Presented by: Darla Erickson Local Government Services Bureau

1. THE BASICS OF GOVERNMENTAL FUND ACCOUNTING2015 MONTANA MUNICPAL INSTITUTE Presented by: Darla Erickson Local Government Services Bureau State Financial Services Division, Department of Administration Accounting can be awesome

2. THE BASICS OF FUND ACCOUNTING Topics covered in this presentation: • Overview of Governmental Accounting Basics • Department of Administration’s Role & Requirements • Principles of Fund Accounting/Basis of Accounting • Fundamentals of Debits and Credits • Using the BARS Chart of Accounts • Funds • Accounts • Objects

3. DEPT OF ADMINISTRATION’S ROLE 7-6-611 - Role of Department of Administration (DOA). (1) The Department of Administration shall prescribe for all local governments: (a) general methods and details of accounting in accordance with generally accepted accounting principles as provided in 2-7-504; (b) uniform internal and interim reporting systems as part of the uniform reporting systems provided for in 2-7-503; (c) the form of the annual financial report as provided in 2-7-503; and (d) general methods and details of accounting for the annual financial report as provided in 2-7-513. (2) Local governments shall file with the DOA: (a) an annual financial report within 6 months of the fiscal yearend; and (b) an audit report within 12 months of the end of the audited period. (c) a budget by the later of Oct 1 or 60 days after receiving certified tax. value (3) The governing body of each county or municipality shall notify the DOA in writing, on a form prescribed by the department of administration, of the creation, dissolution, combination, or other legal alteration of any special purpose district within the county or municipality. (4) Each special purpose district shall obtain a permanent mailing address and notify the department of administration of the address and of any subsequent changes of the district's address.

4. DEPT OF ADMINISTRATION’S ROLE Dates to Remember: Annual Financial Report – Dec. 31 Budget – The later of: • Passed by the first Thursday in Sept after first Tuesday (Sept 4, 2015) or 30 days after receipt of Certified Taxable Value • Budget to LGSB – Oct 1 or 60 days after receipt of Certified Taxable Value • Late Filing Penalty for Annual Reports (including Database Ledger Load Files) & Audits 2-7-517 MCA & 2.4.403 & 404 ARMs - Penalties

5. THE BASICS OF FUND ACCOUNTING SOME OF THE ACRONYMS COMMON TO GOVERNMENTAL ACCOUNTING AFR Annual Financial Report GASB Governmental Accounting Standards Board GAAFR Governmental Accounting, Auditing and Financial Reporting (aka Blue Book by GFOA) GAAP Generally Accepted Accounting Principles LGSB Local Government Services Bureau

6. THE BASICS OF FUND ACCOUNTING • PRINCIPLES OF GOVERNMENTAL ACCOUNTING Accounting and Reporting Capabilities • Accounting systems should be maintained in accordance with generally accepted accounting principles (GAAP) and uniform in MT by using the BARS Chart of Accounts as prescribed by the Local Government Services Bureau Chart of Accounts: http://sfsd.mt.gov/LGSB/Forms/AccountingSystemsProgram/1_AccountingManuals/01_BARSChartofAccount Updates: http://sfsd.mt.gov/lgsb/bars_memos Annual Report Forms: http://sfsd.mt.gov/LGSB/Forms/AccountingSystemsProgram/AnnualFinancialReports_CCTs

7. THE BASICS OF FUND ACCOUNTING LGSB Website: http://sfsd.mt.gov/LGSB To locate the BARS Chart of Accounts and Blank Forms on the website - Click on Accounting & Finance Reporting Forms and Documents

8. THE BASICS OF FUND ACCOUNTING LGSB Website: To locate: BARS Chart of Accounts click on Accounting Manuals Annual Reports click on Annual Reports County-City-Town Budgets & Mill Levies click on Budgets & Mill Levies

