###### **GUIDE FOR BASIC ACCOUNTING AND REPORTING**

**FOR LOAN GUARANTEE PROGRAMS**

**WITHOUT COLLATERAL**

**IN FEDERAL CREDIT PROGRAM**

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**GUIDE FOR BASIC ACCOUNTING AND REPORTING**

**FOR LOAN GUARANTEE PROGRAMS**

**WITHOUT COLLATERAL**

**IN FEDERAL CREDIT PROGRAM**

**PREPARED BY:**

**CREDIT REFORM SUBCOMMITEE AND**

**GENERAL LEDGER AND ADVISORY BRANCH**

**FISCAL ACCOUNTING OPERATIONS**

**BUREAU OF THE FISCAL SERVICE**

**U.S. DEPARTMENT OF THE TREASURY**

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**Overview**

This guide is designed for those who:

· Formulate and execute Federal credit program budgets, including accounting for assets, liabilities, net position, income, and expenses, and budgetary resources;

· Prepare agency financial statements;

· Audit the agency financial statements;

· Manage or provide service to participants in loan guarantee programs;

· Design and maintain computer systems for financial programs;

· Instruct others in basic accounting and reporting for loan guarantee programs without collateral.

The guide is illustrative, rather than authoritative, and is categorized as “other accounting literature” in the hierarchy of accounting principles for Federal entities.[footnoteRef:1]  It supersedes the original and subsequent loan guarantee scenarios.  Users may download the guide from the Bureau of the Fiscal Service (FS) Web site at www.fiscal.treasury.gov/fsreports/ref/ussgl/ussgl/ussgl_htm. [1: See §II.4, Instructions for Annual Financial Statements, OMB Circular A-136.] 

In order to understand and gain the most from the guide, users must have a working knowledge of the following:

· Budgetary and proprietary accounting, reporting, and terminology;

· The United States Standard General Ledger (USSGL) accounts for basic annual operating appropriations and revolving funds; and

· The Federal Credit Reform Act and other requirements established by the Act; 

· The concepts of Federal credit program accounting and reporting, fund structures, and terminology.  

This guide is a study in accounting and reporting for a discretionary loan guarantee program under the Federal Credit Reform Act of 1990, as amended, for loan guarantees obligated after September 30, 1991.  Loan guarantees are any guarantee, insurance, or other pledge for the payment of all or a part of the principal or interest on any debt obligation of a non-Federal borrower to a non-Federal lender, except for the insurance of deposits, shares, or other withdrawals in financial institutions.  Loans that are financed by the Federal Financing Bank pursuant to agency loan guarantee authority are treated as direct loans rather than loan guarantees.[footnoteRef:2]   [2: OMB Circular No. A-11, Section 185.3(e)] 

Transactions are presented over a 3-year period for a fictitious Federal agency with a single annual loan guarantee program with no risk categories.  Transactions for fiscal year 2 show the disposition of the upward re-estimated subsidy accrued in fiscal year 1, as well as additional transactions to demonstrate the use of cohorts, borrowing authority, negative subsidy rates, and interest accruals in relation to inter-governmental eliminations and downward re-estimates.  Transactions for fiscal year 3 show the disposition of the downward re-estimated subsidy accrued in fiscal year 2 and repayment of debt.  Common transactions and reports are covered in addition to transactions unique to Federal credit program accounting.  However, since accounting for certain accruals and undelivered orders with advances are not unique to credit reform accounting, they are not presented.  In addition, transactions involving collateral are excluded, since they are covered in a separate guide.  Entries are made in general journal form, using USSGL accounts, and are summarized in trial balances for each year.  

The transactions covered are:

· Formulation, apportionment, and allotment of the budget;

· Receipt of subsidy and administrative expense appropriations;

· Payment of administrative expenses;[footnoteRef:3] [3: The illustration is for the payment of administrative expenses without prior obligation through undelivered orders or accounts payable.  Though administrative expenses will usually be obligated before payment, there is nothing about the transactions unique to credit program accounting, and they are not shown.] 

· Commitment to make loan guarantees;

· Transfer of subsidy from the program to the financing fund;

· Transfer of negative subsidy from the financing fund to the general fund

· Collection of guarantee fees;

· Payment of interest supplements;

· Payment of default claims;

· Assuming defaulted guaranteed loans and interest for direct collection

· Collection of loan principal and interest on defaulted guaranteed loans;

· Modification of guarantee terms, with resulting adjustment to program level;

· Collection of interest from Treasury;

· Accrual of interest from borrowers;

· Accrual of inter-governmental interest;

· Write-off of bad debts without receiving collateral;

· Recording the interest accumulation factor on the loan guarantee liability and loan assets;

· Recording of data on guaranteed loans supplied by third-party lenders;

· Accrual, receipt and disbursement of upward and downward subsidy re-estimates and related interest; and

· Closing entries.

While financing funds may borrow money if there is not enough Fund Balance With Treasury to meet requirements for disbursements, in general, financing funds obtain money for disbursements primarily from:

· Offsetting collections, including those from the program fund (for basic and upward re-estimated subsidy);

· Treasury (for interest); and

· Non-Federal sources (such as guarantee fees from program participants or collections of defaulted guaranteed loan principal and interest from borrowers). 

