FUND BALANCE REPORTING

UNDER GASB STATEMENT 54

Daniel LunghoferSchool District/ESD Accounting Supervisor

Portions of this presentation adapted from GASB

What is GASB?2

GASB stands for the Governmental Accounting Standards Board.

It is the official source of Generally Accepted Accounting Principles for state and local governments.

GASB’s role is to establish and improve standards of reporting for U.S. state and local governments.

Background3

GASB found significant variations in how standards are applied, leading to significant divergence in practice.

Widespread confusion about terminology. Mismatch between what governments are

reporting about Fund Balance and what users of financial statements actually need.

GASB issued Statement 54 in March 2009.

But We’re OCBOA!4

OSPI has adopted GASB 54 for the following reasons: To provide better transparency on

the fiscal health of school districts. Easier to respond to data requests

about what is in Fund Balance.

Why Should We Split Fund Balance?

5

Fund Balance is similar to a savings account or a checkbook balance.

Like a savings plan for a large purchase or a monthly budget to pay bills, it’s not all “free money” for a huge shopping spree.

Sample District6

In 2009–10, our Sample District had a total General Fund Ending Fund Balance of $60,658,638:

Assets: $135,009,584Liabilities: $74,350,946Fund Balance: $60,658,638

This looks good on the surface: the district has over $60 million for new programs, more teachers, smaller levies, etc. But…

Disclaimer: This is a consolidation of three random districts’ F-196 data, and is does not reflect on any one district.

Sample District – Continued7

$26,055,245 was Reserved Fund Balance –money reserved for specific items.

$26,383,164 was Designated Fund Balance – amounts the district put aside with the intent that they are used in a specific manner.

That leaves $8,220,228 in Unreserved, Undesignated Fund Balance (UUFB) – “free” money not marked for anything in particular.

Sample District – Continued8

So, breaking it down a bit, our sample district’s balances at the end of 2009–10 are:

Assets $135,009,584Liabilities $74,350,946Fund Balance:

Reserved $26,055,245Designated $26,383,164“Free” UUFB $8,220,228Total FB $60,658,638

New Fund Balance Classifications

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Classification Under Old System (Pre-

GASB 54)

ReservedFund Balance

Nonspendable Fund BalanceRestricted Fund Balance

Committed Fund BalanceUnreserved,

DesignatedFund Balance

Assigned Fund Balance

Unreserved, UndesignatedFund Balance

Split into three separate categories

Name change

Name change Unassigned Fund Balance

Classification Under New System (Post-

GASB 54)

Change UnderGASB 54

Nonspendable Fund Balance10

Not in spendable form, such as: Inventory. Prepaid items.

Legally or contractually required to be maintained intact (i.e. corpus of a permanent fund).

Restricted Fund Balance11

Amounts constrained to being used for a specific purpose by: External sources such as creditors,

grantors, laws or regulations of other governments.

Imposed by law through constitutional provisions or enabling legislation.

Generally, items beyond control of the board of directors.

Committed Fund Balance12

Constraint on use imposed by the school district itself, using its highest level of decision making authority.

Constraint can be removed or changed only by the same authority.

For Washington school districts, this means either a formal resolution of the board of directors or adherence to adopted board policy.

Assigned Fund Balance13

Amounts intended to be used for specific purposes.

Intent is expressed by: The board of directors. High-level individual authorized by

the governing body.

“Residual” Fund Amounts (UUFB)

14

Starting with the total Fund Balance (Assets minus Liabilities), take away: Any amounts that are not in spendable

format (i.e. Nonspendable). Any amounts that are Restricted as to

their use. Any amounts that have been

Committed to a specific use by the board of directors.

Any amounts that are Assigned to a specific use (and recorded in the appropriate GL code).

“Residual” Fund Amounts – General Fund

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In the General Fund: Record the residual amount, either

positive or negative, as Unassigned Fund Balance.

According to the verbiage in Statement 54, “governments should not report an assignment for an amount to a specific purpose if the assignment would result in a deficit in unassigned fund balance.”

“Residual” Fund Amounts – Other Funds

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In funds other than the General Fund, the balance is recorded in one of two places: If the balance is positive, record it

as Assigned to Fund Purposes (GL 889).

