Part 1. Organization, Finance and Management

Chapter 35. Administrative Accounting

Section 15. Annual Close Guidelines (Cont. 1)

1.35.15  Annual Close Guidelines (Cont. 1)

1.35.15.13 
Commitment and Obligation Reviews

1.35.15.13.1  (07-26-2011)
Aging Unliquidated Commitments (AUC)

  1. The AUC report serves as a useful tool in monitoring open commitment balances. It also helps the FPM ensure the flow of resources from commitments to obligations. Commitments decrease the available budget when posted to the general ledger. Business units must continue to monitor the open commitment balances to ensure that these balances are at an appropriate level to cover future obligations for the fiscal year.

  2. The AUC review requires business units to review and validate selected OQ (Other Requisitions), CQ (Purchase Card Requisitions), and PQ (Procurement Requisitions) commitments older than a predetermined date. The specific criteria used to select transactions for review varies annually, but take into consideration the age of the open commitment.

  3. To accommodate fourth quarter requirements, year-end, and the 99.7% obligation goal, business units must review AUC reports more frequently as September 30 nears. This is critical to ensure that valid commitments either become obligations by September 30, or are liquidated if not needed. Business units must liquidate invalid commitments to maximize budgetary potential as obligation authority against open commitments ends at midnight on September 30.

  4. Detailed guidance for performing the AUC review can be found on the CFO website.

1.35.15.13.2  (07-26-2011)
Aging Unliquidated Obligations (AUO)

  1. The AUO report serves as a useful tool in monitoring open obligations. When business units and Procurement determine that an AUO balance is overstated and will not be expended, they must modify the obligation to reflect accurate amounts. The AUO reviews include the review of outstanding travel transactions.

  2. Of particular focus in the AUO review process are at-risk obligations. The established criteria for at-risk obligations consist of the following:

    1. No activity over a predetermined period of time.

    2. The period of performance has expired.

    3. The open obligation balance exceeds a predetermined percentage of the total contract line item’s (CLIN) highest obligation amount, if cost reimbursable.

  3. Once IFM identifies the at-risk obligations, it sends the lists of obligations to the business units and Procurement. IFM continually works with Procurement and the business units to determine if the questionable obligations are reasonable, as extenuating circumstances may justify prolonged periods of inactivity. If not, IFM works with Procurement and the business units to cancel or modify obligations, as appropriate.

  4. IFM runs summary queries detailing the total dollars still outstanding for inactive obligations on a monthly basis. These summary queries enable the Associate CFO for IFM to monitor the progress of corrective actions regarding the at-risk obligations.

  5. For those obligations pertaining to cost reimbursement projects, IFM establishes a reasonable dollar tolerance for each CLIN. These tolerance limits are indicated on the AUO report. Program managers keep obligation CLINs open within the tolerance limits until completion of all contract audits and the corresponding vendor payments have been made.

  6. Additional guidance on conducting the AUC/AUO reviews can be found on the CFO website.

1.35.15.14  (07-26-2011)
Reimbursable Agreements

  1. A reimbursable agreement is a signed agreement between the IRS and an outside customer that sets out the terms and conditions under which the reimbursable work arrangement will be performed. A reimbursable agreement has the same elements as a contract.

  2. Reimbursable agreements fall into three categories:

    1. Federal Government (non-Treasury).

    2. Non-government and State, local, and foreign government.

    3. Intra-departmental (Treasury/Bureau).

  3. The Business Unit Budget Office Reimbursable Coordinator, Business Unit Project Coordinator, and FPM are responsible for ensuring the projects proceed in accordance with the provisions of the reimbursable agreement. Year-end procedures for closing reimbursable agreements should begin no later than mid-June of each year. At the end of the year, in accounting period 12, the Business Unit Project Coordinator and FPM will review the reimbursable activity for the year and estimate the amount of work completed through September that has not been charged or recognized as revenue yet. The Business Unit Budget Office Reimbursable Coordinator will record the estimated reimbursable earnings on SF-FV50, Schedule of Reimbursable Project Earnings. Business units and IFM must post all adjustments and earnings by the dates specified in the IFM Year-end Memorandum.

  4. Additional guidance on reimbursable agreements can be found in IRM 1.33.3, Reimbursable Operating Guidelines.

1.35.15.15  (07-26-2011)
Accounting Code Changes

  1. Business units may process accounting code changes, in coordination with BFC, when they post erroneous accounting string information (for example, fund, cost center, functional area, material group) to IFS. The validity and accuracy of the IRS financial reports depend on the correct use of accounting codes. Accounting code change errors must met certain requirements to determine if the change is necessary. IRM 1.35.15.15.1, Dollar Threshold and IRM 1.35.15.15.2, Other Criteria, details these requirements.

  2. Business units should report accounting code changes throughout the year as they are identified by submitting a request to BFC via email at *CFO BFC Electronic Obligations or *CFO BFC Electronic EV for labor-related changes.

  3. IFS cannot process expense transfer documents for accounting code changes that reference more than one unique trading partner. The IRS uses trading partners, derived from general ledger (GL) accounts, to trace intra-governmental transactions wherein one agency provides goods and services to another. Business units can process multiple GL accounts that infer the same trading partner in the same document.

  4. Business units must correct all identified accounting code changes before September 30 to reflect the correct fund center/financial plan status at fiscal year-end. Business units must report errors identified during September to IFM by the accounting code change request date detailed in the IFM Year-end Memorandum to ensure that IFM will have sufficient time to make the changes prior to year-end.

