Financial Audit Guide: Auditing the Statement of Budgetary
Resources (01-DEC-01, GAO-02-126G).
Federal financial reporting should assist in fulfilling the
government's duty to be publicly accountable for moneys raised
from the public and for their expenditure in accordance with
applicable laws that establish the budget and other related laws
and regulations. The Statement of Budgetary Resources (SBR) and
related disclosures provide information about budgetary resources
made available to an agency as well as the status of those
resources at the end of the fiscal year. The audit of the SBR and
related disclosures provides the means to assess the reliability
of reported budget execution data and a tool to help assess the
reliability of the amounts reported as "actual" in the
President's Budget. The audit also includes the testing of
significant provisions of relevant laws and regulations that have
a direct and material effect on the financial statements,
including budget restrictions. GAO's previous review of the
documentation related to the preparation and audit of the SBR
showed that the SBR was not always properly audited and that
explanations of material differences between the SBR and the
President's Budget were not always disclosed as required. The
inability to properly audit the SBR and the lack of explanations
for differences between amounts in the SBR and comparable amounts
in the President's Budget, breaks the linkage between these
documents and limits the ability to assess the reliability of
budget execution data.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-02-126G
ACCNO: A02628
TITLE: Financial Audit Guide: Auditing the Statement of
Budgetary Resources
DATE: 12/01/2001
SUBJECT: Audit reports
Auditing standards
Financial management
Reporting requirements
Financial statement audits
Presidential budgets
******************************************************************
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GAO-02-126G
A
Financial Management and Assurance
December 2001 FINANCIAL AUDIT GUIDE Auditing the Statement of Budgetary
Resources
GAO- 02- 126G
a
GAO United States General Accounting Office
Page i GAO- 02- 126G Guide for Auditing the SBR Preface 1
Introduction 3 Using This Guide 3 Other Matters Related to This Guide 4
Appendix I SBR Preparation and Linkage to the President?s Budget 5
Appendix II Linkage Between SBR and the President?s Budget 8
Appendix III Issues Related to the Preparation and Audit of the SBR 11
Appendix IV Audit Guidance 13 I. Planning Phase 14 II. Internal Control
Phase 18 III. Testing Phase 22 IV. Integration of Budgetary and Proprietary
Accounting Testing 38 V. Presentation and Disclosure 39 VI. Overall
Analytical Procedures 42 VII. Required Supplementary Information 42
Figures
Figure 1: Example of Combining SBR Supplementary Information 8 Figure 2:
Example of a President?s Budget P& F Schedule 9 Figure 3: Budgetary
Resources Section of the SBR (Effective for
Fiscal Year 2001) 24 Figure 4: Budgetary Resources Section of the SBR
(Effective for
Fiscal Year 2002) 25 Figure 5: Status of Budgetary Resources Section of the
SBR
(Effective for Fiscal Year 2001) 30 Contents
Page ii GAO- 02- 126G Guide for Auditing the SBR
Figure 6: Status of Budgetary Resources Section of the SBR (Effective for
Fiscal Year 2002) 30 Figure 7: Outlays Section of the SBR (Effective for
Fiscal Year
2001) 33 Figure 8: Revised Outlays Section of the SBR (Effective for Fiscal
Year 2002) 33
Abbreviations
FACTS II Federal Agencies? Centralized Trial Balance System II FASAB Federal
Accounting Standards Advisory Board FFMIA Federal Financial Management
Improvement Act GAAP Generally Accepted Accounting Principles OIG Office of
Inspector General OMB Office of Management and Budget P& F Program and
Financing Schedule of the President?s Budget PCIE President?s Council on
Integrity and Efficiency SFFAS Statement of Federal Financial Accounting
Standards SBR Statement of Budgetary Resources USSGL United States Standard
General Ledger
Page 1 GAO- 02- 126G Guide for Auditing the SBR Preface
Federal financial reporting should assist in fulfilling the government?s
duty to be publicly accountable for moneys raised from the public and for
their expenditure in accordance with applicable laws that establish the
budget and other related laws and regulations. As a means to help achieve
this objective, beginning with fiscal year 1998, executive agencies subject
to the Chief Financial Officers (CFO) Act of 1990, as expanded by the
Government Management Reform Act of 1994, were each required to prepare and
submit for audit a Statement of Budgetary Resources (SBR) in addition to the
other required financial statements.
The SBR and related disclosures provide information about budgetary
resources made available to an agency as well as the status of those
resources at the end of the fiscal year. The SBR and related note
disclosures serve as a tool to link budget execution data in an agency?s
financial statements to information reported in the ?actual? column of the
Program and Financing (P& F) Schedules in the Appendix of the Budget of the
United States Government (hereafter referred to as the ?President?s
Budget?). Coupled with the analysis of other budgetary data, the SBR?s
linkage to the President?s Budget provides a means to help assess the
reliability of budgetary data reported in the President?s Budget. The proper
preparation and audit of the SBR is key to this assessment.
Audit guidance in this document is intended to help auditors comply with
Generally Accepted Government Auditing Standards (GAGAS) as well as
implement the Office of Management and Budget (OMB) Bulletin No. 0102,
Audit Requirements for Federal Financial Statements, and the GAO and the
President?s Council on Integrity and Efficiency (PCIE) Financial Audit
Manual.
To facilitate its use, this guide is located on the Internet on GAO?s home
page (www. gao. gov) under the heading ?Other Publications? and the
subheading ?Accounting and Financial Management.? Additional copies of this
guide can be obtained from the U. S. General Accounting Office,
Page 2 GAO- 02- 126G Guide for Auditing the SBR
Room 1100, 700 4th St. NW, Washington, D. C. 20548, or by calling (202) 512-
6000, or TDD (202) 512- 2537.
Linda M. Calbom Director, Financial Management and Assurance
Introduction Page 3 GAO- 02- 126G Guide for Auditing the SBR
The audit of the SBR and related disclosures provides the means to assess
the reliability of reported budget execution data and a tool to help assess
the reliability of the amounts reported as ?actual? in the President?s
Budget. The audit also includes the testing of significant provisions of
relevant laws and regulations that have a direct and material effect on the
financial statements, including budget restrictions.
Our previous review of the documentation related to the preparation and
audit of the SBR showed that the SBR was not always properly audited and
that explanations of material differences between the SBR and the
President?s Budget were not always disclosed as required. The inability to
properly audit the SBR and the lack of explanations for differences between
amounts in the SBR and comparable amounts in the President?s Budget, breaks
the linkage between these documents and limits the ability to assess the
reliability of budget execution data.
This guide provides the auditor with a tool for designing audit procedures
for budgetary accounts. It should be understood that this guide is not an
authoritative part of auditing standards and is solely intended as a
supplemental guide to help auditors comply with GAGAS and OMB audit
guidance. It focuses on matters that the auditor should consider during the
SBR audit and should be used in conjunction with the OMB Bulletin No. 01- 02
and the GAO/ PCIE Financial Audit Manual. In addition, due to differences in
agency budgets as well as in their systems, procedures, and controls, the
auditor should use professional judgment interpreting this guidance and in
designing and executing the appropriate audit steps to achieve the SBR audit
objectives.
This guide includes four appendixes which provide (1) general information on
the preparation of the SBR and its linkage to the President?s Budget, (2) an
example of how SBR information presented in supplementary schedules can be
linked to information in the President?s Budget, (3) information about
certain issues related to the preparation and audit of the SBR, and (4)
guidance to assist auditors in developing audit plans and programs for their
audits of the SBRs.
Audit guidance in appendix IV of this guide includes information and
suggested procedures for the SBR that auditors should perform during the
planning, internal control, and testing phases of the audit. The testing
section is focused on the SBR format used in OMB Bulletin No. 97- 01,
Form and Content of Agency Financial Statements. It includes a general
Introduction
Using This Guide
Introduction Page 4 GAO- 02- 126G Guide for Auditing the SBR
description of the line items, risks, and audit objectives and guidance
related to the existence and completeness financial statement assertions.
For fiscal years beginning after September 30, 2001, OMB Bulletin 01- 09,
Form and Content of Agency Financial Statements, revised the form and
content of the SBR. Information related to these form and content changes is
included in appendix I of this guide.
A previous draft of this guide was provided to officials from OMB and the 24
CFO agencies? offices of inspectors general (OIG) for their review and
comment. Officials from OMB and the OIGs generally agreed with the guide and
provided comments, which were incorporated in this guide as appropriate. In
addition, OMB officials reviewed changes made to this guide resulting from
the OMB Bulletin No. 01- 09, and their comments were incorporated as
applicable. Other Matters Related
to This Guide
Appendix I: SBR Preparation and Linkage to the President?s Budget
Page 5 GAO- 02- 126G Guide for Auditing the SBR
The SBR and its linkage to the President?s Budget are key components of the
federal financial accounting and reporting framework designed to achieve
?budgetary integrity.? Budgetary integrity, as defined by the Federal
Accounting Standards Advisory Board?s (FASAB) 1 accounting concepts, means
that federal financial reporting should assist in fulfilling the
government?s duty to be publicly accountable for moneys raised through taxes
and other means and for their expenditure in accordance with related laws
and regulations. In particular, FASAB?s Statement of Federal Financial
Accounting Concepts No. 1, Objectives of Federal Financial Reporting, states
that federal financial reporting should provide information that helps users
determine
how budgetary resources have been obtained and used and whether their
acquisition and use were in accordance with legal authorization and
the status of budgetary resources. An additional aspect of the budgetary
integrity objective, which is not the focus of this guide, is to help users
determine how information on the use of budgetary resources relates to
information on the cost of program operations, and whether information on
the status of budgetary resources is consistent with other accounting
information on assets and liabilities. This objective can be best achieved
through the preparation of the Statement of Financing.
