ACCOUNTING PRINCIPLES AND STANDARDS HANDBOOK

# CHAPTER 9. LIABILITIES

# Section 1.0 General

The accounting system must recognize and record all liabilities on the
accrual basis of accounting. Liabilities must be recorded regardless of
fund availability and liquidated as payment is made. A liability is a
probable future outflow or other sacrifice of resources as a result of
past transactions or events. Liabilities recognized according to FASAB
standards include both liabilities covered by budgetary resources and
liabilities not covered by budgetary resources.[^1] This chapter
provides guidance on the recognition points for liabilities associated
with different types of events and transactions, except for the
following types of transactions:

a.  Liabilities for Loan Guarantees: Bureaus which administer direct
    loan and loan guarantee programs must recognize loan guarantees
    outstanding at the present value of net cash outflows, along with a
    subsidy expense. See [SFFAS No. 2, "Accounting for Direct Loans and
    Loan
    Guarantees](http://www.fasab.gov/pdffiles/codification_report2007.pdf)"
    for more information.

b.  Operating Leases: An agreement conveying the right to use property
    for a limited time, i.e., a portion of its useful life, in exchange
    for periodic rental payments.

c.  Capital Leases: Leases that transfer substantially all the benefits
    and risks of ownership to the lessee. A lease transaction should be
    reported as a capital lease when one or more of the following four
    criteria are met:

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1.  Transfer of ownership to lessee at the end of the lease term,

2.  Option to purchase the leased property at a bargain price,

3.  Lease term is equal to or greater than 75 percent of the economic
    life of leased property, and

4.  Present value of rental and other minimum lease payments excluding
    executory costs, equals or exceed 90 percent of fair value of lease
    property.

> The last two criteria are not applicable when the beginning of the
> lease term falls within the last 25 percent of the total estimated
> economic life of the leased property. If a lease does not meet at
> least one of the above criteria it should be classified as an
> operating lease.
>
> See [SFFAS No. 5, "Accounting for Liabilities of the Federal
> Government,"](http://www.fasab.gov/pdffiles/codification_report2007.pdf)
> Sections 43-46 for more information.

d.  Federal Debt and Related Interest Cost: Accounting for the Federal
    debt should identify the amount of the outstanding debt liability of
    the Federal Government at any given time and the related interest
    cost for each accounting period. For Commerce bureaus that fall
    under this exception, see [SFFAS No. 5, "Accounting for Liabilities
    of the Federal
    Government,"](http://www.fasab.gov/pdffiles/codification_report2007.pdf)
    Sections 47-55 for accounting guidance.

e.  Insurance and Guarantee Programs: Insurance and guarantee programs
    (other than social insurance and loan guarantee programs) are
    Federal programs that provide protection to individuals or entities
    against specified risks. For Commerce bureaus that fall under this
    exception, see [SFFAS No. 5, "Accounting for Liabilities of the
    Federal
    Government,"](http://www.fasab.gov/pdffiles/codification_report2007.pdf)
    Sections 97-121, for accounting guidance.

# Section 2.0 Authority

The policies and procedures in this chapter are issued pursuant to the
following guidelines:

The policies and procedures contained in this chapter are issued
pursuant to:

a.  FASAB Statements of Federal Financial Accounting Standards (SFFAS):

-   [SFFAS 1 -- "Accounting for Selected Assets and
    Liabilities;"](http://www.fasab.gov/pdffiles/codification_report2007.pdf)

-   [SFFAS 2 -- "Accounting for Direct Loans and Loan
    Guarantees;"](http://www.fasab.gov/pdffiles/codification_report2007.pdf)

-   [SFFAS 5 --"Accounting for Liabilities of the Federal
    Government;"](http://www.fasab.gov/pdffiles/codification_report2007.pdf)

-   [SFFAS 7 -- "Accounting for Revenue and Other Financing
    Sources;"](http://www.fasab.gov/pdffiles/codification_report2007.pdf)

-   [SFFAS 7 -- Implementation Guide (April 2002) \[amends June 1996
    SFFAS 7 -- Implementation
    Guide\];"](http://www.fasab.gov/pdffiles/codification_report2007.pdf)

-   [SFFAS 7 -- "Implementation Guide (June
    1996);"](http://www.fasab.gov/pdffiles/codification_report2007.pdf)

-   [SFFAS 12 --"Recognition of Contingent Liabilities from Litigations
    (Amends SFFAS No.
    5);](http://www.fasab.gov/pdffiles/codification_report2007.pdf)"

