future f g - front page | u.s. department of the treasury

Department of the TreasuryFranchise Fund

Accountability & Annual Report

THE FUTUREOF FEE-FOR-SERVICE BUSINESSIN THE FEDERAL GOVERNMENT

IT’S WORKING!

• FULLY COSTED

• SELF SUFFICIENT

• CUSTOMER DRIVEN

IT’S WORKING!

• 3 •

The Franchise Fund was created to improve the delivery of administrative services throughthe introduction of market-driven business practices. It’s Working! For the fifth consecutiveyear, since inception, the Treasury Franchise Fund has thrived in the competitive marketplaceof providing administrative products and services to Federal entities. We are proud of thisperformance and are looking forward to maintaining it in the years to come.

We’re convinced, in fact, that the greatest challenge ahead may be simply keeping up with thedemand for our services. This is due primarily to our in-depth understanding of thegovernment arena, which allows us to offer new pathways, not roadblocks, to help ourcustomers reach their goals. Our customers choose us for good reason: We are able to bringthem innovative solutions in a cost effective and timely manner.

As a successful franchise operation, we understand that we have a responsibility to provideleadership in all areas of government reform; from the delivery of administrative products andservices to our internal business operations. Our reward for our efforts is not only a strongbusiness model and financial stability but also seeing government administrative practices getbetter. As one customer put it, we provide “bureaucracy-free” service.

The source of our success has always been our exhaustive focus on the customer. For thiswe owe a debt of gratitude to our employees, whose dedication, loyalty and hard work makeit all possible.

Steven O. AppDeputy Chief Financial Officer

Department of the TreasuryFranchise Fund

A Message from theDeputy Chief Financial Officer

...committed to delivering cost effective and highquality administrative products and services

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TABLE OF CONTENTS

A Message from the Deputy Chief Financial Officer

Corporate Snapshot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4• Background• Current Picture• Markets & Businesses• Gains & Loses• Economic Impact

Financial Snapshot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6• Continued Growth• Financial Stability• A Strong Balance Sheet• Another “Clean” Audit Opinion:• Improved Financial Reporting

Accomplishments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10• Enhancing service value through competition.• Efficiently delivering administrative products and services. • Reducing duplication of effort. • Fostering competition.• Accounting for full cost and achieving self-sufficiency.• Enhancing customer satisfaction.

Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16• Responsible Growth• Legislative Update• Revision of Franchise Business Model

Program & Financial Performance . . . . . . . . . . . . . . . . . . 17• Progress in Meeting Performance Goals

Management Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . 18• Annual Assurance Statement

Independent Auditor’s Reports . . . . . . . . . . . . . . . . . . . . . 19

Audited Financial Statements and Notes . . . . . . . . . . . . . . 22

Advisory Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Designed by Administrative Resource Center • Graphics, Printing & Records

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Corporate snapshot

Picture this!

CORPORATE SNAPSHOT

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BackgroundThe Treasury Franchise Fund is anentrepreneurial governmental enterpriseestablished to provide common administrativesupport services on a competitive and fullycost-reimbursable basis. The desired result isto have internal administrative servicesdelivered in the most effective and leastcostly manner. The Fund’s services/productsare offered on a voluntary and competitivebasis to promote greater economy (reducedcosts), increase productivity and efficiency inthe use of resources, and ensure compliancewith applicable rules and regulations.

Authorizing Legislation: The GovernmentManagement Reform Act of 1994 (GMRA)authorized six Franchise Fund Pilot Programswithin the Federal government.

Founded: In May 1996, OMB designated theDepartment of the Treasury as one of the sixExecutive branch agencies authorized toestablish a Franchise Fund Pilot Program.

Current PictureEmployees: Over 450 people nationwide

Value Proposition: The Treasury FranchiseFund businesses have been leaders inredefining the processes and methods fordelivering administrative products andservices that combines streamlined

processes, simplified rules, full accountability,competitive costing, timely completion, andone-stop shopping for customers. Our effortshave resulted in significant dollar savingsthroughout the federal government.

Customers: Over 1,800 customersrepresenting almost every Federal agency.Total customers increased by 23% in FY2001. (See graph below).

Website: www.ustreas.gov/franchising

Markets &Businesses

Consolidated/Integrated AdministrativeManagement - providing entrepreneurialbusiness solutions for the acquisition, deliveryand financial management of common admin-istrative services and products in support ofagencies’ missions and objectives.

• FBA-Central (Cincinnati)• FBA-Global Services (San Antonio)• FBA-West (Los Angeles)• FedSource-Chicago• FedSource-Seattle• FedSource-South Carolina• FedSource-St. Louis• GoTo.Gov (Baltimore)• Rocky Mountain Regional FBA (Denver)

Financial Systems, Consulting andTraining - providing financial education, man-agement consultation, organization diagnos-tics and facilitation, strategic planning,assessment of customer needs, developmentof customer service standards, reengineeringkey Federal systems and processes, andhuman resources development.

• Treasury Agency Services • Federal Consulting Group• Inspector General Auditor Training

Institute

Financial Management & AdministrativeSupport – providing full service, as well assystem platforms, for accounting, travel,procurement, personnel, and facilitiesmanagement.

• Administrative Resource Center

Customer Growth

2000 2001

1,498

Internal Customers

External Customers

1,367

CORPORATE SNAPSHOT

131173

1,6291,802

w w w . u s t r e a s . g o v / f r a n c h i s i n g

Gains & LosesThe Rocky Mountain Regional FBA andFedSource-South Carolina (both formerly withthe Department of Interior’s Franchise Fund)joined the Treasury Franchise Fund July 1,2001.

The Inspector General Auditor TrainingInstitute (IGATI) had an operating loss of over$120,000 over the last two years and wasnot meeting the objectives of the FranchiseFund. As a result, their management withdrewIGATI from the Fund effective September 30,2001.

Economic ImpactOne example of the Fund’s economic impactis demonstrated by the value that the Bureauof the Public Debt’s Administrative ResourceCenter (ARC) brings to West Virginia. The Cityof Parkersburg is a vital residential andcommercial center along the Ohio River inWest Virginia. Employment opportunities havegrown substantially over the past two yearsfor residents in and around Parkersburg. Thissubstantial growth is due to increasedbusiness by ARC. Located in downtownParkersburg, ARC hasbecome a focalpoint foremployment bythe many publicand private collegesand universities inthe area.

The potential for futuregrowth is significant.ARC is becoming knownas an excellent serviceprovider. Therefore it iscontacted frequently byother agencies inquiringabout potential services.Four years ago ARC was anunknown service provider. Itis reasonable to expect ARC to grow at asimilar pace over the next 4 years and addanother 100+ positions and another $10million annually to the local economy. ARC

has had a significant positive financial impacton the Parkersburg area.

• ARC has added 120 positions inParkersburg since it began offering franchiseservices in FY 1997.

• The Bureau of the Public Debt is thesecond largest employer in the Parkersburgarea, second to Dupont.

• The 120 new positions receiveapproximately $7.3 million in salary andbenefits which are added to the localeconomy.

