Summary: For most federal programs, the cash basis of the federal budget provides adequate information on absolute and comparative costs on which to base decisions. However, in some cases, such as federal insurance programs, the consequences of current decisions may not be seen for years. As a result, cash-based budgeting may provide not only incomplete but misleading information as to the cost of these programs. Some contend that budgeting for them should move toward an accrual basis under which the net present value of the expected cost of the risk assumed by the government would be recognized at the time that the commitment is extended. The Chairman of the House Budget Committee asked GAO to review whether the current cash-based reporting provides complete information on these programs and whether accrual concepts--similar to those used for loans and loan guarantees under the Credit Reform Act of 1990--could be used to improve budgeting for these programs. This report (1) examines the shortcomings of cash-based budgeting for insurance programs, (2) identifies how accrual-based budgeting could improve the recognition of insurance program costs and their economic impact, (3) examines approaches that could be used to incorporate accrual-based information in the budget, and (4) identifies implementation issues that can be anticipated in changing to accrual-based budgeting for these programs.