-   [SFFAS 18 --"Amendments to Accounting Standards For Direct Loans and
    Loan Guarantees (amends SFFAS
    2);"](http://www.fasab.gov/pdffiles/codification_report2007.pdf)

-   [SFFAS 19 --"Technical Amendments to Accounting Standards For Direct
    Loans and Loan Guarantees (amends SFFAS
    2);"](http://www.fasab.gov/pdffiles/codification_report2007.pdf)

-   [SFFAS 31 --"Accounting for Fiduciary
    Activities;"](http://www.fasab.gov/pdffiles/codification_report2007.pdf)
    and

-   [FASAB Statements of Financial Accounting Concepts and Standards as
    of June 30, 2006 -- "Appendix E: Consolidated
    Glossary."](http://www.fasab.gov/pdffiles/codification_report2007.pdf)

b.  FASAB Interpretations of Federal Financial Accounting Standards:

-   [Interpretation 3 -- "Measurement Date for Pension and Retirement
    Helath Care
    Liabilities;"](http://www.fasab.gov/pdffiles/codification_report2007.pdf)
    and

-   [Interpretation 4 -- "Accounting for Pension Payments in Excess of
    Pension
    Expense."](http://www.fasab.gov/pdffiles/codification_report2007.pdf)

c.  FASAB Technical Bulletins:

-   [Technical Bulletin 2002-1 -- "Assigning to Component Entities Costs
    and Liabilities That Result From Legal Claims Against the Federal
    Government;"](http://www.fasab.gov/pdffiles/codification_report2007.pdf)
    and

-   [Technical Bulletin 2006-1 -- "Recognition and Measurement of
    Asbestos-Related Cleanup
    Costs."](http://www.fasab.gov/pdffiles/codification_report2007.pdf)

d.  Technical Releases of the Accounting and Auditing Policy Committee
    (AAPC) of FASAB:

-   [Federal Financial Accounting and Auditing Technical Release 2:
    Determining Probable and Reasonably Estimable for Environmental
    Liabilities in the Federal
    Government;"](http://www.fasab.gov/pdffiles/codification_report2007.pdf)

-   [Federal Financial Accounting and Auditing Technical Release 3
    (revised): Auditing Estimates for Direct Loan and Loan Guarantee
    Subsidies under the Federal Credit Reform Act *Amendments to
    Technical Release 3: Preparing and Auditing Direct Loan and Loan
    Guarantee Subsidies under the Federal Credit Reform
    Act*;"](http://www.fasab.gov/pdffiles/codification_report2007.pdf)

-   [Federal Financial Accounting and Auditing Technical Release 6:
    Preparing Estimates for Direct Loan and Loan Guarantee Subsidies
    under the Federal Credit Reform Act Amendments to Technical Release
    3: Preparing and Auditing Direct Loan and Loan Guarantee Subsidies
    under the Federal Credit Reform
    Act;"](http://www.fasab.gov/pdffiles/codification_report2007.pdf)
    and

e.  FASAB Statements of Federal Financial Accounting Concepts (SFFAC):

-   [SFFAC 1 -- "Objectives of Federal Financial
    Reporting;"](http://www.fasab.gov/pdffiles/codification_report2007.pdf)
    and

-   [SFFAC 5 -- "Definitions of Elements and Basic Recognition Criteria
    for Accrual-Basis Financial
    Statements."](http://www.fasab.gov/concepts.html)

f.  [OMB Circular A-136, "Financial Reporting
    Requirements---Revised."](http://www.whitehouse.gov/omb/circulars/index.html)

[Section 3.0 Definition and Classification]{.underline}

A liability for Federal accounting purposes is a probable future outflow
or other sacrifice of resources as a result of past transactions or
events. General purpose Federal financial reports should recognize
probable and measurable future outflows or other sacrifices of resources
arising from (1) past exchange transactions, (2) government-related
events, (3) government-acknowledged events, or (4) non-exchange
transactions that, according to current law and applicable policy, are
unpaid amounts due as of the reporting date. A transaction involves the
transfer of something of value. Transactions may be either exchange
transactions or nonexchange transactions. An event is defined as a
happening of financial consequence to an entity. For Federal financial
reporting, some events may be other than transaction based and these
events may be classified as government-related or
government-acknowledged events. See Section 5.0, *Basis for Recording,*
for an explanation of exchange and non-exchange transactions.

Intra-governmental liabilities arise from claims against the entity by
other Federal entities. Intra-governmental liabilities are reported
separately from claims against the entity by non-Federal entities. The
term "non-federal entities" encompasses the Federal Reserve and
Government-Sponsored Enterprises. Non-federal entities also include
domestic and foreign persons or organizations.