  5. There are separate accounting code change rules for Earned Income Tax Credit, payroll, purchasing, and travel and relocation transactions. IRM 1.35.15.15.6, Earned Income Tax Credit; IRM 1.35.15.15.7, Payroll; IRM 1.35.15.15.8, Purchasing; and IRM 1.35.15.15.9, Travel and Relocation discuss these rules.

1.35.15.15.1  (07-26-2011)
Dollar Threshold

  1. Business units can process accounting code changes to requisitions that have activity at the obligation, receipt and/or acceptance, or payment level if the dollar amount of the change per requisition is greater than $100,000. In addition to the exception criteria detailed below, business units can process changes of $100,000 or less for labor costs detailed in IRM 1.33.4.3.1.8.2, Charging Labor Costs, General.

  2. Exceptions to the dollar threshold include accounting code change requests which, if not processed, would (1) cause a payee to receive an incorrect Form 1099; (2) result in erroneous appropriation accounting; or (3) result in a violation of statue of legislation, regulation, or internal or external reporting requirements. If the business unit identifies any accounting code changes that are exceptions to the dollar threshold; the business unit must process the account code change, regardless of the dollar amount.

  3. Refer to the Z_TAXCODE table in IFS or the Financial Management Code Handbook to determine if a change affects taxability.

1.35.15.15.2  (07-26-2011)
Other Criteria

  1. In addition to meeting the dollar threshold, business units can only process accounting code changes related to any of the following major accounting attributes:

    1. Fund.

    2. Cost Center- the first four digits of the cost center must change.

    3. Functional Area.

    4. Material Group - the first two digits of the Commitment Item/Budget Object Class (BOC) Code must change.

    5. Internal Order.

  2. Business units cannot process changes relating to any other accounting attributes, regardless of the dollar amount.

1.35.15.15.3  (07-26-2011)
Accounting Code Changes Related to Prior Year Obligations and Expenses

  1. Business units process accounting code changes for prior year open obligations, when business units have posted no expenses, the same way as current year obligations. These accounting code changes must be in accordance with the requirements in IRM 1.35.15.15.1, Dollar Threshold and IRM 1.35.15.15.2, Other Criteria.

  2. Business units are permitted to process change requests for prior year expenses on an exception basis. The IRS has already reported these expenses in the prior year's audited financial statements. Business units can process these accounting code changes after obtaining permission from the Office of Financial Reports.

1.35.15.15.4  (07-26-2011)
Accounting Code Changes Related to Office of Management and Budget Directives

  1. Business units will process all accounting code changes related to OMB directives.

1.35.15.15.5  (07-26-2011)
Accounting Code Changes Related to a Continuing Resolution

  1. Business units may process accounting code changes that result from differences between how the IRS funded an activity during a continuing resolution and the actual budget in the same manner as all other accounting code changes. The dollar threshold and other limitations will apply. Exceptions to any limitations will be addressed on a case-by-case basis.

1.35.15.15.6  (07-26-2011)
Earned Income Tax Credit (EITC)

  1. The Earned Income Tax Credit (EITC) is a refundable credit created in 1975 to offset the impact of Social Security taxes on low-income families encouraging them to seek employment rather than welfare. The IRS established the EITC Program Office, Wage and Investment Division, to enhance oversight of EITC funds.

  2. Prior to FY 2005, EITC had its own direct fund (appropriation) to which business units could charge expenses. Beginning with FY 2005, EITC no longer had its own fund and the IRS allocated budgeted dollars for EITC to specific funds for Taxpayer Services, Enforcement, and Operations Support. Business units use sub-funds associated with each of these funds to track EITC expenses separately. See IRM 1.35.15.15.6(7) for the Home Fund and EITC Sub-Fund listing.

  3. Business units should charge all EITC non-payroll expenses against the appropriate EITC sub-fund. If expenses are erroneously charged against another fund, business units should follow the standard process for accounting code changes, including the relevant dollar thresholds. The handling of payroll expenses related to EITC is an exception to the standard procedure. No dollar threshold or other limitations have been set for payroll-related charges.

  4. Business units should also charge all EITC payroll expenses against the appropriate EITC sub-fund. However, in many cases business units cannot separate the portion of payroll expense attributable to EITC from payroll expenses related to other work done by the business unit, so both EITC and non-EITC labor and benefits expenses are initially charged to the business unit's home fund. Business units determine the portion of payroll expense attributable to EITC each month based on a pre-defined methodology maintained by the business units and the EITC Program Office, Wage and Investment Division.

  5. Budget analysts in the business units create expense transfer entries to move the EITC payroll-related expenses from the home fund to the appropriate EITC sub-fund. Before moving expenses, the budget analyst should verify that there are sufficient resources in the home fund to cover the transfer.

  6. The budget analysts must also use the accounting string from the original payroll interface transaction whenever possible, changing only the fund.

  7. The Home Funds and corresponding EITC Sub-Funds are as follows:

    HOME FUND EITC SUB-FUND
    XXXX0912D XXXX09E2D
    XXXX0913D XXXX0917D
    XXXX0919D XXXX09E9D

  8. Once all lines on the expense transfer are entered and the budget analyst has reviewed them for accuracy, the budget analyst “parks” (saves without posting) the transaction. The budget analyst must then complete the standard EV Payroll Worksheet from the Beckley Finance Center (BFC) website and email it to the Debt Collection Unit at BFC. Business unit use the EV Payroll Worksheet for all EV type transactions processed by BFC. It is imperative that the budget analysts review the EV Payroll Worksheet and validate that it matches exactly with the data entered into IFS before forwarding it to BFC.

