FUND BALANCE REPORTING AND GOVERNMENTAL FUND TYPE DEFINITIONS Implementing GASB Statement No 54

1. Illinois Government Finance Officers AssociationWisconsin Government Finance Officers Association2010 Joint Conference FUND BALANCE REPORTING AND GOVERNMENTAL FUND TYPE DEFINITIONS Implementing GASB Statement No 54 May 14, 2010 8:30 am - 12:00 pm

2. GASB S54 FUND BALANCE REPORTING AND GOVERNMENTAL FUND TYPE DEFINITIONS • Fund balance is the key financial figure for a governmental fund • Measure of “available, spendable resources” • Reported only in governmental funds • Current assets – current liabilities • Entity-wide statements and other funds report net assets • Total assets – total liabilities • Focus of fund balance in a governmental fund • Whether or not current financial resources are available for appropriation

3. GASB S54 FUND BALANCE REPORTING AND GOVERNMENTAL FUND TYPE DEFINITIONS • Focus of fund balance in a governmental fund • Reserved fund balance generally is not available for appropriation • Remainder, unreserved, is available for appropriation • How much is left to fund next years budget after we have paid this years bills

4. GASB S54 FUND BALANCE REPORTING AND GOVERNMENTAL FUND TYPE DEFINITIONS • Problem with “available to spend “ focus of fund balance • Focus has been from a budgetary standpoint • Ignores purpose restrictions on fund balances • What can fund balance be spent on • Fund classifications in practice has compounded this • Special Revenue Funds • GASB Implementation Guide further complicated the issue • Do not report a reserve unless more restrictive than the purpose of the fund • Only relevant if reporting by fund type

5. GASB S54 FUND BALANCE REPORTING AND GOVERNMENTAL FUND TYPE DEFINITIONS • GASB Statement No. 54 was issued in February 2009 to address these issues • Implementation of S-54 should not impact the dollar amount reported as total fund balance • Implementation of S-54 will change how we articulate what is reported as fund balance • S-54 may change what we report in a particular fund

6. GASB S54 FUND BALANCE REPORTING AND GOVERNMENTAL FUND TYPE DEFINITIONS • S-54 is effective for fiscal years ending June 30, 2011 and thereafter • December 31, 2011 • April 30, 2012 • Early implementation is both allowed and encouraged • Certain actions and analysis will need to be done before the start of the year of implementation • Certain actions may be required of your governing board before the end of the year of implementation

7. GASB S54 GOVERNMENTAL FUND TYPE DEFINITIONS • The first step to implement S-54 is to determine any changes in fund classification • This should be done before the beginning of the fiscal year of implementation • May impact the budget or appropriation • May result in individual funds: • Reported as a sub-fund of another fund • No longer being budgeted and reported as separate funds • Minimum number of funds principle

8. GASB S54 GOVERNMENTAL FUND TYPE DEFINITIONS • NCGA Statement No. 1 and GASB Statement No. 34 defined the 5 governmental funds in use today • General • Special Revenue • Debt Service • Capital Projects • Permanent • GASB S-54 has revised these definitions

9. GASB S54 GOVERNMENTAL FUND TYPE DEFINITIONS • General Fund Old • Should be used to account for all financial resources except those required to be accounted for in another fund • General Fund New • Should be used to account for and report all financial resources not accounted for and reported in another fund • Old definition limited use of other funds unless “required” • Only 1 General fund can be reported • Sub funds can be reported • Industry impact?

10. GASB S54 GOVERNMENTAL FUND TYPE DEFINITIONS • Special Revenue Fund Old • Used to account for specific revenue sources (other than for major capital projects) that are legally restricted to expenditure for specified purposes. • Legally restricted not defined • Legally restricted not followed in practice • Specified purpose took precedence in practice • Underperforming exchange transactions/activities reported as special revenue funds • Common examples

11. GASB S54 GOVERNMENTAL FUND TYPE DEFINITIONS • Special Revenue Fund New • Used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects • One or more specific restricted or committed revenue sources • Constraint on purpose of spending is not sufficient (e.g., working cash, rainy day, stabilization fund) • Must have a specific revenue source (s)

12. GASB S54 GOVERNMENTAL FUND TYPE DEFINITIONS • Special Revenue Fund New • Restricted is defined as an “external” enforceable legal restriction • External means persons (e.g., bondholders) or bodies (higher levels of government) outside of your government • Constitutional provisions • Enabling legislation

