Government Financial Operations: Accounting & Reporting

Instructor: Amina Borrero

Amina has a Master's in Business Administration

In this lesson we will look at the requirements for government agencies in their accounting procedures, specifically accounting principles and oversight, fund accounting, and financial reporting.

Government Operations

One of the largest sectors of employment in the United States is the government. Government workers account for roughly 16% of all workers in the country. That's an impressive figure. One in six individuals works for the government at some level, be it federal, state, or local. This makes it an important part of our economy, but the government does not function like a typical business or corporation. Many government agencies do not generate revenue on their own, but are funded by tax dollars. Because of this, government accounting functions differently than in the private sector.

Accounting Principles and Regulations

Government agencies serve as stewards of taxpayer money, using the money to provide valuable services and goods to the public. Because of this, there is a need for both uniformity and transparency in the way in which financial data is reported. In order to establish uniformity in their accounting processes, government agencies follow what is referred to as generally accepted accounting principles or GAAP. These principles serve as the basis for the rules and regulations that establish uniform accounting procedures in government. By having a uniform method with which to report financial data, government agencies are able to show that they are functioning as good stewards of taxpayer dollars.

The Government Accounting Standards Board, or GASB, is an independent, non-political entity that helps governments report their finances in a transparent manner by establishing and providing oversight for GAAP. The Government Accounting Standards Advisory Council, or GASAC, informs the Board on issues, projects, and procedures that need the Board's direction. GASB also consults with other groups and task forces in order to ensure the public interest is well-represented in developing GAAP procedures.

Fund Accounting

Among the basic principles of governmental GAAP is fund accounting. This is the most common form of government accounting in the United States. It is used at the federal, state, and local level. Governmental operations by nature are diverse and there are numerous legal and fiscal constraints under which those operations must be conducted. This makes it impossible to record all governmental financial transactions and balances within a single accounting entity. Therefore, unlike the private sector where most transactions are accounted for within a single entity, a governmental unit is accounted for through separate funds, each of which is a fiscal and accounting entity with a self-balancing set of accounts. Per GAAP, there are three generic categories of funds: governmental funds, proprietary funds, and fiduciary funds.

  • Government funds are associated with funding received from legislative sources, such as tax revenue or appropriations. These are the most typical of funds that government agencies receive.
  • Proprietary funds are those funds which the agency collects itself through services or usage fees. Examples of these funds include monies received from licensing fees, usage fees, or utility fees.
  • Examples of fiduciary funds are pensions and retirement investments.

Financial reporting

It is important for government agencies to be able to accurately report their finances. Not just because it is a good business practice, but as we mentioned before, as stewards of taxpayer money, government agencies need to ensure the public knows that the money is being spent correctly. In order to do this, government agencies must first determine how to record financial transactions. Determining how financial transactions are to be reported is based on two separate criteria: measurement focus and basis for accounting.

Measurement focus is concerned with what financial transactions will be recognized in the accounting records and reported in the financial statements. While there are a number of measurement focuses, the following two are fundamental to current governmental accounting principles:

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