The yearend agency reports are listed below:

· Balance Sheet;

· Statement of Net Cost;

· Statement of Changes in Net Position;

· Statement of Budgetary Resources;

· Financing Footnote

· Fund Balance with Treasury Footnote

· Program and Financing Schedule (Schedule P); and

·   Credit Program Footnote (including the Schedule of Changes in the Allowance for Subsidy).

An SF 132:  Apportionment and Reapportionment Schedule report is furnished at the beginning of each year. These SF132s represent single year funding of subsidy.  

This guide includes two appendices.  Appendix 1 discusses basic differences encountered in mandatory programs.  Appendix 2 provides a listing of key references related to credit program accounting.  If the references change, this document will be updated accordingly and published on the USSGL Website at   https://www.fiscal.treasury.gov/fsreports/ref/ussgl/creditreform/casestud.htm

Users may send questions to the USSGL Website at www.fiscal.treasury.gov/fsreports/ref/ussgl/form-issues.htm by using the online USSGL Issue Form.  This Website also provides a list of the General Ledger and Advisory Branch representatives and their telephone numbers.  

**Listing of USSGL Accounts Used in This Scenario**

**Program Fund**

**Financing Fund**

**Conceptual Framework**

Pre-closing equation: 801000 = 801500 + 802000 + 804000 + 804500

                                   805000 = 805300 - 8065000 

Post-closing equation: 801000 = 804000 + 804500

                                     805000 = 807000

**Miscellaneous Receipt Account**

**Scenario Assumptions**

This guide uses numbers and titles for USSGL accounts.  When necessary, titles for USSGL accounts are expanded by using brackets to capture, clarify, or add specific information, for illustrative purposes only. For example, administrative expense, “[Administrative Expense]” is included after the title for USSGL 610000 account, “Operating Expenses/Program Costs.” In the same manner, for interest supplement expense, “[Interest Supplement],” is included after the title for the USSGL 610000 account.  The USSGL TFM Supplement, Section II, contains definitions for USSGL accounts.

Entries are in general journal form, using USSGL accounts, and are summarized in trial balances for each year. Note that the financing fund is used only in the transactions for Post-Credit Reform scenarios, and the liquidating fund is used only in the transactions for Pre-Credit Reform scenarios.

USSGL accounts that, by themselves, do not directly provide the reporting that is illustrated, are supplemented with additional detail. The entries made and the method chosen to illustrate the detail provide only one-way of accounting. Agencies may have other ways of structuring their ledgers and making journal entries to accomplish the same result.

**USSGL Scenario**

**Loan Guarantee Program**

**Fiscal Year 1**

The loan guarantee Agency has been authorized to guarantee loans beginning in fiscal year 1.  It has authority to guarantee 80 percent of the principal and related interest of $100,000 in loans.  The agency has a single, discretionary loan guarantee program with no risk categories.[footnoteRef:7] For fiscal year 1, Congress has authorized annual appropriations for basic subsidy, modified subsidy, and administrative expenses and provided that the program is subject to the Federal Credit Reform Act of 1990, as amended. [7: Programs that have risk categories must maintain separate financing fund accounting for each risk category.  While annual appropriations for basic and modified subsidy, which are common in discretionary loan guarantee programs, are illustrated, some programs may have multi-year or no-year authority appropriations provided for these purposes in their underlying legislation.  Accounting for these types of appropriations is essentially the same as it would be for basic operating appropriations or revolving fund.  See Appendix 2 for examples] 

**Transactions To Be Recorded in the Program and Financing Fund**

1. The agency’s subsidy model indicated that, for the $100,000 of loan guarantees, a 21.5 

percent subsidy was indicated as follows: 

•	Present value of expected defaults is 20 percent, or $20,000;

•	Present value of guarantee fees to be collected is (.5) percent or $500 (all anticipated this year), and

•	Present value of interest supplements to be paid to third-party lenders as loans are guaranteed, to buy down interest rates, is 2 percent or $2,000.  

2. The agency has appropriated administrative expenses for fiscal year 1 in the amount of $5,000.  

3. The agency estimates the following financing fund collections for the year:

•	$21,500 of subsidy from the program fund;

•	$1,200 of interest from Treasury on unused balances in the financing fund; 

•	$510[footnoteRef:8] for program participants for guarantee fees; and [8: Note that this is higher than the $500 of fees in the subsidy model, because $500 is the present value of the fees, and $510 is the actual amount of fees expected to be collected.] 

•	$50 for principal and $200 for interest on defaulted guaranteed loans.

4. The agency expects to use financing fund resources as follows:

•	$3,500 for payment of default claims (80% Guarantee of $4,375 Default); and 

•	$2,000 for payment of interest supplements.

                           Based on the above information the agency has prepared the following requests for apportionment:

**Loan Guarantee Agency**

**Fiscal Year 1[footnoteRef:9]** [9: OMB Circular A-11 Exhibits 185N through 185U shows examples of various SF132s] 

**Illustrative Transactions for Year 1**

1-1 To record the enactment of appropriations.

**Program Fund[footnoteRef:10]** [10: Note that these entries maybe done as two separate steps as warrant and signing of appropriations bill do not always coincide.] 

**Financing Fund**

**Memorandum Accounts - Loan Guarantee Level[footnoteRef:11]** [11: Although the agency is guaranteeing 80 percent of the loans made by third-party lenders, Federal budget rules provide that the 100 percent figure would still be used as the loan level even if the guarantee was for less than 100 percent.  The figure also would be 100 percent of principal only even if defaulted interest was guaranteed as well. See OMB Circular A-11, Preparation, Submission and Execution of the Budget (June 2003), §185.11(c).] 

