B-115390, MAY 28, 1959

B-115390, MAY 28, 1959

SUBJECT: APPROVAL OF AGENCY ACCOUNTING SYSTEMS BY THE COMPTROLLER GENERAL

TO THE HEADS OF DEPARTMENTS AND AGENCIES:

PURPOSE

EACH EXECUTIVE AGENCY IS REQUIRED TO ESTABLISH AND MAINTAIN SYSTEMS OF ACCOUNTING AND INTERNAL CONTROL COVERING ITS ACTIVITIES ON THE BASES PROVIDED IN SECTION 113 OF THE BUDGET AND ACCOUNTING PROCEDURES ACT OF 1950, AS AMENDED BY SECTION 2(B) OF PUBLIC LAW 863, 84TH CONGRESS. SECTION 112(B) OF THE 1950 ACT REQUIRES THAT SUCH AGENCY ACCOUNTING SYSTEMS, AND THE CENTRAL ACCOUNTING SYSTEM MAINTAINED BY THE TREASURY DEPARTMENT, SHALL 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. THIS MEMORANDUM CONTAINS GUIDELINES FOR THE SUBMISSION OF REQUESTS FOR APPROVAL OF SUCH ACCOUNTING SYSTEMS.

ACCOUNTING SYSTEMS

AN ACCOUNTING SYSTEM COMPRISES THE RECORDS, REPORTS, AND RELATED PROCEDURES USED TO PROVIDE ACCOUNTING CONTROL OVER COSTS, INCOME, EXPENDITURES, PROPERTY AND OTHER ASSETS, LIABILITIES, AND CASH RECEIPTS AND DISBURSEMENTS, APPORTIONMENTS, ALLOTMENTS AND OBLIGATIONS. THE ACCOUNTING SYSTEM SHOULD BE CLEARLY OUTLINED IN A MANUAL OR IN WRITTEN INSTRUCTIONS FOR THE GUIDANCE OF THE PERSONNEL AND SUBORDINATE ORGANIZATIONS WHO PARTICIPATE IN ITS MAINTENANCE.

APPROPRIATE INTERNAL AUDIT OF ACCOUNTING RECORDS AND FINANCIAL TRANSACTIONS SHOULD BE PROVIDED FOR AS PART OF AN AGENCY'S TOTAL SYSTEM OF INTERNAL CONTROL. HOWEVER, THE REQUIREMENTS OF THIS LETTER DO NOT EXTEND TO INTERNAL AUDIT AND OTHER INTERNAL REVIEW SYSTEMS AS SUCH WHICH ARE SUBJECT TO REVIEW AS A PART OF THE AUDIT PROCESSES OF THE GENERAL ACCOUNTING OFFICE.

REQUESTS FOR APPROVAL OF ACCOUNTING SYSTEMS

EACH EXECUTIVE AGENCY, EXCEPT CORPORATIONS OR AGENCIES SUBJECT TO THE GOVERNMENT CORPORATION CONTROL ACT, IS REQUIRED TO SUBMIT FORMAL REQUESTS TO THE COMPTROLLER GENERAL FOR APPROVAL OF ITS ACCOUNTING SYSTEM. SUCH REQUESTS SHOULD BE SUBMITTED WHEN THE AGENCY DETERMINES THAT ITS ACCOUNTING SYSTEM, OR THE SEGMENT ON WHICH APPROVAL IS REQUESTED, CONFORMS TO THE PRINCIPLES, STANDARDS, AND RELATED REQUIREMENTS FOR ACCOUNTING PRESCRIBED BY THE COMPTROLLER GENERAL AS SET FORTH IN TITLE 2 OF THE GENERAL ACCOUNTING OFFICE POLICY AND PROCEDURES MANUAL FOR GUIDANCE OF FEDERAL AGENCIES. FORMAL APPROVAL WILL BE GRANTED AFTER THE SYSTEM HAS BEEN REVIEWED AND DETERMINED TO BE CONSISTENT WITH THESE PRINCIPLES, STANDARDS, AND RELATED REQUIREMENTS.

