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Financial Accounting Manual

Appendix C. Priced Service Compensation

 

 

C.1 Accounting for Compensation for the Costs of Providing Check Services

The following accounting instructions detail procedures for recognizing the compensation from the Atlanta Reserve Bank to the other Reserve Banks for providing check services. Essentially, these procedures provide for compensation to be recorded each Wednesday and at month-end based on estimates prepared by each Reserve Bank with a supplemental adjustment the following month when the actual expenses are known. In addition, these instructions include a one-time year to-date correcting entry that represents the amount of the compensation due from the Atlanta Reserve Bank to the other Reserve Banks for check services provided through October 31.1

The year-to-date correcting entry reflects both the recognition of the compensation for services rendered through October and the associated distribution of that income to the Treasury in the form of interest on FR notes. Because the Reserve Banks have not been recognizing the compensation transaction during the year, the Atlanta Reserve Bank's net income has been overstated and the other Reserve Banks' net incomes have been understated. As a result, the Atlanta Reserve Bank has distributed more income to the Treasury in its weekly interest on FR notes calculation than it would have if these entries had been functioned and the other Reserve Banks have distributed less. To restore each Reserve Bank's accounts to the correct balances, the excess amounts paid by FRB Atlanta to the Treasury need to be redistributed to the other Reserve Banks to reflect that, in substance, a portion of the Atlanta Reserve Bank distributions were actually on behalf of the other Reserve Banks. Ultimately, Atlanta's expenses will increase and interest on FR notes will decrease while the other Reserve Banks expenses will decrease and interest on FR notes will increase. By redistributing Atlanta's over-payment of earnings to the Treasury to the other Reserve Banks, the System will avoid making an unwarranted double distribution to the Treasury due to the correction of this accounting.

Entries for 2005 should be processed according to the following schedule:
Date Description
November 28 Make the entry to recognize current year-to-date compensation (per step 1 of instructions).
November 30 Begin functioning the estimated compensation receipt entries for check service costs incurred (per step 2). This entry will be for the entire month of November.
December 7, 14, 21, and 28 Weekly estimated compensation receipt entries (per step 2).
December 12
(1st business day after the 10th of the month)
First supplemental adjustment to actual for November (per step 3).
December 30 Make the month-end estimated compensation receipt entry (per step 2).
January 15, 2006 Make the adjusting year-end entry for December expenses (per step 4).

Procedures for Recording Compensation Provided by Atlanta to Other Reserve Banks for Check Services

Introduction and Background

The decision in 2004 to record all check revenues on the books of the Federal Reserve Bank of Atlanta, host site for the Retail Product Office (RPO) beginning in 2005, presented the System with some challenging financial accounting and financial statement presentation issues. Because the accounting for check revenues and expenses and the financial statement presentation for all twelve Reserve Banks should follow the business model adopted, while fairly presenting the nature of the transactions and the agreement between the Reserve Banks and the RPO, recording all check revenues on the books of FRB Atlanta without reflecting the associated costs, was not appropriate.

Given that the Reserve Banks are independent organizations that issue stand-alone financial statements, and because check costs currently represent a material item on each Bank's financial statements, income must be reflected on each Bank's income statement in order to "match" the costs of processing checks with the benefit/income resulting from incurring those costs. Treating the Reserve Banks as third-party suppliers of check processing services "at cost" fairly reflects the substantive nature of the agreement between the Reserve Banks and the RPO. Therefore, each Reserve Bank should match the costs recorded on its books by reflecting income received as compensation from FRB Atlanta on their financial statements for the work processed. Fully-costed expenses (PACS Account 5360) should be used by the processing Districts as a proxy for determining the appropriate amount to "bill" Atlanta for check services. As such, fully-costed 5360 expenses represent the amount of income that is being received from FRB Atlanta to the District that provided the check services.

In these procedures, the "Processing Federal Reserve Bank" (PFRB) refers to all Reserve Banks with the exception of FRB Atlanta. Since FRB Atlanta is the host site for the RPO, income is already reflected on their financial statements.

To properly reflect the transactions, the compensation received from FRB Atlanta is credited to PACS Account 88101, Check Services Provided to Other Reserve Banks, which rolls to the summary object of 88000. For FRB Atlanta, the compensation provided to the PFRB is debited to PACS Account 88103, Check Services Provided by Other Reserve Banks. Your local PACS staff should be consulted to determine the appropriate distribution method for these accounts.