1-2 OMB approved the agency’s request for apportionment, and the agency recorded the apportionment.****

**Program Fund**

**Financing Fund[footnoteRef:12]** [12: $5,500 needed to pay defaults and interest supplements, $3,500 and $2,000 is apportioned.  ] 

**Memorandum Accounts - Loan Guarantee Level**

1-3 Issued a blanket authorization to allot anticipated resources as they were realized, not to exceed the amount of the apportionment.

**Program Fund**

**Financing Fund**[footnoteRef:13] [13: Note that in accordance with §145.6 of OMB Circular A-11, only realized resources may be obligated.] 

1-4. The agency paid administrative expenses of $4,000 for salaries and $950 for rent to GSA.  It placed no undelivered orders nor made accruals before payment.

**Program Fund**

1-5 The agency agreed to make $90,000 in guarantees, subject to the third-party lenders and their borrowers meeting conditions placed on them.****

**Program Fund[footnoteRef:15]** [15: $90,000 in loan commitments x 21.5 percent subsidy = $19,350.] 

**Financing Fund**

**Financing Fund**

**Memorandum Accounts - Loan Guarantee Level**

1-6. Third-party lenders disbursed $87,000 of the guaranteed loans, and the agency transferred subsidy from the program to the financing fund.  

**Program Fund[footnoteRef:18]** [18: $87,000 in guaranteed loans disbursed x the 21.5 percent subsidy rate = $18,705.] 

**Financing Fund[footnoteRef:19]** [19: Note that no additional allotment is made, because the full $5,500 that OMB apportioned was allotted in transaction 1-5.] 

**Memorandum Accounts - Loans Disbursed**

1-7. The agency collected fees of $480 from the program participants as a condition of making the guarantees[footnoteRef:20].   [20:  Some fees may be collected and deferred before earned/ loan disbursed. To record collection of fees before earned, debit USSGL Account 426100 and credit USSGL Account 406000 for the budgetary entry and debit USSGL account 101000 and credit USSGL Account 232000 (C116) for the proprietary entry. Once loan is disbursed or fees are earned, debit USSGL Account 232000 and credit USSGL Account 218000(C118).] 

**Financing Fund**

1-8. The agency paid interest supplements of $1,940 to the third party-lenders.  It had made no previous accrual. 

**Financing Fund**

*******Though separated here for purposes of illustration, agencies would normally record transactions 1-6 - 1-8 simultaneously.********

1-9. The agency paid third-party lender claims of $3,500 to honor 80% guarantee of $4,375 of defaulted loan principal.  

**Financing Fund**

**Memorandum Accounts - Loans Disbursed**

1-10. The agency acquired receivables for loans of $3,500 and interest of $1,250 in conjunction with the defaults.  The agency will attempt to collect this money directly from the borrowers.  The present value of cash flows related to the loans is estimated to be $3,000.[footnoteRef:21] [21: The present value of defaulted guaranteed loans and remaining guaranteed loans must be split.  This can be done on agency determined schedule but at a minimum, year end.] 

**Financing Fund**

*** * * * * Though separated here for illustrative purposes, agencies would normally record transactions 1-9 and 1-10 simultaneously.  * * * * ***

1-11. The agency collected principal of $40 and interest of $200 on the loans acquired in transaction 1-10.****

**Financing Fund[footnoteRef:22]** [22: If interest receivable at the time of default had been recorded as part of loans receivable, the entire $240 would be credited to 135000.  See transaction 1-10.  Note – the principal and interest breakdown are for illustration purposes only.  According to the Debt Collection Improvement Act (DCIA), unless there is some other contractual agreement, the payments must be applied to penalties, administrative costs, additional interest, financing interest and finally principal.  If DCIA was applied in this example, no principal would be paid as there is a balance $1,250 in interest.] 

1-12. After consultation and agreement with OMB, the agency decided to exercise a clause in the program’s legislation allowing it to modify the terms of the guarantees because of economic downtrends. (OMB Circular A-11 185.7)  In this example a positive subsidy between the calculation of the NPV of the remaining pre-modification ($21,500) cash flows and the calculation of the NPV of remaining post-modification cash flows ($20,500) resulted in the Government incurring an additional $1,000 subsidy cost due to the modification.  The agency also calculated a modification adjustment transfer of $10.

The agency submitted a new request for apportionment (SF-132) for the financing fund, showing the reduced loan guarantee level, and OMB approved it., Since the agency had already apportioned subsidy monies in the program fund, a new request for apportionment of program fund resources may not be required.[footnoteRef:23] [23:  A new request for apportionment of program fund resources is normally not required, but in some instances it should be done in order to comply with the Data Act and the change in Category B items.] 

**Loan Guarantee Agency**

**Fiscal Year 1**

1-12. Transactions for 1–12 are following:**

**Program Fund**

Financing Fund 

Financing Fund

Program Fund

Financing Fund 

**Memorandum Accounts - Loan Guarantee Level[footnoteRef:28]** [28: Original loan level, $100,000, less revised loan level, $95,349 = $4,651.] 

1-13. Treasury credited $1,160 to the financing fund for interest the fund earned on its unused Fund Balance With Treasury during the year.  

