Transcript Fund Accounting and Government-Wide Statements Reporting Including GASB 34 November 12, 2012 William Spinelli, CPA, MBA Finance Director, City of Leesburg Joseph McElroy, CPA Audit Manager Crowe.

Fund Accounting and
Government-Wide Statements
Reporting Including GASB 34
November 12, 2012
William Spinelli, CPA, MBA
Finance Director, City of Leesburg
Joseph McElroy, CPA
Audit Manager Crowe Horwath LLP
Course Objective
• To provide the participant with competencies that
will assist them with their duties as a staff
accountant
– Obtain an understanding of governments and government
accounting and reporting
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2
Learning Objective
• After completion of this program, you should be able
to understand:
– What a governmental organization is
– What makes governments unique
– The types of funds and basis of accounting used by
governments
3
Government
• AICPA Guide refers to governmental organizations
as entities that have one or more of the following:
– Popular election of officers or appointment (approval) of a
controlling majority of the members of the organization’s
governing body by officials of one or more state/local
governments
– Public corporations/bodies - corporate and political
– The potential for unilateral dissolution by a government
with the net assets reverting to a government
– The power to enact and enforce a tax levy
4
Government (Cont.)
• General-purpose governments provide a wide range
of services, i.e., City provides police, culture and
recreation, water, fire, etc.
• Special-purpose governments perform one activity
or only a few activities, i.e., airport
5
Government
• Types of Entities
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States and related agencies
Counties
Cities, towns, and villages
School districts
Municipal utility districts
Public benefit corporations and authorities
Special purpose districts and authorities
Public Employee Retirement Systems (PERS)
Colleges and universities
Hospitals and healthcare
Other???
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Local Governments in the U.S.
• Generally structured in accordance with the laws of
the various individual states
• Majority of the States have counties and
municipalities/and or townships
• Municipal entities varies from state to state- City,
town, borough and village
• Many states have no municipal government below
the county level
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Local Governments in the U.S.
• Massachusetts, Connecticut and Rhode Island’s
counties serve no legal function- these being filled
by city town governments
• Hawaii- has no legal municipalities below the
county level
• There are often local or regional special districts
that exist for specific purposes
• Special purpose districts often encompass areas in
multiple municipalities
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Local Governments in the U.S.
•
Table 1: Breakdown of 2007 Census of Government Employment
•
Government Type
•
States
•
Counties
•
N
Total Employees
Total Payroll
50
5,200,347
$17,788,744,790
3,033
2,928,244
10,093,125,772
Cities
19,492
3,001,417
11,319,797,633
•
Townships
16,519
509,578
1,398,148,831
•
Special Districts
37,381
821,369
2,651,730,327
•
School Districts
13,051
6,925,014
20,904,942,336
•
Total
89,526
19,385,969
$64,156,489,693
•
Source: U.S. Census Bureau, 2007 Census of Governments: Employment.
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Florida Government
• The government of the state of Florida is
established and operated according to the Florida
Constitution
• Local governments are established by the
government of Florida are given varying amounts of
non-exclusive authority over their jurisdictions
• Local governments are incorporated in Florida by
special acts of the Florida Legislature
• Florida has counties, municipalities, school districts
and special districts
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Florida Government
• Counties and municipalities are authorized to pass
laws (ordinances), levy taxes, and provide public
services within their jurisdictions.
• All areas of Florida are located within a county
• County jurisdiction overlays the municipal
jurisdiction
• Counties and municipalities may create community
development agencies
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Florida Counties
• 67 Counties- Most named for local or national
political leaders. Some are name for Spanish
explorers
• Each county has officers, which are elected locally,
but who can be removed or replaced by the
governor and not locally
• By State Law there is one school district in each
County
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Florida Municipalities
• May be called towns, cities, or villages, but there is
no legal distinction between the different terms
• Municipalities often have police departments, fire
departments, and provide essential services such as
water, waste collection, etc.
• Local government is not required to pay for health
insurance for government retirees
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Fiscal Responsibility
• Chapter 9 Bankruptcies
– Budget deficits have forced approximately 28
governmental entities to file for bankruptcy
protection since 2010.
