department of the navy office of the assistant secretary of

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Department of the Navy

Office of the Assistant Secretary of the Navy (Financial Management and Comptroller)

How to Read the Department of the Navy

Financial Statements

Presented to General Fund Conference 2005

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Reading Financial Statements

Why are we preparing financial statements?

What is this thing called Financial Statements?

Who cares? How will the future look? When will we get there?

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Why are we preparing financial statements?

In the not-too-distant past - Current financial reporting practices of the Federal Government do not accurately disclose the current and probable future cost of operating and investment decisions, including the future need for cash or other, resources, do not permit adequate comparison of actual costs among executive agencies, and do not provide the timely information required for efficient management of programs. CFO Act, 1990 Section 102(a)6

OMB defines the content structure and identifies the reporting entitiesSubsequent legislation built on the foundation laid by the CFO Act Requirement that financial statements be prepared per Federal GAAP and be audited

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What is this thing?

Message from the Secretary of the Navy……..…3

Message from the Assistant Secretary of the Navy (Financial Management & Comptroller)…..5

Management’s Discussion and Analysis……..…7

Department of the Navy General Fund

•Principal Statements………………….….………51

•Notes to the Principal Statements……….…….63

•Supporting Consolidating/Combining Statements………………………………….……..117

•Required Supplementary Stewardship Information………………………………….……..131

•Required Supplementary Information….……139

•Other Accompanying Information……………149

Navy Working Capital Fund

•Principal Statements……………………………151

•Notes to the Principal Statements……………163

•Supporting Consolidating/Combining Statements…………………………………………203

•Required Supplementary Information……….231


Audit Opinions……………………………………239

DEPARTMENT OF THE NAVY

ANNUAL FINANCIAL REPORT

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The Department of the Navy (DON) Reporting Entities


















Classified as a revolving fund An appropriation or

transfer of funds finances the initial cost of goods and services

Goal is to break even over time

Includes Base Support; Supply Management; Depot Maintenance; Research and Development; and Transportation

Receives direct appropriations from Congress to replenish the fund

Supports overall department operations

Includes Operation and Maintenance; Military Personnel, Family Housing; Procurement; Military Construction; and Research, Development, Test, and Evaluation

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Overview of the Report


















The Management’s Discussion and Analysis, in conjunction with Note 1, should give any reader all the

information needed to understand the entity, its business

environment, and its accounting policies.

Messages from our leaders discuss, at a high level, the organization’s mission, performance results, and financial condition

Management’s Discussion and Analysis: Designed to discuss the vital

few matters that would provide a taxpayer with an understanding of the reporting entity and its financial condition

Presents both program and financial performance, systems, controls, legal compliance, and financial position and financial condition

Derived from the published budget, speeches, President’s Management Agenda, etc.

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The Financial Statements


















Balance Sheet, pg 54

Statement of Net Cost, pg 55

Statement of Changes

in Net Position, pg 56-57

Statement of Budgetary

Resources, pg 58-59

Statement of Financing, pg 60-61

Statement of Custodial Activity* – Not

Applicable to DON

*one of the six basic financial statements (OMB Bulletin No. 01-09, Form and Content of Agency Financial Statements)

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U.S. Standard General Ledger (USSGL)

1000 Assets 2000 Liabilities 3000 Net Position 4000 Budgetary 5000 Revenue and Other Financing

Sources 6000 Expenses 7000 Gains/Losses/Miscellaneous Items 8000 Memorandum

http://www.fms.treas.gov/ussgl/index.html

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Basic Balance Sheet Format

Assets = Liabilities + Net Position

Reporting EntityBalance SheetAs of Month / Day / Year

ASSETS Intragovernmental Public TOTAL ASSETS $ xxx,xxx,xxx

LIABILITIES Intragovernmental Public TOTAL LIABILITIES $ xxx,xxx,xxx

NET POSITION $ xxx,xxx,xxx

TOTAL LIABILITIES AND NET POSITION $ xxx,xxx,xxx

The accompanying notes are an integral part of these statements.

