STATE AID FINANCE ACCOUNTING MANUAL. For Counties

Transcription

1 STATE AID FINANCE ACCOUNTING MANUAL For Counties Revised November 2017

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3 STATE AID FINANCE ACCOUNTING MANUAL INTRODUCTION... I PURPOSE... I UPDATES... I QUESTIONS... I STATE AID TASK FORCE MEMBERS... I STATE AID FINANCE TEAM... I CHART OF ACCOUNTS OVERVIEW... II FUND... II DEPARTMENT... II OBJECT... II HIGHWAY ACCOUNTING... II Administration Department... II Engineering/Construction Department... III Road Maintenance... IV Shop and Equipment... VII Inventory... VII CHAPTER 1 ANNUAL ALLOTMENTS... 1 REGULAR MAINTENANCE ALLOTMENT... 1 REGULAR CONSTRUCTION ALLOTMENT... 1 MUNICIPAL MAINTENANCE ALLOTMENT... 2 MUNICIPAL CONSTRUCTION ALLOTMENT... 2 TOWN BRIDGE ALLOTMENT... 2 TOWN ROAD ALLOTMENT... 3 EXAMPLES... 4 CHAPTER 2 REGULAR AND MUNICIPAL MAINTENANCE ACCOUNTS... 5 NARRATIVE... 5 REGULAR MAINTENANCE ACCOUNT... 5 ACCOUNTS NEEDED... 5 SEQUENCE OF EVENTS... 6 i

4 STATE AID FINANCE ACCOUNTING MANUAL 1 ST ADVANCE PAYMENT ND ADVANCE PAYMENT... 6 FINAL MAINTENANCE PAYMENT... 6 YEAR-END ENTRIES... 6 FINAL MAINTENANCE PAYMENT... 9 EXAMPLES MUNICIPAL MAINTENANCE ACCOUNT ACCOUNTS NEEDED SEQUENCE OF EVENTS ST ADVANCE PAYMENT ND ADVANCE PAYMENT FINAL MAINTENANCE PAYMENT YEAR-END ENTRIES FINAL MAINTENANCE PAYMENT EXAMPLES CHAPTER 3 REGULAR AND MUNICIPAL CONSTRUCTION ACCOUNTS NARRATIVE SPECIAL CONSIDERATIONS ACCOUNTS NEEDED SEQUENCE OF EVENTS PROJECT IS APPROVED % PAYMENT IS RECEIVED FOR THE PROJECT WORK BEGINS ON THE PROJECT PROJECT IS FINALIZED FINAL PAYMENT TO CONTRACTOR REVOCATION OF A STATE AID ROAD EXAMPLES Example A Example B Example C Example D CHAPTER 4 TOWN BRIDGE CONSTRUCTION ACCOUNTS NARRATIVE ii

5 STATE AID FINANCE ACCOUNTING MANUAL ACCOUNTS NEEDED SPECIAL CONSIDERATIONS SEQUENCE OF EVENTS PROJECT IS AWARDED % PAYMENT IS RECEIVED FOR THE PROJECT WORK BEGINS ON THE PROJECT PROJECT IS FINALIZED FINAL PAYMENT TO CONTRACTOR EXAMPLES Example A Example B Example C Example D NARRATIVE ACCOUNTS NEEDED SEQUENCE OF EVENTS NOTIFICATION OF SPECIAL TOWN BRIDGE ALLOCATION RECOGNIZE SPECIAL TOWN BRIDGE ALLOCATION SPECIAL CONSIDERATIONS PROJECT UNDERRUNS ORIGINAL ESTIMATE WITH AN OVERPAYMENT PROJECT IS AWARDED % PAYMENT IS RECEIVED FOR THE PROJECT WORK BEGINS ON THE PROJECT PROJECT IS FINALIZED PROJECT IS COMPLETED AS ESTIMATED PROJECT OVERRUNS ORIGINAL ESTIMATE PROJECT UNDERRUNS ORIGINAL ESTIMATE WITH AN OVERPAYMENT REDUCTION OF SPECIAL BRIDGE ALLOTMENT FINAL PAYMENT TO CONTRACTOR EXAMPLES Example A Example B Example C iii

6 STATE AID FINANCE ACCOUNTING MANUAL Example D CHAPTER 5 SPECIAL CONSTRUCTION ACCOUNTS NARRATIVE ACCOUNTS NEEDED SEQUENCE OF EVENTS PROJECT IS AWARDED WORK BEGINS ON THE PROJECT PARTIAL REIMBURSEMENT IS REQUESTED PROJECT IS FINALIZED FINAL PAYMENT TO CONTRACTOR EXAMPLES Example A Example B Example C STATE PARK CONSTRUCTION ACCOUNT NARRATIVE ACCOUNTS NEEDED SEQUENCE OF EVENTS PROJECT IS AWARDED % PAYMENT IS RECEIVED FOR THE PROJECT WORK BEGINS ON THE PROJECT CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS NARRATIVE DELEGATED CONTRACT PROCESS (COUNTY ADMINISTERS CONTRACT) TRADITIONAL PROJECTS (MnDOT ADMINISTERS CONTRACT) SHARED FEDERAL REVENUE ADVANCE OF STATE AID FUNDS FOR FEDERAL PROJECTS ADVANCE RESOLUTION STATE AID FUNDING ON DELEGATED CONTRACT PROCESS ACCOUNTS NEEDED SEQUENCE OF EVENTS PROJECT IS APPROVED iv

7 STATE AID FINANCE ACCOUNTING MANUAL ADVANCE PAYMENT FOR STATE AID FUNDS RECEIVED FOR THE PROJECT PROJECT DEVELOPMENT, RIGHT OF WAY REIMBURSEMENT, ETC WORK BEGINS ON THE PROJECT REIMBURSEMENT OF FEDERAL AND STATE BOND FUNDS FINAL PAYMENT TO CONTRACTOR PROJECT IS FINALIZED Example A Example B Example C Example D ACCOUNTS NEEDED SEQUENCE OF EVENTS LOCAL OBLIGATION STATE AID TRANSFER NOTICE PROJECT DEVELOPMENT, RIGHT OF WAY REIMBURSEMENT, ETC YEAR END ADJUSTMENTS PROJECT IS FINAL EXAMPLES Example A Example B Example C Example D CHAPTER 7 LOCAL AGENCY BONDS AND LOCAL TRANSPORTATION REVOLVING LOAN FUND NARRATIVE ACCOUNTS NEEDED SEQUENCE OF EVENTS BOND ISSUE INVESTED FUNDS CONTRACT PAYMENTS ARE PROCESSED ANNUAL PRINCIPAL AND INTEREST PAYMENTS STATE AID RELEASES BOND PRINCIPAL AND INTEREST COUNTY MAKES BOND PRINCIPAL AND INTEREST PAYMENT APPLYING BOND FUNDS v

8 STATE AID FINANCE ACCOUNTING MANUAL REFUNDING BONDS YEAR END REPORTING NARRATIVE ACCOUNTS NEEDED SEQUENCE OF EVENTS PRINCIPAL AND INTEREST PAYMENTS FROM STATE AID TRLF LOAN PROCEEDS ARE RECEIVED STATE AID FUNDS RECEIVED LOAN PAYMENT MADE CHAPTER 8 ADVANCED ENCUMBRANCE NARRATIVE ACCOUNTS NEEDED SEQUENCE OF EVENTS RESOLUTION ON FILE PROJECT IS APPROVED FUNDS ARE ADVANCED % PAYMENT IS RECEIVED FOR THE PROJECT WORK BEGINS ON THE PROJECT PROJECT IS FINALIZED FUNDS ARE TRANSFERRED FROM MAINTENANCE FUNDS ARE ADVANCED FOR FINAL PAYMENT FINAL PAYMENT IS RECEIVED ANOTHER PROJECT IS FINAL WITH AN OVERRUN YEAR END REVENUE REDUCTION FOR STATE AID ADVANCES BEGIN NEW YEAR ALLOTMENT AND REVERSING ENTRIES EXAMPLES Example A Example B Example C CHAPTER 9 RECONCILING STATE AID ACCOUNTS RECONCILING ACCOUNTS TO STATE AID STATUS REPORTS NARRATIVE vi

9 STATE AID FINANCE ACCOUNTING MANUAL CSAH REGULAR CONSTRUCTION CSAH MUNICIPAL CONSTRUCTION COUNTY TURNBACK STATE PARK CONSTRUCTION SPECIAL TOWN BRIDGE CONSTRUCTION TOWN BRIDGE CONSTRUCTION TOWN ROAD CSAH REGULAR MAINTENANCE CSAH MUNICIPAL MAINTENANCE COUNTY DISASTER RECONCILING THE UNEARNED REVENUE ACCOUNTS NARRATIVE REGULAR MAINTENANCE MUNICIPAL MAINTENANCE REGULAR, MUNICIPAL, SPECIAL TOWN BRIDGE AND TOWN BRIDGE CONSTRUCTION CHAPTER 10 UNALLOCATED COST DISTRIBUTION NARRATIVE ADMINISTRATIVE COSTS FRINGE BENEFIT RATE CALCULATION CONSTRUCTION COSTS MAINTENANCE COSTS SHOP AND EQUIPMENT COSTS NON-HIGHWAY RELATED COSTS CHAPTER 11 FIXED ASSETS NARRATIVE ACCOUNTS NEEDED ASSET LISTING MINOR EQUIPMENT PURCHASES EXAMPLE 1: NEW UNIT PURCHASED WITH A DISCOUNT DELIVERED SERVICE READY EXAMPLE 2: NEW UNIT PURCHASED WITH TRADE-IN GAIN vii

