ACCOUNTING & FINANCIAL REPORTING CGFO REVIEW
Download
Report
Transcript ACCOUNTING & FINANCIAL REPORTING CGFO REVIEW
FGFOA Boot Camp – Day 1
Introduction to
Governmental Accounting
Presented by
Thomas D. Kelley, CPA, MBA
The Government
Environment
Key Differences
Lack of profit motive
Legal structure
Resource providers
Political process
Non-revenue producing assets
Public services
Public goods
Objectives of
Financial Reporting
Compare actual & budget
Assess financial condition & results
of operations
Determine compliance with laws,
rules, & regs
Evaluate efficiency & effectiveness
Financial Statement Users
Taxpayers
Citizens
Oversight & legislative bodies
Investors & creditors
Management
Financial Reporting
Objectives
Information for decision making
Financial reporting should be
Understandable
Reliable
Relevant
Timely
Consistent
Comparable
Accounting Differences
Fund accounting
Accountability
Budgetary reporting
Compliance
Accounting Differences
Measurement focus = WHAT is measured
Economic resources
Improvement/diminishment in economic position
Measure inflows & outflows of economic resources
Current & noncurrent
Capital assets & long-term debt
Focuses on operational accountability
Whether management efficiently uses resources in
providing services
Accounting Differences
Measurement focus = WHAT is measured
Current financial resources
Increases/decreases in spendable resources
Measure inflows & outflows of current financial
resources
Cash & other liquid assets
Payables from cash & other liquid assets
Focuses on fiscal accountability
Whether managers have met budgetary & other legal
financial requirements
Accounting Differences
Basis of accounting = WHEN to measure
When transaction/event recognized
Accrual
Modified accrual
Measurable and available
Trust Funds
Expendable or non expendable
Accounting Differences
Basis of accounting = WHEN to
measure
Accrual basis of accounting
Revenues recognized when earned
Expenses recognized when incurred
Accounting Differences
Basis of accounting = WHEN to
measure
Modified accrual basis of accounting
Revenues recognized when measurable &
available
60 day criteria
Expenditures recognized when incurred
Expected to be liquidated with current
financial resources
Measurement Focus and Basis
of Accounting Summary
Measurement
Focus
Basis of
Accounting
Economic
resources
Accrual
Current financial
resources
Modified accrual
Proprietary fund
statements
Economic
resources
Accrual
Fiduciary fund
statements
Economic
resources
Accrual
Government-wide
statements
Governmental fund
statements
What is GAAP & Who is
GASB?
GAAP = generally accepted
accounting principles
GASB
Established 1984
Establish standards for SLGs
Financial accounting
Financial reporting
Statutory requirement to use GAAP
How GASB Works
Mission of GASB
Establish/improve standards
To provide useful information
GASAC
Consults with GASB
GASB budget and fund raising
25+ representative members
GASB Required
State & local governments
Some NFPs
General purpose
Special purpose
Libraries
Hospitals
Colleges & universities
Public
Fund Accounting & the
Financial Statements
Why Use Funds?
Account separately for
Resources
Financial & economic
Activities
Accountability
Compliance
What is a Fund?
Fiscal & accounting entity
Self-balancing set of accounts
Cash & financial resources
Liabilities & residual equity/balances
Changes
Segregated for purpose of
Specific activities
Attaining certain objectives
In accordance with regs, restrictions,
limitations
How Many Funds?
Depends on
Minimum number of funds concept
Capability of accounting system
Accounting/legal requirements
Sound financial management
Meet legal/accounting objectives
More funds = more complexities
At least one = General fund
Creating New Funds
When
New accounting standard
Change in state constitution
Grant required
New activity
Determine
Desired level of
Financial control
Management
Fund Structure
Governmental funds
General operations
Financial resources
Proprietary funds
Business type operations
Economic resources
Fund Structure
Fiduciary funds
Trust agreement
Agency relationship
Resources held for others
Governmental Funds
Financial resources measurement
focus
Modified accrual basis of accounting
Account for expenditures of financial
resources (not expenses)
Capital assets & long-term liabilities
are NOT recorded in governmental
funds
Both recorded as expenditures
Governmental Funds
Types
General Fund
Special Revenue Funds
Capital Projects Funds
Debt Service Funds
Permanent
General & Special Revenue
Funds
What goes where?
