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Discussion and Analysis of the Financial Statements

The National Science Foundation is committed to providing quality financial management to all our stakeholders. We honor that commitment by preparing annual financial statements in conformity with generally accepted accounting principles and then subjecting the statements to an independent audit to ensure their reliability in assessing the performance of NSF. The results are an opinion on the fair presentation of those financial statements.

FY 2000 Financial Statement Audit
The Chief Financial Officer’s Act of 1990 (P.L. 101-576) requires that NSF prepare financial statements to be audited in accordance with Government Auditing Standards. The NSF Inspector General is statutorily responsible for the manner in which the audit of NSF’s financial statements is conducted. KPMG LLP, an independent certified public accounting firm, was selected by the NSF Inspector General to perform the audit of NSF’s FY 2000 financial statements.

In concurrence with the National Science Board Committee on Audit and Oversight and the NSF Chief Operating Officer, the NSF Inspector General and Chief Financial Officer established the NSF Audit Coordination Committee in 1998 to promote and encourage open communications to discuss audit issues. The Audit Coordination Committee, in coordination with both the Chief Financial Officer and the Inspector General, closely monitor the annual audit. The auditor issues a signed audit report that is presented to the Chair of the National Science Board and the NSF Director.

NSF received an unqualified opinion stating that the principal financial statements were fairly stated in all material respects. The independent auditors did not report any material weaknesses.

NSF’s one previous reportable condition related to NSF’s U.S. Antarctic Program’s (USAP) Property, Plant and Equipment (PP&E) has been remedied for FY 2000. NSF management engaged the USAP contractor to increase their level of internal controls relative to the PP&E reporting provided to NSF for the annual financial statements. NSF management instituted a supervisory level of review and concurrence with accounting information prepared by contractor staff to identify and correct any errors or improper reporting before information is submitted to NSF. The auditors performed extensive interim testing at the contractor’s site and year-end testing at NSF Headquarters and found this condition to be resolved.

One instance of a noncompliance with laws and regulations was reported; however, NSF management disagrees with this assessment. The expending of funds from the Research and Related Activities (RRA) appropriation to supplement potential shortfalls in the Major Research Equipment (MRE) appropriation for a large international project was identified as a potential noncompliance with federal appropriations law and noted in a report issued by the NSF Inspector General's office in December 2000. NSF management believes that the allocation of expenditures between the RRA and MRE appropriations is within management discretion under the guiding principles of federal appropriations law. NSF management will seek to add more definitive appropriations law language in future MRE appropriations, to clarify that funds from other sources can be used to supplement MRE appropriations.


Understanding the Financial Statements
NSF’s current year financial statements and notes are presented in a comparative format providing financial information for FY 1999 as well as for FY 2000. Comparative financial statements were originally required for FY 2000 by Technical Amendments to OMB Bulletin 97-01, Form and Content of Agency Financial Statements, dated November 20, 1998.

A subsequent Technical Amendment to OMB Bulletin 97-01, dated September 11, 2000 postponed this requirement for FY 2000. NSF has elected early implementation of comparative financial statements as is permitted and encouraged by the latest Technical Amendment.

The following provides a brief description of the nature of each required financial statement and its relevance to NSF. Some significant balances or conditions on each statement are noted to help clarify their link to NSF operations.

Balance Sheet: The Balance Sheet presents the combined amounts available for use by NSF (assets) against the amounts owed (liabilities) and amounts that comprise the difference (net position).

Three line items represent 99% of NSF’s current year assets. Fund Balance With Treasury is funding available through the Department of Treasury accounts from which NSF is authorized to make expenditures and pay liabilities. Property, Plant and Equipment comprises capitalized property located at NSF headquarters and NSF-owned property in New Zealand and Antarctica that support the United States Antarctic Program. Advances are funds advanced to NSF grantees, contractors and minor amounts to NSF employees.

Accounts Payable and Advances From Others represent 96% of NSF’s current year liabilities. Accounts Payable includes liabilities to grantees for their unreimbursed expenses and liabilities to NSF vendors for unreimbursed goods and services received. Advances From Others are amounts advanced to NSF from other federal entities for the administration of grants on their behalf. NSF maintains the expertise and automated systems for the administration of grants upon which other federal entities rely to assist in the administering of their grants.