What we own

What we owe

Net investment of the taxpayer

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USSGL: Assets

1000 AssetsAccount # / Series Account Title1010 Fund Balance with Treasury1100 Cash1300 Receivables1400 Advances and Prepayments1500 Inventory and Related Property1600 Investments1700, 1800 General Property, Plant, and

Equipment1900 Other Assets

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USSGL: Liabilities and Net Position

2000 LiabilitiesAccount # / Series Account Title2100 Accrued Liabilities – Other2200 Accrued Liabilities – Payroll and

Benefits2300, 2400 Unearned Revenue (Advances)2500 Debt2600 Actuarial Liabilities 2900 Other Liabilities

3000 Net PositionAccount # / Series Account Title

3100 Unexpended Appropriations 3310 Cumulative Results of Operations

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Basic Balance Sheet Format

Another important concept is the difference between intragovernmental and public. Intragovernmental

data represents financial information between federal government entities.

Public data represents financial information between the DON and the public (i.e. non-governmental, private parties).

Assets = Liabilities + Net Position

Reporting EntityBalance SheetAs of Month / Day / Year

ASSETS Intragovernmental Public TOTAL ASSETS $ xxx,xxx,xxx

LIABILITIES Intragovernmental Public TOTAL LIABILITIES $ xxx,xxx,xxx

NET POSITION $ xxx,xxx,xxx

TOTAL LIABILITIES AND NET POSITION $ xxx,xxx,xxx

The accompanying notes are an integral part of these statements.

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The Essential Footnotes: Assets

Assets, Note 2 Fund Balance with Treasury, Note 3 Investments, Note 4* Accounts Receivable, Note 5 Other Assets, Note 6 Cash and Other Monetary Assets, Note 7* Loans Receivable, Note 8* Inventory and Related Property, Note 9 General Property, Plant and Equipment, Note 10

* These notes are only applicable for the DON General Fund

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Footnotes Support the Financial Statements

FY 2004 DON Annual Financial Report

DON General Fund, Note 3: Pg 75-77

*NWCF is a revolving fund. Therefore, it only reports amounts on Line 1.B.

Note 3.A. Fund Balance with Treasury As of September 30 2004 2003 (Amounts in thousands)

1. Fund Balances A. Appropriated Funds $ 79,826,096 $ 76,290,090 B. Revolving Funds 2,024,355 1,779,963 C. Trust Funds 18,245 18,877 D. Other Fund Types 225,217 325,947

E. Total Fund Balances $ 82,093,913 $ 78,414,877

2. Fund Balances Per Treasury Versus Agency A. Fund Balance per Treasury $ 83,080,322 $ 78,414,877 B. Fund Balance per DON 82,093,913 78,414,877

3. Reconciling Amount $ 986,409 $ 0

4. Explanation of Reconciliation Amount 5. Other Information Related to Fund Balance with Treasury

*

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Notice how the footnote

numeric tables provide

additional detail to

support the financial

statement.FY 2004 DON Annual Financial Report

DON General Fund

Balance Sheet: Pg 54 Note 5: Pg 79-81

Department of Defense Department of the Navy CONSOLIDATED BALANCE SHEET As of September 30, 2004 ($ in Thousands) 2004

Consolidated ASSETS (Note 2) Intragovernmental: Fund Balance with Treasury (Note 3) Entity $ 81,874,818