9. THE BASICS OF FUND ACCOUNTING • PRINCIPLES OF GOVERNMENTAL ACCOUNTING • Common Terminology and Classification • A common terminology and classification should be used consistently throughout the accounting software, budget and financial report of each fund. Update “the outdated and revised” terms in your software. Examples: Former:New ~ Revised: Retained earnings Fund Balance or Net Position Net Assets Net Position Reserved Restricted Deferred Revenue (for taxes) Deferred Inflows of Tax Revenue Fixed Assets Capital Assets

10. THE BASICS OF FUND ACCOUNTING • PRINCIPLES OF GOVERNMENTAL ACCOUNTING • Fund Accounting Systems • Accounting systems should be organized and operated on a fund basis • Fund Types • Fund financial statements should report governmental, proprietary (enterprise) and fiduciary fund types if applicable • Number of Funds • Only maintain those funds required by law and sound financial management.

11. TYPES OF FUNDS GOVERNMENTAL FUNDS Governmental funds and activities are generally financed through taxes, intergovernmental revenues & other non-exchange transactions. • 1000 ~ General • 2000 ~ Special Revenue • 3000 ~ Debt Service • 4000 ~ Capital Projects • 8000 ~ Permanent

12. TYPES OF FUNDS PROPRIETARY FUNDS Proprietary Funds focus on generating income and cash flow to pay the costs of providing services. The revenues are generally from exchange transactions/ charges for services for the goods or services provided. • 5000 ~ Enterprise • 6000 ~ Internal Service

13. TYPES OF FUNDS FIDUCIARY FUNDS Funds that are used to report assets held in a trustee or agency capacity for others, these assets cannot be used to support the government’s own programs • 7000 ~ Pension Trust • Investment Trust • Private Purpose Trusts • 7100 ~ Agency

14. TYPES OF FUNDS 9000 ACCOUNT GROUPS These funds types are no longer required to be reported per GASB 34. You can update them to track the capital assets and long-term liabilities/debt of the governmental funds to facilitate with the preparation of the government-wide statements. The term “general” does not refer to the general fund. Only For Governmental Funds Capital Assets & Long-term Debt! • 9000 ~ General Capital Assets • 9500 ~ General Long-Term Debt I get it!

15. TYPES OF FUNDS • GASB 54: Rules for Special Revenue Funds • Special Revenue Funds • Special Revenue Funds must meet the definition of a special revenue fund according to GASB54: • Used to account for proceeds of specific revenue sourcesthat are committed or restricted to expenditures for specific purposes other than debt service or capital projects. • Balances will be • Non-spendable • Restricted • Committed • Assigned (but not only assigned fund balance) • Negative Unassigned Fund Balance *Existing funds that do not meet this fund balance type will report their balance in the General Fund at year-end for reporting purposes. *Or Commit Revenues or Fund Balance to a major purpose by year-end by taking the highest action of local government by year-end. More information on LGSB website – Listed Under Webinars & Presentations

16. THE BASICS OF FUND ACCOUNTING • PRINCIPLES OF GOVERNMENTAL ACCOUNTING • Measurement Focus/Basis of Accounting • The timing of recognition for financial reporting purposes or when the transaction/revenue or expenditure/expense or event will be recognized in the financial statements. • Full Accrual Accounting – when they occur, regardless of when cash is received or disbursed • Modified Accrual Accounting – when they become both measurable and available • Fund types have different Measurement Focus & Basis of Accounting • Proprietary & Fiduciary Funds are reported using full accrual accounting • Governmental Funds are reported using the modified basis of accounting • The annual financial report basic financial statements should display the government-wide financial statements (full accrual) and the fund financial statements (modified accrual)

17. THE BASICS OF FUND ACCOUNTING • PRINCIPLES OF GOVERNMENTAL ACCOUNTING • Reporting Long-term Liabilities(Debt) • A clear distinction should be made between business-type long-term liabilities and general (governmental) long-term liabilities • Business-type long-term liabilities are reported in the fund that incurred the debt • Governmental fund debt is not reported in the fund; can be recorded in Fund 9500 • Ask for all Outstanding Loan Balances as of June 30th from your lending agencies • Run a compensated absences report in your payroll software as of June 30th • OPEB: Other Post-Employment Benefits • New for FY15: The local government’s share of the pension liability will be reported per GASB 68 ~ more information is coming from LGSB and MPERA

