FEDERAL BUREAU OF INVESTIGATION
Notes to Financial Statements
($ in thousands)
(1) Summary of Significant Accounting Policies
Basis of Presentation
These financial statements have been prepared to report the financial position andresults of operations of the Federal Bureau of Investigation ("FBI" or"Bureau") as required by the Chief Financial Officers Act of 1990 and theGovernment Management Reform Act of 1994. They have been prepared from the books andrecords of the FBI in accordance with Office of Management and Budget (OMB) Bulletin94-01, Form and Content of Agency Financial Statements, and the Bureau's accountingpolicies which are summarized in this note. These statements are therefore different fromthe financial reports, also prepared by the FBI pursuant to OMB directives, that are usedto monitor and control the FBI's use of budgetary resources. The FBI received a waiverfrom OMB for preparing the 1996 Statement of Cash Flows and the Statement of BudgetaryResources and Actual Expenses.
Reporting Entity
The FBI, established in 1908, is an integral part of the Department of Justice. TheFBI's mission is to uphold the law and investigate violations of Federal criminal law andto protect the United States from hostile intelligence efforts. The Bureau also providesassistance to other federal, state, and local law enforcement agencies as well as to thepublic at large. Assistance includes forensic services, training of law enforcementofficials, background investigations, name checks, fingerprint analyses, and cooperativecriminal investigations.
The FBI receives its funding from two primary sources: Congress and reimbursableactivities. Congress appropriates funds on an annual basis which represent over80percent of the FBI's annual budget. Reimbursable activities comprise the remainingbalance of the annual budget.
Basis of Accounting
Transactions are recorded on the accrual basis and are within budgetary limitationsestablished to facilitate compliance with legal constraints and controls over use offederal funds. Under the accrual method, revenues are recognized when earned and expensesare recognized when a liability is incurred, without regard to receipt or payment of cash.
The General Accounting Office (GAO), OMB, and Department of the Treasury (Treasury)established the Federal Accounting Standards Advisory Board (FASAB) for the purpose ofconsidering and recommending accounting principles, standards, and requirements to GAO,Treasury, and OMB. The three principals of FASAB, the Comptroller General, the Secretaryof the Treasury, and the Director of OMB, decide on new principles, standards, andrequirements after considering FASAB's recommendations. The resulting standards areconcurrently issued by GAO and OMB. Pending issuance and effective date of a sufficientlycomprehensive set of accounting standards, and in accordance with the interim guidanceagreed to by the three principals, the accompanying financial statements have beenprepared in accordance with the following hierarchy of accounting principles andstandards:
· individual standards agreed to and published by the Joint Financial Management Improvement Program (JFMIP) Principals, (GAO, OMB, and Treasury), based upon recommendations from FASAB;
· form and content requirements included in OMB Bulletin 94-01, dated November 16, 1993, and subsequent issuances;
· FBI accounting policies summarized in this note; and,
· accounting principles published by authoritative standard setting bodies and other authoritative sources (1)in the absence of such other guidance in the first three parts of this hierarchy, and (2)if the use of such accounting standards improves the meaningfulness of the financial statements.
Revenue and Other Financing Sources
The FBI receives the majority of its funding needed to support operations throughcongressional appropriations. The FBI receives annual, multi-year, and no-yearappropriations that may be expended within statutory limits for operating and capitalexpenditures. Additional amounts are obtained through reimbursem*nt for services providedto other federal agencies and to the public.
Appropriations are recognized when the related expenditures are incurred. Revenue forreimbursable services is recognized when the services are performed.
Other revenue and financing sources consist of amounts received from the sale of assetsand personal property.
Fund Balance with Treasury and Cash
The U.S. Treasury processes cash receipts and disbursem*nts of the FBI. The funds withthe U.S. Treasury include: appropriated funds that are available to pay currentliabilities and finance authorized purchase commitments; and deposit and clearingaccounts. In addition to Treasury fund balances, a cash balance is maintained primarily tosupport imprest fund payments.
Accounts Receivable
Accounts receivable are established from federal, state, and local government agenciesfor reimbursable and appropriated activities. An allowance for uncollectible accountsreceivable is not established based on favorable historical accounts receivable lossexperience.
Advances and Prepayments
Advances represent money advanced for confidential, travel, or commercial activities.The related expense is recognized when the activity occurs and the transactions arereported.
Operating Materials and Supplies
The general composition of operating materials and supplies is made up of ammunition,gas and oil, and office supplies. The items included in the year end balance are locatedat the FBI Academy at Quantico and at the Headquarters warehouse. The FBI reports theinventory at cost using the first-in first-out method.
Property and Equipment
The FBI leases its headquarters building, field office buildings, and warehouse spacefrom the General Services Administration (GSA). The FBI also leases office space from theState Department and non-governmental entities. In addition, the FBI owns land andbuildings.
The FBI is currently constructing the Criminal Justice Information Services Center inClarksburg, West Virginia. Construction costs of the Center are capitalized asconstruction-in-progress. When these assets are placed in service, they will bereclassified as appropriate, and depreciated in accordance with FBI procedures.
