Transcript Local Government Reporting for Auditors

GASB 54 Implementation
Fund Balance Reporting and Governmental Fund Type Definitions
June 14, 2011
Agenda
• Review, Methodology & Examples of Fund Balance Classifications
• Fund Balance Policies vs. Stabilization Policies
• Restricted – Stabilization by State Statute
• Review & Examples of Fund Type Classifications
• Examples of Illustrative Statements
• Questions
Questions & Guidance Units will Need
• Classification of Funds
• How do I budget my Funds?
• Do I have to change how the funds are in my financial system?
• Fund type classifications can depend on a unit’s policies, so you could
have clients with different results for similar funds.
• Classification of Fund Balance
• Spending policy will determine how fund balance will be classified.
• Different spending policies could result in different fund balance
classifications
• Does my fund balance policy qualify under GASB 54 as committed?
• GASB 54 has potential to affect: MD&A, government-wide, fund statements,
notes, supplemental statements and statistical schedules.
Impact of GASB 54
• GASB 54 is Reporting Guidance
o General Statutes have not changed – Capital Reserve Funds can still be
budgeted.
o You may or may not want to change how you budget.
o Under earlier GASB a unit could not accumulate funds in a CIP
o Under earlier GASB Capital Reserve was a Special Revenue Fund
• The Statement redefines some Fund Types
• Changes the focus of Fund Balance
o Changes how we classify fund balance on Balance Sheet.
o Does not change total fund balance amount.
Fund Balance - Classifications
Classification
Definition
Examples
Nonspendable
“amounts that cannot be spent because they are
either (a) not in spendable form or (b) legally or
contractually required to be maintained intact.”1
Inventories, long-term
receivables, Cemetery
Permanent Funds, longterm interfund balances
(due to/from)
Restricted
“Fund balance should be reported as restricted
when constraints placed on the use of resources
are either:
Restricted - Streets
1 GASB
a)
Externally imposed by creditors-debt
covenants, grantors, contributors, laws or
regulations of other governments; or
b)
Imposed by law through constitutional
provisions or enabling legislation”1
Restricted – School Capital
Stabilization by State
Statute
Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions
Restricted – Stabilization by State Statute
•GASB has redefined Governmental Balance Sheet Reporting
•Under GASB 54 “reserve by state statute” now qualifies as restricted
•This impacts Government-wide Net Asset Statement – as “restricted-stabilization
by state statute” will be reflected on this statement.
•Note: Restricted by stabilization is not calculated on government-wide
statement, but calculated from numbers on the balance sheet
Fund Balance - Classifications
Classification
Committed
Definition
“Used for specific purpose pursuant to constraints
imposed by formal action of the government’s
highest level of decision-making authority”1
• Self-imposed limitations set in place prior
to year-end, but can be calculated after
year end.
Examples
Board passed a resolution
to use $1,000,000 of fund
balance towards the
building of a cultural arts
center.
• Limitation imposed at highest level and
requires same action to remove or
modify
• Ordinances that lapse at year-end do not
meet the committed test
1 GASB
Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions
Fund Balance - Classifications
Classification
Assigned
Definition
“Amounts that are constrained by the
government’s intent to be used for specific
purposes, but are neither restricted nor
committed”1
• Assignments can occur anytime before
issuance of financial statements.
• Assignment ability can be delegated by
the board.
• For governmental funds (exclusive of the
general fund) this is the lowest level of
positive fund balance.
1 GASB
Examples
Governing body has
appropriated fund balance.
Governing body has
budgeted $1M for a mental
health hospital. County
Mgr. may amend this up to
$100,000.
Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions
Fund Balance - Classifications
Classification
Unassigned
Definition
Unassigned fund balance is the lowest
classification for the general fund. This is fund
balance that has not been reported in any other
classification.
Examples
A capital project fund with a
fund deficit.
The general fund is the only fund that can report a
positive unassigned fund balance.
1 GASB
Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions
Negative or Residual Fund Balance Amounts
• Restricted, committed or assigned should never be negative.
• Nonspendable, restricted or committed fund balance categories can reduce
assigned/unassigned or create a negative unassigned fund balance
classification.
• If nonspendable, restricted and committed amounts are more than total fund
balance, then assigned is zero and unassigned shows the necessary negative
amount.