18. THE BASICS OF FUND ACCOUNTING • PRINCIPLES OF GOVERNMENTAL ACCOUNTING • Reporting Capital Assets • A clear distinction should be made between general (governmental funds) capital assets and those of the proprietary funds. • Capital Assets will be reported in the Proprietary/Enterprise fund • Capital Assets owned by Governmental Funds will not be reported within the fund, they can be reported in Fund 9000 • Capital Assets are different than an asset inventory listing • Threshold Policy should be determined by cost and useful life • Valuation of Capital Assets • Assets should be reported at historic cost • Donated assets at the estimated fair market value at the time of acquisition • Depreciation of Capital Assets • Capital assets should be depreciated over their estimated useful lives • Use your entity’s historical information to determine the useful life – the life will vary according to use of the asset

19. THE BASICS OF FUND ACCOUNTING • PRINCIPLES OF GOVERNMENTAL ACCOUNTING • Budgeting, Budgetary Control/Reporting • Budgets should be adopted, controlled through monitoring and comparison statements included in reporting. • The budgetary statements should present original budget, final budget, actual amounts and a comparison with actual to final • Approved budget due to County by the later of 30 days after receipt of the certified taxable valuation or first Thursday in Sept after the first Tuesday • Due to LGSB 60 days after receipt of the certified taxable valuation or Oct 1 • Local Budget Act: 7-6-40 MCA • Transfer, Revenue, Expenditure/Expense Classifications • Revenues should be maintained by fund, major source and other financing sources • Expenditures of governmental funds by fund, function/activity and other financing uses (transfers, etc) • Expenses of proprietary funds by fund/activity/object

20. THE BASICS OF FUND ACCOUNTING • PRINCIPLES OF GOVERNMENTAL ACCOUNTING • Annual Financial Reports & Database Ledger Load file • An Annual Financial Report should be prepared and made available to the public and the Local Government Services Bureau • Due to LGSB by Dec 31 • Database Ledger Load is required (was a new requirement for FY14) • if using the LGSB blank afr – a ledger load is built into the form • If not using the blank afr – a stand-alone database ledger load will need to be completed and emailed to the LGSB Helena office • Key elements of the Annual Financial Report: • Government-wide Statements reported on full accrual basis (GASB34 conversion of Governmental funds) • Fund Financial Statements: Balance Sheet – Governmental Funds, Statement of Revenues, Exp & Changes in Fund Balance, Reconciliation of Statement of Revenues, Exp & Changes in Fund Balance, Statement of Net Position – Proprietary Fund, Statement of Revenues, Exp & Changes in Net Position, Cash Flow Statement, Statement of Fiduciary Net Position, Statement of Changes in Fiduciary Net Position • Notes to the Financial Statements • Required Supplementary Information – General Fund Statement of Revenues, Exp & Changes in Fund Balance, Statement of Revenues, Exp & Changes in Fund Balance for each major fund • Other Supplementary Information – Combining & Individual Fund Statements & Schedules (Balance Sheet/Statement of Net Position, Statement of Revenues, Exp & Changes in Fund Balance/Net Position, Cash Flow for Non-major Enterprise & Internal Service Funds) for Non-major Special Revenue Funds, Debt Service Funds, Capital Project Funds, Permanent Funds, Non-major Enterprise Funds, Internal Service Funds • Schedule of Federal/State Grants, Entitlements & Shared Revenues • Cash Reconciliation • Database Ledger Load File