– Majority of filings have been submitted by utility
authorities, special districts, and other taxing
authorities.
– Many others would have filed had they not been
bailed out by the state.
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Fiscal Responsibility
• Chapter 9 Bankruptcies (Cont’d)
– Only about half the states in the US allow
municipalities to file for Ch. 9 due to state laws
prohibiting.
– GASB issued Statement No. 58 as a result of all
these events.
 Provides guidance on measurement and treatment
of adjusted liabilities from payment plan.
– City of San Bernardino, California
 Filed after Council members discovered only
$150,000 left in the bank
15
Standard Setters
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Standard Setting in the U.S.
• Financial Accounting Foundation
• It is an independent, organization in the private sector.
They need to be independent in order to ensure
objectivity and integrity in reporting standards
• Final authority (1973) for accounting & public reporting
standards in both the public & private sectors
• Appoints FASB & GASB board members
• Protecting the independence and integrity of the standardsetting process
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Standard Setting in the U.S.
• GASB and FASB Due Process
– Discussion Memorandum
– Invitation to comment
– Preliminary Views
– Exposure Drafts
 Comments solicited & all submitted to board for
consideration in standard setting deliberations
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The Standard-Setting Process
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Standard Setting in the U.S.
• American Institute of Certified Public Accounting
(AICPA)
– Establishes audit & attest standards for non-issuers
– Officially recognizes FASB & GASB as authoritative standard
setting bodies for Generally Accepted Accounting
Principles (GAAP) in their respective sectors
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GASB 55 - The Hierarchy of Generally
Accepted Accounting Principles for
State and Local Governments
• GAAP hierarchy governs what constitutes GAAP for
all state and local government (“SLG”) entities:
— Officially established accounting principles - GASB
Statements and Interpretations are periodically
incorporated in the codification of Governmental
Accounting and Financial Reporting Standards
— GASB Technical Bulletins, if specifically made applicable
to SLG entities by the AICPA, and cleared by the GASB
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GASB 55 (Cont.)
• GAAP hierarchy governs what constitutes GAAP for
all state and local government (“SLG”) entities
(cont.):
— AICPA Practice Bulletins, if specifically made applicable to
SLG entities and cleared by the GASB, as well as
consensus positions of a group of accountants organized
by GASB
— Implementation guides published by the GASB staff, as
well as practices that are widely recognized and prevalent
in SLG
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Governmental Environment
• Politics - Internal and External
• Press
• Regulators
• Public
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The Financial Reporting Entity
• Primary Government - defined
– Separately elected governing body
– Legally separate
– Fiscally independent
• Component Unit - defined
– Legally separate organization
– Elected officials of primary governments are
financially accountable for
– GASB 39, amends GASB 14
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The Financial Reporting Entity
• Primary Government
• Component Units
– Blended vs. discrete presentation
 Governmental entities
 GASB/governmental hierarchy
 Nonprofit and commercial organizations
 FASB/nongovernmental hierarchy
• Other Relationships
– Joint ventures
– Jointly governed organizations
– Other stand-alone governments
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Accounting Issues
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Fund Accounting - Fund Types
Account Structure
Modified Accrual Basis of Accounting
Pooled Cash
Exchange and Non-exchange
Interfund Transactions
Revenues
Expenses/Expenditures
Fund Balance/Net Assets
Government Asset Reporting
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Accounting Issues (Cont.)
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•
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•
•
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Component Units
Due To/From Other Governments
General Obligation/Revenue Bonds
Refunding Bonds
OPEB
Special Assessments
Interfund Transactions
Exchange and Non-exchange Transactions
Structure of Government Financial Statements
Resources
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Fund Accounting
• A system organized and operated on a “fund
basis”
• A fund is a fiscal and accounting entity with a
self-balancing set of accounts recording all
financial resources (assets), together with all
related liabilities and residual equities or
balances, and changes (net revenue and
expenses/expenditures)
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Fund Accounting (Cont.)
• What funds and how many
– Required by law
– Promote sound financial administration
– Only the minimum number of funds consistent with legal
and operating requirements should be established
• Unnecessary funds result in:
– Inflexibility
– Unnecessary complexity
– Inefficient financial administration
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Fund Accounting (Cont.)