OMB issues guidance on the form and content of federal agencies? financial
statements, including the SBR. As mentioned before, OMB Bulletin No. 97- 01,
Form and Content of Agency Financial Statements, as amended was superseded
by OMB Bulletin No. 01- 09, Form and Content of Agency Financial Statements,
which contains changes that affect the SBR?s form and content, effective for
fiscal years beginning after September 30, 2001. Major revisions to the SBR
form and content include the addition of
a separate column for Non- Budgetary Credit Program Financing Accounts and
a new Offsetting Receipts line item to arrive at agencywide net outlays. 1
FASAB promulgates generally accepted accounting principles for federal
government financial statement reporting to address the financial
information needs of the Congress, executive agencies, and other users of
federal financial information. Budgetary integrity is the first reporting
objective of FASAB?s framework. Appendix I: SBR Preparation and Linkage to
the President?s Budget
Appendix I: SBR Preparation and Linkage to the President?s Budget
Page 6 GAO- 02- 126G Guide for Auditing the SBR
In addition, to help ensure consistency between amounts in the SBR and
budget execution reports, OMB added more detailed SBR line item components
to assist agencies in identifying the proper placement of information on the
statements. OMB guidance states that lines may be combined, using
discretion, where balances are related in nature; however, material
components should continue to be displayed separately on the face of the
statement or in a note disclosure.
According to OMB guidance, agencies are to report budgetary information in
the SBR based on budget terminology, definitions, and guidance issued in OMB
Circular No. A- 34, Instructions on Budget Execution. OMB guidance also
states that information on the SBR should be consistent with budget
execution information reported in the President?s Budget and the SF 133,
Report on Budget Execution and Budgetary Resources. The SF 133 reports are
submitted to OMB by agencies so that OMB can monitor compliance with the
appropriation and apportionment requirements to ensure adequate funds
control.
The U. S. Standard General Ledger (USSGL) accounts and instructions to
prepare the SBR and the SF 133 are generally the same and should result in
minimal or no differences in the information reported in the two documents.
The SBR is prepared using general ledger account balances, and the SF 133s
and most of the President?s Budget ?actuals? are prepared using general
ledger amounts submitted to OMB through the Federal Agencies? Centralized
Trial Balance System (FACTS) II. 2
Since the underlying information for these documents is similar, amounts in
the SBR should be able to be linked to amounts in the ?actual? column of the
P& F Schedule. 3 (See appendix II for an illustration of the linkage between
the SBR and the President?s Budget.) However, differences in amounts may
exist between the SBR and the President?s Budget because
2 FACTS II is a Treasury- run system that agencies use to submit one set of
financial data (mostly budgetary and some proprietary using USSGL account
structure) that fulfills the needs of the SF 133, FMS 2108 Year- End Closing
Statement, and much of the information included in the prior year column
(actuals) of the P& F Schedules.
3 The linkage between the SBR and the President?s Budget P& F Schedule is
evident when SBR information is organized by budgetary account, as in the
supplementary information section of the financial statements, provided that
accounts are aligned with the budget accounts as they appear in the
President?s Budget. OMB Circular No. A- 34 provides a crosswalk from the SF
133 to the P& F Schedule actuals, which is helpful when reconciling amounts
reported. The Treasury Financial Manual USSGL supplement contains crosswalks
from the USSGL to the SF 133, P& F Schedules, and FMS 2108.
Appendix I: SBR Preparation and Linkage to the President?s Budget
Page 7 GAO- 02- 126G Guide for Auditing the SBR
of (1) reporting requirement differences between the guidance used to
prepare the SBR and the guidance used for recording the actuals in the
President?s Budget, 4 (2) the fact that budgetary information is submitted
for the President?s Budget prior to the completion of most agency audits
(timing differences) causing audit adjustments not to be reflected in the
President?s Budget balances, and (3) there may be errors in either the SBR
or the President?s Budget.
Recognizing that there may be differences between the amounts presented in
the SBR and in the President?s Budget, generally accepted accounting
principles (GAAP), specifically Statement of Federal Financial Accounting
Standards (SFFAS) No. 7, Accounting for Revenue and Other Financing Sources
and Concepts for Reconciling Budgetary and Financial Accounting, requires
agencies to provide financial statement note explanations of material
differences between amounts presented in the SBR and amounts described as
?actual? in the President?s Budget. (See section V of appendix IV for
information on this and other required disclosures related to the SBR and
refer to SFFAS No. 7 and OMB?s form and content guidance for additional
required disclosures.)
In addition, OMB Bulletin No. 01- 09, will require agencies, beginning with
fiscal year 2002, to disclose material differences between comparable
amounts in the SBR, SF 133s and the ?actuals? in the President?s Budget.
Because of this, the auditor should understand the agencies? process for
verifying the accuracy of USSGL data entered into the FACTS II system. The
auditor also needs to determine whether controls exist to ensure that
amounts in the USSGL and amounts submitted (including subsequent
adjustments) via FACTS II agree, and test controls where necessary.
4 OMB Circular No. A- 34 is the guidance used to prepare the SF 133s and the
SBR, and OMB Circular No. A- 11, Preparation and Submission of Budget
Estimates, is the guidance used to report the ?actuals? in the President?s
Budget.
Appendix II: Linkage Between SBR and the President?s Budget
Page 8 GAO- 02- 126G Guide for Auditing the SBR
The following example shows how SBR information by major budget accounts
included in the supplementary section of the financial statements can be
linked to related information reported in the President?s Budget. This
example was also incorporated in a prior GAO report entitled Federal
Accounting and Reporting: Framework for Assessing the Reliability of Budget
Execution Data Is Not Yet Fully Implemented. 1 As previously discussed, OMB
guidance for preparing agencies? financial statements was changed and the
new guidance changes the SBR format effective in fiscal year 2002. Even
though the SBR will change, the substance of the information is the same,
and figures 1 and 2 demonstrate how amounts can be linked. An explanation of
the linkage follows figure 2.
Figure 1: Example of Combining SBR Supplementary Information
Source: Fiscal Year 1999 Health Care Financing Administration Financial
Report, Combining Statement of Budgetary Resources (Supplementary
Information Section).
1 GAO- 01- 43, October 6, 2000. Appendix II: Linkage Between SBR and the
President?s Budget
1 2
3
Appendix II: Linkage Between SBR and the President?s Budget
Page 9 GAO- 02- 126G Guide for Auditing the SBR
Figure 2: Example of a President?s Budget P& F Schedule
Note: Minor differences between the P& F Schedule and the SBR are due to
rounding. Source: Budget of the United States Government, Fiscal Year 2001-
Appendix.
HEALTH CARE FINANCING ADMINISTRATION
Federal Funds
General and Special Funds: GRANTS TO STATES FOR MEDICAID *
* 2
3 1
Detail of 73. 10
Detail of 73.20 Detail
of 22. 00
Appendix II: Linkage Between SBR and the President?s Budget
Page 10 GAO- 02- 126G Guide for Auditing the SBR
Note that circled items 1, 2, and 3 on the SBR relate to data in the
?actual?
column in the P& F Schedule. For example, ?Total Budgetary Resources? of
$112,258 in the SBR, equals line 23.90 entitled ?Total Budgetary Sources
Available for Obligation? in the P& F Schedule. Other sections of the P& F
Schedule, such as ?New budget authority (gross), detail,? provide detailed
information about other P& F Schedule lines. For example, lines 60.00
through 70.00 in the P& F Schedule in figure 2 provide the detail for the
?New budget authority? line, which is included in the circled item 1 and
also as ?Budget authority? in the Budgetary Resources section of the SBR in
figure 1. However, as discussed previously, differences may exist between
the two documents, and the linkage may not be clear without proper
reconciliation.
Appendix III: Issues Related to the Preparation and Audit of the SBR
Page 11 GAO- 02- 126G Guide for Auditing the SBR
Our work on 22 major budgetary accounts at 10 federal agencies, constituting
approximately 77 percent of total federal fiscal year 1999 net outlays,
showed that several agencies did not fully implement the accounting and
reporting framework to prepare their SBRs. This limited the capability to
determine the reliability of budget execution information in the SBRs and
therefore in the President?s Budget. 1
We found that
data quality problems, which affected the financial statements, including
the SBRs, precluded the auditor?s determination of the reliability of the
amounts presented and
lack of disclosure of significant differences between the SBRs and the P&
F Schedules resulted in the inability to reconcile amounts in these two
documents and therefore to assess the reliability of budget execution data.
Our review of financial statement audits also showed that some audit
workpapers lacked evidence that adequate SBR audit procedures were
performed. For example we found the following.
Workpapers for the audit of one budgetary account reviewed did not include
audit programs or other key documentation, such as audit summary memos,
indicating that tests were performed for significant SBR line items and
describing the test results. Therefore, it was not evident whether the
procedures performed were adequate.
For two audits, auditors indicated that they relied on their work on
proprietary accounts to obtain assurance over certain SBR balances. However,
there was no documented link between the proprietary account amounts and
those in the SBRs.
