Federal Investments Seminar

1. Federal Investments Seminar ANALYSIS OF IRAS RECIPROCAL CATEGORY 01(Investment Balances)Presented By:DAN DECENA Office of Investment Fund Administration Department of the Treasury MAY 17, 2005

2. BACKGROUND • To address a material weakness cited by GAO in the Financial Report of the U.S. Government (FR), FMS has implemented an Intragovernmental Management Control Plan beginning with the 2Q FY 04. • FMS developed this plan “to sufficiently identify and track intragovernmental material differences reported to FMS by the Federal Program Agencies (FPAs)”.

3. Background (continued) • One of major elements of the plan is defining roles and responsibilities of FMS and the FPA’s Office of CFO. • FMS groups quarterly intragovernmental data submissions by reporting agency/trading partner and reciprocal category/line item. • IRAS, an analytical database solution was developed by FMS’s Financial Reporting Division to serve as the central reporting mechanism.

4. Objectives and Methodology • The Office of Investment Fund Administration was tasked by Treasury’s Fiscal Assistant Secretary: • to coordinate the analysis of the quarterly trading partner differences with respect to RC 01 and • to develop a procedure of how differences in other 15 RC can be analyzed by Treasury and the FPAs. • The scope of the analysis was to identify, reconcile, explain and adjust differences between Treasury and the FPAs for differences over $500 million, beginning with 2Q FY 04 through the latest available quarter, 2Q FY 05.

5. Resources Utilized • Fiscal’s Office of Investment Fund Administration; • FMS’s Financial Reporting Division (Intragovernmental Analysis and Policy Team); • BPD’s Office of Public Debt Accounting (Federal Investments Branch); • FPA’s Office of CFO.

6. Analysis and Findings(2Q FY 04) • Six (6) FPA’s had differences of $500 million or more; • Three (3) FPA’s had reporting errors (e.g., failure to report, input error and incorrect partner coding); • Initially, an error in the IRAS program in the calculation of investment discounts was detected but was subsequently corrected; • FMS generated an “Intragovernmental Activity Report” for the six FPA’s, which shows the description and amount of each USSGL accounts submitted by both BPD and the FPA’s. • BPD used their Confirmation Report, which provided the basis for IFCS and a report from BPD’s Financial Reports Branch that reports investments held outside of GAS.

7. Explanations and Adjustments • Confirmed Reporting – no adjustments needed; • Accounting Error – correction made in the subsequent quarter; • Accounting Methodology Difference – accounting methodology differences between the FPA and BPD related to accounting for premiums, discounts, amortizations and “market adjustments”; • Timing Difference – FPA identifies a timing difference that was submitted in a prior period or that it will report in a future period. • Unknown – FPA cannot support quarterly reporting or obtain details for its quarterly reporting. • Differences Due to Rounding

8. Issues That Need to Be Resolved • Accounting for Premiums and Discounts (Effective Interest, Level Yield, Straight Line, Etc.) • Zero Coupon Bonds Amortization Methodology (Effective Interest vs. Mark-to-Market) • Deposit Funds • Timing Differences • Alleviating Accounting/Coding Errors

9. How To Resolve the Issues • The CFO Council’s Financial Acceleration Committee established a Subcommittee on Investments/Borrowing/Federal Credit Reform. This Subcommittee will address these issues. • The first meeting of this Subcommittee was held on May 10, 2005. • The Subcommittee is chaired by Bill Fleming, Office of CFO, Department of Education and includes representatives from Treasury, BPD, FMS and the Program Agencies.