• Three broad fund classifications:
– Governmental
– Proprietary
– Fiduciary
– 11 fund types
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Fund Accounting (Cont.)
• Governmental Funds (5 types)
– 1. General
 To account for & report all financial resources not
accounted for & reported in another fund
 Only fund required by GAAP
 Only one “General Fund”
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Fund Accounting (Cont.)
• Governmental Funds
– 2. Special Revenue- Account for & report proceeds
of specific revenue sources that are restricted or
committed to expenditure for specified purposes
other than debt service or capital projects
– 3. Debt Service- Resources accumulated to pay
long term debt
 Principal & interest
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Fund Accounting (Cont.)
• Governmental Funds
– 4. Capital Projects- Acquisition/construction of
major capital assets
– 5. Permanent- Resources restricted to extent that
earnings and not principal may be used for
support of entity programs
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Fund Accounting (Cont.)
• Proprietary Funds (2 types)
• 1. Internal Service- Services provided by one agency to
another on a cost reimbursement basis
• 2. Enterprise- Operations financed & operated similar to
private business
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Fund Accounting (Cont.)
• Fiduciary Funds (4 types)
• 1. Pension Trust Fund- Resources held in trust for others
• 2. Investment Trust Fund- Pooled resources of legally
separate entities
• 3. Private-Purpose Trust Funds- Principal &income benefit
specific individuals or organization
• 4. Agency Funds- Pass-through funds
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Governmental Fund Model
Current Assets
- Current Liabilities
= Fund Balance
CA - CL = Fund Balance
• Accounting focuses on current financial resources
• Expenditures reflect the use of working capital,
instead of expenses which focus on consumption of
resources
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Proprietary Fund Model
Current Assets
+ Noncurrent Assets
- Current Liabilities
- Noncurrent Liabilities
= Net Assets
CA + NCA - CL - NCL = Net assets
• Accounting is similar to business enterprises
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General FA and LTD
• General fixed assets (FA) are not recorded in
governmental funds
– General fixed asset and depreciation records are
maintained separately
• General long term debt (LTD) is not recorded in
governmental funds
– Separate records are also kept
• Both are reported in the government-wide
statements
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Fund Accounting - Proprietary Funds
(Cont.)
• Enterprise funds
– These criteria should be applied in the context
of the activity’s principal revenue sources
– Determining what constitutes a principal
revenue source is a matter of professional
judgment
– Non-principal revenue sources are considered
insignificant sub-activities
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Fund Accounting - Proprietary Funds
(Cont.)
• Internal service funds
– To be used ONLY if the reporting government is
the predominant participant in the activity
– Otherwise, reported as an Enterprise Fund
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Uniform Accounting System
Manual
• Florida Statute 218.33 F.S. requires the Department
of Financial Services to assure proper accounting
and fiscal management of local government entities
• Establishes uniform Accounting Practices and
Procedures
• Uniform Classification of Accounts
• Website > www.fldfs.com
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Uniform Accounting System
Manual (Cont.)
• Reporting units shall use a Uniform Chart of
Accounts
• Local government entities can maintain more
detailed records (if they want)
• Section 218.32 F.S. requires each local government
reporting entity to submit Annual Financial
Information
• Consistent reporting and facilitates monitoring by
State
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Uniform Accounting System
Manual (Cont.)
• GAAP required governmental accounting systems to
organize and operate on a fund basis
• Only the minimum number of funds consistent with
legal and operational requirements should be
established
• Fund - a self-balancing set of accounts for purposes
of carrying on specific activities or attaining certain
objectives in accordance with specific regulations,
restrictions, or limitations
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Accounts - Balance Sheet & Revenues
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Accounts - Expenditures
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Uniform Accounting System
Manual
FUND GROUPS
• 001 General Fund
• 005 Governmental Activities (Government-Wide Financial
Reporting)
• 050 Permanent Funds
•
•
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•
•
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100
200
300
400
500
Special Revenue Funds
Debt Service Funds
Capital Projects Funds
Enterprise Funds
Internal Service Funds
Uniform Accounting System
Manual (Cont.)