  9. Additional details on creating an EITC payroll expense transfer document in IFS, can be found on the IFS home page.

  10. Additional information concerning EITC procedures can be found in IRM 1.33.4, Financial Operating Guidelines.

1.35.15.15.7  (07-26-2011)
Payroll

  1. Payroll data enters IFS through the Automated Interface to the National Finance Center (AINFC) and through manual entries. Business units should post payroll data entering IFS to the appropriate accounting string. However, in cases where business units post data to an erroneous accounting string, business units can make accounting code changes. No dollar threshold or other limitations have been set for payroll-related changes.

  2. Budget analysts in the business units are responsible for creating entries to make payroll-related accounting code changes. All payroll-related accounting code changes that are determined to be necessary will use expense transfer transactions with document type EV to correct the erroneous charges. When entering the expense transfer transactions with document type EV for payroll, the budget analyst must enter the full seven-digit cost center where the original payroll expenses were charged.

  3. Once all lines on the expense transfer are entered and the budget analyst has reviewed them for accuracy, the budget analyst "parks" (saves without posting) the transaction. The budget analyst must then complete the standard EV Payroll Worksheet from the BFC website and email it to *CFO BFC Electronic EV. It is imperative that budget analysts review the EV Payroll Worksheet and validate that it matches exactly with the data entered into IFS before forwarding it to BFC.

  4. BFC will review the expense transfer document to ensure that the information in the expense transfer transaction with a document type EV (expenditure voucher) matches the EV Payroll Worksheet and that the transaction nets to zero. If there is a discrepancy between the parked expense transfer transaction and the submitted EV Payroll Worksheet, BFC will return the EV Payroll Worksheet to the originating business unit for correction before completing the transaction. Additionally, if the expense transfer transaction references a non-payroll GL account, BFC will send the expense transfer document back to the business unit and the business unit will not be able to process the transaction. If unsure of accounts or amounts utilized, contact the Office of Financial Reports for clarification. If BFC identifies no errors, the business unit will process the expense transfer transaction with document type EV.

  5. Additional information concerning payroll adjustments can be found in the Manual Payroll Accrual & Related Adjustments (Supplemental Instructions) on the CFO website.

1.35.15.15.8  (07-26-2011)
Purchasing

  1. When a business unit determines that a purchase-related accounting code change needs to be made, the business unit must submit a request to BFC via email at *CFO BFC Electronic Obligations to process the accounting code changes. Business units must furnish suitable documentary evidence explaining the reason for the change. In cases requiring a fund change, BFC may require additional documentation. BFC will ensure that documentation is adequate and complete before making any changes.

  2. The method of processing purchasing-related accounting code changes will vary depending on where in the purchasing sequence of events the business unit identified the error. The purchasing sequence of events has four distinct phases or levels:

    1. Requisition Level - Business unit recorded the requisition in the automated procurement system which interfaced with IFS, but no obligation exists.

    2. Obligation Level - Business unit created the obligation in the automated procurement system, but has not input receipt and/or acceptance.

    3. Receipt and Acceptance Level - Business unit recorded receipt and/or acceptance in the automated procurement system which interfaced with IFS.

    4. Payment Level - BFC disbursed payment to vendor.

  3. BFC involvement is required to process all purchase-related accounting code changes, except those at the requisition level.

1.35.15.15.8.1  (07-26-2011)
Accounting Code Change at Requisition Level

  1. When the business unit identifies an error at the requisition level, the business unit can do the accounting code change with generally no BFC involvement. To correct the error, the business unit updates the accounting string in the automated procurement system as soon as the business unit discovers the error. The business unit should make changes for all errors found, regardless of the dollar amount.

1.35.15.15.8.2  (07-26-2011)
Accounting Code Change at Obligation or Receipt and/or Acceptance Level

  1. When the business unit identifies an error at the obligation or receipt and/or acceptance level, BFC and the business unit will process accounting code changes that meet the dollar threshold or other criteria detailed in 1.35.15.15.1, Dollar Threshold and 1.35.15.15.2, Other Criteria.

  2. To correct the error, BFC reverses the obligated line(s) and any receipt and/or acceptance line(s) in IFS, reflecting the inaccurate accounting string. The business unit updates the accounting string for the requisition in the automated procurement system. The IFS interface updates the accounting string data for the requisition. BFC accesses the updated requisition in IFS and reestablishes the obligated line(s) and any receipt and/or acceptance line(s) in IFS.

1.35.15.15.8.3  (07-26-2011)
Accounting Code Change at Payment Level

  1. When the business unit identifies an accounting code error at the payment level, BFC and the business unit will process accounting code changes that meet the dollar threshold or other criteria detailed in 1.35.15.1.1, Dollar Threshold and 1.35.15.15.2, Other Criteria.

  2. To correct the error, BFC reverses the obligated line(s), receipt and/or acceptance line(s) and any payment activity reflecting the inaccurate accounting string. The business unit updates the accounting string for the requisition in the automated procurement system. Once the business unit updates the accounting string information in the automated procurement system and it interfaces with IFS, BFC must reestablish the obligation, receipt and/or acceptance, and payment records.