10 STATE AID FINANCE ACCOUNTING MANUAL $5, LABOR & EQUIPMENT BEFORE SERVICE READY EXAMPLE 3: NEW UNIT PURCHASED WITH TRADE-IN LOSS $5, LABOR & EQUIPMENT BEFORE SERVICE READY DEPRECIATION BETTERMENTS RENTAL RATES EQUIPMENT RENTAL, LEASE & LEASE BACK EQUIPMENT RENTALS EQUIPMENT LEASES OPERATING LEASE (STRAIGHT LEASE) CAPITAL LEASE (LEASE TO OWN) LEASE WITH OPTION LEASE CONSIDERATIONS BUY BACKS EXAMPLE 1: BUY BACK WITH TRADE-IN GAIN PRESENTATION IN ANNUAL REPORT USEFUL LIFE RECOMMENDED GUIDELINES SUMMARY CHAPTER 12 INFRASTRUCTURE CAPITALIZATION (GASB 34) REPORTING CAPITAL ASSETS REPORTING GENERAL INFRASTRUCTURE ASSETS AT TRANSITION INITIAL CAPITALIZATION OF GENERAL INFRASTRUCTURE ASSETS Determining Major General Infrastructure Assets Establishing Capitalization at Transition Estimated Historical Cost Current Replacement Cost Example: Estimated Historical Cost Current Replacement Cost Estimated Historical Cost Existing Information Example: Estimated Historical Cost Existing Information Methods of Calculating Depreciation Example: Calculating Depreciation Composite Methods MODIFIED APPROACH FOR REPORTING INFRASTRUCTURE ANNUAL INFRASTRUCTURE REPORTING CHAPTER 13 INVENTORY MANAGEMENT viii

11 STATE AID FINANCE ACCOUNTING MANUAL NARRATIVE ACCOUNTS NEEDED INVENTORY STRUCTURE INVENTORY CONTAINMENT INVENTORY CONTROL INVENTORY VALUATION METHODS FIFO LIFO AVERAGING INVENTORY EXPENSES VERSUS EXPENDITURES SEQUENCE OF EVENTS CHAPTER 14 MAINTENANCE COSTING ROUTINE MAINTENANCE DEFINITION: REPAIRS AND REPLACEMENTS DEFINITION: BETTERMENTS DEFINITION: SPECIAL WORK DEFINITION: CHAPTER 15 CONSTRUCTION COSTING CHAPTER 16 OTHER ACCOUNTING ISSUES CONSTRUCTION OF MAINTENANCE FACILITIES DISASTER ISSUES FEMA/Disaster Receipts after Maintenance Costs have been reported DISASTER ASSISTANCE CONTINGENCY ACCOUNT NON STATE AID BONDS Bonds Accounted for in Debt Service Fund Bonds Accounted for in Highway Fund SHARED FEDERAL REVENUE ADVANCE OF STATE AID FUNDS FOR FEDERAL PROJECTS ADVANCE RESOLUTION ix

12 STATE AID FINANCE ACCOUNTING MANUAL TRANSFER FOR HARDSHIP CONDITION OR OTHER LOCAL USE Hardship Other Local Use REVISION OF COUNTY MAINTENANCE APPORTIONMENTS FEDERAL FUND EXCHANGE PRGRAM (FUND SWAPS) FLEXIBLE HIGHWAY ACCOUNT (FLEX) EXCESS SUM FUNDS ACCOUNTS ACCOUNTS NEEDED CHAPTER 17 YEAR END ADJUSTMENTS NARRATIVE SEQUENCE OF EVENTS INVENTORY ADJUSTMENTS CURRENT AND DELINQUENT TAXES RECEIVABLE SALARIES AND WAGES PAYABLE BENEFITS PAYABLE LONG TERM COMPENSATED ABSENCES PAYABLE FUND BALANCE NON-SPENDABLE FOR INVENTORY RESTRICTED FUNDS FOR STATE AID PROJECTS FUND BALANCE RESTRICTED FUNDS FOR BOND PRINCIPAL AND INTEREST FUND BALANCE COMMITTED FOR COUNTY PROJECTS/PURPOSES ASSIGNED FUND BALANCE RESIDUAL FUND BALANCE CHAPTER 18 ANNUAL REPORT - SAMPLE COVER PAGE LETTER OF TRANSMITTAL INDEX OF ANNUAL REPORT SUMMARY OF COUNTY HIGHWAY INFORMATION BRIEF OF ACTIVITIES, COMMENTS AND RECOMMENDATIONS FINANCIAL STATEMENT RECEIVABLES RECEIVABLES ADDENDUM TOWN ROAD ALLOTMENT INVENTORY OF MATERIALS AND SUPPLIES x

13 STATE AID FINANCE ACCOUNTING MANUAL LIABILITIES AND FUND BALANCE RESERVES LIABILITIES AND FUND BALANCE RESERVES ADDENDUM (OPTIONAL PAGE) FIXED ASSETS FIXED ASSET BETTERMENTS LAND AND BUILDINGS STATEMENT OF REVENUES AND EXPENDITURES SUMMARY OF EXPENDITURES SUMMARY OF MAINTENANCE COSTS BY FUNDS DETAILED MAINTENANCE COSTS BY FUNDS SUMMARY OF MAINTENANCE COSTS BY ROADS CSAH Regular DETAILED ROUTINE MAINTENANCE COSTS BY ROADS CSAH REGULAR SUMMARY OF MAINTENANCE COSTS BY ROADS CSAH MUNICIPAL DETAILED ROUTINE MAINTENANCE COSTS BY ROADS CSAH MUNICIPAL SUMMARY OF MAINTENANCE COSTS BY ROADS COUNTY ROADS DETAILED ROUTINE MAINTENANCE COSTS BY ROADS COUNTY ROADS SUMMARY OF CONSTRUCTION COSTS CSAH REGULAR STATEMENT OF CONSTRUCTION COSTS CSAH REGULAR SUMMARY OF CONSTRUCTION COSTS CSAH MUNICIPAL STATEMENT OF CONSTRUCTION COSTS CSAH MUNICIPAL SUMMARY OF CONSTRUCTION COSTS COUNTY ROADS STATEMENT OF CONSTRUCTION COSTS COUNTY ROADS LOCAL AGENCY BONDS ESTIMATED BUDGET CHAPTER 18 ANNUAL REPORT INSTRUCTIONS INSTRUCTIONS LETTER OF TRANSMITTAL SUMMARY OF COUNTY HIGHWAY INFORMATION BRIEF OF ACTIVITIES, COMMENTS AND RECOMMENDATIONS FINANCIAL STATEMENT ASSETS LIABILITIES FUND BALANCE xi

14 STATE AID FINANCE ACCOUNTING MANUAL RECEIVABLES RECEIVABLES ADDENDUM TOWN ROAD ALLOTMENT INVENTORY OF MATERIALS AND SUPPLIES LIABILITIES AND FUND BALANCE RESERVES LIABILITIES FUND BALANCE LIABILITIES AND FUND BALANCE RESERVES ADDENDUM (OPTIONAL PAGE) FIXED ASSETS FIXED ASSETS BETTERMENTS LAND AND BUILDINGS STATEMENT OF REVENUES AND EXPENDITURES REVENUES EXPENDITURES YEAR-END CASH RECONCILIATION YEAR-END FUND BALANCE RECONCILIATION SUMMARY OF EXPENDITURES SNOW AND ICE CONTROL RIGHT OF WAY ENGINEERING CONSTRUCTION BUILDING AND EQUIPMENT (CAPITAL OUTLAY) SUMMARY OF MAINTENANCE COSTS BY FUNDS DETAILED MAINTENANCE COSTS BY FUNDS SUMMARY OF MAINTENANCE COSTS BY ROADS - CSAH REGULAR DETAILED ROUTINE MAINTENANCE COSTS BY ROADS - CSAH REGULAR (OPTIONAL PAGE) SUMMARY OF MAINTENANCE COSTS BY ROADS - CSAH Municipal DETAILED ROUTINE MAINTENANCE COSTS BY ROADS - CSAH Municipal (OPTIONAL PAGE) SUMMARY OF MAINTENANCE COSTS BY ROADS - COUNTY ROADS DETAILED ROUTINE MAINTENANCE COSTS BY ROADS - COUNTY ROADS (OPTIONAL PAGE) SUMMARY OF CONSTRUCTION COSTS - CSAH Regular STATEMENT OF CONSTRUCTION COSTS - CSAH REGULAR xii

15 STATE AID FINANCE ACCOUNTING MANUAL SUMMARY OF CONSTRUCTION COSTS - CSAH Municipal STATEMENT OF CONSTRUCTION COSTS - CSAH Municipal SUMMARY OF CONSTRUCTION COSTS - COUNTY ROADS STATEMENT OF CONSTRUCTION COSTS - COUNTY ROADS STATE AID BONDS ESTIMATED BUDGET CHAPTER 19 ANNUAL SUMMARY OF HIGHWAY INFORMATIoN SAMPLE INSTRUCTIONS APPENDIX... A NOTICE OF ANNUAL APPORTIONMENT... A AGENCY FUND LEDGER FEDERAL AID PROJECTS... B AGENCY FUND LEDGER (CONTINUED)... C INDEX... 1 xiii

16 CHART OF ACCOUNTS OVERVIEW PURPOSE The purpose of this manual is to provide consistent cost accounting procedures for reporting purposes. The manual is divided into sections that generally start with a short narrative describing the funds or accounts within the section. The narrative is followed by any special considerations that you should be aware of, a list of accounts required to make the necessary accounting entries and a description of the events that take place within the accounts. Lastly each section contains a worksheet which enables the user to see all the required accounting entries at a glance. The last section of the manual, the Appendix, contains the forms that are referenced throughout the manual. UPDATES The State Aid Finance Office, along with the members of the Accounting Task Force, will update the Accounting Manual as changes occur or updates are necessary. QUESTIONS Please feel free to contact the individuals on either of these links, when necessary. I

17 CHART OF ACCOUNTS OVERVIEW County Governments, generally, have a chart of accounts set up based on the guidance of the Unified Chart of Accounts found in the Minnesota County Accounting and Financial Reporting Standards (COFARS). It usually follows a Fund, Department, Object format; sometimes adding a program and/or service code to further detail a department s financial information. Ultimately it is the specifics of the county s operations and policies that will drive the chart of accounts but these are guidelines that are widely used. FUND Funds are set up by the county based on statute or the county s need to track specific activities or revenues. The Road and Bridge or Highway Fund is a Special Revenue Fund. This type of fund consists of a set of self-balancing accounts restricted in use for the specific purpose of tracking expenditures and revenues related to the county s system of roads and bridges. Under the Unified Chart of Accounts these funds are to be a two digit number from Since the entire highway department will be contained in a single fund this number rarely is used in the departmental cost accounting systems. DEPARTMENT Departments are the second division of county funding. The highway department is most often broken into Administration, Engineering, Road Maintenance, and Shops & Equipment. Additional departments of Highway Construction, Traffic Control, and Other may also be utilized. Under the Unified Chart of Accounts these are to be a three digit number from They are used in the departmental cost accounting system to assign costs to specific areas and are usually part of the cost account codes. OBJECT Object codes vary widely between counties and are used to track specific expenditure types and revenue streams. The Unified Chart of Accounts has set ranges and examples of what can be put into them. It is prescribed that they are a four digit number with expenditures in the 6000 s and revenues in the 5000 s. For further guidance, you can reference the Minnesota State Auditor s Office webpage at and search for COFARS. HIGHWAY ACCOUNTING There are many activities that the highway departments are required to track for annual state reporting and others that each county tracks for their own purposes. Most counties utilize a cost accounting system that allocates the costs to different construction projects, roads, shops or units of equipment. Regardless of the type of accounting software the county uses the general layout of the chart of accounts should be similar, but will rarely be identical. Administration Department This area catches all the costs that are not able to be allocated to a cost center such as a road, unit of equipment or construction project. Some of these costs can be related to the road system, construction projects as a whole, or all equipment units. Some of these costs are spread at the end of the year to better show the costs incurred. Examples of the object costs that are generally found in the Administration Department are: Engineer s Salary Administrative Salaries Miscellaneous Employee Benefit Time Office Supplies Commissioner s Expense Utilities Admin Training Admin Travel Expense (Meals, Mileage, Lodging) II

