1. The Office of Surface Mining's financial statements are based on Accrual accounting. Accrual accounting simply means identifying revenues and their corresponding costs for a particular period (in our case, the period is the fiscal year, October 1 - September 30). The definition of revenue, in accrual accounting, covers a lot more than just the receipt of cash. Revenue is "recognized" as soon as the effort required to generate the sale is substantially complete and that payment is likely to be received. Thus when an "accounts receivable" is established for the receipt of payment, revenue is created even if we don't have the cash yet. Office of Surface Mining sources of revenue are listed under "Financing Sources" on the Statement of Changes in Net Position.

2. It is important, when looking at the financial statements, to look at the accompanying notes for each line item. The notes explain not only what that line item means but also why certain changes have occurred if there are big increases or decreases from one year to the next.

3. Most of the comparison ratios that are used to interpret and compare corporate financial statements do not apply to governmental financial statements. This is because government agencies typically receive the majority of funding for their operations by appropriations authorized by Congress or by authority to use taxes and fees collected by that agency - not through sales of goods or services. Thus, the most frequently used ratios (i.e. return-on-equity, gross profit margin, inventory turnover) cannot be applied to our statements because we do not sell goods or services for profit.

Let's take a look at some specifics of the Office of Surface Mining four financial statements.

Statement of Financial Position

This is a fancy name for the Office of Surface Mining balance sheet. A balance sheet lets us look at all the assets the agency owns and the liabilities owed against those assets. It is a snapshot in time (in our case, the end of our fiscal year, September 30th) of what the Office of Surface Mining owns and owes. This statement always shows two consecutive fiscal year snapshots so that the reader can compare last year to this year. A couple of things to note about this statement are:

1. Government agencies have no "Owners Equity" as you will usually find on the balance sheet of publically held corporations. This is because the Office of Surface Mining has no "stock" to issue to private parties. Thus, the agency has no obligation to pay out dividends to stockholders and no private parties have a financial stake in the Office of Surface Mining operations. Instead of "Owners Equity" the Office of Surface Mining has "Net Position" which consists of appropriation authority (authority to spend government funds) which has not been used and equity from moneys paid or collected into the Abandoned Mine Land Special Fund, civil penalty collections, and income from services provided.

2. Assets should always be greater than liabilities. You can see this by looking at the balance sheet total lines for assets and liabilities. If you want to compare the solvency of one agency to another, you can calculate a debt-to-assets ratio by dividing total liabilities into total assets. The lower the percentage, the more solvent the company. For example, the Office of Surface Mining's debt-to-assets ratio is as follows:

This percentage means that 6.67 percent of money used for the Office of Surface Mining's assets come from a creditor of one form or another. By contrast, the average U.S. corporate debt-to-assets ratio is around 58 percent.

Statement of Net Cost

To better understand this statement and the "Statement of Changes in Net Position", which we will be describing next, we will compare these statements to a traditional "Income Statement" prepared by most corporations.

This statement is like looking at the bottom half of a corporate income statement. An income statement lists the Gross Sales and then subtracts all forms of operating and non-operating expenses incurred by the company to arrive at a net income figure. In the federal government we actually reverse this presentation of income and expenses. We list the expenses first (on this statement) and how we financed those costs last (Statement of Changes in Net Position).

The Statement of Net Cost is one of the easier statements to read. The first two sections simply deal with what the Office of Surface Mining spent on its two programs. The first section lists costs that the Office of Surface Mining incurred to reclaim AML hazard sites split between what we paid other federal government agencies and what we paid private contractors and state governments. The second section lists costs that the Office of Surface Mining incurred to regulate current coal mining and to fund advances in mining technology.

"Earned Revenue" reflects the monies paid to the Office of Surface Mining for services not covered by the appropriations we received. Miscellaneous costs not allocated to one of the above programs are listed in the third section. The final amount is what the Office of Surface Mining spent on this year's operations.

Statement of Changes in Net Position.

This statement shows how the Office of Surface Mining financed its operations for the year. We start off with the Net Cost of Operations carried over from the Statement of Net Cost. We then will subtract those costs from all of our financing sources to arrive at "Net Results of Operations". This is the figure that shows the excess of monies coming in to The Office of Surface Mining over the monies going out of the Office of Surface Mining. As you can see we have several means of funding our programs from appropriations to coal fee collections to interest earned on investments in government securities.

From the "Net Results of Operations" we add or subtract any changes in our capitalized assets and any changes to prior year information (it is important to read the accompanying notes on this line item to know what this figure is saying) to arrive at our "Net Change in Cumulative Results of Operations". This figure is important as it not only shows what happened in the past year but also what happened to affect prior year financial information as a result of an accounting change or some other form of adjustment.

We then add or subtract the changes in the unexpended portions of our appropriations to arrive at a total amount of "Change in Net Position" from what we ended with the year before last and last year. This figure shows the financial stability of the Office of Surface Mining and should remain fairly consistent from year to year. If a big change occurs, you should be able to see which line item of the statement caused the unusual change and look to the accompanying notes for an explanation.

Statement of Budgetary Resources

This statement shows you what budget authority the Office of Surface Mining possesses and compares the status of that budget authority.

The first section lists what type of "Budgetary Resources" were made available to the Office of Surface Mining through the current year appropriations (1st line) for operations, monies available to invest but not to spend (2nd line), appropriation authority carried over from prior years (3rd line) and other types of monies made available throughout the fiscal year.

The second section tells us what type of "Status" the above resources are holding at the end of the fiscal year. Status' includes funds that were obligated for possible expenditure throughout the year (1st line), the amount of monies available to obligate next year (2nd line), amount of monies available to invest but not to spend (3rd line), and the amount of monies that the Office of Surface Mining must still account for but not use (except for valid upward adjustments to prior year obligations).

The last section simply shows a reconciliation of the monies that the Office of Surface Mining physically spent during the fiscal year. This figure is comparable to the "Net Cost of Operations" but will always be slightly different because "Costs" include figures like depreciation that was recorded that year but for which no money was spent out-of-pocket.

If you have specific questions about the Office of Surface Mining 1997 financial statements include them in an E-mail message to getinfo@osmre.gov and we will send you an answer.