1.35.15.15.9  (07-26-2011)
Travel and Relocation

  1. When a business unit determines that a travel and relocation accounting code change needs to be made, the business unit must submit a request to BFC via email at *CFO BFC Travel Authorizations and Accounting Codes to process the accounting code changes. The method of handling accounting code changes will vary depending on whether they are at the authorization/obligation or voucher/payment stage.

1.35.15.15.9.1  (07-26-2011)
Error Found at Authorization/Obligation Level

  1. Business units usually process accounting code changes found at the authorization/obligation stage with no BFC involvement.

  2. Travelers should make every effort to enter requests in GovTrip using the correct accounting string information. The approving official needs to carefully review all authorizations to ensure that the traveler has entered the appropriate accounting string. This is especially important if the travel relates to work done for another office because the traveler will need to change the accounting string information in GovTrip to reflect that of the authorizing office.

  3. Travelers, with manager approval, can amend erroneous accounting string information found at the authorization/obligation stage within GovTrip, if the traveler has not submitted vouchers for that particular authorization/obligation. Modifying the authorization/obligation in GovTrip will zero out the incorrect accounting code lines in IFS and obligate the corrected accounting code lines without creating a new obligation document in IFS.

  4. For manually entered authorization/obligation accounting string errors , the business unit plan manager must email a standard voucher form from the BFC website to *CFO BFC Travel Authorizations and Accting Codes. The BFC Travel Analyst will approve the change request and forward the change to a technician who will make the accounting code change directly in IFS.

  5. For relocation, BFC processes all GRAS (Government Relocation Accounting System) transaction entries and accounting code changes. The business unit plan manager must email an SV form from the BFC website to *CFO BFC Travel Authorizations and Accting Codes or contact the assigned relocation coordinator. The BFC Relocation Analyst will approve the change request and forward the change to a BFC technician who will make the accounting code change in GRAS for interface into IFS.

  6. BFC will only make accounting code changes when the dollar amount of the obligation is $500 or more. See IRM 1.35.15.15.1(2), Dollar Threshold for exceptions to this dollar threshold

1.35.15.15.9.2  (07-26-2011)
Errors Found for Open Obligations and Fully Expensed Obligations

  1. BFC uses the IFS reversal process to make all accounting code changes that extend beyond the obligation level and that meet the dollar threshold. The IFS reversal process consists of unique steps that reverse an erroneous accounting transaction in IFS and properly post a corrected transaction within each module. The IFS reversal process ensures that IFS reports display accurate data.

  2. BFC cannot make changes in GRAS to expensed relocation items. BFC cannot make accounting code changes in GovTrip to expensed items. Consequently, if BFC makes a change to an accounting code after the expense has been vouchered, the reports in GovTrip will not reflect any of the accounting code changes made. Business units should use the IFS travel reports to evaluate and correct travel data that reflects any potential accounting code changes.

  3. For GovTrip-related and manually entered authorization/obligation accounting string errors, the business unit plan manager must email a SV form from the BFC website to *CFO BFC Travel Authorizations and Accting Codes. The BFC travel analyst will approved the change request and forward the change to a technician. The technician will make the accounting code change directly in IFS.

  4. BFC will only make accounting code changes related to the expensed portion of open obligation or fully expensed when the dollar amount of the obligation is $500 or more. See IRM 1.35.15.15.1(2), Dollar Threshold, for exceptions to this dollar threshold.

  5. BFC will only make accounting code changes to relocation obligations if there have been no expenditures against the obligation or modifications to the original authorization.

1.35.15.16  (07-26-2011)
Funds Control at Year-end

  1. IFS has a "funds control" feature that prevents users from recording an obligation that would cause a budgetary accounting string to exceed its allocated funds. This feature applies to accounting strings that specify an appropriation, a financial plan, and a functional area. However, more detailed accounting strings that reference office codes, object classes, and sub-object classes are not controlled by this feature. As a result, at year-end, IFS generally reports negative fund balances for some of these more detailed accounting strings along with fund surpluses for others. IFM takes corrective measures throughout the fiscal year to restore these balances to zero by year-end.

1.35.15.17  (07-26-2011)
Canceling Appropriations

  1. Annual appropriations "expire" at the end of the fiscal year for which they were enacted. Agencies may record certain types of transactions against "expired" accounts for five years after expiration. Transactions that may be recorded include obligation decreases and cancellations; obligation increases that are not the result of new work or project scope changes; and the receipt and acceptance of goods and/or services. After this five-year period, the accounts "cancel" with no further transactions allowed, including the payment of an invoice against which a receipt and acceptance has been recorded. For example, annual appropriations and "multi-year" appropriations which expired on September 30, 2006, are canceled on September 30, 2011.

  2. As early as July of a fiscal year, business units should prepare for the closing of the transactions for canceling fiscal year appropriations. A detailed review of unliquidated obligations for the canceling fiscal year is necessary to determine if a vendor is likely to bill for goods and/or services ordered.

  3. Invoices received after a fiscal year appropriation is canceled are paid out of the current year’s appropriations. However, no more than one percent of the current year appropriation is available to cover canceled year obligations. The payment itself cannot exceed the balance that had remained on the initial obligation before it was deobligated.

  4. The IFS year-end closing process includes the automatic reversal of accounts payable, obligations, and accounts receivable against canceling year appropriations. This involves the following steps:

    1. Reversing unpaid invoices and receipt and/or acceptance, and moving the balances to unliquidated obligations, as appropriate.