**Financing Fund**

1-14. The agency accrued loan interest of $5 on the defaulted guaranteed loan principal*.*

**Financing Fund**

1-15. The agency determined that it could not collect $10 of loan principal and $20 of loan interest and wrote off the receivables.[footnoteRef:29]  [29: This determination of uncollectibility would be made only after attempting to collect the receivables under provisions of the DCIA.] 

**Financing Fund**

1-16. The agency accrued interest of $1,160 on its loan guarantee liability and $5 on the subsidy amortization present value calculated at reestimate of its loans.  *Note:  The interest accumulation factor[footnoteRef:30] must equal the amount of interest income received from Treasury–$1,160* (see transaction 1-13).    [30: The FCRA requires that the rates for discounting cashflows, financing account borrowing, and financing account interest earnings be identical and based on the Treasury rate in effect during the period of loan disbursement.  If your loans disburse in segments over several years, several interest rates will be applicable to an individual loan or group of loans.  The correct interest rates are provided for you in the OMB Credit Subsidy Calculator available from your OMB representative. For loan guarantee financing accounts, the interest rate for cash accumulations relate to each loan guarantee is determined by the date that the commercial lender disburses the loan being guaranteed. Because commercial lenders may not report to your in a timely manner, you can use an estimated fourth quarter amount for disbursements and collections when you report to Treasury at the end of the fiscal year, adjusting this estimate as actual lender data is accumulated.] 

**Financing Fund**

1-17. Third-party lenders reported that they had collected $10,000 on guaranteed loans in the cohort.  

**Financing Fund**

**Memorandum Accounts for Loans Disbursed**

1-18. At year-end the agency determined that an upward subsidy expense re-estimate related to the loan guarantee of $23 was required.  Since the loans were over 90% disbursed an interest rate re-estimate is required as well as a technical re-estimate.  The breakdown was as follows: 

Interest Rate Reestimate 		(13)

					Technical Reestimate			  33

					Interest on Technical Reestimate	    3

						 Total Reestimate		  23

**Program Fund[footnoteRef:31]** [31: The interest rate re-estimate is a reporting requirement for the credit supplement of the President’s budget and the credit footnote of the agencies statements.  Agencies may have other ways of tracking the breakdown than what is presented here.] 

**Financing Fund[footnoteRef:33]** [33: The agency must determine the present value breakdown between the defaulted guarantee loan and the remaining guarantees outstanding as only a total re-estimate is calculated and approved by OMB.] 

In requesting SF132 and in President’s budget the Interest Rate Re-estimate and Technical Re-estimate are added together.  If this amount is positive in total, it is an upward re-estimate.  The interest is looked at by itself and includes any financing account adjustments.  If this amount is positive in total, it is an upward re-estimate.  If either of the pieces are negative, that piece is a downward re-estimate (See year 2 for downward re-estimate entries)

**Pre-Closing Entries**

**1-19**

**Financing Fund**

**Year 1**

1-20 The agency made closing entries.  

**Program Fund**

**Financing Fund**

**Memorandum Accounts**

**Year 1**

**Loan Guarantee Agency**

**September 30, FY-1**

**Loan Guarantee Agency**

**for Fiscal Year Ended September 30, FY-1**

**Loan Guarantee Agency**

**for Fiscal Year Ended September 30, FY-1**

**Loan Guarantee Agency**

**for Fiscal Year Ended September 30, FY-1[footnoteRef:39]** [39: Statement of Budgetary Resources is a combined report.  Inter-entity eliminations are not allowed.] 

**Loan Guarantee Agency**

**for Fiscal Year Ended September 30, FY-1[footnoteRef:40]** [40: Note: Footnotes are not supported by the USSGL crosswalks.] 

**Loan Guarantee Agency**

**September 30, FY-1**

**FISCAL YEAR 2**

In fiscal year 1, the agency accrued an upward adjustment of subsidy expense.  Although the expense was recognized in fiscal year 1, budgetary resources to fund it were not provided until the following year, fiscal year 2.  The examples of transactions for the second year dispose of the upward subsidy re-estimate accrued at the end of the preceding year.   Additionally, in order to provide a more realistic understanding of the complexities of accounting for guaranteed loans, new transactions for negative subsidy are introduced and borrowing authority issues are presented.  At the end of year 2 a downward reestimate will be included.   

By adding new authority in year two the concept of Cohorts is introduced.  See A-11 for additional insights into the implications of Cohorts.  

Other transactions included in year one would recur in year 2 and subsequent years.  These transactions have not been included because they provide limited additional value to the case study.

**TRANSACTIONS YEAR 2**

The agency received one year legislative authority to guarantee 75 percent of the principal and related interest of $100,000 of loans.  The transactions for these loans will be related to Cohort 2.  The previous year’s loans will be Cohort 1.

1.  The agency’s subsidy model indicated that, for the $100,000 of loan guarantees, a (5.0) percent subsidy was indicated as follows (all cohort 2):

· Present value of expected defaults is 3.46 percent, or $3,460

· Present value of guarantee fees to be collected is (8.46) percent or $8,460 (to be collected during life of loan)

· No interest supplements as interest rates are low

2.  The agency has appropriated administrative expenses for fiscal year 2 in the amount of $10,000.  (There are no cohorts in the program fund.)