Non-Entity Seized Iraqi Cash 0

Non-Entity-Other 219,095

Investments (Note 4) 9,457

Accounts Receivable (Note 5) 250,703

Other Assets (Note 6) 272,723

Total Intragovernmental Assets $ 82,626,796

Cash and Other Monetary Assets (Note 7) $ 234,865

Accounts Receivable (Note 5) 2,895,966

Loans Receivable (Note 8) 0

Inventory and Related Property (Note 9) 53,340,667

General Property, Plant and Equipment (Note 10) 151,679,503

Investments (Note 4) 0

Other Assets (Note 6) 5,000,348

TOTAL ASSETS $ 295,778,145

Note 5. Accounts Receivable

As of September 30 2004 2003

Gross Amount

Due

Allowance For

Estimated Uncollectibles

Accounts Receivable,

Net

Accounts Receivable,

Net

(Amounts in thousands) 1. Intra-governmental Receivables: $ 250,703 N/A

$ 250,703 $ 496,863

2. Non-Federal Receivables (From the Public): $ 3,203,625 $ (307,659) $ 2,895,966 $ 3,382,133

3. Total Accounts Receivable: $ 3,454,328 $ (307,659) $ 3,146,669 $ 3,878,996

4. Allowance method 5. Other information

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Inventory and Related Property is the largest component of the NWCF’s assets (see FY 2004 DON Annual Financial Report, NWCF Note 9, pg 178-183)

DON GF does not have inventory, but rather Operating Materials & Supplies (OM&S)



Note 9. Inventory and Related Property As of September 30 2004 2003 (Amounts in thousands)

1. Inventory, Net (Note 9.A.) $ 0 $ 0 2. Operating Materials & Supplies, Net (Note 9.B.) 53,340,667 53,611,634 3. Stockpile Materials, Net (Note 9.C.) 0 0

4. Total $ 53,340,667 $ 53,611,634

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Note 10. General PP&E, Net

As of September 30 2004 2003

Depreciation/ Amortization

Method

Service Life

Acquisition

Value

(Accumulated Depreciation/ Amortization)

Net Book

Value Prior FY Net Book Value

(Amounts in thousands)

1. Major Asset Classes: A. Land N/A N/A $ 567,889 N/A $ 567,889 $ 603,961 B. Buildings, Structures, and Facilities S/L 20 Or 40 32,912,222 $ (20,058,447)

12,853,775

21,007,724 C. Leasehold Improvements S/L lease term 231 (21)

210

0 D. Software S/L 2-5 Or 10 3,071 (1,122) 1,949 423 E. General Equipment S/L 5 or 10 2,596,057 (2,078,308) 517,749 133,239,341 F. Military Equipment S/L Various 427,160,000 (293,030,000) 134,130,000 0 G. Assets Under Capital Lease 1 S/L lease term 432 (230)

202

146 H. Construction-in-

Progress N/A N/A 3,607,729 N/A

3,607,729

3,555,856 I. Other 0 0 0 0 J. Total General PP&E $ 466,847,631 $ (315,168,128) $ 151,679,503 $ 158,407,451

1 Note 15.B for additional information on Capital Leases Legend for Valuation Methods: S/L = Straight Line N/A = Not Applicable 2. Other Information:

General Property, Plant and Equipment (PP&E) is the largest component of DON GF total assets

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Statement of Net Cost

Reports the gross operating cost and related exchange revenue for the agency

Displays all costs, less earned revenues by responsibility segment and program

Reflects the bottom-line net cost to operate the entity

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Program costs (expenses to produce exchange revenue): Less earned revenue Net program costs

Other costs incurred and not assigned to programs

Other revenue not assigned to programs

Net cost of operations*

* Also found on the Statement of Financing and Statement of Changes in Net Position.

Reporting EntityStatement of Net Cost

For the period ending Month/Day/Year

PROGRAM COSTSIntra-governmental Gross Costs $ XXX

Less: Intra-governmentalEarned Revenue XXX

Intra-governmental Net Costs $ XXX

Gross Costs with the Public $ XXXLess: Earned Revenue

from the Public XXXNet Costs with the Public $ XXXTotal Net Cost $ XXX

Costs Not Assigned to Programs $ XXXLess: Earned Revenue Not Attributable to Programs $ XXX

Net Cost of Operations $ XXX



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Statement of Changes in Net Position

Reports how the net cost of operations was financed

Displays nonexchange revenues, appropriations used, and other financing sources

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Statement of Changes in Net Position

Net cost of operations* Financing sources

Appropriated, transfers, and imputed

Net results of operation Prior period adjustments Change in unexpended

appropriations Change in net position Beginning net position Ending net position**

* Also found on the Statement of Net Cost and Statement of Changes in Net Position.** Also found on the Balance Sheet.