Similar to the fiscal reimbursement process, the Adjusted Trial Balance (ATB) will be used as the mechanism to reflect this income on the PFRB's year-end income statement as "Compensation received for services provided." For FRB Atlanta, this item will be reflected on its year-end income statement as "Compensation paid for service costs incurred." Reference the "Financial Accounting Proposal For Matching Check Services Costs and Revenues", dated July 2005, for an example of income statement presentation.

Because FRB Atlanta has not compensated the Reserve Banks for providing check services during 2005, initially an entry must be made to recognize the current year-to-date compensation and adjust the Banks' Interest Paid on FR Notes accounts (330-200), which is step 1 in the document. Steps 2 and 3 provide the details for estimating and recording weekly and month-end payments and making adjustments for actual compensation amounts when known. Step 4 provides information about the final entry at year-end and Step 5 provides administrative information for communicating with FRB Atlanta.

1. Recognition of Current Year-to-Date Compensation and Adjustment to Interest Paid on FR Notes.
  On November 28, the PFRB should process an entry to recognize income for January - October 2005. After the fully-costing process has been completed for October, a year-to-date "Budget Experience" report for the period of January - October should be obtained from the PACSWeb system for fully-costed 5360 expenses. The total of this report from the year-to-date "Actual" column, less any Fiscal Reimbursements (if applicable to your District), represents fully-costed 5360 expenses that have not been settled with FRB Atlanta. The following entries should be performed by the PFRBs and FRB Atlanta. Each PFRB should notify FRB Atlanta of the amount of its fully-costed 5360 expenses to coordinate these entries.

PFRB Entry

Dr.
Interest Paid on FR Notes (330-200-XXX) [YTD Total of "Actual" After Reimbursements - PACSWEB Budget Experience Report]
Cr.
Current Expense (Check Services Provided to RB (88101): 330-050-567) [YTD Total of "Actual" After Reimbursements - PACSWEB Budget Experience Report]

FRB Atlanta

Dr.
Current Expense (Check Services Provided by RB (88103): 330-050-567) [ YTD Total of "Actual" After Reimbursements - PACSWEB Budget Experience Report for each PFRB]
Cr.
Interest Paid on FR Notes (330-200-XXX) [YTD Total of "Actual" After Reimbursements - PACSWEB Budget Experience Report for each PFRB]

After completing the entry below, the PFRB should obtain the year-to-date "Budget Experience" report for January - October and verify that the total for the 5360 Service equals zero after any Fiscal Reimbursements (if applicable to your District). Please note that this entry should not be used in the formula for calculating the month-end payment as described in Step 2 for November 2005.

2. Weekly and Month-End Compensation.
 Every Wednesday and on the last day of the month, the PFRB should make an entry that records the receipt of compensation for check services it provided to FRB Atlanta.2 The amount of the receipt should be based on the monthly original budget for fully-costed 5360 expenses, less any Fiscal Reimbursements (if applicable to your District). The PFRB is responsible for initiating the same-day settlement entry to Atlanta.

(Date of the Month divided by 30 days multiplied by Monthly Original Budget) minus Weekly Receipts Already Processed For the Current Month

On the last day of the month, the date of the month in the above formula is always 30 regardless of the actual month-end date. This weekly receipt should be rounded to the nearest $1,000. calculated as follows for the date of Wednesday, September 7, 2005:

7 divided by 30 multiplied by $1,707,590.34 minus 0 equals $398,437.75 rounded to $398,000

For further illustration, the next weekly receipt would be calculated as follows for the date of Wednesday, September 14, 2005:

14 divided by 30 multiplied by $1,707,590.34 minus $398,000 equals $398,875.49 rounded to $399,000

PFRB Entry

Dr.
SDS Atlanta (180-025-XXX) [Amount Calculated Using Compensation Formula]
Cr.
Current Expense (Check Services Provided to RB (88101): 330-050-567) [ Amount Calculated Using Compensation Formula]

FRB Atlanta

Dr.
Current Expense (Check Services Provided by RB (88103): 330-050-567) [ Amount Calculated Using Compensation Formula]
Cr.
SDS Atlanta (180-025-XXX) [ Amount Calculated Using Compensation Formula]

Note: If it is known that the monthly original budget is significantly different than actual expected expenses, the weekly receipt amount should be adjusted accordingly. Additionally, the weekly receipts should be reviewed on a quarterly basis to determine if adjustments are necessary. For example, if a quarterly review indicates a trend of actual expenses being significantly lower than the original budget, the weekly receipt should be lowered accordingly. Please contact FRB Atlanta prior to adjusting your weekly receipt amount.