21. THE BASICS OF FUND ACCOUNTING The Financial Statements: Balance Sheet (Governmental Funds) or Statement of Net Position (Enterprise Funds) Consists of: • Assets – debit balance • Deferred Outflows of Resources – debit balance • Liabilities – credit balance • Deferred Inflows of Resources - credit balance • Fund Balance (Governmental Funds) or net position(Enterprise Funds) – credit balance Fund Balance/Net Position = Assets plus Def Outflows minus Liabilities minus Deferred Inflows

22. THE BASICS OF FUND ACCOUNTING The Balance Sheet consists of account types: Assets Deferred Inflows Deferred Outflows Liabilities Fund Balance

23. THE BASICS OF FUND ACCOUNTING ~ Balance Sheet Accounts Assets • Have a Debit Balance • If an asset has a credit balance – the account has a “negative” balance • This is not normal

24. THE BASICS OF FUND ACCOUNTING ~ Balance Sheet Accounts Deferred Outflows of Resources • Have a Debit Balance • If a Deferred Outflow has a credit balance – the account has a “negative” balance • This is not normal

25. THE BASICS OF FUND ACCOUNTING • To increase an asset or a deferred outflow of resources account you debit the account • To decrease an asset or a deferred outflow of resources account you credit the account

26. THE BASICS OF FUND ACCOUNTING Liabilities • Have a Credit Balance • If a liability has a debit balance – the account has a “negative” balance • This is not normal

27. THE BASICS OF FUND ACCOUNTING Deferred Inflows of Resources • Have a Credit Balance • If a deferred inflow of resources account has a debit balance – the account has a “negative” balance • This is not normal

28. THE BASICS OF FUND ACCOUNTING • To increase a liability or a deferred inflow of resources account you credit the account • To decrease a liability or a deferred inflow of resources account you debit the account

29. THE BASICS OF FUND ACCOUNTING Fund Balance/Net Position has a credit balance If it has a debit balance that is “negative” and isn’t normal. Entries should rarely if ever debit or credit fund bal or net position • When you post a debit to an asset or liability account fund balance/net position will automatically increase • When you post a credit to an asset or liability account fund balance/net position will automatically decrease

30. THE BASICS OF FUND ACCOUNTING • Financial Statements: Statement of Revenues, Expenditures and Changes in Fund Balances (Governmental Funds) or Statement of Revenue, Expenses and Changes in Net Position (Enterprise Funds) Consists of: • Revenues – credit balance • Expenditures/Expenses – debit balance • Other Financing Sources (Uses) or Non-Operating Revenue/Expense

31. THE BASICS OF FUND ACCOUNTING Statement of Revenues, Expenditures and Changes in Fund Balances consists of: Revenues Expenditures/ Expenses Other Financing Sources (Uses) or (Non-Operating Revenue/ Expenses for Enterprise Funds)

32. THE BASICS OF FUND ACCOUNTING Revenues – Inflow of Resources • Have a Credit Balance • If a revenue has a debit balance – the account has a “negative” balance • This is not normal

33. THE BASICS OF FUND ACCOUNTING • To increase a revenue account you credit the account • To decrease a revenue account you debit the account

34. THE BASICS OF FUND ACCOUNTING Expenditures/Expenses – Outflow of Resources • Have a Debit Balance • If an expenditure/expense account has a credit balance – the account has a “negative” balance • This is not normal

35. THE BASICS OF FUND ACCOUNTING • To increase an expense/expenditure account you debit the account • To decrease an expense/expenditure account you credit the account

36. FUNDAMENTALS OF DEBITS & CREDITS SELF-BALANCING SET OF ACCOUNTS ACCOUNTING FORMULA ASSETS + EXPENSE= REVENUES + LIABILITIES + EQUITY DR = CR Debit Credit

37. FUNDAMENTALS OF DEBITS & CREDITS BASIC ACCOUNTING FORMULA DR = CR Example: You receive $10 for a dog license $10 = $10 Cash (Asset) = Revenue (Pet Lic) 101000 = 323030