13. GASB S54 GOVERNMENTAL FUND TYPE DEFINITIONS • Special Revenue Fund New • Enabling legislation • Enabling legislation authorizes a government to assess, levy, charge, or otherwise mandate payment of resources (from external resource providers) and includes a legally enforceable requirement that those resources be used only for the specific purposes stipulated in the legislation

14. GASB S54 GOVERNMENTAL FUND TYPE DEFINITIONS • Special Revenue Fund New • Committed • Committed is defined as constrained by limitations that the government imposes upon itself by formal action at its highest level of decision making (usually the governing board) and that remains binding unless removed in the same manner. • Differentiate from enabling legislation • Lack of an external legal enforceability

15. GASB S54 GOVERNMENTAL FUND TYPE DEFINITIONS • Special Revenue Fund New • Substantial portion of revenue source in the fund no longer from restricted or committed revenues • Not a special revenue fund • Part of the general fund • Substantial not defined • Other resources (e.g., transfers, investment income, miscellaneous) can also be in the fund if restricted, committed or assigned to a fund • Assigned is assumed in a separate fund

16. GASB S54 GOVERNMENTAL FUND TYPE DEFINITIONS • Special Revenue Fund New • Specified purposes • Must be specific in terms of what the purpose restriction is • Budget stabilization is not a specific purpose. • Note disclosures • Major special revenue funds and which revenues/resources are reported in the fund

17. GASB S54 GOVERNMENTAL FUND TYPE DEFINITIONS • Special Revenue Fund • Impact of new definition • Most restricted grants meet the definition • Restricted property tax levies meet the definition • External versus enabling legislation • User fee supported may not meet the definition • Governing board may need to “commit” user fees to the specified purpose • Other uses may not meet the definition • Impact on your government

18. GASB S54 GOVERNMENTAL FUND TYPE DEFINITIONS • Capital Projects Fund Old • Should be used to account for the acquisition or construction of major capital facilities other than those financed by proprietary funds. • Intent of definition was for bond funded major capital projects for facilities, often spanning more than one year • Practice has used for non-bond funds • Also used for non-major capital facilities • Equipment replacement • Impact Fees • Land/Cash funds

19. GASB S54 GOVERNMENTAL FUND TYPE DEFINITIONS • Capital Projects Fund New • Used to account for and report financial resources that are restricted, committed or assigned to expenditure for capital outlays including the acquisition or construction of capital facilities and other capital assets, excluding those types of capital related outflows financed by proprietary funds. • Expands definition in line with practice • Restricted, committed same definition • Retains exclusion for proprietary fund capital assets • Impact on your government?

20. GASB S54 GOVERNMENTAL FUND TYPE DEFINITIONS • Debt Service Funds Old • Used to account for the revenues used to retire long-term debt that is reported in the general long-term debt account group. • Debt Service Funds New • Used to account for and report financial resources that are restricted, committed, or assigned to expenditure for principal and interest. • Debt service funds should be used to report resources if legally mandated. • Financial resources that are being accumulated for principal and interest maturing in future years should be reported in debt service funds.

21. GASB S54 GOVERNMENTAL FUND TYPE DEFINITIONS • Debt Service Funds • Debt service financed by proprietary funds should be reported in the proprietary funds • Impact on your government? • Permanent Funds • No substantive changes were made

22. GASB S54 FUND BALANCE REPORTING • Current focus of reporting fund balance is on available to spend/budget • Two primary components • Reserved • Unreserved • Designated • Undesignated

23. GASB S54 FUND BALANCE REPORTING • Reserved fund balance • Legally restricted to a specific use • External restriction narrower than purpose of the fund • Enabling legislation • Not available for appropriation • Not a current asset • loans, advances to other funds • Income statement effect is deferred revenue • Not a spendable current asset • Inventory, prepaid items • Must always be a positive amount • Can create an unreserved deficit

24. GASB S54 FUND BALANCE REPORTING • Unreserved fund balance • Remainder of fund balance not reported as reserved • Optional reporting of unreserved/designated fund balance • Represents managements tentative plans for the use of available resources • Approved by CEO or legislative body • Designations have to be positive • Cannot create an unreserved/undesignated deficit • Few governments chose the option • Remainder is unreserved/undesignated

