Government Financial Statements & Reporting

1. Government Financial Statements & Reporting Prepared for: Government Finance Officers Association of Arizona May 17, 2012 By: Dawn Jenkins & Dan Leahy

2. Agenda • Basic Financial Statements • Required Supplementary Information (RSI) • Comprehensive Annual Financial Report (CAFR) • The Reporting Entity

3. Basic Financial Statements (BFS) • BFS is the minimum requirement of financial reporting • Elements of BFS • Government-wide financial statements • Fund financial statements • Governmental funds • Proprietary funds • Fiduciary funds • Footnotes to the financial statements

4. Fund Financial Statements • Governmental Fund Financial Statements • Use flow of current financial resources measurement focus and modified accrual basis of accounting • Focus on major funds (non-major combined into one column) • Required statements • Balance Sheet • Statement of revenues, expenditures, and change in fund balance

5. Fund Financial Statements • Governmental Fund Financial Statements (continued) • Balance Sheet • Format is assets + deferred outflows = liabilities + deferred inflows + fund balance • Generally in order of liquidity • Fund balance categories • Nonspendable, • Restricted • Committed • Assigned • Unassigned

6. Fund Financial Statements

7. Fund Financial Statements • Governmental Fund Financial Statements (continued) • Statement of revenues, expenditures, and changes in fund balance • Format is revenues [by type] – expenditures [current by function, debt service, & capital outlay] +/- other financing sources/(uses) [debt issuance, transfers in/out, etc.] = change in fund balance

8. Fund Financial Statements

9. Fund Financial Statements • Proprietary Fund Financial Statements • Use flow of economic resources measurement focus and accrual basis of accounting • Enterprise funds by major fund (non-major combined) • Internal service funds – one combined column • Required statements • Statement of Net Position • Statement of revenues, expenses, and changes in fund net position • Statement of cash flows

10. Fund Financial Statements • Proprietary Fund Financial Statements (continued) • Statement of Net Position • Format is assets (current & non-current) + deferred outflows – liabilities (current & non-current) – deferred inflows = net position

11. Fund Financial Statements

12. Fund Financial Statements • Proprietary Fund Financial Statements (continued) • Statement of revenues, expenses & changes in fund net position • Format is operating revenues – operating expenses, +/- non-operating revenues (expenses) + capital contributions +/- transfers in (out) = change in net position

13. Fund Financial Statements

14. Fund Financial Statements • Proprietary Fund Financial Statements (continued) • Statement of cash flows • By category • Cash flows from operating activity • Cash flows from noncapital financing activities • Cash flows from capital & related financing activities • Cash flows from investing activities • Ending cash must = cash on statement of net position • Reconciliation of operating income (loss) to net cash provided by (used in) operating activities

15. Fund Financial Statements

16. Fund Financial Statements • Fiduciary Fund Financial Statements (if applicable) • Pension & other trusts, & agency funds • Use flow of economic resources measurement focus and accrual basis of accounting, except agency funds have no measurement focus • Required statements • Statement of fiduciary net position • Statement of changes in fiduciary net position

17. Fund Financial Statements • Fiduciary Fund Financial Statements (if applicable) (continued) • Statement of fiduciary net position • Assets (by category) – liabilities (by category) = net position (agency funds have only assets & liabilities – no net position) • Net position labeled “Held in trust for …” (pension, pool participants, etc.) • Statement of changes in fiduciary net position • Trust funds only in format additions – deductions = change in net position

18. Fund Financial Statements

19. Fund Financial Statements

20. Government-Wide Financial Statements • Two required statements • Statement of Net Position • Statement of Activities • Use flow of economic resources measurement focus and accrual basis of accounting

21. Government-Wide Financial Statements (continued) • Distinguish between • Governmental activities • Must provide reconciliation between governmental fund financial statements & governmental activities on government-wide financial statements • Business-type activities • Total primary government • Discretely presented component units • Does not include Fiduciary Funds