3. Monthly Adjustment to Reflect Actual.
  On the 10th of every month or the first business day following the 10th, the PFRB should process an entry to recognize the difference between actual fully-costed 5360 expenses and the weekly receipts processed in step 2 for the previous month. After the fully-costing process has been completed, a year-to-date "Budget Experience" report for the previous month should be obtained from the PACSWeb system for fully-costed 5360 expenses. (Note: It is important to obtain a year-to-date report so that any prior period as-of adjustments are included.) The total of this report from the year-to-date "Actual" column, less Services Provided and any Fiscal Reimbursements (if applicable to your District), represents fully-costed 5360 expenses that have not been settled with FRB Atlanta. Depending on whether the balance is positive (Scenario A) or negative (Scenario B), the entry listed below should be performed. This entry should be processed with an as-of date of the prior month-end.

After completing the entry below, the PFRB should obtain the year-to-date "Budget Experience" report for the previous month and verify that the total for the 5360 Service equals zero.

Scenario A:
  If the "Budget Experience Report" indicates a positive amount in the final total of the year-to-date "Actual" column (after Services Provided and Fiscal Reimbursements), check expenses remain for which the PFRB has not been compensated by FRB Atlanta and the following entries should be made:

PFRB Entry

Dr.
SDS Atlanta (180-025-XXX) [YTD Total of "Actual" After Services Provided and Fiscal Reimbursements - PACSWEB Budget Experience Report]
Cr.
Current Expense (Check Services Provided to RB (88101): 330-050-567) [YTD Total of "Actual" After Services Provided and Fiscal Reimbursements - PACSWEB Budget Experience Report]

FRB Atlanta

Dr.
Current Expense (Check Services Provided by RB (88103): 330-050-567) [YTD Total of "Actual" After Services Provided and Fiscal Reimbursements - PACSWEB Budget Experience Report for each PFRB]
Cr.
SDS Atlanta (180-025-XXX) [YTD Total of "Actual" After Services Provided and Fiscal Reimbursements - PACSWEB Budget Experience Report for each PFRB]
Scenario B:
  If the "Budget Experience Report" indicates a negative amount in the final total of the year-to-date "Actual" column (after Services Provided and Fiscal Reimbursements), the PFRB has received compensation from FRB Atlanta in excess of its check expenses and the following entries should be made:

PFRB Entry

Dr.
Current Expense (Check Services Provided to RB (88101): 330-050-567) [ YTD Total of "Actual" After Services Provided and Fiscal Reimbursements - PACSWEB Budget Experience Report]
Cr.
SDS Atlanta (180-025-XXX) [YTD Total of "Actual" After Services Provided and Fiscal Reimbursements - PACSWEB Budget Experience Report]

FRB Atlanta

Dr.
SDS Atlanta (180-025-XXX) [YTD Total of "Actual" After Services Provided and Fiscal Reimbursements - PACSWEB Budget Experience Report for each PFRB]
Cr.
Current Expense (Check Services Provided by RB (88103): 330-050-567) [YTD Total of "Actual" After Services Provided and Fiscal Reimbursements - PACSWEB Budget Experience Report for each PFRB]
4. Year-end.
  After December's fully costing process is complete, a final adjusting entry, as described in step 3, should be functioned no later than January 15th or the first business day following the 15th to accurately reflect December's actual 5360 expenses. It is important that this entry not be processed until all expenses related to year-end adjusting entries have been processed in PACSWeb and fully-costing is complete. This final entry should be reflected on each District's adjusted trial balance.