Comparative Discussion: Analysis of significant changes from FY 1999 to FY 2000 incorporates an increase in Fund Balance With Treasury; Intragovernmental Accounts Receivable; Accounts Receivable; General Property, Plant and Equipment; Other Intragovernmental Liabilities; Lease Liabilities; and a reduction in Cash.

The increase in FY 2000 Fund Balance with Treasury was in correlation to the overall increase in budget authority. The FY 2000 Intragovernmental Accounts Receivable increase stems from an amount due on an interagency agreement on a NSF funded award. Cash decreased due to a reduction in the Trust Fund balance maintained.

FY 2000 Accounts Receivable increased due to the recording of a receivable from a NSF grantee. General Property, Plant and Equipment increased in FY 2000 mainly through additions to construction in progress related to polar program operations and a new phone system at NSF Headquarters in Arlington. The increase in Intragovernmental Liabilities was primarily due to an interagency On-line Payment and Collection (OPAC) liability. Lease Liabilities rose from the capitalization and liability recognition of several new leasing arrangements in FY 2000.

Statement of Net Cost: This statement presents the annual cost of operating NSF programs. The gross cost less any offsetting revenue for each NSF program is used to arrive at the net cost of specific program operations. Revenues are recognized from other federal agencies for grant administration work, which is completed during the year.

To arrive at full costing, NSF includes certain benefit costs for NSF retirees’ benefits that will be paid by the Office of Personnel Management (OPM) for future periods. Amounts remitted to OPM by and for covered NSF employees do not generally cover the actual costs of the benefits those employees will receive after their careers. NSF calculates the costs paid by OPM on behalf of NSF and reports those costs as part of the cost of NSF operations.

A total of 96.1% of all current year NSF costs incurred were directly related to the support of NSF research and education programs. A small portion of these direct costs is for travel and salaries paid from programmatic funds. Costs incurred for indirect general operation activities such as salaries, training, activities related to the advancement of NSF information systems technology, and Inspector General activities account for 3.9% of the total current year NSF net cost of operations. NSF’s commitment to administrative efficiency is evident in the relatively small portion of its total costs devoted to general operation activities.

Comparative Discussion: Analysis of changes in Net Cost from FY 1999 to FY 2000 shows a 15% increase in Earned Revenues and about a 4% increase in Net Cost of Operations. These increases are reflective of the agency’s overall increase in Budget Authority.

Statement of Changes in Net Position: This statement presents those accounting items which caused the net position section of the balance sheet to change from the beginning to the end of the reporting period. Ninety-nine percent of all current year financing sources are comprised of appropriated funds from Treasury accounts and donations received from private and foreign government sources used in the furtherance of the mission of the Foundation. The increase in unexpended appropriations is due mainly to an increase in unliquidated obligations from the prior fiscal year. Unliquidated obligations are obligations maintained by NSF for research and education for which expenses have not yet been recognized.

Comparative Discussion: Analysis of changes in Net Position from FY 1999 to FY 2000 indicates an 11% increase in ending Net Position. This change is largely due to an increase in unexpended appropriations or the amount of appropriation funding remaining at year-end. This increase is consistent with the overall increase to our budgetary authority. Another item of note is Transfers in. Transfers in for FY 1999 and FY 2000 relate to the Office of Polar Programs equipment received and the salvage value of the new satellite received from NOAA, respectively.

Statement of Budgetary Resources: This statement provides information on how budgetary resources were made available to NSF for the year and the status of those budgetary resources at year-end. The outlays reported on this statement reflect the actual cash disbursed for the year by Treasury for NSF obligations. Most obligations incurred by NSF are for science and engineering grants. This statement is in accordance with information presented in the FY 2000 President's Budget; however, this statement was prepared prior to completion of the FY 2002 President's Budget.

Comparative Discussion: Analysis of changes in Budgetary Resources from FY 1999 to FY 2000 show a 7% increase in Total Budgetary Resources and a 6% increase in Total Outlays. Both of these increases are consistent with our increase in budget authority.

Statement of Financing: This statement provides reconciliation between the resources available to NSF to finance operations and the net cost of operating NSF programs. Net Cost Capitalized on the Balance Sheet are additions to capital assets made during the fiscal year. Costs That Do Not Require Resources include depreciation and the operating gain or losses recognized upon the disposition of NSF capital assets.