General Fund
Special Revenue Funds
Restricted or committed funds
Revenue recognition
Modified accrual = measurable & available
Uncollectibles
General & Special Revenue
Funds
Revenue issues
Property taxes
Levy
Collection
Revenue recognition
Sales & income taxes
Grants
Donations
General & Special Revenue
Funds
Expenditure recognition
Measurable
Liability incurred
Plan to liquidate from current resources
Is it budgeted this year?
Debt Service Funds
Purpose
Revenue recognition
Expenditure recognition
Restricted, committed, assigned
When due vs. before due
Refundings
What are they?
Types
Debt Service Funds
Advance refundings
Definition
Legal or in-substance
defeasance
Current refundings
Capital Project Funds
Purpose
Restricted, committed, assigned
Revenue recognition
Bond proceeds
BANs
Arbitrage
Calculations Vs payments
Permanent Funds
Legally restricted resources
Earnings only
Endowment type
Support government’s
programs
Proprietary Funds
Economic resources measurement
focus
Full accrual basis of accounting
Account for expenses of economic
resources
Capital assets & long-term liabilities
ARE recorded in proprietary funds
Depreciation expense on capital assets
recorded
Proprietary Funds
Types
Enterprise
Fees charged
External users
Internal Service
Reimbursement basis
Primary government
Component units
Other governments
Enterprise Funds
When to use
Intend to recover total cost from user
fees
Want to know if fund profitable or not
Restricted assets
When required/used
Enterprise Funds
Debt
Classification based on revenue
stream
G.O. debt
Contributed capital
Sources
Accounting & political implications
Enterprise Funds
Infrastructure
Types
Reporting & depreciation required
Internal Service Funds
What are they?
Cost-reimbursement basis
Internal customers
Measurement & basis of
accounting
Economic resources
Full accrual
Internal Service Funds
Duplication of costs
Surpluses & deficits
Risk management activities
General Fund or ISF required
Interfund premiums = quasi external
Fiduciary Funds
Full accrual accounting
Economic resources measurement
focus
Capital assets & long-term liabilities ARE
recorded
“Additions” to net assets
Not “revenues”
Other people’s money
“Deductions” from net assets
Not “expenses”
Fiduciary Funds
Types
Pension Trust
Investment Trust
External portion reported by sponsor
Private Purpose Trust
All other trust agreements
Individuals
Private organizations
Other governments
Agency
Fiduciary Funds
Pension/OPEB Trust Funds
To account for financial resources
where government (or other
designated trustee) acts in trustee
capacity for its employees
Retirement benefits
Pensions
Other post-employment benefits
Insurance, etc.
Fiduciary Funds
Investment Trust Funds
Account for external investment pools
Assets held for other (external)
governments, along with funds of
sponsoring government
Accounts for assets, liabilities, net
assets, & changes in net assets related
to equity of external participants
Fiduciary Funds
Private-purpose Trust Funds
To account for financial resources
(expendable/nonexpendable)
when government acts in trustee
capacity for
Private individuals
Organizations
Other governments
Fiduciary Funds
Agency Funds
Account for financial resources when
government acts in an agency capacity
Examples: tax agency funds and passthrough agency funds
Accounting is simple: assets =
liabilities
No revenue & expense accounts used
since there are no net assets
Fund Classification
Exercises
Typical Government
Transactions
Basic Transactions
Assets
Liabilities
Revenues/gains
Expenses/expenditures & losses
Other sources & uses
Some Typical Transactions
Assets
Inventory
Prepaid expenses
Property, plant & equipment
Purchase & consumption method
Valuation & impairment
Capitalization & depreciation
Restricted assets
Some Typical Transactions
Assets
Inventory
Purchase (financial resources)
Expenditures – Supplies, etc.
Cash/AP
Consumption (economic resources)
Inventory – Supplies, etc.
