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Fund Balance Reporting Under GASB Statement 54

Fund Balance Reporting Under GASB Statement 54. Daniel Lunghofer School District/ESD Accounting Supervisor. Portions of this presentation adapted from GASB. What is GASB?. GASB stands for the Governmental Accounting Standards Board.

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Fund Balance Reporting Under GASB Statement 54

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  1. Fund Balance Reporting Under GASB Statement 54 Daniel Lunghofer School District/ESD Accounting Supervisor Portions of this presentation adapted from GASB

  2. What is GASB? • GASB stands for the Governmental Accounting Standards Board. • It is the official source of Generally Accepted Accounting Principles for state and local governments. • GASB’s role is to establish and improve standards of reporting for U.S. state and local governments.

  3. Background • GASB found significant variations in how standards are applied, leading to significant divergence in practice. • Widespread confusion about terminology. • Mismatch between what governments are reporting about Fund Balance and what users of financial statements actually need. • GASB issued Statement 54 in March 2009.

  4. But We’re OCBOA! • OSPI has adopted GASB 54 for the following reasons: • To provide better transparency on the fiscal health of school districts. • Easier to respond to data requests about what is in Fund Balance.

  5. Why Should We Split Fund Balance? • Fund Balance is similar to a savings account or a checkbook balance. • Like a savings plan for a large purchase or a monthly budget to pay bills, it’s not all “free money” for a huge shopping spree.

  6. Sample District Disclaimer: This is a consolidation of three random districts’ F-196 data, and is does not reflect on any one district. In 2009–10, our Sample District had a total General Fund Ending Fund Balance of $60,658,638: Assets: $135,009,584 Liabilities: $74,350,946 Fund Balance: $60,658,638 This looks good on the surface: the district has over $60 million for new programs, more teachers, smaller levies, etc. But…

  7. Sample District – Continued • $26,055,245 was Reserved Fund Balance –money reserved for specific items. • $26,383,164 was Designated Fund Balance – amounts the district put aside with the intent that they are used in a specific manner. • That leaves $8,220,228 in Unreserved, Undesignated Fund Balance (UUFB) – “free” money not marked for anything in particular.

  8. Sample District – Continued So, breaking it down a bit, our sample district’s balances at the end of 2009–10 are: Assets $135,009,584 Liabilities $74,350,946 Fund Balance: Reserved $26,055,245 Designated $26,383,164 “Free” UUFB $8,220,228 Total FB $60,658,638

  9. New Fund Balance Classifications Change Under GASB 54 Classification Under New System (Post-GASB 54) Classification Under Old System (Pre-GASB 54) Split into three separate categories Nonspendable Fund Balance Reserved Fund Balance Restricted Fund Balance Committed Fund Balance Unreserved, Designated Fund Balance Name change Assigned Fund Balance Unreserved, Undesignated Fund Balance Name change Unassigned Fund Balance

  10. Nonspendable Fund Balance • Not in spendable form, such as: • Inventory. • Prepaid items. • Legally or contractually required to be maintained intact (i.e. corpus of a permanent fund).

  11. Restricted Fund Balance • Amounts constrained to being used for a specific purpose by: • External sources such as creditors, grantors, laws or regulations of other governments. • Imposed by law through constitutional provisions or enabling legislation. • Generally, items beyond control of the board of directors.

  12. Committed Fund Balance • Constraint on use imposed by the school district itself, using its highest level of decision making authority. • Constraint can be removed or changed only by the same authority. • For Washington school districts, this means either a formal resolution of the board of directors or adherence to adopted board policy.

  13. Assigned Fund Balance • Amounts intended to be used for specific purposes. • Intent is expressed by: • The board of directors. • High-level individual authorized by the governing body.

