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Basic Overview of Governmental Accounting,

Budgeting, Contracts/Purchasing, Accounts Payable and

Treasury

Finance Academy

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Course Facilitators

• Al Friedrich, Office of the Auditor-Controller

• Paul Lewis, CAO – Budget and Analysis

• Mike Derr, CAO – Contracts/Purchasing

• Ma Mon, Office of the Auditor-Controller

• Eamonn Mahar, Office of the Treasurer – Tax Collector

Purpose

To provide an general overview of accounting, financial reporting, contracts/purchasing, accounts payable and treasury as practiced at the local government level and Monterey County in particular.

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There are two types of change: the change we choose and the change

that chooses us.

Linda Ellerbee, TV Journalist

Governmental

Accounting

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Accounting Standards

• Financial Accounting Standards Board (FASB)• Business enterprises and not-for-profit

organizations

• Government Accounting Standards Board (GASB)• State and local governments

• Statement on Auditing Standards • SAS 112 – Internal Control Deficiencies

Fund Accounting

• Governmental resources are allocated and accounted for in separate entities, called funds, based on the purposes for which they are to be spent and controlled.

• The funds are self-balancing entities. Each of these entities accounts for assets, liabilities and equities.

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Types of Funds

• Governmental Funds

• Tax supported Activities

• Legally Adopted Budgets

• Types:

• General Fund

• Special Revenue Funds

• Capital Project Funds

• Debt Service Funds

Types of Funds

• Proprietary Funds• Self-sustaining, Fee Supported Activities

• Enterprise Funds

• Internal Service Funds

• Fiduciary Funds• Trustee Activities on behalf of Outside Parties

• Pension Trust Funds

• Investment Trust Funds

• Private-Purpose

• Agency Funds

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Measurement Focus andBasis of Accounting

• Governmental Funds

• Current Financial Resources

• Modified Accrual

• Proprietary & Fiduciary Funds

• Economic Resources

• Full Accrual

Economic Resources vs.Current Financial Resources

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Measurement Focus andBasis of Accounting

• Cash

• Recognize Revenue when Cash is Received.

• Recognize Expense when Cash is Paid.

Measurement Focus andBasis of Accounting

• Full Accrual• Economic Resources – Net Worth of Program

• Revenues when Earned regardless of Cash timing

• Expenses when Incurred regardless of Cash timing

• Balance Sheet• Current and Capital Assets

• Current and Long-term Debt

• Operations: Statement of Revenues, Expenses and changes in Net Assets

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Balance Sheet

Assets

Liabilities

Net

Assets

Full Accrual

Cash Full

Accrual

Assets

Cash

$ 10,000

$ 10,000

Investments 100,000 100,000 A/R -- 50,000

Total Assets 110,000 160,000

Liability Payables -- 5,000

Prepaid -- 20,000 Total Liabilities -- 25,000

Net Assets 110,000 135,000

Total 110,000 160,000

Cash

Full Accrual

Assets

Cash

$ 10,000

$ 10,000

Investments 100,000 100,000 Receivables -- 50,000 Total Assets 110,000 160,000

Liability

Payables -- 5,000 Deferred Rev. -- 20,000

Total Liabilities -- 25,000 Net Assets 110,000 135,000 Total Liab. & Net Assets 110,000 160,000

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Measurement Focus andBasis of Accounting

• Modified Accrual

• Focus on Current Financial Resources

• Revenues in period available and measurable

• Expenditures in the time period incurred

• Balance Sheet includes only Current Assets, Liabilities and Fund Balance

• Operations: Statement of Revenues, Expenditures and Changes in Fund Balance

Measurement Focus andBasis of Accounting

• Modified Accrual (Cont’d)

• Capital Assets

• Expenditures, not Assets of the Fund

• Debt & Long Term Liabilities

• Proceeds = Revenue

• Current Expenditures and Interest

• Fund Balance

• Reserves & Designations

• Available Fund Balance (Undesignated/Unreserved)

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Balance Sheet

Current

Assets

Current

Liabilities

Fund

Balance

Modified

Accrual

Cash Full

Accrual

Assets

Cash

$ 10,000

$ 10,000

Investments 100,000 100,000 A/R -- 50,000

Total Assets 110,000 160,000

Liability Payables -- 5,000

Prepaid -- 20,000 Total Liabilities -- 25,000

Net Assets 110,000 135,000

Total 110,000 160,000

Modified Accrual

Full

Accrual

Assets

Cash

$ 10,000

$ 10,000

Receivables 100,000 150,000 Capital Assets (Net) -- 50,000

Total Assets 110,000 210,000

Liability Current Payables 5,000 5,000 Long-term Notes -- 20,000

Total Liabilities 5,000 25,000 Fund Balance

105,000

Net Assets 185,000 Total Liab. & FB or NA 110,000 210,000

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Capital Assets

• Capital Asset Policy

• Assets that Benefit more than One Fiscal Period and Individually Worth more than Capital Asset Thresholds

• Differentiated from Maintenance

• Auditor-Controller Website:• http://www.in.co.monterey.ca.us

• Under Policies & Procedures

Long-Term Liabilities

• Debt Service

• Self Insurance

• Workers Compensation

• Unfunded Pension Liability

• Accrued Leave

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Interfund Activity

• Interfund Loans• One Fund lends Money to another Fund.

• Interfund Transfers• Flow of Assets without an Equivalent Flow of

Assets in Return and without a Requirement for Repayment

• Reimbursements• Repayments from Funds responsible for a

Particular Expenditure to a Fund that Initially Paid

Intrafund Activity

• Reimbursements• Repayments from Units responsible for a

Particular Expenditure to a Unit that Initially Paid

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ASSETS = LIABILITIES + FUND BALANCES

Nonspendable, Reserved, Committed,

Assigned and Unassigned

Budgetary & Operating Accounts

Fund Equation for the General Fund

Purpose:

• Used to record the budgetary inflows and outflows estimated or authorized in the annual budget

• Estimated Revenues, Estimated Other Financing Sources

• Appropriations, Estimated Other Financing Uses

• Encumbrances

Budgetary Accounts

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Budgetary and Operating Statement Accounts (Cont’d)

• An appropriation is a legal authorization granted by the legislative body to incur liabilities for purposes specified in the appropriation act or ordinance

• An encumbrance is an estimated amount recorded for purchase orders, contracts, or other expected expenditures chargeable to an appropriation

Available

Appropriations Expenditures Encumbrances Balance

Date Explanation CR (DR) DR (CR) DR (CR) CR (DR)

7-1-12 Budget authority 1,500 1,500

7-2-12 Purchase order 500 1,000

8-15-12 Voucher payable 515 (500) 985

Ledger for Budgetary Control

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Financial Reporting

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Comprehensive AnnualFinancial Report (CAFR)

• Transmittal Letter

• Management Discussion and Analysis (MD&A)

• Basic Financial Statements

• Government-wide (Full Accrual)

• Fund (Modified Accrual)

• Statistical Section

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Who Reviews Financial Reports?

• Bond Holders, Mutual Fund Traders, Rating Agencies, Prospective Creditors, Grantors, Federal & State Government

• What do they look for?• Financial Stability

• Status of Reserves

• New Debt – Risks for Existing Debt

• Continuing Disclosure – Alerts to New Risks

• Unqualified Audit Opinion

Single Audit

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The End!