Fund Accounting and Government-Wide Statements Reporting Including GASB 34 November 12, 2012 William Spinelli, CPA, MBA Finance Director, City of Leesburg

Fund Accounting and Government-Wide Statements Reporting Including GASB 34

November 12, 2012

William Spinelli, CPA, MBAFinance Director, City of Leesburg

Joseph McElroy, CPAAudit 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

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

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

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

Government

• Types of Entities

– 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???

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

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

Local Governments in the U.S.• Table 1: Breakdown of 2007 Census of Government Employment

• Government Type N Total Employees Total Payroll

• States 50 5,200,347 $17,788,744,790

• Counties 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.

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

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

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

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

Fiscal Responsibility

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• 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.

Fiscal Responsibility

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• 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

Standard Setters

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 standard-setting process


• 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

The Standard-Setting Process


• 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

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

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

Governmental Environment

• Politics - Internal and External

• Press

• Regulators

• Public

The Financial Reporting Entity

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• 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

The Financial Reporting Entity

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• 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

Accounting Issues

• 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

Accounting Issues (Cont.)

• 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

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)

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


• Three broad fund classifications:– Governmental

– Proprietary

– Fiduciary

– 11 fund types


• 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”


• 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


• 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


• 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


• 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

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

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

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

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

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

Uniform Accounting System Manual

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• 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

Uniform Accounting System Manual (Cont.)

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• 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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• 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

Accounts - Balance Sheet & Revenues

Accounts - Expenditures

Uniform Accounting System Manual

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FUND GROUPS

• 001 General Fund• 005 Governmental Activities (Government-Wide Financial

Reporting)

• 050 Permanent Funds

• 100 Special Revenue Funds• 200 Debt Service Funds• 300 Capital Projects Funds• 400 Enterprise Funds• 500 Internal Service Funds


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FUND GROUPS (Cont.)

• 600 Agency Funds• 650 Pension Trust Funds• 700 Investment Trust Funds• 750 Private Purpose Trust Funds• 800 Revolving Funds/Clearing Funds

ACCOUNT GROUPS• 900 General Fixed Assets• 950 General Long-Term Debt


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• Balance Sheet Accounts (6 digit number)

– 1XX . XXX ASSETS AND OTHER DEBITS

– First four digits required. Remaining digits may be assigned by reporting entityExamples:101.000 Cash in bank102.000 Cash on hand104.000 Equity in pool cash115.000 Accounts Receivable133.000 Due from other government entities161.900 Land164.900 Infrastructure


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– 2XX.XXX LIABILITIES AND OTHER CREDITS

Examples:201.000 Voucher Payable202.000 Accounts Payable208.000 Due to other Government Units210.000 Compensated Absences - Current234.000 Other Bonds Payable - Current234.900 Other Bonds Payable - Long Term Portion241.000 Appropriations244.000 Fund Balance


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• 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 Taxes312.XXX Sales, Use and Fuel Taxes312.100 Local Option Taxes


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• Expenditure/Expense Accounts - 12 digits– 104-2132-521.40.11

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


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TRANSACTION CODE EXAMPLE

• 512.000 Executive– City Manager– Clerk to Board of County Commissioners– County Administrator– Other Executive Activities

• 513.000 Finance and Administrative– Finance Department– Purchasing– Personnel– Budget Director– Property Control– Grants Development


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OBJECT CLASSIFICATION EXAMPLES

10 Personal Services

30 Operating Expenditure/Expenses

60 Capital Outlay

70 Debt Service

80 Grants and Aids

90 Other uses

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

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

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

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.)

Exchange Transactions

• Exchange Transactions - Give something to get something (utility charges, recreation fees)

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)

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

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

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

Program Revenues (Cont.)

• Three categories:

– Charges for services

– Program-specific operating grants and contributions

– Program-specific capital grants and contributions


• 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.


• Types of charges for services:– Fees charged for specific services

– Licenses and permits

– Operating special assessments

– Payments from other governments that are exchange transactions


• 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


• 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

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.

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”

Fund Balance

• Fund Balance/Net Assets - Difference between assets and liabilities reported in a governmental fund

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”

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

Government Asset Reporting

• Definition:

– Tangible or non-tangible assets used in operations

– Initial useful life extends beyond single reporting period

– Includes:• Land and improvements to land• Vehicles• Machinery & equipment• Easements• Buildings and improvements• Works of art and historical treasures• Infrastructure

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

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

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

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

Government Asset Reporting - Depreciation

• Depreciation

– Not all are depreciable• Inexhaustible capital assets• Construction in progress• Infrastructure assets reported using modified approach

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

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

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


• 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


• 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


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)

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

Determination of Discrete or Blended Presentation

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

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

Refunding Bond

• Refunding Bond - A refunding bond issue is one whose proceeds are used to retire outstanding debt of a prior bond issue

OPEB

• OPEB (Other Post-employment Benefits) - Post-employment 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.

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

• GAAP Requirements

• GFOA Certificate Program (CAFR)

• Special Purpose Financial Statements

Government - Financial Statements

Government - Financial Statements (Cont.)

Government - Financial Statements (Cont.)

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

http://www.fgfoa.org/

http://www.gfoa.org/

http://aicpa.org/

http://www.myflorida.com/audgen

https://apps.fldfs.com/fsaa

OPEN DISCUSSION