Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Basis of Presentation
These financial statements report the consolidated financial position and results of operations for the US Geological Survey (USGS). They have been prepared as required by the Chief Financial Officers Act of 1990, using the form and content provided by the Office of Management and Budget (OMB) Bulletin 97-01, as amended, and Entity and Display, OMB's Statement of Federal Financial Accounting Concepts, Number 2. The combined Statement of Financing has been prepared for FY 1998. It was not required for FY 1997 and is therefore not presented in a comparative format.

B. Reporting Entity
The USGS was established by the Congress in 1879 in response to a national need for earth science information. The accompanying financial statements have been prepared from the bureau's consolidated general ledgers. Included are all funds and accounts under USGS's control and allocations from other Federal agency appropriations transferred under specific legislative authority.

C. Basis of Accounting
Transactions are recorded in accordance with the Statement of Federal Financial Accounting Standards. In addition, transactions are recorded in accordance with accounting standards contained in agency accounting policy and procedure manuals, and accounting principles published by authoritative sources in the public sector. The USGS uses the accrual method for recording accounting transactions. Under this method, revenues are recognized when earned and expenses are recognized when goods and services are received, without regard to receipt or disbursement of cash. Transactions affecting budgetary resources are recorded concurrently, facilitating compliance with legal constraints and controls over the use of Federal appropriations.

The principal financial statements are prepared in accordance with the accounting principles, standards, and requirements approved by Federal Accounting Standards Advisory Board. Also, the Statement of Budgetary Resources contains intra bureau financial transactions for the USGS which have not been eliminated.

D. Revenues and Other Financing Sources
The USGS receives annual, multi-year, and no-year appropriations for mission programs. The majority of the budget authority is received through the annual appropriation, "Surveys, Investigations, and Research." Additional budgetary resources are available for goods and services furnished on a reimbursable basis. The USGS has specific legislative authority to record accounts receivable from non-Federal reimbursable customers as budgetary resources. The USGS also has authority to receive contributions from outside organizations to perform work desired mutually by both parties. In addition, the USGS receives rental receipts for providing quarters at remote locations for geomagnetic or seismic observations. Revenues are recognized when earned (i.e., goods have been delivered or services rendered). Revenues received in advance of performance are recorded as liabilities until actually earned.

E. Funds with the U.S. Treasury and Cash
All cash disbursements are processed through the Department of Treasury (Treasury). Cash collections from product sales are received at various sites nationwide and deposited locally in commercial banks designated as Treasury General Account Depositories. Receipts from joint funding agreements with State and local governments are processed through the Treasury's Lock-Box bank in Atlanta, Georgia. Bureau cash balances are reconciled monthly with Treasury report 6653, Undisbursed Appropriation Account Ledger. Cash balances held outside of Treasury are not material. Further details on fund balances with Treasury are contained in Note 2.

F. Foreign Currency
The USGS maintains small balances of foreign currencies to be used to make payments in foreign countries. Those balances are reported at the U.S. dollar equivalent using the exchange rate in effect on the last day of the reporting period.

G. Inventories
The USGS has inventories of supplies and materials used for normal agency operations and inventories of maps, map products, and hydrologic equipment held for sale. Costing methods that approximate historical cost are used to value inventories. General ledger balances are adjusted at year-end. See Note 5 for additional information concerning inventories.

H. Property and Equipment

USGS fixed assets are capitalized at cost if the original acquisition amount is $5 or more and the asset has an estimated service life of two years or greater. Equipment with an acquisition cost of less than $5 is expensed when purchased. Depreciation is recorded for the entity's equipment using the straight line method.

Buildings and structures are capitalized at cost if the original acquisition amount is $50 or more. Depreciation is recorded for the entity's fixed assets using the straight line method over the estimated useful life of 30 years. Note 6 contains additional information on property and equipment.

I. Prepaid and Deferred Charges
Payments in advance of the receipt of goods and services are recorded as prepaid charges at the time of prepayment and recognized as expenditures/operating expenses when the related goods and services are received.

J. Liabilities
Liabilities represent amounts to be disbursed as the result of a transaction or event that has already occurred. However, no liability can be paid by the USGS absent an appropriation. Liabilities for which an appropriation has not been enacted are classified as unfunded liabilities, and there is no certainty that the appropriation will be enacted. Also, liabilities arising from other than contracts can be abrogated by the Government, acting in its sovereign capacity.

K. Annual, Sick, and Other Leave
The USGS recorded an unfunded liability for accrued annual leave. This balance is adjusted at year-end to reflect current leave earned but not taken. Sick leave and other types of nonvested leave are expensed when used.