# Section 4.0 Requirements

The general ledger and/or subsidiary ledger accounts must be
sufficiently detailed to provide the categories of liabilities needed
for reports. Liability accounts and undelivered orders must be reviewed
and verified at least quarterly in order to certify obligations.

# Section 5.0 Basis for Recording

Exchange Transactions: An exchange transaction arises when each party to
the transaction sacrifices value and receives value in return. There is
a two-way flow of resources or promises to provide resources. In an
exchange transaction, a liability is recognized when one party receives
goods or services in return for a promise to provide money or other
resources in the future.

An example of an exchange transaction occurs when a Federal employee
performs services in exchange for compensation. The compensation
includes current salary and future retirement benefits. The expense is
recognized in the period that the exchange occurs. The compensation
liability includes unpaid salary amounts earned and the cost of future
retirement benefits related to current period services.

Non-exchange Transactions: A non-exchange transaction arises when one
party to a transaction receives value without directly giving or
promising value in return. There is a one-way flow of resources or
promises. For Federal non-exchange transactions, a liability should be
recognized for any unpaid amounts due as of the reporting date. Many
grant and certain entitlement programs are non-exchange transactions.

Government-related Events: Government-related events are
nontransaction-based events that involve interaction between the Federal
Government and its environment. In general, a liability is recognized in
connection with government-related events on the same basis as those
that arise in exchange transactions. Government-related events include:

a.  Cleanup from Federal operations resulting in hazardous waste that
    the Federal Government is required by statutes and/or regulations,
    which are in effect as of the financial statement date, to clean up;

b.  Accidental damage to non-Federal property caused by Federal
    operations; and

c.  Other damage to Federal property caused by such factors as Federal
    operations or natural forces.

Government-related events resulting in a liability should be recognized
in the period the event occurs if the future outflow or other sacrifice
of resources is probable and the liability can be measured, or as soon
thereafter as it becomes probable and measurable.

Government-acknowledged Events: Government-acknowledged events are those
nontransaction-based events that are of financial consequence to the
Federal Government because it chooses to respond to the event. Bureaus
should recognize the liability and expense when both of the following
two criteria have been met (1) the Congress has appropriated or
authorized (i.e., through authorization legislation) resources and (2)
an exchange occurs (e.g., when a contractor performs repairs) or
non-exchange amounts are unpaid as of the reporting date (e.g., direct
payments to disaster victims), whichever applies.

# Section 6.0 Selected Liabilities

> .01 [Accounts Payable]{.underline}
>
> Accounts payable are amounts owed by a Federal entity for goods and
> services received from, progress in contract performance made by, and
> rents due to other entities. 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.
>
> For facilities or equipment constructed or manufactured by contractors
> or grantees according to agreements or contract specifications,
> amounts recorded as payable should be based on an estimate of work
> completed under the contract or the agreement. The estimate of such
> amounts should be based primarily on the bureau's engineering and
> management evaluation of actual performance progress and incurred
> costs.
>
> .02 [Interest Payable]{.underline}
>
> Interest payable represents liabilities for interest expense incurred
> but not yet paid. This includes interest expenses incurred under
> capital lease obligations and the Prompt Payment Act. (See the
> [Department's Cash Management Policies and Procedures
> Handbook](http://www.osec.doc.gov/ofm/cash/cover.htm), Appendix F,
> Prompt Payment.)
>
> Interest payable to Federal entities is an intra-governmental
> liability and should be accounted for separately from interest payable
> to the public.
>
> .03 [Environmental and Disposal Liabilities]{.underline}
>
> SFFAS No. 5 provides criteria for recognizing a contingent liability,
> which shall be applied to determine if cleanup costs should be
> recognized as liabilities and/ or disclosed in the notes. SFFAS No. 6
> supplements the liability standard by providing guidance for recording
> cleanup costs related to general PP&E and stewardship PP&E used in
> Federal Operations. Depending on the materiality of the amount, the
> liability for cleanup costs may be displayed separately or included
> with Other Liabilities. The note disclosures required for liabilities
> associated with cleanup costs are described in SFFAS No. 6.
>
> .03 [Accrued Payroll and Benefits]{.underline}
>
> Accrued payroll and benefits include the total funded but unpaid
> personnel compensation and benefits that have been earned by employees
> as of the close of the period. Personnel compensation includes accrued
> employees' wages, bonuses, and salaries for services rendered in the
> current fiscal year, for which payment will be issued in the following
> fiscal year. Employee benefits include pensions and post-employment
> and retirement benefits other than pensions. The cost of payroll and
> benefits must be distributed to organizational cost centers, programs,
> activities, functions, and projects in the period they are incurred.
> For specific guidance on accrued benefits, see Section 8.0, *Pensions,
> Other Retirement Benefits, and Other Post-employment Benefits*.
>
> .04 [FECA Liabilities]{.underline}
>
> The Federal Employees' Compensation Act (FECA) provides income and
> medical cost protection to covered Federal civilian employees for
> injuries on the job, work-related occupational disease, and to
> beneficiaries of covered employees. FECA liabilities consist of the
> following liabilities:

-   FECA Actuarial Liability which includes the expected liability for
    death, disability, medical and other approved costs.

