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  2. FOCUS OF CHAPTER 25 • The Remaining Governmental Funds • The GCA-GLTL General Ledger • The Proprietary Funds • The Fiduciary Funds • Financial Reporting to the Public: General-Purpose Financial Statements

  3. THE GOVERNMENTAL FUNDS: SPECIAL REVENUE FUNDS (#2 of 5) • Purpose: To account for the proceeds of specific revenue sourcesthat are legally restricted to expenditure for specific purposes—excluding inflows for: • Capital projects and Expendable trusts. • Inflows: Usually from specific taxes or nontax sources not directly related to services provided. • A General Fund “clone”—same structure.

  4. THE GOVERNMENTAL FUNDS: CAPITAL PROJECTS FUNDS (#3 of 5) • Purpose: To account for the proceeds of financial resources that are to be used for the acquisition or construction of MAJOR CAPITAL FACILITIES—other than: • Those financed by • Proprietary Funds and • Trust Funds

  5. THE GOVERNMENTAL FUNDS: CAPITAL PROJECTS FUNDS (#3 of 5) • Atemporary fund—at completion of the project: • The fund is closed and • The facility ’s cost is recorded as a capital asset in the GCA-GLTL g/l. • Costs incurred during construction are charged to expenditures (outflows). • Inflows: Bond sales and transfers from the General Fund.

  6. THE GOVERNMENTAL FUNDS:DEBT SERVICE FUNDS (#4 of 5) • Purpose: To account for the servicing of debt initially recorded as a liability in the GCA-GLTL g/l. • “Servicing of Debt” defined: The payment of (1) interest and (2) debt principal at maturity. • Unusual Features: • Interest is not accrued until the due date. • Principal payments are not recorded as liabilities until the due date.

  7. SPECIAL ASSESSMENTS • Special Assessments: Assessments made against properties that directly benefit from improvements: • Examples: Sidewalks, street lighting. • Special Assessment Bonds are usually issued to pay for the improvements. • All construction activity takes place in a Capital Projects Fund.

  8. SPECIAL ASSESSMENTS • Bond Repayment: Assessees pay taxes over several years to pay off the bond issue. • Special Assessment Debt may or may nothave the backing of the governmental unit in the event of default. • Special Assessment Debt (SAD) Categories: • SADs With Government Commitment. (This is the usual situation.) • SADs Without Government Commitment.

  9. SPECIAL ASSESSMENTS • SADs With Government Commitment: • A Debt Service Fund is used to account for: • All collections from assessees. • All payments to bondholders. • The bond liability is recorded in the GCA-GLTL g/l. • Unique Item: The entire tax assessment is recorded as Property Tax Receivables—the noncurrent portion is Deferred Revenues.

  10. SPECIAL ASSESSMENTS • SADs Without Government Commitment: • An Agency Fund is used to account for: • All collections of property taxes from assessees. • All payments to bond holders. • No liability is recorded in the GLTDAG. • The governmental unit is viewed merely as an agent for the assessees and thebondholders.

  11. THE GCA-GLTL GENERAL LEDGER • Purpose: Accounts for capital assets (at historical cost) and debt not accounted for in: • Enterprise Funds, Internal Service Funds, or Trust Funds. • Not a fund—it has no cash for paying liabilities. • A self-balancing set of accounts.

  12. GENERAL CAPITAL ASSETS • Categories of Assets: • Land • Buildings • Improvements other than buildings • Equipment • Construction work in progress (being performed by Capital Projects Funds) • Infrastructure assets (see next slide)

  13. GENERAL CAPITAL ASSETS: Infrastructure Assets • Capitalization is mandatory for public domain or “infrastructure” capital assets such as: • Streets and roads • Sidewalks • Bridges and tunnels • Water & sewer systems • Lighting systems

  14. GENERAL CAPITAL ASSETS: Infrastructure Assets • Infrastructure Assets: • Long-lived capital assets that normally are: • Stationary in nature • Normally can be preserved for a significantly greater number of years than most capital assets.

  15. GENERAL CAPITAL ASSETS: Postcapitalization Periods • Depreciation is mandatory—except for certain infrastructure assets: • Depreciation Expense is never reported in the operating statement of governmental funds. • It is reported only in the two government-wide statements. • Sales of Assets: Record proceeds as OTHER FINANCING SOURCES in General Fund.