TO THE EXTENT PRACTICABLE, AGENCIES SHOULD DEVELOP A BASIC ACCOUNTING PLAN BEFORE UNDERTAKING MAJOR SYSTEMS DEVELOPMENT WORK. THESE PLANS CAN SERVE AS THE FRAMEWORK FOR SUBSEQUENT DEVELOPMENT OF SPECIFIC SEGMENTS OF THE OVERALL ACCOUNTING SYSTEM. REQUESTS FOR APPROVAL BY THE COMPTROLLER GENERAL OF THE ENTIRE ACCOUNTING SYSTEM OF A DEPARTMENT, AGENCY, BUREAU, SERVICE, OR OTHER MAJOR ORGANIZATIONAL ENTITY ARE PREFERABLE. HOWEVER, REQUESTS FOR APPROVAL OF SPECIFIC SEGMENTS OF A SYSTEM, SUCH AS PROPERTY ACCOUNTING, PAYROLL ACCOUNTING, OR ACCOUNTING FOR OPERATIONS FINANCED PRIMARILY BY REVOLVING FUNDS, WILL BE CONSIDERED. WHEN THE REQUEST COVERS LESS THAN A COMPLETE ACCOUNTING SYSTEM, THE SEGMENT SUBMITTED WILL BE EXAMINED FOR PRELIMINARY APPROVAL. FINAL REVIEW AND APPROVAL WILL BE WITHHELD UNTIL THE ENTIRE ACCOUNTING SYSTEM IS REVIEWED FOR APPROVAL AT A LATER DATE.

AN ACCOUNTING SYSTEM NEED NOT BE IN COMPLETE OPERATION BEFORE REQUESTING APPROVAL. HOWEVER, IT SHOULD BE ADEQUATELY TESTED OR BE IN REGULAR USE TO THE EXTENT NECESSARY TO DEMONSTRATE ITS EFFECTIVENESS.

MATERIAL TO BE SUBMITTED

NO RIGID REQUIREMENTS ARE BEING PRESCRIBED AS TO THE QUANTITY AND TYPE OF MATERIAL TO BE SUBMITTED WITH A REQUEST FOR APPROVAL OF AN ACCOUNTING SYSTEM. IN EACH CASE, THE REVIEW AND APPROVAL PROCESS WILL BE FACILITATED IF THE SYSTEM AND THE MATERIAL TO BE SUBMITTED TO THE COMPTROLLER GENERAL ARE DISCUSSED BY THE AGENCY WITH GENERAL ACCOUNTING OFFICE REPRESENTATIVES BEFORE A FORMAL REQUEST FOR APPROVAL IS SUBMITTED.

ALL REQUESTS FOR APPROVAL SHOULD BE ACCOMPANIED BY A BRIEF DESCRIPTIVE SUMMARY OF THE ACCOUNTING SYSTEM. SUCH SUMMARY SHOULD INCLUDE STATEMENTS AS TO HOW THE ACCOUNTING IS COORDINATED WITH THE PROGRAMMING, BUDGETING, AND FINANCIAL REPORTING IN THE AGENCY AND HOW THE SYSTEM PROVIDES:

1. FULL DISCLOSURE OF THE FINANCIAL RESULTS OF THE ACTIVITIES COVERED BY THE SYSTEM.

2. ADEQUATE FINANCIAL INFORMATION NEEDED FOR THE AGENCY'S MANAGEMENT PURPOSES.

3. EFFECTIVE CONTROL OVER AND ACCOUNTABILITY FOR ALL FUNDS, PROPERTY, OTHER ASSETS, AND LIABILITIES FOR WHICH THE AGENCY IS RESPONSIBLE.

4. RELIABLE ACCOUNTING RESULTS TO SERVE AS THE BASIS FOR PREPARATION AND SUPPORT OF THE AGENCY'S BUDGET REQUESTS, FOR CONTROLLING THE EXECUTION OF ITS BUDGET, AND FOR PROVIDING FINANCIAL INFORMATION REQUIRED BY THE BUREAU OF THE BUDGET.

5. SUITABLE INTEGRATION OF THE ACCOUNTING OF THE AGENCY WITH THE CENTRAL ACCOUNTING AND REPORTING RESPONSIBILITIES OF THE SECRETARY OF THE TREASURY.

SIGNIFICANT DEVIATIONS FROM PRESCRIBED PRINCIPLES, STANDARDS, AND RELATED REQUIREMENTS FOR ACCOUNTING SHOULD BE FULLY EXPLAINED.

IN SOME CASES, THE SUBMISSION OF A LETTER TO THE COMPTROLLER GENERAL ACCOMPANIED BY A DESCRIPTIVE SUMMARY OF THE SYSTEM AND A COPY OF THE ACCOUNTING MANUAL WILL BE SUFFICIENT. IN OTHER CASES THIS PROCEDURE WOULD NOT BE FEASIBLE, PARTICULARLY IN LARGE ORGANIZATIONS ENGAGED IN VARIED AND COMPLEX OPERATIONS WHERE THE PERTINENT PROCEDURES RELATING TO THE ACCOUNTING SYSTEM ARE INCLUDED IN SEVERAL SEPARATE MANUALS OR IN A SET OF REGULATIONS OR OTHER OFFICIAL DOCUMENTS. UNDER THESE CIRCUMSTANCES, IT WILL BE SATISFACTORY TO MAKE REFERENCE IN THE DESCRIPTIVE SUMMARY TO THE PERTINENT MANUALS AND PROCEDURES. ARRANGEMENTS WILL BE MADE BY GENERAL ACCOUNTING OFFICE REPRESENTATIVES TO REVIEW SUCH MATERIAL AT THE AGENCY SITE.