FUND GROUPS (Cont.)
•
•
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•
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600
650
700
750
800
Agency Funds
Pension Trust Funds
Investment Trust Funds
Private Purpose Trust Funds
Revolving Funds/Clearing Funds
ACCOUNT GROUPS
•
•
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900 General Fixed Assets
950 General Long-Term Debt
Uniform Accounting System
Manual (Cont.)
• Balance Sheet Accounts (6 digit number)
– 1XX . XXX
ASSETS AND OTHER DEBITS
– First four digits required. Remaining digits may be assigned by
reporting entity
Examples:
101.000 Cash in bank
102.000 Cash on hand
104.000 Equity in pool cash
115.000 Accounts Receivable
133.000 Due from other government entities
161.900 Land
164.900 Infrastructure
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Uniform Accounting System
Manual (Cont.)
– 2XX.XXX
Examples:
201.000
202.000
208.000
210.000
234.000
234.900
241.000
244.000
LIABILITIES AND OTHER CREDITS
Voucher Payable
Accounts Payable
Due to other Government Units
Compensated Absences - Current
Other Bonds Payable - Current
Other Bonds Payable - Long Term Portion
Appropriations
Fund Balance
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Uniform Accounting System
Manual (Cont.)
• Revenue Accounts - 9 digit number
– 101-333.200.11
 First 3 digits - Fund type
 Next 6 digits - Specific revenue source
 Last 2 digits - Counties must designate whether incorporated
or unincorporated area of county
Example:
31X.XXX
312.XXX
312.100
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Taxes
Sales, Use and Fuel Taxes
Local Option Taxes
Uniform Accounting System
Manual (Cont.)
• Expenditure/Expense Accounts - 12 digits
– 104-2132-521.40.11
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

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First 3 digits - Fund Type
Next 4 digits - Department/Division Identification
Next 5 digits - Transaction Code
Last 2 digits - Incorporated or unincorporated area of County
Uniform Accounting System
Manual (Cont.)
TRANSACTION CODE EXAMPLE
• 512.000 Executive
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City Manager
Clerk to Board of County Commissioners
County Administrator
Other Executive Activities
• 513.000 Finance and Administrative
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–
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Finance Department
Purchasing
Personnel
Budget Director
Property Control
Grants Development
Uniform Accounting System
Manual (Cont.)
OBJECT CLASSIFICATION EXAMPLES
10 Personal Services
30 Operating Expenditure/Expenses
60 Capital Outlay
70 Debt Service
80 Grants and Aids
90 Other uses
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Modified Accrual Basis
• Modified Accrual Basis of Accounting - Basis of
accounting used in conjunction with the current
financial resources measurement focus that
modifies the accrual basis of accounting in two
important ways:
– Revenues are not recognized until they are measurable
and available, and
– Expenditures are recognized in the period in which the
government in general normally liquidates the related
liability, rather than when that liability is first incurred
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Modified Accrual Basis - GASB
Interpretation 6
• Liabilities “normally” paid in a timely manner
should be recognized when incurred
• Unmetered long-term liabilities should not be
reported as fund liabilities
– Compensated absences
– Claims and judgments
– Long-Term Debt - Except in Proprietary Funds
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Modified Accrual Basis - GASB
Interpretation 6
• Clarifies “early in the following year” for unmetered
debt service recognition - not more than a month usually several days
• Effective with Statement 34
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Pooled Cash
• Pooled Cash - Fund and/or accounts set up to
receive and disburse monies for other funds. They
are not true funds in the sense of being an
accounting entity and would not appear separately
in the financial statements. Any assets or liabilities
remaining in a clearing account at the balance sheet
date will be reported on the financial statements of
the fund serviced by the clearing fund (general,
special revenue, etc.)
