CHAPTER 29

1

29 CHAPTER 29

GOVERNMENTAL ACCOUNTING: THE SPECIAL-PURPOSE FUNDS

AND SPECIAL GENERAL LEDGER

2

29FOCUS OF CHAPTER 29

The Remaining Governmental Funds The GCA-GLTL General Ledger The Proprietary Funds The Fiduciary Funds Financial Reporting to the Public:

General-Purpose Financial Statements

3

29 THE GOVERNMENTAL FUNDS: SPECIAL REVENUE FUNDS (#2 of 5)

Purpose: To account for the proceeds of specific revenue sources that are legally restricted to expenditure for specific purposes--excluding inflows for: Capital projects and Expendable trusts.

Inflows: Usually from specific taxes or nontax sources not directly related to services provided.

A General Fund “clone”--same structure.

4

29 THE GOVERNMENTAL FUNDS: CAPITAL PROJECTS FUNDS (#3 of 5)

Purpose: To account for the proceeds of financial resources that are to be used for the acquisition or construction of MAJOR CAPITAL FACILITIES--other than: Those financed by

Proprietary Funds and Trust Funds.

5

29 THE GOVERNMENTAL FUNDS: CAPITAL PROJECTS FUNDS (#3 of 5)

A temporary fund--at completion of the project: The fund is closed and The facility ’s cost is recorded as a capital

asset in the GCA-GLTL g/l. Costs incurred during construction are

charged to expenditures (outflows). Inflows: Bond sales and transfers from

the General Fund.

6

29 THE GOVERNMENTAL FUNDS:DEBT SERVICE FUNDS (#4 of 5)

Purpose: To account for the servicing of debt initially recorded as a liability in the GCA-GLTL g/l.

“Servicing of Debt” defined: The payment of (1) interest and (2) debt principal at maturity.

Unusual Features: Interest is not accrued until the due date. Principal payments are not recorded as

liabilities until the due date.

7

29SPECIAL ASSESSMENTS

Special Assessments: Assessments made against properties that directly benefit from improvements: Examples: Sidewalks, street lighting.

Special Assessment Bonds are usually issued to pay for the improvements. All construction activity takes place in

a Capital Projects Fund.

8


Bond Repayment: Assessees pay taxes over several years to pay off the bond issue.

Special Assessment Debt may or may nothave the backing of the governmental unit in the event of default.

Special Assessment Debt (SAD) Categories: SADs With Government Commitment.

(This is the usual situation.) SADs Without Government

Commitment.

9


SADs With Government Commitment: A Debt Service Fund is used to account

for : All collections from assessees. All payments to bondholders.

The bond liability is recorded in the GCA-GLTL g/l.

Unique Item: The entire tax assessment is recorded as Property Tax Receivables--the noncurrent portion is Deferred Revenues.

10


SADs Without Government Commitment: An Agency Fund is used to account for:

All collections of property taxes from assessees.

All payments to bond holders. No liability is recorded in the

GLTDAG. The governmental unit is viewed merely

as an agent for the assessees and the bondholders.

11

29 THE GCA-GLTL GENERAL LEDGER

Purpose: Accounts for capital assets (at historical cost) and debt not accounted for in: Enterprise Funds, Internal Service

Funds, or Trust Funds.Not a fund--it has no cash for

paying liabilities.A self-balancing set of accounts.

12

29GENERAL CAPITAL ASSETS

Categories of Assets: Land. Buildings. Improvements other than buildings. Equipment. Construction work in progress (being

performed by Capital Projects Funds). Infrastructure assets (see next slide).

13

29 GENERAL CAPITAL ASSETS: Infrastructure Assets

Capitalization is mandatory for public domain or “infrastructure” capital assets such as: Streets and roads. Sidewalks. Bridges and tunnels Water & sewer systems Lighting systems

14

29 GENERAL CAPITAL ASSETS: Infrastructure Assets

Infrastructure Assets: Long-lived capital assets that normally

are: Stationary in nature Normally can be preserved for a

significantly greater number of years than most capital assets.

15

29 GENERAL CAPITAL ASSETS: Postcapitalization Periods

Depreciation is mandatory--except for certain infrastructure assets:

Depreciation Expense is never reported in the operating statement of governmental funds.

It is reported only in the two government-wide statements.

Sales of Assets: Record proceeds as OTHER FINANCING SOURCES in General Fund.

16

29 INFRASTRUCTURE ASSETS: Depreciation

Noneligible Infrastructure Assets :

Must be depreciated.

(See following slideregarding eligibleinfrastructure assets.)