18 Engineering/Construction Department CHART OF ACCOUNTS OVERVIEW In the Engineering Department costs are gathered that can be tied to specific construction projects. Some accounting software includes construction costing that incorporates the contracting spec item listing so engineer s estimates can be entered in the software. This creates the need for a more detailed list of activities under this department. Examples of some of the project related object costs are: Grading Clearing and Grubbing Drainage and Structures Graveling Pit Stripping Hauling Checking Culverts Excavation Steel Temporary By-Pass Bridges New Structure Temporary By-Pass Stabilized Base Gravel Material Shaping and Compacting Binder Soil Pit Stripping Crushing, Screening, and loading Gravel Hauling Binder Soil Water Bituminous Surfacing Bituminous Material for Prime Bituminous Material for Seal Mineral Aggregate for Seal Other Inspection Construction Preliminary Engineering ROW Permanent Property Other Than ROW Construction Permits Excavation Seeding & Sodding Crushing, Screening, and Loading Aggregate Materials Spreading Concrete Removal of Old Structure Removal of Old Structure Binder Soil Material Gravel Pit Stripping Loading Binder Soil Hauling Gravel Stabilizing Bituminous Material for Mix Mineral Aggregate for Mix Mixing and Laying Inspection - Bridges Construction Engineering ROW Temporary Damages III

19 CHART OF ACCOUNTS OVERVIEW There will also be costs in this department that are not directly related to a specific project. In some counties these are grouped together in the Administration Department and some are spread back to the projects at the end of the year. Examples of some of the object costs that are not project related are: Engineer s Salary Engineering Field Supplies Eng. Training Research - Not Project Engineering Salaries Engineering Office Supplies Eng. Travel Expense (Meals, Mileage, Lodging) Miscellaneous Road Maintenance This department tracks the cost of maintaining the roads through the year so these costs can be tied to specific roads and bridges within the county. Annual reporting to the State of Minnesota requires that this information be broken down by the road systems Regular County State Aid Highway (CSAH), Municipal State Aid Highway (CSAH Municipal), and County Roads. Many counties also track costs by road surface type for historical cost reference as well. Historically maintenance costs have been separated into four major categories with the object costs under them. These were not set up in the program or service code format as described in the current COFARS, but their origination is in an early version of the document. Because COFARS no longer references this set up a new chart of accounts would not be required to follow it. However, since it is in place in several counties and works fine there is no need to amend this system if it exists. The format is two letters, M for Maintenance and then A, B, C, and D indicating the sequence only. Most counties have a maintenance chart of accounts with the four major categories and the accounts that fall under them are those used by each county that fits the brief descriptions that follow: Routine Maintenance (MA) Smoothing Surface (MA1) - Blading or dragging the earth or gravel roads - Scarifying for purpose of mixing gravel with binder & removing washouts Minor Surface Repair (MA2) - Bituminous patching - Crack filling - Repair concrete pavement and crack sealing - Patch sealing - Repair sand pockets Roadside and Drainage (MA3) - Clean/thaw culverts - Minor ditch cleaning except for brush - Repair to tile lines on ROW - Lower/raise culverts - Marking culvert ends - Pick rock off roadside & roadbed IV

20 CHART OF ACCOUNTS OVERVIEW Brush and Weed Control (MA4) - Mowing of grass and weeds on roadsides, around guard rails and bridge ends - Spraying weeds and brush - All clearing and grubbing not in connection with construction work (where clearing and grubbing is done in advance of a grading project then this work should be given a project number, and charged to Construction.) Snow and Ice control (MA5) - Erecting, removing, repairing snow fence, including cost of new fence, posts, and tie wire - Snow plowing and winging - Sanding and application of salt and calcium chloride for ice control, including the cost of material used - Cleaning snow from bridges and around guardrails Traffic Services (MA6) - Erecting and repairing signs and markers, including cost of signs and posts, and erecting and removing signs for road restrictions - Traffic signals, maintenance and repair work - Installation of new traffic signals and railroad grade crossing signals should be a construction item - Traffic guidelines, center line, stripping - Flag men on maintenance work - Road inspection, looking for washouts, etc. - Road patrol for load restrictions Repairs and Replacements (MB) Reshaping (MB1) - Cutting shoulders and shoulder slopes - Reshaping roadbed, backsloping, where no appreciable amount of material is added to the roadbed and ditch bottoms are not changed or deepened appreciably Resurfacing (MB2) - All re-graveling of gravel roads, whether spot graveling or a continuous coat - Gravel for newly graded roads shall be charged to construction, this may be applied in two coats in succeeding years, but should be charged to construction, including the cost of materials - Includes addition of clay or binder to the surface, this also can be an item under construction - Includes water, rolling, spreading if gravel is stabilized, this work is included in some construction projects Culverts, Bridges, & Guard Rails (MB3) - Includes replacement of deteriorated or damaged culverts by one of like diameter, this shall include labor and materials, if a culvert is replaced with one of larger diameter, this should be under MC1, including labor and materials - Includes all bridge repairs and painting - Repair of guard rails including labor and materials V

21 CHART OF ACCOUNTS OVERVIEW Washouts (MB4) - Includes all washouts on shoulders, ditches, backslopes and road bed. If a culvert is washed out and a new culvert is installed, the cost of the culvert should be under MB3 or MC1, labor and backfilling under washouts Betterments (MC) New Culverts, Guard Rails & Tiling (MC1) - Includes new culvert installation where culvert was not previously in place, include labor and material - Replacement of old culvert with a culvert of larger diameter, include labor and material - Includes new guard rail, labor and material - Includes new tile, labor and material - Rip Rap, labor and material - Erosion control structures, labor and materials - New approaches and driveways fill material and culvert Cuts and Fills (MC2) - Includes reshaping work where the road grade and ditch bottoms are materially changed - Correction of sight distance - Swamp fills or embankment construction not under contract Sodding and Seeding (MC3) - Includes labor and materials on all sodding and seeding - Tree Planting Bituminous Treatment (MC4) - Includes spot treatments, complete retreatments and seal coating Special Work (MD) Dust Treatments (MD1) - Calcium Chloride or other applications to settle dust Prospecting for Gravel (MD2) Mud Jacking and Frost Boils Mud Jacking - Frost boils include sub-grade excavation, sand and gravel backfill There will also be costs in this department that are not directly related to a specific road. In some counties these are grouped together in the Administration Department and some are spread back to the roads at the end of the year. Examples of some of the object costs that are not related to a specific road are: Maintenance Superintendent Salaries Maintenance Road Supplies Maintenance Training Miscellaneous Maintenance Worker Salaries Maintenance Office Supplies Maintenance Travel Expense (Meals, Mileage, Lodging) VI

22 Shop and Equipment CHART OF ACCOUNTS OVERVIEW Capital outlay and equipment for all departments is generally tracked and accounted for in this area, as well as costs associated with the purchase and maintenance of equipment. Examples of some of the equipment and capital improvement related object costs are: Equipment Buildings & Grounds Purchases Purchase Repair Labor Additions and Betterments Repair Service Gas & Diesel Repair Parts (may break out major parts such as tires to better track) There will also be costs in this department that are not directly related to a specific equipment unit. In some counties these are grouped together in the Administration Department and some are spread back to the units at the end of the year. Examples of some of the object costs that are not related to a specific unit are: Mechanic/Building Maintenance Salaries Shop Office Supplies Shop Utilities Miscellaneous Shop Supplies Shop Training Shop Maintenance Shop Travel Expense (Meals, Mileage, Lodging) Inventory Highway departments generally purchase their major materials used and keep them in a separate set of accounts. The cost to purchase the inventory is a budget item but does not enter the actual departmental costs until it is utilized. Each county varies widely in what and how they inventory materials. A few things to consider when determining inventory items are: Unit Cost: Each unit under an inventory number should be valued the same to provide an accurate value of the total items quantity x cost = total value (example: headlights can vary widely in unit price). This does not refer to a price increase for all units under a number. Item Value: There should be a cost benefit to tracking the cost item by item. Nuts & bolts would be an example. Do the cost of tracking the quantity monthly and the labor to do an annual count add value or should they be shop supplies? Usage History: Is this item something you will want to know how many were used and where? Cutting edges come in sets and each unit will use a predetermined number of edges at each change, will you want to be able to look into inventory and determine when a unit had the edges changed? Availability: If you keep a supply on hand it should be inventoried, but if you have a readily available source you may want to charge each one to the unit as purchased to reduce overhead. Urgency: If this is an item that may be needed immediately if it fails or wears out and provides little notice of pending failure you may want to inventory the item. (Flat tire on a plow truck at 3:00 a.m.) When deciding if there is merit in keeping inventory of an item it is good practice to talk to the end users and have some of these questions addressed. VII