Cash/AP
Some Typical Transactions
Assets
Prepaid expenses
Current financial resources
Expenditures
Cash/AP
Non current financial resources
Prepaid expenses
Cash/AP
Reporting Capital Assets
Distinguish general capital assets from
proprietary & fiduciary capital assets
General capital assets
Proprietary capital assets
Report only in Governmental Activities Column of
GWS
Report in both GWS & fund FS
Fiduciary capital assets
Reported only in statement of fiduciary net assets
(fund level FS)
Valuation of Capital Assets
Purchased capital assets
Historical cost
Estimated cost if actual cost is unknown
Donated assets
Estimated fair value at time of gift
Intangible assets
Historical cost if purchased
Different GAAP for self developed
Depreciation of Capital
Assets
Capital assets are depreciated over
their estimated useful lives
Exceptions
Land
Construction in progress
Certain collections
Infrastructure reported using the modified
approach
Depreciation of Capital
Assets
May elect to use the “modified
approach” for certain infrastructure
assets instead of depreciation
Must meet certain requirements to use
Report depreciation expense for
general capital assets only in GWS
Disclose depreciation expense charged
to functions in notes
Some Typical Transactions
Assets
Property, plant & equipment
Modified accrual
Expenditures – Capital Outlay
Cash/AP
Full accrual
Property, Plant & Equipment
Cash/AP
Depreciation Expense
Accumulated Depreciation
Some Typical Transactions
Liabilities
Unearned revenues
Accruals
Interfund debt
Long term debt
Year end
Compensated absences
Types
Accounting
Liabilities payable from restricted assets
Some Typical Transactions
Liabilities
Unearned revenues
Modified accrual – not available
Cash
Unearned/Deferred Revenue
Full accrual – earnings process not complete
Cash
Unearned/Deferred Revenue
Some Typical Transactions
Liabilities
Accruals
Year end – modified accrual (payable from
current financial resources)
Expenditures
Accrued Expenditures
Year end – full accrual
Expenses
Accrued Expenditures
Reporting Long-term Liabilities
Distinguish general long-term
liabilities from fund long-term
liabilities
General long-term liabilities
Bonds, notes, compensated absences,
etc.
Reported in GWS but not in fund
financial statements
Some Typical Transactions
Liabilities
Long term debt - types
General obligation bonds
Aka “full faith and credit”
Revenue bonds
Mortgages
Loans
Other
Litigation
Compensated absences
Some Typical Transactions
Liabilities
Long term debt – accounting
Modified accrual
Expenditures – Debt Service Principal
Expenditures – Debt Service Interest
Cash/AP
Full accrual
LT Debt Outstanding (principal)
Interest Expense
Cash/AP
Reporting Long-term Liabilities
Long-term liabilities repaid from
Proprietary funds
Reported in proprietary fund statements &
in GWS
Fiduciary funds
Reported only in fiduciary fund level
statements
Some Typical Transactions
Liabilities
Liabilities payable from restricted
assets
Liabilities Payable from Restricted Cash
Restricted Cash
Some Typical Transactions
Fund equity until 6/14/11
Nomenclature
Fund balance – governmental funds
Net assets – all others
Designations
Reserves
Restricted
Unrestricted
Some Typical Transactions
Fund equity 6/15/11 & beyond
Non spendable
Inventories, LT loans, permanent fund corpus
etc.