  16. INFRASTRUCTURE ASSETS: Depreciation • Noneligible Infrastructure Assets: • Must be depreciated. (See following slide regarding eligibleinfrastructure assets.)

  17. INFRASTRUCTURE ASSETS: Depreciation • EligibleInfrastructure Assets : • Need not be depreciated. • Defined: Assets being (1) managed using an asset management system having certain characteristics (described in GAS 34) and (2) preserved approximately at or above an established and disclosed condition level. • Condition assessments must be performed at least every 3 years.

  18. GENERAL LONG-TERM LIABILITIES • Long-term debt that is not properly shown in Proprietary Funds or Trust Funds. GLTL includes: • DEBT issuance liabilities having a maturity date of more than one year at the time of issuance (these are borrowings). • NONDEBT issuance liabilities that would not “normally be liquidated with expendable available financial resources” (e.g., a lawsuit liability to be paid in 3 yrs.).

  19. GENERAL LONG-TERM LIABILITIES • Examples of Debt Recorded in GCA-GLTL g/l: • General obligation bonds (usually issued to pay for capital projects). • Claims and judgments. • Compensated absences (vacation & sick pay). • Unfunded pension contributions. • Capital leases payable. • Special assessment debt having government commitment (explained earlier).

  20. GENERAL LONG-TERM DEBT LIABILITIES • Consequences of Reporting “Nondebt Issuance Liabilities” in the GCA-GLTL g/l: • It enables governments to magically conceal whether they are living within theirmeans at the fund-based reporting level. • It results in the fund-based “operating statement” being a “Statement of ALL of the Revenues and SOME of the Costs Incurred This Period.”

  21. GENERAL LONG-TERM DEBT LIABILITIES • BAD NEWS:Many governmental units have tons of nondebt issuance liabilities that will have to be paid by future generations (which may find it quite burdensome or impossible to pay).

  22. GENERAL LONG-TERM DEBT LIABILITIES • GOOD NEWS:GAS 34 (issued in 6/99) requires“government-wide financial statements”that measure the flow of economic resources on the accrual basis. Such statements reveal:(1) the cost of providing services.(2) the change in the financial condition.

  23. GENERAL LONG-TERM DEBT LIABILITIES • Liquidation of GLTL: • Debt Issuance Liabilities: At the maturity date, the liability is transferred to a Debt Service Fund. • Nondebt Issuance Liabilities: At the payment date, the liability is transferred to the General Fund. Note that GLTL is not removed from the GCA-GLTL g/l when it becomes a currentliability (due within 12 months).

  24. THE GOVERNMENTAL FUNDS: PERMANENT FUNDS (#5 of 5) • Permanent Funds: • Accounts for endowment-type situations in which: • Only the endowment’s earningscan be used for purposes that support the reporting government’s programs. • Benefits the reporting government or its citizenry.

  25. THE PROPRIETARY FUNDS: INTERNAL SERVICE FUNDS • Purpose: To account for activities that provide services solely to other departments. • Manner of accounting parallels that of commercial businesses (accrual basis & measurement of flow of economic resources). • Balance sheet reports Long-Term Debt.

  26. THE PROPRIETARY FUNDS: ENTERPRISE FUNDS • Purpose: To account for activitiesthat provide services primarily to the public. • Examples: Gas, electric, water utilities. • Manner of accounting parallels that of commercial businesses (accrual basis & measurement of flow of economic resources). • Balance sheet reports Long-Term Debt.

  27. THE FIDUCIARY FUNDS • Two categories (four funds) exist: • Agency Funds. • Trust Funds: • Pension (and other employee benefit) Trust Funds • Investment Trust Funds • Private-Purpose Trust Funds

  28. THE FIDUCIARY FUNDS:AGENCY FUNDS • Purpose: To serve as conduits for the transfer of money—purely custodial in nature. • ASSETS ALWAYS EQUAL LIABILITIES. • The following items do not exist: • A fund balance/equity • An operating statement A = L

  29. THE FIDUCIARY FUNDS:TRUST FUNDS • Purpose: To account for the investing and using of money in accordance with stipulated provisions of trust indenture agreements or statutes. • Pension (and other employee benefit) Trust Funds. • Investment Trust Funds (created by GAS 31). • Private-Purpose Trust Funds.

