fgfoa boot camp – day 2 intermediate government accounting presented by lynda m. dennis, phd, cpa,...

FGFOA Boot Camp – Day 2Intermediate Government

Accounting

Presented by

Lynda M. Dennis, PhD, CPA, CGFO

Overview Review of Day 1

Basic governmental accounting & reporting concepts

Investments Fixed assets & depreciation Long-term liabilities Fund equity Financial reporting entityFinancial reporting Grant accounting

Review of Day 1Governmental Accounting

& Financial Reporting

Activities of Government

Governmental General Public safety

Business-type Transportation – air, land, sea Utilities Economic development

Fiduciary Agency Pension & investment trusts

Categories & Types of Funds

Governmental fundsGeneral FundSpecial revenue fundsCapital projects fundsDebt service fundsPermanent funds

Categories & Types of Funds

Proprietary funds Enterprise fundsInternal service funds

Fiduciary funds Agency fundsInvestment trust fundsPrivate-purpose trust fundsPension & OPEB trust funds

Measurement FocusWHAT is measured?

Economic resources measurement focusMeasure inflows & outflows of economic

resources Current (i.e. financial ) & noncurrent (i.e.

economic) Capital assets & long-term debt

Focuses on operational accountabilityWhether management efficiently uses

resources in providing services

Measurement FocusWHAT is measured?

Current financial resources measurement focus

Measure inflows & outflows of current financial resources

Cash & other liquid assetsPayables from cash & other liquid assets

Focuses on fiscal accountabilityWhether managers have met budgetary &

other legal financial requirements

Basis of AccountingWHEN are elements recognized?

Modified accrual basis of accountingRevenues recognized when measurable &

availableExpenditures recognized when incurred

Expected to be liquidated with current financial resources

Accrual basis of accountingRevenues recognized when earnedExpenses recognized when incurred

Investments

Investments

Securities/other assets acquired primarily for obtaining income/profit Safe & prudent

Investment policy dictates types & duration of investments Adopted by governing body Should also have

Periodic review of policy Periodic investment/portfolio reports

Investments

Risks Custodial credit risk

Party holding security will fail to return principal Market risk

Investment/collateral value declines Government risk most often results from interest rate shifts

Problem Poster Children Orange County, California Florida Local Government Investment Pool US financial crisis

Valuation of Investments

Methodology depends on type of investment GASB Statement No. 72 effective FYE 9/30/16

Valuation methods Fair value Price that would be received to sell an asset or paid to transfer a liability

In an orderly transaction Between market participants At the measurement date Changes in FV = investment income


Methodology depends on type of investment GASB Statement No. 72 effective FYE 9/30/16

Valuation methods Amortized cost

Historical cost + amortization of discount/premium Amortization = investment income Sales prior to maturity = gain/loss

Historical cost Principal dollars invested in security, contract, pool


Fair value investments All debt & equity securities Open-end mutual funds Participating interest earning investment

contracts External investment pools


Amortized cost investments Participating interest earning investment

contracts & certain money markets with remaining maturity at purchase of one year or less

Commercial paper Banker acceptances US Treasury, agency, & instrumentality securities


Historical cost investments Non participating interest earning investment

contracts Nonnegotiable CDs Repurchase agreements

2a7-like eternal investment pools - NAV @ $1 Not SEC registered but acts as if it is NAV not at $1 use FV

Repurchase Agreements

Government transfers excess cash to broker-dealer/financial institution to earn additional investment income Broker-dealer/financial institution provides securities as

collateral to government & agrees to repay cash & interest in exchange for same securities at later date

Most considered nonparticipating interest earning investment contracts Valued at historical cost

Repurchase Agreements

Types of repurchase agreements Overnight repurchase agreement

Fixed interest rate Mature next day

Term repurchase agreement Fixed maturity date & interest rate

Open repurchase agreement No defined maturity date Either party may terminate daily Interest rate set daily

Reverse Repurchase Agreements

Master repurchase agreementDocuments transactions & ownership

interests

Reverse Repurchase Agreements

Opposite of repurchase agreement Government is seller-borrower who transfers specific securities to

broker-dealer/financial institution in return for cash Government agrees to repay cash & interest in exchange for return of

same securities at later date Done to address temporary cash needs without having to liquidate

investments Collateral securities remain on government’s balance sheet

Some risk exposure Interest rates shift & securities must be liquidated at loss to return cash

to broker/dealer

Internal & External Investment Pools

Internal investment pool Commingles funds of reporting entity Value investments as if held by individual participating

funds External investment pool

Commingles funds of legally separate entities Internal portion = “Equity in Pooled Cash & Investments” External portion = separate fiduciary fund (Investment Trust

Fund)

Fixed Assets & Depreciation

Long-lived assets used by activities reported in governmental funds Includes

Infrastructure Intangible assets

NOT capital assets that are specifically associated with activities reported in proprietary & fiduciary funds

General Capital Assets

Land Buildings Improvements Other than Buildings Machinery and Equipment Construction Work in Progress Infrastructure (e.g., roads, streets, bridges)