In addition, a separate review of another agency disclosed that the SBR was
misstated by hundreds of millions of dollars because the agency
misinterpreted applicable guidance and made errors in the ad hoc process
used to generate the budgetary information. Agency auditors did not detect
this misstatement because insufficient audit work was performed. 2
1 Federal Accounting and Reporting: Framework for Assessing the Reliability
of Budget Execution Data Is Not Yet Fully Implemented (GAO- 01- 43, October
6, 2000). 2 Financial Management: Misstatement of NASA?s Statement of
Budgetary Resources
(GAO- 01- 438, March 30, 2001). Appendix III: Issues Related to the
Preparation and Audit of the SBR
Appendix III: Issues Related to the Preparation and Audit of the SBR
Page 12 GAO- 02- 126G Guide for Auditing the SBR
Under FASAB?s accounting framework, reliable SBR information is key in
helping determine the reliability of budget execution data in the
President?s Budget. For this reason, agencies need to properly prepare the
SBRs and reconcile budget execution data included in the SBR to data in the
President?s Budget to determine and report on any significant differences.
Auditors also need to perform adequate procedures to render opinions on
whether the SBRs are fairly stated. Failure to do so limits the assurance on
related amounts included in the President?s Budget. In addition, because
outlays reported in the P& F Schedules are used along with receipts and
other amounts in determining the amount of the annual federal budget surplus
or deficit, the successful implementation of FASAB?s framework provides the
means to help assess the reliability of that calculation as well. 3
3 The lack of evidence that sufficient audit procedures were performed
increases the risk that, if significant errors exist in agency financial
statements, including the SBR, they will not be detected by the auditor and
will lead to an inappropriate audit opinion.
Appendix IV: Audit Guidance Page 13 GAO- 02- 126G Guide for Auditing the SBR
An effective audit of the SBR, including related note disclosures, provides
users of agency financial statements with a mechanism to help assess the
reliability of budgetary data presented in the ?actual? column of the
President?s Budget P& F Schedules. 1
Government auditing standards 2 require auditors of agency financial
statements to (1) report on whether financial statements as a whole are
fairly presented in all material respects in conformity with GAAP, (2)
obtain a sufficient understanding of internal control to plan the audit and
determine the nature, timing, and extent of tests to be performed, and
report internal control weaknesses, and (3) test compliance with laws and
regulations that have a direct and material effect on the financial
statements and report identified instances of noncompliance. These standards
also require that auditors obtain sufficient competent evidential matter
through inspection, observation, inquiries, and confirmations to afford a
reasonable basis for an opinion on the financial statements, and that audit
workpapers contain sufficient information to enable an experienced auditor
having no previous connection with the audit to ascertain from them the
evidence that supports the auditors? significant conclusions and judgments.
In addition, OMB Bulletin No. 01- 02, Audit Requirements for Federal
Financial Statements, requires auditors to assess the level of control risk
relevant to the assertions embodied in the classes of transactions, account
balances, and disclosure components of the financial statements. For
controls that have been placed in operation, the auditor should perform
sufficient tests to support a low assessed level of control risk, and report
on those internal controls that have not been properly designed or placed
1 Auditors use the concept of materiality in determining the scope of the
financial audit and in deciding on the opinion to be rendered on the
financial statements. Thus, it is important to note that even if the opinion
is unqualified, complete assurance over all amounts presented is not
provided by the audit. In addition, unqualified audit opinions do not
guarantee that agencies have the financial systems needed to consistently
produce reliable financial information. Adequate systems and effective
internal controls are essential to reach the goal of useful, relevant, and
reliable data to support decision- making on a day- today basis. Further, an
unqualified audit opinion may be issued even if there is noncompliance with
applicable laws, such as the Antideficiency Act, if the effects of the
noncompliance are not material to the financial statements. Noncompliance is
reported in the compliance section of the audit report.
2 See the Comptroller General?s Government Auditing Standards (GAO/ OCG- 94-
4, June 1994). For financial statement audits, these standards incorporate
the American Institute of Certified Public Accountants? generally accepted
audit standards. Appendix IV: Audit Guidance
Appendix IV: Audit Guidance Page 14 GAO- 02- 126G Guide for Auditing the SBR
in operation and those internal controls that are found to be ineffective.
For compliance with laws and regulations, OMB requires testing of laws that
could have a direct and material effect on the financial statements,
including laws governing the use of budget authority, and any other laws
identified in appendix C 3 of its bulletin on audit requirements.
Auditors also should perform tests and report whether the entity?s systems
comply with requirements of section 803( a) of the Federal Financial
Management Improvement Act of 1996 (FFMIA), which states that ?each
agency shall implement and maintain financial management systems that comply
substantially with federal financial management systems requirements,
applicable federal accounting standards, and the United States Government
Standard General Ledger (USSGL) at the transaction level.?
This document focuses on matters the auditor should consider during the
planning, internal control, and testing phases of the SBR audit. Due to
differences in agency budgets as well as in their systems, procedures, and
controls, the auditor should use professional judgment in designing and
executing the appropriate audit steps to achieve the objective of the SBR
audit. 4 In addition, certain audit procedures performed for the proprietary
accounts may be used to satisfy the objectives of the SBR audit. Examples of
testing procedures that combine budgetary and proprietary accounting are
included in section IV of this appendix.
During the planning phase, the auditor determines an effective and efficient
way to obtain the evidence necessary to report on the entity?s financial
statements. The nature, extent, and timing of planning varies with the
entity?s size and complexity, the auditor?s experience with the entity, and
the auditor?s knowledge of the entity?s operation. Typical audit
3 Appendix C of OMB Bulletin No. 01- 02 includes, for example, provisions
from the Antideficiency Act, the Prompt Payment Act, and the Federal Credit
Reform Act of 1990. 4 The objective of auditing the SBR is to determine
whether the SBR as a whole is fairly presented in all material respects in
conformity with GAAP. To achieve this objective, auditors need to obtain
sufficient understanding of budgetary controls to plan the SBR audit and
determine the nature, timing, and extent of tests to be performed, and
whether budgetary resources were executed in compliance with applicable laws
and regulations that have a direct and material effect on the SBR. I.
Planning Phase
Appendix IV: Audit Guidance Page 15 GAO- 02- 126G Guide for Auditing the SBR
planning procedures are described in the GAO/ PCIE Financial Audit Manual. 5
Typical audit planning procedures for financial statements, including the
SBR, include
determining planning, design, and test materiality;
identifying significant line items, accounts, and relevant assertions;
identifying significant provisions of laws and regulations; 6
performing preliminary analytical procedures;
identifying significant accounting applications 7 and financial management
systems;
assessing risk factors; 8 and
determining the likelihood of effective information systems (IS) related
controls.
In addition to these typical procedures, because the SBR uses budgetary
accounting, in planning the audit of the SBR, the auditor generally should
understand and document
the agency?s appropriations structure;
the types of budget authority the agency receives as well as the purpose,
amount, and period of availability of that authority;
budget restrictions; and
whether the agency may reprogram or transfer budget authority and under
what circumstances.
5 The GAO/ PCIE Financial Audit Manual can be accessed on GAO?s home page
www. gao. gov, by clicking ?other publications,? and then ?Accounting and
Financial Management,? or on the IGnet at www. ignet. gov/ pande/ audit.
html.
6 A provision should be considered significant if (1) compliance with the
provision can be measured objectively, and (2) the provision has a material
effect on determining financial statement amounts.
7 Accounting applications are the procedures and records used to identify,
record, process, summarize, and report a class of transactions. Applications
related to the SBR include, for example, obligations, purchasing,
disbursements, and outlays.
8 In the planning phase, the auditor should identify conditions that
significantly increase inherent, fraud, and control risk (based on
identified control environment, risk assessment, communication, and
monitoring weaknesses). The auditor can read the prior year audit report to
determine if weaknesses reported have an effect on the information being
tested. For example, weaknesses in the agency?s reconciliation of its fund
balance with Treasury can affect the preliminary assessment of the
reliability of the outlays in the SBR.
Appendix IV: Audit Guidance Page 16 GAO- 02- 126G Guide for Auditing the SBR
To understand the financial statement reporting requirements for the SBR,
the auditor should read the following:
SFFAS No. 7, Accounting for Revenue and Other Financing Sources and
Concepts for Reconciling Budgetary and Financial Accounting
(applicable SBR sections);
OMB Bulletin No. 97- 01, Form and Content of Agency Financial Statements,
as amended, or OMB Bulletin No. 01- 09, Form and Content of Agency Financial
Statements (effective beginning in fiscal year 2002);
OMB Circular No. A- 34, Instructions on Budget Execution; and
OMB Circular No. A- 11, Preparation and Submission of Budget Estimates.
To understand the agency?s budget structure and other relevant information,
the auditor should read the following information relating to the entity?s
budget authority for the period covered by the audit:
enabling legislation;
authorizing legislation;
applicable appropriation and supplemental appropriation acts;
apportionment and budget execution reports (SF 132s and SF 133s);
Impoundment Control Act reports regarding rescissions and deferrals, if
any;
the system of fund controls approved by OMB; and
any other information relevant to the entity?s budget authority. To
evaluate budget controls and budget restrictions, and to design compliance-
related audit procedures during the internal control and substantive phases,
the auditor should understand the following:
the Antideficiency Act (31 U. S. C. 1341, 1342, 1351, 1517);
the Purpose Statute (31 U. S. C. 1301);
the ?Bona Fide Needs? (Time) Statute (31 U. S. C. 1502);
the Impoundment Control Act (2 U. S. C. 681- 688);
title 7 of the GAO Policy and Procedures Manual for Guidance of Federal
Agencies;
the Federal Credit Reform Act of 1990 (2 U. S. C. 661- 661f.);
GAO?s Principles of Federal Appropriations Law (Second edition); and
budgetary accounting concepts and terminology, as found in Basic Topics
Relating to Appropriations and Reimbursables (GAO/ AFMD- PPM- 2. 1).