Restricted
Committed
Assigned
Unassigned
Some Typical Transactions
Revenues & gains
Exchange
Modified accrual
Full accrual
Earnings process complete
Non exchange (external events)
Measurable & available
Government gives/receives value without directly
receiving/giving equal value in exchange
Type/class defines revenue recognition criteria
Gain
Full accrual concept only
Proceeds less carrying value
Classes of Nonexchange
Transactions
Derived tax revenues
Imposed nonexchange revenues
Property taxes & fines and penalties
Government-mandated nonexchange
transactions
Income & sales taxes
Services funded by higher level government
Voluntary nonexchange transactions
Grants/entitlements from higher level
government & certain private donations
4-68
Some Typical Transactions
Expenses/expenditures & losses
Expenditures = governmental funds
Expenses = proprietary funds, GWS
Operating
Debt service
Capital outlay
Operating
Debt service
Depreciation
Losses
Extraordinary
Special items
Other
Some Typical Transactions
Expenditures = governmental funds
Operating
Expenditures
Cash/AP
Debt service
Expenditures – Debt Service Principal
Expenditures – Debt Service Interest
Cash/AP
Capital outlay
Expenditures – Capital Outlay
Cash/AP
Some Typical Transactions
Expenses = proprietary funds
Operating
Expenses
Cash/AP
Debt service
Expenses – Interest
LTD Outstanding (principal)
Cash/AP
Depreciation
Depreciation Expense
Accumulated Depreciation
Some Typical Transactions
Losses = proceeds less carrying value
Extraordinary
Underlying event = unusual AND infrequent
Special items
Underlying event = unusual OR infrequent AND
within control of management
Other revenue
Other revenue
Other
Program revenue
Some Typical Transactions
Other sources & uses
Issuance of debt
Interfund transfers
Sale of assets
Large amounts
Insurance recoveries
Vs. extraordinary item
Some Typical Transactions
Other sources & uses
Issuance of debt
Modified accrual
Cash
Bond issue costs
Other Financing Sources – Debt Proceeds
Full accrual
Cash
Deferred Bond Issue Costs
LTD Payable
Some Typical Transactions
Other sources & uses
Interfund transfers
Transferring fund
Other Financing Uses – IFT Out
Cash
Receiving fund
Cash
Other Financing Sources – IFT In
Some Typical Transactions
Other sources & uses
Sale of assets (large amounts)
Modified accrual
Cash
Other Financing Sources – Proceeds, Asset Sale
Full accrual
Cash
Accumulated Depreciation
Gain/Loss on Sale of Asset
Net Book Value of Asset Sold
Recording Transactions
Exercises
Budgeting
Role of the Budget
Public process = “representation”
Legal contract
May not be prepared
For all funds – statutory requirements
On GAAP basis
Estimated revenues
Appropriations
Role of encumbrances
Should be tied to strategic plan
Types of Budget Formats
Types
Operating
Capital
Capital improvement plan
Cash
Timing
Role of the Budget
Budget document
Operations guide
Communication device
Financial plan
Policy document
Role of the Budget
Legal standing
Legal level of control
Administrative level of control
Budgetary basis of accounting
Versus GAAP
Basis
Timing
Perspective
Entity
Role of the Budget
Budget process
Preparation
Approval
Execution
Evaluation
Role of the Budget
Budget process
Preparation
Estimate revenues
Prepare agency budgets
Prepare preliminary budget
Executive balancing of budget
Prepare Executive budget
Role of the Budget
Budget process
Approval
Public hearings
Changes
Tentative millage
Final adoption
Role of the Budget
Budget process
Execution
Appropriations
Apportionments
Changes
Administrative & legal
Role of the Budget
Execution
Encumbrances
Needed to determine available
appropriations
Budgetary tool to control spending
Purchase commitments
Lapse vs. re-appropriation
Role of the Budget
Encumbrances
Budget
Purchase order
Invoice
Initial recording
Changes
Close out
Purchase order
Other
Changes to budget
Encumbrances in Action
Date
Reference
Vendor
Description
Appropriations
Encumbrances
Expenditures
1,000,000
Available
1/1/08
2008 Budget
1/15/08
PO #100
1/20/08
Inv 200
Acme
Invoice for PO 100
1/21/08
Inv 250
Office Depot
1/31/08
PR Journal
2/1/08
PO #101
Home Depot
PVC pipe
10,000
2/10/08
Inv 300
Home Depot
Partial shipment
(5,000)
5,000
888,900
2/20/08
Inv 350
Home Depot
Shipped in full
(4,500)
4,500
888,900
2/22/08
PO #101
Home Depot
Close PO
5/31/08
Budget cut
Copper tubing
1,000,000
1,000
(1,000)
999,000
1,000
999,000
Office supplies
100
998,900
January payroll
100,000
898,900
(500)
(100,000)
888,900
889,400
789,400
Role of the Budget
Evaluation
Accountability
FS requirements
Legal contract
General fund
SRF with legally adopted annual budget
Reported as
RSI or BFS
Budgeting Exercise
Internal Control