    2. Deobligating unliquidated obligations.

    3. Transferring receivables to the General Fund Receipt Account – Canceled Receivables.

  5. The transaction entitled "Close Commitments" is run during the year-end closing process. Upon completion of the "Close Commitments" process, IFM reviews the trial balance for canceling funds and prepares and posts entries as needed, based on the balances in the impacted funds.

  6. IFM prepares and records entries to clear remaining proprietary account balances for the appropriations being canceled. Budgetary accounts are adjusted to reflect all Total Resources as canceled appropriations.

  7. IFM publishes detailed instructions and deadlines for handling canceled appropriations on an annual basis on the CFO website.

1.35.15.18  (07-26-2011)
Estimating Accruals

  1. Certain types of expenses are incurred but not yet processed in IFS by year-end. These expenses must be estimated. The estimates of accrued expenses are classified into four components:

    1. Major Contract Accruals.

    2. Specifically Identified Accruals.

    3. Percentage Estimated Accruals.

    4. Payroll Accruals.

1.35.15.18.1  (07-26-2011)
Major Contract Accruals

  1. Due to dollar amounts involved and the corresponding risks to the financial statements in the event of misstatement, IFM has initiated a separate and distinct process to accurately reflect the accrued liabilities for IRS major contracts. IFM performs this process annually.

  2. IFM selects the major contracts based on a multi-factor analysis which considers certain contract characteristics, such as current year-to-date expenditures and open obligation balances as of a specific date. IFM submits the selected major contracts to Procurement. Once Procurement concurs, IFM selects individual task orders for confirmation based upon open obligation balances as of June 30.

  3. For each major commercial contract, IFM drafts a confirmation letter to the vendor, requesting an estimate of cumulative earned revenue as of September 30. For commercial vendors, Procurement sends the confirmation to the vendor via email or regular mail. For Federal vendors, IFM emails the vendors in early September to obtain their estimates of cumulative earned revenue as of September 30.

  4. Concurrently, IFM completes a review of each selected vendor’s contract and billing files, as well as cumulative contract payments. IFM computes its own estimate of cumulative earned revenue as of September 30 for each major contract and compares its estimate to the estimate submitted by the vendor. If the two estimates differ by less than $500,000, IFM accepts the vendor's estimate as the basis for determining the accrued expense on that contract.

  5. Conversely, if the two estimates differ by more than $500,000, IFM expands the scope of its field work pertaining to that contract. IFM then performs additional procedures such as discussions with the CO, COTR, IFM Major Contract Accrual Coordinator, and vendor personnel until a consensus on a final estimate is achieved.

  6. Once IFM has completed this analysis, it provides any additional guidance necessary to calculate the year-end acccrual.

1.35.15.18.2  (07-26-2011)
Specifically Identified Accruals

  1. IFM has identified a number of expense classifications which are more easily analyzed on a specific basis because of their similarities. IFM refers to these expense classifications as "specifically identified expenses" and accrues these expenses on an "as needed" basis:

    Expense Accrual Methodology Based On:
    Federal Employees Compensation Act (FECA) Account - Unfunded An analysis of historical unfunded FECA Chargeback Reports (excluding amounts to be funded in the current fiscal year) to develop a cumulative estimate. The methodology utilized allows the estimate to be adjusted every three months based upon actual costs. IFM adjusts this accrual to actual cost information provided by FMS in Tier at each quarter end, and in IFS in the month following quarter end as well as in final true-up at year-end.
    Federal Employees Compensation Act (FECA) Account - Actuarial An analysis of two years of historical actuarial data to develop an estimated ending accrual balance for the current year-end. The difference between the beginning accrual balance and the estimated ending accrual balance is amortized evenly throughout the year. IFM adjusts this accrual in IFS to actual liability information provided by Treasury at year-end in IFS.
    Federal Telephone Service The budgeted expense for all months that are unpaid as of the accrual date. Adjustments are made for any IPAC amounts in suspense account.
    Imputed Costs – FMS Services The accrual estimate is a combination of FMS' year to date actual and projected costs. This estimate is reduced by anticipated offsets.
    Imputed Costs – Health, Life, and Pension Imputed Office of Personnel Management (OPM ) Health, Life, and Pension costs are recorded monthly based on an annual year-to-date accrual using numerous cost factors (as provided by OPM) multiplied by actual payroll data such as salaries, head counts, and annual salaries (via Statistical Analysis System (SAS) and/or Business Warehouse (BW) reports).
    Postage An analysis of two years of historical data to develop a year-to-date cost estimate. This estimate is reduced by current year paid expenses which results in the accrual amount.
    Unemployment Compensation for Federal Employees (UCFE) An analysis of two years of historical data to develop quarterly cost patterns which are further refined into monthly estimates. The accrual is based on the monthly estimates for all months that are unpaid as of the accrual date.
    Unfunded Annual Leave The most current Leave Report received from the National Finance Center.
    Working Capital Fund (WCF) An analysis of two years of historical data to develop a year-to-date cost estimate. This estimate is reduced by current year paid expenses which results in the accrual amount.
    Judgment Fund The dollar amount of judgment fund claims received less claims paid for a specified time period in the FMS Judgment Fund Received/Paid Report.