• The local area benefits financially in otherways from Public Debt's franchising activity.Many goods and services needed to supportthe growing workforce are obtained locally,additional office space had to be acquired,and the local hotels and restaurants benefitfrom the many business visits to Parkersburgby franchising customers. It’s estimatedthese items will add another $2 - 3 million tothe local economy in FY 2002.

• The new positions not only add dollars tothe economy, but their availability allowsmany people to remain in the area when theyhave completed college rather than beingforced to look for appropriate employmentout of state.

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CORPORATE SNAPSHOT


“Qui Audacim Est”

“Those Who Dare”

The franchise concept is captured in this Latin term,literally translated ‘Those Who Dare’; which expresses ashift of paradigm from bureaucratic operations to entrepreneurial business methods with reliance on market conditions and competition.

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Financial

Snapshot

A Focus on Controlled Growth!

FINANCIAL SNAPSHOT

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Continued GrowthThe Treasury Franchise Fund continued itsimpressive growth in FY 2001. The Fund’stotal revenue grew to more than $223 million,representing a 35% increase over theprevious fiscal year and demonstrating thecontinuing demand for the Fund’s productsand services (See graph above).

Although growth by itself is not inherentlygood, growth for the Fund results inincreased competition throughout the govern-ment and lower administration costs. In otherwords, as the Fund grows the governmentworks smarter and the taxpayer wins.

Financial StabilityThe Fund has sustained a five-year expansionthat has enabled it to develop a reasonableoperating reserve (equity). The operatingreserve is critical to the health and stability ofthe Fund enabling it to (i) sustain downturns inbusiness brought about by unforeseencircumstances, (ii) pay for system andprocess enhancements and (iii) maintain anadequate cash flow. In FY 2001, the Fund’stotal equity grew to over $19.3 million (Seegraph below left). Cumulative results ofoperations since the Fund’s inception total$15.6 million, which accounts for over threequarters of the Fund’s total equity. The $3.7million of Invested Capital represents $1.2million initially invested by Treasury and $2.5million invested by the individual businesses(See graph below).

A Strong BalanceSheet

Total Assets, comprised primarily of cash andaccounts receivables, increased by 37% toover $89.5 million (See graph on next page).This was primarily due to a $14 millionincrease in cash. Cash flow has continued toimprove as evidenced by the accountsreceivable turnover ratio (the average time ittakes to turn earned revenue into cash). Thebenchmark for the accounts receivableturnover ratio is 60 days, which includes 30days for billing and 30 days for collecting. InFY 1997, the Fund’s first year, the accountsreceivable turnover ratio was 86 days. TheFund has trimmed 41 days from this ratio toachieve an outstanding accounts receivable

Total Revenue(In Millions)

1998 1999 2000 2001

$137$165

$80

$223

Total Equity(In Millions)

1998 1999 2000 2001

$14.2

$19.3

$6.7

$2.7

$4.0

$12.7

$3.7$3.7

$10.5$9.0

Invested Capital

Cumulative Results$3.7

$15.6

Equity Breakdown

CumulativeResults

$15.6 mil(81%)

InvestedCapital

$3.7 mil(19%)

Equity Investedfrom Businesses

68%

32%

Initial Investmentfrom Treasury

FINANCIAL SNAPSHOT


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turnover ratio of only 45 days in FY 2001(See graph below). This resulted from theFund’s continued effort to streamline its billingand collecting processes.

Another “Clean”Audit Opinion:

To add assurance to the financial stability, theFund has received its fourth straightunqualified opinion on the audit of its financialstatements. The independent auditors provideseparate reports each year focusing on threekey areas:

• Report on the Financial Statements• Report on Internal Controls Over

Financial Reporting• Report on Compliance with Laws

and Regulations

Improved FinancialReporting

The Fund has always been among Treasury'sbest in quality and timeliness of financialreporting. This is a direct result of the Fundusing the Administrative Resource Center(ARC) as their accounting service provider.During FY 2001 this premise was put to thetest as Treasury’s Secretary, Paul O’Neil,challenged all Treasury entities to “close theirbooks” in 3 days after the end of eachmonth, as opposed to the standard 20 days.The new reporting requirement had to beimplemented by June 2002.

ARC reacted quickly to ensure that the Fund(as well as the other Treasury entities theyserviced) not only met the Secretary'schallenge but exceeded it. ARC reviewedpriorities, streamlined processes and workedwith their customers to ensure the Fund metthe Secretary's 3-day close challenge thevery next month. By year-end, only 11 of the25 Treasury reporting entities had met theSecretary’s 3-day close requirement; ARCservices 5 of those 11 entities.

The Fund continues to strive to set theexample for efficiency and quality in the areaof financial reporting. New goals have beenset to make improvements to the timelinessof the year-end close processes and financialreporting. The Fund will work closely withARC, its members, and the auditors to put aplan in place to have the year-end booksclosed and audits completed by the end ofOctober. Currently this process is notcompleted until the end of December.

FINANCIAL SNAPSHOT

CashReceivables

Other

Accounts ReceivableCollection Period

(In Days)73 Days

1998 1999 2000 2001

53 Days 52 Days45 Days

Total AssetsIn Millions

1998 1999 2000 20010.8

$89.5

$27.8

$39.9

$65.5

1.2

19.5

19.2

1.0

40.7

23.8

54.6

30.8

16.6

10.44.1


It’s Working!

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ACCOMPLISHMENTS & OUTLOOK

Accomplishments & Outlook

The Franchise Fund wascreated to enhance servicevalue through competition.

It’s Working!The franchising concept extends philosophiesof competitive business enterprise into thedelivery of administrative services, with theintention of reducing costs, enhancingefficiency, and improving financialmanagement within the Federal government.Integral elements of this approach includeemphasis on customer satisfaction,competition, success and failure as dictatedby market forces, decentralization ofauthority and the incentive to excel. Theseelements are very much inter-related.

Customer satisfaction, whether in referenceto lower cost, higher quality, or both, is the

basis upon which the Fund competes. In afree market, the ability to compete effectivelydetermines whether an organization ultimatelysurvives, providing an inherent incentive tosucceed. Thus, effective entrepreneurialmanagement, or the ability to make optimumuse of resources (lower cost) in order tosatisfy customer demands (satisfaction), andto perform better than the competition,becomes the key to surviving and succeedingin a business environment.

The following highlights how the TreasuryFranchise Fund is meeting the franchisingobjectives of promoting efficiencies in thedelivery of administrative products andservices; reducing duplication of effort;

fostering competition; full cost/selfsufficiency; customer satisfaction; andimplementing improved financial and businesspractices.

The Fund was designed to efficiently deliver

administrative products and services. It’s Working!

Competition among common administrativeservice providers is a way to improvegovernment efficiency. Inherent in theconcept of franchising, competition will (i)increase the focus of service providers on theneeds of the customer, (ii) introduce the needfor market solutions instead of administrativebureaucracy, (iii) decentralize authority, and(iv) improve efficiency by helping programmanagers carry-out their missions in the leastcostly and most effective manner. Thefollowing examples illustrate the Fund’s abilityto efficiently deliver services and products.

