FGFOA Boot Camp – Day 1 Introduction to Governmental Accounting

1. FGFOA Boot Camp – Day 1Introduction toGovernmental Accounting Presented by Lynda M. Dennis, CPA, CGFO, PhD

2. The Government Environment

3. Key Differences • Lack of profit motive • Legal structure • Resource providers • Political process • Non-revenue producing assets • Public services • Public goods

4. Objectives of Financial Reporting • Compare actual & budget • Assess financial condition & results of operations • Determine compliance with laws, rules, & regs • Evaluate efficiency & effectiveness

5. Financial Statement Users • Taxpayers • Citizens • Oversight & legislative bodies • Investors & creditors • Management

6. Financial Reporting Objectives • Information for decision making • Financial reporting should be • Understandable • Reliable • Relevant • Timely • Consistent • Comparable

7. Accounting Differences • Accounting equation • Assets • Deferred outflows • Liabilities • Deferred inflows • Net position or fund balance • Fund accounting • Accountability • Budgetary reporting • Compliance

8. Accounting Differences • Measurement focus = WHAT is measured • Economic resources • Improvement/diminishment in economic position • Measure inflows & outflows of economic resources • Current & noncurrent • Capital assets & long-term debt • Focuses on operational accountability • Whether management efficiently uses resources in providing services

9. Accounting Differences • Measurement focus = WHAT is measured • Current financial resources • Increases/decreases in spendable resources • Measure inflows & outflows of current financial resources • Cash & other liquid assets • Payables from cash & other liquid assets • Focuses on fiscal accountability • Whether managers have met budgetary & other legal financial requirements

10. Accounting Differences • Basis of accounting = WHEN to measure • When transaction/event recognized • Accrual • Modified accrual • Measurable and available • Trust Funds • Expendable or non expendable

11. Accounting Differences • Basis of accounting = WHEN to measure • Accrual basis of accounting • Revenues recognized when earned • Expenses recognized when incurred

12. Accounting Differences • Basis of accounting = WHEN to measure • Modified accrual basis of accounting • Revenues recognized when measurable & available • 60 day criteria • Expenditures recognized when incurred • Expected to be liquidated with current financial resources

13. Measurement Focus and Basis of Accounting Summary

14. What is GAAP & Who is GASB? • GAAP = generally accepted accounting principles • GASB • Established 1984 • Establish standards for SLGs • Financial accounting • Financial reporting • Statutory requirement to use GAAP

15. How GASB Works • Mission of GASB • Establish/improve standards • To provide useful information • GASAC • Consults with GASB • GASB budget and fund raising • 25+ representative members

16. GASB Required • State & local governments • General purpose • Special purpose • Some NFPs • Libraries • Hospitals • Colleges & universities • Public

17. Fund Accounting & the Financial Statements

18. Why Use Funds? • Account separately for • Resources • Financial & economic • Activities • Accountability • Compliance

19. What is a Fund? • Fiscal & accounting entity • Self-balancing set of accounts • Cash & financial resources • Liabilities & residual equity/balances • Changes • Segregated for purpose of • Specific activities • Attaining certain objectives • In accordance with regs, restrictions, limitations

20. How Many Funds? • Depends on • Capability of accounting system • Accounting/legal requirements • Minimum number of funds concept • Sound financial management • Meet legal/accounting objectives • More funds = more complexities • At least one = General fund

21. Creating New Funds • When • New accounting standard • Change in state constitution • Grant required • New activity • Determine • Desired level of • Financial control • Management

22. Fund Structure • Governmental funds • General operations • Financial resources • Proprietary funds • Business type operations • Economic resources

23. Fund Structure • Fiduciary funds • Trust agreement • Agency relationship • Resources held for others

24. Governmental Funds • Financial resources measurement focus • Modified accrual basis of accounting • Account for expenditures of financial resources (not expenses) • Capital assets & long-term liabilities are NOT recorded in governmental funds • Both recorded as expenditures

25. Governmental Funds • Types • General Fund • Special Revenue Funds • Capital Projects Funds • Debt Service Funds • Permanent

26. General & Special Revenue Funds • What goes where? • General Fund • Special Revenue Funds • Restricted or committed funds • Revenue recognition • Modified accrual = measurable & available • Uncollectibles

27. General & Special Revenue Funds • Revenue issues • Property taxes • Levy • Collection • Revenue recognition • Sales & income taxes • Grants • Donations

28. General & Special Revenue Funds • Expenditure recognition • Measurable • Liability incurred • Plan to liquidate from current resources • Is it budgeted this year?