Fund Balance Classifications – General Fund - Examples
Nonspendable
Example #1
Restricted
Committed
Assigned
Unassigned
($20,000)
Total Fund Balance
($20,000)
You have just realized that Powell Bill – Restricted for Streets in an amount of
$11,000 has not been recorded yet.
What would the new FB section look like?
Fund Balance Classifications – General Fund - Answers
Nonspendable
Restricted
Example #1
$11,000
Committed
Assigned
Unassigned
($31,000)
Total Fund Balance
($20,000)
You have just realized that Powell Bill – Restricted for Streets in an amount of
$11,000 has not been recorded yet.
What would the new FB section look like?
Fund Balance Classifications – General Fund - Examples
Nonspendable
Example #2
Restricted
$20,000
Committed
Assigned
Unassigned
Total Fund Balance
5,000
10,000
$35,000
You have just realized that Powell Bill – Restricted for Streets in an amount
of $11,000 has not been recorded yet.
What would the new FB section look like?
Fund Balance Classifications – General Fund - Answers
Nonspendable
Example #2
Restricted
$31,000
Committed
Assigned
Unassigned
Total Fund Balance
$4,000
$0
$35,000
You have just realized that Powell Bill – Restricted for Streets in an amount of
$11,000 has not been recorded yet.
What would the new FB section look like?
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Fund Balance Classifications – General Fund - Examples
Nonspendable
Example #3
Restricted
Committed
$5,000
Assigned
Unassigned
$15,000
Total Fund Balance
$20,000
You have just realized that Powell Bill – Restricted for Streets in an
amount of $11,000 has not been recorded yet.
What would the new FB section look like?
15
Fund Balance Classifications – General Fund - Answers
Nonspendable
Example #3
Restricted
$11,000
Committed
$5,000
Assigned
Unassigned
Total Fund Balance
$4,000
$20,000
You have just realized that Powell Bill – Restricted for Streets in an amount of
$11,000 has not been recorded yet.
What would the new FB section look like?
16
Fund Balance Classifications – General Fund - Questions
Nonspendable
Example #5
Restricted
Committed
Assigned
Unassigned
($20,000)
Total Fund Balance
($20,000)
You have just realized that the Mgr. has authority to assign funds for a mental
health center and after looking at the draft financial statements has decided to
assign $11,000 for MH Center.
What would the new FB section look like?
Fund Balance Classifications – General Fund - Answers
Nonspendable
Example #5
Restricted
Committed
Assigned
Unassigned
($20,000)
Total Fund Balance
($20,000)
You have just realized that the Mgr. has authority to assign funds for a mental
health center and after looking at the draft financial statements has decided to
assign $11,000 for MH Center.
What would the new FB section look like?
Fund Balance Classifications – General Fund - Questions
Nonspendable
Example #6
Restricted
$20,000
Committed
Assigned
$5,000
Unassigned
$10,000
Total Fund Balance
$35,000
You have just realized that the Mgr. has authority to assign funds for a mental
health center and after looking at the draft financial statements has decided to
assign $11,000 for MH Center.
What would the new FB section look like?
Fund Balance Classifications – General Fund - Answers
Nonspendable
Example #6
Restricted
$20,000
Committed
Assigned
Unassigned
Total Fund Balance
$15,000
$0
$35,000
You have just realized that the Mgr. has authority to assign funds for a mental
health center and after looking at the draft financial statements has decided to
assign $11,000 for MH Center.
What would the new FB section look like?
Fund Balance Classifications – General Fund - Questions
Nonspendable
Example #7
Restricted
Committed
$5,000
Assigned
Unassigned
$15,000
Total Fund Balance
$20,000
You have just realized that the Mgr. has authority to assign funds for a mental
health center and after looking at the draft financial statements has decided to
assign $11,000 for MH Center.
What would the new FB section look like?
Fund Balance Classifications – General Fund - Answers
Nonspendable
Example #7
Restricted
Committed
Assigned
Unassigned
Total Fund Balance
$5,000
$11,000
$4,000
$20,000
You have just realized that the Mgr. has authority to assign funds for a mental
health center and after looking at the draft financial statements has decided to
assign $11,000 for MH Center.
What would the new FB section look like?
Fund Balance Classifications
• Bond Proceeds are normally restricted based on bond documents
o Investment earnings and premiums are also restricted to same bond
purposes.
o If you have bond proceeds on hand, remember to reduce Fund Balance
restriction by any liabilities to be paid using bond proceeds.