The auditor also should review the lists of laws and regulations that OMB
and the entity have determined might be significant. OMB Bulletin No. 01-
Appendix IV: Audit Guidance Page 17 GAO- 02- 126G Guide for Auditing the SBR
02, appendix C, provides a list of general laws the auditor should consider
and those specific provisions the auditor must test at a minimum.
Planning is an iterative process performed throughout the audit. For
example, findings from the internal control phase could affect planned
substantive procedures. Also, the results of control and substantive testing
can require changes in the planned audit approach. For additional planning
procedures, refer to section 200 of the GAO/ PCIE Financial Audit Manual. In
particular, sections 250, 260, and 295G contain budgetrelated information.
The auditor should document relevant information obtained during the
planning phase in documents such as the Entity Profile, General Risk
Analysis (GRA), and Account Risk Analysis (ARA), described in detail in
section 290 of the GAO/ PCIE Financial Audit Manual. With respect to the
SBR, the auditor should include in these documents the following types of
information.
The Entity Profile or equivalent should include information about the
agency?s budgetary accounting system and structure. For example, the auditor
should include a description of the budgetary accounting system and whether
it is integrated with the proprietary accounting systems. Regarding the
agency?s budgetary structure, the auditor generally should document (1) the
type of budgetary resources (i. e., appropriations, contract authority,
etc.), (2) whether the agency has spending authority from offsetting
collections, and (3) any restrictions to the use of budgetary resources.
The GRA or equivalent should include relevant provisions of laws and
regulations and budgetary restrictions that should be considered when
testing compliance with provisions? requirements.
The ARA or equivalent should identify significant SBR line items,
accounts, accounting applications and the inherent, fraud, and control risk
factors. The ARA serves as the link between the results of the internal
control risk assessment and planned substantive testing. It should be
updated throughout the audit to include a final risk assessment based on the
results of control and substantive tests.
For additional information on documentation prepared during the planning
phase, refer to section 290 of the GAO/ PCIE Financial Audit Manual.
Documentation
Appendix IV: Audit Guidance Page 18 GAO- 02- 126G Guide for Auditing the SBR
During the internal control phase, 9 the auditor (1) assesses control risk,
(2) determines the nature, timing, and extent of control, compliance, and
substantive testing, and (3) determines control weaknesses and, if
appropriate, forms an opinion and/ or reports on internal control over
financial reporting and compliance. The auditor should assess control risk
separately for each significant financial statement assertion in each
significant cycle/ accounting application. The effectiveness of budget and
compliance controls is a factor in determining the nature, timing, and
extent of substantive testing of the SBR.
Internal control as it relates to the SBR is a process effected by the
agency?s management and other personnel that is designed to provide
reasonable assurance that transactions
are properly recorded, processed, and summarized to permit the preparation
of the SBR in conformity with GAAP and
are executed in accordance with (1) laws governing the use of budget
authority and other laws and regulations that could have a direct and
material effect on the SBR and (2) any other laws, regulations, and
governmentwide policies identified in OMB guidance.
Budget controls may be both financial reporting and compliance controls.
Budget controls that provide reasonable assurance that budgetary
transactions, such as obligations and outlays, are properly recorded,
processed, and summarized to permit the preparation of the SBR in conformity
with GAAP are financial reporting controls. Budget controls that provide
reasonable assurance that transactions are executed in accordance with laws
governing the use of budget authority are compliance controls. See
additional information in section 295G of the GAO/ PCIE Financial Audit
Manual.
9 For information on standards for internal control in the federal
government, refer to our
Standards for Internal Control in the Federal Government (GAO/ AIMD- 00- 21.
3.1, November 1999). These standards provide an overall framework for
establishing and maintaining internal control. In addition, OMB Circular No.
A- 123, Management Accountability and Control, revised June 21, 1995,
provides guidance to federal managers on improving the accountability and
effectiveness of federal programs and operations by establishing, assessing,
correcting, and reporting on management controls. II. Internal Control
Phase
Appendix IV: Audit Guidance Page 19 GAO- 02- 126G Guide for Auditing the SBR
During the internal control phase, the auditor should do the following:
Understand the agency?s information systems for financial reporting,
specifically, the processes for (1) establishing, recording, and monitoring
appropriations, obligations, and outlays, (2) monitoring transactions in
expired accounts, and (3) preparing the SBR.
Understand the relationship of budgetary to proprietary accounts and what
documentation constitutes evidence of transactions. 10
Understand how the agency reconciles information in the SBR to information
reported in the President?s Budget.
Determine whether the agency has a system in place to review unliquidated
obligations to determine if remaining obligations are still needed or should
be deobligated.
Understand the agency?s policies and procedures for recording recoveries
of prior year obligations and upward and downward adjustments.
Understand the agency?s system for ensuring compliance with laws and
regulations, including, for example, how it (1) identifies and documents
significant provisions of laws and regulations related to budget execution
and (2) monitors changes in laws and regulations that affect the amount of
resources available for obligation.
Identify agency control activities related to budget data that effectively
achieve its control objectives, including, for example, assessing whether
agencies have controls in place to
ensure that transactions are recorded in the proper program/ account,
monitor expired budget authority and related accounts so that only
authorized transactions are recorded, and
monitor closed accounts and budget restrictions.
Determine the nature, timing, and extent of control testing.
Perform tests that do not involve sampling, such as walkthroughs and
observations (nonsampling control tests), to assess the effectiveness of
budget controls. (Sampling control tests, if necessary, are typically
performed in the testing phase.)
10 Understanding the relationship between proprietary and budgetary accounts
is essential to maximize efficiency when planning substantive testing. (For
additional information, refer to section IV of this appendix.) Examples of
supporting documentation include appropriations acts, list of budgetary
restrictions, Treasury Warrants, Apportionment and Reapportionment Schedule
(Form SF 132), agency?s documentation for allocating funds (allotments),
agency?s policies and procedures related to budgetary information, list of
adjustments made to budgetary accounts, Reports on Budget Execution and
Budgetary Resources (Form SF 133), contracts, purchase orders, and travel
orders. Supporting documents may vary by agency.
Appendix IV: Audit Guidance Page 20 GAO- 02- 126G Guide for Auditing the SBR
Evaluate the results of the nonsampling control tests and assess the
effectiveness of budget controls on a preliminary basis.
In addition to the controls and compliance information provided above,
auditors should test whether the agency?s systems comply with the
requirements of FFMIA. To do this, auditors should assess and report whether
the agencies? financial management systems substantially comply with federal
financial management systems requirements, applicable federal accounting
standards, and the SGL at the transaction level. These requirements are
detailed in the Financial Management Systems Requirements series issued by
the Joint Financial Management Improvement Program (JFMIP), and in OMB
Circular No. A- 127, Financial Management Systems, as revised by Transmittal
Memorandum No. 2 dated June 10, 1999.
An example of systems requirements that relates to budget controls is the
requirement that each agency establish a system to ensure that it does not
obligate or disburse funds in excess of those appropriated and/ or
authorized. This is called the ?funds management function.? In establishing
the funds management function, an agency ensures that its core financial
system provides, among other things, (1) the ability to track changes to
budget authority and (2) appropriate warnings and controls to ensure that
budgetary limitations are not exceeded to avoid overobligating or
overspending. To assist auditors in reviews of financial management systems
under the requirements of FFMIA, a series of checklists have been developed
to ensure that the agency?s financial systems comply with system
requirements. 11 Testing compliance with FFMIA provides auditors with
information on the effectiveness of budget controls that were developed to
ensure proper reporting of amounts and compliance with laws and regulations,
such as the Antideficiency Act.
The following are examples of overall budget control objectives in the three
areas of the SBR and examples of controls that the auditor should
11 One of the checklists is entitled Core Financial Systems Requirements:
Checklist for Reviewing Systems Under the Federal Financial Management
Improvement Act
(GAO/ AIMD- 00- 21.2.2, February 2000). Other system requirement checklists
were prepared for inventory, travel, guaranteed loans, direct loans, and
human resources and payroll.
Appendix IV: Audit Guidance Page 21 GAO- 02- 126G Guide for Auditing the SBR
consider for evaluation. The auditor may consider these control objectives
for the evaluation of both financial reporting and compliance controls. 12
Budget Authority: Recorded budget authority is the same as that made
available in the appropriation or other legislation, including restrictions
on amount, purpose, and time (period of availability for obligations). The
auditor should evaluate management?s controls over the recording of budget
authority and related restrictions.
Obligations: Recorded obligations are valid, complete, and for the purpose
intended. The auditor should evaluate management?s controls over initial
recording of obligations as well as over monitoring obligated balances to
determine whether they remain legally valid as of the end of the fiscal
year. This evaluation of controls should consider the adequacy of policies
and procedures for determining (1) the initial validity and amount of
obligations recorded, (2) the removal of liquidated obligations, (3)
compliance with laws, such as the Antideficiency Act, (4) periodic reviews
of unliquidated obligations to ensure continuing validity, and (5) the
classification between undelivered orders and accounts payable at year- end.
Outlays: Recorded outlays are properly authorized, supported by evidence,
and recorded against the appropriation and obligation established to pay for
the work performed or the item received. The auditor should evaluate
management?s controls over the disbursement process to ensure that payments
are for the correct amount, properly authorized, and posted to the correct
account/ program. Evaluations of controls related to outlays generally
should be combined with cash disbursements testing.
