SGAFR/CAFR FROM THE GROUND UP

1. SGAFR/CAFR FROM THE GROUND UP Linda Dufresne, CPA Dufresne & Associates, CPA, PA KBLD LLC GNP Services, CPA, PA

2. Objectives Introduction to the Certificate of Conformance Program Award for Small Governments Reasons to prepare a CAFR Components of the CAFR and the order in which they should be presented Common CAFR inadequacies How to make application for the GFOA Certificate of Conformance Program Award or Certificate of Excellence in Financial Reporting

3. Certificate of Conformance Program (COCP) • Established by GFOA in late 2012 • Recognizes small governments • Modified Cash Basis of Accounting • Eligible to earn the new Certificate of Conformance Program award

4. Certificate of Conformance Program • If GAAP financials not practical option • Little guidance or consistency • Certificate of Conformance Program award will help these small governments improve quality of financial reports • Creates nationally recognized guidelines • Participants benefit from increased training and professionalism resulting from producing high-quality financial reports

5. Purpose for Certificate of Conformance Program • Strives to recognize quality and consistency in three ways • Provides guidelines to help standardize the format and content of financial reports presented on a modified cash basis • Seeks to encourage governments to follow those guidelines by publicly recognizing entities that choose to follow those guidelines • Aims to improve quality and consistency by assisting governments in implementing guidelines by providing technical materials and training

6. Which Governments Qualify to Participate? • Any government, regardless of type: • $25 million or less in revenues for the primary government in its government-wide financial statements • either for the current year • or the average of the five most recent years • Unless: • it is required to prepare a GAAP financial report, or • has done so at any time in the most recent five years

7. What constitutes a “modified cash basis” presentation? Certificate of Conformance Program prescribes a modified cash basis financial reporting framework that is consistent with the provisions of the AICPA auditing standards for special purpose frameworks

8. What constitutes a “modified cash basis” presentation? • For purposes of the Certificate of Conformance Program, a “modified cash basis” presentation must meet all of the following criteria • Comply, in substance, with the basic requirements of GAAP for financial statement presentation, but applied in a manner consistent with a modified cash basis, for example, • a small general purpose government would need to present a combination of government-wide and fund financial statements (i.e., compliance, in substance, with the basic requirements of GAAP), but • would use the same modified cash basis for presenting data in both (i.e., applied in a manner consistent with a modified cash basis)

9. What constitutes a “modified cash basis” presentation? • Only cash (and cash equivalents) and items that involve the receipt or disbursement of cash (or cash equivalents) during the period should be recognized, except as follows: • Interfund receivables and payables that arise from transactions and events involving cash or cash equivalents must be recognized; • Assets that normally convert to cash or cash equivalents (e.g., certificates of deposit, marketable investments, and receivables resulting from loans) that arise from transactions and events involving cash or cash equivalents must be recognized; • Liabilities for cash (or cash equivalents) held on behalf of others, held in escrow, or received in advance of being earned or meeting eligibility requirements must be recognized • Note disclosures similar to those required by GAAP must be made if they are relevant to any of the items listed above • Other note disclosures related to matters not presented on the face of the financial statements should be provided, as considered necessary

10. What about required supplementary information (RSI) • Does RSI have to be presented? • No. • By definition, RSI is relevant only to financial reports prepared in conformity with GAAP • What happens to information normally presented as RSI? • Alternative treatments • Budgetary comparisons for the general fund and major special revenue funds with legally adopted annual (or biennial) budgets must be presented as a basic financial statement; and • Certain relevant information normally required to be presented as part of management’s discussion and analysis (MD&A) in connection with GAAP financial reports must be incorporated into the letter of transmittal.

11. Does COCP require a CAFR? • Does a CAFR have to be prepared? • No. • COCP requires that the basic financial statements and certain other information be presented as part of a small government annual financial report (SGAFR) rather than as part of a comprehensive annual financial report (CAFR) • A SGAFR, like a CAFR, must include both an introductory section and a financial section. • Conversely, unlike a CAFR, a SGAFR does not have to include a statistical section

12. Trivia question What does Scarlett eat when she arrives at Tara after their escape from Atlanta?  Turnip  Peanuts  Radish  Egg Scarlett vowing in a barren field: "I'll never be hungry again!”