DON General Fund, Pg 56-57

Reporting EntityStatement of Changes in Net PositionFor the period ending Month/Day/Year

UnexpCRO Approp

Beginning Balances $XXX $XXXPrior Period Adjustments XXX XXXBeginning Balances, adjusted $XXX $XXXBudgetary Financing

Sources:XXXX $XXX $XXXXXXX XXX XXX

Other Budgetary FinancingSources:

XXXX $XXXXXXX XXX

Total Financing Sources $XXX $XXXNet Cost of Operations $XXXEnding Balances $XXX $XXX

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Statement of Budgetary Resources

Focuses on budgetary resources (BR) and the status of those resources

Relates directly to the budgetary accounting process

Equation: Sources of BR = Status of BR Budgetary resources are recorded in USSGL

accounts 4100 to 4399 Status of budgetary resources are recorded in

USSGL accounts 4400 to 4999

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Resources Appropriations and

other authorities Reimbursable

Status of Resources Obligated, Direct and

Reimbursable Unobligated, Available

and Unavailable Outlays

Net obligations Collections and

reimbursements

Budgetary Resources = Status of Budgetary Resources

Reporting EntityStatement of Budgetary Resources


BUDGETARY RESOURCESBudget Authority $XXXUnobligated Balance XXXSpending Authority from Offsetting Collections XXXRecoveries of prior year obligations XXXTemporarily not available XXXPermanently not available XXX

Total Budgetary Resources $XXX

STATUS OF BUDGETARY RESOURCESObligations Incurred $XXXUnobligated Balance XXXUnobligated Balance not available XXX

Total, Status of Budgetary Resources $XXX

RELATIONSHIP OF OBLIGATIONS TO OUTLAYSObligated Balance, Net, Beginning of period $XXXObligated Balance transferred, Net XXXObligated Balance, Net, End of period XXXOutlay XXXLess: Offsetting Receipts XXX

Net Outlays $XXX FY 2004 DON Annual Financial Report


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Statement of Financing

Reconciles obligations incurred with the net cost of operations

Provides a link between budgetary and proprietary accounting

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Statement of Financing

Obligations and nonbudgetary Obligations Collections Imputed financing

Resources that do not fund operations Change in undelivered orders Assets purchased during the

period Costs that do not require

resources Depreciation

Financing sources yet to be provided Unfunded liabilities

Net cost of operations*

* Also found on the Statement of Net Cost and Statement of Changes in Net Position.

Reporting EntityStatement of Financing


Resources Used to Finance Activities:Obligations incurred $XXX

Less: Spending Authority from offsettingcollections and recoveries XXX

Total resources used to finance activities $XXX

Resources Used to Finance Items not Part of Net Cost of Operations:

Change in Undelivered Orders $XXXTotal Resources used to finance items

not part of the net cost of operations $XXX

Total resources used to finance thenet of cost of operations $XXX

Components of the Net Cost of Operationsthat will not Require or Generate Resources:

Depreciation $XXXTotal components of the net cost of operations that will

not require or generate resources $XXX

Net Cost of Operations $XXX FY 2004 DON Annual Financial Report


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The Financial Statements: Recap

Statement Characteristics

Balance Sheet (BS)

Reports assets, liabilities, and net position for a specific moment in time


(SNC)

Reports the gross operating cost and related exchange revenue for the agency

Displays all costs, less earned revenues by responsibility segment and program

Reflects the bottom-line net cost to operate the entity

Statement of Changes

in Net Position (SNP)