C.2 Accounting for Compensation for the Costs of Providing ACH, Funds Transfer, and Securities Transfer Services

These accounting instructions contain detailed procedures for recognizing the compensation from the Atlanta Reserve Bank to the other Reserve Banks for providing ACH services and from the New York Reserve Bank to the other Reserve Banks for providing funds transfer and securities transfer services. These procedures, similar to those adopted in 2005 for check services will result in the appropriate accounting treatment at each Reserve Bank. Essentially, these procedures provide for compensation to be recorded each Wednesday and at month-end based on estimates prepared by each Reserve Bank with a supplemental adjustment the following month when the actual expenses are known. In addition, these instructions include one-time year-to-date correcting entries that represent the amount of the compensation due from the Atlanta Reserve Bank to the other Reserve Banks for ACH services and from the New York Reserve Bank to the other Reserve Banks for funds transfer and securities transfer services provided through June 30.3

The two year-to-date correcting entries reflect both the recognition of the compensation for services rendered through June and the associated distribution of that income to the Treasury in the form of interest on FR notes. To restore each Reserve Bank's accounts to the correct balances, the excess amounts paid by FRB Atlanta and FRB New York to the Treasury need to be redistributed to the other Reserve Banks to reflect that, in substance, a portion of the Atlanta and New York Reserve Banks' distributions were actually on behalf of the other Reserve Banks. By redistributing Atlanta's and New York's over-payment of earnings to the Treasury to the other Reserve Banks, the System will avoid making an unwarranted double distribution to the Treasury due to the correction of this accounting.

Entries for 2006 should be processed according to the following schedule:
Date Description
July 24 Make the entry to recognize current year-to-date date (through June 30) compensation (per step 1 of instructions).
July 26 Begin functioning the estimated compensation receipt/paid entries for ACH, funds transfer, and securities transfer service costs incurred/compensated (per step 2). This will be for the first 25 days of July.
July 31 Make the month-end estimated compensation receipt/paid entry (per step 2).
August 2 Begin weekly estimated compensation receipt/paid entries (per step 2).
August 10
(1st business day after the 10th of the month)
Make first supplemental adjustment to actual for July (per step 3).

Procedures for Recording Compensation for Check, ACH, Funds and Securities Transfer Services

Procedures related to compensation entries for Check, ACH, Funds Transfer and Securities Transfer Services are being amended to implement a more efficient process by eliminating weekly same-day settlement entries.

1. Changes to the Current Process for Estimating and Recording Weekly Accruals for Compensation Within the Month

In lieu of performing weekly same-day settlement entries on Wednesdays to settle compensation between Reserve Banks related to Check, ACH, Funds Transfer, and Securities Transfer Services, Reserve Banks are required to include weekly estimates for the compensation when calculating accruals of expenses within the month as required by section .80 of the Financial Accounting Manual. Estimates for compensation are required to be based on the original budget for fully-costed 5360 (check), 5260 (Automated Clearing House Operations), 5250 (Transfer of Reserve Account Balances), and 5520 (Book Entry Securities) expenses, less any Fiscal Reimbursement (if applicable to your District) and less CRSO national support costs allocated to 5360, 5260 and 5250 for Chicago. The other components of this calculation can be based on your District's current procedures. An example of this calculation has been included for reference below.

2. Month-end Compensation Accrual

On the last business day of the month, the Reserve Bank that provides the service, the "Processing Federal Reserve Bank" (PFRB), should make an entry to accrue the receipt of compensation for check, ACH, funds transfer or securities transfer services it provided. The accrual amount should be based on the monthly original budget for fully-costed 5360, 5260, 5250, and 5520 expenses, less any Fiscal Reimbursements (if applicable to your District) and less CRSO national support costs allocated to 5360, 5260 and 5250 for Chicago. The PFRB will send an email notification to Atlanta and New York for the offsetting payable entries. Reference Step 6 for contact information for New York and Atlanta. It is critical that the Reserve Bank accrue the entries at month-end so that the income and expenses are properly matched in the period.

The monthly "Original" column of the PACSWeb Budget Experience Report should be used to determine the monthly accrual. The monthly accrual should be rounded to the nearest $1,000.

Note: The PACSWeb Budget Experience Report is referenced throughout these instructions. This report should be obtained for the District using the Activity Level Parameter of "Service" for 536, 526, 525 and 552 and the Account Level of "Summary Object". Alternatively, a PACS query can be used to obtain the same information.