38. FUNDAMENTALS OF DEBITS & CREDITS BASIC ACCOUNTING FORMULA DR = CR Example: You receive an invoice for dog tags $500 = $500 Claim (Expenditure) = Cash (Asset) 440600 = 101000

39. FUNDAMENTALS OF DEBITS & CREDITS ACCOUNTING FORMULA EXAMPLE ASSETS + EXPENSE 101000 – Cash + $10 debit (in) 101000 – Cash - $500 credit (out) = REVENUES + LIABILITIES + 323030 – Revenue - $10 credit 440600 – Expenditure - $500 debit + FUND BALANCE

40. FUNDAMENTALS OF DEBITS & CREDITS BASIC ACCOUNTING FORMULA EXPENSES/ EXPENDITURES + REVENUES + ASSETS + = LIABILITIES + DEF INFLOW DEF OUTFLOW + EQUITY DR = CR

41. FUNDAMENTALS OF DEBITS & CREDITS BASIC ACCOUNTING FORMULA ASSETS + DEFERRED OUTFLOWS OF RESOURCES = LIABILITIES + DEFERRED INFLOWS OF RESOURCES + FUND BALANCE/NET POSITION (EQUITY) DR = CR

42. FUNDAMENTALS OF DEBITS & CREDITS EXAMPLE OF AN ANNUAL TRIAL BALANCE The Fund Balance is adjusted for revenues and expenditures on an Annual Trial Balance A monthly trial balance shows Revenues & Expenditures as part of Assets & Liabilities

43. FUNDAMENTALS OF DEBITS & CREDITS • RECAP • Debits must equal credits • An entry made within a fund should have equal debits and credits • All debits and credits should be made to asset, liability, revenue, expenditure/expense, other financing sources/uses or restatement accounts • Rarely, if ever, should fund balance/net position accounts be debited or credited • Exception – when adjusting restricted fund balance/net position accounts or making a prior period adjustment

44. Test our knowledge 1. Assets have a normal __________ balance: 1. Credit 2. Debit 2. Liabilities have a normal ______ balance: 1. Debit 2. Credit 3. Debits should equal: 1. Revenues 2. Credits

45. THE BASICS OF FUND ACCOUNTING BASIS OF ACCOUNTING Deals with the timing and recognition of transactions and events When recognized: Full Accrual Basis Modified Accrual Basis Cash Basis

46. THE BASICS OF FUND ACCOUNTING BACK TO THE BASICS Full Accrual Basis of Accounting • Recognizes increases and decreases in economic resources as soon as the underlying event or transaction occurs • Revenues are recognized as soon as they are earned • Expenses are recognized as soon as the liability is incurred • Regardless of the time of related cash inflow and outflows

47. THE BASICS OF FUND ACCOUNTING BACK TO THE BASICS Modified Accrual Basis of Accounting • Recognizes increases and decreases in financial spendable resources only to the extent that they reflect near-term inflows and outflows of cash • Amounts are recognized as revenues when earned, only so long as they are collectible within the period or soon enough thereafter to be used to pay liabilities of the current period. (60 days) • In other words, when they are available to pay expenditures of the current period.

48. BACK TO THE BASICS This would be great! The Cash Basis of Accounting • Is the simplest to achieve and provides the least disclosure • Only revenues received and expenses or expenditures disbursed are recognized • The Balance Sheet of the Governmental Unit displays only a balance in cash and the fund balance accounts. • The Operating Statement presents results of only the cash transactions for the reporting fund.

49. Test our knowledge Governmental Funds are reported using which Basis of Accounting: 1. Full Accrual Basis 2. Modified Basis 3. Cash Basis Enterprise Funds are reported using which Basis of Accounting: 1. Full Accrual Basis 2. Modified Basis 3. Cash Basis

50. BASIS & MEASUREMENT FOCUS PRACTICAL DIFFERENCES: • Receipt of the proceeds from long-term debt • Repayment of the principal of long-term debt • Capital acquisition (outlay) • Depreciation of capital assets (expense) • Deferrals and amortizations