Reports how the net cost of operations was financed

Displays nonexchange revenues, appropriations used, and other financing sources

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The Financial Statements: Recap (cont’d)

Statement Characteristics


(SBR)

Focuses on budgetary resources and the status of those resources

Relates directly to the budgetary accounting process

Statement of Financing (SOF)

Reconciles obligations incurred with the net cost of operations

Provides a link between budgetary and proprietary accounting

Statement of Custodial

Activity (SCA)*

Required for those agencies that report collections and have accountability for collections on behalf of other entities

Displays the source and disposition of the collections and related accruals

*not applicable to DON

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Financial Statement Reconciliation

Inter-relationships among the statements Net Cost of Operations is reported on the SNC,

SNP, and the SOF Total Net Position is reported on the BS and the

SNP

Financial Statements and monthly/budgetary reports Standard Form-133 (SF-133), Accounting Report

(Monthly) 1307 (AR(M) 1307), and DD 725

Financial statements and the footnotes Comparative period analysis

IBM_USER

Deb - no idea what DD stands for..

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Supporting Disclosures

Supporting Consolidating/Combining Statements The General Fund displays the Navy and Marine

Corps separately The NWCF segregated into activity groups Both have a “Component Level”

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Supporting Disclosures (cont’d)

Required Supplementary Stewardship Information (RSSI) Only for the General Fund: Heritage Assets, Stewardship

Land, and R&D Investment

Required Supplementary Information (RSI) The General Fund includes the Disaggregated Statement

of Budgetary Resources Both entities include :

The cost of deferred maintenance and sustainment Detailed information about intra-governmental transactions

Other Accompanying Information Appropriation reference for the the legislative authority

to conduct business, or carry out the missionThese elements are only produced at fiscal year

end.

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Supporting Disclosures (cont’d)

In addition to the elements mentioned on the previous slide, the RSI has three parts: A, B, and C. These parts should reconcile with other components of the annual financial report. Part A, DoD Intragovernmental Asset Balances Part B, DoD Intragovernmental Entity Liabilities Part C, DoD Intragovernmental Revenue and Related Costs

Let’s take a closer look at Part A for the DON GF. Total Fund Balance with Treasury reported should reconcile

with amounts reported on the balance sheet, Note 2, and Note 3. However, Part A and Note 3 do not separate the amount by entity and non-entity.

Total Accounts Receivable reported here should reconcile with the amounts reported on the balance sheet and in Note 5.

Total Investments as reported by the DON GF should reconcile with the amount reported in Note 4.

Total Other Assets reported should reconcile with amounts reported as Other Assets-Intragovernmental.


DON General Fund, RSI Part A: Pg 145

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Who Cares? – The Audit Opinions

The final pages of the annual financial report are designated for the audit opinion. Disclaimer of Opinion

– basically, the auditors can’t tell where to start

Unqualified Opinion – buy stock in the DON

Qualified Opinion – except for a few glitches, we’re on target

Adverse Opinion – running amuck


















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How does the Future Look?

Future Vision: Edit out that statement “At times, the

Department is unable to implement all elements of the [financial accounting] standards due to financial management system limitations…” see FY 2004 DON Annual Financial Report, pg 49

Limited data collected outside our financial systems – focus on analysis rather than compilation

Increase visibility and accountability for operational managers

IBM_USER

Deb: This type of quote is also boilerplate in note 1

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When will we get there?

DON Financial Improvement Plan – designed to get us to clean by FY 2007 Command level statements Repair broken processes Prepare for audit

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Questions?

DON General Fund: Steve Sninsky

phone: 202.685.6733

[email protected]

Navy Working Capital Fund: Lessie Turner

phone: 202.685.6738

[email protected]

FMO Website: http://www.fmo.navy.mil

department of the navy office of the assistant secretary of

Documents

supplementary information

navyfinancial statements

financial performance

financial position

navy annual financial

navy office

principal statements163

assistant secretary