Fund Accounting and Government-Wide Statements Reporting Including GASB 34 November 12, 2012

1. Fund Accounting and Government-Wide Statements Reporting Including GASB 34November 12, 2012 William Spinelli, CPA, MBA Finance Director, City of Leesburg Joseph McElroy, CPA Audit Manager Crowe Horwath LLP

2. 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

4. 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

5. 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

6. 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

7. 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???

8. 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

9. 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

10. 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.

11. 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

12. 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

13. 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

14. 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

15. Fiscal Responsibility • 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.

16. Fiscal Responsibility • 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

17. Standard Setters

18. 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

19. Standard Setting in the U.S. • 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

20. The Standard-Setting Process

21. Standard Setting in the U.S. • 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

22. 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

23. 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

24. Governmental Environment • Politics - Internal and External • Press • Regulators • Public

25. The Financial Reporting Entity • 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

26. The Financial Reporting Entity • 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

27. 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

28. 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

29. 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)

30. 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

31. Fund Accounting (Cont.) • Three broad fund classifications: • Governmental • Proprietary • Fiduciary • 11 fund types

32. Fund Accounting (Cont.) • 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”

33. Fund Accounting (Cont.) • 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

34. Fund Accounting (Cont.) • 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

35. Fund Accounting (Cont.) • 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

36. Fund Accounting (Cont.) • 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

37. 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

38. 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

39. 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

40. 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

41. 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

42. Uniform Accounting System Manual • 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

43. Uniform Accounting System Manual (Cont.) • 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

44. Uniform Accounting System Manual (Cont.) • 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

45. Accounts - Balance Sheet & Revenues

46. Accounts - Expenditures

47. Uniform Accounting System Manual 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

48. Uniform Accounting System Manual (Cont.) 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

49. Uniform Accounting System Manual (Cont.) • Balance Sheet Accounts (6 digit number) • 1XX . XXX ASSETS AND OTHER DEBITS • First four digits required. Remaining digits may be assigned by reporting entity Examples: 101.000 Cash in bank 102.000 Cash on hand 104.000 Equity in pool cash 115.000 Accounts Receivable 133.000 Due from other government entities 161.900 Land 164.900 Infrastructure

50. Uniform Accounting System Manual (Cont.) • 2XX.XXX LIABILITIES AND OTHER CREDITS Examples: 201.000 Voucher Payable 202.000 Accounts Payable 208.000 Due to other Government Units 210.000 Compensated Absences - Current 234.000 Other Bonds Payable - Current 234.900 Other Bonds Payable - Long Term Portion 241.000 Appropriations 244.000 Fund Balance