Earmarked Funds (Evaluating Existing Standards)
To identify and resolve issues regarding federal reporting in compliance with Statement of Federal Financial Accounting Standards (SFFAS) 27, Identifying and Reporting Earmarked Funds.
HISTORY OF BOARD DELIBERATIONS (reverse chronology)
February 22-23, 2012 Board Meeting
At the February 2012 Board meeting, members identified several minor edits to draft Statement of Federal Financial Accounting Standards (SFFAS) 43, Funds from Dedicated Collections: Amending Statement of Federal Financial Accounting Standards 27, Identifying and Reporting Earmarked Funds.
All members of the Board voted to approve the edits and the proposed SFFAS. Next steps: the final SFFAS 43 was transmitted to the FASAB principals (the Secretary of the Treasury, The Director of the Office of Management and Budget, and the Comptroller General) for a required 90-day review period prior to issuance.
Issue Paper for February 2012 (PDF)
December 19-20, 2011 Board Meeting
The Board continued to develop a draft Statement of Federal Financial Accounting Standards. The agenda session at the December 2011 meeting resulted in the following action items:
Staff will draft language to require reporting on the face of the statement of changes in net position for certain component entities, for example when dedicated collections are the predominant source of a component entity's revenue and other financing sources.
Staff will draft a revised requirement for a reference to the earmarked funds note on the face of the statement of changes in net position for agencies that do not report on the face of the statement.
Staff will revise the document in accordance with staff recommendation to omit mention of the alternative display format in the standards, because it is already permitted under existing standards, and to retain the illustrations in the Appendix.
Staff will contact the agencies most likely to be impacted by the new standards and ask for comments on the implementation burden to implement in FY 2012 if the new standard is not issued until June 2012 or a subsequent date.
Issue Paper for December 2011 (PDF)
October 26-27, 2011 Board Meeting
At the October Board meeting, staff noted that Board decisions on the following issues will be needed in order to move forward with a preliminary draft Statement of Federal Financial Accounting Standards:
Reporting on the face of the financial statements versus option to report in the notes
Board member's suggestion to delete the option for alternative format
The discussion focused primarily on the issue of reporting on the face of the financial statements versus an option to report in the notes. Ms. Parlow asked the Board to consider permitting component entities to report earmarked funds information other than net position in the notes. She said that at one time, the Board had supported a move to note-only reporting, and that a majority of respondents to the exposure draft supported note-only reporting. She noted that a primary objective of earmarked funds reporting is to show the extent to which the rest of government has borrowed from earmarked funds. She said that the disaggregated reporting for net position on the face of the balance sheet would accomplish this. Accordingly staff recommended a compromise for component entity reporting: that net position should continue to be disaggregated on the face of the balance sheet, but that component entities should have the option to report the disaggregated amounts for earmarked funds related to the Statement of Changes in Net Position (SCNP) in the notes instead of on the face of the SCNP
As a result of the discussion at the October 2011 meeting, the Board agreed that staff should develop the following options for Board discussion:
An addition to the Basis for Conclusions (BfC) to encourage agencies with majority earmarked funding to report on the face of the SCNP
An addition to the standard providing factors for agencies to consider when deciding among alternatives for SCNP reporting on earmarked funds
A 50% rule in the standard regarding options for SCNP reporting for component entities
In addition, the Board agreed that staff should develop a draft rule that component entities should have a reference to the earmarked funds note on one or more line items of the SCNP if not reporting on the face of the SCNP. Such a rule could be combined with any of the three options above.
After the Board makes a decision regarding the options above, it will address the remaining two issues: whether to retain the option for component entities to use an alternative format (data presented parenthetically within the line item titles, rather than in separate lines or columns) and effective date
Issue Paper for October 2011
Tab E memo (PDF)
Tab E1 (PDF)
Tab E 1-1 (PDF)
August 24-25, 2011 Board Meeting
Comments on the exposure draft (ED), Revisions to Identifying and Reporting Earmarked Funds: Amending Statement of Federal Financial Accounting Standards 27, were requested by August 22, 2011. Comments received subsequent to August 22, 2011, will be accepted and will be forwarded to the Board; however, time constraints may not allow the incorporation of late comments into staff's analysis of comments received. The Board will discuss responses to the ED at the October 2011 Board meeting.
