ADS Chapter 620 - Financial Management Principles and Standards

ADS Chapter 620

Financial Management Principles and

Standards

Partial Revision Date: 08/31/2011

Responsible Office: M/CFO/FPS

File Name: 620_083111

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ADS Chapter 620

Functional Series 600 – Budget and Finance

ADS 620 – Financial Management Principles and Standards

POC for ADS 620: Francisco Ramos Hilerio, framoshilerio@usaid.gov

Table of Contents

620.1 OVERVIEW ............................................................................ 2

620.2 PRIMARY RESPONSIBILITIES ............................................ 2

620.3 POLICY DIRECTIVES AND REQUIRED PROCEDURES .... 4

620.3.1 Financial Documentation Responsibilities ........................................ 4

620.3.2 Federal Accounting Standards, Policies, and Procedures .............. 4

620.3.3 Financial Management Systems ......................................................... 5

620.3.4 Financial Statements ........................................................................... 6

620.3.4.1 Management’s Discussion and Analysis ................................................ 6

620.3.4.2 Financial Statements and Related Notes ............................................... 7

620.3.4.3 Supplemental Financial Information ....................................................... 7

620.3.4.4 Other Accompanying Information .......................................................... 7

620.4 MANDATORY REFERENCES .............................................. 7

620.4.1 External Mandatory References ......................................................... 7

620.4.2 Internal Mandatory References .......................................................... 8

620.5 ADDITIONAL HELP ............................................................... 9

620.6 DEFINITIONS ....................................................................... 12

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ADS Chapter 620

ADS 620 – Financial Management Principles and Standards

620.1 OVERVIEW

Effective Date: 09/29/2000

This chapter prescribes USAID’s accounting and financial reporting principles and

standards. The standards in this chapter are based on Federal laws and regulations

published by Federal oversight agencies, including the Office of Management and

Budget (OMB), the Department of the Treasury, and the Government Accountability

Office (GAO), for audit and compliance issues. The policy directives and required

procedures for specific financial management topics are found in ADS Series 600,

Budget and Finance.

620.2 PRIMARY RESPONSIBILITIES

Effective Date: 04/10/2009

a. The Chief Financial Officer (CFO)

1. Oversees all financial management activities relating to USAID programs

and operations and reports directly to the Administrator on financial management

matters.

2. Develops and maintains an integrated Agency financial management

system that complies with applicable accounting principles, standards, and other

requirements of Federal financial management systems.

3. Directs, manages, and provides policy guidance and oversight of USAID

financial management personnel, activities, and operations.

4. Monitors the financial execution of the USAID budget in relation to actual

expenditures.

5. Works with the Bureau for Management, Office of Management, Policy,

Budget, and Performance (M/MPBP) to ensure timely performance information

for inclusion in financial reports and statements.

6. Works with M/MPBP (See ADS 620.2.e) and the Bureau for Management,

Office of Overseas Management Staff (M/OMS) (See ADS 620.2.f) to biennially

review the fees, royalties, rents, and other charges imposed by USAID for the

services and things of value that it provides and make recommendations on

revising those charges to reflect the costs incurred when providing those services

and things of value.

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b. The Bureau for Management, Office of the Chief Financial Officer, Central

Accounting and Reporting Division (M/CFO/CAR)

1. Prepares the Agency's annual financial statements.

2. Ensures that USAID accounting practices comply with applicable

accounting standards and other Federal Government guidance.

c. The Management Bureau, Officer of the Chief Financial Officer, Financial

Policy and Support Division (M/CFO/FPS) develops financial management

policy for the Automated Directives System (ADS) and provides overall financial

policy advice and guidance.

d. The Management Bureau, Office of the Chief Financial Officer, Audit

Performance and Compliance Division (M/CFO/APC) coordinates the

preparation of the Management’s Discussion and Analysis section of USAID’s

financial statements.

e. The Management Bureau, Office for Management, Policy, Budget, and

Performance (M/MPBP)

1. Provides information on the Agency’s performance goals and program

results in order to meet financial reporting requirements.

2. Reviews and provides guidance for applying indirect cost rates for the

goods and services that USAID provides other agencies via interagency

agreements, see ADS 306 and General Notice 1104.

f. The Management Bureau, Office of Overseas Management Staff (M/OMS)

reviews and revises the charges imposed by USAID as an alternate service

provider (ASP) for the International Cooperative Administrative Support Services

(ICASS) program, see ADS 635.