-   Accrued Unfunded FECA Liability which is the difference between the
    FECA benefits paid by the FECA Special Benefits Fund and the
    agency's actual cash payment to the Fund.

> .05 [Accrued Unfunded Annual Leave]{.underline}
>
> Unfunded annual leave accrued to employees is the amount of annual
> leave earned but not used at the end of the fiscal year. It is
> expected to be paid from future years' appropriations. Annual leave
> (including home leave) is an expense which accrues as it is earned by
> employees. Except for work under a revolving fund, no obligation is
> incurred for annual leave until it is used. The expense for unfunded
> annual leave must be recorded as an unfunded liability, and serves to
> bridge obligations to the total cost of personnel compensation.
>
> Initially, a liability accruing annual leave will be recorded at the
> wage rate at which it is earned. A revised balance reflecting the
> annual leave liability should be computed at least annually to reflect
> current pay rates and leave balances. Any resulting increase should be
> charged to current year expenses. Unused sick leave, compensatory, or
> credit time may be tracked for budget or management purposes, but will
> not be recorded as a liability.
>
> .06 [Unearned Revenue (Advances Received)]{.underline}
>
> Unearned revenue consists of advances received from other Federal
> agencies or the public prior to the requirement to provide goods or
> services. (See Chapter 11 of the [Accounting Principles and Standards
> Handbook](http://www.osec.doc.gov/ofm/Accounting/cover.html), Fees and
> Revenues, Section 3.01e, on accounting for unearned revenues.)
> Advances from sources outside the organization unit must be recorded
> and liquidated under terms of the agreements as services are
> performed.
>
> .07 [Deposit Funds]{.underline}
>
> These represent the liabilities for amounts on deposit, covering such
> items as: (1) monies withheld from Government payments for goods and
> services received; (2) deposits received from outside sources for
> which the Government acts solely as a banker, fiscal agent or
> custodian; and (3) monies held by the Government awaiting distribution
> on the basis of a legal determination or investigation.
>
> .08 [Other Liabilities]{.underline}
>
> The nature of any liability that comprises more than 25 percent of the
> total amount reported for this category, needs to be identified and
> properly disclosed. Liabilities related to accruals for loss
> contingencies should be reported in this category, as well as
> long-term agreements and contracts not reported elsewhere.
>
> a\. Property borrowed from sources outside the organization unit
> should be recorded and offset with a matching liability.
>
> b\. A liability must be recorded for amounts withheld from grantees or
> contractors pending completion of contracts, audits, or other
> assurances of proper performance.
>
> c\. The value of acquired collateral must be offset by a liability for
> any prior liens or other just claims against the collateral.

# Section 7.0 Contingent Liabilities

A contingency is an existing condition, situation, or set of
circumstances involving uncertainty as to possible gain or loss to an
entity. The uncertainty will ultimately be resolved when one or more
future events occur or fail to occur. Resolution of the uncertainty may
confirm a gain or a loss.[^2] Contingencies that might result in gains
should not be recorded until the gains are actually realized. This
section will discuss contingencies arising from the likelihood that
future events will confirm the loss or the incurrence of a liability
that can range from probable to remote. The following are some examples
of loss contingencies:

> \- Collectibility of receivables,
>
> \- Pending or threatened litigation, and
>
> \- Possible claims and assessments.
>
> .01 [Likelihood of Occurrence]{.underline}
>
> When a loss contingency exists, the likelihood that future events will
> confirm the loss or impairment of an asset, or the occurrence of a
> liability, can range from probable to remote. This section uses the
> terms probable, reasonably possible, and remote to identify three (3)
> areas within that range.[^3]
>
> a\. Probable: The future confirming event or events are more likely
> than not to occur, with the exception of pending or threatened
> litigation and unasserted claims. For pending or threatened litigation
> and unasserted claims, the future confirming event or events are
> likely to occur;
>
> b\. Reasonably possible: The chance of the future event or events
> occurring is more than remote but less than probable; and
>
> c\. Remote: The chance of the future event or events occurring is
> slight.
>
> .02 [Accruals of Contingent Liabilities]{.underline}
>
> A contingent liability should be recognized when all three of these
> criteria are met:

a.  A past event or exchange transaction has occurred;[^4]

b.  A future outflow or other sacrifice of resources is probable; and

c.  The future outflow or sacrifice of resources is measurable.

