B-114365, JUL 24, 1968

B-114365, JUL 24, 1968

SUBJECT: THREE-STAGE PROCEDURE FOR DEVELOPMENT AND APPROVAL OF ACCOUNTING SYSTEMS

TO HEADS OF DEPARTMENTS AND AGENCIES:

TO PROVIDE FURTHER FLEXIBILITY IN THE DEVELOPMENT AND APPROVAL OF FEDERAL AGENCY ACCOUNTING SYSTEMS AND A BASIS FOR REPORTING MORE CURRENT PROGRESS ON THIS WORK, WE ARE AMENDING OUR INSTRUCTIONS TO PROVIDE FOR THE DEVELOPMENT AND APPROVAL OF AGENCY ACCOUNTING SYSTEMS IN THREE STAGES:

1. PRINCIPLES AND STANDARDS OF ACCOUNTING TO BE FOLLOWED (A MANDATORY STAGE).

2. DESIGN OF THE ACCOUNTING SYSTEM.

3. THE ACCOUNTING SYSTEM IN OPERATION.

AN ADVANCE COPY OF THE REVISED PERTINENT SECTIONS OF CHAPTER 3 OF TITLE 2 - ACCOUNTING - OF THE GAO MANUAL IS ATTACHED.

CHAPTER 3 - REVIEW AND APPROVAL OF AGENCY ACCOUNTING SYSTEMS

SECTION 25 - RESPONSIBILITY OF AGENCY HEADS FOR ACCOUNTING SYSTEMS

THE BUDGET AND ACCOUNTING PROCEDURES ACT OF 1950, IN SECTION 113, SPECIFIES THAT THE HEAD OF EACH EXECUTIVE AGENCY IS RESPONSIBLE FOR ESTABLISHING AND MAINTAINING SYSTEMS OF ACCOUNTING AND INTERNAL CONTROL WHICH CONFORM TO THE PRINCIPLES, STANDARDS, AND RELATED REQUIREMENTS PRESCRIBED BY THE COMPTROLLER GENERAL OF THE UNITED STATES.

SECTION 26 - REQUIREMENT FOR APPROVAL

SECTION 112(B) OF THE BUDGET AND ACCOUNTING PROCEDURES ACT OF 1950 REQUIRES THAT EXECUTIVE AGENCY ACCOUNTING SYSTEMS, AND THE CENTRAL ACCOUNTING SYSTEM OF THE TREASURY DEPARTMENT, BE APPROVED BY THE COMPTROLLER GENERAL WHEN DEEMED BY HIM TO BE ADEQUATE AND IN CONFORMITY WITH THE PRINCIPLES, STANDARDS, AND RELATED REQUIREMENTS PRESCRIBED BY HIM.

THE ACCOUNTING SYSTEMS OF ALL EXECUTIVE AGENCIES ARE SUBJECT TO APPROVAL BY THE COMPTROLLER GENERAL EXCEPT THOSE OF CORPORATIONS OR AGENCIES UNDER THE GOVERNMENT CORPORATION CONTROL ACT (59 STAT. 597) AND SIMILAR LAWS.

SECTION 27 - IMPROVEMENT OF ACCOUNTING SYSTEMS

27.1 NEED FOR OVERALL PLAN

AS AN INTEGRAL PART OF ITS TOTAL FINANCIAL MANAGEMENT SYSTEM, EACH AGENCY MUST DEVISE AN ACCOUNTING SYSTEM WHICH CONFORMS, IN ALL MATERIAL RESPECTS, WITH PRESCRIBED PRINCIPLES, STANDARDS, AND RELATED REQUIREMENTS.

EACH AGENCY SHOULD DEVELOP AN OVERALL PLAN FOR A FINANCIAL MANAGEMENT SYSTEM WHICH WILL SATISFY THE REQUIREMENTS OF ITS MANAGEMENT, APPLICABLE LAWS AND REGULATIONS, AND THE ACCOUNTING PRINCIPLES AND STANDARDS PRESCRIBED BY THE COMPTROLLER GENERAL. SUCH A PLAN, WHICH SHOULD BE DEVISED BEFORE UNDERTAKING MAJOR SYSTEMS DEVELOPMENT WORK, CAN SERVE AS THE FRAMEWORK FOR THE SUBSEQUENT DEVELOPMENT OF SPECIFIC PARTS OF THE SYSTEM.

IT IS IMPORTANT THAT ALL FINANCIAL MANAGEMENT IMPROVEMENT PROJECTS BE DEVELOPED WITHIN THE CONCEPTS AND OBJECTIVES OF THE OVERALL PLAN SO AS TO ASSURE ADHERENCE TO ESTABLISHED OBJECTIVES AND COMPATIBILITY OF RESULTS AND TO PREVENT EXTENSIVE REVISIONS TO POLICIES AND PROCEDURES WHICH ARE LIKELY TO RESULT WHEN INDIVIDUAL PROJECTS ARE PURSUED INDEPENDENTLY OF AN OVERALL PLAN.

THE HEAD OF EACH EXECUTIVE AGENCY IS RESPONSIBLE FOR BRINGING ABOUT THE NECESSARY IMPROVEMENTS IN THE ACCOUNTING SYSTEMS WITHIN HIS AGENCY SO THAT THEY MAY BE APPROVED.

