- 1.35.5 Advances, Prepaid Expenses, and Other Assets
- 220.127.116.11 Overview
- 18.104.22.168 Background
- 22.214.171.124 Authority
- 126.96.36.199 Related Resources
- 188.8.131.52 Definitions
- 184.108.40.206 Acronyms
- 220.127.116.11 Responsibilities
- 18.104.22.168.1 Chief Financial Officer (CFO)
- 22.214.171.124.2 Associate Chief Financial Officer for Financial Management (FM)
- 126.96.36.199.3 Director, Office of Financial Management Policy (FMP)
- 188.8.131.52.4 Director, Office of Financial Reports (OFR)
- 184.108.40.206.5 Director, Beckley Finance Center (BFC)
- 220.127.116.11.6 Associate Chief Financial Officer for Corporate Budget (CB)
- 18.104.22.168.7 Director, Office of Procurement, Agency-Wide Shared Services (AWSS)
- 22.214.171.124.8 Business Units
- 126.96.36.199 Types of Advances, Prepaid Expenses, and Other Assets
Part 1. Organization, Finance, and Management
Chapter 35. Financial Accounting
Section 5. Advances, Prepaid Expenses, and Other Assets
August 24, 2012
(1) This transmits the revised Internal Revenue Manual (IRM) 1.35.5, Administrative Accounting, Advances, Prepaid Expenses, and Other Assets.
(1) Section 188.8.131.52, Related Resources, changed the title of IRM 1.32.1.
(2) Section 184.108.40.206(d)(e), Definitions, revised for clarity.
(3) Section 220.127.116.11.5, Director, Beckley Finance Center (BFC), revised for clarity.
(4) Added section 18.104.22.168.7, Director, Office of Procurement, Agency-Wide Shared Services.
(5) Section 22.214.171.124.2, General Services Administration (GSA) Automobile Advances, revised for clarity.
(6) Section 126.96.36.199.4, Employee Advances, revised for clarity.
(7) Section 188.8.131.52.5, Prepaid Postage, revised for clarity.
(8) This revision includes changes throughout the document to update the organizational name of Internal Financial Management to Financial Management and minor editorial changes.
Pamela J. LaRue
Chief Financial Officer
This Internal Revenue Manual (IRM) provides policies and procedures for accounting and reporting advances, prepaid expenses, and other asset transactions.
The Chief Financial Officer (CFO), Financial Management (FM) unit, Office of Financial Management Policy (FMP), develops and maintains this IRM.
In October 1990, the Secretary of the Treasury, the Director of the Office of Management and Budget (OMB), and the Comptroller General established the Federal Accounting Standards Advisory Board (FASAB) by a Memorandum Of Understanding (MOU). FASAB is responsible for promulgating accounting standards for the United States Government. The Federal Government recognizes these standards as generally accepted accounting principles (GAAP). To ensure compliance with FASAB, it is critical that the IRS maintain a system of processes and procedures for Administrative Accounting. This IRM provides the processes and procedures for recording advances, prepaid expenses, and other asset accounts.
IRM 1.14.7, Motor Vehicle Management.
IRM 1.15.49, Communication Records.
IRM 1.22.1, General Information on Mail Management.
IRM 1.22.4, Postage Accountability and Reporting Requirements.
IRM 1.32.1, Official IRS Local Travel Guide.
IRM 1.33.4, Financial Operating Guidelines.
IRM 1.35.15, Annual Close Guidelines.
In this IRM, the terms below have the following meanings:
Advances - Payments made by the IRS to its employees, contractors, grantees, or others prior to receiving goods or services (also referred to as advance payments).
Assets - An item that embodies a probable future economic benefit that can be obtained or controlled by the Federal Government or a reporting entity as a result of past transactions or events.
Collection Letter - The correspondence transmitted by the Treasury to the IRS identifying its annual Working Capital Fund (WCF) program requirements and the amount that will be collected through an advance to the WCF.
Government On-line Accounting Link System (GOALS) II - A collection of applications that allow FMS to electronically collect data from and disseminate reports to Federal Program Agencies (FPAs).
Intra-governmental Payment and Collection System (IPAC) - Provides a standardized interagency fund transfer mechanism for FPAs. IPAC facilitates the intra-governmental transfer of funds, with descriptive data from one FPA to another.