Networks = assets providing particular type of service Subsystems of networks = all assets making up similar

portion/segment of network Intangible assets

Classifications of General Capital Assets

Capitalizing Assets

Record at historical cost or estimated historical cost Additions & improvements extending life = capitalize

No threshold specified by GAAP GFOA recommends $5,000 May have different levels for different types of assets

Follow the cost principle (subject to materiality threshold) Invoice cost or historical cost All other necessary & reasonable costs

to place asset into use Excluding forgone cash discounts &

financing charges

Assigning Costs to General Capital Assets

Record donated assets at fair value on date of gift (changes to acquisition value with GASB No. 72)

Use lower of book value or fair value if received from another fund

Not recorded at fund level for governmental funds

Assigning Costs to General Capital Assets

General capital assets are: Capitalized as governmental activities

accounts in the GWSDepreciated in the GWSDebited to expenditures in the

appropriate governmental fund

Accounting for General Capital Assets

Depreciation Accounting & Reporting

Recorded in GWS & certain fund level statements Depreciation not recorded on inexhaustible assets Depreciate over estimated useful life

No specific method required by GAAP Composite depreciation

Annual rate – dissimilar assets Group depreciation

Annual rate – similar assets Straight line most common method

Depreciation Accounting & Reporting

Option for infrastructure - modified approach Asset management system

Up-to-date inventory Condition assessments & summary using scale Annual estimate of cost to maintain at adopted level

Documentation of condition level Complete condition assessment at least every 3 years Disclose results of 3 most recent complete condition assessments

If don’t meet, change to depreciation in next FY

Capital Projects Funds

Involve long-lived assetsBuildings, roads & bridges, etc.

Usually Involve a construction project Have in-depth construction estimate & timelineRequire long-range planning & significant

financingProject-life rather than annual focus

Capital Projects Funds

Project authorization/preconstruction phase Usually included in multiyear CIP several years

before start of projectUsually requires long-term financing

Voter approval required for general obligation (property tax-supported) bonds or special sales taxes for capital projects

Apply for & obtain other LT financing &/or grants

Construction in Progress

Nondepreciable until complete Contract accounting applies

Retainage accounts Interest costs incurred during construction

NOT capitalized for governmental assets IS capitalized for business-type assets

“Matching” of depreciation to all related costs of an asset

Additions/betterments vs. replacements/ maintenance Capitalize costs of additions & betterments Don't capitalize replacements & maintenance

expenditures Replacements that are partly additions or

betterments Capitalize as appropriate Remove cost of old asset

Requires judgment to determine whether an asset has been enhanced

Costs Incurred After Acquisition

Long-term bonds AVT-supported bonds (GOBs) Revenue-supported bonds (PIRBs)

Long-term loans/mortgages Governmental grants (federal or state) Transfers from other funds Gifts from individuals/organizations

Typical Financing Sourcesfor General Capital Assets

Capital leases Certificates of participation (COPs) Special development districts

Tax increment financing Transportation development districts Etc.

Typical Financing Sourcesfor General Capital Assets

Accounting for Acquisition of Capital Assets

General Fund purchased office equipment for the Mayor’s office & paid $50,000 cash General Fund:

Expenditures – Capital Outlay 50,000

Cash 50,000

Governmental Activities:

Equipment 50,000

Cash 50,000

Government-wide & fund level (proprietary & fiduciary)

Remove original cost of assets being disposed

Only part is disposed

Remove pro-rata share of cost & related accumulated depreciation

Governmental fund level

Record proceeds received as revenue

Disposition of General Capital Assets

Accounting for the Disposition of General Capital Assets

Machine sold for $500. Originally purchased for $8,000 using GF revenues. It was fully depreciated.

General Fund:

Cash 500

Revenues—Misc. (or OFS) 500

Governmental Activities:Cash 500Accumulated Depreciation 8,000 Equipment 8,000 Gain on Sale of Equipment 500

Assume a building with an original cost of $100,000 (from tax-supported bonds) is demolished; cost of demolition was $5,000. It was fully depreciated.

General Fund:Expenditures 5,000 Cash 5,000

Governmental Activities:Loss on Disposal of Building 5,000Accumulated Depreciation 100,000

Buildings 100,000 Cash 5,000

Accounting for the Disposition of General Capital Assets

Approval is obtained for a federal grant as partial funding for a city’s office building project.

Capital Projects Fund:*Due from Federal Government 100,000Revenues

100,000

Governmental Activities:Due from Federal Government 100,000Program Revenues—Public Works—

Capital Grants and Contributions100,000

* In reality, grant would be recorded as revenue when received.

Accounting for Capital Projects

Will obtain interim financing, (to complete architectural & engineering design). Assume $50,000 was borrowed from the General Fund, to be repaid later from bond proceeds.

Capital Projects Fund: Cash 50,000Interfund Loans Payable—Current 50,000

Governmental Activities:No entry needed.


Bonds with a face value of $5,000,000 were issued at 101 to finance the project.

Capital Projects Fund: Cash 5,050,000

Other Financing Sources—Bond Proceeds 5,000,000Due to Debt Service Fund 50,000

Governmental Activities:Cash 5,050,000

Bonds Payable 5,000,000 Premium on Bonds Payable 50,000


Amount due from the federal government for the previously recorded capital grant was received in full

Capital Projects Fund:

Cash 100,000

Due from Federal Government 100,000


Same entry.