• GoTo.Gov recently worked with two of itslargest vendors to enhance the methods inwhich they invoice the Government. Thisenabled GoTo.Gov to easily review eachinvoice for accuracy, which saved more than10 days of staff time each month. As aresult, GoTo.Gov is able to provide itscustomers with a more timely and accuratebill. In this case,the private sectorand thegovernmentbecame moreefficient.

• The US Army’sJoint RegionalTraining Centerhad this to say,“The FedSource-Seattle operationis truly a leadingedge businessmodel for the Federal government.FedSource provides my training organizationwith a vast line of exceptional products and

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ACCOMPLISHMENTS

“Their uniquecapabilities, coupledwith efficient andeffective processes,result in ‘bureaucracy-free’ customer service. . . I attribute myorganization’ssuccesses, enhancedreputation, andcontinued growth toour businessrelationship withFedSource-Seattle.”

“Quality is never anaccident; it is always theresult of high intention,sincere effort, intelligentdirection and skillfulexecution; it representsthe wise choice of manyalternatives..”

– William A. Foster


services. Its unique capabilities, coupled withefficient and effective processes, result in‘bureaucracy-free’ customer service. TheFedSource-Seattle team is the most diverselytalented knowledgeable, ethical staff I haveworked with in my 20+ years of governmentservice. I attribute my organization’ssuccesses, enhanced reputation, andcontinued growth to our business relationshipwith FedSource-Seattle.”– Carol Martin, Joint Regional Training Center,

US Army

• Kelly Air Force Base came to the FBAGlobal Services in San Antonio with asignificant problem. The base was scheduledto close July 2001. Federal employeesworking at Kelly took early buy-out incentives,retired, or found other jobs. It was faced withthe same level of workload, but with hundredsof fewer employees to do it. Kelly had its ownMission Support Contract, but it was toocumbersome, not user-friendly, and extremelyexpensive. The FBA team worked withdepartmentalized units and brought themtogether under one strategy -- meeting withthe Commanding General, the procurementofficials and the personnel officials to helpcome up with a useful tool that would be ableto deliver services in an unprecedentedfashion, that is to use civilian pay dollars forthe FBA contract. The Commanding Generalhimself thanked FBA Global Services for itsefforts saying, “Thank you for not only savingus significant dollars, but we could not havesurvived without you.” On July 13, 2001, FBAclosed out all the task orders as the basesuccessfully closed its doors and went in thehistory books as the largest base closure inhistory. This unprecedented strategy has notonly paved the way for them to realizeefficiencies and savings, but has become themodel to be used by all military bases on theBase Realignment and Closure (BRAC) listing.Showcased as a huge success story at Kelly,it is now being implemented at Lackland AirForce Base in San Antonio.

In order to remain competitive, the FranchiseBusiness Activities in our Consolidated/Integrated Administrative Managementbusiness line have continued to find ways to

reduce their operating (overhead) costs.Many customers have realized reducedpricing, rebates, and volume discounts due toeconomies of scale and improved efficiencyof administrative services offered. TheFranchise Fund is able to give a pricereduction when obtaining large ordersbecause, in most instances, our operatingcosts closely remain the same. This is bestillustrated by looking at their operatingpercentage, which quantifies the relationshipof operating costs as percentage of totalrevenue. Their operating percentagedecreased from 5.5% in FY 2000 to 3.5% inFY 2001. (See graph below) Since the Fund’sinception (FY 1997), they have been able toreduce their operating percentage by over50%.

The Fund was envisioned toreduce duplication of effort.

It’s Working!The Treasury Franchising effort has achievedefficiencies and generated value internally toTreasury, externally to other agencies, and tothe government as a whole. This is demon-strated by reducing and/or eliminatingduplicative/redundant services, implementingbest practices, reducing the costs of servic-es, implementing performance measures and

• 13 •

ACCOMPLISHMENTS

Operation PercentageConsolidated/Integrated

Administrative Management

1998 1999 2000 2001

6.0%5.5%

3.5%

7.0%


benchmarking, and focusing on customerservice. Highlights of our efforts/successesfollow:

Reduced the number of service providersthrough integrated contract and financialmanagement — Our Franchise BusinessActivities (FBAs) provide integrated contractand financial administration. These servicesare provided to almost 1,600 customersgovernment-wide. A primary function of theFBAs is to act as the general agent forgovernment agencies in the acquisitionprocess. FBAs perform a value-addedfunction as the consolidator ofrequirements and the operating agent ofthe participating agencies.

• A recent GoTo.Gov customer was looking toconsolidate multiple requirements into oneprocurement vehicle. GoTo.Gov had multiplecontracts, which they combined to meet theimmediate needs of the customer in the mostcost-effective method. GoTo.Gov combinedcopiers/equipment, software for the agency’s

copy center, andplacements to runthe copy center:all for one price.They were able togive the customerone agreementfor multipleserviceseliminating the

need for the agencyto seek several vendors. GoTo.Gov became“one-stop” shopping.

• FedSource-Seattle established a single“master agreement” for one of its customersthat eliminated the need for separateagreements for each of its customer’soffices. That alone saved the customeragency time and reduced its administrativeburden significantly. This not only proved tobe a time saver, it also facilitated costsavings for the customer.

Reduced the number of service providersthrough the consolidation of administrativeaccounting, procurement and personnel

functions — The Administrative ResourceCenter now provides:

• 25 organizations with administrativeaccounting services

• 21 organizations with procurementservices

• 16 organizations with personnelservices

The Fund was developed tofoster competition.

It’s Working!Program managers in many agencies areforced to rely upon in-house arrangements forthe delivery of common administrativeservices such as payroll, real propertymanagement, or supply. Our businesses havebeen challenging these arrangements bytaking customers and revenue away fromthose providers. We made them sharpen theirpencils and create a strategy to deal withcompetition. These providers havesubsequently begun to worry about customerservice and as a result they are nowconcerned about their response time,improving productfeatures,improving theirbilling process,increasedavailability, andlower prices.Competition isworking!

Many times theFranchise Fundcompetes againstalternateadministrativesolutions. Forexample, when the Internal Revenue Service(IRS) began its agency-wide reorganization, itcreated a tremendous increase in workloadfor the IRS personnel offices. “We soughtmany avenues to obtain sufficient resourcesto manage this huge workload, includingworking large amounts of overtime, obtainingdetailees from other offices, use of the OPMcontract, etc. We learned of the services

• 14 •

ACCOMPLISHMENTS

“We sought manyavenues to obtainsufficient resourcesto manage this hugeworkload . . . TheFedSource contractwas a significantcontributor in ourability to managethe workload. The supportprovided from theSt. Louis FedSourceoffice has beenexcellent.”

They were able togive the customer oneagreement for multipleservices eliminating theneed for the agency toseek several vendors.

GoTo.Gov became“one-stop” shopping.


available from FedSource and pursued thatavenue as well. The FedSource contract wasa significant contributor in our ability tomanage the workload. The support providedfrom the St. Louis FedSource office has beenexcellent. The response to orders is veryfast. Overall, our experience under thiscontract and with the local FedSource officehas been excellent.”