PFRB Entry

Dr.
Accounts Receivable (170-125-XXX)
[ Monthly Original Budget for 5360 (Check), 5260 (ACH), 5250 (Funds), and 5520 (Securities Transfer) less Fiscal Reimbursements and less CRSO National support costs for Chicago]
Cr.
Current Expense (Check, ACH, Funds Transfer and Securities Transfer services provided to RB (88101, 88201, 88301,88401): (330-050-567) )
[ Monthly Original Budget for 5360 (Check), 5260 (ACH), 5250 Funds), and 5520 (Securities Transfer) less Fiscal Reimbursements and less CRSO National support costs for Chicago]

FRB Atlanta Entry

Dr.
Current Expense (Check and ACH Services Provided by RB (88103, 88203): 330-050-567)
[ Monthly Original Budget for 5360 (Check) and 5260 (ACH) less Fiscal Reimbursements and less CRSO National support costs for Chicago]
Cr.
Accounts Payable (240-125-XXX)
[ Monthly Original Budget for 5360 (Check) and 5260 (ACH) less Fiscal Reimbursements and less CRSO National support costs for Chicago]

FRB New York Entry

Dr.
Current Expense (Funds Transfer and Securities Transfer Services provided by RB (88303, 88403): 330-050-567)
[ Monthly Original Budget for 5250 (Funds Transfer) and 5520 (Securities Transfer) less Fiscal Reimbursements and less CRSO National support costs for Chicago]
Cr.
Accounts Payable (240-125-XXX)
[ Monthly Original Budget for 5250 (Funds Transfer) and 5520 (Securities Transfer) less Fiscal Reimbursements and less CRSO National support costs for Chicago]

Note: If it is known that the monthly original budget is significantly different than actual expected expenses, the month -end accrual amount should be adjusted accordingly. Additionally, actual experience should be reviewed on a quarterly basis to determine if adjustments are necessary. For example, if a quarterly review indicates a trend of actual expenses being significantly lower than the original budget, the month-end accrual amount should be lowered accordingly. Please contact FRB Atlanta or FRB New York prior to adjusting your monthly compensation estimate as indicated in step 5.

3. Monthly Adjustment to Reflect Actual

On the 10th of every month or the first business day following the 10th, the PFRB should process a SDS entry to record the receipt of compensation from Atlanta and New York and to recognize the difference between actual fully-costed expenses for the preceding month and the month-end accrual (from Step 2) for 5360, 5260, 5250 and 5520 expenses. After the fully-costed process has been completed, a year-to-date "Budget Experience" report for the previous month should be obtained from the PACSWeb system for fully-costed 5360, 5260, 5250 and 5520 expenses. (Note: It is important to obtain a year-to-date report so that any prior period as-of-adjustments are included.) The total of this report from the year-to-date "Actual " column, less Services Provided and any Fiscal Reimbursements if applicable to your district, and less CRSO national support costs allocated to 5360, 5260 and 5250 for Chicago, represents the difference between the month-end accrual and actual fully-costed 5360, 5260, 5250 and 5520 expenses. Depending on whether the balance is positive or negative, the entry listed below should be performed. This entry should be processed in Lawson with an as-of-date of the prior month.

After completing the entry below, the PFRB should obtain the year-to-date "Budget Experience" report for the previous month and verify that the totals for 5360, 5260, 5250, and 5520 Services equals zero. It should be noted that if a residual of less than $10.00 exists, the PFRB, in coordination with FRB Atlanta or FRB New York, should write-off the amount to a local difference account instead of processing a same-day settlement to correct. The write-off of small residual amounts is necessary to efficiently handle differences that arise from rounding.

Scenario A:
  The "Budget Experience Report" indicates a positive amount in the final "Total" line of the year-to-date "Actual" column (after services provided and Fiscal Reimbursements and less CRSO national support costs allocated to 5360, 5260 and 5250 for Chicago). In this case, expenses remain for which the PFRB did not accrue and the following entries should be made:

PFRB Entry

Dr.
SDS Atlanta or New York (180-025-XXX)
[ YTD Total of "Actual" After Services Provided and Fiscal Reimbursements - PACSWEB Budget Experience Report plus accrued receivable]
Cr.
Current Expense (Check, ACH, Funds Transfer or Securities Transfer Services Provided to RB (88101, 88201, 88301, or 88401): 330-050-567) [YTD Total of "Actual" After Services Provided and Fiscal Reimbursements - PACSWEB Budget Experience Report]
Cr.
Accounts Receivable (170-125-XXX)
[ Accrued receivable from step 2]

