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characteristics of sound operational objectives
· Should represent true ends (outcomes), not means (outputs)
· Should be readily measurable, yet capture desired outcomes
- · Should be measurable within a period sufficiently short to
- take corrective action
· Should be precise
· Generally must be multiple
Features of Zero-Base (Priority Based) Budgeting
- Focuses on activities -- the administrative techniques employed to carry-out a
- Requires that both current and proposed
- activities be subject to the same review and priority ranking
- Requires the preparation of decision package for each activity that
- Activity objectives, in terms of
- both outputs and outcomes that are objective, quantifiable and measurable
- Alternative means of accomplishing
- the same objective
- Consequences of not performing the
- and outcomes at various levels of
- funding, including the current level and at least one level that is below the
- current level
- Specific inputs for each level of
- outputs, such as dollar amounts, and number and classification of personnel
- Promotes the use of proper cost
- accounting procedures to determine the specific impact that changes in outputs
- would have on required inputs
- Encourages funding at
- "discrete" levels to assure that "slack" is minimized and
- resource productivity is maximized
why zbb failed
· Imposed by the generals; resented by the troops
· Encourages conflict
¨ Requires rankings
¨ Discourages "incrementalism"
- ¨ Requires "what if" scenarios that are unlikely to
- · Requires extraordinary efforts at the outset, but can readily become
- perfunctory thereafter
· May be insensitive to the political process
- · Does not readily facilitate management and control, particularly if
- programs cut across the existing organizational structure
- · May cause "dysfunctional" behavior if the stated goals do
- not fully capture the organization's "true" goals.
- · Does not necessarily live up to expectations in that there may be no
- evidence that budgetary allocations have been changed
Components of a Single Audit
- an audit of
- the financial statements conducted under generally accepted government auditing
- standards; and
- an audit of
- federal financial awards.
Four types of reports
required under Circular A-133
- an opinion as
- to whether the financial statements are fairly presented in accord with
- generally accepted accounting principles and an opinion as to whether a schedule of expenditures of federal awards is
- presented fairly;
- reports on
- internal controls related to the financial statements, major programs and the
- determination of the overhead costs charged to federal awards;
- an opinion as
- to whether the organization complied with laws, regulations, and the provisions
- of contracts or grant agreements;
- a schedule of
- findings and questioned costs
Key Differences Between Financial and Performance Audits
- Nature of examination and
- significance of attest function
- Focus -- organization at-large vs.
- specific programs or activities
- Timing -- routine vs. occasional
General Approach to Performance Audits
- Conduct preliminary survey
- Internal memos and minutes
- Write preliminary report
- Provide auditee an opportunity to
fed fund budget
- special revenues
- general revenues
- federal funds
- trust frunds
- revolving funds
2 types of accounts, and basis
- budgetary: cash
- proprietary: accrual
FED types of financial statements
- Official Annual Report (focus on
- budgetary accounts) CASH BASIS
- Consolidated Financial Statements
- (focus on proprietary accounts) ACCRUAL BASIS
status of social security and usps
- Old Age and
- Survivors Insurance Trust Fund and Disability Trust Fund as well as the Postal
- Service are the only two off-budget accounts.
- They are included in the unified budget
why is social security not on balance sheet as liability?
they are entitlement programs unlike pensions.
nonprofit acts as a cash conduit/agent
revenue should not be recognized; liability should offset receipt of cash;
if organization is granted variance power
should recognize contribution revenue; donor recognizes expense
financially interrelated organizations
rec cont rev; ultimate beneficiary recognize an interest in the net assets
pensions: what is it that is likely to be amortized?
- The amount to be amortized is mainly the portion of the unfunded liability that results from differences
- between actuarial assumptions and actual experience and from changes in the pension benefits
what is an actuarial cost menthod? what does it determine
- An actuarial cost
- method is the means by which the cost of providing the pension benefits is
- allocated to the periods of employee service.
- It determines the “normal” or “service” cost of each period.
what are the elements that determine ARC?
normal service cost + a provision for amortizing the unfunded actuarial liability.
pension amount on govt wide stmt of net assets as either an asset or liability
net pension obligation s of year end
REVISED pension: amount on govt wide stmt of net aseets as either asset or liability
assets or obligations are affected by the discount rate? What are the implications of using too high
of a discount rate?
- The discount rate directly
- affects the actuarial accrued liability.
- The higher the rate, the lower the liability
are the main conceptual reasons for the criticisms (apart from the argument
that estimates of the projected rates of return on investments may be
- The main reason for the
- criticisms is that the amount of the liability is said to be independent of the
- investments that are being used to pay the liability.
What is the main disadvantage of specifying that all capital gains be expendable?
The entity runs the risk that the value of the principal will be eroded by inflation.
is the main disadvantage of specifying that all capital gains be nonexpendable?
The entity may be encouraged to invest in securities that pay high current yields but will be unlikely to appreciate in value.
of the endowments within your control has received a commercial office building
that you intend to hold as an investment.
Why is it essential that the endowment be accounted for on a full
accrual basis and that depreciation be charged on the building?
- Depreciation lowers
- the reported income of the endowment – and thus its cash distributions – to
- reflect the decline in value of the asset and thereby preserves the principal
- at is original value.
RSI vs Notes
- Required supplementary
- information, unlike notes, is subject only to auditor review, not a full audit
The government of the state in which the city is
located is responsible for making 50 percent of the city’s required
contribution to its firefighters’ pension fund.
In the current year the state and the city each contributed $4 million
of the required $8 million.
- Budget: 4
- Funds: 8
- Govt wide: 8
Indicate two deficiencies of the then extant
reporting model (i.e., the funds model) that Statement No. 34 was intended to
- 1. Because it focused
- on individual funds, it failed to provide adequate information on the
- government as a whole.
- 2. Because the
- governmental funds were on a modified accrual, rather than a full accrual
- basis, it failed to provide adequate information on the extent to which
- interperiod equity was achieved.
- Tobacco bonds are backed by revenues to be paid
- by tobacco companies in settlement of legal claims stemming from their failure
- to warn of the health hazards of smoking.
- The bonds are of high risk
- because they are backed exclusively by
- the payments from the tobacco companies – payments that will be received only if the companies have sufficient
- sales revenues to make the payments.
- They are inconsistent with public
- health goals because the state thereby has an incentive not to discourage smoking and the purchase of
- cigarettes. They are inconsistent with principles of interperiod equity because presumably the funds from the tobacco
- companies were to be used to provide
- health-related services over the period that the revenues were to be paid –
- not to balance the budgets of the
- governments in the year that the bonds
- were issued.
short term if gov has a takeout agreement
loss=book value-amt paid to redeem
the year the government paid $350 billion in social security benefits and its
actuarial liability increased by $600 billion.
Social security expense $350
reporting cash flows for nonprofits
- financing activities: for long term purposes
- operating activities: not restricted to lt purposes
nonprofits pass through
if specific beneficiaries, offset with liability
- fundraising should not be >35%
- program at least 65%
why is compensated costs not reorted on statmemt of activities
stmt reports expenses by fx not object. subsumed w/in categories of research, intstruction,etc
healthcare: temp restricted for resources to purchase equipment
mnaging for results
focus on changes inperformancs win school
federal acctg: balance sheet
does not report stewardship assets
FASAb exch and nonexch
- exchange: accrual;
- nonexch: accrual AND cash
feederal: human capital
- conceptually: both excha and non
- actual: nonexchange payable on when due