Federal Budgeting and Accounting
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What roles do accountants play in managing government and not-for-profit organizations? According to Granof, “conventional, business-type management accounting focuses mainly on maximizing net inflow of cash. The aims of governments and not-for-profit organizations, of course, go well beyond maximizing cash flow” (Granof, 2013). Accountants in government and not-for-profit organizations can play several roles in the fiscal management of that organization. There are four roles in the management cycle of governments and not-for-profits, team of statisticians, economists, other social scientist and accountants, policy makers: congress, chief executives; audit team of accountants, along with statisticians, economists and experts in specific areas; and government agencies.
The objectives of the first role of the cycle, Statisticians, economists, other social scientist and accountants, is to identify the need for programs, collect and analyze budgetary and other financial information, and perform a cost-benefit analysis. The objective for the second role, policy makers, is to selective among alternative programs and establish policies and goals. The objectives of role three are to evaluate the efficiency and effectiveness of programs and report to policy makers. The objectives for the forth and final role are to administer the programs and prepare financial statements and other reports. Once these objectives have been met the cycle repeats itself to ensure the success of the programs. How are government and not-for-profit organizations audited?
Government audits are categorized into three categories: financial audits, attestation engagements and performance audits. Financial audits are used to determine if the financial statements of a specific entity are presented fairly in accordance with GAAP. These audits can also be used to determine whether entities are complying with laws and regulations, provide special reports on select accounts or items in a financial statement, issue letters for underwriters, and review interim financial data.
According to Granof, “attestation engagements cover a broader scope of engagements than financial audits” (Granof, 2013). Attestation engagements examine, review, and/or preform agreed-upon procedures as to various types of subject matters or management assertions. The may include the following: An entity’s internal accounting or administrative controls Compliance with rules, regulations, or terms of contracts
Prospective or pro forma financial statements
Costs of contracts
Reliability of performance measures
Performance audits are done to achieve several objectives:
Measuring the extent to which a program is achieving its goals and objectives and determining whether the entity is using its resources in the most effective and economical manner Determining whether an organization’s internal controls are effective in relation to management’s goals and objectives Verifying that the organization is complying with the terms of laws, grants, and contracts in that its programs are serving the appropriate population and delivering the intended services Providing guidance as to how the organization can improve in the future; that is, providing information on ‘‘best practices,’’ analyzing alternatives to existing programs, and assessing budgeting Describe the Single-Audit Act and how it impacts government financial reporting and accounting
The Single Audit Act was enacted to give legislative sanction to the directive that was issued in 1979, calling for organization-wide single audits to be performed by CPAs or other independent auditors. In 1996 the Act was amended so that it would be easier to administer and is now applied to both direct and indirect recipients of federal assistance. The amendment also requires that any organizations expending more than $500,000 in federal assistance under more than one program, be held to a single audit.
Granof, M. (2013). Government and Not For Profit Accounting: Concepts and Practices, 6e. John Wiley and Sons, Inc.