One of the more tricky aspects of working in federal accounting is the unique use of both budgetary and proprietary accounting. In comparison, proprietary accounts resemble traditional commercial accounting (showing who owns what), while budgetary accounting focuses on controlling spending—a crucial element in government finance. Let's dive into this world and demystify some key concepts!
The Importance of Budgetary Accounting
Budgetary accounting allows you to track the source and spending of your money. It's a control system so that, let's say, you're given $100 to cover your rent. You don't overspend it or spend it on something other than rent. The complete budgetary accounting cycle was only fully grasped for me as an accountant once I'd been in the weeds for a while. I want to speed up your learning process with this introduction to budget authority.
Understanding Budget Authority: A Key to Effective Federal Accounting
Simply put, it is the amount that Congress has authorized to be used for a specific purpose, such as when they authorize how much an agency has for their salaries for the year or how much money NASA has to explore deep space. Budget authority is more complex than one method or one way. Currently, there are four different types of budget authority:
1. Appropriations: Budget authority to incur obligations and to make payments from the Treasury for specified purposes (GAO-05-734SP).
Congress gives an entity a budget. The entity can draw a specific amount of dollars from the Treasury to pay its obligations, which are eventually outlaid. An obligation is a commitment to pay for goods or services that have been received or will be received in the future. An outlay is the actual payment of money. For example, H.R.4366 - Consolidated Appropriations Act, 2024 gave the National Aeronautics and Space Administration (NASA) $935,000,000 to conduct and support aeronautics research and development activities until September 30, 2025.
2. Borrowing Authority: Budget authority enacted to permit an agency to borrow money and then to obligate against amounts borrowed (GAO-05-734SP).
Borrowing Authority allows agencies to enter into obligations and finance activities through borrowed funds. Commonly, the entity will borrow from the U.S. Treasury to fund its operations. Look up the current borrowings at Treasury Direct- Federal Borrowings Program.
3. Contract Authority: Budget authority that permits an agency to incur obligations in advance of appropriations, including collections sufficient to liquidate the obligation or receipts. Contract authority is unfunded, and a subsequent appropriation or offsetting collection is needed to liquidate the obligations (GAO-05-734SP).
This allows an agency to enter into binding contracts before they have funds to satisfy that obligation.
4. Offsetting Collections and Receipts: A form of budget authority that permits agencies to obligate and expend the proceeds of offsetting receipts and collections(GAO-05-734SP).
This is a businesslike transaction between agencies where one agency provides a good or service, and the other pays for it. These collections and receipts are defined as negative budget authority rather than revenue. As a consequence, the collected funds offset an agency's spending authority. Reducing offsetting collections or receipts is correspondingly defined as positive budget authority. Authority to spend offsetting receipts and collections can be provided in appropriation acts or other laws.
The most common types of budget authority you will encounter are appropriation and offsetting collections and receipts. The remaining two kinds of budget authority, borrowing, and contract authority, will be more specific to certain agencies. Fun fact, the U.S. Department of Transportation has all four types of Budget Authorities. Check out the latest Statement of Budgetary Resources to see for yourself.
How to Determine Budget Authority
You might ask yourself, "How do I determine how much budget authority I have?" Well, it's a two-part answer:
1. It goes back to the legislative branch. Congress makes the law defining what can be spent for what purpose and provides the budget authority for different agencies. You'll see these in appropriation and supplemental laws, and it's up to Congress to decide how to provide them.
2. Once that's been completed, you start the apportioning process. This is where the executive branch, through the Office of Management and Budget (OMB), portions the funds from Congress to the agency. This is where the agency makes the request for their funds, and OMB makes the decision of how much they have to use and when. For example, an apportionment schedule for an appropriation should have the amount that Congress provided.
For any unexpired funds, you should have an apportionment schedule (which I won't go into right now). It'll show how much of each Budgetary Authority and total budgetary resources you have available. These apportionment schedules will also tell you when you can spend certain funds or what you can spend them on, but that's also a discussion for another day.
This brief discussion provides you with the information you need to start your journey to learning budgetary accounting. Budgetary Authority is the start of your budgetary accounting process. Later, we will discuss the flow of budgetary accounting, which involves a series of steps from appropriation to apportionment, allotment, commitment, obligation, and outlay. Each step represents a stage in the process of budget execution, and we will delve into each of these in detail.