Other Assets - Items not otherwise classifiable to a specific asset account.
Prepaid Expenses - Payments made by the IRS to vendors or other Federal agencies to cover certain periodic expenses before those expenses are incurred. Typical prepaid expenses are rents paid to a lessor at the beginning of a rental period (also referred to as Prepayments).
Subsidiary Ledger - A detailed record of the individual transactions comprising the balance of a general ledger control account.
Draw Down - Reduction to an advance or prepaid expense account balance when expenses are recorded in the general ledger.
The following chart contains acronyms that are used throughout this IRM:
Acronym Description BFC Beckley Finance Center BRM Business Reply Mail CARE Customer Assistance Relationships and Education CB Corporate Budget CI Criminal Investigation CIMIS Criminal Investigation Management Information System FASAB Federal Accounting Standards Advisory Board FM Financial Management FMP Financial Management Policy FMS Financial Management Service GAAP Generally Accepted Accounting Principles GSA General Services Administration IFS Integrated Financial System IPAC Intra-governmental Payment and Collection System LPOC Local Point of Contact M&P Media and Publications MMPO Mail Management Project Office MOU Memorandum of Understanding OCIO Office of Chief Information Officer OMB Office of Management and Budget USPS United States Postal Service W&I Wage and Investment WCF Working Capital Fund
This section provides responsibilities for:
Chief Financial Officer.
Associate Chief Financial Officer for Financial Management.
Director, Office of Financial Management Policy.
Director, Office of Financial Reports.
Director, Beckley Finance Center.
Associate Chief Financial Officer for Corporate Budget.
Director, Office of Procurement, Agency-Wide Shared Services.
The Chief Financial Officer (CFO) is responsible for:
Establishing policies, procedures, standards, and controls for IRS financial processes, including for advances, prepaid expenses, and other assets.
Administering the Working Capital Fund for IRS.
Reviewing and approving the Working Capital Fund financial plans.
The Associate Chief Financial Officer for Financial Management (FM) is responsible for ensuring that advances, prepaid expenses, and other assets are properly recorded in the administrative financial statements.
The Director, Financial Management Policy (FMP) under the Associate Chief Financial Officer for Financial Management (FM) is responsible for:
Providing clarifying guidance and assistance on administrative accounting policy matters, including advances, prepaid expenses, and other assets.
Establishing policy for collecting unpaid travel and relocation advances.
The Director, Office of Financial Reports (OFR) under the Associate Chief Financial Officer for Financial Management (FM) is responsible for overseeing accounting procedures and internal controls for advances, prepaid expenses, and other assets.
The Director, Beckley Finance Center under the Associate Chief Financial Officer for Financial Management (FM) is responsible for:
Recording obligations for advances and prepaid expenses in the Integrated Financial System (IFS).
Receiving and disseminating IPACs for business unit review and certification.
Posting expenses or assets in IFS to draw down advances and obligations.
Collecting unpaid travel and relocation advances.
The Associate Chief Financial Officer for Corporate Budget (CB) is responsible for:
Serving as the liaison between the IRS and the Treasury WCF Corporate Office.
Managing the WCF financial plan review and approval process.
Ensuring business units receive both the Office of Chief Information Officer (OCIO) and non-OCIO financial plan.
Verifying the Treasury collection letter agrees with the approved financial plan.
Monitoring the quarterly draw down of WCF obligations.
The Director, Office of Procurement, Agency-Wide Shared Services (AWSS), is responsible for establishing, maintaining, and ensuring compliance with advance payment policy and procedures.
The business units are responsible for:
Designating the highest ranking business unit official with direct responsibility for WCF program administration as the WCF Program Coordinator who provides financial plan approval for all WCF programs in the program area.
Submitting all required supporting documents to FM, including but not limited to, expense and advance reports and reconciliations.
Reviewing and certifying the WCF Financial Plan and all billings.
Approving employee advances and vouchers, in accordance with Delegation Order 1-30.
Obtaining concurrence of the WCF Advance draw down for the program area.