–Cheryl Hemann, Personnel ServicesOperations Area C, IRS

The following represents various aspects ofthe Treasury Franchise Fund in fosteringcompetition:

• Penetration — Customers using servicesof the Treasury Franchise Fund comefrom virtually every Federal governmentagency reflecting the breadth of ourcompetitive area. At the end of FY 2001,the Treasury Franchise Fund Activities intotal had entered into agreements withover 1,800 customers. Of these,approximately 4% are customers withinTreasury and 96% are external toTreasury.

• All goods and services provided by theBusiness Activities of the TreasuryFranchise Fund are done so on a fullyreimbursable basis and are completelyvoluntary (i.e., no mandated services).The customer has freedom of choice andmakes purchase decisions based onquality, price, and best value.

• All reimbursable agreements withcustomers contain a certificationstatement that they are A-76 compliant. Fullcosts are made available for customers inperforming cost comparisons. All goods andservices are fully costed. This allowsFranchise Fund management, as well, aspotential customers to determine the truecost to the government of the product orservice.

• Treasury’s Franchise Businesses makeextensive use of private sector sources todeliver goods and services to their Federalcustomers. In FY 2001, over 85% of theFunds’ expenses were paid directly to pri-

vate sector businesses. ForConsolidated/Integrated AdministrativeManagement Services, over 90% of all theiroperations are accomplished through con-tracts with the private sector that have com-peted for and been awarded contracts forspecific administrative services. The busi-ness relationships established with privatesector companies for providing these prod-ucts and services are done so under currentFederal acquisition regulations. Each of theproduct groupings is designed to meet thestated needs of the customer. The essentialelements of quality, packaging and delivery,combined with volume consolidation, arebuilt into contracts and agreements.

The Fund is held to standards that areintended to level the competitive playing fieldwith the private sector and among otherFederal reimbursable entities. Activitiesoperating within the Franchise Fund areintended to be self-sustaining, depending onfees from customers in lieu of appropriateddollars to fund operations. A customer’sability to seek alternate sources for services,whether public or private, places theemphasis of franchising on generatingcustomer satisfaction and value.

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ACCOMPLISHMENTS

“Thank God for competition. When ourcompetitors upset our plans or outdo ourdesigns, they open infinite possibilities of ourown work to us.”

– Gil Atkinson


The Fund was set-up toaccount for full cost andachieve self-sufficiency.

It’s working!Meeting the objective of financialresponsibility is primarily demonstratedthrough full costing and self-sufficiency. Eachindividual business within the fund identifiesthe specific costs of each of its service lines.Based on this analysis, pricing structures aredeveloped which allow the businesses torecover all their costs and maintain areasonable operating reserve.

The Fund is in compliance with costaccounting standards and guidance, whichincludes:• OMB Circular A-76• The Statement of Federal Financial

Accounting Standards (SFFAS) Number 4,Managerial Cost Accounting Concepts andStandards forthe Federalgovernment

• The ManagerialCost AccountingImplementationGuide

• Concepts andStandards forthe Federalgovernment andStatement ofFederal FinancialAccountingStandardsNumber 7,Accounting forRevenue andOther FinancingSources

• Form and content requirements includedin OMB Bulletin No. 97-01

One of the inherent risks with operating in afull-cost environment is the potential forbusinesses to fail or not generate enoughrevenue to cover their costs. Over the last

two years,the Inspector General AuditorTraining Institute (IGATI) had an operatingloss of over $120,000 and was not meetingthe objectives of the Franchise Fund. As aresult, their management withdrew IGATIfrom the Fund effective September 30,2001. Although this example is notdesirable, it is evidence of the competitivemarketplace at work.

The annual financial statement audit ensures“full-costing” is being performed accuratelyand applicable laws and regulations are beingfollowed. The purpose of the audit is to:• Express an opinion as to whether the

financial statements present fairly, in allmaterial respects, the financial position,the results of its operations and changesin net position, in conformity with theStatements of Federal FinancialAccounting Standards issued by theFederal Accounting Standards AdvisoryBoard which constitute generallyaccepted accounting principles for theFederal government;

• Report on theFund’s internalcontrol overfinancial reporting;

• Report on theFund’s compliancewith applicablelaws andregulations.

The Franchise Funddoes not receiveappropriation supportdirectly or indirectly.Since inception ofthe Fund, all activitieshave been fullyreimbursable.Treasury, however,provided the

Franchise Fund with $1.2 million fromreprogrammed funds to use as startupcapital for cash flow purposes. This “corpus”represents the investment of the governmentin the Fund.

• 16 •

ACCOMPLISHMENTS

Full Costing


The Fund was designed to enhance customer

satisfaction.It’s Working!

In the technological age, we do not forfeit thehuman aspect of product/service delivery,which is important to our customers. Thevalue we bring to the customers is the high-tech, high touch approach to providing asolution. We don’t just offer a “catalog” ofservices; we provide support to thecustomers as evidenced by the followingexamples:

• FedSource-Seattle provides EAP services tothe Defense Distribution Center (DDC). PaulOkum of the DDC said, “Because of yourability to provide a comprehensiverange of EAP services to all ofour sites throughout the US andHawaii, regardless of size, DDCis able to offer consistent andcomprehensive EAP services toits civilian workforce, and toobtain detailed utilization reportson the use of that service... Youcontinue to be there for us toresolve any problems and torespond to the needs of ouremployees and managers at a momentsnotice. We appreciate your superior serviceand sincerely hope that our partnership cancontinue in the future.”

– Paul Okum, Defense Distribution Center.

• Fedsource –St. Louis entered into anagreement with the Bureau of Alcohol,Tobacco and Firearms to provide qualifiedplacements to support their Youth CrimeGun Interdiction Initiative and NationalIntegrated Ballistic Information NetworkPrograms. “FedSource/FBA has done anexceptional job of placing Firearms ProgramSpecialists in at least 20 cities throughoutthe US to support the YCGII Program. Theseprograms have unique requirements and(FedSource) has succeeded in providingqualified placements, thus making bothprograms a success. We would like tocommend the efforts of (FedSource-St.

Louis), and Westaff, a FedSource vendor.Both have been instrumental to ensure thatATF has received qualified placements in aprompt manner.”

– Toni Sigler, Program Analyst, National Tracing Center Division, ATF

Customer feedback is a measure of ourconcern for the quality of our merchandiseand services and our desire for consumersatisfaction. Feedback is a critical form ofcommunication between buyer and seller.This offers us an opportunity to correctimmediate problems and can provide forconstructive ideas for improving products,adapting marketing practices, upgradingservicing, or modifying promotional materialand product information.

The Federal Consulting Grouphas assumed a leadership rolein the customer satisfactionarena. Last year FCG introducedthe American CustomerSatisfaction Index (ACSI). In FY2001, FCG negotiated a newagreement with the CFI groupand the University of MichiganSchool of Business who providethe analytical component of theACSI. Under the terms of the

agreement, FCG is now the ACSI ExecutiveAgent for the Federal government.

Effective feedback mechanisms can result inincreased sales, better products, improvedpersonnel performance, and businesseconomies. Our mechanisms used mostoften include: Immediate service/productfollow-up calls, customer surveys, andcustomer needs analysis.

• 17 •

ACCOMPLISHMENTS

You continue to bethere for us to resolveany problems and torespond to the needsof our employees andmanagers at amoments notice. Weappreciate yoursuperior service andsincerely hope that ourpartnership cancontinue in the future.