For additional internal control procedures, refer to section 300 of the GAO/
PCIE Financial Audit Manual. Specifically, sections 310, 320, 330, 370, 390,
395D, 395E, 395F, and 395F Sup contain budget- related information.
12 The auditor should consider coordinating budgetary control tests with
substantive audit procedures and/ or tests of compliance with laws and
regulations (multipurpose tests) to maximize audit efficiency. Also, budget
control tests should be combined with related control and substantive tests
of proprietary accounts.
Appendix IV: Audit Guidance Page 22 GAO- 02- 126G Guide for Auditing the SBR
During the internal control phase, in addition to preparing a control
testing audit program and updating the ARA or equivalent with the combined
risk assessment, the auditor should prepare other workpapers relevant to the
internal control phase, such as
a cycle memo, which includes information on (1) cycle transactions, (2)
significant accounting applications, (3) applicable financial management
systems, (4) interfaces with other cycles, (5) significant policies and
procedures, (6) SGL accounts, and (7) other relevant information;
a flowchart, 13 which includes information on transaction flows such as
(1) input and report documents, (2) processing steps, (3) files used, (4)
units involved, and (5) interfaces with other cycles; and
Specific Control Evaluation Worksheets or equivalent, which includes
information on (1) relevant assertions, (2) control objectives, and (3) the
assessment of the control activities tested.
For additional information on documentation prepared for the internal
control phase of the audit, refer to section 390 of the GAO/ PCIE Financial
Audit Manual.
After the auditor has obtained an understanding of budgetary transactions
and has assessed the effectiveness of controls on a preliminary basis, he or
she should plan the nature, timing, and extent of procedures to be
performed. During the testing phase the auditor can perform substantive,
control, 14 and compliance tests.
To maximize efficiency, the auditor generally should combine similar tests.
For tests that involve sampling, efficiencies can be realized by performing
numerous tests on a common sample (multipurpose testing).
13 Preparation of a flowchart in addition to the cycle memo is recommended
but not required. However, a flowchart is a very effective tool to help
understand (1) the departments involved in the budget process, (2) sources
of budgetary information, (3) the accounting system, and (4) how the SBR is
compiled.
14 Controls that leave documentary evidence of their existence and
application may be tested by inspecting this evidence. If sufficient
evidence cannot be obtained through walkthroughs in combination with other
observation and inquiry tests, the auditor generally should obtain more
evidence by inspecting individual items selected using sampling procedures.
Documentation
III. Testing Phase
Appendix IV: Audit Guidance Page 23 GAO- 02- 126G Guide for Auditing the SBR
The auditor should try to minimize the number of separate sampling
applications performed on the same population in order to effectively
achieve as many objectives as possible using the items selected for testing.
For example, if a substantive test of obligations would require 135 sample
items and a test of controls would require 45 sample items, the auditor
should select 135 sample items but test controls for only 45. The 45 items
for control testing should be selected randomly or systematically (with a
random start) from the 135 sample items. For additional information on
designing substantive, compliance, and control tests refer to section 400 of
the GAO/ PCIE Financial Audit Manual. In addition, section 800 of the GAO
Financial Audit Manual, Volume II, (under revision to be incorporated into
the GAO/ PCIE manual) has summary information on compliance and
applicability of certain laws, such as the Antideficiency Act and Prompt
Payment Act. Information provided in section 800 should help determine the
applicability of the law and also suggest audit procedures to test the
provisions.
Auditors should use professional judgment in designing audit programs and
determining sampling methods to obtain samples after considering the test
materiality, expected misstatement, and inherent, fraud, and control risks,
and the auditor?s judgment of the most effective and efficient method to
achieve the specific audit objectives.
The following guidance provides the auditor with a framework for designing
audit procedures for budgetary accounts. This guidance follows the three
sections of the SBR (budgetary resources, status of budgetary resources, and
outlays) and their key line items, and is focused on the format used in OMB
Bulletin No. 97- 01. We have also included information related to the SBR
form and content changes incorporated in OMB Bulletin No. 01- 09, which will
be effective beginning in fiscal year 2002. However, to the extent that
agencies report detailed line items as included in the new form and content
bulletin (see appendix I), auditors will need to develop additional audit
procedures similar to the ones discussed in this guide.
Sections in this appendix include a general description of the line items,
risks, and audit objectives and guidance and are focused on the existence
and completeness financial statement assertions. For budgetary accounts,
Appendix IV: Audit Guidance Page 24 GAO- 02- 126G Guide for Auditing the SBR
the valuation assertion is typically performed concurrently with testing for
existence and completeness. 15
This section of the SBR shows total budgetary resources available to the
reporting entity. Budgetary resources include new budget authority,
unobligated balances at the beginning of the period, spending authority from
offsetting collections, and adjustments to these resources, which include
recoveries of prior year obligations and/ or amounts not available for
obligation, such as obligation limitations. 16
Figures 3 and 4 show the Budgetary Resources section of the SBR according to
OMB guidance effective for fiscal year 2001 and revisions made in the new
guidance, which are effective beginning with fiscal year 2002.
Figure 3: Budgetary Resources Section of the SBR (Effective for Fiscal Year
2001)
Source: OMB Bulletin No. 97- 01, Form and Content of Agency Financial
Statements.
15 The rights and obligations assertion, specifically the obligation side,
which deals with the validity of the obligation, is also covered when
testing the existence and completeness assertions.
16 Obligation limitations are restrictions on the amount of budgetary
resources that can be obligated for a specific purpose. While limitations
are most often established through appropriations acts, they can also be
established through other legislation. Limitations may be placed on the
availability of funds for program levels, administrative expenses, direct
loan obligations, guaranteed loan commitments, or other purposes. Obligation
limitations, along with other resources not available for obligation, are
included as a reduction on the
?Adjustments? line item (in OMB Bulletin No. 97- 01) of this section.
Budgetary Resources
Budgetary Resources (Dollars in millions) Budget authority $XXX Unobligated
balance - beginning of period XXX Net transfers prior year balance, actual
XXX Spending authority from offsetting collections XXX Adjustments XXX
Total budgetary resources $X, XXX
Appendix IV: Audit Guidance Page 25 GAO- 02- 126G Guide for Auditing the SBR
Figure 4: Budgetary Resources Section of the SBR (Effective for Fiscal Year
2002)
Source: OMB Bulletin No. 01- 09, Form and Content of Agency Financial
Statements.
Note:( 1) Section 30 of OMB Circular No. A- 34 (2000) contains detailed
explanations of the SBR and SF 133 line item components.
This line item consists of the amount of new budget authority made available
during the year for obligation, such as appropriations, contract authority,
and borrowing authority.
Risks: New budget authority may be misstated or recorded in the wrong
accounts, resulting in obligations in excess of resources made available or
underobligation of resources that actually were available. Budget Authority
Non- budgetary credit program Budgetary financing accounts Budgetary
Resources
1. Budget authority: 1a. Appropriations received $XXX $XXX 1b. Borrowing
authority XXX XXX 1c. Contract authority XXX XXX 1d. Net transfers (+/-) XXX
XXX 1e. Other XXX XXX 2. Unobligated balance: 2a. Beginning of period XXX
XXX 2b. Net transfers, actual (+/-) XXX XXX 2c. Anticipated transfers
balances XXX XXX 3. Spending authority from offsetting collections: 3a.
Earned
1. Collected XXX XXX 2. Receivable from federal sources XXX XXX 3b. Change
in unfilled customer orders 1. Advance received XXX XXX 2. Without advance
from federal sources XXX XXX 3c. Anticipated for rest of year, without
advances XXX XXX
3d. Transfers from trust funds XXX XXX 3e. Subtotal XXX XXX
4. Recoveries of prior year obligations XXX XXX 5. Temporarily not available
pursuant to Public Law XXX XXX 6. Permanently not available XXX XXX
7. Total budgetary resources $X, XXX $X, XXX
Appendix IV: Audit Guidance Page 26 GAO- 02- 126G Guide for Auditing the SBR
Audit objectives and guidance:
Existence: Recorded new budget authority was made available for obligation
and was recorded in the proper accounts.
Compare recorded new budget authority to supporting documentation, such as
appropriations acts and Treasury Warrants to determine whether budget
authority recorded in the appropriations? accounts was valid.
Completeness: All new budget authority that was made available for
obligation was recorded in the proper accounts.
Determine if all new budget authority from the appropriations acts or
other budgetary documentation was reported in the financial statement and
was posted to the proper accounts.
This line item is comprised of amounts available for obligation during the
current fiscal year brought forward from prior fiscal years. Prior year
unobligated balances may be available to enter into new obligations during
the current year and for upward adjustments of obligations that were
properly incurred against the account during the unexpired period. 17
Risks: Unobligated balances brought forward are not available for obligation
because balances have been rescinded or are otherwise restricted. Not all
balances available are brought forward.
Audit objectives and guidance: Existence: Recorded unobligated balances from
prior periods remain available for obligation.
Trace the balance to prior year ending unobligated balances to determine
if amounts agree.
Determine that prior year ending unobligated balances have not been
canceled or rescinded. For example, determine the ?aging? of the
17 According to OMB guidance, the SBR balances include budgetary resources
for accounts during the 5 years that they are in an expired status.
