Department Of Defense Agency Financial Report 2007 - Section 2: Financial Information Page 27
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82Section 2: Financial Information
Department of Defense Agency Financial Report 2007
from nonfinancial feeder systems, and accruals made for major items such as payroll expenses, accounts payable, and
environmental liabilities.
In addition, the Department identifies program costs based upon the major appropriation groups provided by the Congress.
Current processes and systems do not capture and report accumulated costs for major programs based upon the performance
measures as required by the Government Performance and Results Act. The Department is working toward a cost reporting
methodology that will satisfy the requirement for cost information as mandated in the Statement of Federal Financial
Accounting Standards (SFFAS) No. 4, “Managerial Cost Accounting Concepts and Standards for the Federal Government.”
1.E. Revenues and Other Financing Sources
The Department receives congressional appropriations as financing sources for general funds that expire annually, on a
multiyear basis, or do not expire. When authorized by legislation, these appropriations are supplemented by revenues
generated by sales of goods or services. The Department recognizes revenue as a result of costs incurred for goods and
services provided to other federal agencies and the public. Full-cost pricing is the Department’s standard policy for services
provided as required by OMB Circular A-25, “User Charges.” The Department recognizes revenue when earned within the
constraints of current system capabilities. In some instances, revenue is recognized when bills are issued.
Depot Maintenance and Ordnance WCF activities recognize revenue according to the percentage of completion method.
Supply Management WCF activities recognize revenue from the sale of inventory items.
The Department does not include nonmonetary support provided by U.S. allies for common defense and mutual security in
amounts reported in the Statement of Net Cost and Note 21, “Reconciliation of Net Cost of Operations to Budget.” The U.S.
has cost sharing agreements with other countries. Examples include countries where there is a mutual or reciprocal defense
agreement, where U.S. troops are stationed, or where the U.S. Fleet is in a port.
1.F. Recognition of Expenses
For financial reporting purposes, the Department’s policy requires the recognition of operating expenses in the period
incurred. However, because the Department’s financial and nonfinancial feeder systems were not designed to collect
and record financial information on the full accrual accounting basis, estimates are made for major items such as payroll
expenses, accounts payable, and environmental liabilities. In addition, expenditures for capital and other long-term assets
are recognized as operating expenses. Expenses for operating materials and supplies are currently recognized when the items
are purchased.
1.G. Accounting for Intragovernmental Transactions
Preparation of reliable financial statements requires the elimination of transactions occurring among entities within
the Department or between two or more federal agencies. However, the Department cannot accurately eliminate
intragovernmental transactions by customer because the Department’s systems do not track buyer and seller data at the
transaction level. Generally, seller entities within the Department provide summary seller-side balances for revenue,
accounts receivable, and unearned revenue to the buyer-side internal Department accounting offices. In most cases,
the buyer-side records are adjusted to agree with the Department’s seller-side balances. Intra-Department governmental
balances are then eliminated. The volume of intragovernmental transactions is so large that after-the-fact reconciliations
cannot be accomplished effectively. The Department is developing long-term system improvements to ensure accurate
intragovernmental information, to include sufficient up-front edits and controls, eliminating the need for after-the-fact
reconciliations.
The U.S. Treasury Financial Management Service is responsible for eliminating transactions between the Department and
other federal agencies. The U.S. Treasury’s “Federal Intragovernmental Transactions Accounting Policies Guide” and
Treasury Financial Manual Part 2 – Chapter 4700, “Agency Reporting Requirements for the Financial Report of the United
States Government,” provide guidance for reporting and reconciling intragovernmental balances. While the Department
is unable to fully reconcile intragovernmental transactions with all federal partners, the Department is able to reconcile
balances pertaining to investments in federal securities, borrowings from the U.S. Treasury and the Federal Financing Bank,
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