23 CHAPTER 1 ANNUAL ALLOTMENTS In compliance with the Department of Transportation State Aid Rules Chapter , Subp.2, the Commissioner shall certify the annual apportionment to each respective county or urban municipality no later than January 25th of each year. The Commissioner s Order and Annual Distribution Letters are available at the State Aid Finance Website: Commissioner s Order Distribution Letters Example A REGULAR MAINTENANCE ALLOTMENT The Notice of Annual Apportionment will show the amount of the current year's Regular Maintenance Allotment. If your county receives Trunk Highway Turnback Maintenance the amount is included in the allotment amount. Trunk Highway Turnback Maintenance information is available at the State Aid Finance website. EXAMPLES of these entries. Date: Explanation: Amount: to post annual apportionment MM/DD/YYYY YYYY Regular Maintenance Allotment (asset) Regular Maintenance Allotment (liability) Regular Maintenance Unearned Revenue From Notice of Annual Apportionment REGULAR CONSTRUCTION ALLOTMENT The Notice of Annual Apportionment will show the allotment amount for the current year s Regular Construction. This allotment is not considered receivable or current revenue at this time. The funds will become a receivable when they are requested from the state to fund a Regular Construction Project and current revenue will be recognized when the actual work is completed on the project. EXAMPLES of these entries. Date: Explanation: Amount: to post annual apportionment MM/DD/YYYY YYYY Regular Construction Allotment (asset) Regular Construction Allotment (liability) Regular Construction Unearned Revenue From Notice of Annual Apportionment 1

24 CHAPTER 1 ANNUAL ALLOTMENTS MUNICIPAL MAINTENANCE ALLOTMENT The Notice of Annual Apportionment will show the amount of the current year's Municipal Maintenance Allotment. If your county receives Trunk Highway Turnback Maintenance the amount is included in the allotment amount. Trunk Highway Turnback Maintenance information is available at the State Aid Finance website: EXAMPLE of these entries. Date: Explanation: Amount: to post annual apportionment MM/DD/YYYY YYYY Municipal Maintenance Allotment (asset) Municipal Maintenance Allotment (liability) Municipal Maintenance Unearned Revenue From Notice of Annual Apportionment MUNICIPAL CONSTRUCTION ALLOTMENT The Notice of Annual Apportionment will show the allotment amount for the current year s Municipal Construction. This allotment is not considered a receivable or current revenue at this time. The funds will become a receivable when they are requested from the state to fund a Municipal Construction Project and current revenue will be recognized when the actual work is completed on the project. EXAMPLE of these entries. Date: Explanation: Amount: to post annual apportionment MM/DD/YYYY YYYY Municipal Construction Allotment (asset) Municipal Construction Allotment (liability) Municipal Construction Unearned Revenue From Notice of Annual Apportionment TOWN BRIDGE ALLOTMENT The Town Bridge Allotment should be accounted for in the same way as CSAH/MSAH Construction Allotment. This means the Town Bridge Allotment (asset), Town Bridge Unearned Revenue (liability), Town Bridge Receivable (asset), and Town Bridge Construction Revenue (revenue) Accounts should be used in the same manner as the Regular and Municipal Accounts. You may need to set these four accounts up in your Chart of Accounts. Date: Explanation: Amount: to post annual apportionment MM/DD/YYYY YYYY Town Bridge Allotment (asset) Town Bridge Allotment (liability) Town Bridge Unearned Revenue From Notice of Annual Apportionment 2

25 CHAPTER 1 ANNUAL ALLOTMENTS TOWN ROAD ALLOTMENT The Town Road Allotment represents funds specifically earmarked for use by Minnesota townships. The Notice of Annual Apportionment will show the allotment amount for the current years Town Road Allotment. The total allotment is sent to each county at the beginning of each year per State Aid Rules Chapter , Subp. 5A. The County is responsible to apportion these funds to each township per M.S , Subp. 2 and 4. The county is required to distribute the funds to each township annually by March 1, per M.S , Subp. 3. If the money is receipted into the General Revenue Fund, it is up to the County Auditor to record it. If the money is receipted into the Road and Bridge Fund, the following entries should be made to reflect both the receipt and the disbursements. EXAMPLES of these entries. When the Notice of State Aid Annual Apportionment is received: No entry is really needed at this time. You may wait until the money is actually received from the State. When the money is actually received from the State: Date: Explanation: Amount: to post annual apportionment MM/DD/YYYY YYYY Town Road Allotment (asset) Cash (revenue) Town Road Allotment Revenue Amount of State Warrant When the money is apportioned and sent to the townships: Date: Vendor Number 1 : Voucher Number 1 : Contract Number 1 : Quantity Purchased 1 : Amount: (one entry per township) MM/DD/YYYY (expense) Town Road Expense (asset) Cash Vendor number you use for each township Voucher or Warrant number used to pay No entry needed No entry needed Dollar amount sent to this township 1 The entry above may be made through adjustment or purchase channels; however, use of a purchase entry will allow the system to keep track of each of these disbursements by township and warrant number for a better audit trail. NOTE: The annual report should include a page with the amount of Town Road money sent to each township. 3

26 EXAMPLES CHAPTER 1 ANNUAL ALLOTMENTS 4

27 CHAPTER 2 REGULAR AND MUNICIPAL MAINTENANCE ACCOUNTS NARRATIVE The Maintenance Allotment is used to fund county performed maintenance activities on state aid highways. Annually, each Minnesota County Highway Department is issued a Notice of Annual Apportionment that shows the new year allotment amount for each maintenance account. The Annual Apportionment Letters are available at the State Aid Finance Website: There are two maintenance accounts that have specific purposes. County State Aid Highway (CSAH Regular) or Regular Maintenance which means activity performed on rural roads. Municipal State Aid Highway (CSAH Municipal) or Municipal Maintenance which means activity performed on roads within the city limits of cities with a population of less than 5,000. The state will only reimburse the county for the amount of actual maintenance expenses incurred. The state does, however, advance maintenance funds to the county based on the payment schedule as described in the State Aid Operations Rules, Chapter , Subp. 5 to 8. A portion of the maintenance allotment is withheld pending a completed Annual Summary of Highway Information Report. Example If a county has State Aid bond (Chapter 7) interest obligations due in the current year, the amount will be deducted and reserved for that purpose prior to advancing maintenance funds. Many counties will spend their entire maintenance allotment. If a county does not spend their entire allotment, the remaining balance in their account is transferred to their respective construction account. In some cases, the county may be overpaid, in these cases the overpayment will be applied to the next construction project that is requested. REGULAR MAINTENANCE ACCOUNT ACCOUNTS NEEDED (revenue) (asset) (asset) (asset) (asset) (liability) (liability) (liability) - REGULAR MAINTENANCE REVENUE - CASH - REGULAR MAINTENANCE RECEIVABLE - REGULAR MAINTENANCE ALLOTMENT - REGULAR CONSTRUCTION ALLOTMENT - REGULAR MAINTENANCE UNEARNED REVENUE - REGULAR CONSTRUCTION UNEARNED REVENUE - DUE TO STATE AID - OVERPAYMENTS NOTE: It is not necessary to use separate accounts to distinguish between regular and municipal funds. One general account may be used to account for the two funds, if desired. 5

28 CHAPTER 2 REGULAR AND MUNICIPAL MAINTENANCE ACCOUNTS SEQUENCE OF EVENTS Payments from the state are received in the form of an EFT (Electronic Fund Transfer). Notice of the EFT is received by the County Auditor/Treasurer Office. If you have authorization to view payments received from the state, you may access the information at Vendor Payments. 1 ST ADVANCE PAYMENT In accordance with the State Aid Operations Rules Chapter , Subp 5, the county is advanced 50% of its current year s Regular Maintenance Allotment at the earliest practical date after the allotments have been determined. The 50% is calculated after reducing the allotment by any State Aid Bond Interest due that year. Example A 1 st State Aid Regular Maintenance Payment (asset) Cash (asset) Regular Maintenance Allotment 2 ND ADVANCE PAYMENT In accordance with the State Aid Operations Rules Chapter , Subp 6, the county is advanced the remaining 40% of the Regular Maintenance Allotment minus any State Aid Bond Interest due that year, this payment will be received the end of the first week in July. To adjust the percentage to 50%, a request must be submitted to State Aid Finance prior to January 1 st. The Annual Summary of Highway Information report must be filed by August 1 st of the following year. Example A 40% State Aid Regular Maintenance Payment (asset) Cash (asset) Regular Maintenance Allotment FINAL MAINTENANCE PAYMENT In the following calendar year, if State Aid owes the county money from its previous year s Allotment Account, (Examples 3A and 3B), the money will be sent as soon as the Annual Summary of Highway Information Report has been submitted and approved. YEAR-END ENTRIES Three different situations can occur at year-end. They are described below: Actual Regular Maintenance Expenses, including State Aid Bond Interest charges, are GREATER THAN the original allotment amount. Example A, # 3(A1) and 3(A2) Recognize revenue earned during the current year for Regular Maintenance. For total amount of State Aid Allotment (liability) Regular Maintenance Unearned Revenue (revenue) Regular Maintenance Revenue NOTE: The amount recognized as revenue may not exceed the Regular Maintenance Unearned Revenue Account. Recognize unpaid balance of Regular Maintenance from State Aid for the original allotment amount. 6

29 CHAPTER 2 REGULAR AND MUNICIPAL MAINTENANCE ACCOUNTS for amount currently remaining in the county's Regular Maintenance Allotment Account (asset) Regular Maintenance Receivable (asset) Regular Maintenance Allotment NOTE: After these entries, the county's Regular Maintenance Allotment and Regular Maintenance Unearned Revenue Accounts should be 0, while its Regular Maintenance Receivable Account should be the amount of the unpaid State Aid Regular Maintenance funds. Actual Regular Maintenance Expenses, including State Aid Bond Interest charges, are LESS THAN the original allotment amount, BUT GREATER THAN the cash already received from State Aid. Example B, # 3(B1), 3(B2) and 3(B3) Recognize revenue earned during the current year for Regular Maintenance including bond interest charges. For revenue based on Regular Maintenance Expense plus Bond Interest Charges. (liability) Regular Maintenance Unearned Revenue (revenue) Regular Maintenance Revenue Recognize unpaid balance of Regular Maintenance from State Aid. Calculate the amount owed to the county: Plus: Minus: Minus: Equals: Actual Regular Maintenance Expenses Bond Interest Expense State Aid Payments Received Bond Interest Received (if any) Amount owed to County from State Aid for amount owed to the county as calculated above. (asset) Regular Maintenance Receivable (asset) Regular Maintenance Allotment NOTE: After these entries, the county should have the same amount in both its Regular Maintenance Allotment Account and its Regular Maintenance Unearned Revenue Account. These amounts represent the unused Regular Maintenance Allotment which needs to be transferred to the Regular Construction Accounts as shown (B3). 7