If the balance is negative, record it as Unassigned Fund Balance (GL 890).

Example – General Fund17

Let’s take a district with $10,000 in Ending Fund Balance:

$1,000 in Nonspendable amounts (Inventory) $6,000 in Restricted amounts $1,000 in Commitments $1,000 in Assignments

Nonspendable Fund Balance $1,000Restricted Fund Balance $6,000Committed Fund Balance $1,000Assigned Fund Balance $1,000Unassigned Fund Balance $1,000Total Fund Balance $10,000

Example – General Fund18

Let’s take a district with $10,000 in Ending Fund Balance:

$1,000 in Nonspendable amounts $6,000 in Restricted amounts $1,000 in Commitments $3,000 in Assignments

Nonspendable Fund Balance $1,000Restricted Fund Balance $6,000Committed Fund Balance $1,000Assigned Fund Balance $2,000Unassigned Fund Balance $0Total Fund Balance $10,000

Example – General Fund19

Let’s take a district with $10,000 in Ending Fund Balance:

$1,000 in Nonspendable amounts $6,000 in Restricted amounts $5,000 in Commitments $1,000 in Assignments

Nonspendable Fund Balance $1,000 Restricted Fund Balance $6,000 Committed Fund Balance $5,000 Assigned Fund Balance $0 Unassigned Fund Balance ($2,000)Total Fund Balance $10,000

Example – Capital Projects Fund

(i.e. Not The General Fund)20

Let’s take a district with $10,000 in Ending Fund Balance:

$8,000 is Restricted $1,000 is Committed

Nonspendable Fund Balance $0 Restricted Fund Balance $8,000 Committed Fund Balance $1,000 Assigned to Fund Purposes $1,000 Unassigned Fund Balance NATotal Fund Balance $10,000

Example – Capital Projects Fund

(i.e. Not The General Fund)21

Let’s take a district with $10,000 in Ending Fund Balance:

$8,000 is Restricted $3,000 is Committed

Nonspendable Fund Balance $0 Restricted Fund Balance $8,000 Committed Fund Balance $3,000 Assigned to Fund Purposes NAUnassigned Fund Balance ($1,000)Total Fund Balance $10,000

Washington – Implementation

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“Entire” GL section of Accounting Manual was re-written in accordance with these standards.

In most cases, it is a title change (e.g. “Reserved” to “Restricted”).

There are some new GL Codes added for a variety of purposes.

New Code Samples23

GL 821 Restricted for Carryover of Restricted Revenues (previously rolled into GL 810).

GL 872 Committed to Minimum Fund Balance policy (if your district has such a policy).

GL 889 Assigned to Fund Purposes (for closing out funds other than GF if a positive amount).

Effect on School District Systems

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WSIPC software has been updated for these new GL codes.

Non-WSIPC districts will have to add the codes on their own or work with their vendor to make the changes. This information was provided in April 2010 via OSPI Bulletin 017-10.

The F-196 is being re-programmed to incorporate these changes for financial statement purposes for 2010–11.

Changes present more Fund Balance definition than may be used by every district.

Questions & Answers25

Q: My district has a number of computers purchased in the Capital Projects Fund that we have classified as inventory while we wait to put them into service. Are these Nonspendable?

A: Use GL 810 Restricted for Other Items.The general consensus is that the expenditures should be recognized when the computers are purchased.

Questions & Answers26

Q: Do we report interest earnings not spent as Restricted Fund Balance?

A: It depends.If the source of money generating the interest earnings is Restricted (i.e. bond money in CPF), then the interest earnings are also Restricted.If the source of money has no restrictions and the interest earnings remain in the fund, they are recorded in GL 890 (GF) or GL 889 (all others).If interest earnings are credited to another fund, they are Restricted.

Questions & Answers27

Q: Our county investment pool requires us to set aside a certain amount of fund balance. Is this Restricted?

A: No, it should be Nonspendable – it is contractually required to be maintained intact.Currently, Nonspendable Items should be recorded in GL 810 Restricted for Other Items.