Criminal Investigation (CI) has additional responsibilities related to General Services Administration (GSA) Automobile Advances and investigative advances as follows:
Ordering and accounting for purchased vehicles, including recording the purchases in Criminal Investigation Management Information System (CIMIS).
Supervising and accounting for investigative advances.
Wage and Investment (W&I) has additional responsibilities related to prepaid postage as follows:
Administering the funding and overall leadership of the mail management program.
Formulating estimated postage charges for the fiscal year.
Providing estimated obligation to BFC.
Reporting Penalty Business Reply Mail to BFC monthly.
Reconciling USPS Expenditure Report monthly.
Certifying USPS bills for payment.
Advances, prepaid expenses, and other assets are reported as current assets on the IRS balance sheet. Historically, three percent of the overall budget is executed through an advance, prepaid expense, or other asset account. In order to ensure that the IRS presents the financial statements fairly, in all material respects, it is vital to accurately capture, maintain, and report transaction activity within these accounts.
All business units are responsible for ensuring compliance with the internal control requirements outlined in IRM 1.35.5, Advances, Prepaid Expenses, and Other Assets, and with the additional instructions for the five accounts contained in this IRM. Of the five accounts, one account, Postage, is classified as a prepaid expense. The four remaining accounts are classified as advances:
Working Capital Fund (WCF)
General Services Administration (GSA) Automobile
Advances to Employees
To achieve a system of strong internal controls, the business units record advance, prepaid expense, and other asset transactions in one or more manual or automated subsidiary ledgers. Financial Management reconciles and verifies the balances to the general ledger control accounts monthly. Furthermore, FM divides or segregates key duties and responsibilities among different people to reduce the risk of error or fraud.
The Department of the Treasury established the WCF on December 31, 1970. The WCF Corporate Office administers the fund.
The WCF is an intergovernmental revolving fund. The IRS, along with other Department of the Treasury bureaus, makes advance payments to the Treasury WCF. Treasury uses the funds collected to finance programs which provide a continuing cycle of primarily service-oriented business operations to Treasury bureaus, with the goal of realizing economies of scale that each bureau could not obtain individually. These services currently include:
Printing, duplicating, and graphics.
Information Technology Services.
Automated financial management, personnel/payroll systems, and procurement information systems.
Federal Executive Institute and executive center seminars.
Centralized short-term management systems.
Equal opportunity and centralized human resources services and initiatives.
Common administrative information technology services.
Payment of e-services billed to Treasury for all bureaus.
Treasury may establish new WCF programs throughout the year and may expand the WCF to include additional services with the approval of the Office of Management and Budget. The WCF Governance Board approves new WCF programs.
Treasury may remove programs from the WCF at its discretion.
In March 2008, the Treasury established the WCF Governance Board to provide sound leadership and direction on Treasury-wide management, policies, and procedures that effect overall quality, effectiveness, efficiency, and value of WCF services. The Treasury WCF Governance Board provides a structured and effective governance process for Treasury WCF by ensuring senior level engagement and oversight by the CFO community.
Although the Treasury WCF is a no-year revolving fund, the IRS uses single-year appropriations to pay for WCF programs.
Financial Plan Review
Before the start of each fiscal year, the Treasury WCF Corporate Office submits the Treasury's Office of Chief Information Officer (OCIO) Financial Plan and the Non-OCIO Financial Plans for review and approval by the IRS Chief Technology Officer (CTO) and CFO. The OCIO Financial Plan includes approximately 90% of the programs and funding for WCF. The Non-OCIO financial plan includes all other programs and funding for WCF.
Corporate Budget (CB) ensures that the business units receive both the OCIO and Non-OCIO financial plans for review. As liaison, the CB staff facilitates and participates in discussions with the Treasury WCF Corporate Office regarding the plan amounts and associated justifications.
The Business Unit WCF Program Coordinator reviews the nature/purpose, as well as the level and IRS allocated share of costs for projects in the WCF and, if satisfied, certifies the financial plan. If the Business Unit WCF Program Coordinator is not satisfied with the review, then the program coordinator contacts CB and requests assistance.