Unobligated balances of expired budget authority remain available for 5
years after the account expires to make legitimate adjustments, that is, to
record previously unrecorded obligations and to make upward adjustments in
previously recorded obligations. At the end of the fifth year, the expired
account is closed. Unobligated Balance,
Beginning of Period
Appendix IV: Audit Guidance Page 27 GAO- 02- 126G Guide for Auditing the SBR
unobligated balances to determine whether canceled amounts were mistakenly
carried forward.
Completeness: All unobligated available balances from prior periods are
recorded.
Generally, when prior year audited balances agree with the current year
beginning balances (tested under existence), audit risk for completeness is
minimal.
This line item is comprised of budget authority that is financed by
collections authorized by law to be credited to an appropriation or fund
account. Offsetting collections may consist of advances, reimbursements, and
other income.
Risks: Collections are misstated or recorded in the wrong account.
Collections are not authorized by law to be credited to the appropriation or
fund account.
Audit objectives and guidance: Existence: Recorded offsetting collections
are available for obligation during the year and were recorded in the proper
accounts.
Determine whether recorded offsetting collections are available for
obligation by reference to authorizing legislation.
Trace spending authority from offsetting collections to supporting
documentation such as evidence of collections from other federal agencies
and others for goods and services provided or prepaid orders to determine
whether the transaction/ event occurred.
Determine whether offsetting collections were recorded in the proper
accounts.
Completeness: All available and authorized spending authority is recorded.
Confirm revenue/ collections with other federal entities.
Reconcile spending authority from offsetting collections with reported
revenue from third parties.
Determine whether offsetting collections were recorded in the proper
accounts. Spending Authority From
Offsetting Collections
Appendix IV: Audit Guidance Page 28 GAO- 02- 126G Guide for Auditing the SBR
This line item 18 is comprised of cancellations or downward adjustments of
obligations incurred in prior fiscal years that were not subsequently
disbursed (outlayed) and remain available in the current year. For no- year
and unexpired multi- year accounts, apportioned recoveries of prior year
obligations are available for new obligations. For expired accounts,
recoveries are available for unrecorded legitimate obligations and upward
adjustments of previously recorded obligations incurred during the unexpired
period.
Risks: Recorded recoveries of prior year obligations are incorrect or no
longer available.
Audit objectives and guidance: Existence: Recorded recoveries represent
cancellations or downward adjustments of prior obligations, remain
available, and are recorded in the proper account.
Compare recorded amounts to supporting documentation, such as closed or
canceled contracts or purchase orders, to determine whether they represent
cancellations or downward adjustments of prior obligations.
Determine if recoveries remain available for obligation.
Determine whether recoveries of prior obligations are recorded in the
proper accounts.
Completeness: All recoveries of prior years that are available for
obligation were included in the SBR.
Select canceled contracts, purchase orders, travel orders, etc.; determine
if the amount obligated was in excess of amount paid; and determine if the
excess amount was available for obligation and, if so, if it was reported as
available.
18 This line item is included in the ?Adjustments? line item in OMB Bulletin
No. 97- 01. Recoveries of Prior Year
Obligations
Appendix IV: Audit Guidance Page 29 GAO- 02- 126G Guide for Auditing the SBR
This line item 19 is comprised of budgetary resources that are temporarily
or permanently not available for obligation 20 pursuant to a specific
provision of law. For example, amounts temporarily not available may include
a limitation on obligations, and amounts permanently not available may
include cancellations of expired and no- year authority and amounts
rescinded by law.
Risk: Adjustments that reduce budgetary resources are not properly reported.
Audit objectives and guidance: Existence: Reported amounts not available
represent valid restrictions on the availability of budget authority or
cancellations.
Compare amounts recorded as not available to supporting documentation,
such as authorization acts or other supporting documentation, to determine
if resources are not available or have been canceled.
Completeness: All amounts that are canceled, restricted, or limited are
included as reductions of resources in the SBR.
Review appropriations acts or other laws to determine if restrictions on
the use of resources exist but were not included in the financial
statements.
Review appropriations acts or other laws to determine if amounts have been
canceled and were not included in the SBR.
Review aging of expired accounts to determine if resources such as
unobligated balances were canceled after the 5- year period.
19 This line item is included in the ?Adjustments? line item in OMB Bulletin
No. 97- 01. 20 When a provision of law, such as benefit formula or
limitation on obligations, precludes amounts in special or trust funds from
being obligated, amounts not available are included as negative amounts in
this line item. Temporarily or Permanently
Not Available for Obligation
Appendix IV: Audit Guidance Page 30 GAO- 02- 126G Guide for Auditing the SBR
This section displays the disposition of the budgetary resources that were
made available for obligation. It consists of obligations incurred during
the year, unobligated balances at the end of the year that remain available,
and unobligated balances at the end of the year that are unavailable. Totals
for this section and for the Budgetary Resources sections should agree.
Figures 5 and 6 show the Status of Budgetary Resources section of the SBR
according to OMB guidance effective for fiscal year 2001 and revisions made
in the new guidance, which are effective beginning with fiscal year 2002.
Figure 5: Status of Budgetary Resources Section of the SBR (Effective for
Fiscal Year 2001)
Source: OMB Bulletin No. 97- 01, Form and Content of Agency Financial
Statements.
Figure 6: Status of Budgetary Resources Section of the SBR (Effective for
Fiscal Year 2002)
Source: OMB Bulletin No. 01- 09, Form and Content of Agency Financial
Statements.
This line item includes the amounts of orders placed, contracts awarded,
services received, and similar transactions during a given period that will
require future payments. Obligations incurred also reflect obligations for
outlays for which obligations were not previously recorded and reflect
adjustments for differences between obligations previously recorded and the
amount of outlays required to liquidate those obligations. Status of
Budgetary
Resources Obligations Incurred
Status of Budgetary Resources (Dollars in millions) Obligations incurred
$XXX Unobligated balances - available XXX Unobligated balances - unavailable
XXX
Total status of budgetary resources $X, XXX
Non- budgetary credit program Budgetary financing accounts Status of
Budgetary Resources 8. Obligations incurred:
8a. Direct $XXX $XXX 8b. Reimbursable XXX XXX 8c. Subtotal XXX XXX 9.
Unobligated balance:
9a. Apportioned XXX XXX 9b. Exempt from apportionment XXX XXX 9c. Other
available XXX XXX 10. Unobligated balance not available XXX XXX
11. Total status of budgetary resources $X, XXX $X, XXX
Appendix IV: Audit Guidance Page 31 GAO- 02- 126G Guide for Auditing the SBR
Risks: Obligations incurred may be invalid, incorrectly recorded, or not
recorded.
Audit objectives and guidance: Existence: Recorded obligations represent
valid orders, contracts, or other events that will require future payment.
Trace recorded obligations to supporting documentation such as purchase
orders, grants, binding contracts, and travel authorizations to determine if
obligations are properly recorded and supported by obligating documents,
obligations are classified in the proper accounts,
obligations were incurred within the period that the appropriation was
available for new obligations, and
the purposes of the obligations are those for which the appropriations are
available.
If the transaction is a modification or an adjustment to an obligation,
determine if
the amount was properly authorized in accordance with agency and OMB
policies,
the adjustment did not cause the entity to exceed the original
appropriated amount,
it was recorded during the period when the account is available for
adjustments (5 years), and
the adjustment amount equals the difference between the amount invoiced
and the amount previously obligated.
Completeness: All valid and new obligations were recorded in the proper
accounts.
Examine new contracts, purchase orders, travel vouchers, and documentation
of other events that require obligations to be recorded and determine
whether obligations were recorded for these items.
Determine whether amounts were recorded in the proper accounts and in the
proper fiscal years.
Appendix IV: Audit Guidance Page 32 GAO- 02- 126G Guide for Auditing the SBR
This line item includes the cumulative portion of obligation authority that
has not yet been obligated. The unobligated balance at each year- end is the
difference between total budgetary resources and obligations incurred.
Risks: Unobligated balances may be misstated and expired balances or errors
may be carried forward into next year?s balances. 21
Audit objectives and guidance:
Since total unobligated balances is the difference between total budgetary
resources available less obligations incurred, perform an overall
reasonableness test by performing the calculation. In addition:
Compare amounts recorded as unobligated balances available and not
available to amounts recorded in the agency?s final SF 133 to determine
whether differences exist.
Determine whether unobligated balances are expired, canceled, or rescinded
and if balances were correctly reported in the SBR as available or
unavailable.
Review the appropriations act or other laws to determine whether all
unavailable balances pursuant to the law were included in the financial
statements.
This section in the SBR (new title in fiscal year 2002 is Relationship of
Obligations to Outlays) shows the relationship between obligations incurred
and outlays. It reconciles outlays with obligations incurred and the change
in obligated balances during the year. Obligations are usually liquidated by
means of cash payments (outlays), such as currency, checks, or electronic
fund transfers. Several line items in this section, such as obligations
incurred, spending authority from offsetting collections, and adjustments,
are also reported in SBR sections previously discussed.
Figures 7 and 8 show the Outlays section of the SBR according to OMB
guidance effective for fiscal year 2001 and revisions made in the new
guidance, which are effective beginning in fiscal year 2002.
21 The risk that errors may be carried forward into next year?s balances may
also be a risk for other accounts such as Obligations Incurred and Obligated
Balance, Net End of Period. However, it is specifically included here
because it is a prevalent risk. Unobligated Balances
Outlays
Appendix IV: Audit Guidance Page 33 GAO- 02- 126G Guide for Auditing the SBR
Figure 7: Outlays Section of the SBR (Effective for Fiscal Year 2001)
Source: OMB Bulletin No. 97- 01, Form and Content of Agency Financial
Statements.