The $50,000 due the General Fund was repaid.

Capital Projects Fund: Interfund Loans Payable—Current 50,000

Cash 50,000 Governmental Activities: No entry needed.


A partial billing of $3,000,000 was received from Capital Construction Company.

Capital Projects Fund: Construction Expenditures 3,000,000 Contracts payable 3,000,000

Governmental Activities: Construction in Progress 3,000,000

Contracts Payable 3,000,000


The amount due Capital Construction Company was paid, net of a 5% retained percentage, which in conformity with the provisions of the contract, was withheld pending final inspection.

Capital Projects Fund: Contracts Payable 3,000,000

Contracts Payable— Retained Percentage 150,000 Cash

2,850,000

Governmental Activities:Same entry.


Capital Construction Company completed the building & tendered its final bill of $2,000,000.

Capital Projects Fund:

Construction Expenditures 2,000,000



Construction Work in Progress 2,000,000



The City paid the amount due Capital Construction, except for a 5% retained percentage

Capital Projects Fund: Contracts Payable 2,000,000

Contracts Payable— Retained Percentage 100,000Cash 1,900,000

Governmental Activities:Same entry.

CPF - Illustrative Transactions

Upon final inspection, the City incurred $75,000 of additional costs for interior rework. Work was done by General Fund employees. The remaining retained percentage was paid to the contractor.

Capital Projects Fund: Contracts Payable— Retained Percentage 250,000

Cash 250,000 ($75,000 to the General Fund; balance to the contractor)

Governmental Activities: Same entry.


Accounting for GeneralLong-Term Liabilities

& Debt Service

Bonds

Compensated Absences

Capital Leases

Year-end Accruals

Liability Basics

Current Obligations expected to be paid/liquidated in current fiscal

period Year-end accruals

Noncurrent Not expected to be paid/liquidated within current fiscal period

Bonds Capital leases Pensions & OPEB Compensated absences, claims & judgments

Debt & other long-term liabilities Arise from activities of governmental funds

that are not accounted for as liabilities of a proprietary or fiduciary fund

Debt reported in a proprietary or fiduciary fund with general obligation (“full faith and credit”) backing Contingent liability should be disclosed in

the FS notes

General Long-term Liabilities

Bonds Tax-supported bonds Revenue bonds

Long-term notes Capital lease obligations Unfunded compensated absences

(vacation and sick leave) Unfunded pension obligations Unfunded OPEB Long-term portion of judgments and claims

Examples of General Long-term Liabilities

Bonds Payable& Debt Service

Bonds Payable

Issued for short-term purposes Examples

Tax/bond/grant anticipation notes Record as current liabilities

Issued for long-term purposes Example

Construction projects “Pay as you use”

Governmental funds record other financing use

Bond BasicsTypes of Bonds

Term All principal due in full at end of specified term Sinking funds often used to obtain better rates, etc.

Serial Bonds mature serially over entire term of the bonds Level debt service vs. level principal

Conduit debt obligation Government issues debt for third party (not part of reporting entity)

Not obligated to repay = do not record, notes only

Bond BasicsTypes of Bonds

Demand Government issued bonds with a put option

Bondholder can require government to pay principal & accrued interest Government must usually repay within 1-30 days = CURRENT

LIABILITY Exceptions to recording as current liability relate to take-out

agreements & related term Examples

Auction rate securities Commercial paper

Cash received from investors for interest accrued from date of bonds issue date Government-wide level

Usually recorded as credit to Accrued Interest Payable or Interest Expense

Fund levelMight be recorded as a revenue of DSFIn reality - usually recorded as credit to Accrued

Interest Payable or Interest Expense

Accrued Interest on Bonds Sold

Interest received by investors on most bonds issued by SLGs is exempt from federal (& some state) income taxes Investors willing to accept a lower interest rate

on these bonds (i.e. net of tax rate)

Governments formerly could issue bonds at a low tax-exempt rate, invest the proceeds in high yield taxable securities, then use the resulting arbitrage spread for capital/operating purposesKnown as ARBITRAGE

Arbitrage Rebates

Federal law & IRS regulations require arbitrage earnings, subject to certain exemptions, be paid to the IRS as arbitrage rebates Five year analysisVery technical field of expertise

Arbitrage Rebates

Financial resources set aside for principal &/or interest on general LT liabilities only

Resources may come from Taxes

Levied by DSF Levied by GF and transferred to DSF

Special assessments Hold number of funds to a minimum

GASB recommends single DSF for all tax-supported debt serviced by property taxes

Debt Service Funds

Modified accrual Exception = interest & principal generally

recognized in period legally due FYE exception

Budgetary accounting typically used Serial bonds

Amount budgeted for revenues/IFTs usually amount needed that fiscal year for matured principal & interest

Accounting Debt Service

Term bonds (or deferred serial bonds) Additional revenues/IFTs usually budgeted to

meet sinking fund requirements as well as amount needed for current year interest

Sinking fund investments reported at fair value Changes in fair value reported as a component

of investment earnings

Accounting for Debt Service

Accounting for Debt Service

Bonds are issued on 1/2/09 & pay interest of $100,000 semiannually on 1/1 and 7/1. The fiscal year ends on 12/31/09.

