How Interclypse Established a Defensible Accounting Position to Address a Government-Wide Gap
Our customer faced uncertainty and scrutiny from external financial statement auditors regarding the unprecedented accounting treatment and financial reporting of suspected fraudulent loans in its direct loan and purchased defaulted loan guarantee portfolios. In 2025, federal guidance on this topic did not exist. As a result, the external auditors raised concerns that SBA had not fully evaluated and documented whether such loans should remain classified as loans receivable under the Federal Credit Reform Act of 1990 (FCRA) or be reclassified as accounts receivable. This lack of clarity in federal guidance contributed to a material weakness in the fiscal year (FY) 2024 audit report and required the agency to seek interpretations from the Federal Accounting Standards Advisory Board (FASAB), the Office of Management and Budget (OMB), and the Department of the Treasury's Fiscal Service (“Treasury”) to finalize its accounting positions.
The agency submitted technical inquiries to FASAB between FY 2024 and FY 2025 before FASAB ultimately concluded that it was beyond the scope of their guidance and it should be left to management’s judgment, after consultation with OMB and Treasury.
Define the Problem – In conjunction with the federal civilian agency, team Interclypse assessed the problem as an unresolved government-wide accounting and financial reporting gap. The lack of documented accounting positions and interpretation of supporting guidance contributed to an agency material weakness in FY 2024.
Root Cause Analysis – The root cause was a lack of clear, documented accounting guidance for treating fraud within federal credit programs. Although existing federal accounting standards, such as Statement of Federal Financial Accounting Standards (SFFAS) 2, are high-level, the agency had not formally documented and memorialized its interpretation and application of these standards. This root cause was compounded by differing interpretations among auditors, management, and federal oversight bodies, requiring additional guidance from OMB and Treasury to resolve.
Develop Remediation Plan – Our defined, comprehensive corrective action plan established recurring sessions with OMB and Treasury leaders to develop a formalized agency accounting white paper to document management’s interpretation of the guidance and thus position on the treatment of fraud in direct loan and purchased defaulted loan guarantee credit programs. Our paper included standardized journal entries for all relevant scenarios.
Implement Solution – Our team provided direct “pen to paper” support, including the development and presentation of artifacts to brief stakeholders on the history of the problem, and the targeted questions to solve. Throughout the course of several months, our team facilitated weekly focus groups to present relevant guidance and encourage timely decision-making. Our team took all agency positions and turned it into a 30-page technical accounting position paper, approved and signed by the Chief Financial Officer, effectively memorializing the agency policy.
On-going Monitoring – Following approval of the agency white paper, our team remained dedicated to ensuring its smooth integration into daily practice through consistent agency-wide messaging, staff training, and ongoing monitoring to identify any emerging risks.
Results
As a result of our partnership with the agency, and the sustained efforts to support agency financial reporting, the audit finding that cited the agency had not documented appropriate accounting treatments was remediated and removed in the FY 2025 audit report.
In tandem with these remediation efforts, our team further demonstrated the ability to remediate accounting policy findings in FY 2025 through the closure of audit findings related to the development and implementation of an accounts receivable policy. This closure, in junction with the white paper, remediated a Notification of Findings and Recommendations (NFR).
Testimonials
“Excellent work! [understanding the limited guidance across multiple federal entities, and the differing opinions between the management team]"
– Federal Civilian Agency, Director of Financial Reporting