  14. “Residual” Fund Amounts (UUFB) • Starting with the total Fund Balance (Assets minus Liabilities), take away: • Any amounts that are not in spendable format (i.e. Nonspendable). • Any amounts that are Restricted as to their use. • Any amounts that have been Committed to a specific use by the board of directors. • Any amounts that are Assigned to a specific use (and recorded in the appropriate GL code).

  15. “Residual” Fund Amounts – General Fund • In the General Fund: • Record the residual amount, either positive or negative, as Unassigned Fund Balance. • According to the verbiage in Statement 54, “governments should not report an assignment for an amount to a specific purpose if the assignment would result in a deficit in unassigned fund balance.”

  16. “Residual” Fund Amounts – Other Funds • In funds other than the General Fund, the balance is recorded in one of two places: • If the balance is positive, record it as Assigned to Fund Purposes (GL 889). • If the balance is negative, record it as Unassigned Fund Balance (GL 890).

  17. Example – General Fund Let’s take a district with $10,000 in Ending Fund Balance: • $1,000 in Nonspendable amounts (Inventory) • $6,000 in Restricted amounts • $1,000 in Commitments • $1,000 in Assignments Nonspendable Fund Balance $1,000 Restricted Fund Balance $6,000 Committed Fund Balance $1,000 Assigned Fund Balance $1,000 Unassigned Fund Balance $1,000 Total Fund Balance $10,000

  18. Example – General Fund Let’s take a district with $10,000 in Ending Fund Balance: • $1,000 in Nonspendable amounts • $6,000 in Restricted amounts • $1,000 in Commitments • $3,000 in Assignments Nonspendable Fund Balance $1,000 Restricted Fund Balance $6,000 Committed Fund Balance $1,000 Assigned Fund Balance $2,000 Unassigned Fund Balance $0 Total Fund Balance $10,000

  19. Example – General Fund Let’s take a district with $10,000 in Ending Fund Balance: • $1,000 in Nonspendable amounts • $6,000 in Restricted amounts • $5,000 in Commitments • $1,000 in Assignments Nonspendable Fund Balance $1,000 Restricted Fund Balance $6,000 Committed Fund Balance $5,000 Assigned Fund Balance $0 Unassigned Fund Balance ($2,000) Total Fund Balance $10,000

  20. Example – Capital Projects Fund(i.e. Not The General Fund) Let’s take a district with $10,000 in Ending Fund Balance: • $8,000 is Restricted • $1,000 is Committed Nonspendable Fund Balance $0 Restricted Fund Balance $8,000 Committed Fund Balance $1,000 Assigned to Fund Purposes $1,000 Unassigned Fund Balance NA Total Fund Balance $10,000

  21. Example – Capital Projects Fund(i.e. Not The General Fund) Let’s take a district with $10,000 in Ending Fund Balance: • $8,000 is Restricted • $3,000 is Committed Nonspendable Fund Balance $0 Restricted Fund Balance $8,000 Committed Fund Balance $3,000 Assigned to Fund Purposes NA Unassigned Fund Balance ($1,000) Total Fund Balance $10,000

  22. Washington – Implementation • “Entire” GL section of Accounting Manual was re-written in accordance with these standards. • In most cases, it is a title change (e.g. “Reserved” to “Restricted”). • There are some new GL Codes added for a variety of purposes.

  23. New Code Samples • GL 821Restricted for Carryover of Restricted Revenues (previously rolled into GL 810). • GL 872 Committed to Minimum Fund Balance policy (if your district has such a policy). • GL 889 Assigned to Fund Purposes (for closing out funds other than GF if a positive amount).

  24. Effect on School District Systems • WSIPC software has been updated for these new GL codes. • Non-WSIPC districts will have to add the codes on their own or work with their vendor to make the changes. This information was provided in April 2010 via OSPI Bulletin 017-10. • The F-196 is being re-programmed to incorporate these changes for financial statement purposes for 2010–11. • Changes present more Fund Balance definition than may be used by every district.