Property and equipment is stated at cost less accumulated depreciation. The FBIcapitalizes property and equipment purchases with a cost greater than $25,000 and usefullives of more than one year. Expenditures for other property acquired and for repairs andmaintenance are charged to operating expenses as incurred. Depreciation is calculated onthe straight line basis over the estimated useful lives of the assets.
Liabilities
Liabilities represent amounts owed by the FBI as the result of transactions or eventsthat have occurred as of year end. Liabilities for which Congress has not appropriatedfunds are classified as liabilities not covered by budgetary resources.
Seized Assets
The FBI accounts for Seized Assets in accordance with Statement of Federal FinancialAccounting Standards Number 3, "Accounting for Inventory and RelatedProperty." Seized monetary assets are reported at their estimated fair marketvalue at the date of seizure on the accompanying statement of financial position with anoffsetting liability included in governmental liabilities not covered by budgetaryresources. Seized nonmonetary assets are not reflected on the statement of financialposition but are disclosed at their estimated fair value at the date of seizure in thenotes to the financial statements.
Assets are considered seized when the FBI takes possession of the items. Dispositionactions include returning the property to the owner or obtaining a court action forfeitingthe property to the Department of Justice or another government agency. If an asset isencumbered by lien, the asset may be sold to satisfy the lien, or the asset is turned overto the lienholder. Assets not encumbered by liens are either sold, donated to other stateand local enforcement agencies, retained by the FBI for use in future operations, ordestroyed.
The estimated fair value of seized nonmonetary assets is determined dependent on thetype of asset. Common mass-produced items such as automobiles and certain equipment, arevalued at estimated fair value at time of seizure using third-party reference guides.Unique items such as land, homes, jewelry, art, etc. are valued using expert appraisers.
Accrued Unfunded Annual Leave
Annual leave is accrued as a liability as it is earned. The accrual is reduced as leaveis taken. Each year, the balance in the accrued annual leave account is adjusted toreflect current year pay rates. Because current or prior year appropriations are notavailable to fund annual leave earned but not taken, funding will be obtained from futureappropriations. Sick leave and other types of nonvested leave are charged to expense asthe leave is used.
Accrued Workers' Compensation
The Federal Employees' Compensation Act (FECA) provides income and medical costprotection to covered Federal civilian employees injured on the job, employees who haveincurred a work-related occupational disease, and beneficiaries of employees whose deathis attributable to a job-related injury or occupational disease. Claims incurred forbenefits for FBI employees under FECA are administered by the Department of Labor (DOL)and are ultimately paid by the FBI. The workers' compensation liability has twocomponents, (1)unpaid billings, and (2)an amount of estimated unbilled claims.The unbilled claims are estimated using actuarial techniques. The DOL calculated theliability of the Federal Government for future compensation benefits, which includes theexpected liability for death, disability, medical, and miscellaneous costs for approvedcompensation costs. The liability was determined using the paid-losses extrapolationmethod calculated over the next 23-year period. This method utilizes historical benefitpayment patterns related to a specific incurred period to predict the ultimate paymentsrelated to that period. The projected annual benefit payments were discounted to presentvalue. The resulting Federal Government liability was then distributed by agency. Thecompensation benefits liability constitutes an extended estimate of cost which will not beobligated against budgetary resources until the year in which the cost is actually billedto the DOJ and allocated to the FBI.
Retirement Plan
On January 1, 1987, the Federal Employees Retirement System (FERS) became effectivepursuant to the Federal Employees' Retirement System Act of 1996. Most employees hiredafter December 31, 1983, are automatically covered by FERS and Social Security. Employeeshired prior to January 1, 1984, elect to either join FERS and Social Security or remain inthe Civil Service Retirement System (CSRS).
For employees covered by the CSRS, the FBI contributes 7percent of the employee'sgross pay for normal retirement or 7.5 percent for hazardous duty retirement. Foremployees covered by the FERS, the FBI contributes approximately 13 percent. All employeesare eligible to contribute to the Federal Thrift Savings Plan (TSP). For those employeescovered by the FERS, a TSP account is automatically established, and the FBI is requiredto contribute an additional 1percent of gross pay to this plan and match employeecontributions up to 4 percent. No matching contributions are made to the TSP accountsestablished by the CSRS employees.
The FBI's total contributions for CSRS and FERS participants during the year endedSeptember30, 1996, were $49,567 and $112,655, respectively.
The FBI's financial statements do not report CSRS or FERS assets, accumulated planbenefits, or unfunded liabilities, if any, which may be applicable to FBI employees. Suchreporting is the responsibility of the Office of Personnel Management.
Net Position Accounts
Net position account balances consist of the following components:
Unexpended appropriations
Represent amounts of spending authority that are unobligated, or obligated but not expended, and available to the FBI.
Invested capital
See AlsoFiscal Year - ExplainedRepresents (1)the FBI's cost of property and equipment acquired that has been financed by appropriations less the reduction in investment due to depreciation, plus (2)the unexpended balance of operating materials and supplies.