27.2 GENERAL ACCOUNTING OFFICE ASSISTANCE

REPRESENTATIVES OF THE GENERAL ACCOUNTING OFFICE WILL COOPERATE WITH THE AGENCIES IN THE DEVELOPMENT OF THEIR ACCOUNTING SYSTEMS. SUCH COOPERATIVE ASSISTANCE WILL INCLUDE DISCUSSING PROBLEM AREAS AND WORKING WITH AGENCY STAFFS IN THEIR SOLUTION, REVIEWING ADVANCE DRAFTS OF POLICIES AND PROCEDURAL INSTRUCTIONS, PROVIDING TECHNICAL ADVICE AND SUGGESTIONS AS APPROPRIATE, AND IDENTIFYING SPECIFIC AREAS IN WHICH IMPROVEMENTS ARE BELIEVED TO BE NEEDED.

27.3 STAGES OF SYSTEMS DEVELOPMENT

ACCOUNTING SYSTEMS MAY BE DEVELOPED AND COMPTROLLER GENERAL APPROVAL REQUESTED IN THREE STAGES:

1. THE FIRST STAGE, WHICH IS MANDATORY, WOULD APPLY TO THE PRINCIPLES AND STANDARDS OF ACCOUNTING TO BE FOLLOWED. PRIORITY SHOULD BE GIVEN TO THE DEVELOPMENT OF THIS PHASE OF EACH SYSTEM AND OBTAINING COMPTROLLER GENERAL APPROVAL THEREOF.

2. THE SECOND STAGE WOULD APPLY TO THE DESIGN OF THE ACCOUNTING SYSTEM.

3. THE THIRD STAGE WOULD APPLY TO THE ACCOUNTING SYSTEM IN OPERATION.

THE SPECIFIC PATTERN OF DEVELOPMENT AND APPROVAL TO BE FOLLOWED IN EACH AGENCY SHOULD BE WORKED OUT WITH THE GAO SITE STAFF. ARRANGEMENTS MAY BE MADE IN INDIVIDUAL CASES TO REQUEST APPROVAL CONSIDERATION IN ADDITIONAL STAGES WHERE DEEMED APPROPRIATE.

27.4 STATEMENTS OF ACCOUNTING PRINCIPLES AND STANDARDS

STATEMENTS SETTING FORTH THE ACCOUNTING PRINCIPLES AND STANDARDS TO BE APPLIED MAY BE FOR AN ENTIRE DEPARTMENT OR AGENCY, FOR INDIVIDUAL SYSTEMS WITHIN A DEPARTMENT OR AGENCY, OR FOR APPROPRIATE GROUPINGS OF INDIVIDUAL SYSTEMS.

SUCH STATEMENTS SHOULD BE CONSISTENT WITH THE PRINCIPLES AND STANDARDS SET FORTH IN CHAPTER 2 OF THIS TITLE WHICH ARE APPLICABLE BROADLY TO ALL EXECUTIVE AGENCIES. HOWEVER, IN EACH CASE THEY MUST BE AS DEFINITIVE AND SPECIFIC AS POSSIBLE FOR APPLICATION IN THE INDIVIDUAL AGENCY CONCERNED. GUIDES THAT PROVIDE FOR ACCOUNTING RECOGNITION OF FINANCIAL EVENTS ONLY "IF NEEDED," "IF CONSIDERED SIGNIFICANT," OR "IF USEFUL TO MANAGEMENT" SHOULD BE AVOIDED AS BEING TOO VAGUE AND INDECISIVE TO BE USEFUL.

27.5 SYSTEMS DESIGN

THE DESIGN OF AN ACCOUNTING SYSTEM SHOULD INCLUDE A LISTING OF THE GENERAL LEDGER ACCOUNTS BY NUMBER AND TITLE, A CLEAR DEFINITION OF EACH ACCOUNT, A LISTING OR AN OUTLINE OF THE SUBSIDIARY ACCOUNTS TO BE MAINTAINED AND A SUMMARY OF THE CLASSIFICATION CODING TO BE USED. THE DESIGN SHOULD ALSO INCLUDE DESCRIPTIONS OF:

THE ACCOUNTING RECORDS TO BE MAINTAINED AND THE PRINCIPAL ACCOUNTING PROCESSES (BY FLOW CHART OR OTHERWISE);

INTERNAL CONTROLS TO BE APPLIED TO FINANCIAL, MANPOWER, AND PROPERTY RESOURCES;

RELATIONSHIP OF THE ACCOUNTING SYSTEM TO ORGANIZATION, PROGRAM, AND BUDGET STRUCTURE;

PLANNED USE OF ELECTRONIC COMPUTERS AND OTHER EQUIPMENT;

ORGANIZATION LEVELS OR LOCATIONS AT WHICH ACCOUNTS WOULD BE MAINTAINED;

EXTENT AND NATURE OF COST ACCOUNTING TO SUPPORT COST-BASED BUDGETS AND THE PROGRAM STRUCTURE UNDER PPBS;

METHODS OF ACCRUAL OF REVENUES, EXPENDITURES, AND COSTS;

TYPES AND FREQUENCY OF REPORTS TO MAKE THE SYSTEM RESPONSIVE TO THE NEEDS OF MANAGEMENT;

ANY OTHER MAJOR ASPECTS NECESSARY TO AN UNDERSTANDING OF THE DESIGN OF THE SYSTEM.

DETAILED OPERATING PROCEDURES AND INSTRUCTIONS FOR USE OF EMPLOYEES IN MAINTAINING THE SYSTEM ARE NOT REQUIRED AT THIS STAGE. ALTHOUGH A FULLY DEVELOPED MANUAL IS NOT REQUIRED WHEN APPROVAL OF THE SYSTEM DESIGN IS REQUESTED, IF SUCH A MANUAL HAS BEEN PREPARED AND INCLUDES THE REQUIRED DESIGN INFORMATION, IT WILL BE ACCEPTABLE.