29. Debt Service Funds • Purpose • Restricted, committed, assigned • Revenue recognition • Expenditure recognition • When due vs. before due • Refundings • What are they? • Types

30. Debt Service Funds • Advance refundings • Definition • Legal or in-substance defeasance • Current refundings

31. Capital Project Funds • Purpose • Restricted, committed, assigned • Revenue recognition • Bond proceeds • BANs • Arbitrage • Calculations Vs payments

32. Permanent Funds • Legally restricted resources • Earnings only • Endowment type • Support government’s programs

33. Proprietary Funds • Economic resources measurement focus • Full accrual basis of accounting • Account for expenses of economic resources • Capital assets & long-term liabilities ARE recorded in proprietary funds • Depreciation expense on capital assets recorded

34. Proprietary Funds • Types • Enterprise • Fees charged • External users • Internal Service • Reimbursement basis • Primary government • Component units • Other governments

35. Enterprise Funds • When to use • Intend to recover total cost from user fees • Want to know if fund profitable or not • Restricted assets • When required/used

36. Enterprise Funds • Debt • Classification based on revenue stream • G.O. debt • Contributed capital • Sources • Accounting & political implications

37. Enterprise Funds • Landfills • Closure costs recognized during life • Infrastructure • Types • Reporting & depreciation required

38. Internal Service Funds • What are they? • Cost-reimbursement basis • Internal customers • Measurement & basis of accounting • Economic resources • Full accrual

39. Internal Service Funds • Duplication of costs • Surpluses & deficits • Risk management activities • General Fund or ISF required • Interfund premiums = quasi external

40. Fiduciary Funds • Full accrual accounting • Economic resourcesmeasurement focus • Capital assets & long-term liabilities ARE recorded • “Additions” to net assets • Not “revenues” • Other people’s money • “Deductions” from net assets • Not “expenses”

41. Fiduciary Funds • Types • Pension Trust • Investment Trust • External portion reported by sponsor • Private Purpose Trust • All other trust agreements • Individuals • Private organizations • Other governments • Agency

42. Fiduciary Funds Pension/OPEB Trust Funds To account for financial resources where government (or other designated trustee) acts in trustee capacity for its employees Retirement benefits Pensions Other post-employment benefits Insurance, etc.

43. Fiduciary Funds Investment Trust Funds Account for external investment pools Assets held for other (external) governments, along with funds of sponsoring government Accounts for assets, liabilities, net assets, & changes in net assets related to equity of external participants

44. Fiduciary Funds Private-purpose Trust Funds To account for financial resources (expendable/nonexpendable) when government acts in trustee capacity for Private individuals Organizations Other governments

45. Fiduciary Funds Agency Funds Account for financial resources when government acts in an agency capacity Examples: tax agency funds and pass-through agency funds Accounting is simple: assets = liabilities No revenue & expense accounts used since there are no net assets

46. Fund Classification Exercises

47. Typical Government Transactions

48. Basic Transactions • Assets • Liabilities • Revenues/gains • Expenses/expenditures & losses • Other sources & uses

49. Some Typical Transactions • Assets • Inventory • Purchase & consumption method • Prepaid expenses • Property, plant & equipment • Valuation & impairment • Capitalization & depreciation • Restricted assets

50. Some Typical Transactions • Assets • Inventory • Purchase (financial resources) Expenditures – Supplies, etc. Cash/AP • Consumption (economic resources) Inventory – Supplies, etc. Cash/AP