13. Answer Radish 69% of players have answered correctly • This is the only food she finds at Tara since the Yankees has destroyed all the plantations and killed or taken all of the livestock.

14. What specific information must be included in the SGAFR? • Financial section, like a CAFR, must present: • Combining and individual fund financial statements and schedules, including budgetary comparisons presented at the legal level of budgetary control for all individual governmental funds with legally adopted annual or biennial budgets. • In addition, the financial section needs to provide the following schedules of five-year trend data, as applicable: • Net position – government-wide financial statements – modified cash basis, • Changes in net position – government-wide financial statements – modified cash basis, • Fund balances – governmental funds – modified cash basis, • Revenues, expenditures, and changes in fund balances – governmental funds – modified cash basis, and • Outstanding debt by type

15. What are the application deadlines?

16. How will the reports be judged? Combination of volunteer reviewers and GFOA professional staff Same process as the Certificate of Achievement for Excellence in Financial Reporting Program

17. What does it cost? • The fee for participating in the Certificate of Conformance Program is based on the total amount of revenues reported in the government-wide financial statements (excluding discretely presented component units), as follows: Total Revenues GFOA Member Fee Nonmember Fee • Under $1 million $290 $580 • $1-10 million $370 $740 • Over $10 million $435 $870 • BONUS!! Nonmembers that submit for the first time receive a GFOA membership that allows them to submit at the member rate.

18. What are the benefits? • All governments that participate in the Certificate of Conformance Program will receive: • a grade assigned to each of section of their report, and • a list of specific comments and suggestions for improvement • The Certificate of Conformance Program normally will provide results within six months of receiving a submission, which should give the government adequate time to implement comments and suggestions in its next report • If the report meets the program’s criteria, the participating government also will receive • A plaque and a press release • A complete list of all award-winning reports will be maintained on the GFOA’s website • First-time winners of the award will be announced in the GFOA Newsletter

19. How can I obtain more information? • http://www.gfoa.org/index.php?option=com_content&task=view&id=2586 • Details on how to become a participant or reviewer • Download a COCP FAQ sheet • Access letter from GFOA’s Executive Director/CEO • Download a COCP award application • Download COCP checklists • All you need to know is easily found at the above link

20. Trivia question Which secret do the Tarleton twins share with Scarlett?  That they have been expelled from University  That Ashley Wilkes will be marrying his cousin Melanie Hamilton  That her father is jumping his horse again  That they wish the war would start.

21. Answer That Ashley Wilkes will be marrying his cousin Melanie Hamilton. 77% of players have answered correctly • Scarlett O'Hara, the main female character in the movie (and in the book as well), was always in love with Ashley Wilkes and dreamed of marrying him and becoming his wife. Scarlett was portrayed by Vivien Leigh.

22. Certificate of Conformance GFOA Training • http://www.gfoa.org/index.php?option=com_content&task=view&id=2586 • GFOA’s complimentary one-hour Internet training seminar,  The GFOA’s New Program for Small Governments that Prepare Modified Cash Basis Financial Reports • Interactive training will offer guidance on the practical application of the modified cash basis for financial reporting as well as the format and contents of a SGAFR • July 11, 2013 and September 18, 2013

23. Certificate of Conformance Questions?? On to the CAFR!!

24. Why bother with a CAFR? We have so much to do already! •  GFOA Certificate of Excellence in Financial Reporting encourages state and local governments to go beyond the minimum requirements of GAAP to prepare CAFRs: • that evidence the spirit of transparency and full disclosure to citizens and other stakeholders • recognize individual governments that succeed in achieving that goal.