Figure 8: Revised Outlays Section of the SBR (Effective for Fiscal Year
2002)
Source: OMB Bulletin No. 01- 09, Form and Content of Agency Financial
Statements.
This line item is comprised of the amount of obligations already incurred
for which payment has not yet been made. The SBR shows net beginning,
transferred, and ending obligated balances for the year. For a fixed
appropriation account, this balance can be carried forward and retains its
fiscal year identity for 5 fiscal years after the period of availability
ends. At the end of the fifth fiscal year, the account is closed and any
remaining balance is canceled. Obligated balances of an appropriation
account available for an indefinite period may be closed if (1) they are
specifically rescinded by law, (2) the purpose for which the appropriation
was made has been carried out, and (3) no disbursements have been made for 2
consecutive years. Obligated Balances
Outlays (Dollars in millions) Obligations incurred $XXX Less: Spending
authority from offsetting collections and adjustments (XXX)
Subtotal XXX
Obligated balance, net beginning of period XXX Obligated balance,
transferred net XXX Less: Obligated balance, net end of period (XXX)
Total outlays $X, XXX
Non- budgetary credit program Budgetary financing accounts Relationship of
Obligations to Outlays 12. Obligated balance, net beginning of period $ XXX
$ XXX 13. Obligated balance, transferred net XXX XXX 14. Obligated balance,
net end of period
14a. Accounts receivable XXX XXX 14b. Unfilled customer orders from Federal
sources XXX XXX 14c. Undelivered orders XXX XXX 14d. Accounts payable XXX
XXX 15. Outlays
15a. Disbursements XXX XXX 15b. Collections XXX XXX 15c. Subtotal XXX XXX
16. Less: Offsetting receipts XXX XXX
17. Net outlays $X, XXX $X, XXX
Appendix IV: Audit Guidance Page 34 GAO- 02- 126G Guide for Auditing the SBR
Risks: Not all obligations are eliminated when an outlay or other
liquidating event occurs or not all obligations have been included.
Unliquidated obligations that are no longer valid tie up resources that if
deobligated, may be available for new obligations.
Audit objectives and guidance: Existence: Obligated balances represent
amounts for orders placed, contracts awarded, and similar obligating
transactions for which goods and services have not been paid.
For undelivered orders, trace a sample of obligated balances to supporting
documentation, such as purchase orders, contracts, or other supporting
documents, and determine whether goods and services remained undelivered at
the end of the fiscal year. If part of an order was received as of year- end
but not paid for, determine whether the portion delivered was classified as
Expended Authority - Unpaid.
For Expended Authority - Unpaid, trace the amount to supporting
documentation, such as invoices or other evidence of receipt of goods and
services.
Determine whether the amounts were recorded in the proper accounts and in
the correct fiscal year.
Determine whether the obligation is still valid or needed. For example,
review inactive obligations, inquire about continuing need, and examine
support as appropriate to determine whether the obligations are still
needed.
Completeness: All undelivered orders, such as contracts, purchase or travel
orders, and other obligations, are recorded in the proper accounts and for
the correct fiscal year. In addition, all received but unpaid goods and
services are included.
Select disbursements after year- end to determine whether an obligation
should have been recorded for those items at year- end (combine this testing
with cutoff testing).
Select outstanding undelivered orders, such as purchase orders and
contracts at year- end, and determine whether an obligation was recorded for
those items.
Determine whether the amounts were recorded in the proper account and in
the correct fiscal year.
Appendix IV: Audit Guidance Page 35 GAO- 02- 126G Guide for Auditing the SBR
This line item consists of payments made to liquidate federal obligations.
22
Risks: Payments are made for invalid or unauthorized transactions. Outlays
are not recorded in the proper accounts or the correct fiscal year.
Audit objectives and guidance: Existence: Recorded outlays are supported by
disbursement evidence.
Determine whether outlays are evidenced by supporting documentation. For
example, trace recorded payment to invoices or other forms of billing.
Determine if outlays or payments were properly authorized. For example,
trace disbursements to payment voucher and determine if they were properly
authorized.
Determine if outlays are recorded in the appropriate accounts and fiscal
years.
Determine whether the outlays were recorded against valid obligations.
Compare this line item to net outlays reported to Treasury on the SF 224,
Statement of Transactions, and determine if differences exist and the
reasons for the differences.
Completeness: All payments made are recorded in the proper accounts and for
the correct year.
Perform cutoff tests. Select disbursements after the end of the fiscal
year and determine whether the payment belongs in the fiscal year under
audit.
This line item (effective beginning with fiscal year 2002 reporting) is
comprised of collections such as fees or payments that are credited to the
general fund, special fund, or trust fund receipt accounts. Offsetting
receipts can be distributed (receipts offset outlays at the agency level) or
undistributed (receipts offset outlays at the governmentwide level). For
this line item, agencies should include all distributed offsetting receipts
for the agency. OMB guidance states that the amount of distributed
offsetting
22 Outlays also occur when interest on the public issues of Treasury debt
accrues and when the government issues bonds, notes, debentures, monetary
credits, or other cash- equivalent instruments in order to liquidate
obligations. Also, the credit subsidy cost is recorded as an outlay when a
direct or guaranteed loan is disbursed. Outlays
Offsetting Receipts
Appendix IV: Audit Guidance Page 36 GAO- 02- 126G Guide for Auditing the SBR
receipts reported in this line should be the aggregate of cash collected in
the receipt accounts and reported to Treasury 23 each month.
Risks: Offsetting receipts are misstated or incorrectly reported.
Audit objectives and guidance: Existence: Recorded receipts are valid and
were recorded in the proper accounts.
Trace amounts to supporting documentation, such as evidence of collections
from other federal agencies, to determine whether the transfer/ event
occurred.
Determine whether offsetting receipts were recorded in the appropriate
accounts and fiscal year.
(Testing of offsetting receipts can be combined with revenue/ collections
testing to maximize efficiency. While testing revenue/ collections, auditors
should test whether amounts recorded in the proprietary accounts are also
being recorded in the applicable budgetary accounts.)
Completeness: All current year offsetting receipts are recorded.
Confirm revenue/ collections with other federal entities.
Reconcile collections with reported revenue from third parties.
Determine whether offsetting receipts were recorded in the proper accounts
and fiscal year.
Credit program financing accounts (effective beginning with fiscal year 2002
reporting) are non- budgetary accounts (transactions are excluded from
budget totals) that record cash flows resulting from post- 1991 direct loans
or loan guarantees. Financing accounts reflect disbursements of loans,
collections of repayments and fees, claim payments, borrowings from
Treasury, interest earned or paid, and subsidy cost payment from the credit
program account. There is at least one financing account associated with
each credit program account. Separate financing accounts are
23 Agencies report these collections to Treasury in the SF 224, Statement of
Transactions;
SF 1219, Statement of Accountability; and SF 1220, Statement of
Transactions.
Non- Budgetary Credit Program Financing Accounts
Appendix IV: Audit Guidance Page 37 GAO- 02- 126G Guide for Auditing the SBR
required for direct loan cash flows and for loan guarantee cash flows if the
program account provides subsidy costs for both forms of credit.
To test financing accounts, auditors need to understand the relationship
between these accounts and related accounts reported in the financial
statements. Because financing accounts record the cash flows of loan
guarantees and direct loans, auditors can combine testing of financing
accounts with testing of cash receipts and disbursements. Auditors should
also test transaction coding or Treasury account symbols to determine
whether amounts are properly classified and reported.
For all substantive tests performed to audit the significant balances in the
SBR, the auditor should note any differences between recorded amounts and
supporting evidence and summarize and conclude on the results of testing,
including an explanation for any differences identified. If misstatements
occurred, the auditor should assess the effect of the misstatements on the
budget amounts (project the misstatements to the population) and consider
whether their evaluation of budget controls is affected. In addition, if
beginning balances, such as unobligated balances and/ or obligations, have
not been audited, additional procedures need to be performed to obtain audit
assurance about these amounts.
Proper documentation of the procedures performed during the testing phase of
the audit is essential to provide evidence that audit coverage is
appropriate and that adequate tests were performed. Documentation in this
phase should include:
An audit program in which the auditor explains the objectives of the audit
procedures and includes a clear description of the testing procedures
applied. (Note: Cross- referencing the steps in the audit program describing
the audit procedures performed to the workpapers where the tests were
actually documented is one way to help determine that all planned tests were
completed.)
For tests involving sampling, a sampling plan, which includes information
about the sampling method used and key factors regarding the selection
method, sample size, confidence level, etc. (For an example of a sampling
plan, refer to section 495E of the GAO/ PCIE Financial Audit Manual.)
The results of tests, including evaluations of sample results (projection
of results to the population), and conclusions.
Documentation
Appendix IV: Audit Guidance Page 38 GAO- 02- 126G Guide for Auditing the SBR
For substantive analytical procedures performed, the auditor should document
the following:
the auditor?s expectations for the balance;
the model used to develop expectations and the basis for the model;
the data used, data sources, and an assessment of the reliability of the
data used;
the amount of the limit and the criteria for establishing the limit;
explanation for fluctuations or other differences from expectations that
exceed the limit or are otherwise considered significant, sources of these
explanations, and corroborating evidence obtained; and
conclusions regarding findings, including proper treatment of any
misstatements detected and assessment of any other effects of these
misstatements.
For additional information on documentation prepared during the testing
phase of the audit, refer to section 490 of the GAO/ PCIE Financial Audit
Manual.