• Grants normally restricted by grant regulations
o Investment earnings on grant funds are also restricted.
o Matching funds are also restricted.
GASB 54 – Fund Balance Classification
• Change in Focus
o No longer communicates what fund balance will be used for or
appropriated.
o Now focuses on what constraints are placed on how resources within
fund balance can be used.
• What statement will you use to communicate to management/governing body
how much of the General Fund balance:
o is obligated,
o appropriated in next year’s budget,
o is designated by board for working capital or compliance with the
Board’s fund policy,
o is available for the Board to appropriate?
Special Revenue Funds – New Definition
• Special Revenue Funds
• are proceeds of specific revenue sources that are restricted or
committed
• Revenue source can’t restrict use to debt service or capital projects.
• The specific revenue “foundation” source that meets the test of restricted or
committed cannot be a transfer from another fund.
Definitions
Restricted
• “Externally imposed by creditors (such as debt covenants), grantors,
contributors, laws or regulations of other governments; or
Committed
Highest level of authority – “cannot be used for any other purpose unless the
government removes or changes the specified use by taking the same type of
action”
What Fund Types Will Not Change
• Emergency Telephone System Fund will still be a special revenue fund
The Restricting Revenue source (legislation) allows for uses other than capital
projects or debt service.
• Most Likely Prepared Food and Occupancy Funds will remain special revenue
funds
The Restricting Revenue source (legislation) allows for uses other than capital
projects or debt service.
• Boards of Education / Charter Schools
o Scholarship Funds will continue as private purpose trust funds
o Individual schools fund (club and activity funds) will still qualify as special
revenue funds.
Capital Reserve Fund
• Capital Reserve funds restricted for capital or debt. (G.S. 159-18)
• Conclusion – Capital Reserve funds normally can’t be a special revenue
fund.
• Capital Reserve will most likely be either in the general fund or capital project
funds.
Capital Reserve Fund – General Fund
• If capital reserve funds are to be used for debt it should consolidated in the
general fund for statement presentation.
• There is only one General Fund so any funds that are moved for reporting
purposes into the general fund are consolidated not combined.
• Your report should not refer to subfunds of the general fund
• Capital Reserve Funds must still be budgeted and operated on your accounting
system as separate funds.
• Cash in the Capital Reserve Funds presented in either the General Fund or
possibly a Capital Project Fund in accordance with GASB 34 99 should be
reported as restricted cash.
“Restricted assets should be reported when restrictions (as defined in paragraph 34)
on asset use change the nature or normal understanding of the availability of the
asset.”
Proper Presentation – Impacts Perception of Fiscal Health
•Consolidate - Tax
Revaluation Fund with
$300,000 of cash and Fund
Balance.
•Is Presentation A or B
correct?
•B is correct Answer
Cash and investments
A
B
General
General
General
158,000
$
458,000
$
158,000
Taxes Receivable
7,700
7,700
7,700
Accounts Receivable
1,950
1,950
1,950
14,200
14,200
14,200
Inventories
Restricted Cash
Total assets
300,000
$
181,850
$
481,850
$
481,850
$
43,600
$
43,600
$
43,600
Liabilities:
Accounts Payable
•Proper implementation of
GASB 54 can have a
significant effect on
interpretation of a unit’s
fiscal health and future
management actions.
$
Pre - Consolidation
Fund balances:
Nonspendable:
Inventories
14,200
14,200
35,430
35,430
14,200
Restricted:
Stabilization by State Statute
35,430
Committed - Tax revaluation
300,000
Assigned:
Subsequent years expenditures
Unassigned:
Total fund balances
Total liabilities and fund balances
$
5,000
5,000
5,000
40,020
340,020
40,020
138,250
438,250
438,250
181,850
$
481,850
$
481,850
Capital Reserve Fund – Debt Service
• Funds accumulated in a debt service fund could have tax consequences as it
relates to arbitrage/yield restriction calculations.
• Units with existing debt service funds might consider consolidation of a capital
reserve fund; however, they need to make sure they have researched any
possible tax consequences.
• GASB 54 should not cause a unit to set up a Debt Service Fund.
Capital Reserve Fund – Capital Project Fund
• If unit is to use capital reserve fund for a capital project they might want to
reclassify their capital reserve fund to a capital project fund.