Financial Plan Approval
Corporate Budget receives all certified WCF financial plan amounts from the Business Unit WCF Program Coordinators. If the plan is not fully approved, CB informs the Treasury WCF Corporate Office that the IRS disagrees with positions in the financial plan and requests the collection of the funds be delayed. If the plan is approved, CB forwards the consolidated plan to the CFO for approval. The CFO and the CTO review and approve both the OCIO and the Non-OCIO financial plans and forward them through CB to the Treasury WCF Governance Board.
The Treasury WCF Governance Board reviews the OCIO plan on a zero-based budget format with justification for each element of the WCF planned expenses. The WCF Governance Board also reviews business cases for new initiatives proposed for the WCF. After the WCF Governance Board approves the plan, CB allocates support services costs among the business units based on each business unit's ratio of total WCF collections.
The Treasury WCF Governance Board sanctions the Non-OCIO Financial Plan in a formal WCF meeting or informally through electronic and/or phone conversations.
Collection Letter and Establishing Obligations
At the start of each fiscal year, the Treasury WCF Corporate Office submits a collection letter outlining the proposed amounts by program for the current fiscal year WCF budget, as well as credits to be applied to WCF programs called WCF carryover, to the IRS. Corporate Budget ensures the collection letter matches the approved financial plan and recommends approval or disapproval to the CFO.
After the CFO approves the initial collection of funds by Treasury WCF Corporate Office, the business units submit a Form 2785, Requisition/Obligation Estimate Adjustment Notice for each program to BFC. BFC establishes the obligations in IFS and maintains all supporting documents for recording the obligation.
The business units transfer budget authority to a centralized accounting string for the support services (overhead) portion of the WCF collection. BFC receives notification that the WCF has collected the agreed amount in the collection letter via the IPAC and secures certification from the business units prior to posting the advance in IFS.
Review and Certification of Billing
The Treasury WCF Corporate Office sends a quarterly billing statement to BFC listing the WCF expenses by program through the end of the billing period. If there is a continuing resolution at the beginning of the year, Treasury combines the first and second quarter on the first billing statement of the year.
BFC sends the quarterly billing statement to the funding official in the business unit for review.
The funding official verifies the reasonableness of the WCF expenses, certifies the funding information, and forwards the billing information to the Business Unit WCF Program Coordinator for certification of the services.
The Business Unit WCF Program Coordinator obtains knowledge of the WCF project and reviews detail project cost accounting spreadsheets to certify the reasonableness of the WCF expenses assessed and the methodology used to allocate them. The Business Unit WCF Program Coordinator requests additional information from the Treasury WCF Corporate Office, when necessary. If the allocated share of costs is not appropriate, the Business Unit WCF Program Coordinator contacts CB to pursue dispute resolution. After the review is complete, the Business Unit WCF Program Coordinator certifies the expenses on the billing statement and forwards the statement to the funding official.
The funding official sends the certified billing statement to BFC which enters the expenses in IFS to draw down IRS obligation and advance payment balances.
Corporate Budget and the funding official monitor the quarterly draw down of the WCF obligations. At the end of the fiscal year, the funding official reviews the WCF annual carryover amounts for accuracy.
Digital Signatures - Digital signatures may be utilized for certifying and approving documents; however, all digital signatures must comply with the digital signature guidelines issued by BFC.
Reprogramming of Funds - Occasionally there is a need for the Treasury to transfer funds between IRS WCF programs. In order to avoid unexpended balances in the accounting records, the IRS approves all WCF reprogramming actions before they occur. For more information, see IRM 1.33.4, Financial Operating Guidelines.
Special Process for Printing and Graphic Services Provided Through the WCF - The WCF includes printing and graphic services which generally follow the same processes as all the other WCF services. The key difference is that at the end of the fiscal year, the cost recorded in IFS is an estimate and not an actual amount. In order to comply with budget execution requirements, the Treasury's Office of Financial Management (OFM) must complete quarterly billing statements. Since the Bureau of Engraving and Printing, which provides printing and graphic services, allocates costs based on total services provided, it cannot complete total cost allocation until the fiscal year has ended and is included in the Supplemental Billing.
Supplemental Billing - Subsequent to year-end, the Treasury WCF provides the IRS with a supplemental bill for costs incurred related to the prior fiscal year. Treasury's Office of Printing and Graphics calculation of actual customer usage is included in the supplemental bill. Treasury's OFM and WCF Corporate Office make manual adjustments to reflect each bureau's actual cost. BFC records an entry in IFS to cause the recorded estimated expenses to agree with Treasury's OFM actual expense.