> The estimated liability may be a specific amount or a range of
> amounts. If some amount within the range is a better estimate than any
> other amount within the range, that amount is recognized. If no amount
> within the range is a better estimate than any other amount, the
> minimum amount in the range is recognized and the range and a
> description of the nature of the contingency should be disclosed.
>
> .03 [Special Cases]{.underline}
>
> a\. Claims for price adjustments resulting from changed condition
> clauses in construction contracts which require claims to be in
> writing must be recorded as a contingent liability.
>
> b\. [Department Administrative Order (DAO)
> 203-17](http://204.193.232.34/cgi-bin/doit.cgi?204:112:24f3804d6940352a917b87c4a53cb12b984b1683018cdd193651d3ae72e58a9f:115),
> "Personal Property Claims of Department of Commerce Personnel,"
> provides for the Department's settling of certain claims for the loss
> of personal property. A contingent liability must be established on
> the basis of the amount recorded on the CD-224, Employee Claim for
> Loss of or Damage to Personal Property.
>
> c\. A contingent liability must be recorded when a claim is received
> under [DAO
> 203-24](http://204.193.232.34/cgi-bin/doit.cgi?204:112:24f3804d6940352a917b87c4a53cb12b984b1683018cdd193651d3ae72e58a9f:117),
> "Claims Under the Federal Tort Claims Act." If appropriations of the
> primary bureau are not adequate to cover the contingent liability, the
> bureau should report the matter to the Chief Financial Officer so that
> other unexpired appropriations of the Department may be considered.
>
> d\. The total exposure of loan guarantees and commitments must be
> disclosed on supporting schedule SF 220-8, Direct and Guaranteed Loans
> Reported by Agency and Program Due From the Public. Additional notes
> should disclose the nature and period of loan guarantees and
> commitments, any collateral provisions, whether funds have been
> obligated, and any other relevant information which is material.
>
> e\. An entity's management must identify, evaluate and account for
> contingent liabilities resulting from litigation, claims, and
> assessments. The identification and evaluation should include
> consultation with staff counsel and the Office of General Counsel.
> Once the entity's management determines that a claim meets the
> criteria of a contingent liability, then the expense and liability
> recorded would be adjusted periodically, as appropriate, based on any
> changes in the estimated loss.

After the claim is either settled or a court judgment is assessed
against the Federal entity and the Judgment Fund is determined to be the
appropriate source for the payment of the claim, the liability should be
removed from the financial statements of the entity that incurred the
liability and an "other financing source" amount (which represents the
amount to be paid by the Judgment Fund) would be recognized. If the
Judgment Fund is responsible for only a portion of the claim or
settlement, the imputed financing source amount would reflect only that
amount to be paid by the Judgment Fund on behalf of the Federal entity.
See the accounting illustration in [SFFAS No. 2, "Accounting for
Treasury Judgment Fund
Transactions,"](http://www.fasab.gov/pdffiles/codification_report2007.pdf)
for an example of sample journal entries.

[Section 8.0 Pensions, Other Retirement Benefits, and Other
Post-employment Benefits]{.underline}

(For bureaus which administer a pension program, see [SFFAS No.
5](http://www.fasab.gov/pdffiles/codification_report2007.pdf),
"Accounting for the Liabilities of the Federal Government," for detailed
guidance on accounting standards.)

Pension plans provide benefits upon retirement and may also provide
benefits for death, disability, or other termination of employment
before retirement. Pension plans may also include benefits to survivors
and dependents, and they may contain early retirement or other special
features. The actuarially determined liability and expense of the plan,
including all its provisions, are part of the pension plan's liability
and expense estimate.

In addition to or in lieu of pension benefits, a liability for
post-employment and other retirement benefits may be incurred outside
the pension plan. Post-employment benefits other than pensions (OPEB)
include all types of benefits provided to former or inactive (but not
retired) employees, their beneficiaries, and covered dependents.[^5]
Inactive employees are those who are not currently rendering services to
their employers and who have not been terminated, but who are not
eligible for an immediate annuity, including those temporarily laid off
or disabled. OPEB includes salary continuation, severance benefits,
counseling and training, continuation of health care or other benefits,
and unemployment and workers' compensation benefits paid by the bureau.

