Federal Accountability in Changing Times

Tom Allen, FASAB Chairman

Bob Dacey, GAO Chief Accountant and FASAB Member

Disclaimer

• Views expressed are those of the speaker. The Board expresses its views in official publications.

Accounting for Social Insurance

When does a liability exist for future social insurance benefits?

• Liability: a present obligation of the federal government to provide assets or services to another entity at a determinable date, when a specified event occurs, or on demand. (SFFAC 5, par. 39)

• A present obligation is incurred when the government takes a specific action or an event occurs that commits or binds the government. (SFFAC 5, par. 42)

• …if an item meets the definition of a liability at the reporting date, the power of the government to subsequently change the law so that the item no longer meets the definition does not eliminate the existence of the liability at the reporting date. (SFFAC 5, Par. 17)

Historical Controversy

• Liability debate centers on whether an obligation exists:– after work in covered employment occurs;– when fully insured status is reached; or– when a payment becomes due and payable.

• Liability debate impacts costs recognition:– Costs arise as a result of work; or– Costs arise as benefits are due.

• Incremental progress with greater disclosure of information over the years.

FY2008 CFR Presented Key Information – Deficit vs Cost

Table 1: Budget Deficit vs. Net Operating Cost

Dollars in billions 2008 2009

Budget Deficit $ 454.8 $ 162.8

Change in:    

Federal Employee and Veteran Benefits Payable 549.8 90.1

Environmental & Disposal Liabilities 0.8 36.8

Capitalized Fixed Assets, Net (46.6) (2.6)

Other 50.3 (11.6)

Net Operating Cost $ 1,009.1 $ 275.5

A Snapshot of The Government's Financial Position & Condition

billions of dollars 2008 2007 2006

Gross Costs $ (3,891.6) $ (3,157.3) $ (3,127.7)

Earned Revenues 250.9 247.8 226.4

Net Cost (3,640.7) (2,909.5) (2,901.3)

Total Taxes and Other Revenues 2,661.4 2,627.3 2,440.8

Other (29.8) 6.7 11.0

Net Operating Cost $ (1,009.1) $ (275.5) $ (449.5)

Assets $ 1,974.7 $ 1,581.1 $ 1,496.5

Less: Liabilities, comprising:

Debt Held by the Public (5,836.2) (5,077.7) (4,867.5)

Federal Employee & Veteran Benefits (5,318.9) (4,769.1) (4,679.0)

Other Liabilities (1,023.1) (940.1) (866.4)

Total Liabilities (12,178.2) (10,786.9) (10,412.9)

Net Position (Assets Minus Liabilities) $ (10,203.5) $ (9,205.8) $ (8,916.4)

Sustainability Measures:

The Statement of Social Insurance provides certain fiscal sustainability information concerning Social

Security, Medicare, and other social insurance programs.

Statement of Social Insurance

Closed Group (current participants) $ (49,135.0) $ (45,062.0) $ (44,145.0)

Open Group (current + future participants) (42,970.0) (40,948.0) (38,851.0)

Budget Results

Unified Budget Deficit (454.8) (162.8) (247.7)

Changes in Future Expenditures and Revenues

Table 3: Social Insurance Future Expenditures in Excess of Future Revenues

  2008 2007

Increase (Decrease)

$ %

Closed Group (Net)        

Social Security $ 17,188 $ 16,265 $ 923 5.7%

Medicare:        

Part A 13,590 12,044 1,546 12.8%

Part B 12,615 10,347 2,268 21.9%

Part D 5,605 6,273 (668) -10.6%

Subtotal - Medicare 31,810 28,664 3,146 11.0%

Other 137 133 4 3.0%

Total Social Insurance        

Expenditures, Net (Closed Group) $ 49,135 $ 45,062 $ 4,073 9.0%

Expenditures, Net (Open Group) $ 42,970 $ 40,948 $ 2,022 4.9%

Preserving and Enhancing Current SI Information – A Compromise

Proposal• Critical information about costs, assets and liabilities, social insurance commitments,

budget flows, and the “fiscal gap” in a section in management’s discussion and analysis devoted to financial statement analysis

• A new line item representing the closed group measure that would be presented on the balance sheet below assets, liabilities, and net position and that would not be included in the totals for these classifications

• A new summary section for the statement of social insurance presenting the closed and open group summary totals

• A new basic financial statement to present the reasons for changes during the reporting period in the closed group measure reported on the statement of social insurance

• Disclosure of the accrued benefit obligation (future benefits attributable to work completed as of the balance sheet date)

Two Alternative Views

• Five members support recognition of a liability greater than the due and payable amounts currently recognized.

• Three members do not support:– Presentation of the closed group net present value on the

balance sheet,– Analysis of changes in the closed group net present value on the

statement of changes in social insurance (instead they would analyze changes in the open group NPV), or

– Disclosure of the accrued benefit obligation.

Social Insurance Discussion

• Questions

Fiscal Sustainability Slides

• Bob’s Slides will be added here

Fiscal Sustainability Discussion

• Questions

Economic Stabilization Activities

• Raises Issues Regarding:– Determination of fair value with government

intervention in illiquid markets– Scope of federal reporting – Federal Reserve, GSEs,

AIG, etc.– Applicability of Credit Reform accounting and

appropriate discount rates– Alternatives for valuing financial instruments

• Issues will lead to major projects for FASAB

General PP&E Estimation

• Proposal to extend guidance in SFFAS 23 regarding the use of estimates for general PP&E

• Accounting and Auditing Policy Committee task force developing implementation guidance– Acquisition of PP&E– Use of PP&E– Cleanup Cost– Record Retention

Contact and Website Information

• General inquiries can be directed to fasab@fasab.gov

• Phone: 202 512-7350• www.FASAB.gov

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