25. Why bother? Reports submitted to the CAFR program are reviewed by selected members of the GFOA professional staff and the GFOA Special Review Committee (SRC) Individuals with expertise in public-sector financial reporting perform the review - Financial statement preparers, independent auditors, academics, and other finance professionals.  Reviewers provide constructive feedback for improvement

26. Why bother? Credit rating agencies and other interested parties may view the award as a positive factor in decisions about your government Accounting and financial reporting standards evolve; participation helps to ensure that your financial report fully implements those standards GFOA has formally recognized that the CAFR format meets the SEC Rule 15c2-12 (financial statement disclosure to investors)

27. Plenty of resources! Blue book – GAAFR (Governmental Accounting, Auditing and Financial Reporting) Auditors – “Yellow book” In-house staff GFOA reviewer’s checklist http://www.gfoa.org/downloads/GENERALPURPOSECHECKLIST.pdf Web-based software applications Third party vendors

28. CAFRComprehensive Annual Financial Report 3 Major Sections Introductory And Financial And Statistical

29. Order of presentation Table of Contents Introductory Section A. Letter of Transmittal B. Organizational Chart C. GFOA’s Certificate of Achievement

30. Cover Page-Specific Requirements Comprehensive Annual Financial Report (not “Annual Report”) Name of primary government State where government is located Fiscal period covered Not a requirement, but common practice to use art work highlighting the attributes of the entity

31. Cover page example Name of primary government City of Tara, Georgia State where government located Comprehensive Annual Financial Report CAFR For the Fiscal Year Ended September 30, 2012 Fiscal period covered

32. Financial Section A. Auditor’s Opinion B. Management Discussion and Analysis (MD&A) C. Basic Financial Statements D. Notes E. Required Supplementary Information (Other than MD&A) F. Other Information (Combining & Individual Statements) Order of presentation

33. Statistical Section Optional Sections Order of presentation

34. Trivia question What is the Wilkes's plantation called? Two Pines Twelve Oaks  Nine Wattles  Five Alpines

35. Answer This is where a barbeque is held and where Scarlett tells Ashley Wilkes that she loves him for the first time, with disastrous consequences. This is also where Scarlett first meets Rhett Butler. 95% of players have answered correctly.

36. Title Page-Specific Requirements Comprehensive Annual Financial Report (not “Annual Report”) Name of primary government State where government is located Fiscal period covered Department responsible for preparing the report

37. Title page example Name of primary government City of Tara, Georgia State where government located Comprehensive Annual Financial Report CAFR For the Fiscal Year Ended September 30, 2012 Fiscal period covered Prepared by the Finance Department Department responsible

38. Introductory Section-Purpose? Provides background and context of CAFR NOT included in scope of audit

39. Introductory Section-Contents Certificate of Achievement for Excellence in Financial Reporting-Prior Year List of Principal Officials Letter of Transmittal Organizational Chart

40. Certificate of Achievement Prior Year

41. City Officials

42. Letter of Transmittal-4 Sections Formal transmittal of and responsibility for the CAFR Profile of the government Economic Condition (Subjective Element) Awards & Acknowledgements Alert! No longer the “topical” approach. That is one of the common mistakes in CAFR preparation!

43. Letter of Transmittal Minimum-Signed by CFO Dated on the date the CAFR is first made available to the public (no earlier than the auditor’s report) On letterhead stationery of the entity Citizens included as addressee

44. Letter of Transmittal States that management is responsible for the contents of the report Directs readers to the MD&A Refrains from duplicating information contained in the MD&A or notes to the financial statements

45. Letter of Transmittal Helpful Hints Streamline discussion without altering basic contents Formal Transmittal No discussion of the budget calendar and budgetary responsibilities Profile of the Government Simple discussion of the legal level of budgetary control Information useful in Assessing Economic Condition Discussion of the local economy to encompass financial trends during the past five to 10 years Discussion of long-term planning to explain how it may shed light on current and future financial position Discussion of relevant financial policies

46. Letter of Transmittal Helpful Hints Information useful in Assessing Economic Condition Discussion of major initiatives from the budget document Eliminate separate topical discussions of cash management, risk financing, pensions, and other postemployment benefits

47. Transmittal letter example On letterhead Citizens included as addressee Dated on or after the date of the auditor’s report Formal transmittal of CAFR

48. Transmittal letter example Required section headings to be completed with concise charts and graphs Signed by CFO

49. Organizational Chart Example

50. Trivia question What color is the dress that Scarlett wears to Ashley's birthday party? • Black with white polka dots • Gray •  Violet •  Red