Retirement benefits other than pensions (ORB) are all forms of benefits
to retirees or their beneficiaries provided outside the pension plan.
Examples include health and life insurance. Retirement health care
benefits are the primary ORB expense.

Pension benefits, OPEB, and ORB are exchange transactions because the
employee performs service in part to receive the deferred compensation
provided by the plans (such as future pension and medical care
benefits). For pension and other retirement benefits, the expense is
recognized at the time the employees' services are rendered. For OPEB,
the expense is recognized at the time the accountable event occurs. Any
part of that cost that is unpaid at the end of the period is a
liability.

> .01 [Pensions]{.underline}
>
> Pension benefits include all retirement, disability, and survivor
> benefits financed through a pension plan, including unfunded pension
> plans. Federal civilian and military employees are covered primarily
> under the following three defined benefit retirement plans: Civil
> Service Retirement System (CSRS), Federal Employees Retirement System
> (FERS), and Military Retirement System (MRS). To the extent that
> Federal employees are covered by social insurance programs (such as
> Social Security), the taxes they pay to the program are to be
> accounted for on the same basis used to account for other program
> participants. However, the payments to social insurance plans that
> agencies must make are operating costs. Similarly, to the extent that
> Federal employees are covered by defined contribution plans (i.e., the
> Thrift Savings Plan, which is like a 401(k) plan), Federal payments to
> the plan are expenses, but the plan itself is not covered under this
> standard.
>
> Bureaus should recognize a pension expense in their financial
> statement that equals the service cost for its employees for the
> accounting period, less the amount contributed by the employees, if
> any. Service cost is defined as the actuarial present value of
> benefits attributed by the pension plan's benefit formula to services
> rendered by employees during an accounting period. The term is
> synonymous with "normal cost." The measurement of the service cost
> will require the use of the plan's actuarial cost method and
> assumptions, and therefore the factor to be applied by bureaus must be
> provided by the plan and/or the administrative entity.
>
> The bureaus' pension expense should be balanced by: (a) a decrease to
> its "Fund Balance with Treasury" for the amount of its contribution to
> the pension plan, if any; and if this does not equal the full expense,
> by (b) an increase to an account representing an intra-governmental
> imputed financing source entitled, for example, "imputed financing -
> expenses paid by other agencies." The latter represents the amount
> being financed directly through the pension plan's administrative
> entity.
>
> When bureau's total payment for FERS and CSRS exceeds the related
> total pension expense as defined in [SFFAS No.
> 5](http://www.fasab.gov/pdffiles/codification_report2007.pdf),
> "Accounting for the Liabilities of the Federal Government," the bureau
> should account for the excess payment as a transfer-out. The bureau
> should include the transfer-out when determining results of operations
> on its statement of changes in net position.
>
> Any FERS-related payment that exceeds the FERS-related pension expense
> should be offset against any imputed financing resulting from a
> CSRS-related payment being less than CSRS-related pension expense in
> calculating the amount of the transfer out. Only when the total
> pension payment exceeds total pension expense would a transfer-out be
> recognized.
>
> In special instances when a bureau is also the administrative entity
> (e.g., the Coast Guard), the bureau should report the liability and
> recognize the pension expense for all components of cost. For Commerce
> bureaus which fall under this exception, see [SFFAS No.
> 5](http://www.fasab.gov/pdffiles/codification_report2007.pdf),
> "Accounting for the Liabilities of the Federal Government," for
> accounting guidance.
>
> Pension and retirement health care liabilities in general purpose
> Federal financial reports prepared pursuant to [SFFAS No.
> 5](http://www.fasab.gov/pdffiles/codification_report2007.pdf),
> "Accounting for the Liabilities of the Federal Government," shall be
> measured quarterly. This measurement shall be performed following the
> end of the period reported, but does not have to be based on a full
> actuarial valuation as of the end of the reporting period. The
> measurement shall, however, reflect the best available estimates of
> the major factors that would be reflected in a full actuarial
> valuation, such as the actual pay raise, the actual cost of living
> adjustment, and material known changes in the number of employees
> covered (enrollment) that cause a change in the liability.
>
> This measurement may be based on an actuarial valuation performed as
> of an earlier date during the fiscal year, including a
> beginning-of-year actuarial valuation, with suitable adjustments for
> the effects of changes during the year in major factors such as the
> pay raise, cost of living adjustment, etc. This is sometimes referred
> to as a measurement based on a "projection" or "roll-forward" of the
> most recent available actuarial valuation.
>
> In evaluating the effect on the liability caused by changes in
> enrollment for plans that cover employees of more than one reporting
> entity (e.g., CSRS, FERS), materiality shall be assessed at the plan
> level. In evaluating the effect on the liability caused by changes in
> enrollment for plans that cover employees of only one reporting entity
> (e.g., Coast Guard, Department of State), materiality shall be
> assessed at the reporting entity level. See the accounting
> illustrations in [SFFAS No.
> 5](http://www.fasab.gov/pdffiles/codification_report2007.pdf),
> "Accounting for the Liabilities of the Federal Government," and [IFFAS
> No. 4](http://www.fasab.gov/pdffiles/codification_report2007.pdf),
