GASB 34 Implementation and Other Financial Reporting Issues

1. GASB 34 Implementation and Other Financial Reporting Issues August 23, 2002 Ren E. Wiles Preeta Nayak

2. GASB 34 • FYE 6/30/2002, 28 BOEs will be using the new financial reporting model. • 88 BOEs to implement GASB 34 in the 2002-2003 fiscal year.

3. BOEs implementing this year

4. What is GASB 34 and what does it mean to me? • Measuring what it costs to run the entire school operation, rather than “What resources do I have for the next fiscal year?”

5. To those of you in Phase 1… • What have you learned that you wish someone had told you before you got into this?

6. Overview of Changes • Financial statements under GASB 34 will apply full accrual accounting to governmental funds. • Infrastructure will be recognized. • GFAAG & GLTDAG will be gone. • Depreciation will be taken as an expense on all depreciable assets.

7. Continued • The cost of services/programs will be disclosed. • Program expenses will be shown on the Statement of Activities. • Revenues directly related to the program will be matched. • Unmatched revenues will be reported as General Revenues.

8. What to expect this first year.We expect that… • This has not had/will not have a tremendous impact on your day-to-day accounting. • PREPARING to present on GASB 34 basis has been/will be a time consuming processes. • Phase 2 Boards, make friends with the Phase 1 BOE most like your own.

9. How will this affect NC Boards of Education? • What level of expenses will you show? • GASB Statement 34, paragraphs 39 & 40 • Detail should match what is shown on statement of revenues, expenditures & changes in fund balance. • Should at least be by Function. • Show more detail is it improves usefulness.

10. The “A” word. • Stands for Allocation • Certain expenses should be matched to the function they support. • Employee Benefits • Depreciation • Capital Outlay

11. Employee Benefits • Allocate the expenses in the 5900 and 6900 purpose codes. • 5910 & 5920 sub-purpose codes should be allocated to the appropriate function. • Look to your information technology staff. Can they extract the information you need? • Same applies to 6910 & 6920.

12. continued, • 5930 & 6930 for staff development may be reported as “Other Instructional (Support) Programs.” • Accumulated annual leave should be allocated also.

13. Phase 1 Boards • Phase 1 boards, talk early with your auditor about the materiality level of the government-wide statements. • Because local, federal & state $$ will be together in the government-wide statements, the materiality level should be higher than what we are used to.

14. Phase 2 Board • Make friends with a Phase 1 board that is similar to your own.

15. Question 108, Implementation Guide • Should depreciation be charged to specific functions or programs in the government-wide statements? • A—Depreciation expense for the following types of capital assets is required to be included in the direct expenses of functions or programs: • · Capital assets that can be specifically identified with a function or program • · “Shared” capital assets (for example, a facility that houses the police department, the building inspection office, and the water utility office). • Depreciation expense for capital assets that essentially serve all functions, such as a city hall or a state administrative office building, may be: • · Included in an indirect expense allocation (optional) to the various functions or programs (Appendix 3, Exhibit 2) • · Reported as a separate line in the statement of activities; however, the account title should make the reader aware that it does not include all depreciation (for example, “unallocated depreciation”) (Appendix 2, Exhibits 21 and 33) • · Reported as part of the “general government” (or its counterpart) function (Appendix 2, Exhibit 2). • Depreciation expense for infrastructure assets associated with governmental activities should be reported as either: • · A direct expense of the function (for example, public works or transportation) that is normally used for capital outlays for and maintenance of infrastructure assets (Appendix 2, Exhibit 2) • · A separate line in the statement of activities (again noting the extent of the depreciation expense presented) (Appendix 2, Exhibits 21 and 33).

16. Expected Allocation • School bus depreciation should be accounted for in purpose code 6500, Business Support Services. • Computers used only in classrooms should be accounted for in purpose code 5100, Regular Instruction Program

17. Unallocated Depreciation* • Because some assets may serve multiple functions, the depreciation may be presented as a separate line item. • * Disclose on the face of the statement of activities that this amount does not include direct depreciation.

18. Depreciation continued. • Note disclosure should contain full depreciation information. I.E., what was allocated as a direct expense and what was not.

19. Capital Outlay • Not a program on the government-wide statements. • Majority of the expenditures will be capitalized & depreciated. • Items not capitalized should be matched with the specific purpose/function.

20. Category 1, not capitalized • Likely these assets are for maintenance & repair work. • These should be allocated to the 6500 purpose code, Business Support Services, because physical plant maintenance would go to the 6580 purpose code.

21. Category 2, not capitalized • Remember, as much as possible should be allocated to the specific function/purpose that it serves. • For those expenditures which can’t be allocated, purpose code 6500 again appears to be the best allocation.

22. Category 3, not capitalized • Items here are related to transportation, purpose code 6550. • Therefore, items not capitalized nor allocated to a specific program/function, should be allocated to purpose code 6500, Business Support Services.

23. Indirect Costs. • Because the government-wide statements will combine several funds, indirect cost allocations should be eliminated. • Revenue Code 4880, indirect cost revenue in Local Current Exp. and expenditure in purpose code 8000 should be eliminated. • See Memo #973 for further details.

24. But what about Revenues? • Revenues must be classified as: • Charges for service, • Operating Grants and Contributions, • Capital Grants and Contributions, or • General Revenues • Appendix B to Memo #973 will classify the majority of school revenues.

25. Single Audit issues • By change in State law, the staff of the LGC now assembles, approves and distributes the Compliance Supplements. Formerly the State Auditors responsibility.

26. Single Audit issues, 2 • State Public School Building Bond Fund and State Public School Building Capital Fund are grants to the counties. • Schools report revenues & expenditures, if they are performing the transactions. • Should appear on the school’s Schedule of Expenditures of State & Federal Awards

27. Single Audit issues, 3 • GAGAS findings and Single Audit findings should all have corrective action plans. • A contact person and anticipated completion date should be included.

28. Single Audit issues, 4 • “Cluster of Programs” should be treated as one program. • Summer School Lunch program (10.559) is part of the Child Nutrition Cluster. This program should be included in the cluster audit.

29. Single Audit issues, 5 • Medicaid Reimbursement • NC Information Highway • Appeared on several Schedule of Expenditure of Fed. & St. Awards last year. • Our understanding is that these are not financial assistance. They should not be on the Schedule.

30. Questions on the Preceding? • Contact Mr. Jim Burke, 919-807-2383. • Or, Ms. Jean Slaughter, 919-807-2391.

31. Major changes to the audit manual • Technical adjustments to: • Valuation of investments • Risk management note • Show contribution of school buses • Adjust forfeited vehicle note. • Include contingent liability note for pending litigation.

32. Charter Schools • All NC charter schools should be Phase 3 implementation, 2003-04 fy. • Area of concern, related party transactions. • Make sure that conflict of interest policy is adopted. • Make sure that policy is followed. • Disclose related party transactions.