22. Government-Wide Financial Statements (continued) • Statement of Net Position • Preferred format is Assets + deferred outflows – liabilities- deferred inflows = net position • Net position must be presented in three components • Net investment in capital assets • To show that part of net position is not available for use • Restricted (may display categories of restrictions) • Restriction created by outside parties (bond covenants, other governments, enabling legislation, etc. • Unrestricted

23. Fund Financial Statements

24. Government-Wide Financial Statements (continued) • Statement of Activities • Presented in a format that reports the net (expense) revenue of individual functions • Objective – to report the relative financial burden of each function on the taxpayers. How much each function relies on general revenues. • Expenses – all direct expenses identifiable to a function • Items like interest expense and unallocated depreciation shown separately • Program revenues vs. general revenues • If clearly associated with a function, or restricted for a function, then program revenue, otherwise general revenue • Taxes are always general revenues • Net (expense) revenue

25. Government-Wide Financial Statements (continued) • Statement of Activities (continued) • Governmental activities reported at least at the level of detail (function) required in the governmental fund statement of revenues, expenditures & changes in fund balances • Business-type activities should be reported at least by segment (an identifiable activity reported as or within an enterprise fund)

26. Fund Financial Statements

27. So you want an audit opinion? • GAAP also requires certain other information referred to as Required Supplementary Information (RSI) • Auditors cannot give a “clean” opinion on financial statements presented in conformity with GAAP if RSI is missing or deficient

28. RSI • Elements of RSI • Management’s Discussion and Analysis (MD&A) • Budgetary comparisons • Trend data on infrastructure condition (only if using the modified approach instead of depreciation) • Trend data on funding of pension & other post employment benefits • Claims development data for public-entity risk pools (not likely to have)

29. RSI – MD&A • MD&A • Provide an objective and easily readable analysis of the government’s financial activities based on currently known facts • Known facts as of the date of the auditor’s report • Must compare current and past year, with emphasis on current year • Charts, graphs, and tables are encouraged to enhance understandability

30. RSI – MDA (continued) • Required elements of MD&A • Brief discussion of basic financial statements • Relationships, significant differences • Condensed financial information • Analysis of government’s overall financial position and results of operation • Analysis of balances and transactions of individual funds • Analysis of significant variations between original budgets and final budgets and between final budgets and actual results for general fund

31. RSI – MDA (continued) • Required elements of MD&A (continued) • Description of significant capital asset and long-term debt activity during the reporting year • If government uses modified approach: • Significant changes in the assessed condition • How current condition compares to target level set by the government • Significant differences between the estimated annual amount to maintain/preserve eligible infrastructure assets compared with the actual amounts spent during the reporting period • Description of currently know facts, decisions, or conditions that are expected to have a significant effect on financial position or results of operations

32. RSI – MDA (concluded) • Important points • Currently know facts • Analysis, not just numbers • GFOA Certificate of Achievement program hot button • The minimum = the maximum

33. RSI – Budgetary Comparisons • Required for general fund and any major special revenue funds with an appropriated budget • Option to include within the basic financial statements, or as RSI following the footnotes • GFOA recommended practice to include in BFS • Only the required statements may be included in BFS. Any others presented must be outside BFS or RSI

34. RSI – Budgetary Comparisons • Must include: • Column for original budget • First complete appropriated budget • May be adjusted before the beginning of the fiscal year, or by automatic carry over appropriations • Column for final budget • After all budget amendments processed during the fiscal year • Column for actual amounts • On budgetary basis that may differ from GAAP basis amounts shown on fund statements

35. RSI – Budgetary Comparisons • Must include: (continued) • Column for variance between final budget and actual results [over/(under)] • May not be labeled favorable/unfavorable • A reconciliation between budgetary inflows and outflows and GAAP revenues and expenditures

36. RSI – Pension/OPEB Trends • Provide certain information on the funding of pension benefits or OPEB if the reporting government: • Sponsors a single-employer defined benefit plan, or • Participates in an agent multiple-employer defined benefit plan (P.S.P.R.S.) • Required data • Schedule of funding progress • Schedule of employer contributions