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Exchange Transactions
• Exchange Transactions - Give something to get
something (utility charges, recreation fees)
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Non-exchange Transactions
• Non-exchange Transactions - A government gives or
receives value or benefit without directly receiving
equal value in exchange. Four types:
– Derived (personal income tax, sales tax, fuel tax)
– Imposed (taxes, fines, penalties)
– Mandated (funds for school lunch program, national speed
limits to be set to receive federal funding)
– Voluntary (grants, donations)
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Interfund Transactions
• Interfund Transactions - Activity between funds of
the primary government, including blended
component units. Two general types:
– Reciprocal - Interfund loans and interfund services
provided and used
– Non-reciprocal - Interfund transfers and interfund
reimbursements
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Revenues
• Revenues - All increases in fund net assets, except
those arising from interfund reimbursements,
interfund operating and residual equity transfers, or
long-term debt issues
• Types
– Program Revenues
– General Revenues
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Program Revenues
• Definition - Derived directly from the program itself
or from parties outside the reporting government’s
taxpayers or citizenry, as a whole; they reduce the
net cost of the function to be financed from the
government’s general revenues
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Program Revenues (Cont.)
• Three categories:
– Charges for services
– Program-specific operating grants and contributions
– Program-specific capital grants and contributions
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Program Revenues (Cont.)
• Charges for services - Include revenues based on
exchange or exchange-like transactions. These
revenues arise from charges to customers or
applicants who purchase, use, or directly benefit
from the goods, services, or privileges provided.
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Program Revenues (Cont.)
• Types of charges for services:
– Fees charged for specific services
– Licenses and permits
– Operating special assessments
– Payments from other governments that are exchange
transactions
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Program Revenues (Cont.)
• Program-specific grants and contributions
(operating and capital)
– Include revenues arising from mandatory non-exchange
transactions with other governments, organizations, or
individuals that are restricted for use in a particular
program
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Program Revenues (Cont.)
• Types of program-specific grants and contributions:
– Federal, state or local grants
– Multipurpose grants not identified to a program should be
treated as general
– Capital special assessments
– Contributions from developers
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General Revenues
• Definition - Anything not program revenue,
including all taxes, even those that are levied for
specific purposes. Should be reported by type: sales
tax, property tax, franchise tax, income tax. Interest
income, grants, and contributions not identified by
program should be general revenue.
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Expenses/Expenditures
• Expenses - Recorded when a liability is incurred
• Expenditures - Recorded under the current financial
resources measurement focus basis
• Note - The most significant differences relate to
debt service payments, compensated absences and
claims and judgments, which are recorded only
when paid “modified accrual accounting”
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Fund Balance
• Fund Balance/Net Assets - Difference between
assets and liabilities reported in a governmental
fund
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Deficit Unreserved Fund Balance
• Deficit - claims on current financial resources
exceed the balances of those resources
• Always to be taken seriously
• Deficit may indicate a fund is “living beyond its
means”
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Deficit of Revenues to
Expenditures
• Situations that may justify budgeted or actual
deficit in any fiscal year:
– “Budgeting” excess fund balance
– Up-front contributions for capital projects
– Debt-financed capital projects
– Reimbursement grants
– Planned operating subsidies
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Government Asset Reporting
• Definition:
– Tangible or non-tangible assets used in operations
– Initial useful life extends beyond single reporting period
– Includes:
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Land and improvements to land
Vehicles
Machinery & equipment
Easements
Buildings and improvements
Works of art and historical treasures
Infrastructure
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Government Asset Reporting
• Valuing capital assets
– Reported at historical cost
– Cost includes ancillary charges necessary to place asset
into its intended location and condition for use
– Donated items reported at estimated fair value at time of
acquisition plus ancillary charges
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Government Asset Reporting Infrastructure
• Was one of the most controversial features of the
GASB 34 reporting model
• GFOA position
– Each government must make its own decision regarding
the implementation of infrastructure reporting
– Governments that elect to report infrastructure should
take a least-cost approach to implementation
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Government Asset Reporting Infrastructure (Cont.)
• Infrastructure
– Long-lived capital assets
• Stationary in nature
• Last longer than most capital assets
– Examples:
• Roads, bridges, tunnels, drainage systems, water systems,
sewer systems, dams, lighting systems
• Buildings generally are NOT classified as infrastructure
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Government Asset Reporting Infrastructure (Cont.)
• Infrastructure (Cont.)
