INTRODUCTION
The FASAB Digest provides current reporting on FASAB projects. The editor prepares for and attends FASAB meetings. The FASAB Digest is similar to an executive summary providing concise and timely information.
The FASAB Digest has five sections:
- Introduction
- Editor's Commentaries
- Reporting on FASAB Projects
- History of the Governmentwide Financial Report
- About the Editor and Contact Information
EDITOR'S COMMENTARIES
Commentary One (June 2007)
In 1999 the American Institute of Certified Public Accountants (AICPA) granted FASAB the authority to set accounting standards for the accounting profession (Rule 203 status). This was a huge development because it gave FASAB credibility as a legitimate organization that could set generally accepted accounting principles (GAAP). It was a controversial decision at the time because many influential CPAs did not view FASAB as being an independent standard setting body because of the oversight role of the Principals (OMB, Treasury, and GAO) and the ability of any Principal to veto a recommended standard. FASAB changed dramatically after being granted standard setting authority to enhance its independence. The membership was changed to provide for a majority of non-federal members and veto authority was limited to OMB and GAO. Many other actions were taken as well since the AICPA indicated that it would review FASAB every 5 years to ensure its actions were those of an independent standard setting body. FASAB was reviewed in 2004 and no change in status resulted. FASAB has been warned that if a recommended standard were vetoed by a Principal, FASAB's status as a standard setting body for the accounting profession would be revoked. Another review by the AICPA is scheduled for 2009.
During the consideration of a new standard for social insurance programs, time and time again the Principals have threatened to veto a recommended standard that recognizes liabilities for social insurance programs before the amounts become due and payable. In 2006 all of the non-federal members (six members) determined that actuarially determined amounts should be recognized as liabilities when eligibility requirements are met. The four federal members opposed such recognition. A preliminary views document was issued in October 2006 with the primary view advocating recognition of actuarial liabilities and the alternative view opposing recognition of liabilities until amounts are due and payable. Since October 2006 two of the six non-federal members have left FASAB and have been replaced by two "non-federal" members both of whom were formerly Deputy Controllers at OMB and federal members of FASAB. Such appointments constitute provocative actions by the Principals who determine FASAB's membership and are even more provocative in light of recent threats by the Principals to veto a recommended standard on social insurance that is not to their liking. Clearly, the Principals are not concerned about the possibility of the AICPA revoking FASAB's authority to set accounting standards for the accounting profession since these recent actions reinforce the notion that FASAB is not an independent standard setting body.
It is also clear that no recommended standard regarding social insurance will be approved that goes beyond recognizing amounts due and payable as liabilities for social insurance programs. If one or more of the new "non-federal" members votes with the four federal members, there will not be six votes to support the view of recognizing actuarial liabilities (six votes are needed to recommend a standard to the Principals). If the two new "non-federal" members vote with the other four non-federal members to recommend a standard that recognizes actuarial liabilities for social insurance programs, it is a virtual certainty that OMB's Director and/or GAO's Comptroller General will veto the recommended standard because they have demonstrated with their recent actions no concern about the AICPA's possible revocation of FASAB's authority to set accounting standards for the accounting profession. Also, the Comptroller General is personally involved and he will not be denied.
So why don't the Principals care if FASAB has the authority to set accounting standards for the accounting profession? Gaining such authority was a big deal in 1999. The insiders know the answer. Those of us on the outside can only speculate. Whatever the plan is, it is a certainty that the actions of the Principals have been carefully considered.
Commentary Two (February 2010)
In May 2007 I attended the public hearing on the preliminary views document on accounting for social insurance. During the lunch break I learned that Hal Steinberg would be joining Woody Jackson as returning FASAB members. I was astounded. I thought it had been recklessly audacious to appoint Woody Jackson in November 2006 but this latest news was just breathtaking. I suspected the fix was in on accounting for social insurance and went home shortly after lunch - there was no point in attending a charade. (Messrs. Jackson and Steinberg are enormously capable people but both were Deputy Controllers at OMB and federal members of FASAB - they should not have been appointed as non-federal members after having served as federal members. If one or both had taken a position as a federal FASAB member that social insurance obligations should not be recognized as liabilities until the amounts were due and payable, the appointment(s) would be absolutely outrageous - it would be fixing the result on the contentious issue of when liabilities should be recognized for social insurance programs.)
