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Common Financial Reporting Deficiencies

Common Financial Reporting Deficiencies. The CAFR Letter of Transmittal. Dated Before the Date of the Auditor’s Report : CAFR cannot be transmitted ( published) before it is audited Includes Superseded Recommended Contents:

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Common Financial Reporting Deficiencies

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  1. Common Financial Reporting Deficiencies

  2. The CAFR Letter of Transmittal

  3. Dated Before the Date of the Auditor’s Report : CAFR cannot be transmitted (published) before it is audited • Includes Superseded Recommended Contents: • Topical Discussions Of Cash Management, Risk Management, And Pension Plans (redundant to the note disclosures) • Current Recommendations Are Long-term Financial Planning And Relevant Financial Policies CAFR – Letter of Transmittal GCG

  4. Each year the Town adopts a six-year Capital Improvement Program. This plan helps identify projects that should be undertaken in the next six years. This long-range planning is essential in addressing the future development and growth of the Town. The Town has continually funded its capital requirements aggressively and maintains a pay as you go funding for most of its capital needs, which limits its borrowing requests. Long-term Financial Planning Example GCG

  5. Reserves and Fund Balance. The City adopted a resolution to comply with GASB Statement No. 54 which required new categories for fund balance. The categories are nonspendable, restricted, assigned and unassigned which are more fully described in Note 1 of the financial statements. The policy under the resolution authorizes and directs the Finance Director to prepare financial reports which accurately categorize the assigned fund balance. • The resolution also adjusted the General Fund reserve policy from an amount equal to 45% of annual general fund revenues to 35%. Once each year, any funds in excess of the 35% requirement are reprogrammed to capital projects. Financial Policies Example GCG

  6. The MD&A

  7. Scope Of The Analysis Should Be Comprehensive • At a minimum, must address significant changes in individual major funds. • A discussion of fund types in the aggregate does not satisfy this requirement. The MD&A GCG

  8. Analysis should be insightful and descriptive • Explain the underlying reasons for significant changes and variances • Obvious observations do not satisfy this requirement. For example, revenues decreased due to a decrease in property taxes collected. • Explain why! The MD&A GCG

  9. The charges for services actually increased this fiscal year by 4.8%. While not large by percentage, it is a large increase by dollar that originated from two key events. Library fees and inmate phone fees. The library fees have been collected for many years and used internally for the purchase of books and supplies. However, all fines and fees will be turned over to the County in the future. The County also obtained possession of the inmate phone fees account from the Sheriffs Office. Proper Analysis Example GCG

  10. The District's General Fund financial position is the product of many factors. The primary factor resulting in the General Fund's increased balance for the year ended June 30, 2011 was the full funding of state aid as provided in the state funding formula as previously discussed and the District's ability to control expenditures based upon a plan approved by the Board of Directors in April 2009. The District was also able to reduce utility expenses by nearly $150,000. In addition, the District was able to increase its reimbursements from Medicaid by nearly $600,000 from the prior year due to increased claiming efforts by District staff. The District's negotiated salary settlements approximated the increased property tax and state foundation aid attributable to the state funding formula. Proper Fund Analysis Example GCG

  11. Budget Analysis For The General Fund Should Be Comprehensive • Should Address Variances Between Both The Original And Final Amended Budget • And • Final Amended Budget And Actual Results The MD&A GCG

  12. Data for comparative basic financial statements should be complete • Complete means that each year must comply with the authoritative standards and essentially stand alone as a set of basic financial statements. • Include condensed financial data and comparative analysis for each of the last 3 years The MD&A GCG

  13. Data for comparative basic financial statements should be complete • Merely presenting the numbers does not satisfy this requirement. A narrative analysis of changes between both sets of years is also mandatory. Current year vs. previous year Previous year vs. two years prior The MD&A GCG

  14. Includes a Discussion Of Capital Assets And Long-term Debt Activity • Reference To Notes Does Not Replace Discussion • The purpose of the discussion is to recap specific capital asset and long-term debt activity that occurred during the year. The MD&A GCG