30 CHAPTER 2 REGULAR AND MUNICIPAL MAINTENANCE ACCOUNTS Transfer the unused balance of Regular Maintenance from the Regular Maintenance Accounts to the Regular Construction Accounts. Calculate the amount to be transferred to the construction account: Minus: Minus: Equals: Original Regular Maintenance Allotment Bond Interest Expenses Actual Regular Maintenance Expenses Amount of remaining Regular Maintenance Allotment to reduce Regular Maintenance Accounts (liability) Regular Maintenance Unearned Revenue (asset) Regular Maintenance Allotment to increase Regular Construction Accounts (asset) Regular Construction Allotment (liability) Regular Construction Unearned Revenue Actual Regular Maintenance Expenses, including State Aid Bond Interest charges, are LESS THAN the original allotment amount, AND LESS THAN the cash already received from State Aid. Thus, the state has made an OVERPAYMENT to the county for Regular Maintenance. Example C, # 3(C1), 3(C2) and 3(C3) Recognize revenue earned during the current year for Regular Maintenance including bond interest charges. for revenue based on Regular Maintenance Expense plus Bond Interest Charges (liability) Regular Maintenance Unearned Revenue (revenue) Regular Maintenance Revenue Recognize State Aid OVERPAYMENT of Regular Maintenance and transfer the OVERPAYMENT amount to the Regular Construction Allotment Account to be used on future construction projects. AND Plus: Minus: Minus: Equals: State Aid Payments Received Bond Interest Received Bond Interest Expenses Actual Regular Maintenance Expenses Overpaid Amount Regular Maintenance Allotment for amount overpaid to county as calculated above. (asset) Regular Construction Allotment (liability) SA Regular Construction Overpayments (liability) Regular Maintenance Unearned Revenue (liability) Regular Construction Unearned Revenue 8

31 CHAPTER 2 REGULAR AND MUNICIPAL MAINTENANCE ACCOUNTS NOTE: After these entries, the county should have the same amount in both its Regular Maintenance Allotment Account and its Regular Maintenance Unearned Revenue Account. These amounts represent the unused Regular Maintenance Allotment which needs to be transferred to the Regular Construction Accounts (C3). The state does not recognize this overpayment or transfer until they receive the Annual Summary of Highway Information Report. Transfer the unused balance of Regular Maintenance from the Regular Maintenance Accounts to the Regular Construction Accounts. Calculate the amount to be transferred to the construction account: Minus: Equals: Original Regular Maintenance Allotment Amount Received from State Aid (Includes Bond Interest) Balance to Transfer to Regular Construction to reduce Regular Maintenance Accounts (liability) Regular Maintenance Unearned Revenue (asset) Regular Maintenance Allotment to increase Regular Construction Accounts (asset) Regular Construction Allotment (liability) Regular Construction Unearned Revenue FINAL MAINTENANCE PAYMENT If State Aid owes the county money from its previous year's Allotment Account, as in examples 3A and 3B, the money will be sent as soon as the Annual Summary of Highway Information Report has been submitted and approved. This assumes the county made the correct year end adjustment entries as outlined in steps above. Example A, # 4 for amount of State Aid payment (asset) Cash (asset) Regular Maintenance Receivable If dollars remain in the Regular Maintenance Account (Examples 3B and 3C above.) State Aid (upon receipt of the county s Annual Summary of Highway Information Report) will transfer the funds from the Regular Maintenance Allotment to the Regular Construction Allotment. This transfer will appear on the Status Report in the SAAS (State Aid Accounting System). NOTE: Since the county has already made these transfers during its year-end adjustment entries (see previous accounting entries), no additional entries are needed at this time. The state transfer notice should be verified against the money actually transferred at year-end by the county. 9

32 EXAMPLES Example A CHAPTER 2 REGULAR AND MUNICIPAL MAINTENANCE ACCOUNTS 10

33 Example B CHAPTER 2 REGULAR AND MUNICIPAL MAINTENANCE ACCOUNTS 11

34 Example C CHAPTER 2 REGULAR AND MUNICIPAL MAINTENANCE ACCOUNTS 12

35 MUNICIPAL MAINTENANCE ACCOUNT ACCOUNTS NEEDED (revenue) CHAPTER 2 REGULAR AND MUNICIPAL MAINTENANCE ACCOUNTS - MUNICIPAL MAINTENANCE REVENUE (asset) (asset) (asset) (asset) (liability) (liability) (liability) - CASH - MUNICIPAL MAINTENANCE RECEIVABLE - MUNICIPAL MAINTENANCE ALLOTMENT - MUNICIPAL CONSTRUCTION ALLOTMENT - MUNICIPAL MAINTENANCE UNEARNED REVENUE - MUNICIPAL CONSTRUCTION UNEARNED REVENUE - DUE TO STATE AID - OVERPAYMENTS SEQUENCE OF EVENTS Payments from the state are received in the form of an EFT (Electronic Fund Transfer). Notice of the EFT is received by the County Auditor/Treasurer Office. If you have authorization to view payments received from the state you may access the information at Vendor Payments. 1 ST ADVANCE PAYMENT In accordance with State Aid Operations Rules Chapter , Subp. 5, the county is advanced 50% of its current year Municipal Maintenance Allotment at the earliest practical date after the allotments have been determined. To adjust the percentage lower than 50%,, a request must be submitted to State Aid Finance prior to January 1 st. Example A, # 1 1 st State Aid Municipal Maintenance Payment (asset) Cash (asset) Municipal Maintenance Allotment 2 ND ADVANCE PAYMENT In accordance with State Aid Operations Rules Chapter , Subp. 6, the county may be advanced 40% or the remaining 50% of the Municipal Maintenance Allotment, this payment will be received the end of the first week in July. In order to receive the remaining 50% a request must be submitted to State Aid Finance prior to January 1 st and the Annual Summary of Highway Information Report must be filed by August 1 st of the following year. Example A, # 2 2 nd State Aid Municipal Maintenance Payment (asset) Cash (asset) Municipal Maintenance Allotment FINAL MAINTENANCE PAYMENT In the following calendar year, if State Aid owes the county money from its previous year s Allotment Account, (Examples 3A and 3B), the money will be sent as soon as the Annual Summary of Highway Information Report has been submitted and approved. This assumes the county made the correct year end adjustment entries as outlined in steps above. 13

36 YEAR-END ENTRIES CHAPTER 2 REGULAR AND MUNICIPAL MAINTENANCE ACCOUNTS Three different situations can occur at year-end. They are described below: Actual Municipal Maintenance Expenses are GREATER THAN the original allotment amount. Example A, # 3(A1) and 3(A2) Recognize revenue earned during the current year for Municipal Maintenance. total amount of State Aid Municipal Maintenance Allotment (liability) Municipal Maintenance Unearned Revenue (revenue) Municipal Maintenance Revenue NOTE: The amount recognized as revenue may not exceed the Municipal Maintenance Unearned Revenue Account. Recognize unpaid balance of Municipal Maintenance from State Aid for the original allotment amount. for amount currently remaining in the county's Municipal Maintenance Allotment Account (asset) Municipal Maintenance Receivable (asset) Municipal Maintenance Allotment NOTE: After these entries, the county's Municipal Maintenance Allotment and Municipal Maintenance Unearned Revenue Accounts should be, while its Municipal Maintenance Receivable Account should be the amount of the unpaid State Aid Municipal Maintenance funds. Actual Municipal Maintenance Expenses are LESS THAN the original allotment amount, BUT GREATER THAN the cash already received from State Aid. Example B, # 3(B1), 3(B2) and 3(B3) Recognize revenue earned during the current year for Municipal Maintenance. for revenue based on Municipal Maintenance Expense (liability) Municipal Maintenance Unearned Revenue (revenue) Municipal Maintenance Revenue Recognize unpaid balance of Municipal Maintenance from State Aid. Calculate the amount owed to the county: Minus: Equals: Actual Municipal Maintenance Expenses State Aid Payments Received Amount owed to County from State Aid for amount owed to the county as calculated above. (asset) Municipal Maintenance Receivable (asset) Municipal Maintenance Allotment 14

37 NOTE: CHAPTER 2 REGULAR AND MUNICIPAL MAINTENANCE ACCOUNTS After these entries, the county should have the same amount in both its Municipal Maintenance Allotment Account and its Municipal Maintenance Unearned Revenue Account. These amounts represent the unused Municipal Maintenance Allotment which needs to be transferred to the Municipal Construction Accounts as shown below in entry. (B3) Transfer the unused balance of Municipal Maintenance from the Municipal Maintenance Accounts to the Municipal Construction Accounts. Calculate the amount to be transferred to the construction account: Minus: Equals: Original Municipal Maintenance Allotment Actual Municipal Maintenance Expenses Amount of remaining Municipal Maintenance Allotment to reduce Municipal Maintenance Accounts (liability) Municipal Maintenance Unearned Revenue (asset) Municipal Maintenance Allotment to increase Municipal Construction Accounts (asset) Municipal Construction Allotment (liability) Municipal Construction Unearned Revenue Actual Municipal Maintenance Expenses are LESS THAN the original allotment amount, AND LESS THAN the cash already received from State Aid. Thus, the state has made an OVERPAYMENT to the county for Municipal Maintenance. Example C, # 3(C1), 3(C2) and 3(C3) Recognize revenue earned during the current year for Municipal Maintenance. for revenue based on Municipal Maintenance Expenses (liability) Municipal Maintenance Unearned Revenue (revenue) Municipal Maintenance Revenue Recognize State Aid OVERPAYMENT of Municipal Maintenance and transfer the OVERPAYMENT amount to the Municipal Construction Allotment Account to be used on future construction projects. Minus: Equals: State Aid Payments Received Actual Municipal Maintenance Expenses Overpaid Amount Municipal Maintenance Allotment for amount overpaid to county as calculated above. (asset) Municipal Construction Allotment (liability) SA Municipal Construction Overpayments AND (liability) Municipal Maintenance Unearned Revenue (liability) Municipal Construction Unearned Revenue 15