“Entrepreneurs are simply thosewho understand that there is littledifference between obstacle andopportunity and are able to turnboth to their advantage.”

- Victor Kiam


Responsible GrowthOver the past several years, business growthand revenues have continued to outperformexpectations -- continuing strength in provid-ing value added administrative products andservices has translated into healthy increasesin revenues and retained earnings. Our fore-cast beyond 2001 assumes that these posi-tive growth and revenue trends will continue,and that Franchise revenue will continue togrow at moderate rates through 2002-05.

Key areas of growth will be in accounting andtravel services. The Administrative ResourceCenter (ARC), a franchise business of theBureau of the Public Debt, offers full serviceadministrative accounting, HR, Procurement,travel, etc. on a cross-service basis. Withemphasis placed on enterprise systems andreducing redundant duplicative systems, theprospect for ARC to add more customers isdirectly related to their ability to support newcustomers. For example, ARC is currentlyreplacing its mainframe core accounting sys-tem, Federal Financial Systems (FFS), to offeradditional benefits to its customer agencies.ARC is implementing Oracle Financials, an off-the-shelf JFMIP certified system that usesInternet technology. The new system providesa completely integrated financial managementsolution.

Legislative UpdateSince implementation of the franchising con-cept, OMB and the U.S. Chief FinancialOfficers Council (comprised of the 24 CFOAct agencies, including those designated tooperate franchises), have monitored individualand collective franchise performance. Basedon the performance of the Franchise Funds,the Administration will be forwarding toCongress a legislative proposal, “BudgetaryCost and Performance Integration Act of2002.” Title III of the proposed legislationprovides for Intra-governmental SupportRevolving Funds (ISRFs) to be established tosell support goods and services on a fullcost, reimbursable, and self-sustaining basis.This legislation is significant in that it vali-dates the efforts and accomplishments that

Franchising has achieved -- now requiring allgovernment operations that provide supportservices to other government agencies(through Working Capital Funds,Reimbursement via Economy Act authority,etc.) to operate in the same manner asFranchise Funds!

Revision of FranchiseBusiness Model

Managing a successful business or buildingup the health of an existing business requiressound, ongoing leadership and management,planning, product and service development,marketing and financial management. Theodds of a small business succeeding can bedaunting -- according to the Small BusinessAdministration, only 50 percent of small busi-nesses survive their first year of operation.This fact underscores the difficulties inherentin running a business. Our business man-agers must know and be many things -- chiefexecutive, sales manager, controller, advertis-ing department, personnel director, and headbookkeeper.

Due to our growth potential, we can foreseethe need for changes in our business model.The dramatic increase in the complexity ofmanaging the business and the pace of busi-ness is accelerating rapidly. Our past suc-cess is not necessarily the right formula forthe future. The current organizational struc-ture and existing operational processes andprocedures will have to be remolded toensure operational efficiency in the future.Designing the right structure for the organiza-tion's future requires an objective and coordi-nated review of present operations andneeds. This process will include examinationof the external and internal operations of ourcorporate and individual business units.

The main thrust of the organizational redesignwill be to enhance the flexibility of the busi-nesses both in terms of how to organizeinternal operations and how to best interactwith external markets. This would includeimprovements in structure, work processes,people and skills, culture, internal administra-tive systems, and core goals and strategies.

• 18 •

OUTLOOK


• 19 •

The Treasury Franchise Fund has established performance goals and measures consistent withthe intent of the legislation establishing and operating criteria for franchise funds, i.e., financialself-sufficiency, competition, compliance, and customer service.

GOAL:Ensure Competitiveness

1. Program Voluntary All agreementshave customer Met Met escape clause

2. Growth in Customer Base 10% increase 23% 57%

Progress in Meeting Performance Goals

FY FYBenchmark 2001 2000

GOAL:Ensure Business Activities are Self-Sufficient

1. Annual financial results are equal to or greater than break even Positive Met Met(total expenses equal total revenues) Net Position

2. Current Ratio 1.2 1.3 1.2

GOAL:Customer Satisfaction

1. Satisfaction Approval Rating 80% Approval Exceeded Exceeded

2. Sales Volume Growth 10% increase 35% 20%

3. Growth or Decline of Customer Base 10% increase 23% 57%

GOAL:Ensure Compliance with Legal& Regulatory Requirements

1. Results of Management Controls Reviews No Deficiencies Met Met

2. Results of Annual Audit Unqualified“Clean” Opinion Met Met

PROGRAM & FINANCIAL PERFORMANCE


• 20 •

The Treasury Franchise Fund places a high level of emphasis on maintaining adequatemanagement controls. As required by the Federal Mangers’ Financial Integrity Act (FMFIA), theFederal Financial Management Improvement Act (FFMIA), and the Reports Consolidation Act of2000, the Treasury Franchise Fund has evaluated both its management controls and financialmanagement systems. Our system of management controls is designed to provide reasonableassurance that:

• Programs achieve their intended results;

• Resources are used in accordance with the Fund’s mission;

• Programs and resources are protected from waste, fraud, and mismanagement;

• Laws and regulations are followed;

• Reliable and timely information is obtained, maintained, reported and used for decisionmaking;

• Continuity of operations planning in critical areas is sufficient to reduce risks to reasonablelevels; and

• Performance information is reliable.

Various methodologies are used to determine if the management control systems and financialmanagement systems are in overall compliance with standards prescribed by the ComptrollerGeneral of the United States and guidelines issued by the Office of Management and Budget(OMB).

• Each business activity performs an annual evaluation of its processes and procedures aswell as its internal systems.

• The Administrative Resource Center, the Fund’s primary accounting, procurement andpersonnel service provider, is part of the Bureau of the Public Debt’s Management ControlPlan and therefore undergoes periodic reviews. The Bureau of the Public Debt also has anannual audit of its mainframe computer system.

• Fund management periodically visits the businesses and reviews the controls establishedthroughout the workflow.

• Each individual business is included in a 4-year audit site-visit schedule. This ensures detailedaudit scrutiny of at least three businesses each year. These visits are performed inconjunction with the annual financial statement audit.

The 12 Franchise businesses and the accounting office in the Bureau of the Public Debt havebeen subject to review and evaluation including a financial statement audit by an independentpublic accounting firm. As a result, our systems of management control and the financialmanagement systems provide reasonable assurance that the Fund is in compliance with theaforementioned standards. Our financial management/accounting systems conform to generallyaccepted accounting principles; and the relevant financial management system requirements andinformation objectives of OMB, including implementation of the Standard General Ledger. Nomaterial weaknesses or reportable conditions are being reported.