L. Retirement Plan
USGS employees participate in the Civil Service Retirement System (CSRS) or the Federal Employee Retirement System (FERS), to which the USGS makes matching contributions. The consolidated financial statements do not report CSRS or FERS assets or accumulated plan benefits. Managing and reporting such amounts are the responsibility of the Office of Personnel Management (OPM).

The USGS recognizes its share of the expenses of employee benefit programs and future pension outlays incurred by the OPM and the imputed financing source applicable to the expense. Refer to Note 11 for additional information on these costs.

Note 2. FUND BALANCES WITH TREASURY, CASH, AND FOREIGN CURRENCY

The cash amount includes imprest and change-making funds. Cash in imprest funds is used for various types of small purchases and travel advances. Change-making funds are maintained in offices where maps are sold over the counter.

The Foreign Currency amount consists of two Treasury Foreign Transaction Accounts maintained in the Paris and New Delhi overseas disbursing offices.

The 1997 Fund Balance with Treasury is revised to correct the misstated balance between the Appropriated Funds and the Working Capital Funds on the 1997 Notes to Financial Statements. The 1997 Fund Balance with Treasury is correctly stated on the 1997 financial statements.

Note 3. ACCOUNTS RECEIVABLE BILLED

The allowance for doubtful accounts was calculated based on a review of outstanding billed receivables and included an estimated percentage for uncollectible unbilled receivables.

Public receivables - The calculation of the allowance for public receivables considered anticipated increased collections and identification of uncollectible debts through referrals of eligible delinquent debts to Treasury under the Debt Collection Improvement Act (DCIA). The USGS began referring eligible debts to Treasury in September 1997.

Federal receivables - The calculation of the allowance for Federal receivables considered improved collections of delinquent bills owed by the Department of Defense (DOD) agencies through a coordinated effort with DOD's Defense Finance and Accounting Service (DFAS). The DFAS processed payments totaling more than $6,000 in 1998 of delinquent debts that were referred by the USGS to DFAS for collection assistance.

Note 4. ACCOUNTS RECEIVABLE UNBILLED

The USGS has specific legislative authority to enter into reimbursable agreements to perform cooperative work in advance of payment. Accounts Receivable Unbilled includes amounts that have been earned but not yet billed and collected from the reimbursable customer. Billings are prepared in accordance with terms of the reimbursable agreement, which can be quarterly, semi-annually, or annually. Many agreements have performance periods ending in September, with bills for collection prepared in the first month of the new fiscal year.

Note 5. INVENTORY HELD FOR SALE

Inventory includes maps, map products, and hydrologic equipment. Maps and map products are located at the USGS Rocky Mountain Mapping Center in Denver, Colorado, and at nine Earth Science Information Centers across the United States. Map and map product values are based on physical year-end actual counts. USGS's hydrologic equipment inventory is located at the Hydrologic Instrumentation Facility (HIF) at the Stennis Space Center in Mississippi. Products located at the HIF can only be sold to Federal agencies. A physical year-end inventory was taken at the HIF and an adjusting entry was made based on results of the inventory.

Note 6. PROPERTY AND EQUIPMENT, NET OF DEPRECIATION

USGS's land, structures and facilities, and equipment are valued at acquisition cost and depreciated using the straight line method. Of the $263,535 in accumulated depreciation, $24,565 was expensed in FY 1998.

Note 7. ACTUARIAL LIABILITIES

The USGS has recorded an unfunded liability for the expected future cost for death, disability, and medical claims under the Federal Employees Compensation Act. The data for this liability was provided by the Department of labor. This data was not available for FY 1997.

Note 8. CONTINGENT LIABILITIES

The USGS has certain contingent liabilities that may eventually result in the payment of substantial monetary claims to third parties. The USGS is liable to remove abandoned river cableways, data collection stations, and observation well sites. The estimated removal cost is $13,600. In addition, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 requires Federal agencies to report sites where hazardous wastes are or have been stored, treated, or disposed of, and also requires responsible parties, including Federal agencies, to clean up releases of hazardous substances. USGS's management, in consultation with the DOI Solicitor, believes this and other such claims will not materially affect USGS's future financial condition.

According to the Solicitor, there are no other contingent liabilities that materially affect the financial position or results of USGS's operations.

Note 9. UNEXPENDED APPROPRIATIONS

Note 10.LEASES

The U.S. Geological Survey has entered into some lease arrangements that potentially qualify as capital leases. However, the USGS has historically not considered lease arrangements for inclusion as assets. The dollar value of leases that could qualify as capital leases is not considered material. The total of operating leases on the consolidated and consolidating statements of net cost represents leases from General Service Administration and non-GSA lessors.