Comparative Discussion: Analysis of changes in financing from FY 1999 to FY 2000 revealed a decrease in Change in Unfilled Customer Orders due to a strong current year effort to reduce outstanding reimbursable orders; an increase in Net Costs Capitalized on the Balance Sheet related to additions to construction in progress and a new phone system; and a decrease in Loss on Disposition of Assets since only minor assets were retired this year. Additionally, Other Financing Sources were eliminated in the current year; 1999 was the final year for funding of a court ordered dissolution of a NSF cooperative agreement relating to Internet domain names.

Stewardship Investments: Stewardship investments are NSF-funded investments that yield long term benefits to the general public. NSF investments in research and education yield quantifiable outputs shown in this statement as the number of awards made and the number of researchers and students supported in the pursuit of discoveries in science and engineering and in science and math education.

Comparative Discussion: Analysis of changes in Stewardship Investments from FY 1999 to FY 2000 showed consistent incremental increases in Research and Human Capital activities in support of NSF’s overall mission as reported in monetary investments and measured outputs and outcomes.


Budgetary Integrity: Resources & How They Are Used
NSF is primarily funded through five Congressional appropriations which totaled $3.9 billion in FY 2000—a 5.4% increase from the FY 1999 prior year. Other FY 2000 revenue resources included $86.0 million in reimbursable authority and appropriation transfers from other federal agencies and $15.8 million in donations to support NSF activities. Additional resources were also received from the Department of Justice under The American Competitiveness and Workforce Improvement Act, enacted in 1998, which provides for a temporary increase in access to skilled personnel from abroad under the H-1B visa program. In FY 2000, NSF received $48.6 million from H-1B visa fees, to support education activities and scholarships for financially disadvantaged students in computer science, engineering, and mathematics.

From its total budgetary resources, NSF obligated $3.9 billion in FY 2000. As indicated in the Statement of Net Cost, the Foundation supports research activities and education activities. Research activities are funded through the Research and Related Activities appropriation and the Major Research Equipment appropriation. Education activities are funded primarily through the Education and Human Resources appropriation, although given the integrative nature of research and education, NSF research activities often include an education and training component. Administrative support for the Foundation as a whole is provided by the Salaries and Expenses appropriation. The Office of Inspector General is funded under its own separate appropriation.

For FY 2001, Congress provided NSF with total appropriations of $4.4 billion, a 13.6% increase from the prior year. In addition, it is estimated that NSF will receive $102.7 million from H1-B fees. Areas of emphasis for NSF investments in FY 2001 include Information Technology Research; Biocomplexity in the Environment; Nanoscale Science and Engineering; and plant genome research for economically significant crops. As part of the Federal Cyber Services Training and Education Initiative, NSF will establish a new Scholarships for Service program aimed at developing a cadre of computer systems and network national security specialists for the 21st century. Ongoing support with be provided to numerous activities, including the Children’s Research Initiative, advanced technological education, Graduate Teaching Fellowships in K-12 Education, and education efforts directed toward science and engineering at historically black colleges and universities and at Tribal colleges. Among major research equipment supported are a new teraflop computer facility and a high altitude research aircraft for environmental research.


Future Financial Trends and Business Events
NSF is continually evolving to take advantage of the most recent developments in technology, with an eye towards creating a more efficient, streamlined operation as well as providing better service to our diverse and growing customer base. NSF is making strides in enhancing employee work automation that will enable wider information sharing, expedite transaction flow and provide superior decision making information. Some of the efforts currently underway that will further enhance productivity and reduce costs for the Foundation, in both the near and long term are described below:

Continue improvement in accounting and financial business delivery systems:
NSF will continue to migrate to a client/server platform with the development of the PAT/PIMS system, Electronic Travel System, and Integrated Payroll System. The implementation of these systems is part of our progress to implement the overall NSF e-business strategy. This continues to build upon agency-wide strategic goals to broaden access to new and emerging technologies for business applications.