38 CHAPTER 2 REGULAR AND MUNICIPAL MAINTENANCE ACCOUNTS NOTE: After these entries, the county should have the same amount in both its Municipal Maintenance Allotment Account and its Municipal Maintenance Unearned Revenue Account. These amounts represent the unused Municipal Maintenance Allotment which needs to be transferred to the Municipal Construction Accounts as shown in entry (C3). The state does not recognize this overpayment or transfer until they receive the Annual Summary of Highway Information Report. Transfer the unused balance of Municipal Maintenance from the Municipal Maintenance Accounts to the Municipal Construction Accounts. Calculate the amount to be transferred to the construction account: Minus: Equals: Original Municipal Maintenance Allotment Amount Received from State Aid Balance to Transfer to Municipal Construction to reduce Municipal Maintenance Accounts (liability) Municipal Maintenance Unearned Revenue (asset) Municipal Maintenance Allotment to increase Municipal Construction Accounts (asset) Municipal Construction Allotment (liability) Municipal Construction Unearned Revenue FINAL MAINTENANCE PAYMENT In the following calendar year, if State Aid owes the county money from its previous year's Allotment Account, as in examples 3A and 3B, the money will be sent as soon as the Annual Summary of Highway Information Report has been submitted and approved. This assumes the county made the correct year end adjustment entries as outlined in steps above. Example A, # 4 for amount of State Aid payment (asset) Cash (asset) Municipal Maintenance Receivable If dollars remain in the Municipal Maintenance Account, as in examples 3B and 3C above. State Aid (upon receipt of the county s Annual Summary of Highway Information Report) will transfer the funds from the Municipal Maintenance Allotment to the Municipal Construction Allotment. This transfer will appear on the Status Report in the SAAS (State Aid Accounting System). NOTE: Since the county has already made these transfers during its year-end adjustment entries (see previous accounting entries), no additional entries are needed at this time. The state transfer notice should be verified against the money actually transferred at year-end by the county. 16

39 EXAMPLES Example A CHAPTER 2 REGULAR AND MUNICIPAL MAINTENANCE ACCOUNTS 17

40 Example B CHAPTER 2 REGULAR AND MUNICIPAL MAINTENANCE ACCOUNTS 18

41 Example C CHAPTER 2 REGULAR AND MUNICIPAL MAINTENANCE ACCOUNTS 19

42 CHAPTER 3 REGULAR AND MUNICIPAL CONSTRUCTION ACCOUNTS NARRATIVE Construction Allotments are used to fund county construction projects on State Aid Highways. Annually, each Minnesota County Highway Department is issued a Notice of Annual Apportionment; this document shows the New Year allotments for each construction account. The Annual Apportionment Letters are available at the State Aid Finance Website. There are two primary construction allotments for construction projects; this chapter will discuss these two allotments. Both allotments will be discussed together because the accounting rules are the same in each instance. The two allotments are, CSAH Regular Construction Allotment and CSAH Municipal Construction Allotment. SPECIAL CONSIDERATIONS When reviewing the Examples on the following pages, please note the following special items that you might encounter from time to time. The account used in our example is for a Municipal Construction situation. When accounting for a Regular Construction Project, the accounting would be identical; however, the Regular Construction accounts would be used instead of Municipal. Note in Example D, regarding an Underrun with an Overpayment that we show the use of an account called Due to State Aid Overpayments. Note the way in which this account is used to keep track of Overpayments due to project underruns from State Aid. Note also the awarding of Project and how this account is affected when State Aid applies the overpayment to this newly let project. Overpayment Report Website Put in password to get at the report (which is reports1), the go to State Aid County and Municipality Reports and click on the SAAS Overpayments report. ACCOUNTS NEEDED (const exp) REGULAR CONSTRUCTION EXPENSES (there may be numerous of these) (const exp) MUNICIPAL CONSTRUCTION EXPENSES (there may be numerous of these) (revenue) (revenue) (asset) (asset) (asset) (asset) (asset) (liability) (liability) (liability) (liability) (liability) REGULAR CONSTRUCTION REVENUE MUNICIPAL CONSTRUCTION REVENUE CASH REGULAR CONSTRUCTION RECEIVABLE MUNICIPAL CONSTRUCTION RECEIVABLE REGULAR CONSTRUCTION ALLOTMENT MUNICIPAL CONSTRUCTION ALLOTMENT CONTRACTS PAYABLE DUE TO STATE AID REGULAR CONSTRUCTION OVERPAYMENTS DUE TO STATE AID MUNICIPAL CONSTRUCTION OVERPAYMENTS REGULAR CONSTRUCTION UNEARNED REVENUE MUNICIPAL CONSTRUCTION UNEARNED REVENUE 20

43 CHAPTER 3 REGULAR AND MUNICIPAL CONSTRUCTION ACCOUNTS The following accounts are needed only if there are allotment transfers between maintenance and construction accounts: (asset) (asset) (liability) (liability) REGULAR MAINTENANCE ALLOTMENT MUNICIPAL MAINTENANCE ALLOTMENT REGULAR MAINTENANCE UNEARNED REVENUE MUNICIPAL MAINTENANCE UNEARNED REVENUE SEQUENCE OF EVENTS PROJECT IS APPROVED Your allotments are reduced throughout the year as construction contracts are let and payment requests are sent in for State Aid Funding Approval. When State Aid approves the funding you will need to recognize the State Aid Receivable. Example A, # 1 Recognize receivable from State Aid and reduce the allotment. for amount of State Aid Construction Obligation ONLY (asset) State Aid Receivable (asset) State Aid Allotment NOTE: Counties can request and receive Project Development (which includes Preliminary Engineering and/or Construction Engineering), Utility Relocation and Right of Way funds from State Aid Funds. Be sure the above entry is only in the amount of the State Aid Construction Obligation as stated on the State Aid Partial Payment Request Form. See the next step to post the amounts for Project Development, Utility Relocation and Right of Way. 95% PAYMENT IS RECEIVED FOR THE PROJECT After the State Aid Partial Payment Request has been approved you will receive the actual payment for the project. State Aid advances 95% of the total State Aid Construction Obligation. The remaining 5% is encumbered and will be paid to you when the project is complete and all costs are verified. In addition, if requested, you will receive Project Development, Utility Relocation and Right of Way. Requests for actual Project Development costs are submitted along with the Report of Final Estimate. Example A, # 2A, 2B, & 2C Be sure to break up the entry as suggested below if you are being paid for Project Development, Utility Relocation and/or Right of Way. Recognize the receipt of the State Aid Payment. for 95% of State Aid obligation only (asset) Cash (asset) State Aid Receivable 21

44 CHAPTER 3 REGULAR AND MUNICIPAL CONSTRUCTION ACCOUNTS Recognize receipt of Project Development, Utility Relocation and Right of Way. for the amount of the Project Development, Utility Relocation and/or Right of Way, if any (asset) Cash (asset) State Aid Construction Allotment Recognize revenue for Project Development, Utility Relocation and/or Right of Way. for the amount of the Project Development, Utility Relocation and/or Right of Way, if any (liability) State Aid Unearned Revenue (revenue) State Aid Construction Revenue WORK BEGINS ON THE PROJECT Sometime after State Aid approval, work actually begins on the contract. Your county inspectors verify that the work is indeed done according to specifications and a partial payment is paid to the contractor. There are two things to be aware of: minus: equals: Amount of Work Certified ($ amount of work actually performed) Any retainage ($ withheld as an insurance factor) Cash paid to Contractor ($ amount of actual disbursement) The following entries will need to be made to recognize the construction expense, the earned State Aid revenue, and the disbursement to the contractor. Example A, # 3A, 3B & 3C Recognize the construction expense. recognize expenses as work is certified on contract. (const exp) Construction Expenses (liability) Contracts Payable Recognize the amount of the State Aid Allotment that can now be considered Current Year Earned Revenue. recognize revenue for amount of work certified. (liability) State Aid Unearned Revenue (revenue) State Aid Construction Revenue Recognize the disbursement to the contractor. for amount of contractor disbursement. (liability) Contracts Payable (asset) Cash 22

45 PROJECT IS FINALIZED CHAPTER 3 REGULAR AND MUNICIPAL CONSTRUCTION ACCOUNTS Numerous partial payments may be made to the contractor following the same sequence as in the step above. When the contract is completed and a State Aid Final Payment Request is submitted, the State will issue a final payment. State Aid Finance - SAAS Reports Select State Aid County and Municipality Reports / SAAS Payment Document - Construction to view the payment information on the project. This document outlines the total project costs and shows any increase or decrease to the Construction Allotment Account. Four different situations can occur. These are: Project is Completed as Estimated The State will send the original encumbered amount to the county which we already have booked as a State Aid receivable. Example A, # 4A Project overruns original estimate for amount of State Aid receipt (asset) Cash (asset) State Aid Receivable The State will send the original encumbered amount to the county as well as additional State Aid allotment funds that are due and available in the allotment. The Final Notice will inform you of the total project costs. Remember costs that were not previously recorded against your allotment must be recorded at this time. Example B, # 4(B1) through 4(B4) Recognize overrun and reduce allotment for amount of overrun (asset) State Aid Receivable (asset) State Aid Construction Allotment Record receipt of the State Aid Obligation. (asset) Cash (asset) State Aid Receivable Recognize receipt of Project Development (if requested). (asset) Cash (asset) State Aid Construction Allotment Recognize revenue for Project Development (if requested). (liability) State Aid Construction Unearned Revenue (revenue) State Aid Construction Revenue 23

46 CHAPTER 3 REGULAR AND MUNICIPAL CONSTRUCTION ACCOUNTS Project underruns original estimate without an overpayment This means that State Aid has encumbered too much and will only reimburse the portion of the encumbered amount that covers the actual project costs. The Final Payment document will provide total project costs. Remember that the amount of the over-estimate will reduce your receivable and increase your allotment. Example C, # 4(C1) and 4(C2) Recognize the underrun. for amount of underrun (asset) State Aid Allotment (asset) State Aid Receivable Record receipt of the State Aid Obligation. for amount of State Aid receipt (asset) Cash (asset) State Aid Receivable Project underruns original estimate with an overpayment This means that State Aid has encumbered too much and also advanced too much cash to the county. As a result, the county owes State Aid a refund. State Aid usually does not request the money back. It is usually recorded as an overpayment and applied against the next construction project that is submitted for State Aid Funding. This money should be posted to a liability account (Due to State Aid Overpayments) until you are notified of its use on another project. Example D, # 4(D1) and 4(D2) The allotment balance must be increased by both the overpayment and the original encumbered amounts. Recognize the overpayment. for amount of overpayment (asset) State Aid Allotment (liability) Due to State Aid - Overpayments Reduce the receivable and increase the allotment for the original encumbered amount. for amount of State Aid encumbered (asset) State Aid Allotment (asset) State Aid Receivable FINAL PAYMENT TO CONTRACTOR When the project is FINALIZED, the county will pay the retainage withheld to the contractor and authorize the Certificate of Final Acceptance. Examples A D, # 5 24