For information on Bureau of Management customer service standards, see Mandatory

Reference 501mag, Bureau for Management Customer Service Standards.

g. The Office of the Inspector General (OIG)

1. Audits USAID’s annual financial statements.

2. Conducts performance audits of Agency programs, activities, systems,

and functions in accordance with Generally Accepted Government Auditing

Standards.

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620.3 POLICY DIRECTIVES AND REQUIRED PROCEDURES

620.3.1 Financial Documentation Responsibilities

Effective Date: 04/10/2009

Financial documentation is any documentation that impacts on or results in financial

activity. It is not limited to documentation within Controllers’ or CFO operations, but

includes any source material causing or resulting in a financial transaction. Contracting

Officers Representatives (CORs), Agreement Officers Representatives (AORs),

Loans/Grants Officers, Program Area Operating Officials, etc., are responsible for

retaining financial documentation and ensuring it is available for an audit.

Basic financial documentation retention rules follow:

 If an action will result in a financial transaction, it must be documented.

 Source documentation must be readily available for audit by either the OIG or a

responsible audit entity.

The general rule for retention of financial documents is seven years; however, retention

times may vary. For further details see ADS 502, The USAID Records Management

Program. The specific financial Records Disposition Schedules are located in the

mandatory reference section of ADS 502 under Records Disposition Schedule,

USAID/W, Chapter 15, Fiscal Management Records and Records Disposition Schedule,

USAID, Chapter 35, Financial Management Records. See also the National Archives

and Records Administration (NARA) General Records Schedules (GRS): GRS 6,

Accountable Officers’ Account Records, and GRS 7, Expenditure Accounting

Records.

620.3.2 Federal Accounting Standards, Policies, and Procedures

Effective Date: 09/29/2000

The Director of the OMB, the Secretary of the Treasury, and the Comptroller General

established the Federal Accounting Standards Advisory Board (FASAB) in October

1990 to consider and recommend accounting standards for the Federal Government.

The American Institute of Certified Public Accountants designated FASAB as the

standard setting body for the Federal Government. The Board establishes standards by

incorporating the financial and budgetary information needs of Congress, executive

agencies, and other users of Federal financial information. The standards are published

as Statements of Federal Financial Accounting Standards (SFFAS). USAID must

implement financial management activities in accordance with the FASAB standards.

FASAB developed documents that describe the concepts on which the Board may rely

when recommending accounting standards. These documents are called Statements

of Federal Financial Accounting Concepts (SFFAC). These concept statements are

not authoritative because they do not establish standards or principles, but they may

help you understand a specific SFFAS.

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The Treasury Financial Manual (TFM) is the Department of the Treasury’s official

publication for the financial accounting and reporting of all receipts and disbursements

of the Federal Government. USAID must follow the policies, procedures, and

instructions contained in the TFM when executing its fiscal responsibilities.

620.3.3 Financial Management Systems

Effective Date: 09/29/2000

USAID must establish and maintain an integrated financial management system that

substantially complies with Federal financial management systems requirements,

Federal accounting standards, and the United States Standard General Ledger

(USSGL) at the transaction level (see Federal Financial Management Improvement

Act of 1996 (FFMIA)). Substantial compliance for financial management systems

requires that systems provide reliable and timely financial information necessary for

Federal managers.

a. Federal Financial Management Systems Requirements. USAID must meet

the following to be in compliance with Federal financial management systems:

 The financial management systems requirements of OMB Circular A-127,

Financial Management Systems Requirements.

 The financial management systems must follow the Financial Systems

Integration Office (FSIO), System Requirements Documents.

 The security over financial information must be ensured in accordance with OMB

Circular A-130, Management of Federal Information Resources.

 The internal controls over financial management systems must be properly

designed and operate effectively (see OMB Circular A-123, Appendix A).

b. Federal Accounting Standards. The Agency must be able to prepare audited

financial statements in accordance with applicable accounting standards. Substantial

compliance does not require that transactions be in full compliance with financial

accounting standards at the point of original entry. It does require that the financial

information used in the preparation of financial statements based on such transactions

be adequately supported by detailed financial records.

c. United States Government Standard General Ledger (USSGL) at the

transaction level. The USSGL provides a uniform chart of accounts and technical

guidance used for standardizing Federal agency accounting. The general ledger

management function of the Agency’s financial system must be in full compliance with

the descriptions and posting rules contained in the USSGL chart of accounts. The

Agency is considered in substantial compliance with the USSGL at the transaction level

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when the classification of financial events for the financial statements and required

financial information provided to the Department of the Treasury and OMB are

consistent with the account descriptions and posting rules approved by the Standard

General Ledger Board and published in the TFM (see Department of the Treasury,

USSGL).