25. GASB S54 FUND BALANCE REPORTING • GASB S-54 shifts the focus of reporting fund balance • No longer focusing on available to budget • Instead, focuses on the extent to which a government is bound to honor constraints on the specific purposes for which amounts in the fund can be spent by using five new components of fund balance • Nonspendable • Restricted • Committed • Assigned • Unassigned • Intended to provide a “hierarchy’ of constraints

26. GASB S54 FUND BALANCE REPORTING • Not all fund balance is in spendable form and therefore may not be “constrained” • Some fund balance may not be spendable in legal form (e.g., corpus of a trust) and must remain intact • Nonspendable category addresses these • Assets that can never be spent • Prepaid items, inventory • Assets that cannot currently be spent • Loans, inter-fund advances • Land/capital asset held for resale

27. GASB S54 FUND BALANCE REPORTING • Nonspendable category • Assets that cannot currently be spent • If a constraint exists on the use of cash proceeds upon conversion of the nonspendable asset • Reporting the constraint takes precedence over the nonspendable classification • Assets that are in spendable form but cannot legally be spent • Nonspendable fund balance should at least be segregated into the two categories on the face of the statements or in the notes

28. GASB S54 FUND BALANCE REPORTING • Remainder of fund balance is considered spendable • Categorize remaining fund balance based on constraint placed on the purpose for which the fund balance can be spent • Not all constraints carry the same weight • Not all constraints can be easily changed, removed or modified • External constraints • Internal constraints • Hierarchy of next three classifications is intended to articulate the extent of constraints • Unassigned fund balance has no constraints

29. GASB S54 FUND BALANCE REPORTING • Since unassigned fund balance has no spending constraints • Positive amounts can only be reported in the general fund • By definition, all fund balance in special revenue funds , debt service funds and capital projects funds is constrained to some extent • Otherwise the definition of a separate fund is not met • Does not qualify for reporting as a separate GAAP fund • May qualify for reporting as a sub-fund of the general fund • Setting up and reporting a separate fund assigns the fund balance (by default), if any, for spending for the purpose of the fund • Deficit fund balances in all governmental funds is reported as unassigned

30. GASB S54 FUND BALANCE REPORTING • Hierarchy of constrained fund balance is reported as • 1-Restricted • 2-Committed, or • 3-Assigned • Not all funds will report all three levels

31. GASB S54 FUND BALANCE REPORTING • Restricted fund balance • External legal restrictions • Definition in GASB S-34 • Enabling legislation • Definition in GASB S-46 • Legally enforceable • Your government can be compelled by an external third party to use the resources only for the specified purpose

32. GASB S54 FUND BALANCE REPORTING • Restricted fund balance • External legal restrictions • Definition in GASB S-34 • Imposed by creditors (e.g., use of bond proceeds, repayment of debt) • Imposed by grantors (e.g., motor fuel tax funds from the state) • Imposed by contributors (e.g., donations) • Imposed by laws or regulations of other governments (e.g., restricted property tax levies) • Imposed by constitutional provisions • Enabling legislation • Definition in GASB S-46

33. GASB S54 FUND BALANCE REPORTING • Restricted fund balance • Enabling legislation • Enabling legislation authorizes the government to assess, levy, charge or otherwise mandate payment of resources from external resource providers and includes a legally enforceable requirement that those resources can only be used for the purpose stipulated in the legislation • Restricted fund balance is now consistent with restricted net assets • Symmetry between governmental balance sheet and governmental activities statement of net assets • Must be reported as a positive amount • Can create an unassigned deficit

34. GASB S54 FUND BALANCE REPORTING • Committed fund balance • Used to report fund balance where the constraint on spending the fund balance is self-imposed by formal action of the highest level of decision making authority • Self-imposed constraint on use of fund balance, not a revenue stream • separate from the authorization for the revenue stream • Formal action assumes adopted by ordinance or resolution • Highest level of decision making authority is the governing body

35. GASB S54 FUND BALANCE REPORTING • Committed fund balance • Once committed that portion of fund balance can not be used for other purposes • Unless modified or removed by same action used to commit fund balance • Could arise from contractual obligations • Fund balance committed to satisfying contractual obligation (encumbrance?) • Formal action to commit fund balance must occur before the end of the fiscal year • The dollar amount of the commitment can be determined after year end