Having been involved with FASAB from its inception, I had acquired hundreds of binders of FASAB materials over 16 years. I kept it all. When Woody was appointed I went back to my materials to see if he had espoused a position on social insurance during his time as OMB's member. I found nothing. When Hal was appointed I did the same thing and found nothing until just a few days ago (approximately January 29, 2010) when I was tossing out all my FASAB binders. (It took several evenings to get the job done.)
At this point I need to provide some background. Bob Kilpatrick (a brilliant economist with a doctorate from Yale) was one of OMB's FASAB staff persons who provided staff support to both Hal and Woody. (Bob died several years ago and everyone who ever knew him misses him very much.) Bob was married to Justine Rodriguez who is also a brilliant senior level OMB employee. Bob and Justine firmly believed that social insurance obligations are not liabilities. Justine was also involved with FASAB.
From 1991 until 2005 I provided staff support to Treasury's FASAB member. I would prepare briefing materials for my session with my board member who I would meet with before each board meeting. My practice was to provide a status report on FASAB related developments that had occurred since the last board meeting and then discuss all the issues for all the subjects that would be on the agenda for the upcoming board meeting. I would write up all the issues and my comments on those issues. I made a point to be on all the task forces so that I would be knowledgeable about everything related to FASAB. My intent was to provide high quality service to my board member - I wanted to keep the FASAB staff support assignment that I had managed to attain. I say all this about my modus operandi to indicate that I took my staff support function very seriously and made every effort to be accurate.
The document I found on or about January 29 was my briefing agenda for October 19, 1994. In the status section of the briefing agenda I wrote "The liabilities ED has been sent to the publishers. During the fatal flaw review Steinberg and Blum expressed their concern regarding the basis for conclusions discussion addressing social insurance. That discussion implied that the firmness of the obligation was a factor in determining whether a liability existed. Steinberg and Blum both indicated that it is the "nature" of the obligation that matters - not the "firmness." The basis for conclusions was revised to accommodate this concern; this revision also impacted the Ives alternative so Ives revised his language. I have attached the pertinent memos as well as the paragraphs in the basis for conclusions and the Ives alternative (alternative B)."
The pertinent memos were: (1) a memo from Bob Kilpatrick and Justine Rodriguez to Hal Steinberg dated September 28, 1994 that asserts: "The decision not to recognize social insurance transactions as creating liabilities until they become due and payable is related to the Board's distinction between exchange transactions (with reciprocal or two-way flows of resources or promises) and non-exchange transactions (nonreciprocal or one-way flows). The significance of this distinction arises from two factors. One of these factors is the nature of the obligation (in equity if not in law) that is created...."; and, (2) a memo from Jim Blum to Ron Young (FASAB Executive Director) dated September 30, 1994 that includes the following language: "I think the suggestion by Justine Rodriguez and Bob Kilpatrick to use "nature" instead of "firmness" is a good one." The fact that there is no memo from Hal Steinberg is not of great importance since Hal would on occasion send a Bob Kilpatrick memo to FASAB as representing his (Hal Steinberg's) views. He did this in a July 8, 1994 letter to Ron Young when commenting on the liabilities exposure draft - he closed that letter saying "I am also enclosing a memorandum containing Bob Kilpatrick's comments on the proposed exposure draft. I agree with all of his comments." Jim Blum the Deputy Director of CBO would never have seen a suggestion by Justine and Bob unless Hal agreed with it. It is also obvious that Jim Blum is referencing a memo in the possession of Ron Young who would not have received a memo that Hal did not agree with. Thus, in 1994 Hal Steinberg as a federal FASAB member representing OMB held the view that social insurance obligations should not be treated as liabilities until the amounts become due and payable. There is a sufficient and convincing paper trail documenting this fact.
When Hal Steinberg was appointed to FASAB in June 2007 the fix was in. Why was Woody Jackson also appointed a few months earlier when Hal Steinberg was the solution? I don't know the answer. Maybe the folks at OMB thought Woody was the solution and realized after the fact that it should have been Hal (Justine remains at OMB as Deputy Associate Director for Economic Policy) so Hal was appointed as well (to make room for Hal the Principals tossed Claire Cohen off the Board after her first 5-year term - this had never happened to a board member who wanted to remain on the Board for another term).
