CSMFO - PowerPoint Presentation

Slide1

CSMFO2012 Annual ConferenceImplementing GASB 54 (Fund Balance Reporting)

Presentation by

Gregory S. Allison, CPA

UNC School of GovernmentSlide2

Why Change?Traditional focus of fund balance components on resources available for appropriationNew focus on two objectivesIndication of constraints of how resources can be spentIdentification of the sources

of those constraintsSlide3

Components of Fund BalanceNonspendableRestricted

Committed

Assigned

UnassignedSlide4

Nonspendable Fund BalancePortion of fund balance/net resources not in spendable form or nonspendable for foreseeable futureInventories

Prepayments

Long-term receivables

Portion of fund balance/net resources required to remain intact

Permanent fund principle Slide5

Restricted Fund BalanceResources in a governmental fund subject to externally enforceable constraints on spendingDebt covenantsGrantorsContributorsEnabling legislation (e.g., taxes raised for a particular purpose) Slide6

Committed Fund BalanceFormal legal constraints placed by the governing boardFormal action necessary to create OR rescindConstraints have to be in place no later than the end of the fiscal periodSimilar to a high level designationAbility to rescind differentiates committed from restricted net assetsSlide7

Assigned Fund BalanceReflects a government’s intended use of resources (i.e., earmarking – neither restricted or committed)Assignments may occur anytime

before

the

issuance

of financial statements

Assignment ability may be delegated by the board (commitments may not be)

Less formal

Default category for governmental funds

except

general fund (unless those amounts are negative)Slide8

Unassigned Fund BalanceResidual category for general fund Reflects deficit fund balance for other governmental fundsImpossible to report positive assigned fund balance and negative unassigned fund balanceAssigned amount has to be eliminated before negative unassigned may be reportedSlide9

Why do we need fund balance?Volatility of revenues, expenditures, and the economic environment in generalExposure to significant one-time outlays (e.g., disasters, capital needs, budget cuts)Need for general fund to provide availability to other funds (or vice versa)Liquidity needsCommitment/assignment policiesSlide10

Fund Balance Policy SourcesGFOA Best PracticesLocal policiesLocal laws/ordinancesState laws/ordinancesSlide11

GFOA Best PracticesAppropriate Level of Unrestricted Fund Balance in the General FundAdopted 2002, updated 2009Recommends adoption of formal policyCommittee, assigned, and unassigned categories represent unrestricted fund balanceFocus of most policies will be the general fundRecommends a minimum of no less than 2 months revenues or expenditures, regardless of size (~ 16%)Slide12

GFOA Best Practices (cont.)Appropriate Level...(cont.)Choice of revenue vs. expenditure should be based on most reliable/predictable measureLaws or policies may actually dictate higher amountsSome policies may focus on unassigned, rather than including commitments and/or assignmentsRecognize the difference between GAAP and budgetary fund balanceSlide13

GFOA Best Practices (cont.)Replenishing Fund Balance in the General FundAdopted 2011Reiterates the two-month recommendation of unrestricted fund balanceAddresses how to replenish fund balance when minimum amounts are breachedRecommends governments adopt formal fund balance policySlide14

GFOA Best Practices (cont.)Replenishing...(cont.)Identify purposes for which portions of fund balance are intended (e.g., working capital, stabilization, unexpected events)Potentially identify sources of replenishment (e.g., non-recurring revenues, surpluses, excess resources in other funds)

Policy should reiterate that fund balance replenishment a priority when conditions allow (generally within one to three years)Slide15

GFOA Best Practices (cont.)Replenishing...(cont.)Factors that influence rate and time periods of replenishmentBudgetary reasons/volatility of revenues

Recovery from an extreme event

Political continuity

Financial planning horizons

Long-term forecasts and economic conditions

Milestones for replenishment

External

financing expectations Slide16

Common Elements of a Fund Balance PolicyPolicy purposeGeneral purpose

Applicability to funds

Definitions and classifications

Governmental fund structure (if policy extends past the general fund)

Fund balance components

Restricted vs. unrestricted

Specific policySlide17

Fund Balance Policy GuidanceNew questions in 2011/12 Comprehensive Implementation GuideZ.54.23 (stabilization versus minimum fund balance)Z.54.24 (levels of specificity required)Z.54.25 (laws dictating minimum fund balance)Z.54.29 (disclosure details related to minimum fund balance being violated)Slide18

Stabilization FundsRepresents formal arrangements “setting aside” funds for budget/revenue stabilization, working capital, contingencies, emergencies, etc.May be restricted or committedFunds can only be accessed under specified circumstances that are not considered routineMinimum fund balance policies generally do not qualifySlide19

Selected Fund Balance DisclosuresCommitted and assigned policies and proceduresIdentify highest level of authorityFormal actions to commit

Policies that relate to assignment authority

Stabilization arrangements

Minimum fund balance policies

Only where governing bodies have formally adopted a policy (i.e., not if it is

imposed

upon the government)Slide20

Disclosures (cont.)Order in which government considers restricted versus unrestricted amounts to be spent when both are availableOrder in which committed, assigned, or unassigned amounts are considered to be spentAny aggregate displays on B/S should be disaggregated in sufficient detail in notesSlide21

What about....??? EncumbrancesNo longer separately identifiable on the face of the financial statementsStill considered a component of either restricted, committed, or assignedRestricted and committed amounts indirectly included in the calculations of the respective resourcesSlide22

What about...???(cont.)Appropriation for subsequent year’s projected budget shortfallCurrently reflected as designated fund balanceNow will be reflected as an assignmentFormal action to create but no formal action to not useLimited to the projected deficitSlide23

What about...???(cont.)Stabilization amountsFormal establishment of “rainy day” or “contingency” funds to only be used in specified circumstancesCategorized as restricted or committed Circumstances are specific and non-routine

(e.g., “emergencies” would not qualify)

Unassigned if not restricted or committedSlide24

Display GuidelinesNonspendable can be displayed in the aggregate or by the two categoriesNonspendable in formRequired to remain intactRestricted can be broken down by “major” restrictions or in the aggregateCommitted and assigned may be reported by “major” limitations or in the aggregateSlide25

Sample Balance Sheet ClassificationsNonspendable (any governmental funds)Restricted for (any governmental funds)Committed to (any governmental funds)Assigned to (any governmental funds)

Unassigned (General Fund only, used for negative residuals of other governmental funds)