FRB Atlanta Entry

Dr.
Current Expense (Check and ACH Services Provided by RB (88103, 88203): 330-050-567)
[YTD Total of "Actual" After Services Provided and Fiscal Reimbursements- PACSWEB Budget Experience Report for each PFRB]
Dr.
Accounts Payable (240-125-XXX)
[Accrued payable from step 2]
Cr.
SDS Atlanta (180-025-XXX)
[YTD Total of "Actual" after Services Provided and Fiscal Reimbursements - PACSWEB Budget Experience Report for each PFRB plus accrued payable]

FRB New York Entry

Dr.
Current Expense (Funds Transfer and Securities Transfer Services Provided by RB (88303, 88403):330-050-567)
[YTD Total of "Actual" After Services Provided and Fiscal Reimbursements- PACSWEB Budget Experience Report for each PFRB]
Dr.
Accounts Payable (240-125-XXX)
[Accrued payable from step 2]
Cr.
SDS New York (180-025-XXX)
[YTD Total of "Actual" after Services Provided and Fiscal Reimbursements - PACSWEB Budget Experience Report for each PFRB plus accrued payable]

Scenario B: The "Budget Experience Report" indicates a negative amount in the final "Total" line of the year-to-date "Actual" column (after Services Provided and Fiscal Reimbursement and less CRSO national support costs allocated to 5360, 5260 and 5250 for Chicago). In this case, the PFRB has accrued for compensation from FRB Atlanta or FRB New York in excess of its expenses and the following entries should be made:

PFRB Entry

Dr.
SDS Atlanta or New York (180-025-XXX)
[ Accrued receivable less YTD Total of "Actual" After Services Provided and Fiscal Reimbursements - PACSWEB Budget Experience Report]
Cr.
Current Expense (Check, ACH, Funds Transfer or Securities Transfer Services Provided by RB (88101, 88201, 88301, or 88401): 330-050-567)
[YTD Total of "Actual" After Services Provided and Fiscal Reimbursements- PACSWEB Budget Experience Report]
Cr.
Accounts Receivable (170-125-XXX)
[ Accrued receivable from step 2]

FRB Atlanta Entry

Dr.
Accounts Payable (240-125-XXX)
[Accrued payable from step 2]
Cr.
SDS Atlanta (180-025-XXX)
[ Accrued payable less YTD Total of "Actual" after Services Provided and Fiscal Reimbursements - PACSWEB Budget Experience Report for each PFRB]`
Cr.
Current Expense (Check and ACH Services Provided by RB (88103, 88203): 330-050-567)
[ YTD Total of "Actual" after Services Provided and Fiscal Reimbursements - PACSWEB Budget Experience Report for each PFRB]

FRB New York Entry

Dr.
Accounts Payable (240-125-XXX)
[Accrued payable from step 2]
Cr.
SDS New York (180-025-XXX)
[ Accrued payable less YTD Total of "Actual" after Services Provided and Fiscal Reimbursements - PACSWEB Budget Experience Report for each PFRB]
Cr.
Current Expense (Funds Transfer and Securities Transfer Services Provided by RB 88303, 88403):330-050-567)
[YTD Total of "Actual" after Services Provided and Fiscal Reimbursements - PACSWEB Budget Experience Report for each PFRB]
4. Year-end

After December's fully costed process is complete, a final adjusting entry should be functioned following the instructions in step 3 no later than January 15th or the first business day after the 15th to accurately reflect December's actual 5360, 5260, 5250, and 5520 expenses. It is important that this entry not be processed until all expenses related to year-end adjusting entries have been processed in PACSWeb and full-costing is complete. The final entry should be reflected on each District's adjusted trial balance. Should PACS adjustments occur after year-end settlement that change actual expenses by more than $10,000 for the combined services (5360, 5260, 5250 or 5520), the PFRB should contact RBOPS and the impacted Reserve Banks for consultation prior to making any adjustments to the year-end entry.