  • PIMS/PAT Systems. The Program Announcement Template (PAT) is a Web-based system that streamlines the preparation of program announcements and solicitations, allowing the user to “walk through” the development of an announcement/solicitation. The purpose of the Program Information Management System (PIMS) is to build a comprehensive relational database of program-related data and the mechanisms for updating, controlling, distributing and publishing that information to NSF web sites and other destinations. Workflow and clearance procedures will be supported and PIMS data will be available for use on Directorate, Division, and Program web pages. Full implementation of PIMS is expected in FY 2001.
  • Electronic Travel System. A new Electronic Travel System (ETS) is being designed as a replacement to the current paper voucher process. ETS will provide electronic routing to staff members responsible for initiating travel authorization, approval, and vouchering, and to other offices whose approval or authorization is necessary. The prototype of ETS is currently under development.
  • Integrated Payroll System. NSF is currently finalizing development of a new payroll system to replace the current legacy payroll system. The new Integrated Payroll System (IPAY) will be a client/server platform system that integrates the personnel operational system and the Time and Attendance System and interface with NSF’s Financial Accounting System (FAS). IPAY will provide electronic transfers of payroll and financial information to other government agencies and commercial financial institutions to minimize or eliminate manual payroll processes. This system will also have ESS (Employee Self Service) capability, allowing employees to make certain payroll changes electronically. By reducing data entry requirements, eliminating manual reconciliation, and making data available to employees on-line via their personal computer, IPAY will enhance the entire payroll process. Full implementation of IPAY is expected in early FY 2001.
  • FastLane. The FastLane system allows NSF to exchange information and facilitate business transactions with the external university research community via the Internet. Doing business with NSF is less expensive because customers have greater access to information, can tailor the way they do business with NSF, and utilize “smart-forms” which access NSF databases to minimize data entry. In addition to improving customer service to grantees, these features are able to reduce the time and effort needed to complete transactions within NSF. NSF plans, through FastLane updates, to continue to move toward a paperless business systems environment in which information is transferred and shared electronically rather than physically.

Participate in government-wide efforts to improve the administration of all federal grant programs: NSF will continue to take an active leadership role with the Grants Management Committee of the U.S. CFO Council, with its primary task to implement government-wide improvements in grant delivery services as required by the Federal Financial Assistance Management Improvement Act of 1999 (P.L. 106-107).

Participate in intra-governmental business solutions. NSF has developed a plan to incrementally address intra-governmental business transaction reporting for FY 2000 and the future. In FY 2000, NSF is confirming with the appropriate Fiduciary Agencies and attempting confirmations with our other large governmental partners. In looking towards the future, NSF is actively involved in two governmental workgroups, IGOTS (Intra-Governmental Transfer System group) and IGETS (Intra-Governmental Elimination Transaction group), to determine possible solutions and strategies for this far-reaching issue.

Continued sponsorship of FinanceNet. FinanceNet (http://www.financenet.gov) is the Internet’s Web site for public financial management information. Established in 1994, FinanceNet is operated by NSF under the sponsorship of the U.S. Chief Financial Officers Council. As the virtual clearinghouse for federal financial management information, FinanceNet is a shared government-wide resource that produces various Internet services to facilitate communication and collaboration among government financial managers and related parties and provides a shared, interagency platform for seeking solutions in a virtual government environment for common government-wide problems. FinanceNet has proven to be an important interactive information tool. In FY 2000, there were nearly 175,000 subscribers to FinanceNet's daily public and private list servers.

FinanceNet continues to expand its role to provide more service to the federal financial community. FinanceNet is now the federal government-wide web source for assets sales, and in the future will be expanded to include a searchable database of disposal assets by class and category and development of an on-line auction Web site (e.gov) similar to several popular private sector on-line auction houses. FinanceNet also is being considered as a potential data clearinghouse for agencies to reconcile and report intragovernmental transaction information that is required by the U.S. Treasury to compile the annual Consolidated Government-wide Financial Statements.


Limitations of the Financial Statements
Responsibility for the integrity and objectivity of the financial information presented in the financial statements lies with NSF management. The accompanying financial statements are prepared to report the financial position and results of the operations of NSF, pursuant to the requirements of Chapter 31 of the United States Code section 3515(b). While these statements have been prepared from the books and records of NSF in accordance with the formats prescribed in Office of Management and Budget Bulletin 97-01, Form and Content of Agency Financial Statements, these financial statements are in addition to the financial reports used to monitor and control budgetary resources which are prepared from the same books and records. The financial statements should be read with the realization that NSF is an agency of the executive branch of the United States Government, a sovereign entity. Accordingly, unfunded liabilities reported in the statements cannot be liquidated without the enactment of an appropriation, and ongoing operations are subjected to enactment of appropriations.