Future funding requirements
Future funding requirements represent the amount of appropriated funding that will be needed in future periods to liquidate liabilities incurred through the current fiscal year. Funding for these items is generally received in the year that amounts become due and payable.
Displays and Archives
The FBI has a display area at FBI Headquarters in Washington, D.C. and maintainsarchives at this location as well. The display area and archives contain a weaponscollection of over 5,000 handguns, rifles, and shotguns; precious metals, jewelry, andother seized assets; and other artifacts relating to the FBI's operations. These items arenot included in the accompanying financial statements.
Custodial records are maintained for all weapons, precious metals, jewelry, seizedassets, and other valuable artifacts on display. Physical inspections are performedannually to ensure accountability for these items.
Comparative Data
Comparative data for the prior year are not presented since this is the first year theFBI has prepared financial statements in accordance with OMB Bulletin94-01.
(2) Fund Balances with Treasury
Fund Balances with Treasury represent the FBI's undisbursed budgetary authority as ofSeptember30, 1996, as follows:
Obligated amounts consist of undelivered orders and orders received but unpaid. Thebalance of $(1,696) represents non-entity assets in deposit and suspense clearingaccounts.
(3) Accounts Receivable
Intragovernmental Accounts Receivable consist of reimbursem*nts and repayments due fromother federal agencies. The repayments represent amounts due for salaries and otherexpenses incurred by FBI employees on behalf of those agencies. At September30,1996, the FBI recognized $199,910 in intragovernmental accounts receivable.
At September30, 1996, the FBI recognized $16,330 in governmental accountsreceivable. This account represents amounts due from nonfederal governmental sources forgoods provided and services rendered.
(4) Cash and Other Monetary Assets
Cash and Other Monetary Assets represent cash resources under the control of the FBI,which may include coin, paper currency, purchased foreign currency, negotiableinstruments, and amounts on deposit in banks and other financial institutions. Cashavailable for agency use includes petty cash, emergency funds, and imprest funds. AtSeptember30, 1996, cash and other monetary assets included $12,186 in entity assetsand $7,766 in non-entity assets.
(5) Property and Equipment, Net
Property and equipment and related accumulated depreciation at September 30, 1996,consisted of:
N/A = not applicable
SL = straight line
(6) Seized Property
Information regarding the balance of seized property for the period is as follows:
Only cash and financial instruments as of September30, 1996, totaling $27,072,have been reported on the statement of financial position.
Information regarding the number of seized property items held during the period is asfollows (unaudited) (the cash number in certain cases represents the number of bankaccounts seized):
(7) Capital Leases
The FBI's capital lease obligations at September30, 1996 follow:
(8) Net Position
The net position of the FBI as of September30, 1996, was made up of the followingcomponents.
Future funding requirements represent expenses incurred that will be paid by futureappropriations. The following is a summary of future funding requirements as ofSeptember30, 1996.
(9) Operating Leases
The FBI leases various facilities and equipment under operating leases. Assets heldunder these leases consist of offices, parking facilities, warehouses, aircraft hangars,office equipment, and vehicles.
The majority of space occupied by the FBI is leased by the General ServicesAdministration (GSA). The space is assigned based on the FBI's square footagerequirements. The rent charged by GSA is based on approximate commercial rates forcommercial space. The FBI may terminate the leases at any time without incurringtermination charges. However, it is anticipated that the FBI will continue to occupy andlease space from GSA in future years. Lease expense paid during fiscal year 1996 totaled$200million. The FBI does not expect cash expenditures for rent to changesignificantly in future periods.
The following is a summary of remaining lease payments related to lessors other than GSAunder existing operating lease terms ranging from 1 to 5years and thereafter:
(10) Adjustments (Unaudited)
Adjustments affecting the beginning balance of net position include the followingitems:
(11) Nonoperating Changes (Unaudited)
Changes in net position arising from other than the excess of expenses over revenue andfinancing sources consisted of the following items for the year ended September30,1996:
Nonoperating changes include a decrease of $13,391 of unexpended appropriations and acorresponding increase to appropriated capital used to fund prior period expenses.
(12) Contingencies
The FBI is a defendant in various administrative proceedings, legal actions, andclaims. Settlements in tort cases under $2.5 are paid from FBI appropriations, and amountsin excess of $2.5 are eligible to be paid by the U.S. Treasury Judgment Fund. Judgmentsand attorneys fees in other types of cases may also be paid from FBI appropriations. TheFBI's Office of General Counsel has determined that possible awards relating to adversedecisions and settlements under statutes and regulations should not exceed $4,140 atSeptember 30, 1996, which would not materially affect the financial position or results ofoperations of the FBI. The probable judgments against the FBI, in the amount of $12,691have been recorded in Other Governmental Liabilities Not Covered by Budgetary Resources.The Office of General Counsel is not aware of any significant threatened or unassertedclaims against the FBI as of September30, 1996.
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