• Do you consolidate the capital reserve fund to an already existing capital project
fund or do you reclassify capital reserve as a new capital project fund and
combine it with any other existing capital project funds?
Capital Reserve Fund (CRF) – Capital Project Fund
• If unit has no other capital projects funds that relate to the purpose the CRF is to
be used for, the unit might reclassify a CRF as a capital project fund for reporting
purposes.
• A CRF can be consolidated into an existing capital projects fund if they have
similar purposes. Example: A unit might have one capital projects fund for all its
school projects & the CRF is restricted to school capital projects.
How Are Budget/Actual Statements Presented for Consolidated Funds?
• Example Capital Reserve Fund consolidated into a General Fund
• Budget/Actual for the General Fund
o The general fund in our example would present the budget and actual for
the legally adopted general fund in the budget/actual exhibit.
o The current year actual amounts of the consolidated fund would show
reconciling items back to the Revenue Expenditure and Changes in Fund
Balance Statement.
• Budget/Actual for the Capital Reserve Fund
• The budget for the capital reserve fund must be presented in the financial
statements.
o The budget/actual would be presented after the notes & RSI following the
detail general fund budget/actual statement or following the combining
statements (supplemental section).
Tax Revaluation Funds
• G.S. 153A-150 requires Counties to set aside funds for tax revaluations.
o Currently classified as special revenue funds
o Can be annually budgeted or multi-year budget
• G.S. 153A-150 does not discuss the revenue source; therefore, the fund does
not meet the criteria of restricted for classifying the fund as a special revenue
fund.
• If unit had governing board identify a specific revenue source for tax revaluation
fund it can remain a special revenue fund – otherwise it should be consolidated
into the general fund.
• If tax revaluation is classified as a special revenue fund then the fund note will
disclose the qualifying revenue source.
Grants, Economic Development and Other Current Special Revenue Funds
All Special Revenue Funds will need to be examined to determine if they will
continue as Special Revenue under GASB 54 guidance.
1. Meet the criteria of having a restricted or committed revenue source?
• The restriction must come from the source of funds; or
• The source of funds must be committed by the highest level of authority.
Grants, Economic Development and Other Current Special Revenue Funds
2. Does the source of funds allow funds to be used for purposes other than capital
projects and debt service?
•If revenue source requires use of funds for either capital or debt then
most likely not a special revenue fund
•If unit has an economic development fund and cash is being transferred
to another unit who must use the funds for capital or debt, then the unit
providing the funds will still be able to classify the funds as special
revenue.
Grants, Economic Development and Other Current Special Revenue Funds
Note: Those specific restricted or committed revenues that qualified the fund as
special revenue can’t be shown as a transfer-in.
• Fund may still have additional revenues such as investment earnings and
transfers.
• The foundation revenue must meet the committed restricted criteria.
• Example: The unit met the revenue source criteria by committing a portion
of its property tax revenue to tax revaluation.
The property tax revenue in the tax revaluation fund can’t be reported as a
transfer-in.
It must be recorded as a property tax revenue in the special revenue fund.
Implementation Issues
• What if your grants fund revenue sources change from year to year?
• You take the long-term view
Implementation Issues
• Changes in fund balance in order to comply with this statement should be
applied retroactively by restating fund balance for all prior periods presented.
• Fund Balance information in the statistical schedules can be shown
prospectively or retroactively.
Changes to Your Statements
• Management Discussion and Analysis
Statutory calculation of Fund Balance Available should appear in the
Financial Analysis section – LGC
• New fund balance classifications – MD&A, Exhibits, Combining Statements,
Statistical Tables
• Possibly new fund structure for reporting purposes
Example: Tax revaluation fund might be consolidated in the general fund
• Beginning fund balance restatements
• Reporting Stabilization by State Statute as Restricted Net Asset on GW
statements
Changes to Your Statements
• Note Disclosures
o Summary of Significant Accounting Policies – fund balance note –
Normally Note 1
o Fund Descriptions – add descriptions for any consolidations, fund splits,
changes in fund types, etc.