47 Recognize final disbursement to the contractor. CHAPTER 3 REGULAR AND MUNICIPAL CONSTRUCTION ACCOUNTS for amount of contractor disbursement (liability) Contracts Payable (asset) Cash REVOCATION OF A STATE AID ROAD When a county revokes a State Aid Route for which State Aid Construction Funds have previously been spent, the District State Aid Engineer determines the remaining life of the project and computes the value of the items that were financed with State Aid Funds. This value is considered an overpayment to the county and will be subtracted from the next State Aid contract let by the county. The revenue from prior years must also be reduced due to the revocation. Example D, # 6 Recognize State Aid Overpayment for revoked State Aid Road. (asset) State Aid Construction Allotment (liability) Due to State Aid Overpayments reduce prior year revenue due to revocation (equity) Fund Balance (liability) State Aid Construction Unearned Revenue 25

48 EXAMPLES Example A CHAPTER 3 REGULAR AND MUNICIPAL CONSTRUCTION ACCOUNTS 26

49 Example B CHAPTER 3 REGULAR AND MUNICIPAL CONSTRUCTION ACCOUNTS 27

50 Example C CHAPTER 3 REGULAR AND MUNICIPAL CONSTRUCTION ACCOUNTS 28

51 Example D CHAPTER 3 REGULAR AND MUNICIPAL CONSTRUCTION ACCOUNTS 29

52 CHAPTER 4 TOWN BRIDGE CONSTRUCTION ACCOUNTS TOWN BRIDGE ALLOTMENT NARRATIVE There are grant monies available from State Aid which is specific to Town Bridge Construction. Each year the Minnesota County Highway Departments receive a Notice of Annual Apportionment which shows that year s allotment for Town Bridge Construction. Township cost participation is required, an accounts receivable entry may be needed to recognize the township local funding obligation, or more information refer to: The accounting procedures and spreadsheet examples are identical to the section for Municipal and Regular Construction. The account names have been changed to reflect Town Bridge Allotment Accounts. ACCOUNTS NEEDED (const exp) - TOWN BRIDGE CONSTRUCTION EXPENSES (There will be numerous construction accounts) (revenue) - TOWN BRIDGE CONSTRUCTION REVENUE (asset) (asset) (asset) (liability) (liability) (liability) - CASH - TOWN BRIDGE CONSTRUCTION RECEIVABLE - TOWN BRIDGE CONSTRUCTION ALLOTMENT - CONTRACTS PAYABLE - DUE TO STATE AID - OVERPAYMENTS - TOWN BRIDGE CONSTRUCTION UNEARNED REVENUE SPECIAL CONSIDERATIONS It is recommended to keep Town Bridge overpayments segregated from other State Aid overpayments (Regular and Municipal), set up separate overpayment accounts. These might be set up as follows: (liability) (liability) (liability) - Due to State Aid - Regular Overpayments - Due to State Aid - Municipal Overpayments - Due to State Aid - Town Bridge Overpayments SEQUENCE OF EVENTS PROJECT IS AWARDED Your allotment is reduced throughout the year as construction contracts are let and sent in for Town Bridge Funding approval. Go to State Aid Finance SAAS Reports: 30

53 CHAPTER 4 TOWN BRIDGE CONSTRUCTION ACCOUNTS Select State Aid County and Municipality Reports/SAAS Payment Document Construction to view the payment information on the project. The appropriate entries need to be made to recognize the receivable from Town Bridge as well as the reduction to the Town Bridge Construction Allotment. Only the Town Bridge Obligation amount should be used for the following entry. Example A, # 1 for amount of State Aid obligation only (asset) Town Bridge Receivable (asset) Town Bridge Allotment 95% PAYMENT IS RECEIVED FOR THE PROJECT After the State Aid Partial Payment Request has been approved, the county will receive the actual payment for the project. State Aid advances 95% of the total State Aid Construction Obligation; the remaining 5% is encumbered. In addition, if requested, Engineering, Force Account and Right of Way will be received. Requests for actual Engineering costs are submitted along with State Aid Final Payment Request. Example A, # 2 Recognize the receipt of the Town Bridge Payment for the 95% of Town Bridge obligation only (asset) Cash (asset) Town Bridge Receivable Recognize the receipt of Engineering, Force Account and Right of Way for the Engineering and/or Force accounting and/or Right of Way, if any (asset) Cash (asset) Town Bridge Allotment Recognize revenue for Engineering, Force Account and Right of Way for the 95% of Town Bridge obligation only (liability) Town Bridge Deferred Revenue (asset) Town Bridge Revenue WORK BEGINS ON THE PROJECT Sometime after State Aid approval, work actually begins on the contract. County inspectors verify that the work is indeed done according to specifications, and a partial payment is paid to the contractor. Example A, # 3A, 3B & 3C Amount of Work Certified ($ amount of work actually performed) minus: equals: Any retainage ($ withheld as an insurance factor) Cash paid to Contractor ($ amount of actual disbursement) As work is certified on contract. for actual work certified (const exp) Town Bridge Construction Expenses (liability) Contracts Payable 31

54 Recognize revenue earned. CHAPTER 4 TOWN BRIDGE CONSTRUCTION ACCOUNTS Make the following adjustment entry to recognize the amount of the Town Bridge Allotment which can now be considered Current Year Earned Revenue (for the amount of work certified only). recognize revenue for amount of work certified. (liability) Town Bridge Deferred Revenue (revenue) Town Bridge Construction - Revenue Recognize disbursement to contractor. for amount of contractor disbursement. (liability) Contracts Payable (asset) Cash PROJECT IS FINALIZED Numerous partial payments may be made to the contractor following the same sequence as in the step above. When the contract is completed and a State Sid Final Payment Request is submitted, the State will issue a final payment. Go to State Aid Finance SAAS Reports. Select State Aid County and Municipality Reports/SAAS Payment Document Construction to view the payment information on the project. This document outlines the total project costs and shows any increase or decrease to the Town Bridge Construction Allotment Account. Four different situations can occur. These are: Project is completed exactly as estimated Project overruns original estimate Project Underruns original estimate without a State Aid overpayment Project Underruns original estimate with a State Aid overpayment Project Completed as Estimated The State will send the original encumbered amount to the county which has already been booked as a State Aid Receivable. Example A, # 4A for amount of State Aid receipt (asset) Cash (asset) Town Bridge Receivable Project Overruns Original Estimate The State will send the original encumbered amount to the county as well as additional Town Bridge allotment monies that are due and available in the allotment. Example B, # 4(B1) and 4(B2) Recognize overrun and reduce allotment for amount of overrun (asset) Town Bridge Receivable (asset) Town Bridge Construction Allotment 32

55 Record receipt of the State Aid Obligation CHAPTER 4 TOWN BRIDGE CONSTRUCTION ACCOUNTS (asset) Cash (asset) Town Bridge Construction Receivable Project Underruns Original Estimate Without an Overpayment This means that State Aid has encumbered too much and will only reimburse the portion of the encumbered amount which covers the actual project costs. The amount of the underrun will reduce the Town Bridge Receivable and increase the allotment accounts. Example C, # 4(C1) and 4(C2) Recognize the underrun for amount of underrun (asset) Town Bridge Allotment (asset) Town Bridge Receivable Record receipt of the State Aid Obligation for amount of Town Bridge Construction receipt (asset) Cash (asset) Town Bridge Receivable PROJECT UNDERRUNS ORIGINAL ESTIMATE WITH AN OVERPAYMENT This means that State Aid has encumbered too much and has also advanced too much cash to the county. As a result, the county owes State Aid a refund; however, State Aid usually does not request the money back. Usually the State records the overpayment and applies it against the next construction project that is submitted for State Aid Funding. The county should post the overpayment amount to a liability account (Due to State Aid Overpayments) until notified of its application to another project. Example D, # 4(D1) and 4(D2) The allotment balance must be increased by both the overpayment amount and the original encumbered amount. Recognize the overpayment. for amount of overpayment (asset) Town Bridge Allotment (liability) Due to State Aid Town Bridge Overpayments Reduce the receivable and increase the Town Bridge Allotment for the original encumbered amount for amount of Town Bridge encumbered (asset) Town Bridge Construction Allotment (asset) Town Bridge Construction Receivable If the County elects to return the overpayment for amount of Town Bridge overpayment returned (asset) Due to State Aid Town Bridge Overpayments (asset) Cash 33

56 FINAL PAYMENT TO CONTRACTOR CHAPTER 4 TOWN BRIDGE CONSTRUCTION ACCOUNTS When the project is FINALIZED, the county will pay the retainage to the contractor and authorize the Certificate of Final Acceptance. Examples A D, # 5 Recognize final disbursement to the contractor. for amount of contractor disbursement (liability) Contracts Payable (asset) Cash 34

57 EXAMPLES Example A CHAPTER 4 TOWN BRIDGE CONSTRUCTION ACCOUNTS 35

58 Example B CHAPTER 4 TOWN BRIDGE CONSTRUCTION ACCOUNTS 36

59 Example C CHAPTER 4 TOWN BRIDGE CONSTRUCTION ACCOUNTS 37

60 Example D CHAPTER 4 TOWN BRIDGE CONSTRUCTION ACCOUNTS 38

61 CHAPTER 4 TOWN BRIDGE CONSTRUCTION ACCOUNTS SPECIAL TOWN BRIDGE ALLOTMENT NARRATIVE Periodically, the county may exceed their Town Bridge Allotment, if this occurs the county may receive a Special Town Bridge Allotment. This additional allocation may not be required to be paid back to the State. ACCOUNTS NEEDED (const exp) - TOWN BRIDGE EXPENSES (there will be numerous of these) (revenue) (asset) (asset) (asset) (liability) (liability) - SPECIAL TOWN BRIDGE CONSTRUCTION REVENUE - CASH - SPECIAL TOWN BRIDGE CONSTUCTION RECEIVABLE - SPECIAL TOWN BRIDGE CONSTRUCTION ALLOTMENT - CONTRACTS PAYABLE - TOWN BRIDGE UNEARNED REVENUE SEQUENCE OF EVENTS NOTIFICATION OF SPECIAL TOWN BRIDGE ALLOCATION 39