MANAGEMENT CONTROLS

ANNUAL ASSURANCE STATEMENT


• 21 •

INDEPENDENT AUDITOR’S REPORTS


• 22 •



• 23 •



• 24 •

Fiscal Year 2001 Fiscal Year 2000ASSETS

Intragovernmental Assets

Fund Balance with Treasury (Note 2) $54,634,606 $40,659,724

Accounts Receivable, Net (Note 3) 30,404,454 23,424,964

Advances & Prepayments 166,337 88,315

Total Intragovernmental Assets 85,205,397 64,173,003

Assets with the Public

Accounts Receivable, Net (Note 3) 423,106 384,841

Advances & Prepayments 16,341 16,410

Inventory Held for Resale 159,410 159,410

Property, Plant & Equipment, Net (Note 5) 3,701,120 778,197

Total Assets with the Public 4,299,977 1,338,858

TOTAL ASSETS $89,505,374 $65,511,861

LIABILITIES

Intragovernmental Liabilities

Accounts Payable $188,755 $127,275

Accrued Liabilities (Note 6) 997,753 3,561,603

Advances From Others 24,850,105 15,493,486

Total Intragovernmental Liabilities 26,036,613 19,182,364

Liabilities with the Public

Accounts Payable 20,625,044 8,149,201

Accrued Liabilities (Note 6) 23,449,651 23,881,587

Advances From Others 27,413 26,708

Total Liabilities with the Public 44,102,108 32,057,496

TOTAL LIABILITIES $70,138,721 $51,239,860

NET POSITION

Invested Capital (Note 4) $3,746,219 $3,746,219

Cumulative Results of Operations (Note 4) 15,620,434 10,525,782

Total Net Position 19,366,653 14,272,001

TOTAL LIABILITIES AND NET POSITION $89,505,374 $65,511,861

Treasury Franchise FundConsolidated Balance SheetAs of September 30, 2001 and 2000

The accompanying notes are an integral part of these financial statements.

FINANCIAL STATEMENTS


• 25 •


Fiscal Year 2001 Fiscal Year 2000CONSOLIDATED / INTEGRATED

ADMINISTRATIVE MANAGEMENT

Costs $165,951,436 $109,569,381

Less: Earned Revenue 168,039,937 112,246,716

Net Cost (2,088,501) (2,677,335)

Financing Sources (Other thanExchange Revenues)

214,741 199,621

Current Results of Operations $2,303,242 $2,876,956(Financing Sources less Net Cost)

FINANCIAL SYSTEMS, CONSULTINGAND TRAINING

Costs 16,374,959 21,462,390


Net Cost (599,410) 662,154


498,170 770,600

Current Results of Operations $1,097,580 $108,446(Financing Sources less Net Cost)

FINANCIAL MANAGEMENT ADMINISTRATIVESUPPORT SERVICES

Costs 36,106,830 32,384,134


Net Cost (470,173) 2,175,105


1,223,657 1,035,605

Current Results of Operations $1,693,830 ($1,139,500)(Financing Sources less Net Cost)

FUND TOTAL

Costs (Note 7) 218,433,225 163,415,905


Net Cost (3,158,084) 159,924

Financing Sources (Other thanExchange Revenues) (Note 8)

1,936,568 2,005,826

Current Results of Operations $5,094,652 $1,845,902(Financing Sources less Net Cost)

Treasury Franchise FundConsolidated Statement of Net Cost and Results of OperationsFor the years ended September 30, 2001 and 2000



• 26 •

Fiscal Year 2001 Fiscal Year 2000INVESTED CAPITAL

Total Invested Capital $3,746,219 $3,746,219

CUMULATIVE RESULTS OF OPERATIONS

Beginning Balance (As reported 9/30/99) $10,525,782 $8,993,729

Prior Period Adjustments 0 (313,849)

Adjusted Beginning Balance 10,525,782 8,679,880

Current Results of Operations 5,094,652 1,845,902

Ending Balance $15,620,434 $10,525,782

TOTAL NET POSITION ENDING BALANCE $19,366,653 $14,272,001

Treasury Franchise FundConsolidated Statement of Changes in Net Position

For the years ended September 30, 2001 and 2000




• 27 •

FINANCIAL STATEMENTSTreasury Franchise FundCombined Statement of Budgetary ResourcesFor the years ended September 30, 2001 and 2000


Fiscal Year 2001 Fiscal Year 2000BUDGETARY RESOURCES

Unobligated Balance 71,852,926 29,312,662

Spending Authority from Offsetting Collections 253,272,027 209,378,960

Adjustments 9,462,096 5,631,171

Total Budgetary Resources $334,587,049 $244,322,793

STATUS OF BUDGETARY RESOURCES

Obligations Incurred 230,553,256 172,469,867

Unobligated Balances Available 104,033,793 71,852,926

Total Status of Budgetary Resources $334,587,049 $244,322,793

OUTLAYS

Obligations Incurred 230,553,256 172,469,867

Less: Spending Authority From OffsettingCollections and Adjustments 262,734,123 215,010,132

Obligated Balance, Net - Beginning of Period (31,193,144) (9,783,204)

Less: Obligated Balance 49,399,187 (31,193,144)

Totals Outlays ($13,974,824) ($21,130,325)


• 28 •

Treasury Franchise FundCombined Statement of Financing

For the years ended September 30, 2001 and 2000


Fiscal Year 2001 Fiscal Year 2000

OBLIGATIONS & NONBUDGETARY RESOURCES

Obligations Incurred $230,553,256 $172,469,867

Less: Spending Authority from OffsettingCollections and Adjustments 262,734,123 215,010,132

Financing Imputed for Cost Subsidies 1,936,568 2,005,826

Total Obligations as Adjustedand Nonbudgetary Resources ($30,244,299) ($40,534,439)

RESOURCES THAT DO NOT FUNDNET COST OF OPERATIONS

Change in Amount of Goods Services andBenefits Ordered but Not Yet Provided(Net Increases) Net Decreases 2,234,779 (2,555,267)

Change in Unfilled Customer Orders 27,790,301 43,705,819

Costs Capitalized on the Balance Sheet(Increases) Decreases (3,109,474) (413,130)

Other (15,941) (301,593)

Total Resources That Do Not FundNet Costs of Operations $26,899,665 $40,435,829

COSTS THAT DO NOT REQUIRE RESOURCES

Depreciation and Amortization 186,550 198,871

Other 0 59,663

Total Costs That Do Not Require Resources $186,550 $258,534

NET COST OF OPERATIONS ($3,158,084) $159,924



• 29 •

1. Significant AccountingPolicies

A. Reporting Entity: The Treasury FranchiseFund was authorized by the GovernmentManagement and Reform Act of 1994 andP.L. 104-208, the Treasury Department FY1997 Appropriations Act. The TreasuryFranchise Fund provides administrativesupport services on a competitive, fee-for-service, and full-cost basis. The Fundcurrently consists of twelve separate“business activities” most with a separateaccount established to facilitate financialreporting. The financial statements presentedin this report are consolidated to reflect theactivity of the Fund as a whole. The accountsestablished to date are:

Corporate Account, Rocky MountainRegional FBA, FedSource-SC . . . .20X4560

Business Activity(Los Angeles) . . . . . . . . . . .20X4560.001

FedSource-Seattle . . . . . . .20X4560.002

Business Activity (Cincinnati) . . . . . . . . . . . . .20X4560.003

GoTo.Gov (Baltimore) . . . . .20X4560.004

Treasury Agency Services . .20X4560.005

Federal Consulting Group . . .20X4560.006

FedSource-St. Louis . . . . . .20X4560.007

FedSource-Chicago . . . . . . .20X4560.008

Global Services (San Antonio) . . . . . . . . . . .20X4560.009

Administrative Resource Center . . . . . . . . . . . . . . .20X4560.010

Inspectors General Audit Training Institute (IGATI) . . . . . . . . . .20X4560.011

During FY 2001, the fund received a requestfor admittance from RMRC and a notificationof withdrawal from IGATI. In June 2001,Franchise Fund Advisory Board voted toadmit RMRC into the fund effective July 1,2001. In addition, in September 2001 an exitplan was developed and implemented to tran-

sition IGATI from the fund effectiveSeptember 30, 2001.