36. GASB S54 FUND BALANCE REPORTING • Committed fund balance • Must be a positive amount • Can create an unassigned deficit • Restricted versus committed • External versus self-imposed • Legal enforceability • No (or limited) ability to change versus can change with formal action

37. GASB S54 FUND BALANCE REPORTING • Assigned fund balance • Used to report fund balance constrained by the government’s intent to use fund balance for a specific purpose • Intent is expressed by the governing body itself • Or a body or official delegated the authority by the governing body • Does not require formal action of the governing body • More easily modified or removed than committed fund balance • Appropriating existing fund balance to fund next year’s budget is an assignment of fund balance

38. GASB S54 FUND BALANCE REPORTING • Assigned fund balance • Residual category for funds other than the general fund • GASB assumed fund balance was assigned to the purpose of the fund when the fund was created • If not true, not a separate fund or • Fund balance should not be left in the fund but transferred to the general fund • Must be reported as a positive amount • Can not create an unassigned deficit • Similar to unreserved designated fund balance • However, reporting assigned fund balance is not optional

39. GASB S54 FUND BALANCE REPORTING • Committed versus assigned fund balance • Committed requires formal action, highest level of authority • Assigned can be delegated below the highest level of authority and does not require formal action

40. GASB S54 FUND BALANCE REPORTING • Encumbrances • Used by many governments for budgetary control purposes • Previously reported as reserved fund balance (not available for appropriation) • No longer reported as such under GASB S-54 due to change in focus • Disclosed as part of a commitment note • Restricted or committed resources used to liquidate the encumbrance • Report as restricted or committed

41. GASB S54 FUND BALANCE REPORTING • Stabilization funds • Rainy day funds • Budget deficits • Revenue shortfalls • Stabilization can be considered a specific purpose • Restricted or committed in the general fund • Separate special revenue fund only if criteria is met • Most do not have a specific revenue stream • Criteria not met, unassigned in the general fund • Notes disclose the authority for creating and conditions to be met to use stabilization amounts

42. GASB S54 FUND BALANCE REPORTING • Minimum fund balance policy • Different than stabilization funds • Determines amount of unreserved (unassigned) fund balance to be maintained • Often expressed as a % of revenues or expenditures • Reported as unassigned in the general fund • Report as assigned if in another governmental fund • Disclose policy in notes for each major governmental fund

43. GASB S54 FUND BALANCE REPORTING • Flow of funds • Some projects (funds) are funded by a variety of resources, including both restricted and unrestricted (committed, assigned, unassigned) funds • Flow assumption determines which are spent first • Policy to be adopted by governing board • Which is better? • Additional flow assumption for committed, assigned and unassigned fund balance in a fund • GASB S-54 defaults to committed, then assigned, then unassigned • Basis for dissenting vote by one Board member

44. GASB S54 FUND BALANCE REPORTING • Reporting fund balance • Balance sheet must at least report aggregated applicable categories • Nonspendable reported (or disclosed) in two components • Detail of each category on face of balance sheet • Detail of each category in notes for each major fund and aggregated non-major funds if not on face of balance sheet • Trial balance in system needs to track information by category • May require significant changes to chart of accounts (most capture only 1 fund balance account, unreserved) • May require system modifications (nominal accounts closed to unreserved fund balance in all funds during year end close process) • Journalize out of unreserved into new components

45. GASB S54 FUND BALANCE REPORTING • Other note disclosures • Committed fund balance • Identify highest level of decision making authority • Formal action required to establish, modify or remove a commitment • Assigned fund balance • Body or official authorized to assign fund balance • Authority this is derived from • Flow assumptions

46. GASB S54 FUND BALANCE REPORTING • Effective date • FYE June 30, 2011 and thereafter • Early implementation is encouraged • Required to restate any prior period that is presented into the new classifications • Exception for statistical section • Prospective application is allowed • Retroactive is recommended • Problem with committed • Action not taken by end of fiscal year

47. GASB S54 FUND BALANCE REPORTING • Implementation to do list • Before the beginning of the fiscal year you want to implement • Determine any changes in fund classification • Determine impact on budget • Determine how fund balance would be reported if no additional action is taken by your government • Determine what changes you want to the fund balance classifications • Before the end of the fiscal year you want to implement • Determine and document your flow assumptions (board approval) • Determine what fund balance, if any, will be reported as committed • Board action taken before end of fiscal year • Determine impact on statistical information • Have fun(d)!