Q: What amount of expenditures would be recognized in fiscal 2009?A:Only the 7/1/09 interest payment, or

$100,000, would be recognized as an expenditure of 2009.

B:Alternatively, both the 7/1/0 & 1/1/10 payments would be recognized as 2009 expenditures.

A city issued $100,000 of 6% serial general obligation (G.O.) bonds on Dec. 1, 2008. Interest on GOBs of $3,000 is due 6/1/09 & 12/1/09, & in decreasing amounts every 6/1 & 12/1 for the next 19 years. First principal maturity of $5,000 is due 6/1/09.

DSF or CPFCash 100,000

Other financing sources 100,000

Governmental Activities:Cash 100,000 Serial Bonds Payable 100,000

Illustrative Transactions— Serial Bond DSF

FY 2009 approved budget requires GF to transfer $11,000 to DSF for debt service (principal repayment of $5,000 & two interest payments totaling $6,000 ($3,000 each)).

Debt Service Fund:

Due from General Fund/Cash 11,000

OFS—Interfund Transfers In 11,000

General Fund

Other financing uses 11,000

Due to DSF/Cash 11,000


On May 28, 2009, the transfer from GF was received.

Debt Service Fund:Cash 3,000 Due from General Fund

3,000

General FundDue to DSF 3,000

Cash 3,000

(Note: If OFS-Interfund Transfers In had not been accrued at the time the budget was recorded, then OFS-Interfund Transfers In would be credited here rather than Due from General Fund)


The June 1, 2008, interest payment was made on schedule

Debt Service Fund:

Expenditures—Bond Interest 3,000

Cash 3,000


Remaining $8,000 transfer was received from GF 11/29/09. On 12/1, City paid interest & principal maturing that date.

Debt Service Fund: Dr. Cr.Cash 8,000

Due From General Fund 8,000

Expenditures—Bond Principal 5,000

Expenditures—Bond Interest 3,000

Cash 8,000

General Fund:

Due to DSF 8,000

Cash 8,000


Adjusting entry on December 31, 2009:

Governmental Activities: Dr. Cr.

Expenses—Interest on Long-Term Bonds 475

Accrued Interest Payable 475

(Calculation: 1 month of accrued interest =

$95,000 of remaining bonds X .06 ÷ 12 = $475)

Note: Interest is not accrued in debt service fund since not appropriate under modified accrual. Will be accrued for GWS.


Bond Refundings

Bond Refundings

Pay off existing debt before due date Current refunding

Use cash (available or bond proceeds) to immediately retire bonds Advance refunding

Establish irrevocable trust for money set aside to retire bonds at early call date

Requires original bond indenture to have a call provision Bond holders usually receive a premium for an early call

Deferred gain = deferred inflow/deferred loss – deferred outflow

Bond Refundings

May do by issuing new debt Why do it this way?

Better interest rate Free up pledged revenue stream Eliminate onerous covenants

In-substance defeasance If not legally/in-substance defeased, can not remove old debt from

books Irrevocable trust = in-substance defeasance

Adequate funds & future earnings to repay old debt at early call date (& between then & now)

Advance Refundings

Legal or in-substance defeasance Old liability is removed from governmental activities In-substance

Proceeds placed in irrevocable trust & liability removed

Legal defeasance Debt legally satisfied based on debt instrument even

though not repaid

JEs similar to those for regular refundings

$100,000 of previously issued bonds are refunded with new $100,000 bonds with lower interest payments

When refunding (new) bonds are issued:

Debt Service Fund:

Cash (restricted) 100,000Other Financing Sources—

Proceeds of Refunding Bonds 100,000

If old bonds are not retired by end of fiscal year, both issues would be reported as long-term debt in governmental activities if no in-substance defeasance occurs.

Debt Refunding Transactions

Assuming old bonds are retired/defeased shortly after issue of refunding bonds:

Debt Service Fund: Dr. Cr.

Other Financing Uses—Refunded Bonds 100,000

Cash 100,000

(Note: Report only the new issue as debt in governmental activities. Disclosures required if in-substance defeasance.)

Debt Refunding Transactions

Other Long-term Liabilities

Capital Leases

Governmental assets – fund level statements At inception

“Proceeds” = other financing sources “Expenditure” = NPV of future MLP/fair value

Payments made “Debt service” = expenditure

Governmental assets – government-wide statements At inception

“Proceeds” = LTD “Leased assets” = NPV of future MLP/fair value

Payments made “Debt service” = expenditure

Proprietary fund = same as private sector lease accounting

Follow GASB No. 62 criteria to determine if capital/operating lease

Record capital assets in GWS at present value of minimum lease payments or fair value, if lower

Record expenditure in governmental fund using asset & making payments

GASB current project will require all assets leased for more than 12 months to be accounted for as an intangible lease asset with a corresponding capital lease obligation.