620.3.4 Financial Statements

Effective Date: 04/10/2009

USAID’s financial statements report the Agency’s financial position and results of

operations. M/CFO/CAR prepares the statements in accordance with the form and

content requirements of OMB Circular A-136, Financial Reporting Requirements.

The Agency’s financial statements must include the following major sections:

 Management’s Discussion and Analysis (MD&A),

 Principal Statements and accompanying Notes,

 Required Supplementary Stewardship Information (RSSI), and

 Required Supplementary Information (RSI).

USAID must submit audited financial statements to the Director of OMB 45 days after

the close of the fiscal year (for fiscal year 2008, see OMB M-08-25, Guidance for

Completing FY 2008 Financial and Performance Reports) and unaudited quarterly

financial statements to OMB 21 days after the close of each fiscal quarter. M/CFO/CAR

has the primary responsibility for preparing the Agency’s financial statements. The OIG

audits the financial statements in accordance with OMB Memorandum M-08-24, Audit

Requirements for Federal Financial Statements.

The Government Management Reform Act of 1994 (GMRA) grants the Director of

OMB the authority to consolidate several statutory financial management reports into a

single report that streamlines the financial and program performance reporting.

USAID’s financial statements are a component of the Agency’s Annual Financial

Report.

620.3.4.1 Management’s Discussion and Analysis

Effective Date: 09/29/2000

The Management’s Discussion and Analysis (MD&A) section accompanying the

statements must be in compliance with SFFAS Number 15: Management’s

Discussion and Analysis. The MD&A provides a clear and concise description of the

Agency’s mission, activities, program and financial performance, systems, controls,

legal compliance, financial position, and financial condition. M/CFO/APC develops the

MD&A in consultation with M/MPBP, which provides information on the Agency's

performance goals and program results.

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620.3.4.2 Financial Statements and Related Notes

Effective Date: 03/11/2009

The principal financial statements and related notes summarize financial information for

individual funds and accounts. The amounts reported on the principal statements are

based on specific general ledger account balances. USAID’s principal statements

include a:

 Balance Sheet,

 Statement of Net Cost,

 Statement of Changes in Net Position, and

 Statement of Budgetary Resources.

The notes related to the principal statements summarize the accounting principles and

methods of applying the principles that management has concluded best presents the

Agency’s assets, liabilities, equity, revenues, expenses, and budgetary information.

The notes provide additional details on the amounts reported in the statements.

620.3.4.3 Supplemental Financial Information

Effective Date: 09/29/2000

M/CFO/CAR must prepare a schedule that disaggregates the Statement of Budgetary

Resources by major budgetary account. The schedule must be included as

supplemental information to the Agency’s financial statements.

620.3.4.4 Other Accompanying Information

Effective Date: 09/29/2000

M/CFO/CAR may include other relevant information that is useful in obtaining a better

understanding of the Agency’s programs and the extent to which they are achieving

their objectives.

620.4 MANDATORY REFERENCES

620.4.1 External Mandatory References

Effective Date: 04/10/2009

a. Chief Financial Officers Act of 1990

b. Department of the Treasury, Treasury Financial Manual (TFM)

c. Federal Accounting Standards Advisory Board (FASAB)

d. FASAB, SFFAS Number 15: Management’s Discussion and Analysis

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

f. FASAB, Statements of Federal Financial Accounting Standards (SFFAS)

g. Federal Financial Management Improvement Act (FFMIA) of 1996

h. Federal Managers’ Financial Integrity Act (FMFIA) of 1982

i. Financial Systems Integration Office (FSIO), System Requirements

Documents

j. Government Management Reform Act of 1994 (GMRA)

k. National Archives and Records Administration (NARA), General Records

Schedules

l. OMB Circular A-123, Management Accountability and Control

m. OMB Circular A-127, Financial Management Systems Requirements

n. OMB Circular A-130, Management of Federal Information Resources

o. OMB Circular A-134, Financial Accounting Principles and Standards

p. OMB Circular A-136, Financial Reporting Requirements

q. OMB Memorandum M-08-24, Audit Requirements for Federal Financial

Statements

r. OMB Memorandum M-08-25, Guidance for Completing FY 2008 Financial

and Performance Reports

s. Revised Implementation Guidance for the Federal Financial Management

Improvement Act

t. United States Government Standard General Ledger (USSGL)