The GSA is designated as the mandatory source for automobiles purchased by the Federal Government. Centralized purchasing of Government-owned automobiles allows the Government to realize a greater cost savings and strengthen internal controls.
Criminal Investigation (CI) places an order through GSA's acquisition system each year for automobiles used for criminal investigations. GSA processes and transmits CI's order to the manufacturer for delivery of the vehicles.
Once CI submits the order to the manufacturer, the CI Funding Official submits Form 2785, Requisition/Obligation Estimate Adjustment Notice and the GSA Auto Choice award to BFC. BFC records the purchase as an undelivered obligation.
The GSA receives payment for the automobile via the IPAC system before delivery from the dealership. The CI Financial Specialist assigned to the GSA program certifies the IPAC. BFC records the payment to an advance payment account in the general ledger. The GSA then pays the manufacturer when the automobile is ready for delivery to a local dealership. The actual delivery of the automobile to IRS takes two to four weeks, with possible delays.
Monthly, BFC prepares a list of automobiles paid for in advance and pending delivery. CI contacts the local dealership to determine delivery status. When CI takes possession of an automobile, CI records it in the CIMIS asset tracking database in compliance with IRM 1.14.7, Motor Vehicle Management, and provides BFC with a list of the automobiles that IRS has received. BFC draws down the advance payments account and records the asset in IFS.
BFC maintains an automobile control list to support the obligations and advance payment balances reported on the general ledger and reconciles the automobile control list monthly.
OFR reviews the reconciliation developed by BFC to validate the analysis, assumptions, and results.
The investigative advance program provides CI agents funding for ongoing covert investigations. The Director of the Office of Special Investigative Techniques within the Criminal Investigation Division forwards the request for funds to BFC. BFC records the funds as an investigative advance until the investigation is closed and CI returns the funds. The Special Agent-in-Charge is responsible for the supervision of and accounting for an investigative advance.
The request for funds includes the name of the person who is responsible for accounting for the advance and the payee information necessary for processing the payment.
BFC records the payment to an advance account in IFS and sends the check to the Director of the Office of Special Investigative Techniques for distribution.
BFC maintains a subsidiary ledger which contains all outstanding investigative advances. When the investigation is complete, the Director of the Office of Special Investigative Techniques sends a check for the total amount of the advance to BFC. BFC deposits the check and draws down the balance in the advance account.
BFC reconciles the subsidiary ledger to the general ledger control account monthly.
The Office of Financial Reports within FM reviews the reconciliation work paper developed by BFC to validate the analysis, assumptions, and results.
The IRS advances all or part of employees' estimated travel and relocation expenses for official government travel and relocation to employees who do not hold a Government Travel Card, in compliance with IRM 1.32.11, Official IRS City-to-City Travel Guide.
An employee who is eligible to receive an advance submits either an electronic travel authorization in GovTrip, the online travel system, or a manual travel or local authorization directly to BFC. The GovTrip system interfaces into IFS and records approved travel advances. BFC records manual travel authorizations in IFS and relocation authorizations in GRAS/TRAS, which interfaces to IFS.
The employee must submit either an electronic voucher via GovTrip or manual voucher within five workdays after the completion of travel. If the employee’s travel lasts two or more months, the employee must submit a travel voucher every 30 days. When the approving official approves the voucher in GovTrip, GovTrip interfaces the voucher information into IFS and draws down the balance in the advance account. BFC's entries for manual vouchers also draw down the advance account balance. The portion of the travel advance that exceeds the travel expenses claimed on an approved travel voucher becomes a debt.
GovTrip de-obligates travel authorizations that do not have a corresponding voucher 30 days after the travel end date. The GovTrip system interfaces the de-obligations daily into IFS. The de-obligation causes IFS to automatically draw down the advance balance by the amount outstanding and records it to a receivable account in IFS. BFC pursues collection of receivables.
For additional information on travel and relocation advances, see IRM 1.32.11, Official IRS City-to-City Travel Guide, and the IRS Relocation Policy, respectively.