3.  The agency receives approval for upward re-estimates by OMB for $25.  This is an increase of $2 from what was estimated at the end of the fiscal year (all cohort 1)

4.  The agency estimates the following financing fund transactions for the year:

· $1,000 for guarantee fees (cohort 2)

· $5,000 in negative subsidy (cohort 2)

· $45,000 in defaults (cohort 1)

· $25 in upward re-estimate collections (cohort 1)

· $500 in interest expense on debt (cohort 1)

· $115 in interest expense on debt (cohort 2)

· $250 in interest income on uninvested cash (cohort 1)

· $60 in interest income on uninvested cash (cohort 2)

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# Loan Guarantee Agency

**Fiscal Year 2**

**2-1 OMB approved and authorized both requests for apportionment. To record SF 132. [footnoteRef:48]** [48: Indefinite appropriations are not available until warrant is processed.  Per §2025.10, of the TFM, the requirement to requestappropriations by letter includes Indefinite appropriations—Appropriations of an unspecified amount of money.] 

**Program Fund-Year 2**

**Financing Fund-Cohort 1**

**Financing Fund -Cohort 2**

2-2 To record warrants received for re-estimate.

**Program Fund - Year 2**

2-3. To record allotment of authority.  

**Program Fund- Year 2**

**Financing Fund – Cohort Year 1**

**Financing Fund – Cohort Year 2**

2-4. The agency transferred the re-estimated subsidy from the program fund to the financing fund. The reestimate for the prior year was for $23. Since the reestimate for the President’s Budget increased it by $2, the incremental amount was recorded in the current year as an adjustment to the Guarantee Liability. The unfunded expense of $23 was reversed from the Program Fund for Year 1 and the actual funded expense of $25 is recorded in the unexpired program fund which funds the reestimate from current reestimate appropriation. 

**Program Fund - Year 1**

**Program Fund - Year 2**

**Financing Fund - Cohort 1**

2-5. The agency makes an expenditure transfer of administrative expense reimbursement to its S&E fund  

**Program Fund – Year 2**

2-6 Agency converts $28,735 of borrowing authority to cash.[footnoteRef:52]  [52: Agencies may borrow an estimated amount or on as needed basis] 

**Financing Fund - Cohort 1**

2-7 Agency pays 35,000 to honor 80% guarantee of 43,750 of defaulted principal funded by borrowing authority. 

**Financing Fund - Cohort 1**

**Memorandum Accounts - Loans Disbursed**

2-8. The agency acquired receivables for loans of $35,000 and interest of $1,250 in conjunction with the defaults.  The agency will attempt to collect this money directly from the borrowers.  The present value of cash flows related to the loans is estimated to be $30,000. 

**Financing Fund – Cohort 1**

2-9 Agency makes a commitment for loan guarantees of $80,000 with a negative subsidy of $4,000. The agency is guaranteeing 75% of the loan. Negative Subsidy is funded with borrowing authority. Collection of guarantee fee also made at this time.

**Financing Fund - Cohort 2**

2-10 Third party lenders notified agency of disbursing $2,000 of Cohort 1 loans and $60,000 of Cohort 2 loans.[footnoteRef:53]  [53: Original subsidy rate for each cohort must be used in calculating subsidy transfer amount – Cohort 1 2,000 x 21.5% = 430.  Cohort 2 60,000 x (5%) = 3,000.  Note – Since one cohort cannot pay for another cohort’s obligation, there is not enough cash in Cohort 2 to cover the negative subsidy payment.  Only cash is $800 in fees collected.  Therefore, the borrowing authority must be converted to cash.] 

**Program Fund – Year 1**

**Program Fund – Year 2**

**Financing Fund – Cohort 1**

**Financing Fund – Cohort 2**

**Miscellaneous Receipt Account (negative subsidy TAFS)**

2-11 Agency accrues interest on Fund Balance with Treasury for November reporting period. Therefore, there will only be an accrual for cohort 1. Other methodologies are acceptable per OMB approval.  

**Financing Fund – Cohort 1**

2-12 Agency accrues interest on debt outstanding from The Bureau of the Fiscal Service (FS) for November using FS reports.  There will be an accrual for both cohorts and interest rates can be different. 

**Financing Fund – Cohort 1**

**Financing Fund – Cohort 2**

2-13 Agency is notified by cohort 1 borrowers that the remaining amounts of the loan are no longer needed.  Agency cancels remaining commitment and deobligates remaining subsidy[footnoteRef:55]  [55: The original subsidy rate is used in determining the amount of subsidy to de-obligate with the commitment cancelation.] 

**Program Fund – Year 1**

**Financing Fund – Cohort 1**

2-14 After consultation and agreement with OMB, the agency decided to exercise a clause in the program’s legislation allowing it to modify the terms of cohort 1 guarantees.  The modification caused a savings for the program of $1,000 and a modification adjustment transfer of $30.

The agency submitted a new request for apportionment (SF-132) for the financing fund.

**Loan Guarantee Agency**

**Fiscal Year 2**

**SF132 entries**

**Financing Fund – Cohort 1**

After approved SF132 is received, SF1151 request transferring modification adjustment transfer from financing fund to treasury general fund (TAS xxx2814, where xxx is agency id) at the same time payment is made to the general fund (agency’s negative subsidy account).

**Modification Savings**

**Program Fund – Year 2**

**Financing Fund – Cohort 1**

**Miscellaneous Receipt Account (negative subsidy TAS)**

**Modification Adjustment Transfer**

**Program Fund – Year 2**

To record negative modifications for subsidy cost and adjustment transfers related to Direct Loans and Loan Guarantee liabilities in the program account.