Management &
Internal Control
Management is
responsible for internal
control including
Fraud prevention,
detection, & deterrence
programs
Internal Control
Over financial reporting
A process effected by an entity’s board of
directors, management & other personnel,
designed to provide reasonable assurance
regarding the achievement of objectives
in the following categories
Effectiveness & efficiency of operations
Reliability of financial reporting
Compliance with applicable laws & regulations
Control Environment
Integrity & ethical values
Board of directors (governing body)
Formal code of conduct
Effective whistleblower policy
Understand & exercise oversight
responsibility
Financial reporting
Internal control
Management’s philosophy & operating
style
Provides support for achieving effective IC
Risk Assessment
Financial reporting objectives
Financial reporting risks
Specified by management
Basis for determining how to
manage risks
Fraud risk
Explicitly considered when
assessing RMM due to fraud
Control Activities
Integration with risk assessment
Selection & development of
control activities
Policies & procedures
Information & technology
Information and
Communication
Financial reporting information
Internal control information
Timely
Internal communication
Relevant & appropriate
Necessary to discharge IC
responsibilities
External communication
Parties outside entity
Monitoring
Ongoing & separate
evaluations
Determine if other IC elements
continue to function
Reporting deficiencies
Timely identification &
communication
The Government
Control Environment
Cost-benefit considerations
Diminishing benefits related to
internal controls
Governing body & management
focus more on operations than
control environment
Lack of administrative and/or
accounting staff to perform
control activities
Mitigating Management
Override Potential
Corporate culture of integrity & ethical
values
Hiring qualified accounting personnel
Effective internal audit function
A qualified governing body and/or
audit committee willing to assume
responsibility to prevent/detect
management override
An effective whistleblower program
Mitigating Missing &
Ineffective Controls
Increase management involvement in
monitoring
Reviewing detail transaction reports
Reviewing selected transactions
Performing periodic counts of assets
typically subject to misappropriation
Review reconciliations prepared by staff
having incompatible duties
Areas of Concern
Overstatement of
revenues/increases in fund
equity or net assets
Fictitious revenues
Improper revenue recognition
Non exchange transactions
Areas of Concern
Effect of noncompliance
Financial statement classifications
Fund level
Government-wide
Understatement of
Expenses or expenditures
Allowance accounts
Areas of Concern
Overstatement of expenses or
expenditures
Fraudulent financial reporting
Misappropriation of assets
Understatement of revenues
Fraudulent financial reporting
Misappropriation of assets
Risk Assessment
Consider
Size & complexity of government
Number of personnel
Segregation of duties
Experience & expertise of personnel
Management override
Financially literate governing body or
audit committee can compensate
Extent technology used
Risk Assessment Examples
Year-End Transactions
Accruals
Analysis adjustments
Investments
Pension/OPEB liabilities
Fund to GWS
reconciliations
Risk Assessment
IT Concerns
Improper segregation of duties
Lack of qualified staff in IT
function
System access granted to a
number of individuals
System administration is sole
responsibility of one individual
The Financial Reporting
Model
Government Wide
Statements
Basic financial statements
MD&A
Statement of Net Assets
Statement of Activities
Footnotes
RSI
Pensions
OPEB
Budget to actual
Fund Statements
Demonstrate FINANCIAL accountability
Major funds & aggregated non major funds
Largest/most important funds
Governmental funds
Results of operations
Financial position
Financial resources & modified accrual
Proprietary & fiduciary funds
Economic resources & full accrual
Financial Reporting &
the CAFR
Comprehensive Annual
Financial Report
Encouraged by GASB
NOT required
GFOA guidelines
Three sections
Introductory
Financial
Statistical
Sections of the CAFR
Introductory
Cover, title page, table of
contents
Certificate, principal officials
Organizational chart, transmittal
Sections of the CAFR
Financial
GPFS (including notes)
Combining & individual fund FS
Schedules
Statistical
Usually outside scope of audit
Must follow GASB #44 if presented
Financial Reporting
GFOA Certificate Program
Judges
Two independent judges
GFOA staff judges
Certificate awarded for one year only
Exploring Real World
Financial Statements