Treatment of capital assets in governmental accounting systems poses something of a theoretical dilemma. Recording all expenditures in the period of receipt, instead of the period of consumption, may sacrifice efficient management of assets with multi-period lives in favor of better cash control.
The Bureau of Land Management's (BLM) Working Capital Fund (WCF) seems to offer the best of both worlds. The WCF is a revolving fund dedicated to the purchase, maintenance and replacement of capital assets. BLM's operating entities pay the WCF for capital assets over the periods of the asset life in a manner similar to a lease.
The problem of efficient capital asset management in the federal government is significant as capital assets exceed $1 trillion. This large investment has attracted the attention of the Federal Accounting Standards Advisory Board (FASAB), which has defined plant, property and equipment as tangible assets that: have an estimated useful life of two or more years; are not intended for sale in the ordinary course of business; and are intended to be used or available for use by the entity.
Accounting theorists have suggested using depreciation as a method of allocating the costs of long-lived assets to the shorter time periods for which financial statements are typically prepared. However, debate continues as to whether a historical valuation misstates the balance sheet or whether a current cost valuation misstates the profit and loss statement. These discussions, while useful to businesses, may have less relevance to government organizations. New Zealand, considered an innovator in governmental accounting, had trouble applying traditional depredation methodology to "social" assets, particularly those viewed as infrastructure?
Significantly, FASAB recognized that the federal government was unique and that there was "no need to be constrained by the boundaries of traditional financial statements and reporting formats" if other reporting techniques "help users assess performance and accountability."3 The purpose of this article is to extend discussion of governmental asset accounting toward better achievement, rather than just assessment, of performance and accountability.
A short case study will document a capital replacement and maintenance accounting process that seems to affect favorably the management of capital assets. Discussion will focus on the effects of the asset cost measurement process on management behavior. The Working Capital Fund's apparent success in improving the management of capital assets may broaden thinking concerning the role of capital asset accounting in government. A SHORT CASE STUDY: BLM'S WORKING CAPITAL FUND The Department of Interior's Bureau of Land Management (BLM) owns some 272 million acres of land, approximately one-eighth of the United States. The size of its domain and the 2,000 laws for which it is responsible have led the bureau to a highly decentralized organization. Budget formulation and budget management exist at the lowest level of an organizational hierarchy that goes from national to state to district and on down to functional offices.
Capital equipment represents roughly 20 percent of BLM's budget and is second only to personnel cost. The Working Capital Fund (WCF), a national-level function, supports all BLM organizations that require extensive capital for equipment. For example, vehicles represent large capital expenditures at BLM, and the WCF handles roughly 90 classes comprised of 2,000 fire engines, bulldozers, graders and trucks.
The WCF receives no direct appropriations and operates as a revolving fund that must cover expenses with revenue. The fund uses two revenue sources: maintenance fees and fixed ownership fees. Both fees are charged monthly to each district functional operation s appropriated budget authority. The maintenance fee covers all operating expenses for vehicles. Each vehicle is given a "credit card" to pay for fuel, oil, maintenance and repair. …