  25. Questions & Answers Q: My district has a number of computers purchased in the Capital Projects Fund that we have classified as inventory while we wait to put them into service. Are these Nonspendable? A: Use GL 810 Restricted for Other Items. The general consensus is that the expenditures should be recognized when the computers are purchased.

  26. Questions & Answers Q: Do we report interest earnings not spent as Restricted Fund Balance? A: It depends. If the source of money generating the interest earnings is Restricted (i.e. bond money in CPF), then the interest earnings are also Restricted. If the source of money has no restrictions and the interest earnings remain in the fund, they are recorded in GL 890 (GF) or GL 889 (all others). If interest earnings are credited to another fund, they are Restricted.

  27. Questions & Answers Q: Our county investment pool requires us to set aside a certain amount of fund balance. Is this Restricted? A: No, it should be Nonspendable – it is contractually required to be maintained intact. Currently, Nonspendable Items should be recorded in GL 810 Restricted for Other Items.

  28. Questions & Answers Q: My district self-insures for industrial insurance. We are required to keep a reserve amount. How is should this be reported? A: It depends on the language in the notice outlining the reserve. If you must keep the amount intact and cannot spend it, it is Nonspendable. As with the last example, use GL 810 for now. If the reserve is only to cover excess claim costs, it is Reserved. Report this in GL 845.

  29. Questions & Answers Q: My board wishes to identify certain amounts under the Committed Fund Balance classification. If the amounts are present in our budget, do we need to pass a separate resolution for these commitments? A: No, if the budget document adequately describes what the commitments are for.

  30. Questions & Answers Q: What is a good Minimum Fund Balance policy? A: Minimum Fund Balance is not required. However, here are some general guidelines: • Set a policy based on a percentage (e.g. percentage of expenditures), rather than a set dollar amount. • Include a small range of percentages to allow for swings. • Include plan of action if policy is not met.

  31. Questions & Answers Q: What will a Minimum Fund Balance policy look like on the financial statements? A: For this, we need a volunteer.

  32. Questions & Answers Q: How do we record ASB money that is left over at the end of the year? A: Any “free” money, that is, money not tied to a specific club or class, would be reported in Assigned to Fund Purposes. For money that is marked for specific clubs or classes, that money was supposed to be spent in a particular manner as outlined by the ASB board and the district board of directors. It should be reported as Committed to Other Purposes.

  33. Questions & Answers Q: Are amounts that are held in imprest accounts classified as Nonspendable Fund Balance? A: No. If an imprest account can only be used for certain designated expenditures, it would be either Committed or Assigned, as appropriate. Otherwise, it is Unassigned.

  34. Questions & Answers Q: When do these changes take effect? A: GASB’s language is that the changes in Statement 54 are effective for fiscal years beginning after June 15, 2010. For Washington school districts, this means the 2010–11 school year.

  35. GASB 54 – Phase II Implementation • Fund balance classification was only part of GASB 54. • Governmental Fund definitions. • Encumbrance accounting.

  36. GASB 54 – Governmental Fund Definitions • Governmental fund definitions were updated to match GASB 54 terminology. • RCWs govern allowable uses of the funds – some breakage with GASB 54. • Primary example is Debt Service Fund. • GASB 54 states it is for principal and interest. • RCW allows for bond transfer fees as well. • In cases of breakage between GASB 54 and RCWs, the RCWs won.

  37. GASB 54 – Encumbrances • Encumbrance accounting is discussed in the Accounting Manual (Chapter 3), but does not appear on F-196 or Notes to Financial Statements. • GASB 54 (and earlier statements) require financial statement presentation or note disclosure. • Instead of reporting Encumbrances on the financial statements, the SDAAC recommended disclosure in the Notes to the Financial Statements.

  38. Questions? Daniel Lunghofer (360) 725-6303 daniel.lunghofer@k12.wa.us Springtime at OSPI Daffodils and George Washington Statue April 20, 2011 By Daniel Lunghofer

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