**Financing Fund – Cohort 1**

**Miscellaneous Receipt Account (xxx2814 TAS)**

2-15 Year-end interest earned on Cash and interest expense to BPD calculated using Financing Account Interest Calculator (FAIC) as follows.  Cohort 1 earned $323 and expense $500; Cohort 2 earned $62 and expense $85.

**Financing Fund – Cohort 1**

**Financing Fund – Cohort 2**

2-16 Agency determines that there will no further obligations. Agency returns borrowing converted to cash and not obligated for cohort 1 and reduces borrowing authority for cohort 2 as required in A-11. Calculations below are based on timing.

**Financing Fund – Cohort 1**

Cash beginning of year		  16,155

Upward reestimate                		         25

Default payment                    		(35,000)

Subsidy collected				        	       430

Modification & adjustment                 		   (1,030)

Interest Income							  323

Interest Expense							(500)

Borrowings needed for payment	   18,820	       600             177

Total Borrowings used 	19,597

Total Borrowings converted    28,735

Return 9,138 excess borrowings converted to cash

**Financing Fund – Cohort 2**

Negative Subsidy Obligations		4,000

Less:  Fees collected			  (800)

Interest Income					85

Interest Expense				           (62)

Borrowing Authority needed              3,200	           (23)

Total Borrowing Authority needed     3,177

Borrowing Authority provided            4,055

Withdraw 878 of borrowing authority

2-17 The modeling team reestimated the cost for Cohort year 1 and 2.  There was a technical downward reestimate for year 2 of 50 and technical upward for year one of 20.  There was no interest reestimate.  Cohorts are accounted for separately in the financing funds.  Budgetary information is reported in GTAS by Cohort in fourth quarter (required for fourth, but can be more often).  

Cohort 1(Cohort only exists in Financing Fund)

**Program Fund Year 2**

**Financing Fund Cohort 1**

Cohort 2 (Cohort only exists in Financing Fund)

**Program Fund  - Year 2**

**Financing Fund – Cohort 2**

**Miscellaneous Receipts Fund (Downward Reestimate TAS)**

2-18 The agency accrued interest on its loan guarantee liability and on the present value of its loans.  

**Financing Fund – Cohort 1**

**Financing Fund – Cohort 2**

**Pre-Closing Entries**

**Financing Fund – Cohort 1**

**Financing Fund – Cohort 2**

**Miscellaneous Receipts Fund Downward Reestimate**

**Miscellaneous Receipts Fund Other Repayments of Investments and Recoveries (xxx2814)**

**Year 2**

2-19. The agency made closing entries.  

**Program Fund  - Year 1**

**Program Fund - Year 2**

**Financing Fund – Cohort 2**

**Miscellaneous Receipt Accounts**

**Year 2**

**Loan Guarantee Agency**

**September 30, FY-2**

**Loan Guarantee Agency**

**for Fiscal Year Ended September 30, FY-2**

**Loan Guarantee Agency**

**for Fiscal Year Ended September 30, FY-2**

****

**Loan Guarantee Agency**

**For Fiscal Year Ended September 30, FY-2**

****

****

**Loan Guarantee Agency**

**for Fiscal Year Ended September 30, FY-2**

**Loan Guarantee Agency**

**September 30, FY-2**

****

**FISCAL YEAR 3**

This fiscal year will only deal with the liquidating of the downward re-estimates and repayment of debt.  All other items have been addressed in previous fiscal years.  No financial statements or footnotes will be prepared for this fiscal year.

OMB approved the downward re-estimate of $50 on cohort 2.  Since there is no carry forward authority, the cohort will need to borrow to pay the downward re-estimate. The loan on cohort 1 is expected to repay $10,000.  

# Loan Guarantee Agency

**Fiscal Year 3**

3-1 Agency receives approved SF132 reflecting downward re-estimate amounts.  Along with the budgetary authority, the agency allots, obligates and pays the downward re-estimate to the miscellaneous receipt account.

**Financing Fund – Cohort 2**

See year 2 for borrowing entries as they are the same no matter what the agency is borrowing for.

**Financing Fund – Cohort 2**

**Program Fund**

**Miscellaneous Receipt**

3-2 Agency receives SF132 showing anticipated repayments of debt.*Note:  SF132 is not required to show repayments of debt, but A-11 suggests including if known.*

**Financing Fund – Cohort 1**

See year 1 for anticipated collections and actual collection entries and year 2 for interest payments on debt.

3-3 At year end agency determines that it has excess cash of $1,000.  This amount will not be needed for future defaults and the agency repays treasury debt.

**Financing Fund – Cohort 1**

**APPENDIX 1: ACCOUNTING FOR MANDATORY LOAN GUARANTEE PROGRAMS**

**INTRODUCTION**

The scenarios presented in this guide were for common transactions undertaken by a discretionary loan guarantee program.  This appendix discusses two key differences between discretionary and mandatory loan guarantee programs, and shows how the entries in the guide would differ for a mandatory program with typical funding characteristics.

**BASIC DIFFERENCES BETWEEN DISCRETIONARY AND MANDATORY PROGRAMS**

In a discretionary program, Congress sets a funding level, and program agencies make loans up to the amount that can be supported from subsidy in their program fund.  Usually, annual or multi-year appropriations provide program fund subsidy, although Congress can give no-year (permanent indefinite) appropriations should it choose to do so.  

