U.S. Geological Survey Instructional Memorandum
No. APS 2003-08
Issuance Date: March 21, 2003
Expiration Date: September 30, 2003
Subject: Fiscal Years 1998-2002 Advances Associated with Fixed Price Agreements
This Instructional Memorandum provides further guidance regarding the treatment of advances recorded during fiscal years 1998 through 2002 for fixed price agreements in the Water Resources Cooperative Program. The Memorandum supersedes OFS-2002-002, Advances Associated with Fixed Price Agreements.
Background
Water Resources began entering into fixed price agreements in its Cooperative Program in fiscal year (FY) 1996. Water Resources treats agreements as fixed price when the cost center notifies the customer in writing that the work will be conducted on a fixed price basis, when a bill is issued for the full amount of the agreement, and when no reports detailing actual costs incurred are required by or provided to the customer. In a fixed price arrangement, Water Resources cost centers bill the customer for the full amount indicated in the agreement, regardless of the expenditures recorded for the agreement. When the billed amount exceeds the expenditures distributed against the agreement, Federal Financial System (FFS) displays the resulting surplus as an advance, unspent reimbursable authority credited to the appropriate account. When the billed amount is less than the expenditures, FFS charges the resulting deficit to appropriated funds, through the default customer 0002X.
Also in fiscal year 1996, Water Resources cost centers stopped closing out individual accounts for fixed price agreements. Instead they began leaving surplus funding, in the form of advances, in the accounts associated with fixed price agreements. The advances served to cover deficits in other accounts associated with fixed price agreements in the same cost center. At the end of the year, the Office of Financial Management (OFM) processed a closing adjustment at the budget activity level) to move expenditures charged to appropriated funds and use some unspent reimbursable authority. This adjustment did not impact project balances.
On April 5, 2002, OFM issued Instructional Memorandum 2002.01 reminding cost centers to perform a monthly review of outstanding unbilled and delinquent accounts receivable and advance balances. The Memorandum also required cost centers to complete a comprehensive review of unbilled and delinquent accounts by June 1, 2002. The Memorandum stated, "when such advance balances exist for fixed-price agreements, the balance can be moved to another fixed price agreement as determined by the Office of Fiscal Services or a regional Branch of Fiscal Services".
Subsequently, the external auditors determined that leaving advances and deficits in prior year accounts was not appropriate. It created "false" advances that appeared on the Report 289A. In addition, the surplus and deficit balances are not burdened. The deficit balances are charged to a default customer, to which FFS does not charge burden. The surplus balance in an account is not burdened because burden is only "earned" on actual expenditures or obligations.
The following is a simplified example of the problem. Both accounts are funded with fixed price agreements.
Funding | Expense | Balance | Result | |
---|---|---|---|---|
Account 1 | $10,000 | $8,000 | $2,000 | Unspent reimbursable authority |
Account 2 | $10,000 | $12,000 | $-2,000 | $2,000 in appropriation default |
Cost center closes to zero. Nevertheless, account 1 is under spent and shows a $2,000 advance. Account 2 shows a deficit of $2,000 that is charged against appropriated funds. Both agreements are fully collected (for a total of $20,000).
Eliminating the advances involves decreasing the Budget Fiscal Year Project Customer Agreement Table (FPCA) record in FFS tied to account 1 by $2,000 and adding a new FPCA record for $2,000 for account 2. The new FPCA record is tied to the same agreement that funds account 1. The funding agreement is not changed; nor is expense. These steps formalize what the cost center intended-they use the surplus on one account to cover the deficit in another account. Once the cost center has moved funding between accounts, the Project Cost Accounting System (PCAS) distributes the expenses to unspent reimbursable authority, eliminates the advance, and reduces the amount distributed to appropriation default (0002X).
After adjustment the funding looks as follows:
Funding | Expense | Balance | |
---|---|---|---|
Account 1 | 8,000 | 8,000 | -0- |
Account 2* | 12,000 | 12,000 | -0- |
*Note: Account 2 now has two FPCA records tied to two different agreements.
The auditors advised USGS that it should eliminate all advances in prior year accounts associated with fixed price agreements by July 31, 2003. Therefore, cost centers shall take the following corrective measures.
Corrective Steps: Fiscal Years 1998, 1999, 2000
To correct the outstanding advances for fixed price agreements for fiscal years 1998, 1999 and 2000, the appropriate Fiscal Service organization shall take the following actions.
Corrective Measures: Fiscal Years 2001 and 2002
In fiscal year 2001, USGS began tracking appropriated and reimbursable funds separately. Appropriated funds are recorded in fund type SIRAD (Direct) and reimbursements in fund type SIRAR (Reimbursable). USGS instituted a Fund Split process to distribute expenditures recorded in designated accounts (*SIR) to direct and reimbursable funding in proportion to the net funding in the account.
The following is a simplified example of the problem. Both accounts are funded with fixed price agreements.
SIRAR | SIRAR | SIRAD | SIRAD | |
---|---|---|---|---|
Funding | Expense | Funding | Expense | |
Account 1 | 10,000 | 9,000 | 10,000 | 9,000 |
Account 2 | 10,000 | 11,000 | 10,000 | 11,000 |
Cost center closes to zero. Nevertheless, account 1 is under spent and shows a $1,000 advancen (advances only show up in SIRAR). Account 2 shows a deficit of $2,000 (from both SIRAR and SIRAD) that is charged against appropriated funds. Both agreements are fully collected (for a total of $20,000).
Corrective Measures Eliminating the advances involves decreasing the FPCA record in FFS tied to account 1 by $2,000 and adding a new FPCA record for $2,000 for account 2. The new FPCA record is tied to the same SIRAR agreement that funds account 1. The funding agreement is not changed; nor is expense. These steps formalize what the cost center intended-they use the surplus on one account to cover the deficit in another account.
Once the cost center has moved SIRAR funding between accounts, the month-end Project Cost Accounting System (PCAS) distribution process and the fund split adjustment process distributes the expenses to unspent reimbursable authority, eliminates the advance, and reduces the amount distributed to appropriation default (0002X). The schedule for running the fund split adjustment process is on a quarterly basis and can be accessed at http://internal.usgs.gov/ops/finance/ffs/pcasbilling-fundsplitadj-schedule.html.
After adjustment the funding looks as follows:
SIRAR | SIRAR | SIRAD | SIRAD | |
---|---|---|---|---|
Funding | Expense | Funding | Expense | |
Account 1 | 8,000 | 8,000 | 10,000 | 10,000 |
Account 2* | 12,000 | 12,000 | 10,000 | 10,000 |
*Note: Account 2 now has two FPCA records tied to two different agreements.
To correct the outstanding advances for fixed price agreements for fiscal years 2001 and 2002, the appropriate Fiscal Service organization shall take the following actions.
Chief, Office of Administrative Policy and Services