The Government Management and ReformAct, as amended, authorizes a five-year pilotprogram of which Fiscal Year 1997 was thefirst year. By the end of the pilot program,the Office of Management and Budget (OMB)will evaluate the program determiningwhether to extend the pilot or make theFranchise Fund permanent. If it is determinedthat the Franchise Fund will not be renewed,it is expected that these organizations com-posing the Treasury Franchise Fund will eachcontinue to operate as reimbursable fundedoperations within the Department of Treasury.

P.L. (104-208) allows the Fund to retain itsearnings in excess of costs to the extent thatthey are needed to establish a reasonableoperating reserve. Earnings over costs thatare in excess of a reasonable operatingreserve will be transferred to an account tosupport initiatives of the Secretary of theTreasury (as prescribed in P.L. 104-208) orreturned to Treasury’s General Fund.Reasonable operating reserves have beendefined as those funds necessary to coverthe cost of performing our services plusinvestments necessary to continue to providethose services.

B. Basis of Accounting:These financialstatements are prepared using the accrualbasis of accounting. Under the accrualmethod, revenues are recognized whenearned and expenses are recognized when aliability is incurred without regard to receiptor payment of cash.

The OMB publishes applicable accountingstandards and principles for Federal entities,as well as the form and content to be fol-lowed for the preparation of these state-ments.

To assist OMB in recommending and publish-ing comprehensive accounting standards andprinciples for agencies of the Federal govern-ment, the Secretary of the Treasury, theComptroller of the United States, the Directorof the OMB, and the Joint FinancialManagement Improvement Program (JFMIP)

NOTES TO FINANCIAL STATEMENTS


• 30 •

established the Federal Accounting StandardsAdvisory Board (FASAB) in 1990. TheAmerican Institute of Certified PublicAccountant’s (AICPA) Council designatedFASAB as the accounting standards authorityfor Federal government entities. Therefore,these financial statements are presented inconformity with generally accepted account-ing principles. Prior to the AICPA Council’sdesignation, Federal financial statementswere presented as an other comprehensivebasis of accounting.

The Federal GAAP Hierarchy is as follows:1.Officially established accounting princi-

ples, consists of Federal AccountingStandards Advisory Board (FASAB)Statements and Interpretations, as well asAICPA and Financial Accounting StandardsBoard (FASB) pronouncements specificallymade applicable to Federal governmentalentities by FASAB Statements orInterpretations. FASAB Statements andInterpretations will be periodically incorpo-rated in a publication by the FASAB.

2.Consists of FASAB Technical Bulletins and,if specifically made applicable to Federalgovernmental entities by the AICPA andclearly by the FASAB, AICPA Industry Auditand Accounting Guides and AICPAStatements of Position.

3.Consist of AICPA Accounting StandardsExecutive Committee (AcSEC) PracticeBulletins if specifically made applicable toFederal governmental entities and clearedby the FASAB, as well as TechnicalReleases of the Accounting and AuditingPolicy Committee of the FASAB.

4.Includes implementation guides publishedby the FASAB staff, as well as practicesthat are widely recognized and prevalentin the Federal government.

5.In the absence of a pronouncement cov-ered by rule 203 or another source ofestablished accounting principles, theauditor of financial statements of aFederal governmental entity may considerother accounting literature, depending onits relevance in the circumstances.

C. Basis of Presentation: These financialstatements are provided to meet the require-ments of the Government Management andReform Act (GMRA) of 1994. The statementsconsist of the Consolidated Balance Sheet,the Consolidated Statement of Net Cost andResults of Operations, the ConsolidatedStatement of Changes in Net Position, theCombined Statement of Budgetary Resources,and the Combined Statement of Financing.

These financial statements have been pre-pared from the books and records of theFranchise Fund in accordance with the for-mats prescribed by OMB.

D. Retirement Plan: Franchise Fund employ-ees participate in the Civil Service RetirementSystem (CSRS) or the Federal Employees’Retirement System (FERS). FERS was estab-lished by the enactment of Public Law 99-335. Pursuant to this law, FERS and SocialSecurity automatically cover most employeeshired after December 31, 1983. Employeeshired before January 1, 1984 elected to joineither FERS and Social Security or remain inCSRS.

All employees are eligible to contribute to theThrift Savings Plan (TSP). For those employ-ees participating in the FERS, a TSP accountis automatically established and the Fundmakes a mandatory 1 percent contribution tothis account. In addition, the Fund makesmatching contributions, ranging from 1 to 4percent, for FERS eligible employees whocontribute to their TSP accounts. Matchingcontributions are not made to the TSPaccounts established by CSRS employees.

FERS employees and certain CSRS reinstate-ment employees are eligible to participate inthe Social Security program after retirement.In these instances, the Fund remits theemployer’s share of the required contribution.

The Fund does not report on its financialstatements information pertaining to theretirement plans covering its employees.Reporting amounts such as plan assets,accumulated plan benefits, and relatedunfunded liabilities, if any, is the responsibilityof the Office of Personnel Management.



• 31 •

2. Fund Balance withTreasury

The Franchise Fund does not maintain cash incommercial bank accounts. Funds collectedby the Franchise Fund for services providedare deposited in the Fund’s revolving fundaccount with Treasury. There are no restric-tions on any of the funds held by theFranchise Fund. All funds are available to paycurrent liabilities of the Fund.

3. AccountsReceivable

Intra-governmental (Federal) accounts receiv-able represent billed and unbilled costs ofservices provided to other government agen-cies/bureaus. Accounts receivable with thepublic consists of amounts due from entitiesoutside the Federal government.

Past experience for the Franchise Fundshows the majority of receivables will be col-lected. The dollar amount of receivables thathave not been collected has been very small.Therefore, an allowance for doubtful accountsis not estimated.

4. Net PositionThe Fund’s net position is composed ofinvested capital and the cumulative results ofoperations.

Invested Capital: To facilitate the start-up ofthe Franchise Fund, the Department of theTreasury transferred appropriated funds in FY1996 to provide the initial cash needed tobegin franchise operations. The initial transferrepresents the government’s investment inthe Franchise Fund. The $3.7 million ofinvested capital includes $1.2 million inappropriated funds transferred to theFranchise Fund by the Department of theTreasury as well as $2.5 million brought intothe Fund by the Franchise Business Activitiesas they have entered the fund. The FranchiseBusiness Activities’ initial investment repre-sented $3.6 million of cash that was broughtinto the fund and was reduced by $1.1 millionof annual leave liability that they also broughtinto the Fund at the same time. The total

Invested Capital was reduced by the amountof annual leave liability that each entitybrought with them as they entered the Fund.