1.35.15.18.3  (07-26-2011)
Percentage Estimated Accruals

  1. IFM uses a percentage estimated accrual methodology to develop a year-end estimated liability for expenses that occur during the year, but are not recorded as transactions prior to the close of the fiscal year. This accrual methodology excludes items accounted for in the major contracts accrual, specifically identified expense accruals, and payroll expense related accruals.

  2. Each fiscal year, IFM identifies expenses recorded by accounting group in the first eight months of the current fiscal year that should have been recorded in the prior fiscal year. IFM divides these amounts by the prior fiscal year’s recorded expenses through mid-September to develop a percentage ratio of unrecorded expenses. IFM then applies an average of the two most recent fiscal years’ percentage ratio of unrecorded expenses to the year-to-date recorded expenses as of mid-September for all transactions except: major contracts (excluded), specifically identified expenses (zero percent), and payroll expenses (excluded).

  3. In addition, IFM reviews the reasonableness of the prior fiscal year-end accruals by comparing the recorded accrual by accounting group to the actual expenses recorded by accounting group for the first eight months of the current fiscal year that relate to the prior fiscal year. IFM researches and documents any significant differences as to the cause and appropriateness.

1.35.15.18.4  (07-26-2011)
Year-end Payroll Accruals

  1. The United States Department of Agriculture National Finance Center, via the AINFC, transmits payroll data to IFS. Using this data, IFS generates a basic payroll estimate (excluding cash awards, overtime, terminal leave, retention bonuses, and gainsharing awards) that is used to prorate the remaining workdays of the month and establish a monthly payroll accrual. At the end of the year, the system accrues an estimate that includes overtime and terminal leave.

  2. IFM provides the business units with supplemental instructions clarifying how year-end payroll accruals and/or adjustments are recorded in IFS.

  3. The methodology used for the monthly accrual applies to the annual accrual, except for certain transactions types (including cash awards, overtime, and terminal leave). Because the AINFC payroll process uses a "straight time" accrual, this process cannot anticipate special circumstances such as significant amounts of cash awards, overtime, terminal leave, retention bonus, or gainsharing awards earned and remaining unpaid in September. IFM provides guidance to the business units to adjust the accruals for the following:

    1. Cash awards - In September, management designates the funds necessary to pay cash awards to employees. There are two cash award files. One file is for active employees and the second cash award file is for separated employees. These awards are normally paid prior to year-end and require no accrual. IFM will monitor the posting of both award files and if either cannot be processed before year-end, IFM will obtain a list of awardees (containing amounts and necessary accounting strings) from the IRS Human Capital Office (HCO) and record an accrual for both the unpaid award amount and the related employer payroll taxes.

    2. Overtime - IFS develops this accrual using the last disbursed payroll in September. Since September 30 often falls in the middle of a biweekly pay period, and overtime generally follows no set pattern, the business units may adjust the "straight time" accrual based on their knowledge of actual overtime worked during the period.

    3. Terminal Leave - Terminal leave is accumulated annual leave that remains unused and unpaid at year-end for separated employees. IFS develops this accrual using the last disbursed payroll in September. The business units may adjust the "straight time" accrual based on their knowledge of actual terminal leave payable to their separated employees.

    4. Retention Bonus/Gainsharing Awards - IFS does not generate an accrual for retention bonuses or gainsharing awards. Each business unit is responsible for determining whether a payroll labor accrual or adjustment is necessary.

1.35.15.19  (07-26-2011)
Other Entries

  1. In addition to the accrual entries, IFM makes a number of adjusting entries on an "as needed" basis. The following chart lists the type of transaction and the associated adjustment:

    Type of Transaction Adjustment
    Seized Property/Special Money Balance is adjusted to equal the balance disclosed on the Asset Forfeiture Report (AFTRAK).
    Depreciation Balance is adjusted to recognize depreciation for a capitalized asset.
    Fund Balance with Treasury (FBWT) adjusted to Governmentwide Accounting (GWA) Account Statement Balance is adjusted to equal the balance recorded and disclosed by Treasury. (This is a TIER adjustment, not made in IFS).
    Letter Rulings Balance is adjusted to equal the balance recorded in GWA.
    Suspense Reclassification Balance is adjusted to reclassify transactions from the suspense account to the proper account.
    Property, Plant, and Equipment (PPE) Balances are adjusted to record asset additions that were recorded as expenses, reclassify asset balances that were recorded incorrectly, and to record assets acquired through capital lease.
    Capital Lease Liability and Capital Lease Interest Accrual Balances are established to record new capital lease liabilities. Payments against lease liabilities are reclassified from expense to the capital lease liability. Interest is accrued and posted to the liability and expense accounts.
    Appropriated Special Fund Receipts Income Balances for User Fees are adjusted to reflect actual amounts received. At year-end, the balance is adjusted to equal the balance in GWA. (This can be a TIER and/or IFS adjustment).
    Appropriation and Balance Transfers Balances are adjusted to reflect the transfer of funds between Treasury Fund Symbols.
    Accounts Receivable Write-Off Balance is adjusted to remove an account receivable from the books when it is determined to be uncollectible.

