CHAPTER 25 GOVERNMENTAL ACCOUNTING: THE SPECIAL-PURPOSE FUNDS AND SPECIAL GENERAL LEDGER
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
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.
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
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.
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.
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.
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.
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.
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.
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.
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)
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
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.
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.
INFRASTRUCTURE ASSETS: Depreciation • Noneligible Infrastructure Assets: • Must be depreciated. (See following slide regarding eligibleinfrastructure assets.)
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.
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.).
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).
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.”
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).
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.
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).
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.
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.
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.
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
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
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.
PRIVATE-PURPOSE TRUST FUNDS • Accounts for property held under trust arrangements in which: • Both the principal and income benefit: • Individuals • Private organizations • Other governments
FINANCIAL REPORTING TO THE PUBLIC: The CAFR • The Comprehensive Annual Financial Report (CAFR). Includes: • Government-wide statements (2) • Fund-based statements (7)
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).
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).
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.
Government-Wide Statements • A government’s financial position has improved or deteriorated as a result of the year’s operations.
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
Government-Wide Statements • Fiduciary activities are: • Excluded from the government-wide statements if their resources are NOT available to finance the government’s programs.
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
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
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
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
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
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
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
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
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.
Fund-Based Statements • A SHARPENED FOCUS: • Must report information about the most important funds—the “major funds” (including the General Fund).
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.
Fund-Based Statements • Nonmajor funds are: • Aggregated and • Reported in a separate column (labeled “all other funds”).
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