Cumulative Results of Operations: The cumu-lative results of operations, represents thenet difference between revenue and expensesand gains and losses incurred since theinception of the Fund.

5. Property, Plant andEquipment, Net

The Fund follows the Department of theTreasury’s guidelines on Property, Plant, andEquipment concerning how to account for ITsoftware and ADP equipment. TheDepartment’s fixed asset capitalizationthreshold was established pursuant to theFederal Accounting Standards AdvisoryBoard’s standard “Accounting for Property,Plant, and Equipment.” In this standard,FASAB directed Federal agencies to estab-lish their own fixed asset capitalizationthreshold. The Department’s capitalizationthreshold is $50,000, which has been adopt-ed by the Fund.

Acquisitions have been capitalized at fullacquisition cost and depreciation is calculat-ed over the estimated useful lives of theassets. All maintenance and repairs areexpended as incurred. As of September 30,2001, the Fund had capitalized informationtechnology software and ADP equipment witha cost of $1,615,236 with estimated usefullives ranging from three to five years.Accumulated depreciation on IT Software andADP Equipment at year-end totaled $738,932leaving a book value of $876,304. (Seegraph next page.)

During FY2001, the Administrative ResourceCenter accumulated $2,824,816 inConstruction-in-Progress (CIP) relating to thepurchase and development of a new automat-ed accounting system. It is anticipated thatthe new system will be amortized beginningin FY 2002.



• 32 •

6. Accrued LiabilitiesThe accrued liabilities for the Franchise Fundare comprised of program expense accruals,payroll accruals, and annual leave accruals.The program and payroll expense accrualsrepresent expenses that were incurred priorto year-end but were not paid.

Leave liability accruals represent the currentvalue of unpaid annual, restored annual andcompensatory leave at year-end. The leaveliability for the Franchise Fund is funded. Inother words, budgetary resourceshave been set aside to cover anynecessary payments related to theliability. Any leave balances thatwere brought into the fund at itsinception reduced the initial invest-ed capital that was also broughtinto the fund (rather than beingrecorded as an expense). These ini-tial leave balances are also funded.

Sick leave and other types of non-vested leave are not accrued andare charged to operating costsonly when taken.

FY 2001 FY 2000

Program Expense AccrualIntragovernmental 702,589 3,228,487With the Public 20,101,735 21,163,153TOTAL $20,804,324 $24,391,640

Payroll and Annual Leave AccrualIntragovernmental 295,164 333,116With the Public 3,347,916 2,718,434TOTAL $3,643,080 $3,051,550

Total Accrued LiabilitiesIntragovernmental 997,753 3,561,603With the Public 23,449,651 23,881,587TOTAL $24,447,404 $27,443,190

Schedule of Accrued Liabilities

DepreciationMethod

Service Life(in years)

CostFY 98 - 01

AccumulatedDepreciation

FY 01 BookValue

InformationTechnologySoftware

ADPEquipment

Straight-line(1/2 year

convention)

Straight-line

3 - 5

3

$1,458,664

$156,572

$665,626

$73,306

$793,038

$83,266

TOTAL $4,440,052 $738,932 $3,701,120

Schedule of Depreciation

CIP - ITSoftware

N/A N/A $2,824,816 N/A $2,824,816



• 33 •

7. Operating/Program Costs

Costs by major budgetary objectclassification are as follows:

8. Financing Sources (Otherthan Exchange Revenue)

The Fund’s activities are financed through therevenue it receives for the services and prod-ucts it provides. In order to show the full cost

of operations, the Fund also shows imputedcosts and imputed revenue. In FY 2001, theFund recognized $1,936,568 of imputed rev-enue as additional financing sources.

The Office of Personnel Management (OPM),rather than the agency for which the employ-ee works, pays some pension and benefitcosts of Federal agencies. The pension andbenefit costs paid by OPM are composed ofthree basic items: pension expense, healthinsurance expense, and life insuranceexpense. The payment of those costs repre-sents imputed financing sources for the Fund.The Balance Sheet does not reflect the relat-ed liability because the Fund has no obliga-tion to pay those costs (these will be paid bythe Office of Personnel Management).

“Salary and Benefits Paid by Other Agencies”represents the salary and benefits of person-nel detailed from other agencies (at no costto the Fund) that add staff to one entity in

the Fund. These detail assign-ments represent executive train-ing for the individuals detailedand thus the agency providingthe detailee has determined, con-sistent with appropriations law,that the value of the trainingreceived equals the cost of thedetailed employee’s salary andbenefits. The Fund has recog-nized the salary and benefits ofthese employees as costs of theFund and has recognized an off-setting financing source for thepayment of these costs by theagencies authorizing the detailassignments.

9. Lease LiabilitiesThe Fund incurs expenses for operatingleases, primarily for facilities needed to

conduct requiredfunctions. Currently,each Franchise BusinessActivity leases officespace but those leasesdo not meet the criteriafor recognition ascapital leases.

10. Commitmentsand Contingencies

There are no commitments or contingenciesthat require disclosure.

BUDGETARY OBJECT CLASSIFICATION FY 2001 FY 2000

Personnel & Benefits $30,235,367 $29,772,622

Travel & Transportation 782,231 729,781

Rents, Communications & Utilities 1,471,054 1,398,501

Printing & Reproduction 2,459,429 244,900

Contractual Services 181,264,283 128,415,247

Supplies & Materials 449,481 534,655

Equipment 1,738,769 2,319,986

Miscellaneous 32,611 213

TOTAL $218,433,225 $163,415,905

FY 2001FY 2002 964,674FY 2003 343,074FY 2004 89,975FY 2005 92,674FY 2006 95,455Thereafter 0TOTAL FUTURE PAYMENTS $1,585,853

FY 2001 FY 2000

Post Retirement Benefits to be Paid by OPM $1,773,919 $1,583,794

Salary Benefits Paid by Other Agencies 162,649 422,032

TOTAL FINANCING SOURCES $1,936,568 $2,005,826

Schedule of Financing Sources

Scheduled Operating Lease Future Payment



Treasury Franchise FundAdvisory Board

Steven App - Chairman

Karen Blum - Vice Chair & Chief Operating Officer, FedSource-St. Louis

Barry Hudson - Executive Secretary and Managing Director

Marty Davis - Chief Financial Officer

Jim Sturgill - Executive Director, Treasury Agency Services

Iris Greenberg - Chief Operating Officer, FBA-West

Rick Rider - Chief Operating Officer, GoTo.Gov

Dave Zingo - Chief Operating Officer, FBA-Central

Linda Valentino - Chief Operating Officer, FedSource-Chicago

Diane Ridgway - Chief Operating Officer, FedSource-Seattle

Jackie Coleman - Chief Operating Officer, FedSource-South Carolina

Mary Ellen Trevino - Chief Operating Officer, FBA-Global Services

Anne Kelly - Director, Federal Consulting Group

Tom Harrison - Executive Director, Administrative Resource Center

Danny Athanasaw - Acting Director,Inspectors General Auditor TrainingInstitute

• 34 •

ADVISORY BOARD


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