The Principals got the result they wanted - no recognition of actuarial liabilities for social insurance programs (Hal Steinberg joined the four federal members to deadlock the Board 5-5 per the February 2009 FASAB meeting minutes). Those of us who supported the recognition of actuarial liabilities and sent comment letters and/or appeared at public hearings were just wasting our time (actually I enjoyed preparing my comment letter even though I was pursuing a fool's errand).
Does any of this matter or is it like some academic feud where there is much strife over an idea when the stakes are small or non-existent? I suggest it does matter a lot. We have a cash basis bottom line every year - it's called the budget deficit. We don't have an accrual basis bottom line every year - we just have a lot of information that confuses people. It would have been really helpful to have an accrual basis bottom line that you don't need to have a doctorate in economics to understand.
[This commentary could be entirely wrong. It may just be that having 3 deputy controllers from OMB sitting at the table determining FASAB standards is the way things happen to have worked out and there was nothing devious going on. The fact that one more vote was needed to secure the result the Principals wanted and Hal Steinberg would deliver that vote if he voted consistent with his views as a federal FASAB member could be just happenstance. I don't believe the Principals just lucked out but I could be wrong.]
Commentary Three (July 2010)
I just watched a video of Gregory Anton (Chair of the FASAB Rule 203 Review Panel) reporting the panel's recommendations to the AICPA Council on May 23, 2010. I saw absolutely nothing in the presentation that questioned FASAB's independence. How is that possible?
The AICPA should acknowledge that FASAB is a fine organization but it was manipulated by the Principals when accounting for social insurance was revisited. The non-federal members (a majority of the Board) all wanted to recognize actuarial liabilities when eligibility requirements were met for Social Security and Medicare. The Principals found a way to negate that determination. This is the one standard that really matters- everything else is nickel and dime stuff by comparison. The AICPA should not allow the Principals to get away with this outrage. FASAB's standards on social insurance should not be considered GAAP standards. They should be carved out and placed in a different category.
REPORTING ON FASAB PROJECTS
This section has been updated following the November 15-16, 2006 FASAB meeting. The updating language is in bold.
(Notice: This section is not current.)
Accounting for Social Insurance
This is a highly significant project. Accounting for social insurance programs has been addressed before by FASAB - most prominently in SFFAS 17 that includes a Statement of Social Insurance that allows amounts for various social insurance programs to be aggregated. Also, SFFAS 17 requires considerable information including cash flow information. Up to this point, social insurance programs have not been treated as creating liabilities except for amounts due and payable. (Social Security and Medicare are the major social insurance programs.)
At the January 2006 FASAB meeting, FASAB voted 6-4 to recognize actuarial liabilities on the balance sheet for social insurance programs. FASAB's Chairman called for a vote (non-binding) to determine support for the project. FASAB had received letters from GAO's Comptroller General David Walker, Treasury Secretary John Snow, and the Social Security Administration's Chief Actuary opposing liability recognition for social insurance programs beyond amounts due and payable. Also, OMB and CBO opposed such recognition. FASAB members representing GAO, Treasury, OMB , and CBO opposed going forward with a social insurance project that would recognize actuarial liabilities for Social Security and Medicare Part A based on meeting eligibility criteria.
GAO, Treasury, and OMB are the FASAB sponsors and FASAB operates under the general oversight of its sponsors (who along with CBO finance FASAB's operations.) As noted above, the vote to recognize actuarial liabilities was 6-4. The six affirmative votes all came from non-federal FASAB members. OMB and/or GAO can veto a standard. If that were to happen, it is likely that the American Institute of Certified Public Accountants (AICPA) would withdraw its support of FASAB as a standard setting body for the accounting profession due to a lack of independence. FASAB would no longer establish generally accepted accounting principles (GAAP) for the accounting profession.
At the March FASAB meeting, the Board decided to treat Medicare Parts B and D the same as Part A. (The alternative would have been to treat Medicare Parts B and D as insurance programs.) The obligating event for Medicare Parts A, B, and D will be acquiring 40 credits. For Social Security, acquiring credits beyond 40 credits will be new obligating events. FASAB also decided to require a sensitivity analysis for social insurance programs but not to specify what the analysis should look like.