Questions & Answers28

Q: My district self-insures for industrial insurance. We are required to keep a reserve amount. How is should this be reported?

A:It depends on the language in the notice outlining the reserve.If you must keep the amount intact and cannot spend it, it is Nonspendable. As with the last example, use GL 810 for now.If the reserve is only to cover excess claim costs, it is Reserved. Report this in GL 845.

Questions & Answers29

Q: My board wishes to identify certain amounts under the Committed Fund Balance classification. If the amounts are present in our budget, do we need to pass a separate resolution for these commitments?

A: No, if the budget document adequately describes what the commitments are for.

Questions & Answers30

Q:What is a good Minimum Fund Balance policy?

A:Minimum Fund Balance is not required.However, here are some general

guidelines: Set a policy based on a percentage (e.g.

percentage of expenditures), rather than a set dollar amount.

Include a small range of percentages to allow for swings.

Include plan of action if policy is not met.

Questions & Answers31

Q: What will a Minimum Fund Balance policy look like on the financial statements?

A:For this, we need a volunteer.

Reservation of Fund Balance 124,561.15$ Unreserved, Designated Fund Balance -$ Unreserved, Undesignated Fund Balance 771,734.17$ TOTAL FUND BALANCE 896,295.32$

FUND BALANCE (as reported on 2009-10 F-196)

Tenino

Nonspendable Fund Balance -$ Restricted Fund Balance 124,561.15$ Committed Fund Balance -$ Assigned Fund Balance -$ Unassigned Fund Balance 771,734.17$ TOTAL FUND BALANCE 896,295.32$

FUND BALANCE (2009-10 F-196 data) Using GASB 54 format

Tenino

Tenino

Minimum Fund Balance Policy Percentage 2.5%

Nonspendable Fund Balance -$ Restricted Fund Balance 124,561.15$ Committed Fund Balance 311,549.18$ Assigned Fund Balance -$ Unassigned Fund Balance 460,184.99$ TOTAL FUND BALANCE 896,295.32$

FUND BALANCE (2009-10 F-196 data) Using GASB 54 format)

Actual Committed to Minimum Fund Balance Policy: 311,549.18$

Percentage Committed to Minimum Fund Balance Policy: 2.50%

Questions & Answers35

Q: How do we record ASB money that is left over at the end of the year?

A: Any “free” money, that is, money not tied to a specific club or class, would be reported in Assigned to Fund Purposes.For money that is marked for specific clubs or classes, that money was supposed to be spent in a particular manner as outlined by the ASB board and the district board of directors. It should be reported as Committed to Other Purposes.

Questions & Answers36

Q: Are amounts that are held in imprest accounts classified as Nonspendable Fund Balance?

A:No. If an imprest account can only be used for certain designated expenditures, it would be either Committed or Assigned, as appropriate. Otherwise, it is Unassigned.

Questions & Answers37

Q: When do these changes take effect?

A: GASB’s language is that the changes in Statement 54 are effective for fiscal years beginning after June 15, 2010.For Washington school districts, this means the 2010–11 school year.

GASB 54 – Phase II Implementation

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Fund balance classification was only part of GASB 54. Governmental Fund definitions. Encumbrance accounting.

GASB 54 – Governmental Fund Definitions

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Governmental fund definitions were updated to match GASB 54 terminology.

RCWs govern allowable uses of the funds – some breakage with GASB 54.

Primary example is Debt Service Fund. GASB 54 states it is for principal and interest. RCW allows for bond transfer fees as well.

In cases of breakage between GASB 54 and RCWs, the RCWs won.

GASB 54 – Encumbrances40

Encumbrance accounting is discussed in the Accounting Manual (Chapter 3), but does not appear on F-196 or Notes to Financial Statements.

GASB 54 (and earlier statements) require financial statement presentation or note disclosure.

Instead of reporting Encumbrances on the financial statements, the SDAAC recommended disclosure in the Notes to the Financial Statements.

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Questions?

Daniel Lunghofer(360) 725-6303

daniel.lunghofer@k12.wa.us

Springtime at OSPIDaffodils and GeorgeWashington Statue

April 20, 2011

By Daniel Lunghofer