17

29 INFRASTRUCTURE ASSETS: Depreciation

Eligible Infrastructure Assets : Need not be depreciated. Defined: Assets being (1) managed using

an asset management system having certain characteristics (described in GAS 34 ) and (2) preserved approximately at or above an established and disclosed condition level. Condition assessments must be

performed at least every 3 years.

18

29 GENERAL LONG-TERM LIABILITIES

Long-term debt that is not properly shown in Proprietary Funds or Trust Funds. GLTL includes:DEBT issuance liabilities having a maturity

date of more than one year at the time of issuance (these are borrowings).

NONDEBT issuance liabilities that would not “normally be liquidated with expendable available financial resources” (e.g., a lawsuit liability to be paid in 3 yrs.)

19

29 GENERAL LONG-TERM LIABILITIES

Examples of Debt Recorded in GCA-GLTL g/l: General obligation bonds (usually issued to

pay for capital projects). Claims and judgments. Compensated absences (vacation & sick

pay). Unfunded pension contributions. Capital leases payable. Special assessment debt having

government commitment (explained earlier).

20

29 GENERAL LONG-TERM DEBT LIABILITIES

Consequences of Reporting “Nondebt Issuance Liabilities” in the GCA-GLTL g/l: It enables governments to

magically conceal whetherthey are living within theirmeans at the fund-based reporting level.

It results in the fund-based “operating

statement” being a “Statement of ALL of

the Revenues and SOME of the Costs Incurred This Period.”

21


BAD NEWS:Many governmental units have tons of nondebt issuance liabilities that will have to bepaid by future generations (which may find it quite burdensome or impossibleto pay).

22


GOOD NEWS:GAS 34 (issued in 6/99) requires“government-wide financial statements”that measure the flow of economic resources on the accrual basis.Such statements reveal:(1) the cost of providing services.(2) the change in the financial condition.

23


Liquidation of GLTL: Debt Issuance Liabilities: At the

maturity date , the liability is transferred to a Debt Service Fund.

Nondebt Issuance Liabilities: At the payment date , the liability is transferred to the General Fund.

Note that GLTL is not removed from the GCA-GLTL g/lwhen it becomes a current liability (due within 12 months).

24

29 THE GOVERNMENTAL FUNDS: PERMANENT FUNDS (#5 of 5)

Permanent Funds: Accounts for endowment-type

situations in which: Only the endowment’s earnings

can be used for purposes that support the reporting government’s programs.

Benefits the reporting government or its citizenry.

25

29 THE PROPRIETARY FUNDS: INTERNAL SERVICE FUNDS

Purpose: To account for activities that

provide services solely to other departments.

Manner of accounting parallels that of commercial businesses (accrual basis & measurement of flow of economic resources). Balance sheet reports Long-Term Debt.

26

29 THE PROPRIETARY FUNDS: ENTERPRISE FUNDS

Purpose: To account for activities

that provide services primarily to the public.

Examples: Gas, electric, water utilities. Manner of accounting parallels that of

commercial businesses (accrual basis & measurement of flow of economic resources). Balance sheet reports Long-Term Debt.

27

29 THE FIDUCIARY FUNDS

Two categories (four funds) exist: Agency Funds. Trust Funds:

Pension (and other employee benefit) Trust Funds.

Investment Trust Funds Private-Purpose Trust Funds.

28

29 THE FIDUCIARY FUNDS:AGENCY FUNDS

Purpose: To serve as conduits for the transfer of money--purely custodial in nature.

ASSETS ALWAYS EQUAL LIABILITIES.

The following items do not exist: A fund balance/equity. An operating statement.

A = L

29

29 THE FIDUCIARY FUNDS:TRUST FUNDS

Purpose: To account for the investing and using of money in accordance with stipulated provisions of trust indenture agreements or statutes.

Pension (and other employee benefit) Trust Funds.

Investment Trust Funds (created by GAS 31 ).

Private-Purpose Trust Funds.

30

29 PRIVATE-PURPOSE TRUST FUNDS

Accounts for property held under trust arrangements in which: Both the principal and income

benefit: Individuals, Private organizations, or Other governments.

31

29 FINANCIAL REPORTING TO THE PUBLIC: The CAFR

The Comprehensive Annual Financial Report (CAFR). Includes: Government-wide statements (2) Fund-based statements (7)

32

29Government-Wide Statements

Two major statements that:

Are presented on the accrual basis.

Measure the flow of economic resources (same measurement flowas in commercial accounting ).