Accounting for Capital Leases

Compensated Absences

Liability for unused sick/vacation time Accrue as earned if

Employee right to receive compensation relates to prior service

Probable employer will compensate employee for benefits through

Paid time off AND Cash at termination/retirement

Separate between current & noncurrent

Year-end Accruals

Payroll

Liability for amounts paid in new year for services rendered in prior year Salaries Overtime Taxes Benefits

Pro rate using number of days in prior year/total days in pay period

Unbilled Utility Revenues

Revenue & receivable for amounts billed in new year for services provided in prior year May need to look through billings for entire first

month of new year Receivable = “Unbilled Utility Services)

Fund Equity

Governmental Funds

Proprietary Funds

Fiduciary Funds

Fund Equity

Assets + deferred outflows – liabilities – deferred inflows = fund equity

Governmental fund level Fund balance

Nonspendable, restricted, committed, assigned, unassigned Proprietary & fiduciary fund level

Net position Net investment in capital assets, restricted, unrestricted

Government-wide – ALL activities Net position

Net investment in capital assets, restricted, unrestricted

Governmental Fund Equity

Categories based on relatively strength of control constraints

Nonspendable Fund Balance

Restricted Fund Balance

Committed Fund Balance

Assigned Fund Balance

Unassigned Fund Balance

Governmental Fund Balance

Nonspendable Can not be spent because EITHER

Not in spendable form Not expected to be converted to cash

Inventories Prepaids

Other LT loans & notes receivable Property acquired for resale Some exceptions Legally/contractually required to be maintained

intact Permanent fund corpus

Governmental Fund Balance

Restricted External parties, constitution, enabling legislation

Committed Government constraint using its highest level

decision-making authority Ordinance

Assigned Intended for specific use by government

Unassigned No constraints – general fund only

Recording Transactions Exercise

The Financial Reporting Entity

Consists of the primary government and all component units for which the primary government is financially accountable

Component units are reported by Discrete (separate column) presentation

Separate column for major CUs Blended presentation

CU’s financial information included with appropriate fund columns of the PG



Primary government

Statute

Separately elected governing body

Special purpose governments

Separately elected governing body

Ultimately accountable to its electorate

Legally separate

Fiscally independent

Examples of Primary Governments

A state governmentGeneral purpose local government

City, town, parish, etc.Special purpose government

Separately elected governing bodyLegally separateFiscally independent of other state/local

governmentsExamples

School districts, special districts, etc.


Component Units

Financial accountability

Appoint voting majority of board

Modify/approve rate/fee changes or budget

Remove appointed governing body members at

will


Component Units

Financial accountability

Veto, overrule or modify other types of decisions

Appoint, hire, reassign or dismiss management

Create financial benefit or burden


Component Units Imposition of will

Ability to access CU resources Assumed obligation to finance deficits/provide

financial support Obligated in some manner for CU debts

CU provides financial benefit or is financial burden

Omission is misleading to financial statement users

Component UnitsCertain Tax Exempt Organizations

Relationship & significance Meet all three tests re: economic resources

Separate economic resources benefit PG PG can access separate economic resources Economic resources significant to PG

Also consider those closely related to or financially integrated with PG

Governmental component units Dependent special districts Port authorities Universities Hospitals

Not-for-profit component units Volunteer fire departments Libraries Museums Hospitals

Examples of Component Units

Component Unit Issues

Different FS format 501 (c) (3) entities CUs with GTAs & BTAs

Differing fiscal year ends FYE within PG FY CU FYE 1st quarter of PG FY

Inter-agency transactions Role in MD&A - focus is PG

Reporting Entity Exercise

Financial Reporting

Government-wide Statements

Fund level Statements

Reconciling Items

Financial Reporting

Management responsibility GPFS required

Minimum acceptable “Liftable”

General Purpose External Financial Reports

Management’s discussion and analysis

Government-wide Fund financialfinancial statements statements

Notes to the financial statements

Required supplementary information (other than MD&A)

Required Financial Statements

Government-wide financial statements: Accrual basis Information about overall government

Internal service funds “rolled up” Intragovernmental activities eliminated Fiduciary funds excluded

Activities Governmental Business type

Government Wide Statements

Demonstrate OPERATIONAL accountability Results of operations Financial condition

Medium & LT effects of current & past decisions Service levels from existing revenues Effects of current-period operations on future service

needs Financial position & financial condition

Economic resources & full accrual


Basic financial statements MD&A Statement of Net Position Statement of Activities Footnotes RSI

Pensions OPEB Infrastructure (modified approach) Budget to actual Investment trusts


Required columns PG governmental activities PG business activities Total for PG Component units

Optional column for total reporting entity

Statement of Net Position

Similar to balance sheet Net position format encouraged

Assets + Deferred Outflows – Liabilities – Deferred Inflows = Net Position

Balance sheet format allowed Assets + Deferred Outflows = Liabilities +

Deferred Inflows + Net Position Ordered as to relative liquidity

Separate amounts for due in more than one year Minimize internal balances

Not for CUs

Statement of Net Position

Similar to balance sheet Net position

Net investment in capital assets Net of accumulated depreciation & OS debt

Unspent proceeds – unspent & OS debt = restricted net position

Restricted net position Legal constraints

Unrestricted net position No designations on face

Statement of Activities

Similar to income statement Government purpose = services

Net expense/revenue column Three categories of expenses

Governmental activities At least at same level as fund statements

Business-type activities Different identifiable activities

Component units


Program revenues - columns Charges for services Operating grants & contributions Capital grants & contributions