> "Accounting for Pension Payments in Excess of Pension Expense," for
> examples of accounting for Pensions.
>
> .02 [Other Retirement Benefits (ORB)]{.underline}
>
> ORBs include all retirement benefits other than pension plan benefits.
> ORBs are provided outside the pension plan by an employer to a former
> employee or the employee's beneficiary upon retirement. The
> predominant ORB in the Federal Government is retirement health care
> benefits, and they are the focus of this section.
>
> Future health care benefits are more uncertain than pensions since
> they depend on the changing patterns of health care delivery and
> utilization, on the price trends for medical care, and on the benefits
> provided by social insurance programs like Medicare (Part A). Also,
> medical plans do not vest like pensions; to receive ORB benefits the
> employee must retire with health care benefits provided by the
> organization.
>
> Bureaus should account for and report the ORB expense in their
> financial statement in a manner similar to that for pensions. The
> employer's ORB expense should be recognized in an amount equal to the
> total service cost for its employees for the accounting period, less
> the amount contributed by its employees, if any. The measurement of
> the service cost requires the use of the plan's actuarial cost method
> and assumptions. The cost factor should be provided to the agencies on
> a per employee basis by the administrative entity and/or the plan.
>
> The bureau's ORB expense should be balanced by (a) a decrease to the
> bureau's "Fund Balance with Treasury" for the amount of its
> contributions to the ORB plan, if any; and, if this does not equal the
> full expense, (b) by an increase to an account representing an
> intragovernmental financing source entitled, for example, "imputed
> financing - expenses paid by other entities." The latter represents
> the amount being financed directly through the ORB plan.
>
> In special instances when a bureau is also the administrative entity,
> the bureau should report the liability and recognize the ORB expense
> for all components of cost. For example, the bureau is paying its
> retirees' ORB on a pay-as-you-go basis. For Commerce bureaus which
> fall under this exception, see [SFFAS No.
> 5](http://www.fasab.gov/pdffiles/codification_report2007.pdf),
> "Accounting for the Liabilities of the Federal Government," for
> accounting guidance. [SFFAS No.
> 5](http://www.fasab.gov/pdffiles/codification_report2007.pdf),
> "Accounting for the Liabilities of the Federal Government," also
> provides an example of accounting for Other Retirement Benefits.
>
> .03 [Other Post-employment Benefits (OPEB)]{.underline}
>
> OPEB are provided to former or inactive employees, their
> beneficiaries, and covered dependents outside pension or ORB plans.
> Inactive employees are those who are not currently rendering services
> to the employer but who have not been terminated, including those
> temporarily laid off or disabled. Post-employment benefits can include
> salary continuation, severance benefits, counseling and training,
> continuation of health care or other benefits, and unemployment,
> workers' compensation, and veterans' disability compensation benefits
> paid by the bureau.
>
> The bureau should recognize an expense and a liability for OPEB when a
> future outflow or other sacrifice of resources is probable and
> measurable on the basis of events occurring on or before the reporting
> date. For example, a reduction in force may require a bureau to make
> severance payments, unemployment reimbursements, or other payments in
> future periods. Similarly, an injury on the job may require the bureau
> to make short- or long-term reimbursements to the Federal Workers'
> Compensation program. A long-term OPEB liability should be measured at
> the present value of future payments. This will require the bureau to
> estimate the amount and timing of future payments, and to discount the
> future outflow using the Treasury borrowing rate for securities of
> similar maturity to the period over which the payments are to be made.
>
> Most OPEB liabilities should be short-term because the benefits will
> be paid in the near future. Some OPEB, however, could be longer term.
> For example, a liability for workers' compensation or veterans'
> disability compensation might be long-term for some injuries since
> bureaus might be required to reimburse the program for many years.
> Also, certain specially authorized separation incentive programs could
> provide for payments that extend over many future years.
>
> An accrual must be established for Unemployment Compensation and
> Workers' Compensation in the event that actual bills have not been
> received in time for financial statement preparation. Actual costs for
> Unemployment Compensation are received from the Department of Labor
> through the Department of Commerce, Office of Human Resources
> Management (OHRM) on a quarterly basis. After review of the bills by
> OHRM, they are forwarded to the bureaus, generally within two months
> after the close of the quarter. Bureaus should ensure that four
> quarterly bills were received or an accrual established and recorded
> in the accounting system prior to completion of the financial
> statements. Quarterly bills should be paid in full to the Department
> of Labor and any disputed charges forwarded to OHRM for submission to
> the Department of Labor or the states for credit, as appropriate.
>
> In the case of Workers' Compensation, an annual bill will be received
> by OHRM from the Department of Labor covering the annual period of
> July 1 - June 30. Bureaus should ensure that this billing is received
> and recorded. The bill should be paid in full to the Department of
> Labor. Disputed charges should be forwarded to OHRM for obtaining
> credits from the Department of Labor or the states, as appropriate. In
> addition, prior to completion of the financial statements, an accrual
> will need to be established and recorded in the accounting system for
> the final quarter of the fiscal year.

