Accounting for Rural Transits

1. Accounting for Rural Transits Presented by The Ohio Department of Transportation Office of Transit Office of External Audits

2. Housekeeping • Restrooms • Smoking Area • Cafeteria Details • Please turn phones to vibrate

3. Training Focus • County Transit Boards • Governmental Units • City • County • Municipalities • Villages • Private Nonprofit Corporations • Regional Transit Authorities

4. Topics - AM • Roles & Responsibilities • Accrual Accounting • Supporting Documentation/Proper Documentation • Invoicing • Revenue • Classification • Reporting

5. Topics - PM • Expenses • Eligible/Ineligible • Adjustments/Offsets • Operating vs. Capital (No double dipping) • Vehicle Operation Maintenance • Non-Vehicle Operation Maintenance • Cost Allocation Plans/Overhead • Common Audit Findings

6. Roles & Responsibilities

7. Roles & Responsibilities Ohio Department of Transportation (ODOT)

8. ODOT’s Role & Responsibilities • State agencies (ODOT) are responsible for: • providing oversight of Federal and State funds • ensuring that funds are used appropriately • ensuring compliance with Federal and State guidance • ensuring compliance with the terms of the contract

9. ODOT Roles & Responsibilities • Two primary methods: • Desk Inspections • Audits (On-site)

10. ODOT’s Roles & Responsibilities • Desk Inspections • Review audit reports issued by Auditor of State and Independent Public Accountants (IPAs) • Reconcile Schedule of Expenditures of Federal Awards • Confirm receipt /recognition of federal funds • Identify and follow-up on audit findings & issues • Bring significant or material issues to attention of the Office of Transit

11. ODOT Roles & Responsibilities • Audits • Conducted on-site (4 – 5 days) • Cover a specific period of time (years) • Up to 3 years after final payment • Formal Entrance & Exit conference • Request documents in advance of on-site • Review, reconcile and verify • Financial statements to General Ledger • ODOT invoices to Transit source documents • Sample of transaction (revenue and expense) • Issue audit report • Findings for recovery • Corrective Action Plan

12. How is a Transit selected for Audit? • Risk Assessment performed annually • Combination of financial and programmatic criteria • Input from Office of Transit • Includes, but not limited to: • Federal Funding/federal sources • Prior audit findings (AOS) • Prior QAR findings • Accuracy of invoicing

13. Additional Oversight Methods • Produce annual report to assist Transits with Federal Reporting • AKA “Pink Book” • Available on ODOT – Audits website for Transits • Review Cost Allocation Plans • Review Charge Rates (Central Garage) • Provide training and technical assistance

14. Roles & Responsibilities Transits

15. Transit Responsibilities • Follow Federal and State guidance • Office of Management and Budget (OMB) Guidance (See chart) • Ohio Revised Code • GAAP (Generally Accepted Accounting Principles) • FTA Guidance • ODOT Rural Transit Manual • Comply with terms of contract • Requires the use of accrual accounting

16. Federal Guidance Available at http://www.whitehouse.gov/omb/circulars_default

17. Transit – General Requirements • Must use accrual accounting when invoicing ODOT. • Must provide supporting documentation for revenue and expense. • Must provide detail to support cost allocation and overhead rates charged

19. Accrual Accounting

20. Accrual Accounting Fundamental concept of GAAP Accrual Accounting matches revenues and expenses to the period earned or incurred

21. To understand Accrual Accounting Accounting Basics are necessary

22. What is a debit or a credit? This is commonly referred to as a “T” account. Left Side Right Side

23. Accounting Equation Assets = Liabilities + Equity

24. What is the “normal balance”? • The normal balance is the side of the T-account that represents an increase. This is the side the balance should be on.

25. Normal Balances

26. What is the Difference between Cash and Accrual Accounting? Cash Accrual Revenue when earned Expense when incurred Matches revenue & expense to period (month, quarter, year) Application: Company • Revenue when received • Expense when paid • Disregards matching / timing (revenue in one month – expense in a different month) Application: Personal Household

27. Benefits of Accrual Accounting with Transit Grant • Perfect match to grant budget • Whereas costs are applied over 12 months • True cost of business is reflected • Allows for better projections for future years • Allows for better management of Transit organization finances

29. Accrual Accounting Transit Examples • Revenue • Liability • Expense

30. An example of an accrual – contract revenue • Transit Services (rides) provided in January. • Invoice in the amount of $5,000 sent to provider in February. • Provider pays $5,000 invoice in March When does the Transit record the revenue?

31. An example of an accrual – contract revenue When does the Transit record the revenue? Revenue must be recorded in the time period earned, which would be Januaryfor this example. Before accounting records are closed for January, the entry must be recorded. What is the accounting entry?

32. Adjusting Journal Entry to record revenue earned There is no exchange of cash – only the recording of the revenue and amount due.

33. T-Account entries

34. Journal Entry to Record Cash Receipt in March

35. T-Account entries

36. Accrual Accounting - Revenues • Revenues earned during the period but no cash payment has been received: • Contract revenue • Advertising revenue • Maintenance Revenue • May be billed and payment not received • May not be billed

37. Insurance Liability • Transit receives invoice for insurance - $12,000 for the current year in January. • Transit pays $12,000 invoice in January. When does the Transit record the expense? What does the transit record?

38. An example of an accrual – Insurance Expense When does the Transit record the expense? What does the transit record? Expense must be recorded in the time period incurred, which would be January– December for this example. $1,000 insurance expense will be recognized each month. A prepaid expense is recorded initially. What is the accounting entry?

39. Journal Entries Entries would also be made for April - November

40. Insurance Liability • Transit receives invoice for insurance - $12,000 for the current year in January. • Transit pays $3,000 quarterly. When does the Transit record the expense? What does the transit record?

41. An example of an accrual – Insurance expense When does the Transit record the expense? What does the transit record? Expense must be recorded in the time period incurred, which would be January– December for this example. $1,000 insurance expense will be recognized each month. A prepaid expense is recorded initially. What is the accounting entry for the quarterly payment and the monthly accrual?

43. An example of an accrual – Utility Services • Utilities Services provided to Transit in January. • Invoice received in February for January services in the amount of $1,000. • Transit pays $1,000 invoice in March. When does the Transit record the Expense?

44. An example of an accrual – Utility Expense When does the Transit record the expense? Expenses must be recorded in the time period incurred, which would be Januaryfor this example. Before accounting records are closed for January, the entry must be recorded. What is the accounting entry?

45. Adjusting Journal Entry to record expense No payment of cash, just the accrual of utility expense – (can be a reasonable estimate.)

46. T-Account entries

47. Journal Entry to Record Cash Payment in March

48. T-Account entries

49. Overall Effect to Accounts