  15. The major capital events during the current fiscal year were additions to infrastructure of $9.9 million, remodeling costs to the County’s federally qualified health center for $1.1 million and the Public Health Facility for $2.6 million, and $0.7 million in renovation costs for the new Public Works Customer Service Center. Additional information on the County’s capital assets can be found in Note III.C. in the Notes to Basic Financial Statements section of this report. Capital Asset Narrative Example GCG

  16. Bonded debt decreased overall by $5.7 million primarily due to ongoing debt service payments for the 1998 Wastewater System and the Authority’s 2002 Certificates of Participation. Additional information on long-term liabilities can be found on pages 70-76 in the notes to basic financial statements. Long-term Debt Narrative Example GCG

  17. Component Units

  18. Data should be accurate and complete • Equity should articulate • Balance sheet should balance • Calculation of components of net assets • Primary government should review component unit’s data Component Units GCG

  19. Each component unit must have individual data reported somewhere in the CAFR. • Major : basic financial statements or notes • Nonmajor: other supplementary information Component Units GCG

  20. G-W Statement of Net Position

  21. Debt Not Reported Net Of Related Premiums And Discounts Should Be Netted To Present Debt Carrying Value • * GASB Statement Number 63 changes the terminology used for statements of position. The standard is effective for fiscal periods ending December 31, 2012 G-W Statement of Net Position* GCG

  22. Miscalculation Of Net Assets, Invested In Capital Assets, Net Of Related Debt • Unspent Proceeds Should be Excluded • Significant Retainage Should be Included • Significant Accounts and Contracts Payable Should be Included • Bond Issuance Costs Should be Excluded • Accrued Liabilities Should be Excluded • Intangible Assets Should be Included • Refunding Bonds Should be Included When Refunded Debt Was Capital-related G-W Statement of Net Position GCG

  23. Reasons for reporting a part of net assets as restricted should be presented in detail • By major category • Significant amounts of net assets should not be subdivided into generic categories such as other purposes or special purposes. • Restricted for use by special revenue funds is too generic. • Display on the face of the statement of net assets • Disclosure in the notes is not a substitute for display (see Q&A 7.22.8) Restricted Net Assets GCG

  24. G-W Statement of Activities

  25. Recipients Of Shared Taxes Generally Report Them As General Revenues in Error • Not A Tax From Viewpoint Of Recipient • Should Be Classified As Program Revenue (If Restricted To A Function) Otherwise It Is General Revenue G-W Statement of Activities GCG

  26. Includes Special Items That Are Not Significant • Significance Of The Special Item Is Judged Based On Where It Is Reported (Q&A 7.67.2) • Item Can Be Significant In The Fund Financial Statements But Not The Government-wide (And Vice Versa) G-W Statement of Activities GCG

  27. Capital Outlay Presented As A Governmental Activities Functional Category • Detail Of Expenses Should Be By Function Not Character Classification G-W Statement of Activities GCG

  28. Intergovernmental Expenses Should Not Be Presented As A Separate Function • Expenses Should Be By Function Except For Extraordinary And Special Items G-W Statement of Activities GCG

  29. Significant “Other” Program Revenues Reported • If Other Has Become Significant, Consider a Breakout for Additional Revenue Line Items G-W Statement of Activities GCG

  30. Fund Financial Statements

  31. Funds That Meet The Threshold Of A Major Fund Are Reported As Nonmajor • Calculation To Determine Major Funds Must Be Performed Each Year • Classification Can Change From One Fiscal Year To The Next Without Any Consistency Concern • Threshold Applies To The Final Numbers Reported In The Fund Financial Statements Fund Financial Statements - General GCG

  32. Inflows and outflows related to current and advance refundings should be separately presented on the operating statement • Debt issuance should be an other financing source • Use of the proceeds for the refunding should be reported appropriately based on the type of refunding : • Current refunding = expenditure • Advance refunding = other financing source Governmental Funds GCG