Full accrual accounting = related capital assets reported on statement of net position


General revenues – bottom All others

Other Contributions to endowments & permanent

funds Special & extraordinary items Transfers

Fund Level Statements

Fund financial statements:Presented for major funds & nonmajor funds in

the aggregateTwo governmental fund financial statementsThree proprietary fund financial statementsTwo fiduciary fund financial statements

Fund Level Statements

Fund level financial statements: Short-term focus - financial accountability Reported based on type of fund

Governmental funds - modified accrual Proprietary funds - essentially same as for-

profit entities Information on fund level financial statements

must be reconciled to information reported in GWS

Major Funds

Applies only to governmental & enterprise funds Always general fund Never internal service fund

Meet both criteria 10% same element for fund category or type 5% same element for all fund type combined

Any other selected by government

City of Example

Calculation of Major Funds

Expenditures Major

Fund

Assets & Deferred Outflows

Liabilities & Deferred Inflows Revenues Expenses Fund

General 1,000,000 250,000 10,000,000 9,900,000 Always

Grants 50,000 10,000 1,500,000 1,400,000

Debt Service 5,000 0 500,000 495,000

Capital Projects 5,000,000 500,000 10,000,000 5,500,000 Yes

Total Governmental 6,055,000 760,000 22,000,000 17,295,000

Water Fund 10,000,000 7,000,000 5,000,000 4,500,000 Yes

Golf Fund 50,000,000 49,000,000 20,000,000 20,000,000 Yes

Total Enterprise 60,000,000 56,000,000 25,000,000 24,500,000

Total All Funds 66,055,000 56,760,000 47,000,000 41,795,000

Governmental 10% 605,500 76,000 2,200,000 1,729,500

Enterprise 10% 6,000,000 5,600,000 2,500,000 2,450,000

Total 5% 3,302,750 2,838,000 2,350,000 2,089,750

Governmental Fund Statements

Financial resources & modified accrual Two statements

Balance Sheet Statement of Revenues, Expenditures & Changes in Fund

Balance Columns

Major funds & aggregate non major funds Reconciliation to GWS required

Proprietary Fund Statements

Economic resources & full accrual Three statements

Balance Sheet or Statement of Net Position Classified format Three categories of net assets

Statement of Revenues, Expenses & Changes in Net Position Statement of Cash Flows

Columns Major funds & aggregate non major funds

Reconciliation to GWS not usually needed

Fiduciary Fund Statements

Economic resources & full accrual Two statements

Statement of Fiduciary Net Position Statement of Changes in Fiduciary Net

Position One column for each fund type

No total columns Agency funds – external parties only

Budget to Actual Comparisons

Minimum presentation Three columns for each governmental fund reported

Original budget Final budget Actual

Variance column is OPTIONAL Title should be objective vs. subjective

Budget to Actual Comparisons

Budget basis Reconcile differences to Statement of

Revenues, Expenditures & Changes in Fund BalanceFace or in notes to RSI (or notes in

BFS) Disclose expenditures exceeding budget

for individual funds

What MD&A Isn’t

The auditor’s responsibility Replacement for transmittal letter Made up only of graphics Focused on entire reporting entity

PG only Place to put just about anything Boilerplate discussion & technical jargon

What MD&A Is

Management’s responsibility Discussion of the financial statements Analysis of financial position and results

of operations SIGNIFICANT changes

MD&ABudget Variance Analysis

An analysis of significant variations Original & final budget Final budget & actual results

Only General Fund (or equivalent) required Explain why variances occurred

MD&A-Expectations

Description of currently known (to management) facts, decisions, or conditions Through date of report No specific “title” per GASB #34 Event already occurred or contracted for

Not things that might happen Expected to have significant effect on

Financial position (net position) Results of operations (revenues, expenses, & other

changes in net position)

Examples of Currently Known Facts

Award and acceptance of a major grant

Adjudication of a major lawsuit

Significant change in the property tax base

An increase in the state sales tax rate

Flood causing major damage to infrastructure

Exploring Real World Financial Statements

Accounting for Grants

Cost Principles

Reporting

OMB REFORMS IMPLEMENTATION GUIDANCE

• Reason for changes• Super circular issued 12/26/13• Uniform guidance issued 12/19/14

• Effective 12/26/14• NFPs & IHEs have one-year grace period for procurement

standards• If opt for this, existing documented procurement policies

need to specify the entity continues to comply with A-110 for one additional year beginning post 12/26/14

• Codified within 2 CFR Part 200• Federal department & agency acceptance & implementation

• HHS most differences with Uniform Guidance• Most impacted

• Deferral of effective date for purchasing policies

AREAS OF REFORMS

• Administrative requirements• Common Rule• A-102• A-110• A-89

• Cost principles• A-21• A-87• A-122• Hospitals under DHHS (45 CFR Part 75, Appendix E)

• These retained until changed in the near future• Single Audit requirements• www.ecfr.gov

