the issues addressed by the task force as they tried to view the allocation of costs in all possible instances.

 

-- OMB is ready to the “gatekeeper.”

 

Ms. Payne noted the point raised by GAO on “providing incentives for agencies to ‘pass’ decisions to OMB.”  She stated that this same issue has been a concern of the FASAB.  When the FASAB provides for exceptions to their standards, entities will persistently pursue the options to apply the exception.

 

Ms. Payne then posed two options to the Committee in an effort to resolve the issues at hand.  The options were 1) the task force re-deliberate the issues raised on the draft TR and bring back a revised draft, or 2) revert back to the original TR draft and re-ballot it.  A majority of the members agreed to revert back to the original TR draft and re-ballot it. 

 

A member inquired why this issue was allowed to linger so long.  Ms. Payne took responsibility for the extended delay. However, she noted that the current practice of the FASAB is to allow the members a timeframe to respond to a ballot and if no response is received, the members vote will be counted as an abstention.  She would like to implement this practice into the AAPC.  She would outline this guidance for the Committee.  Ms. Payne stressed to the Committee the need to increase the turn around time of the Committee’s guidance, as well as, the accessibility of its products.

 

 

 

            Issue # 25 Federal Aviation Administration Grant Issue

 

Ms. Valentine stated that the task force is looking into the possibility of holding a forum to further discuss the issue with other Federal entities who have grant programs with similar funding instruments as those used by FAA for major airport improvement projects.  Ms. Valentine has talked with several agency personnel about the issue; and thus far no other Federal entities outside of the Department of Transportation seem to have similar programs.  She also informed the Committee that letters were being sent to agency CFO’s requesting information about any similar grant programs within their own agencies.  Depending on the response from the letters, the task force would access the need for a forum.  If no forum is deemed necessary, the task force will move on to its recommendations to the full Committee.

                       

 

· Agenda Committee Report

 

Mr. Pugh, chair of the AAPC Agenda Committee, reported that there were no new issues to be brought to the AAPC.

 

· New Business

 

Mr. Eisenhart gave Ms. Payne a draft document from a group called Facilities Council Standing Committee on Operations Maintenance that he received.  The draft document provides suggestions on implementing portions of SFFAS 6, Accounting for Property, Plant, and Equipment in the Federal Government.  Ms. Payne noted that she would review the document to determine if it would be an appropriate document for the AAPC or the FASAB.

             

· Next Meeting

 

The next meeting will be on Thursday, March 8, 2001.

 

· Adjournment

 

The meeting was adjourned at 2:45 PM.