  2. At year-end, IFM makes the following adjusting entries:

    Type of Transaction Adjustment
    Allowance for Doubtful Accounts Balance is adjusted to increase or decrease the allowance for uncollectible accounts.
    Contingent Liabilities Balance is adjusted based on legal representation letters.
    Intra-governmental and Departmental Eliminations Through coordination with Treasury and other Federal Trading Partners, intra-governmental balances are researched as necessary and adjusted to reflect applicable account balances as agreed upon with the Trading Partner.
    Property, Plant, and Equipment (PPE) Asset Disposals The asset balances are reduced, the corresponding accumulated depreciation is reduced, and the gain or loss is posted.
    Canceled Appropriations’ Balances Prior to Cancellation Capitalized asset balances in canceling year appropriations are transferred to a "no-year " appropriation.
    Account Receivables are reversed and established in the General Fund Receipt Account – Canceled Receivables Fund.
    Accounts Payable are reversed for any amounts that will not be paid by year-end.
    Undelivered Orders are deobligated.
    Canceling Appropriations FBWT is adjusted to zero. Expired Authority is closed to Canceled Authority.
    General Fund Receipt Accounts - Closing Adjustments Liability accounts for collections are adjusted to equal the cash collected. The liability accounts are closed against FBWT.
    Treasury Forfeiture Fund Balance is adjusted to reclassify transactions from the revenue account to the transfer-in account.

1.35.15.20  (07-26-2011)
Mock Systems Testing

  1. Mock systems testing, performed in a test environment, is intended to ensure all year-end transactions will post completely and accurately in the live production environment when the year-end close is officially completed. These mock systems tests also serve as indicators of any unforeseen issues that may need to be resolved before the actual year-end close.

  2. Annually, IFM establishes a mock systems testing schedule that details the activities, timeframes, and responsible individuals. Mock systems testing, planning, and preparation takes place in May. Actual testing takes place generally in June through September.

  3. Mock 1 is a full year-end test. Based on identified issues, a contingency Mock 1a will take place. Mock 2 is an abbreviated mock systems test. The mock systems testing cycle continues until IFM identifies no new or outstanding issues. In a typical year, IFM undertakes two to three mock systems tests.

  4. Mock 1 testing covers the activities that IFM performs during the year-end close including:

    1. Environmental/technical preparations.

    2. Funds management (FM) pre-close transactions.

    3. FM close transactions.

    4. FM post-close transactions.

  5. Mock 1a testing contingency is based on issues identified in Mock 1.

  6. Mock 2 testing covers:

    1. Environmental build.

    2. Year-end execution.

1.35.15.21  (07-26-2011)
Automated Close Process

  1. IFS automatically performs many of the functions required for fiscal year-end closing. The IFS year-end close process includes the following system-generated entries:

    1. Close revenue and expenses to the cumulative results of operations (net position).

    2. Close budgetary accounts relating to appropriations, transfers, and collections to calculate total actual resources.

    3. Close budgetary accounts relating to outlays, refunds, and anticipated amounts to calculate expired/carryover authority.

  2. In addition, IFS:

    1. Performs a reversal of canceled funds that are beyond the statutory period.

    2. Prepares for the new fiscal year by performing processes such as rolling over reference data and "no-year" and "multi-year" authority.

  3. IFS generates carryover entries to carry forward unobligated budget authority for "no-year" and open "multi-year" funds for reapportionment in the new fiscal year. The following balances are brought forward to the new fiscal year:

    1. Balance sheet accounts (assets, liabilities, equity).

    2. Unliquidated obligations.

    3. Undelivered orders.

    4. Uncollected earned reimbursements.

    5. Unpaid expenses.

    6. Delivered orders unpaid.

    7. Unfilled customer orders.

    8. Available balances.

    9. Actual resources.

1.35.15.22  (07-26-2011)
Verifying Trial Balance Reports

  1. This subsection discusses both the pre-close and post-close trial balances, as well as the beginning balances for the new fiscal year.

1.35.15.22.1  (07-26-2011)
Accounting Period Description

  1. Although September 30 is the last day of the fiscal year and signals the end of accounting period 12, there are additional accounting periods used by IFM for designated processes required to closeout a fiscal year, produce the financial statements, and open the next fiscal year.

  2. Accounting period 13 is used for closing entries affecting the Fund Balance with Treasury. Accounting period 14 is used for closing entries pertaining to fixed assets. Accounting period 15 is used for the Government Accountability Office (GAO) adjustments. Accounting periods 15 and 16 are used for preparing the pre-close and post-close trial balances, respectively, as discussed in IRM 1.35.15.22.2, Pre-Close and Post-Close Trial Balances at Year-end, and IRM 1.35.15.22.3, Beginning Balances of the New Fiscal Year.

1.35.15.22.2  (07-26-2011)
Pre-Close and Post-Close Trial Balances at Year-end

  1. To verify the pre-close and post-close trial balances, IFM must analyze IFS-generated trial balance reports for accounting periods 15 and 16, respectively. After all transactions are posted for the fiscal year and the year-end closing process has been executed, trial balance reports are generated from IFS for further analysis by IFM.

  2. IFM summarizes the period 15 and period 16 trial balances by general ledger account (GLAC) and fund and compares the account balances for the respective periods to determine if the correct closing entries occurred and were completed in accordance with the FMS-prescribed closing rules for Standard General Ledger (SGL) accounts (see the Closing Accounts Quick Reference Chart found on Treasury’s Standard General Ledger website). The Closing Accounts Quick Reference Chart indicates the proprietary revenue and expense accounts which close to the cumulative results of operations account, as well as those accounts that remain open with carry-forward balances for the new fiscal year. Additionally, the comparison enables IFM to determine if the budgetary accounts were closed appropriately based on their status as unexpired, expired, or canceled appropriations.