[Section 9.0 Deposit Funds and Clearing Accounts]{.underline}

Deposit Funds and Clearing Accounts are accounts outside the budget that
a Government entity is holding temporarily in trust for others, until
ownership is determined, or until the transaction has been reclassified
appropriately. They include:

> a\. Money withheld by the Government from payments for goods and
> services. This type of transaction may be treated as a deposit fund
> liability if a budget account has been charged and funds are being
> held pending payments, e.g., payroll deductions for savings bonds and
> state income tax withholdings.
>
> b\. Deposits received from outside sources and temporarily held in
> custody by the Government.
>
> c\. Money held by the Government awaiting distribution pending a legal
> determination or investigation.
>
> d\. Unidentified remittances (i.e. suspense items), which (for the
> Clearing Accounts applicable to the Department), effective April 28,
> 2006, will be redistributed to respective departments in the *Monthly
> Treasury Statement* (MTS) and the *Combined Statement of Receipts,
> Outlays, and Balances of the United States Government*.
>
> Treasury's Financial Management Service has grouped these suspense
> items into a special class called Clearing Accounts. There are several
> types of Clearing Accounts (please note that during FY 2008 suspense
> accounts will be discontinued unless a waiver is granted):
>
> The most common Clearing Accounts are:

1.  Budget Clearing Account (Suspense) (F3875): to temporarily credit
    unclassified transactions from the public when there is a reasonable
    presumption that the amounts belong to their agencies.

2.  Undistributed Intergovernmental Payments Account (F3885): to
    temporarily credit unclassified transactions between Federal
    agencies, including Intra-governmental Payment and Collection (IPAC)
    transactions.

> Other types of Clearing Accounts that may be applicable to the
> Department are:

3.  Undistributed Proceeds from Sale of Foreign Currency (F3810)

4.  Proceeds of Sales, Personal Property (F3845)

5.  Unavailable Check Cancellations and Overpayments (F3880)

Each agency should review its Clearing Account practices periodically,
or at least on a quarterly basis, and take whatever corrective action to
minimize balances held in the Clearing Accounts, as applicable. Sizable
balances in these accounts may be indications of weakness in internal
control.

For more details on Deposit Funds, refer to [Treasury's TFM Volume 1,
Part 2, Chapter 1500.](http://fms.treas.gov/tfm/vol1/index.html#Part 2)

[^1]: Liabilities covered by budgetary resources are liabilities
    incurred that will be covered by available budgetary resources
    encompassing not only new budget authority but also other resources
    available to cover liabilities for specified purposes in a given
    year. Liabilities not covered by budgetary resources include
    liabilities incurred for which revenues or other sources of funds
    necessary to pay the liabilities have not been made available
    through congressional appropriations or current earnings of the
    reporting entity.

[^2]: Contingencies are different from "subsequent events" as used in
    the accounting/audit literature. Subsequent events are events or
    transactions that occur subsequent to the financial statement date,
    but prior to the issuance of the financial statements and auditor's
    report that have a material effect on the financial statements and
    therefore require adjustment or disclosure in the statements.

[^3]: The concepts for the terms "probable" or "reasonably possible" or
    "remote" as provided here are for purposes of informing the
    judgments of management and financial officials responsible for
    recording contingent liabilities. Such concepts will not necessarily
    be controlling in other contexts, such as consultations with
    counsel, or responses by counsel to audit inquiries.

[^4]: Government-acknowledged events do not meet the criteria necessary
    to be recognized as a

    contingent liability.

[^5]: Special termination benefits (such as specially authorized
    separation incentive programs) are considered other post-employment
    benefits and should be recognized as such.