33


These two statements are the: Statement of Net Assets (includes all

GCA and GLTL). Statement of Activities (includes

depreciation expense). These two statements are presented

in addition to the Fund-Based Financial Statements (7 of them).

34


The two government-wide statements enable assessment of whether: Current-year citizens paid

for the services they received in the current year, or ifthe costs of services wereshifted to future-year citizens

FREE RIDE

35


A government’s financial position has improved or deteriorated as a result ofthe year’s operations.

36


Each of the two government-wide statements must distinguish between: Governmental activities and business-

type activities of the primary government.

The total primary government and its discretely presented component units by reporting each in separate columns.

#2

#1

37


Fiduciary activities are:

Excluded from the government-wide statements if their resources are NOT available to finance the government’s programs.

38


IMPORTANT FEATURES of the

government-wide Statement of Net Assets:

Reports all “general capital assets”--including infrastructure.

Reports all debt--including GLTL.

#1

#2

39



government-wide Statement of Net Assets (cont.): Reports net assets in 3 categories:

Invested in capital assets, net of related debt.

Restricted. Unrestricted.

#3

#2

#3

#1

40



government-wide Statement of Net Assets (cont.):

In general, interfund balances (loans, advances, and

due to and due from accounts) are eliminated.

#4

41



government-wide Statement of Activities: Presented in at least the same level

of detail provided in the governmental fund statements (generally, expenses and program revenues by function--e.g., public safety, public health, and recreation).

#1

42



government-wide Statement of Activities: Format must report expenses reduced

by program revenues---results in a

measurement of “net (expense) revenue” for each of the government’s functions.

#2

43


IMPORTANT FEATURES of the government-

wide Statement of Activities (cont.): Program expenses include all direct expenses.

Depreciation expense thatcan specifically be identified with a function is reported as a direct expense.

Allocated overhead and other indirect expenses to individual programs arepresented in a separate column.

#3

44



government-wide Statement of Activities (cont.): Reports extraordinary items (items

beyond control of mgt.) separately. Reports special items (items within

the control of mgt.) separately.

#4

#5

45



government-wide Statement of Activities (cont.):

In general, interfund activity is eliminated: Interfund services provided and used. Interfund transfers. Other interfund activity.

#6

46

29Fund-Based Statements

Purpose of fund-based statements: These statements show the short-

term performance of individual funds using the same measures that governments use to manage their money.

47


A SHARPENED FOCUS: Must report information about

the mostimportant funds--the “major funds” (including the General Fund).

48


Major funds are those whose revenues, expenditures/expenses, assets, or liabilities are at least: 10% of the total for their fund category

or type (governmental or enterprise)

and 5% of the aggregate amount for all

governmental and enterprise funds.

49


Nonmajor funds are:

Aggregated and

Reported in a separate column (labeled “all other funds”).

50


IMPORTANT FEATURES of the fund-based statements

Must present two summary reconciliations that show the interplay between the two types of statements. Both types of statements together

constitute “an integrated set of statements.”

#1

51


IMPORTANT FEATURES of the fund-based statements (cont.):

In general, interfund activity will be reported separately: Interfund services provided and used. Interfund transfers. Other interfund activity Interfund open balances.

#2

52


IMPORTANT FEATURES of the fund-based statements (cont.):

Internal Service Funds

are aggregated and

presented in a separate column on the proprietary fund statements.

#3

53


IMPORTANT FEATURES of the fund-based statements (cont.): Proprietary Funds:

Statement of Net Assets (or Balance Sheet):Displays net assets using the same

categories used in government-wide statements.

Distinguishes between restricted and unrestricted assets.

#4

54


IMPORTANT FEATURES of the fund-based statements (cont.): Proprietary Funds (cont.):

Statement of Revenues, Expenses, and Changes in Fund Net Assets (or Equity):Must distinguish between operating and nonoperating revenues and expenses.

#4

55


IMPORTANT FEATURES of the fund-based statements (cont.): Proprietary Funds (cont.):

The all-inclusive change in fund net assets includes (1) capital contributions; (2) contributions to term and permanent endowments, (3) special items, (4) extraordinary items, and (5) transfers.

Cash flow statement must use the direct method (interest expense is financing--not operations as in private sector).

#4

56

29 Required Supplementary Information (RSI)

RSI includes: Budgetary comparison statements for

the General Fund and each major Special Revenue Fund. Use both original budget and Any amended budget..

Management’s discussion and analysis (the MD&A).

57

29End of Chapter 29

Time to Clear Things Up--Any Questions?

CHAPTER 29

Documents

Transcript of CHAPTER 29