  3. The comparison of the period 15 and period 16 trial balances are reviewed to ensure no differences exist. IFM researches and resolves any differences noted to ensure:

    1. No problems occurred during IFS closing.

    2. No subsequent entries have posted that might erroneously affect the period 00 opening balances.

  4. Identified issues are documented and submitted to management for review and resolution.

  5. Once IFM has resolved all issues and has re-executed the closing routine, if necessary, IFM compares the period 15 and period 16 trial balances to confirm the corrections were made successfully and no issues remain.

  6. The quality control process described above is used for two different sets of IFS trial balances:

    1. An all-inclusive set of trial balances including all funds maintained by the IRS.

    2. Although these funds are not included for financial reporting, the IRS has fiduciary responsibility for accurately reporting their financial accounting.

1.35.15.22.3  (07-26-2011)
Beginning Balances for the New Fiscal Year

  1. Following IFS close at year-end, IFM verifies the accuracy of the October 1 beginning balances as described in IRM 1.35.15.21, Automated Close Process. IFS utilizes an automated closing process in period 16 to close automatically the applicable proprietary and budgetary accounts.

  2. After all applicable proprietary and budgetary accounts have been closed, trial balance reports are generated from IFS for further analysis by IFM.

  3. IFM summarizes the period 16 and period 00 trial balances by SGL account and Treasury Symbol and compares the account balances for the respective periods to determine if IFS brought the correct balances forward.

  4. The comparison of the period 16 and period 00 trial balances are reviewed to ensure no differences exist. IFM researches and resolves any differences noted to ensure that:

    1. No problems occurred during IFS close.

    2. No subsequent entries have posted to IFS that might erroneously affect the period 00 opening balances.

  5. Identified issues are documented and submitted to management for review and resolution.

  6. Once IFM has resolved all issues and re-executed the closing routine, if necessary, IFM again compares the period 16 and period 00 trial balances to confirm that corrections were made successfully and that no issues remain.

  7. The quality control process described above is used for two different sets of IFS trial balances:

    1. An all-inclusive set of trial balances including all funds maintained by the IRS.

    2. A specific set of trial balances which omits certain funds that are not included in the financial statements issued to the public. Although these funds are not included for financial reporting, the IRS is still responsible for their accurate accounting. These funds are reviewed in the same manner as any externally reported funds.

1.35.15.23  (07-26-2011)
New Fiscal Year Budget Load

  1. In early September, Corporate Budget enters the new fiscal year budget into IFS. Corporate Budget accomplishes this by using an automated budget upload process and manual data entry procedures.

  2. Depending on when Congress approves the IRS appropriations, the initial budget upload may contain approved appropriated amounts or it may reflect planned activity as it appears in Plan Development.

  3. Existing balances of "no-year" and "multi-year" funds are systemically carried forward at the beginning of the new fiscal year to ensure funds are available for open obligations and to incur new obligations.

1.35.15.24  (07-26-2011)
Reports and Certifications to Treasury

  1. IFM prepares various reports and certifications monthly, quarterly, or annually. IFM uses some of these reports and certifications to prepare the consolidated Servicewide reports and certifications for Treasury and other external users. IFM also uses these reports and certifications to monitor the IRS financial management activities throughout the fiscal year.

  2. The following chart lists the reports and certifications and their reporting frequency:

    Report and Certification Reporting Frequency
    FMS 224, Statement of Transactions Monthly
    Prompt Payment Report Monthly
    Three-Day Close TIER Submissions Monthly
    Treasury Report on Receivables Quarterly
    Federal Agencies' Centralized Trial Balance System (FACTS) II Quarterly
    AFR Note Disclosures Second, Third, and Fourth Quarters
    Reconciliation of Net Cost of Operations to Budget (Disclosure) Quarterly
    TIER Resubmission Quarterly
    FACTS I Annually
    FMS 2108, Year-end Closing Statement Annually
    Suspense Certifications Annually
    Treasury Report on Receivables Certification Annually

1.35.15.25  (07-26-2011)
Financial Statements

  1. Detailed guidance on the form and content of the agency’s financial statements can be found in OMB Circular No. A-136, Financial Reporting Requirements.

  2. At year-end, the IRS prepares the following financial statements:

    1. Balance Sheet.

    2. Statement of Net Cost.

    3. Statement of Changes in Net Position.

    4. Statement of Budgetary Resources.

    5. Statement of Custodial Activity.

  3. In addition to the financial statements, the IRS prepares:

    1. Note Disclosures.

    2. Required Supplementary Information.

    3. Other Accompanying Information.

  4. IRS accounting and financial reporting is separated between IFM and Revenue Financial Management (RFM). IFM accounts for the appropriations made to carry out IRS tax collection efforts. RFM accounts for the gross amount of taxes collected, refunds paid, and unpaid taxes. Each unit provides the amounts for the line items in the financial statements for which it has a lead role and the related footnotes, required supplementary, and other accompanying information. IFM is responsible for consolidating the line items from each accounting unit into the financial statements.

  5. The CFO has overall responsibility for compiling the IRS financial statements and disclosures. Specific organizational responsibility for each report is indicated below.

    Name of Report Lead Role
      IFM RFM
    Balance Sheet X  
    Statement of Net Cost X  
    Statement of Changes in Net Position X  
    Statement of Budgetary Resources X  
    Statement of Custodial Activity   X
    Note Disclosures X  
    Required Supplementary Information X  
    Other Accompanying Information X  


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