Treasury's board member speaking for Treasury, OMB, and GAO indicated that the term liability should not be used for the actuarially determined amounts for Social Security and Medicare since this would make reforming these unsustainable programs more difficult. Such amounts could be reported on the balance sheet with credit balances but it would not be acceptable to use the "L word". Treasury's board member implied that a final standard with the actuarially determined amounts described as liabilities would receive a veto.
The current FASAB Chairman Dave Mosso and the future Chairman Tom Allen indicated that alternative terminology and alternative balance sheet classification could be considered but the basic reasoning of the document and the liability definition would not be changed.
FASAB agreed to move to a pre-ballot exposure draft (the final step before issuing an exposure draft) by a vote of 6-4 with all of the affirmative votes coming from non-federal members.
At the May FASAB meeting, FASAB again by a vote of 6-4 (all affirmative votes coming from non-federal members) agreed to go forward with an exposure draft. The OMB Director had sent a letter on May 1 to FASAB opposing going forward with an exposure draft recognizing actuarial liabilities for social insurance programs (earlier GAO's Comptroller General and the Secretary of the Treasury had sent similar letters to FASAB) and at the May FASAB meeting a letter signed by OMB's Director, GAO's Comptroller General, the Secretary of the Treasury, and the OPM Director opposing recognizing actuarial liabilities for social insurance programs was provided to FASAB members. In addition, GAO's Comptroller General David Walker made a presentation at the May FASAB meeting during which he vigorously opposed recognizing actuarial liabilities for social insurance programs. He implied that he would veto a recommended standard that recognized such amounts as liabilities (presumably the OMB Director would also veto such a recommended standard).
Based on decisions made at the May FASAB meeting, the draft exposure draft was revised to ensure that the arguments of the minority point of view are given generous treatment throughout the document. The gravity of the situation and the importance of the subject matter warrant a departure from the normal practice whereby minority views receive more limited exposure.
At the July FASAB meeting, the Board began to consider the revised draft exposure draft on accounting for social insurance. Soon discussion turned to issuing a preliminary views document rather than an exposure draft (the federal members pushed this idea). This would allow for the finalization of element definitions before an exposure draft on accounting for social insurance is issued (an exposure draft was recently issued regarding elements with comments due by August 5, 2006). Also, a preliminary views document provides more flexibility for presenting majority and minority opinions. The current FASAB Chairman Dave Mosso, the future FASAB Chairman Tom Allen, and the FASAB Executive Director Wendy Comes along with the four federal members expressed support for the idea of issuing a preliminary views document provided that the effective date (FY 2010) for a new standard on accounting for social insurance not be changed. By a vote of 7-3 the Board agreed to move ahead with a preliminary views document - it is expected that one year will be added to the process by utilizing a preliminary views document but the benefit will be unimpeachable due process so that if there eventually is a veto, no one could say the process was at fault. It is expected that a preliminary views document will be issued for comments shortly after the September 27-28 meeting.
Professor Jim Patton (a non-federal member) noted that if the 6-4 votes (taken at earlier meetings) for issuing an exposure draft included the federal members in the majority, there would never have been a consideration of issuing a preliminary views document - an exposure draft would have been issued. Earlier in the meeting, Professor Patton provided a two page document to board members describing the actions of the Sponsors (through their representatives on the Board) as actions that impair the perceived and actual independence of the Board. In his two page document Professor Patton wrote: "Federal members have made it clear that they do not intend to yield sovereignty to the FASAB and that they will act to prevent implementation of standards and concepts statements that they do not agree with." Professor Patton concluded his two page document by saying: "If the FASAB is not going to be an independent body producing conceptually sound, stable reporting standards for the federal government, perhaps it would be better to save the government some money and revert to federal employees setting federal reporting standards as they see fit."
At the September FASAB meeting, the Board discussed a preliminary views document entitled Accounting for Social Insurance, Revised. This 150 page document fully explains the majority and minority views and solicits comments. The Board agreed to issue the preliminary views document and hearings will be held in May 2007.
Chairman Dave Mosso leaves the board in December 2006 upon completing his ten year term as Chairman. Tom Allen, a current non-federal member, will become Chairman in January 2007. On November 21 FASAB announced that Norwood Jackson will become a non-federal member starting in January 2007. (Mr. Jackson was OMB's FASAB member from 1995-1999.)
(Continued on page 2)