620.4.2 Internal Mandatory References

Effective Date: 04/10/2009

a. ADS 306, Interagency Agreements

b. ADS 501mag, Bureau for Management Customer Service Standards

c. ADS 502, USAID Records Management Program

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d. ADS 594, Audit of USAID’s Annual Financial Statement

e. ADS 596, Management Accountability and Control

f. ADS Series 600, Chapters 621-637

g. General Notice 1104, Cost Reimbursement Rates for Interagency

Agreements under the Economy Act, FAA 632(a), and FAA 632(b) Authority,

November 3, 2008

620.5 ADDITIONAL HELP

Effective Date: 04/10/2009

The following is a list (in chronological order) of major legislation governing

accounting and financial management activities:

a. Economy Act of 1932 (31 USC 1535)

This Act prescribed the rules for the purchase of supplies, equipment, or services from

another Federal agency.

b. Federal Property and Administrative Services Act of 1949

This Act required agencies to maintain adequate inventory controls and accountability

systems for the property under their control.

c. Budget and Accounting Procedures Act of 1950 (31 USC Sections 3511-

3515, 3521)

This Act directed the Comptroller General of the United States to prescribe the

principles, standards, and related requirements for accounting to be observed by

executive agencies after consulting with the Secretary of the Treasury and the Director

of the OMB. Pursuant to the Act, the head of each executive agency has responsibility

for establishing and maintaining adequate systems of accounting and internal control.

The use of accrual accounting, cost-based budgeting, consistent classification,

simplifications of allotment structure, and adequate control of property is required to

establish and maintain adequate systems of accounting and internal control.

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d. Federal Claims Collection Act of 1966

This Act prescribed procedures for the follow-up of claims against those who owe the

Federal Government money, including amounts owed as a result of audits.

e. Prompt Pay Act of 1982

This Act called for the payment of bills no later than due dates based on the receipt of

proper invoices and satisfactory performance. It also established the requirement to

pay interest penalties.

f. Federal Managers’ Financial Integrity Act of 1982

This Act required agency heads to establish controls that provide reasonable assurance

that

 Obligations and costs comply with applicable laws;

 Funds, property, and other assets are safeguarded against waste, loss,

unauthorized use, or misappropriation; and

 Revenues and expenditures are properly recorded and accounted.

g. Federal Credit Reform Act of 1990

This Act enabled the Federal Government to more accurately measure the cost of its

credit programs. The Act required the calculation of subsidy elements of credit

programs, encourages more cost-effective delivery of benefits to beneficiaries, and

seeks to improve the allocation of limited financial resources among credit and other

spending programs.

h. Chief Financial Officers Act of 1990

This Act established a Chief Financial Officer (CFO) of the United States within the

Office of Management and Budget (OMB) and a CFO in each executive department.

The legislation required the CFO to develop and maintain an integrated Agency

accounting and financial management system that provides for

 Complete, reliable, consistent, and timely information that is responsive to the

financial information needs of Agency management;

 Integration of accounting and budgeting information;

 Development and reporting of cost information; and

 Systematic measurement of performance.

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The legislation also required that agencies submit audited financial statements. The

Inspector General or an independent external auditor must audit the statements

according to Generally Accepted Government Auditing Standards.

i. The Government Performance and Results Act of 1993

The purpose of this Act was to improve the confidence of the American people in the

capability of the Federal Government by systematically holding Federal agencies

accountable for achieving program results. The Act established requirements for

Agency strategic plans, annual performance plans, and annual performance reports.

j. Government Management Reform Act of 1994

This Act required the head of each executive agency to submit audited financial

statements to the Director of the OMB each fiscal year. The financial statement must

reflect the results of operations and cover all the accounts and associated activities of

each office, bureau, and agency. The Act also required an annual government wide

financial statement that contains the results of operations of the executive branch.

k. Federal Financial Management Improvement Act of 1996

This Act codified certain financial management policies and audit procedures

established by the Executive Branch. The legislation required each agency to

implement and maintain financial management systems that comply with Federal

financial management systems requirements, the applicable Federal accounting

standards, and the U.S. Government Standard General Ledger at the transaction level.