June 22-23, 2011 Board Meeting
The exposure draft (ED) entitled Revisions to Identifying and Reporting Earmarked Funds: Amending Statement of Federal Financial Accounting Standards 27 was issued on June 22, 2011. Comments are requested by August 22, 2011. A copy of the ED and a Word file of the Questions for Respondents are available on the FASAB website at: /documents-for-comment/.
Issue Paper for April 2011
Tab B1 (PDF)
April 27-28, 2011 Board Meeting
At the April meeting, the Board decided that the exposure draft (ED), Revisions to Identifying and Reporting Earmarked Funds: Amending Statement of Federal Financial Accounting Standards 27, should provide for reporting on the face of the component entity Balance Sheet and Statement of Changes in Net Position either (a) in accordance with existing reporting requirements (breakout of net position on the face of the Balance Sheet and breakout of numerous line items on the face of Statement of Changes in Net Position) or (b) amounts for earmarked funds could be displayed parenthetically for certain key line items, and all breakouts not displayed on the face of the SCNP should be provided in a note. The Board decided that the ED should include illustrative pro formas for both options.
The Board also decided that there should be an explicit requirement that the component entities' note disclosures should be in sufficient detail to support the required government-wide reporting on earmarked funds. The Board also approved edits to clarify the language of the exposure draft.
Next steps: Staff will work on finalizing the draft ED so that a ballot draft ED can be presented to the Board at or before the June 2011 meeting.
Tab J1
At the February Board meeting, the Board made the following decisions regarding a proposed exposure draft (ED) that would amend Statement of Federal Financial Accounting Standards (SFFAS) 27, Identifying and Reporting Earmarked Funds:
The ED will include an exclusion of funds that are established to account for federal (civilian and military) retirement and other post-employment benefits.
The ED will propose a new term for earmarked funds: "funds from dedicated collections."
The Board discussed whether to propose guidance on funds with mixed sources of funding, of which only some of the funding meets the criteria of earmarked funds in paragraph 11 of SFFAS 27. The members decided that unless agencies provide support for such guidance, such guidance will not be included in the ED. Staff sent a query to the agency representatives on the Earmarked Funds Task Force.
Review of Existing Standards: Earmarked Funds
At the December Board meeting, the Board approved the rationale presented in the Basis for Conclusions explaining the Board's decisions (a) to require an external source of funds, (b) to allow flexibility in the placement of information in the statements or notes, and (c) to allow combined totals in reporting earmarked funds. The Board also discussed the possibility of excluding certain categories of funds, such as federal deferred compensation funds, by revising the criteria in the definition rather than adding exclusions of paragraph 18 of SFFAS 27. FASAB staff will work with the Earmarked Funds Task Force to develop potential revisions to SFFAS 27 that would exclude (a) exchange revenue funds, (b) funds that are not intended to benefit members of the general public, and (c) deferred compensation funds. Those potential revisions will be provided to the Board for discussion at the February 2011 Board meeting.
The Board reviewed a staff proposal during its October meeting. Members supported staff proposals to (1) clarify that an external source of funding is required for a fund to be classified as earmarked, (2) eliminate the requirement to separately display information about earmarked and all other funds on the face of financial statements, and (3) permit presentation of combined or consolidated amounts so long as the amounts are properly labeled. The Board requested that staff further research options for classifying funds receiving both earmarked and other revenue as well as funds receiving exchange revenue including deferred compensation funds. The Board will consider a draft exposure draft at the December meeting.