  33. Special revenue funds • Should not have significant expenditures for capital outlays • Must be supported by specific revenues that comprise a substantial amount of the inflows into the fund. • Substantial ≠ majority The New Fund Balance GCG

  34. Restricted, committed, assigned, and unassigned • Negative restricted or committed fund balance is inappropriate • Only the General Fund can have positive unassigned fund balance • Assignment of fund balance only appropriate if there is available unassigned fund balance The New Fund Balance GCG

  35. Proprietary Funds

  36. Reasons for reporting a part of net position as restricted should be presented in detail • By major category • Significant amounts of net position should not be subdivided into generic categories such as other purposes or special purposes. Proprietary Funds GCG

  37. Capital Contributions Should Be Consistently Reported Between The Proprietary Fund And Government-wide Financial Statements • No Difference In Measurement Focus Between These Statements So The Amounts Should Be Identical • “Negative capital contributions” should not be reported Proprietary Funds GCG

  38. Miscellaneous Or Other Cash Flows Are Included In An Inappropriate Category (E.G., Noncapital Financing) • If The Definition Of Any Of The Four Categories Is Not Met The Cash Flow Is Reported In Operating Activities As The Residual Category Proprietary Funds GCG

  39. Governmental activities to Business-type Activities • Capital contribution reported • Business-type activities to Governmental Activities • Nonoperating expense reported (no longer considered an interfund activity) Transfer of Capital Assets GCG

  40. Fiduciary Funds

  41. Pension plans and OPEB plans should be reported in one pension and other postemployment benefit trust “column” in the basic financial statements • The principal subdivisions of investments should be reported as separate line-items Fiduciary Funds GCG

  42. Note Disclosures

  43. Generic Description Of The Criteria Used To Include Component Units • Criteria Needs To Be Specific To The Component Unit Whether It’s Blended Or Discretely Presented Note Disclosures GCG

  44. Relevant Investment Policies For Various Applicable Risks Are Not Disclosed (Credit Risk, Concentration Risk, Interest Rate Risk, Foreign Currency Risk) • Needs To Be An Adopted Policy Not A Description Of Practice • If No Such Policy, Disclose That Fact Note Disclosures GCG

  45. Changes In Long-term Liabilities Netted • Increases And Decreases Should Be Separately Displayed Note Disclosures GCG

  46. New Disclosures Required By GASB Statement No. 50 Are Missing Or Inadequate • Current Year’s Schedule Of Funding Progress Should Be In The Notes • Reference Should Be Made To Multiyear Information In RSI • For Plans, Actuarial Assumptions Should Be In The Notes Note Disclosures (Superseded by New Pension Statements) GCG

  47. APC And Employer Contributions Information With Inappropriate Focus • Disclosures Should Focus On APC (ARC As Adjusted For Cumulative Over/Under Funding) • RSI For Schedule Of Employer Contributions Should Focus On ARC Note Disclosures GCG

  48. OPEB Contributions Not Properly Determined Resulting In Problems With Disclosures • Contributions Include: • Payments Of Benefits Directly To Or On Behalf Of A Retiree Or Beneficiary • Premium Payments To An Insurer • Assets Transferred To A Trust, Or Equivalent Arrangement Note Disclosures GCG

  49. Long-term liabilities note disclosure • It is recommended that the purpose of each debt issuance be disclosed • It is required that the notes disclose which funds liquidate each long-term liability other than debt • compensated absences • claims and judgments • termination benefits • pension and OPEB liabilities Note Disclosures GCG

  50. Disclosures For Future Revenues Pledged To Support Debt Should Include: • Specific Revenue Source And Approximate Amount • Secured Debt And Its Purpose • Period Of Commitment • Proportion Of Revenue Stream Pledges • Comparison Of Pledged Revenue To Debt Service Note Disclosures GCG

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