Annual appropriation authority expires at the end of the fiscal year that it funds, and multi-year appropriations expire at the end of the last year of their period of availability.  For example, appropriations good for three years expire at the end of the third year funded.  Agencies cannot place any new obligations against expired authority, generally, they have five years after the date of expiration to fill obligations and pay liabilities before both the obligated and unobligated authority is canceled and cannot be used for any purposes.  Congress sometimes provides for different periods of expiration.[footnoteRef:67] [67: The legislation providing for this is Public Law 101-510, a separate part of the Defense Appropriation Act of 1990, applying more broadly to most Federal agencies.  The USSGL Board has published a document entitled Budgetary Accounting in the Federal Government that is available through its Web site at www.fiscal.treasury.gov/fsreports/ref/ussgl/ussgl/ussgl_htm] 

The government also operates mandatory (entitlement) loan guarantee programs, in which Congress usually authorizes permanent indefinite appropriations for subsidy.  If the amount of subsidy requested by qualified loan applicants, who meet the program criteria established by Congress, exceeds the subsidy monies by drawing additional appropriations.  Congress may mandate that the agency concur with the additional funding or may place a cap on the total funding.  These no-year appropriations do not have a date of expiration, and agencies may use unobligated subsidy appropriation authority as long funded as the programs remain authorized by the Congress.

Congress may provide appropriations for administrative expenses that have annual, multi-year, or no-year expiration.  Most commonly, both discretionary and mandatory loan guarantee programs have annual administrative expense appropriations.  Thus, no differences in accounting for administrative expenses will be presented.  However, multi-year administrative expense appropriations in other than the last year covered, and no-year administrative expense appropriations, would be accounted for in the same manner as will be shown for no-year appropriations of subsidy authority.

Another difference between discretionary and mandatory loan guarantee programs is that when downward adjustments to subsidy are called for during the subsidy re-estimation process to properly value loan guarantees at the estimated value of their cash-flows, discretionary programs must generally return the excess money in their financing fund to Treasury by transferring it to a designated miscellaneous receipt account.  Mandatory programs generally may recycle this excess by transferring it back to their program account.  While these are the typical situations, Congress may also provide do the following:

· Provide for recycling of downward reestimates for a discretionary program; or

· Provide that agencies cannot recycle downward re-estimates in a mandatory program and must return them to Treasury. 

Recording and reporting downward reestimates of subsidy for both a discretionary and a mandatory program is discussed in Appendix 2 (recall that the agency in the guide illustrated accrual and disposition of an upward adjustment).

Both discretionary and mandatory loan guarantee programs generally have the same transactions.  Agencies must formulate budgetary resources, apportioned by OMB, and allot and account for them as follows:

· Making loans based on a combination of program fund subsidy and financing fund borrowing from Treasury; 

· Making collections from Federal and non-Federal sources and using the collections to repay the principal and interest on the loan from Treasury;

· Reestimating to determine the present value of the loans and interest receivable and adjusting the accounts as required; 

· Closing the books at yearend; and so forth.  

Where there are differences in the type of subsidy appropriations provided and disposition of downward re-estimates, the journal entries to record the same transaction usually will differ as well.  The next section discusses those differences.

**DIFFERENCES IN JOURNAL ENTRIES**

**FOR MANDATORY PROGRAMS**

The transactions illustrated for the discretionary loan guarantee program guide are virtually the same as those are undertaken in a mandatory program.  However, four of the journal entries would be different.  The transactions involved, and the budgetary and proprietary entries a mandatory program with no-year subsidy authority, but with the same amount of funding and other parameters as the discretionary program, would make are set forth below.[footnoteRef:68] Note that only certain entries in fiscal year 1 are affected.  There would be no change from the discretionary program entries in fiscal year 2. [68: It is important to note these assumptions, because they form the basis for changes to be discussed.  It is possible that variations, even within the assumptions, could exist and that entries could differ still further.  For example, OMB might decide on a lesser amount of subsidy funding than the agency anticipated in its request and if needed, increase the amount later (see transactions 1-1 and 1-2).  The more specific assumption in this appendix is that the nature of transactions and amounts between the discretionary and mandatory programs is the same.] 

Changes from entries illustrated for the discretionary program are highlighted in bold type.  For each transaction presented, only the fund entities (including memorandum accounts) for which there is a change are presented.  If a fund entity (including memorandum accounts) present for a transaction in the discretionary program guide is not present in the transactions illustrated below, a mandatory program would make the same entries for those fund entities.  A discussion of changes follows the revised entries for each transaction.  

1-1. The agency prepares the budget formulation.

**Program Fund**

***Explanation of difference***

Because the program fund has permanent indefinite authority for its subsidy, agencies must anticipate the amount of the appropriations they will receive in order to prepare the budget formulation.  The agency normally will not realize the appropriations until OMB has approved the amount.  Accordingly, the agency must make two changes in the program fund entry.  First, it uses the account for anticipated appropriations, 412000, instead of the account for realized subsidy appropriations, 411500.  Second, because the subsidy money is not realized at this point, it records only the amount of the administrative expense appropriation, which is an annual appropriation, as the amount of Fund Balance With Treasury. Note that there is no change for the financing fund or memorandum account entries.

1-2. OMB approved the agency’s requests for apportionment without change, and the agency recorded the apportionment.