– Must report new infrastructure assets at time of Statement
34 implementation
– Proprietary funds and special purpose governments must
report all infrastructure assets at time of implementation
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Government Asset Reporting Depreciation
• Depreciation
– Not all are depreciable
• Inexhaustible capital assets
• Construction in progress
• Infrastructure assets reported using modified approach
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Government Asset Reporting Depreciation (Cont.)
• Calculating depreciation
– Systematic and rational allocation of net cost over
estimated useful life
– Governments may use any established depreciation
method
– Depreciation expense may be calculated for:
•
•
•
•
Individual assets
A class of assets
A network of assets
A subsystem of a network
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Modified Approach for
Infrastructure Reporting
• Infrastructure normally depreciated like other
capital assets
• Option not to depreciate infrastructure if certain
conditions are met:
– Up-to-date inventory of infrastructure
– Regular condition assessments
– Annual estimate of cost to maintain at level determined and
disclosed by government
– Document maintenance level
80
Modified Approach for
Infrastructure Reporting (Cont.)
• Governments using an asset management system
– May use the modified approach and are not required to
depreciate their infrastructure assets
– Costs that extend or preserve the life of infrastructure are
expensed, rather than capitalized
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Modified Approach for
Infrastructure Reporting (Cont.)
• Infrastructure assets that are part of a network or
subsystem of a network are not required to be
depreciated as long as the government:
– Manages the eligible infrastructure assets using an asset
management system, and
– Documents that the eligible infrastructure assets are being
preserved approximately at a condition level established
by the government
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Modified Approach for
Infrastructure Reporting (Cont.)
• Acceptable asset management system will:
– Present an up-to-date inventory
– Perform condition assessments of the assets and
summarize the results using a measurement scale
– Estimate each year the annual amount to maintain and
preserve the assets at the condition level established and
disclosed by the government
83
Modified Approach for
Infrastructure Reporting (Cont.)
 Required Information:
• Results of 3 most recent condition assessments
• Annual amount estimated to maintain at
predetermined condition level (past 5 years)
• Actual expense to maintain at predetermined
condition level (past 5 years)
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Component Unit Presentations
• Discretely presented components
– Desired GASB presentation
– Financials are reported with, but separately from, the
primary government’s financials
• Blended component units
– Financials presented as though they were part of the
primary government’s financials
85
Determination of Discrete or Blended
Presentation
86
Due To/From Other Governments
• Due from Other Governments - Amounts due to the
reporting entity from other governmental reporting
entities
• Due to Other Governments - A liability account set
up to record amounts due to other governmental
entities from the reporting entity
87
General Obligation/Revenue
Bond
• General Obligation Bond - Bonds backed by the
credit and “taxing power” of the issuing jurisdiction,
rather than the revenue from a given project
• Revenue Bond - Bonds distinguished by their
guarantee of repayment solely from revenues
generated by a specified revenue-generating entity
associated with the purpose of the bonds
88
Refunding Bond
• Refunding Bond - A refunding bond issue is one
whose proceeds are used to retire outstanding debt
of a prior bond issue
89
OPEB
• OPEB (Other Post-employment Benefits) - Postemployment benefits other than pension benefits.
OPEB includes post-employment healthcare
benefits regardless of the type of plan that provides
them and all post-employment benefits provided
separately from a pension plan, excluding benefits
defined as termination offers and benefits.
90
Special Assessments
• Special Assessments - Compulsory levy made
against certain properties to defray all or part of the
cost of a specific capital improvement or service
deemed to benefit primarily those properties
91
Government - Financial Statements
• GAAP Requirements
• GFOA Certificate Program (CAFR)
• Special Purpose Financial Statements
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Government - Financial Statements
(Cont.)
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Government - Financial Statements
(Cont.)
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Resources
• FGFOA - http://www.fgfoa.org
• GFOA - http://www.gfoa.org
• AICPA - http://aicpa.org/
• Auditor General - http://www.myflorida.com/audgen
• Florida Single Audit Act - https://apps.fldfs.com/fsaa
• FGFOA Links http://www.fgfoa.org/resources/links.aspx
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OPEN DISCUSSION
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