To maximize effectiveness and efficiency, the auditor generally should
combine tests of budgetary and proprietary accounts when interrelationships
exist. For example,
procedures to test outlays for the SBR may be combined with cash
disbursement tests used to test controls and/ or substantive balances, 24
procedures to test obligations for the SBR may be combined with accounts
payable 25 tests that also require the examination of purchase orders and
similar documents, and
24 When using tests of proprietary accounts to obtain assurance on budgetary
accounts, the auditor must understand the relationships between the
accounts. For example, not every disbursement is an outlay (because not
every disbursement liquidates an obligation). Three major disbursement
examples that are not recorded as outlays are (1) repayment of debt
principal, (2) disbursements to the public by federal credit programs for
direct loan obligations and loan guarantee commitments made in or after
fiscal year 1992, and (3) refunds of receipts that result from overpayments.
Also, not all recorded outlays are cash disbursements. For example, the
accrual of interest on Treasury debt is an outlay, but not a cash
disbursement. Understanding these differences allows the auditor to adjust
testing and address each situation to obtain proper audit coverage.
25 For example, at year- end, auditors may test accounts payable accruals in
conjunction with obligations (undelivered orders testing) to determine
whether goods and services received but not billed are accounted for in
accounts payable and reduced from obligations. This will help prevent
understatement of accounts payable and overstatements of unliquidated
obligations. IV. Integration of
Budgetary and Proprietary Accounting Testing
Appendix IV: Audit Guidance Page 39 GAO- 02- 126G Guide for Auditing the SBR
procedures to test spending authority from offsetting collections or
offsetting receipts may be combined with revenue testing.
However, when the auditor relies on his or her work on proprietary account
audit procedures to gain assurance about SBR balances, the auditor should
document the relationship between the proprietary and the budgetary accounts
and how such reliance is provided. For example, if cash disbursement tests
are being used to conclude on the reliability of the outlays line item of
the SBR, the auditor should determine if the accounting and budgetary
systems are integrated and if disbursements were recorded in both the
proprietary and budgetary accounts. The auditor should document this
relationship and explain how the cash disbursement test results provide
audit assurance about the outlays line item.
The presentation of financial statements in conformity with GAAP includes
adequate disclosure of material matters. These matters relate to the form,
arrangement, and content of the financial statements and their note
disclosures, including, for example, the terminology used, the amount of
detail given, the classification of items in the statements, and the bases
of amounts set forth. 26
For the SBR, the auditor should assess the adequacy of the presentation and
disclosure of budgetary information in the SBR to determine whether the
SBR presentation and disclosures are in accordance with SFFAS No. 7 and
OMB guidelines on form and content of agency financial statements;
disclosure amounts agree with information presented in the financial
statements; and
disclosure amounts are fairly stated in conformity with GAAP. 26 If
management omits from the financial statements, including the accompanying
notes, material information that is required by GAAP, the auditor should
consider the need to express a qualified or an adverse opinion and should
provide the information in his or her report, if practicable, unless its
omission from the auditor?s report is recognized as appropriate by a
specific Statement on Auditing Standards. V. Presentation and
Disclosure
Appendix IV: Audit Guidance Page 40 GAO- 02- 126G Guide for Auditing the SBR
According to OMB Bulletin No. 97- 01, agencies should disclose the
following: 27
the net amount of budgetary resources obligated for undelivered orders at
the end of the period;
available borrowing and/ or contract authority at the end of the period;
repayment requirements, financing sources for repayment, and other terms
of borrowing authority used;
adjustments during the reporting period to budgetary resources available
at the beginning of the year and an explanation thereof;
the existence, purpose, and availability of permanent indefinite
appropriations;
information about legal arrangements affecting the use of unobligated
balances of budget authority;
the amount of any contributed capital received during the reporting
period; and
explanations of differences between the information required by SFFAS No.
7 and the amounts described as ?actual? in the President?s Budget.
For fiscal year 2002 and thereafter, OMB Bulletin No. 01- 09 requires
agencies to disclose the following:
apportionment categories of obligations incurred;
available borrowing and/ or contract authority at the end of the period;
repayment requirements, financing sources for repayment, and other terms
of borrowing authority used;
adjustments during the reporting period to budgetary resources available
at the beginning of the year and an explanation thereof;
existence, purpose, and availability of permanent indefinite
appropriations; and
information about legal arrangements affecting the use of unobligated
balances of budget authority.
(Note: For additional information and a complete list of SBR- related note
disclosures, refer to the above OMB guidance.)
27 OMB guidance on form and content of federal financial statements includes
a complete list of required disclosures for the SBR.
Appendix IV: Audit Guidance Page 41 GAO- 02- 126G Guide for Auditing the SBR
In addition, agencies should disclose explanations of differences between
comparable amounts in the SBR, SF 133s and the ?actual? amounts reported in
the President?s Budget. 28
As mentioned earlier, this disclosure is important because it (1) provides a
tool to help readers assess the reliability of amounts reported in the
President?s Budget, and (2) helps readers understand differences that may
exist between amounts in the SBR and the President?s Budget due to timing or
reporting requirements. Reporting differences may exist because the OMB
circular used to report budget execution information in the SF 133s and the
SBR differs from the guidance used to report amounts in the President?s
Budget. For example, expired budget authority available for upward
adjustments of obligations, which is excluded from the P& F Schedule
?actual? column per OMB Circular No. A- 11, is included in the SF 133s and
the SBR per guidance in OMB Circular No. A- 34.
In addition, timing differences may exist because agencies may issue their
audited financial statements after the budget is released and adjustments
included in the SBR may not be reflected in the President?s Budget. However,
if the President?s Budget is not available when the agency issues its
audited financial statements, the agencies may disclose in financial
statement notes the fact (1) that the President?s Budget is not yet
available for comparison to the SBR, and (2) whether amounts reported in the
SBR differ from the data submitted or planned to be submitted to OMB for
preparing the President?s Budget.
OMB has not provided guidance describing how differences between the SBR, SF
133s and the ?actuals? in the President?s Budget should be disclosed.
However, agencies can aggregate balances obtained from the SF 133s and from
the President?s Budget submissions to obtain summarized balances that could
then be compared to the SBR. If agencies are unable to summarize this data,
OMB may be able to provide assistance. However, because the source of
information for the SBR financial statement is the general ledger, and the
source of information for the SF 133s and the actuals in the President?s
Budget is information submitted to OMB and Treasury via FACTS II, the
auditor needs to determine whether the agency performed this comparison to
determine if differences existed and if the
28 Section 30. 15 of OMB Circular No. A- 34 (2000), explains differences
that may occur between the SBR and other budgetary reports.
Appendix IV: Audit Guidance Page 42 GAO- 02- 126G Guide for Auditing the SBR
agency has controls in place to ensure the accuracy of budget execution
information included in the SBR and amounts submitted via FACTS II.
As the audit nears completion, the auditor should perform overall analytical
procedures on the financial statements, including the SBR. The purposes of
overall analytical procedures are to (1) determine if an adequate
understanding of all fluctuations and relationships in the financial
statements, including the SBR, has been obtained from other audit
procedures, (2) determine if other audit evidence is consistent with
explanations for fluctuations documented during the overall analytical
process, and (3) assist the auditor in forming an opinion on the SBR
consistent with the conclusions reached during the substantive testing.
Examples of analytical procedures that may be performed on the SBR include
scanning the SBR for unusual items or fluctuations when compared to
expectations or the prior year SBR,
comparing the totals in the Total Budget Resources section to the Total
Status of Budget Resources to determine if the amounts are equal, and
comparing budgetary balances in the SBR to amounts included in the
Statement of Financing to determine if amounts for similar line items are
being consistently reported in both financial statements.
For additional information on overall analytical procedures, refer to
section 520 of the GAO/ PCIE Financial Audit Manual.
Budget execution data is monitored at the individual account level. For this
reason, OMB form and content guidance requires that budgetary information
aggregated for the SBR be disaggregated for each of the reporting entity?s
major budget accounts and presented as required supplementary information
(RSI). For small budget accounts, information may be aggregated. The major
budget accounts and the aggregate of small budget accounts should, in total,
agree with amounts reported on the face of the SBR. OMB audit guidance
requires that auditors perform the procedures described in AU Section 558,
Required Supplementary VI. Overall Analytical
Procedures VII. Required Supplementary Information
Appendix IV: Audit Guidance Page 43 GAO- 02- 126G Guide for Auditing the SBR
Information, for this information. 29 According to AU 558, the auditor
should do the following:
Inquire of management about the methods of preparing the information,
including (1) whether it is measured and presented within prescribed
guidelines, (2) whether methods of measurement or presentation have been
changed from those used in the prior period and the reasons for any such
changes, and (3) any significant assumptions or interpretations underlying
the measurement or presentation.
Compare the information for consistency with (1) audited financial
statements, (2) management?s responses to the foregoing inquiries, and (3)
other knowledge obtained during the examination of financial statements.
Consider whether representations on required supplementary information
should be included in specific written representations obtained from
management.
Apply additional procedures, if any, that other guides or interpretations
may require for specific types of required supplementary information.
Make additional inquiries if the application of the foregoing procedures
causes the auditor to believe that the information may not be presented
within the applicable guidelines.
For additional information on the auditor?s responsibilities regarding RSI,
refer to AU 588.
29 AU refers to a section in the Codification of Statements on Auditing
Standards, published by the American Institute of Certified Public
Accountants.
(190005)
*** End of document. ***