• Part 200• Subpart A-F• AppendicesV-XI

REFORMS - ADMINISTRATIVE

• Funding notices• 60 day notice required

• Agencies may change but no less than 30 days

• Standard format


• Pre-award consideration of proposal’s merit & each applicant’s financial risk• Disclosure of conflict of interest & relevant criminal

violations• Agencies to impose specific conditions where necessary

to mitigate potential risks of waste, fraud & abuse• Pass through entities specifically required to consider as

well


• Pre-award consideration of proposal’s merit & each applicant’s financial risk• Agency may use risk based approach to evaluate applicant

risk considering• Financial stability• Quality of management systems & ability to meet management

standards• History of performance• Reports & findings from Single Audits• Applicant ability to effectively implement statutory, regulatory,

or other imposed requirements


• In addition to previous requirements, Financial Management System MUST include • Effective IC over & accountability for all funds,

property & other assets• Comparison of expenditures with budget for each

award• Written procedures

• To implement cash management requirements• For determining allowability of costs in accordance

with cost principles


• Use of COSO internal control framework – best practice• Must have system of IC

• Specific certifications required by recipient management as part of application

REFORMS - COST PRINCIPLES

• Does not apply to fixed amount awards

• New guidance for indirect costs– De minimus 10% of Modified Total Direct Cost (MTDC)

– Pass through entities required to provide indirect cost rate to subrecipients

– Existing negotiated rates remain effective until re-negotiated

• Supplies increased to $5,000

• Budgeting for contingencies for certain awards

• Documentation of cost accounting practices


• Salaries & benefits charged to awards– Personnel activity reports not explicitly required

– Focus is on – IC & procedures that account for all work performed

– Accurate personal compensation between federal & nonfederal projects

– May be required if entity records do not meet documentation standards


• Salaries & benefits charged to awards– Must be based on records that accurately reflect work

performed

• Supported by IC system

• Incorporated into entity records• Nonexempt employee time records MUST indicate total hours worked

each day

• Reasonably reflect total activity performed

– Allocation based on budget estimates only not acceptable

– Time records for exempt employees

REFORMS – COST PRINCIPLES

• All purchase types must comply with entity’s procurement standards

• Purchase complies with entity’s documented & in place policies

• Purchase is necessary

• Open competition

• Conflict of interest policy

• Proper documentation for purchase


• Procurement methods• Micro purchases < $3,000 ($2,000 for construction

& subject to Davis Bacon)• To extent practicable must distribute among qualified suppliers

• Small purchases < $150,000• Small & informal procurement methods

• Need quotes (price &/or rate) from “adequate” number qualified sources• Entity written policy to define “adequate”

• Sealed bids > $150,000• Only SLGs & tribes required to advertise & open

bids publicly

• Preferred for construction projects


• Procurement methods• Competitive proposals > $150,000

• More than one source

• Written method of evaluation & selection needed

• Preferred for fixed fee or cost reimbursement

• Award MUST go to “most advantageous” proposal

• Sole source must meet at least one of the criteria• Single source availability

• Public emergency

• Written request made & approved by grantor

• Competition determined to be inadequate


• Procurement methods• Profit MUST be negotiated as separate element of price

when there is no cost competition• Noncompetitive purchases – all levels, special

circumstances• More focus on performance vs. compliance

• Formal contract administration & project management procedures should be adopted & modified for• Collection of performance data that ties contractor

performance to contract/PO requirements• Links between performance management activities &

performance reporting required for efficiency purposes• Establishment of performance metrics & corrective action

procedures

REFORMS – MONITORING & REPORTING

• Recipient responsible for monitoring compliance & performance expectations

• Federal entity required to use OMB approved data elements• Recipient must submit reports (annually – quarterly)

• Annual reports due within 90 days

• Quarterly reports due with 30 days

• Performance reports MUST contain• Comparison of accomplishments to objectives

• Reason goals not met

• Other information as appropriate

REFORMS – MONITORING & REPORTING

• Construction performance reports only when necessary above

• Inspections

• Certification of percentage of completion

• Recipient MUST notify grantor – as soon as a condition is known

• Problems, delays, adverse conditions materially impacting performance & objectives

• Favorable developments

REFORMS – SINGLE AUDIT

• SEFA• Required to include total amount to

subrecipients • Each program

• Noncash assistance etc. in SEFA• Notes required to state whether entity

elected to use 10% de minimis cost rate

REFORMS – SINGLE AUDIT

• Auditee required to request peer review report in RFP• FAC to make reporting packages available to public• Follow up & corrective action – auditee

• Summary schedule of prior findings to include FS related findings

• Describe reasons for any recurring finding

• Management decisions may be based on FS findings

Allowable costs

Necessary & reasonable for efficient performance of the federal award

Employee compensation, cost materials, depreciation, etc.

Special/unusual costs require advanced understanding with awarding/cognizant agency

Unallowable costs

Alcoholic beverages, bad debt expense, CEO salary (some exceptions)

Allowable Costs in Federal Grants

Questioned Costs

Unallowable

Costs

Certain costs are specifically unallowable under the general and special award conditions or agency instructions. (They may include, but are not limited to, pre-grant and post-grant costs and costs in excess of the approved grant budget, either by category or in total.)