37. Moving on to a CAFR • Beyond the basic financial statements and RSI, if you desire to issue a Comprehensive Annual Financial Report (CAFR), there are additional requirements • Required sections of a CAFR • Introductory Section • Financial Section • Statistical Section

38. Beginning a CAFR • At the beginning: • Report cover and title page • Must use “Comprehensive Annual Financial Report” terminology • Name of reporting entity • If component unit, must disclose • Should list the state that the reporting government is in • Show fiscal year covered by the report – i.e. For the Fiscal Year Ended June 30, 2012

39. Beginning a CAFR • At the beginning: (continued) • Title page • Repeat information on cover • Indicate the party responsible for preparation of the report • May indicate principal officials (usually less of a list than in introductory section) • Table of contents

40. Introductory Section • Provides general information of the government’s structure, services, and environment • Contents • Transmittal letter • Formal transmittal of document (responsibility, etc.) • Profile of government • Economic condition information • Awards and acknowledgements • Date & signature • Awards for report if applicable • List of principal officials • Organizational chart

41. Financial Section • Independent auditor’s report • MD&A • Basic financial statements • RSI other than the MD&A • Combining and individual fund presentations • Including other budgetary comparison Schedules • Combining statement of changes in assets & liabilities – all agency funds • Supplementary information • Federal Financial Data Schedule (if applicable) • Schedules like long-term debt, capital assets, transfers, etc.

42. Statistical Section • Information regarding economic condition of the reporting government • Provide information on financial trends • Provide information on revenue capacity • Provide information on debt capacity • Provide demographic and economic information • Provide operating information • Generally 10 years of data

43. Stat Section – Financial trends • Information about net position (10 years) • Three components of net position shown separately for governmental activities, business-type activities, and total government • Information about changes in net position (10 yrs) • Shown separately for governmental activities, business-type activities, and total government • Expenses – by function, program, or identifiable activity • Program revenues by category • Total net (expense)/revenue • General revenues and other items by type • Total change in net position

44. Stat Section – Financial trends • Information about governmental funds (10 yrs) • Present fund balance by type for both general fund and all other governmental funds (combined) • For total governmental funds • Revenues by source • Expenditures by function • Debt service principal and interest must be shown separately • Other financing sources/uses • Other changes to fund balance • Ratio of total debt service expenditures to noncapital expenditures

45. Stat Section – Revenue Capacity • At a minimum, should report three aspects of the government’s most significant own-source revenue • Revenue base (10 yrs) • Revenue Rates (10 yrs) • Principal revenue payers (current yr & 9 yrs ago) • If presenting info about property taxes, should present both assessed value of taxable property by component and the total estimated actual value of taxable property. Also disclose tax levied, amount collected in tax year and % of levy collected, and subsequent collections & % of levy

46. Stat Section – Debt Capacity • At a minimum, should report four types of information • Ratios of outstanding debt (10 yrs) • Report debt by governmental & business-type by type & total debt • Debt per capita • Total debt as a percentage of personal income • Additional ratios if outstanding general bonded debt

47. Stat Section – Debt Capacity • Minimum (continued) • Direct & overlapping debt (current yr and 10 yrs) • Governmental activities debt only • Debt limitations (10 yrs) • Pledged revenue coverage (10 yrs) • For each type with pledged revenues other than general obligation debt

48. Stat Section - Demographic • Demographic & economic indicators (10 yrs) • Population, total personal income, per capita personal income, and unemployment rate • Principal Employers (current yr & 9 yrs ago) • Top 10 unless fewer gets to 50% of total employment

49. Stat Section – Operating Info • At a minimum, three types of information (at least at level required for expenses on F/S) • Number of government employees (10 yrs) • By function, program, or identifiable activity • Operating indicators (10 yrs) • By function/program • Indicators of demand or level of service • Capital asset information (10 yrs) • By function/program • Volume, usage, or nature of capital assets

50. Stat Section - General • Must provide required information if applicable to reporting government • May also include other stat tables of local interest or to meet other needs (bond disclosures, etc.) • Should include sources, assumptions, methodologies, and narrative explanations (as necessary) on stat tables