5. Annual Verification of Estimates Used to Calculate Accrued Expenses

As indicated in Step 1, Districts are required to include estimates for the compensation when calculating accruals of expenses within the month as required by section .80 of the Financial Accounting Manual. Estimates for compensation are required to be based on the original budget for fully-costed 5360 (check), 5260 (Automated Clearing House Operations), 5250 (Transfer of Reserve Account Balances), and 5520 (Book Entry Securities) expenses, less any Fiscal Reimbursement (if applicable to your District) and less CRSO national support costs allocated to 5260 and 5250 for Chicago. By December 15, each District should communicate the coming year's annual estimate to FRB Atlanta or FRB New York, as appropriate. Additionally, any changes to this annual estimate during the year should also be communicated prior to adjusting accrued expense estimates.

EXAMPLE: Weekly Estimated Accrual Expense Process

Step 1: Calculation of Daily Estimated Expenses for 2007

Description Amount
Direct Expenses Estimated for 2007 (Optional Source: "Total Annual Original Budget" for direct expenses from Budget Web Experience Report) $220,140,089.66
Minus Expected Compensation from Atlanta (REQUIRED Source: "Total Annual Original Budget" for fully-costed expenses from Budget Expense Report or PACS Query for service 526 and 536 ) * Service 526 ($608,334.15)
Service 536 ($20,083,829.70)
Minus Expected Compensation from New York (REQUIRED Source: "Total Annual Original Budget" for fully-costed expenses from Budget Expense Report or PACS Query for service 525 and 552) ** Service 525 ($123,533.00)
Service 552 ($59,686.93)
Minus Expected Reimbursement from Treasury ( Optional Source: "Total Annual Original Budget" for fully-costed expenses from Budget Web Experience Report for Service Line 2) ($123,934,238.96)
Adjusted Direct Expense Estimated for 2007 $75,330,466.92
Average Daily Estimated Expense 2007 $75,330,466.92 divided by 365 = $206,384.84

* For this step, FRB Atlanta would add compensation amounts from the PFRB's to the direct expense total for 2007. Return to table

**For this step, FRB New York would add compensation amounts from the PFRB's to the direct expense total for 2007  Return to table

Step 2: Calculation of Weekly Accrual for 2007

  1. To determine if an accrual is needed, the following calculation should be performed:
    2007 Average Daily Estimated Expense x # of days year-to-date = Total Estimated Operating Expense
    For example, if it is January 18, 2007, the calculation would be performed as follows: $206,385 * 18 = $3,714,930
  2. The "Total Estimated Operating Expense" should then be compared to the actual operating expenses using the following formula:

    Total Estimated Operating Expenses - Total Actual Operating Expenses = Accrual Amount

    For example, if it is January 18, 2007, the calculation would be performed as follows: $3,714,930 - $1,639,497 (Optional source: FR 96) = $2,075,433

    For this example, the final daily balances in the "Accrued Expenses Unpaid-Estimated" (240-200-xxx) account and the "Expenses Accrued - Estimated" (330-050-xxx) account should be $2,075,433. Note that if the accrual amount is negative, year-to-date expenses recorded exceed the estimated year-to-date expenses. In accordance with FAM section .80, an accrual should not be reported in the "Expenses Accrued - Estimated" and the "Accrued Expenses Unpaid - Estimated" accounts on the form FR 34. In other words, the final daily balances in the "Accrued Expenses Unpaid-Estimated" (240-200-xxx) account and the "Expenses Accrued - Estimated" (330-050-xxx) accounts should be $0.

  3. Make the appropriate entries in the "Accrued Expenses Unpaid-Estimated" (240-200-xxx) account and the "Expenses Accrued - Estimated" (330-050-xxx) accounts.

References

1. This appendix is based on a memo issued by Brenda L. Richards, Manager, RBOPS FRB Financial Accounting Section, on November 28, 2005, addressed to Accounting Officers at each Federal Reserve Bank. Return to text

2. See Appendix C.2, item 1 for subsequent changes to procedures for the accrual of compensation for services provided. Return to text

3. This appendix is based on a memo issued by Brenda L. Richards, Manager, RBOPS FRB Financial Accounting Section, on July 19, 2006, addressed to Accounting Officers at each Federal Reserve Bank. Return to text

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Last update: February 18, 2014