In addition, the auditors were required to report on compliance with the requirements of

the Act, and agencies must establish a remediation plan to correct deficiencies.

l. Debt Collection Improvement Act of 1996

This Act enhanced debt collection government wide and mandated the use of electronic

funds transfer for Federal payments. This law establishes that any nontax debt or claim

owed to the U.S. that has been delinquent for more than 180 days must be turned over

to the Secretary of the Treasury for appropriate action.

m. Reports Consolidation Act of 2000

This Act required that agencies prepare a combined Performance and Accountability

Report (PAR) that consolidates financial and performance management information.

n. Improper Payments Information Act of 2002 (IPIA)

This Act required agency heads to annually review all programs and activities, identify

those that may be susceptible to significant improper payments, estimate annual

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improper payments in the susceptible programs and activities, and report the results of

their improper payment activities.

o. Federal Funding Accountability and Transparency Act of 2006 (FFATA)

This Act required all agencies to provide information on federal awards to OMB. Federal

awards include grants, subgrants, loans, awards, cooperative agreements, and other

forms of financial assistance as well as contracts, subcontracts, purchase orders, task

orders, and delivery orders. OMB is responsible for making this information available to

the general public via a website.

620.6 DEFINITIONS

Effective Date: 04/10/2009

The definitions listed below have been included into the ADS Glossary. See the ADS

Glossary for all ADS terms and definitions.

Accounting Standards and Principles

Those conventions, rules, and procedures necessary to define acceptable accounting

practice. Accounting standards include broad guidelines of general application and may

also include detailed practices and procedures. (OMB Circular A-134) (Chapter 620)

Core Financial System

The system of record that maintains all transactions that result from financial event; may

perform all financial functions, including management of the General Ledger, funds,

payments, receivables, and costs. (OMB Circular A-123 Appendix D) (Chapter 509,

620)

Federal Accounting Standards Advisory Board (FASAB)

The Federal Accounting Standards Advisory Board established accounting standards

for the Federal Government. Statements of Federal Financial Accounting Concepts

(SFFAC) and Statements of Federal Financial Accounting Standards (SFFAS) are

approved by the Secretary of the Treasury, the Director of the Office of Management

and Budget, and the Comptroller General. Once approved, FASAB standards apply

across the Federal Government unless excluded by legislation. (Chapter 620)

Financial System

See core financial system. (Chapter 620)

Financial Management System

A financial management system includes the core financial systems and the financial

portions of mixed systems necessary to support financial management. (OMB Circular

A-127) (Chapter 620)

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Financial Systems Integration Office (FSIO)

The Financial Systems Integration Office is responsible for developing, testing, and

certifying core financial systems requirements; supporting the Federal financial

community on priority projects; and conducting outreach through various activities.

(Chapter 620)

Information System

A discrete set of information resources organized for the collection, processing,

maintenance, use, sharing, dissemination, or disposition of information. [Note:

Information systems also include specialized systems such as industrial/process

controls systems, telephone switching and private branch exchange (PBX) systems,

and environmental control systems.] Source: NIST: Key Glossary of Information

Security Terms. (Chapter 502, 509, 620)

Mixed Financial System

An information system that supports both financial and nonfinancial functions. (OMB

Circular A-127) (Chapter 620)

Non-Financial System

An information system that supports nonfinancial functions or components. Any

financial data included in the system are insignificant to Agency financial management

and/or not required for the preparation of financial statements. (OMB Circular A-127)

(Chapter 620)

Statements of Federal Financial Accounting Concepts (SFFAC)

Statements of Federal Financial Accounting Concepts are documents that describe the

concepts used by the Federal Accounting Standards Advisory Board when

recommending standards. Concept statements are not authoritative, but may be useful

in understanding specific Statements of Federal Financial Accounting Standards.

(Chapter 620)

Statements of Federal Financial Accounting Standards (SFFAS)

Statements of Federal Financial Accounting Standards are accounting standards for the

Federal government recommended by the Federal Accounting Standards Advisory

Board and approved by the Director of the OMB, the Secretary of the Treasury, and the

Comptroller General. (Chapter 620)

U.S. Standard General Ledger (USSGL)

The U.S. Standard General Ledger provides a uniform chart of accounts and technical

guidance to be used in standardizing Federal agency accounting. (Chapter 620)

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