o New fund balance components
o Committed disclose government’s highest level of decision-making
authority – majority approval of governing body
o Assigned fund balance disclose what body or official is authorized to
assign amounts and disclose policy that authorizes such action
o Policies on order of spending fund balance amounts
Changes to Your Statements
• Note Disclosures – Note 1
o Minimum Fund Balance Polices formally adopted by the governing body
o If unit has policy that meets the stabilization arrangements of GASB 54
as committed (very few)
o Authority for establishing stabilization arrangement
o Requirements for additions to the stabilization amount
o Conditions under which amounts may be spent
o Stabilization balance if not apparent on the face of the financial
statements
Changes to Your Statements
• Note Disclosures – Detail fund balance note-placed before joint venture note
o If fund balance categories are displayed on the aggregate then detail
disclosure is required in the notes
o Encumbrances for the each major fund and nonmajor in aggregate –
they can not be on the face of the statement
o Chart with detail fund balance information for the General Fund:
o Minimum - Inventories, Prepaids, New RSS, Powell Bill,
Appropriated Fund Balance
o Additional - no problem
o Numbers used in this disclosure are taken from the Basic Financial
Statements – Governmental Balance Sheet – General Fund
Changes to Your Statements
• Possible Changes to the Combining Statements
• Possible changes to individual budget/actual schedules
• Statistical Tables – Retroactively or prospectively
o We anticipate that most will show retroactively
o Prospectively – unit must show two schedules for governmental fund
balance statistical tables – one pre-54 and post-54
Stabilization vs. Fund Balance Policies
Revenue Stabilization - Working Capital – Contingencies – Emergency Fund – Etc.
Amounts that meet the stabilization requirements of GASB 54 can be classified as
committed, otherwise they will be classified as unassigned. (paragraph 21)
•Unit Fund Balance Policies do not meet the definition of restricted since NC does not have
a state statute that address unit fund balance policies – restricted must be external to the
unit
•Can a unit create a policy that meets stabilization and commitment requirements of GASB
54?
•Yes - however it would probably be very hard to have a board formally adopt such as
policy:
•Formal Action
•Identify specific circumstances that must exist before funds can be used –
circumstances that would not be expected to occur routinely
•“in an emergency” or “anticipated revenue shortfall” do not meet the test
•Normally there would be requirements for source of stabilization funding and
when and how additions to stabilization amount s need to be made or
replenished
Illustrative Statements
1. Determine if previous classified special revenue funds will remain special
revenue under GASB 54 or whether they will be reclassified or consolidated
into another fund.
2. Prepare budget actual statements for all funds with legally adopted budgets
3. Determine the source of funds in fund balance from the operating statement
and spending policy – this will include the current change in fund balance as
well as the beginning fund balance.
4. Classify the fund balance based on step # 3 above – including calculation of
Stabilization by State Statute
Examples of Spending Policy Affect on Fund Balance
Spending Policy – county funds
spent last
Q. How would the $732,000 of
fund balance be classified
under 54?
Grants Fund
REVENUES
Restricted intergovernmental
1,000,000
Investment earnings
7,000
Total revenues
1,007,000
EXPENDITURES
Current:
Human services
1,500,000
Capital outlay
25,000
Total expenditures
Spending Policy – county funds
spent first
1,525,000
Excess (deficiency) of revenues over expenditures
(518,000)
OTHER FINANCING SOURCES (USES)
Q. How would the $732,000 of
fund balance be classified
under 54?
Transfers from other funds-Match
1,000,000
Transfers from other funds - unassigned revenues
250,000
Net change in fund balance
732,000
Fund balances, beginning
Fund balances, ending
$
732,000
Examples of Spending Policy Affect on Fund Balance
Spending Policy – county funds
spent last
Grants Fund
REVENUES
Restricted intergovernmental
Q. How would the $732,000 of
fund balance be classified under
54?
1,000,000
Investment earnings
7,000
Total revenues
1,007,000
EXPENDITURES
A. $250,000 – assigned and
$482,000 as restricted
Current:
Human services
1,500,000
Capital outlay
25,000
Total expenditures
Spending Policy – county funds
spent first
1,525,000
Excess (deficiency) of revenues over expenditures
(518,000)
OTHER FINANCING SOURCES (USES)
Q. How would the $732,000 of
fund balance be classified under
54?
Transfers from other funds-Match
1,000,000
Transfers from other funds - unassigned revenues
250,000
Net change in fund balance
732,000
Fund balances, beginning
A. $732,000 would be classified
as restricted.
Fund balances, ending
$
732,000
Questions and Answers
• All Illustrative statements will be updated for GASB 54
• Questions?
51