Undocumented

Costs

These costs are charged to the grant, for example, to demonstrate their relationship to the grant or the amounts involved, but they lack adequate detailed documentation.

Unapproved

Costs

These costs are not provided for in the approved grant budget, or they require the awarding agency's approval because of the grant or contract provisions or applicable cost principles, but no evidence of such approval can be found.

Unreasonable

Costs

These are costs incurred that may not be consistent with the actions that a prudent person would take in the circumstances, or in-kind contributions to which unreasonably high valuations have been assigned.

Accounting for Grants

Cost Concepts

Cost and Cost Concepts

Cost object Any item/purpose for which costs need to be

measured Grant, program, division, etc.

Direct cost Can be clearly identified with/directly related to a

single cost object Economically feasible manner

Indirect cost Cannot be clearly identified with/directly related to a

single cost object

Common cost Related to two or more cost objects

Cost objects could be achieved separately Occupancy costs – multiple use facility

Joint cost Related to two or more cost objects

Cost objects can not be achieved separately Annual meeting costs, certain

publications/brochures

Cost and Cost Concepts

Cost Allocation

NOT cost assignment Direct costs

Allocation criteria Cause and effect

Most preferred Benefits received Equity Ability to bear

Least preferred

Cause & Effect

AKA causal criterion Identification of activity causing costs to be

incurred Difficult for indirect costs Statistical relationships vs. assumed

relationship Best to use

Benefits Received

AKA beneficial relationship Identification of users of outputs from activity Costs allocated among users proportional to

benefit Direct costs – proxy for benefits

Equity

Use when cost allocation used for reimbursement Grants

Reasonable/fair means of establishing reimbursement basis Fairness not an operational criterion

Ability to Bear

Cost allocation in proportion to some user attribute Attribute presumed to support charging costs

to user Commercial vs. residential customers

Least preferred

Allocation Methods

Stand-alone Relative sales value (direct cost) Physical units

Stand Alone Allocation Method

Closest to “ability to bear” Allocates indirect costs to each final cost

objective Proportional to SAC to independently

accomplish one objective

Stand Alone Allocation Method

Disadvantages Allocation can change - SAC does not SAC changes, total basis changes SAC may not exist Assumes indirect costs functionally related to

SAC

Stand-Alone Method

Activity A: 500 X 750,000 = $375,000 1,000

Activity B: 400 X 750,000 = $300,000 1,000Activity C: 100 X 750,000 = $75,000 1,000

Problems: An allocation of indirect costs can change Stand-alone costs may not exist

Relative Sales Value Method(Direct Cost Method)

Close to “ability to bear” & “cause & effect” Improvement over stand alone

Sales value/direct cost as allocation basis

Relative Sales Value Method(Direct Cost Method)

Assumes indirect costs incurred in same proportion & for same reason as direct costs (OMB “simplified method”) No change to expense for each objective

compared to total direct costs Increases total reported for each objective

Direct Cost Method

Cost Total Relative Indirect Allocated TotalObjective Direct Share Costs Costs Costs Costs

Activity A: 2,500,000 2,500 x 750,000 = $625,000 3,125,000 3,000

Activity B: 300,000 300 x 750,000 = 75,000 375,000 3,000

Activity C: 200,000 200 x 750,000 = 50,000 250,000 3,000

$3,000,000 $750,000 $3,750,000

Physical Units Allocation Method

Consistent with “cause & effect” Allocate costs to objectives proportional

to units of activity/output for each objective

May not reflect total effort needed to produce output

Assumes indirect costs incurred proportional to some unit measure of activity/purpose

Cost DeterminationAllocation Steps

1. Reason(s) for cost information

2. Cost objects or purposes

3. Types of relevant costs

4. Assign direct costs to cost objects

5. Select allocation base(s) or cost drivers

6. Allocate indirect costs

7. Ensure appropriateness

Single Stage Allocation

LaborLabor Hours Cost Driver

Rent

A

BLabor Hours Cost Driver

CCost Assignment

Allocation (Based on Labor Hours)

Two Stage Allocation

PurposeNatural Expense

Labor

Space Rent

Equipment Rental

Labor Hours

Cost Driver

Labor Hours

Cost Driver

Data

Processing Computer Time Cost Driver

Cost Assignment

Stage 1 Allocation (Based on Labor Hours)

Stage 2 Allocation (Based on Computer Time)

A

C

B(1)

(2)

Activity Based Costing

ABC Flow Diagram

Labor

$1,600k Facilitator $1,000k

EquipRent $400k

Contracting $200k

Material $600k

Storage $400k

Resources

Stage 1 Cost Drivers

Activity Cost Pools

Stage 2 Cost Drivers

Cost Objectives

Deliver $1,800k

Contract $450k

Setup $700k

Process $1,250k

Basic $1,973k

Enhanced $2,227k

.2 .3

.3

.25

.25

.6

.75

.25

.4

.7 .167 .833

Cost Allocation Exercise

fgfoa boot camp – day 2 intermediate government accounting presented by lynda m. dennis, phd, cpa,...

Documents

investment income slide

cgfo slide

investment income sales

legal financial requirements

securitiesother assets

liquid assets payables

overview review of day

measurement date changes