CHANGES IN APPROVED ACCOUNTING SYSTEMS

APPROVAL OF AN ACCOUNTING SYSTEM BY THE COMPTROLLER GENERAL DENOTES THAT THE SYSTEM SHOULD, IF PROPERLY MAINTAINED, PRODUCE ADEQUATE ACCOUNTING RESULTS CONSISTENT WITH THE ACCOUNTING PRINCIPLES, STANDARDS, AND RELATED REQUIREMENTS PRESCRIBED BY THE COMPTROLLER GENERAL. SUCH APPROVAL, HOWEVER, IS NOT INTENDED TO SIGNIFY THAT THE SYSTEM MUST REMAIN UNCHANGED IN ALL RESPECTS. CONTINUING EFFORTS SHOULD BE DEVOTED BY EACH AGENCY TO THE DEVELOPMENT OF IMPROVEMENTS AND THE INSTITUTION OF NECESSARY CHANGES TO KEEP THE SYSTEM ADAPTED TO THE NEEDS OF THE MANAGEMENT, THE BUREAU OF THE BUDGET, THE TREASURY, AND THE CONGRESS.

CHANGES OR MODIFICATIONS IN AN ACCOUNTING SYSTEM MAY BE MADE WITHOUT FORMAL APPROVAL OF THE COMPTROLLER GENERAL, PROVIDED THE BASIC ACCOUNTING PRINCIPLES AND STANDARDS UNDERLYING THE SYSTEM ARE NOT CHANGED. CHANGES WHICH AFFECT THE BASIC PRINCIPLES OR STANDARDS WILL REQUIRE APPROVAL. FOR EXAMPLE, CHANGES IN PROCEDURES INTENDED TO BRING ABOUT GREATER EFFECTIVENESS OR INCREASED ECONOMY IN THE MECHANICS OF THE SYSTEM, BUT WHICH DO NOT CHANGE THE ACCOUNTING BASIS OR THE END PRODUCT OF AN ACCOUNTING OPERATION, NEED NOT BE SUBMITTED FOR APPROVAL. HOWEVER, CHANGES IN THE BASIS ON WHICH ACCOUNTING DATA IS ACCUMULATED OR OTHER REVISIONS THAT WILL RESULT IN SIGNIFICANT DIFFERENCES IN THE NUMBER OR CONTENT OF ACCOUNTS, OR SIGNIFICANTLY AFFECT THE AUDIT OF THE ACCOUNTS, SHOULD BE SUBMITTED FOR APPROVAL. SUCH CHANGES SHOULD BE DISCUSSED WITH REPRESENTATIVES OF THE GENERAL ACCOUNTING OFFICE BEFORE BEING SUBMITTED FOR APPROVAL.

REVIEW OF ACCOUNTING SYSTEMS

AS A PART OF ITS AUDIT RESPONSIBILITIES, THE GENERAL ACCOUNTING OFFICE WILL REVIEW THE ACCOUNTING SYSTEMS OF ALL EXECUTIVE AGENCIES FROM TIME TO TIME. THE OBJECTIVE OF SUCH REVIEWS WILL BE TO DETERMINE WHETHER THE AGENCY ACCOUNTING SYSTEMS ARE FULFILLING, IN AN EFFICIENT, ECONOMICAL, AND EFFECTIVE MANNER, THE INTENDED PURPOSES OF PROVIDING FULL DISCLOSURE OF THE RESULTS OF FINANCIAL OPERATIONS, ADEQUATE FINANCIAL INFORMATION FOR THE MANAGEMENT OF OPERATIONS AND THE BUDGET, AND EFFECTIVE CONTROL OVER INCOME, EXPENDITURES, COSTS, FUNDS, PROPERTY, AND OTHER ASSETS.

REPORTS ON THE RESULTS OF SUCH REVIEWS WILL BE SUBMITTED TO THE HEADS OF THE AGENCIES CONCERNED, THE SECRETARY OF THE TREASURY, THE DIRECTOR OF THE BUREAU OF THE BUDGET, AND, AS DEEMED PROPER, TO THE CONGRESS.