Issue Paper for October 2010 (PDF)
At the August Board meeting, staff noted that preliminary research indicated that the predominant source of funding for earmarked funds with very large negative net position, such as civil service retirement funds, comes from general fund appropriations and not dedicated collections. Accordingly, the predominant source of funding might be a potential solution for excluding those funds from the category of earmarked funds. It was noted that OMB A-136 already provides guidance to the effect that agencies can classify funds as earmarked funds based upon the predominant source of funding, so there is already a precedent for such guidance. Staff will develop draft language for discussion at the October Board meeting. (The draft language would be part of a future exposure draft to amend Statement of Federal Financial Accounting Standards (SFFAS) 27, Identifying and Reporting Earmarked Funds.) Staff reported that the Earmarked Funds Task Force had indicated that the SFFAS 27 requirements regarding eliminations at the component agency level were extremely confusing and explained the various problems. The Board agreed that staff should develop proposed revised language for eliminations with examples for the October Board meeting. Staff reported that most of the Task Force members also strongly believed that disaggregating earmarked funds information on the face of the agency-level financial statements resulted in a presentation that is overly complex and confusing for the general public. Accordingly, the Task Force recommended placement of this information in the notes. Staff recommended and the Board agreed that there should be preparer discretion regarding placement on the face of the statements or in the notes. Staff will draft language for review at the October meeting. The Board also agreed that SFFAS 27 is insufficiently clear that the dedicated collections must come from a non-federal source. Staff will draft language to amend SFFAS 27 for review at the October meeting.
Issue Paper for August 2010 (PDF)
Over 500 funds are currently being reported as earmarked funds. In addition, some earmarked funds recognize long-term liabilities resulting in large negative net positions, a situation that detracts from the usefulness of segregating earmarked funds' net position on the face of the balance sheet.
At the April 2010 meeting, the Board briefly discussed several potential filters identified by FASAB staff and decided that staff should recruit a task force. A description of the potential filters that were identified by staff is included in the April 2010 briefing materials on Earmarked Funds at /pdffiles/tab_hearmarked.pdf.
The task force will evaluate options for filters already identified by performing field testing to provide staff with information on (a) how well various options meet the objectives of earmarked funds reporting, (b) the likely impact of various options on reporting of earmarked funds by agencies, and (c) time and effort involved in applying various options. The task force would also discuss other potential options that might be field-tested, such as a focus on (a) restricted assets rather than restricted net position (and limiting this to restricted assets that have not been offset by recognition of a long-term liability) and/ or (b) certain intragovernmental investments in Treasury securities.
To volunteer to participate on this task force, please contact Ms. Eileen Parlow.
Issue Paper for April 2010 (PDF)
There are currently over 500 funds in the U.S. Government reported as meeting the definition of earmarked funds in Statement of Federal Financial Accounting Standards (SFFAS) 27, Identifying and Reporting Earmarked Funds. The briefing materials for the February Board meeting outlined several options for focusing the reporting on only the most important earmarked funds.
At the February Board meeting, staff distributed a list of agencies with over 250 earmarked funds with a positive net position and a table that showed what proportion of the total net position for those funds would be accounted for if agencies were limited to only their five largest earmarked funds. The result was that 99.3% of total net position would be accounted for. A second table on the handout showed that if agencies were limited to reporting on only their three largest earmarked funds, 98.9% of total net position would be accounted for.
Conclusions and action items resulting from the February Board meeting were:
Staff will develop options for criteria that will limit the reporting of earmarked funds to major funds so that future reporting will not include over 500 funds government-wide, as is currently the case. However, the reporting will include more than just the social insurance funds.
The term "earmarked funds" can cause confusion – for example, confusion between earmarked collections and earmarked spending. Potential amendments to SFFAS 27 will include a proposal to rename "earmarked funds" with a more intuitively understandable term, such as a term that includes the word "dedicated collections." The Board will consider specific options for terminology at a future meeting, after making some decisions about additional criteria.
Issue Paper – February 2010 (PDF)
Contact: FASAB Staff, fasab@fasab.gov, 202-512-7350