The IRS purchases postage from the United States Postal Service (USPS) for postage meters, business reply mail, bulk mailing permits, stamps, and postage paid envelopes. Funding for the purchase of postage resides in the W&I Financial Plan. The W&I/Customer Assistance Relationships and Education (CARE)/Media and Publications (M&P)/Mail Management Project Office (MMPO) certifies the USPS bills for payment.
The USPS requires payment for postage in advance; therefore, BFC pays USPS one-twelfth of the yearly postage estimate each month based on an average of the previous two fiscal years actual payments and current postage trends. BFC records the payments in a prepaid expense account in IFS. As the IRS consumes postage, BFC draws down the prepaid expense account balance and records the payment. The W&I/CARE/M&P/MMPO may adjust the estimated total expense throughout the year as necessary.
At the beginning of each fiscal year, the W&I Strategy and Finance Office formulates the estimated postage charges for the fiscal year and provides the estimated obligation of funds using Form 2785, Requisition/Obligation Estimate Adjustment Notice Card to BFC. BFC records the obligation in IFS.
The business units submit postage expenses to BFC as follows:
Major cost centers must record daily postage expenses on a Form 13490, Daily Transaction Record of IRS Postage, summarize daily transactions onto Form 13941, Postage Weekly Summary Report, and transmit Form 13941 to BFC no more than three days after the end of each week.
Postage Meter Resets - The mail program Local Point of Contact (LPOC) follows the refill/resetting procedures as required by the postage meter manufacturer and records the agency cost code on all postal documents. The LPOC prepares and submits Form 10580-A, Postage Purchase/Expenditure Report, to BFC within three days of the postage transaction.
Penalty Stamped Envelopes - The mail program LPOC prepares USPS Form 17-J, Penalty Mail Printer Stamped Envelope Order, and submits it to the USPS Stamped Envelope Unit. Within three days of the postage transaction, the LPOC must prepare and submit Form 10580-A, Postage Purchase/Expenditure Report, to BFC. The LPOC submits and maintains a copy of the Form 10580-A and USPS Form 17-J for record keeping purposes.
Penalty Business Reply Mail (BRM) - W&I Strategy and Finance reports postage expense for penalty BRM to BFC monthly. Individual field offices are not required to track and/or report BRM volumes and/or costs.
Penalty Permit Imprint - The mail program LPOC forwards a copy of the acceptance of postage statement and Form 10580-A, Postage Purchase/Expenditure Report, within three days of the postage transaction. The LPOC maintains a copy of Form 10580-A and USPS Form 17-J for record keeping purposes.
USPS Express Mail - The mail program LPOC reports USPS Express Mail Labels charged to IRS Federal Agency Code 218 using Form 10580-A, Postage Purchase/Expenditure Report, within three days of the postal transactions to BFC. The LPOC maintains a copy of the supporting documents.
Credits for Spoiled Postage - The mail program LPOC prepares and submits Form 10580-A, Postage Purchase/Expenditure Report, with the check and certified copy of USPS Form 3533, Application and Voucher for Refund of Postage, Fees, and Services, to BFC within three days of receipt of the check. The LPOC maintains a copy of the supporting documents for audit purposes.
The USPS provides W&I/CARE/M&P/MMPO a record of the IRS postage expenditures reported through the USPS Official Mail Accounting System (OMAS).
The Office of Financial Management Systems downloads the USPS OMAS report from W&I/CARE/M&P/MMPO and formats it in Excel. The Office of Financial Management Systems sends the formatted report to W&I/Strategy and Finance Office.
Reconciliation of the USPS expenditure report and the transactions in IFS is a joint responsibility of the CFO/FM, W&I Strategy and Finance, and W&I/CARE/M&P/MMPO.
Throughout the fiscal year, BFC posts certified actual expenses in IFS.
After year-end close, W&I Strategy and Finance determines the final postage costs to be expensed for the prior fiscal year which results in an adjustment to the postage advance balance, related obligation(s) balance(s) and actual expenses recorded against the prior fiscal year funds. After BFC receives the final expense certification from W&I Strategy and Finance, BFC posts the entries into IFS and closes advances and obligations. For more information, see IRM 1.35.15, Annual Close Guidelines.