  30. PRIVATE-PURPOSE TRUST FUNDS • Accounts for property held under trust arrangements in which: • Both the principal and income benefit: • Individuals • Private organizations • Other governments

  31. FINANCIAL REPORTING TO THE PUBLIC: The CAFR • The Comprehensive Annual Financial Report (CAFR). Includes: • Government-wide statements (2) • Fund-based statements (7)

  32. Government-Wide Statements • Two major statements that: • Are presented on the accrual basis. • Measure the flow of economic resources (same measurement flowas in commercial accounting).

  33. Government-Wide Statements • These two statements are the: • Statement of Net Assets(includes all GCA and GLTL). • Statement of Activities (includes depreciation expense). • These two statements are presentedin addition to the Fund-Based Financial Statements (7 of them).

  34. Government-Wide Statements • The two government-wide statements enable assessment of whether: • Current-year citizens paid for the services they received in the current year, or if the costs of services wereshifted to future-year citizens.

  35. Government-Wide Statements • A government’s financial position has improved or deteriorated as a result of the year’s operations.

  36. Government-Wide Statements • Each of the two government-wide statementsmust distinguish between: • Governmental activities and business-type activities of the primary government. • The total primary government and its discretely presented component units by reporting each in separate columns. #1 #2

  37. Government-Wide Statements • Fiduciary activities are: • Excluded from the government-wide statements if their resources are NOT available to finance the government’s programs.

  38. Government-Wide Statements • IMPORTANT FEATURES ofthe government-wideStatement of Net Assets: • Reports all “general capital assets”—including infrastructure. • Reports all debt—including GLTL. #1 #2

  39. Government-Wide Statements • IMPORTANT FEATURES ofthe government-wideStatement of Net Assets (cont.): • Reports net assets in 3 categories: • Invested in capital assets, net ofrelated debt • Restricted • Unrestricted #3 #1 #2 #3

  40. Government-Wide Statements • IMPORTANT FEATURES ofthe government-wideStatement of Net Assets (cont.): • In general, interfund balances (loans, advances, and due to and due from accounts) are eliminated. #4

  41. Government-Wide Statements • IMPORTANT FEATURES ofthe government-wideStatement of Activities: • Presented in at least the same level of detail provided in the governmental fund statements (generally, expenses and program revenues by function—e.g., public safety, public health, and recreation). #1

  42. Government-Wide Statements • IMPORTANT FEATURES ofthe government-wideStatement of Activities: • Format must report expenses reduced by program revenues—results in a measurement of “net (expense) revenue” for each of the government’s functions. #2

  43. Government-Wide Statements • IMPORTANT FEATURES ofthe government-wideStatement of Activities (cont.): • Program expenses include all direct expenses. • Depreciation expense that can specifically be identified with a function is reported as a direct expense. • Allocated overhead and other indirect expenses to individual programs arepresented in a separate column. #3

  44. Government-Wide Statements • IMPORTANT FEATURES ofthe government-wideStatement of Activities (cont.): • Reports extraordinary items(items beyond control of mgt.) separately. • Reports special items(items within the control of mgt.) separately. #4 #5

  45. Government-Wide Statements • IMPORTANT FEATURES ofthe government-wideStatement of Activities (cont.): • In general, interfund activity is eliminated: • Interfund services provided and used. • Interfund transfers. • Other interfund activity. #6

  46. Fund-Based Statements • Purpose of fund-based statements: • These statements show the short-term performance of individual funds using the same measures that governments use to manage their money.

  47. Fund-Based Statements • A SHARPENED FOCUS: • Must report information about the most important funds—the “major funds” (including the General Fund).

  48. Fund-Based Statements • Major funds are those whose revenues, expenditures/expenses, assets, or liabilities are at least: • 10% of the total for their fund category or type (governmental or enterprise) and • 5% of the aggregate amount for allgovernmental and enterprise funds.

  49. Fund-Based Statements • Nonmajor funds are: • Aggregated and • Reported in a separate column (labeled “all other funds”).

  50. Fund-Based Statements • IMPORTANT FEATURES ofthe fund-based statements • Must present two summary reconciliations that show the interplay between the two types of statements. • Both types of statements together constitute “an integrated set of statements.” #1