GASB 54

1. GASB 54 • Fund Balance Reporting and • Governmental Fund Type Definitions • Department of Education • Fiscal Workshops • 2011 • Presented by Carl Lowe • Division of County Audit

2. GASB 54

3. GASB 54

4. GASB 54 This is where the title - “Special Revenue” - comes from.

5. GASB 54 • Why GASB 54? • Improve the usefulness of fund balance reporting (i.e. to show what fund balance amounts are actually available to be spent and by whose authority). • Clarify meaning of governmental fund type definitions.

6. GASB 54 Before GASB 54: • Reservations. • Designations. • Unreserved. After GASB 54: • Nonspendable. • Restricted. • Committed. • Assigned. • Unassigned. Generally True

7. GASB 54 • Fund Balance Definitions • “Nonspendable”. • Amount that cannot be spent because: • Amount(s) is not in a spendable form such as: • Inventories. • Prepaid Items • Long-term loans and notes receivable. • Legally or contractually required to be maintained intact: • Corpus of a permanent funds.

8. GASB 54 • Fund Balance Definitions • “Restricted”. • Amount that can only be spent for certain purposes because it’s use is restricted by: • External parties, such as creditors, grantors, or other governments. • The constitution. • Enabling Legislation.

9. GASB 54 • Fund Balance Definitions • “Committed”. • Amount that can only be spent for certain purposes because it’s use is committed to that purpose by formal action of the government’s highest level of decision-making authority: • The School Department is a legally separate entity. • The highest level of decision-making authority would the Board of Education. • Committed amounts cannot be spent for any other purpose unless the constraint is removed by similar action. • Committed action must take place before the end of the fiscal year, but the amount may be determined in the subsequent year.

10. GASB 54 • Fund Balance Definitions • “Assigned”. • Amounts intended to be spent for specific purposes where intent is expressed by: • The Governing Body (Board of Education) or, • A body (such as budget or finance committee) authorized by the Board of Education to assign funds. • A person or official authorized by the Board of Education to assign funds (such as a Director of Schools or Finance Director).

11. GASB 54 • Fund Balance Definitions • “Unassigned”. • Amounts are available to be spent for any education purpose. • General Rule: Unassigned amounts will only be reported in the General Purpose School Fund. • Rare exception: (negative unassigned balances in other funds). • Remember the 3% fund balance rule. GASB 54 does not affect this state statute.

12. GASB 54 √= Probable √ = Possible √ = Almost Never

13. GASB 54 What we expect to see for most schools departments.

14. GASB 54 • Encumbrances • Local Government Closeout • Encumbrances and 39000 Account. • You must allocate these two numbers to the correct GASB 54 classifications. • Encumbrances related to restricted amounts would be restricted. • Encumbrances related to committed amounts would be committed. • All other encumbrances would be assigned.

15. GASB 54 • Process to Determine Fund Balance Classification – Balance Sheet Approach – GPS Fund. • Look at Balance Sheet and find Nonspendable Items. • Analyze Restricted amounts (i.e. BEP, Career Ladder, Other, etc., just like you have always done). • Analyze Encumbrances – Breakdown between Restricted, Committed and Assigned. Most should be assigned because they have been issued by someone delegated by the School Board with that authority. • Note any amounts committed by Resolution of the Board of Education (normally there will not be any). • Remainder of Balance is posted to Unassigned. • Use the same general approach for Other Funds. • Please note that CTAS took more of an operations approach rather than a Balance Sheet Approach. Either will work if you use caution.

16. GASB 54 • General Facts • The new classifications only apply to governmental funds (i.e. not enterprise funds). • You are not required to use all the classifications in every fund. • You must be able to show what makes up each functional classification (Restricted, Committed, or Assigned) • You must maintain a subsidiary worksheet detailing the breakdown of each classification.

17. GASB 54 • General Facts • The Division of County Audit believes the budget document serves to Commit Revenues (other than Restricted Revenues) in a budgeted Special Revenue Fund or Other Funds. • This does not apply to the GPS Fund because all revenues (except restricted revenues) are raised for general education expenditures. • Transfers are not considered revenues for defining restricted or committed revenues in Special Revenue Funds. You can make the transfer specific by naming the specific type of revenue transferred.

18. GASB 54 • Policies • Need a policy adopted by the Board of Education for the order of spending. • We recommend: • Restricted - First • Committed - Second • Assigned - Third • Minimum Fund Balance Policy if you have one. • Stabilization or (rainy day) arrangements if you have rainy day funds or maintain a rainy day fund.

19. BeforeGASB 54 After GASB 54 • See Assumptions • on next slide.

20. GASB 54 - Exercise

21. GASB 54 - Exercise

22. GASB 54 Questions? Division of County Audit Regional Office 931.526.4210 Nashville Office 615.401.7841

23. School Audit Issues Department of Education Fiscal Workshops 2011 Division of County Audit

24. School Audit Issues School Audit Issues • Material audit adjustments required for proper financial statement presentation (A/R, A/P, OPEB, Leave, Capital Assets). • Inability to prepare your own financial statements. • Capital asset records not currently maintained.

25. School Audit Issues School Audit Issues • School Federal Projects Fund cash overdrafts – State Dept. of Ed. letter dated 8-21-2009 for guidance on transfer from GPS for cash flow. • Donations of surplus property to nonprofit organizations is not permitted.

26. School Audit Issues School Audit Issues • Failing to currently reconcile cash with trustee with GL or payroll deduction accounts with payroll records and payments. • Failure to maintain detailed analysis of reserves (now restrictions) or detailed lists of receivables, payables, encumbrances (detail should also be provided for commitments and assignments).

27. School Audit Issues School Audit Issues • Central accounting, budgeting, purchasing, and audit committees reported as best practices in audits. • Budgetary deficiencies – fund or major categories overspent.

28. School Audit Issues School Audit Issues • ARRA Finding – comingling revenues/expenditures with other funds (this was also in the Federal Inspector General’s ARRA monitoring report issued through the U. S. Dept. of Education). • ARRA Finding – purchasing items off of expired bids. • General Purpose School Fund paying off debt of a booster club – questionable legality.

29. School Audit Issues School Audit Issues • Unusually high number of cash shortages in county governments – lack of management oversight, poor internal controls, lack of segregation of duties. • Auditors are trying to be cost effective by asking for data to be provided by you in advance, you pulling testwork invoices, and some audit work done off-site.

30. Future Audit Issues School “Future” Audit Issues • Do your funds meet the GASB 54 definition for a Special Revenue, Debt Service, or Capital Projects fund? • Have you documented your classification of the equity section in compliance with GASB 54? • Have you obtained OPEB valuation for any commercial insurance plan?

31. School Audit Issues Questions? Division of County Audit Regional Office 931.526.4210 Nashville Office 615.401.7841