Note 11. EMPLOYEE BENEFIT EXPENSE

Accounting for Liabilities of the Federal Government, SFFAS No. 5, requires agencies to recognize the cost of pensions and other retirement benefits during their employees active years of service. The OPM is responsible for paying the cost of these benefits. The OPM actuaries have provided the employing agencies with rates for calculating the estimated cost of pension and other retirement benefits as of September 30, 1998. Using data provided by OPM and DOI, the USGS recorded the imputed pension expense of $45,853 for FY 1998.

Note 12. REVENUE EARNED

Revenues earned from public sources are derived from States and municipalities for making cooperative topographic and geologic surveys and water resource investigations; proceeds from the sale of photographs, maps, and records; proceeds from the sale of personal property; and reimbursements from permits and licensees of the Federal Energy Regulatory Commission. Revenues from cooperatives represent about half of the total cost, the U.S. Geological Survey pays the remaining half of the total cooperatives cost. Revenue earned from other Federal agencies is derived from special-purpose mapping, investigations, and computer services performed at the request of the financing agency, much of which contributes to the basic objectives of the USGS. Revenue is also received through the State Department from foreign countries and international organizations for scientific and technical assistance.

Note 13. INTEREST AND PENALTIES

This item represents interest and penalties that were assessed in the prior year but waived during the current fiscal year. In accordance with Title 4, Part 102, Section 13(g) of the Code of Federal Regulations (4CFR 102.13(g)), an agency has the right to waive the collection of interest on the debt or any portion of the debt that is paid within 30 days after the date on which interest began to accrue.

Note 14. DEFERRED MAINTENANCE (UNAUDITED)

The USGS owns assets such as land, buildings and structures (including office buildings, storage buildings, warehouses, and laboratories, river cableways, and wells), equipment related to a facility and specialized research equipment, monitoring networks, roads, and vessels. These assets are mission critical, parts of which are fundamental to provide timely warnings and scientific understanding of natural hazards; to measure trends in water quality; and to provide the scientific understanding and technologies needed to support the sound management and conservation of our Nation's biological, energy, water, and mineral resources. There is, however, a significant maintenance backlog relative to these assets, arising from the lack of sufficient annual funding to fully cover maintenance expenses and from unforeseen circumstances such as hurricanes and flood damage.

The USGS defines deferred maintenance as "maintenance that was not performed when it should have been or when it was scheduled and which, therefore, was put off or delayed for a future period." It is the unfunded or otherwise delayed work required to bring a facility or item of equipment to a condition that meets acceptable codes, laws, and standards and preserves the facility or equipment so it continues to provide acceptable services and achieves its expected life. The USGS prepared a listing of deferred maintenance projects based on DOI and USGS guidance issued for the FY 2000 Five-Year Maintenance and Capital Improvement Plan.

The estimated amount necessary to correct this backlog is between $40,000 to $50,000. Since the actual cost of correcting this backlog will not be known until the work is performed, this amount is by necessity an estimate. The following factors were considered in arriving at this estimate:

• this estimate includes deferred maintenance for property such as buildings, cableways, gaging stations, equipment, roads, and vessels;
  
• this estimate includes items such as overhead, internal employee costs, contractor costs, material and supplies costs;
  
• this estimate excludes property such as passenger vehicles, ADP equipment, land and printing presses; and,
  
• this estimate excludes items such as routine maintenance (annual and cyclical) and capital improvement projects as defined in the DOI guidance.

The USGS does not currently have in place a formal process for periodic condition assessments surveys. To develop the deferred maintenance estimate, the USGS canvassed each facility and office to prepare a listing of deferred maintenance projects. The USGS is developing a condition assessment process and reviewing the need for a maintenance tracking system.

Note 15. COMPARATIVE DATA

To facilitate the USGS reporting consistency and reports comparability, prior period adjustments are made to reflect a change in accounting principle and correction of prior period errors.

PRIOR PERIOD ADJUSTMENTS

• The most significant prior period adjustment is an adjustment to record actuarial costs to consider the 1997 accumulated plan benefits and unfunded liabilities, which was not available in 1997.
  
  
• balance adjustments represent the reversal of prior year adjustments where no entries are needed in the financial system.

• The USGS has recorded a working capital investment component adjustment to transfer the prior period purchases of capitalized assets and related expenses.

• Minor adjustments are made to reflect correction of prior period property acquisition cost and depreciation expense, prior years' future funding liabilities and accrual errors.
  
  
• The Intra-Bureau adjustment represents correction of errors carried forward from 1996 and 1997. The 1996 error was corrected at the Working Capital Fund supplemental statements level in 1997.

In addition, during 1998 the U.S Geological Survey reviewed the accounting treatment of the Unexpended Appropriations and Appropriation used accounts in 1997, resulting in certain accounting corrections and adjustment of the 1997 Consolidated Statement of Changes in Net Position.