**Program Fund**

***Explanation of Difference***

There are two differences here.  First, because the subsidy appropriation was anticipated and not realized until OMB concurred with the amount, the agency makes an entry to realize the appropriation.  Second, along with the realization, the agency must record the related Fund Balance With Treasury.  Note that the combination of entries 1-1 and 1-2 yields the same account balances for both the discretionary and mandatory programs.

1-12. After consultation and agreement with OMB, the agency decided to exercise a clause in the program’s legislation allowing it to modify the terms of some of the guarantees because of economic downtrends. This reduced the present value of those guarantees by $1,000.[footnoteRef:69] The agency transferred the $1,000 from the program fund to the financing fund. [69:  Before making the modifications, the agency must be certain that it has sufficient unobligated resources for subsidy in the program fund.  In this guide, the amount of unobligated resources, as represented by allotments related to the subsidy, amounted to $2,150 ($21,500 from transaction 1-3 less $19,350 from transaction 1-5).] 

***Explanation of Difference***

Here the basic transaction is the same–the agency is making modifications to loan guarantee terms that cost the government $1,000.  However, some of the related procedures are different.  In the discretionary program, the agency had to reduce the loan guarantee level.  This was because the subsidy appropriation was annual, so the agency had to use subsidy to modify loan guarantees and could not use the subsidy to making new guarantees (recall that an agency can only make the amount of loan guarantees that its subsidy monies can support).  

In a mandatory program in which an agency can draw additional monies, with OMB approval, from a permanent indefinite appropriation, there is no need to reduce the program level.  The agency can recover the $1,000 subsidy by drawing an additional $1,000 from the appropriation subsidy. This is not illustrated because, we know from the discretionary program guide, the agency did not use the full amount of subsidy, even reduced by the $1,000 used for modifications, to make loans.  However, the agency would not make the entry to reduce the loan level, unless OMB directed the agency to reduce it.

**TRIAL BALANCES AND FINANCIAL STATEMENTS**

Pre- and post-closing trial balances, financial statements, and the quantitative portion of the credit program note for the mandatory program would be the same as for the discretionary program for both fiscal years, with the exception that the guaranteed loan level probably would remain at $100,000 instead of having been reduced to $95,349.  The pre-closing trial balance of memorandum accounts for the loan guarantee level would thus be:

1-19 The agency made the following closing entries.

**Memorandum Accounts - Loan Guarantee Level**

Narrative descriptions about funding and loan levels authorized would be different, but are not illustrated for either program.  (The narrative about program level and nature of subsidy funding would be different, because the program loan level was reduced in the discretionary program but not in the mandatory program, and the subsidy appropriation in the mandatory program was no-year authority, as opposed to annual authority in the discretionary case.)

****

**APPENDIX 2: REFERENCES**

This appendix lists some key references and Web sites for readers who want to obtain additional information.

**OFFICE OF MANAGEMENT AND BUDGET**

· OMB Bulletin 01-09, *Form and Content of Agency Financial Statements for Audit*

· OMB Circular A-11, *Preparation, Submission, and Execution of the Budget*

· OMB Circular A-136, *Financial Reporting Requirements- Revised*

· OMB Credit Model

	Office of Federal Financial Management (202) 395-3993

	Web site: www.whitehouse.gov/omb 

**FEDERAL ACCOUNTING STANDARDS ADVISORY BOARD**

Statement of Federal Financial Accounting Standards (SFFAS) 

· SFFAS No. 1, *Selected Assets and Liabilities*

· SFFAS No. 2, *Accounting for Direct Loans and Loan Guarantees*

· SFFAS No. 3, *Inventory and Related Property*

· SFFAS No. 7, *Accounting for Revenue and Other Financing Sources and concepts for Reconciling Budgetary Financial Accounting*

· SFFAS No. 18, *Amendments to Accounting Standards for Direct Loans and Loan Guarantees*

· SFFAS No. 19, *Technical Amendments to Accounting Standards for Direct Loans and Loan Guarantees* in SFFAS No. 2

· Statement of Federal Financial Accounting Concepts No. 2, *Entity and Display* (as amended by SFFAS No. 7)

Accounting and Auditing Policy Committee, Technical Release No. 3: *Preparing and Auditing Direct Loan and Loan Guarantee Subsidies Under the Federal Credit Reform Act*

· FASAB Staff at (202) 512-7350

· Web site: www.fasab.gov

· **Bureau of the Fiscal Service***U.S.  Standard General Ledger* (codified in *Treasury Financial Manual*)

· *Budgetary Accounting in the Federal Government*

· Illustrative Cases in Accounting for Credit Programs (Financial Reports and Advisory Division)

· Present Value Monograph

· General Ledger and Advisory Branch (Bureau of the Fiscal Service, Treasury) 

· *OMB Circular No. A-11, (July 2016 ) Section 185.20, Capital transfer,**including transfers of unobligated balances in liquidating accounts to the general fund (i.e., liquidating account sweeps), and redemption of debt are not obligations and therefore do not need to be apportioned on lines 6001-6173.***

*OMB Circular No. A-11, July 2016) Section 185.19, for financing and liquidating accounts, additional amounts for interest*

*payments to Treasury (i.e., amounts exceeding your estimate on the most recent approved apportionment) are automatically*

*apportioned.*

· The permutations to credit reform accounting for loan guarantees are endless.  In future iterations of the case study, additional years and transactions could be added to build upon what is presented here.

Loan Guarantee		Page **3** of **153**	August 2017