62 RECOGNIZE SPECIAL TOWN BRIDGE ALLOCATION CHAPTER 4 TOWN BRIDGE CONSTRUCTION ACCOUNTS Recognize the amount from the Notification of Change to State Aid Town Bridge Allocation. This notification is based on the engineer s estimate and not the awarded bid. Changes to the Special Town Bridge Account may be view on the SAAS Status report: Select State Aid County and Municipality Reports/SAAS Status, enter the county to view, review the Special Town Bridge Allocation changes by clicking on the Allocation Amount. Example A, # 1 Special Town Bridge Allocation (asset) Special Town Bridge Allotment (liability) Special Town Bridge Deferred Revenue SPECIAL CONSIDERATIONS In the case of Special town Bridge overpayment, the county will be billed by the state for the excess funds, an overpayment account is recommended to keep track of these excess funds. Example D PROJECT UNDERRUNS ORIGINAL ESTIMATE WITH AN OVERPAYMENT For further discussion PROJECT IS AWARDED The allotment is reduced throughout the year as construction contracts are let and sent in for Special Town Bridge Funding approval. Go to State Aid Finance SAAS Reports: Select State Aid County and Municipality Reports / SAAS Payment Document - Construction to view the payment information on the project. The appropriate entries need to be made to recognize the receivable from Special Town Bridge as well as the reduction to the Special Town Bridge Construction Allotment. Only the Special Town Bridge Obligation amount should be used for the following entry. Example A, # 2 95% PAYMENT IS RECEIVED FOR THE PROJECT for amount of Special Town Bridge obligation only (asset) Special Town Bridge Receivable (liability) Special Town Bridge Allotment After the State Aid Partial Payment Request has been approved, the county will receive the actual payment for the project. State Aid advances 95% of the total Special Town Bridge Construction Obligation; the remaining 5% is encumbered. In addition, if requested, Engineering, Force Account and Right of Way will be received. Requests for actual Engineering costs are submitted along with the State Aid Final Payment Request. Example A, # 3 Recognize the receipt of the Special Town Bridge Payment for the 95% of Special Town Bridge Obligation only (asset) Cash (liability) Special Town Bridge Receivable Recognize the receipt of Engineering, Force Account, and Right of Way 40

63 CHAPTER 4 TOWN BRIDGE CONSTRUCTION ACCOUNTS for the of the Engineering and/or Force Account and/or Right of way, if any (asset) Cash (liability) Special Town Bridge Allotment Recognize revenue for Engineering, Force Account, and Right of Way for the of the Engineering and/or Force Account and/or Right of way, if any (asset) Special Town Bridge Deferred Revenue (liability) Special Town Bridge Revenue WORK BEGINS ON THE PROJECT Sometime after State Aid approval, work actually begins on the contract. County inspectors verify that the work is indeed done according to specifications, and a partial payment is paid to the contractor. Example A, #4A, 4B & 4C Amount of Work Certified ($ amount of work actually performed) Minus: Any retainage ($ withheld as an insurance factor) Equals: Cash paid to contractor ($ amount of actual disbursement) As work is certified on contract Recognize revenue earned for actual work certified (const exp) Special Town Bridge Construction Expenses (liability) Contracts Payable Allotment which can now be considered Current Year Earned Revenue (for the amount of work certified only). Recognize disbursement to contractor PROJECT IS FINALIZED (liability) Special Town Bridge Deferred Revenue (revenue) Special Town Bridge Revenue for actual work certified (liability) Contracts Payable (asset) Cash Numerous partial payments may be made to the contactor following the same sequence as in the step above. When the contract is completed and a State Aid Final Payment Request is submitted, the State will issue a final payment. Go to State Aid Finance SAAS Reports. Select State Aid County and Municipality Reports/SAAS Payment Document Construction to view the payment information on the project. This document outlines the total project cost and shows an increase or decrease to the Special Town Bridge Construction Allotment Account. 41

64 Four Different situations can occur: Project is completed as estimated Project overruns original estimate Project underruns original estimate without an overpayment Project underruns original estimate with an overpayment PROJECT IS COMPLETED AS ESTIMATED CHAPTER 4 TOWN BRIDGE CONSTRUCTION ACCOUNTS The State will send the original encumbered amount to the county which has already been booked as a Special Town Bridge Construction Receivable. Example A, # 5A PROJECT OVERRUNS ORIGINAL ESTIMATE for amount of Special Town Bridge receipt (asset) Cash (asset) Special Town Bridge Construction Receivable The State will send the original encumbered amount to the county as well as additional Special Town Bridge Construction Allotment monies that are due and available in the allotment. The SAAS Payment Document Construction report will outline the total project costs and should be reviewed, so that any costs which were not previously recorded against the allotment are recorded at this time. Example B, # 5(B1) and 5(B2) Recognize the underrun Record receipt of the State Aid Obligation for amount of underrun (asset) Special Town Bridge Construction Allotment (asset) Special Town Bridge Construction Receivable for amount of Special Town Bridge Construction receipt (asset) Cash (asset) Special Town Bridge Construction Receivable PROJECT UNDERRUNS ORIGINAL ESTIMATE WITH AN OVERPAYMENT This means that State Aid has encumbered too much and has also advanced too much cash to the county. As a result, the county owes State Aid a refund; however, State Aid will send a bill for the excess funds paid to the county. Example D, # 5(D1), 5(D2) and 5(D3) The allotment balance must be increased by both the overpayment amount and the original encumbered amount. Recognize the overpayment for amount of Special Town Bridge Construction receipt (asset) Cash (asset) Special Town Bridge Construction Receivable 42

65 CHAPTER 4 TOWN BRIDGE CONSTRUCTION ACCOUNTS Reduce the receivable and increase the Special Town Bridge Allotment of the original encumbered amount Payment to State Aid for overpayment for amount of Special Town Bridge Construction receipt (asset) Cash (asset) Special Town Bridge Construction Receivable for amount of Special Town Bridge Construction receipt (asset) Cash (asset) Special Town Bridge Construction Receivable If another active project needs to be finalized at the same time and the payment due is equal to or greater than this project overpayment, the overpayment may be applied to the second project. Check the SAAS Payment Document Construction report to verify the transactions posted to each project. The allotment balance will be decreased by the underrun project. Recognize the overpayment for amount of Special Town Bridge Construction receipt (asset) Cash (asset) Special Town Bridge Construction Receivable Reduce the receivable and increase the Special Town Bridge Allotment of the original encumbered amount REDUCTION OF SPECIAL BRIDGE ALLOTMENT for amount of Special Town Bridge Allotment (asset) Cash (asset) Special Town Bridge Construction Receivable When the project is FINALIZED, the state will reduce the Special Town Bridge Allotment for the finalized project if the allotted amount was greater than the finalized amount of the project. Changes to the Special Town Bridge Account may be viewed on the SAAS Status Report. Select State Aid County and Municipality Reports / SAAS Status, enter the county to view, review the Special Town Bridge Allocation changes by clicking on the Allocation Amount. Examples A D, # 6 FINAL PAYMENT TO CONTRACTOR for amount of Special Town Bridge Allotment Reduction (liability) Special Town Bridge Construction Deferred Revenue (asset) Special Town Bridge Construction Allotment When the project is FINALIZED, the county will pay the retainage to the contractor and authorize the Certificate of Final Acceptance. Examples, A D, # 7 Recognize final disbursement to the contractor. 43

66 EXAMPLES Example A CHAPTER 4 TOWN BRIDGE CONSTRUCTION ACCOUNTS 44

67 Example B CHAPTER 4 TOWN BRIDGE CONSTRUCTION ACCOUNTS 45

68 Example C CHAPTER 4 TOWN BRIDGE CONSTRUCTION ACCOUNTS 46

69 Example D CHAPTER 4 TOWN BRIDGE CONSTRUCTION ACCOUNTS 47

70 CHAPTER 5 SPECIAL CONSTRUCTION ACCOUNTS STATE TRANSPORTATION BONDS FOR THE LOCALS (Bridge, LRIP, & Disaster) NARRATIVE The State of Minnesota operates on a two year budget cycle called a biennium, and although there are laws passed and financial changes in the second year they are less certain. The state legislature typically passes a bonding bill the first year of the biennium, (even number years). This would include bridge and local road improvement bonds. Disaster bonds are generally passed as needed and triggered by a substantial disaster. State Aid uses input from the counties to document the need for a bonding bill. In the case of bridge bonds this is done through county resolution. Annually each county should pass a Bridge Priority Resolution providing a list of all their deficient bridges and a rough estimate of the cost to repair or replace them. This resolution is submitted to State Aid and the bridges are added to the state wide master bridge spreadsheet. This spreadsheet serves as documentation for the bonding need. Once a bonding bill is passed, the counties apply for the funding project by project. In the case of disaster bonds, local agency estimates are paramount in initiating a bill. If a disaster occurs that impacts the county s roads and bridges, the District State Aid Engineer (DSAE) should be notified immediately. Preliminary estimates need to be compiled and provided to the DSAE as well as a request for financial assistance. The request is not a formal document but a letter from the County Engineer or County Board to document the request. A request for assistance will not insure a bond issue, but if the possibility is eminent, having this information in hand helps State Aid for Local Transportation (SALT) to proceed. Bond funds are limited in supply so counties must submit approved plans to SALT for consideration. Bond funds are rarely the sole source of funding and the county is required to have the balance of the project funding in place prior to a bond award. Projects that are listed in the Statewide Transportation Improvement Plan (STIP) are given priority so federal funding is not lost. Once approved for bond funds the county will receive a Funding Letter for SALT. This letter provides the estimated bond grant award, the bond agreement number and the bond account number. This letter should be kept in the project file for reference later. At this time the bond funds are also allocated to the project in the State Aid Accounting System (SAAS). ACCOUNTS NEEDED (const exp) - STATE BOND CONSTRUCTION EXPENSES (revenue) (asset) (asset) (liability) - STATE BOND CONSTRUCTION - REVENUE - CASH - STATE BOND CONSTRUCTION - RECEIVABLE - CONTRACTS PAYABLE 48

71 CHAPTER 5 SPECIAL CONSTRUCTION ACCOUNTS SEQUENCE OF EVENTS PROJECT IS AWARDED Once the project is awarded the abstract is submitted to SALT with the bond eligible items identified. When the encumbrance letter is returned to the county, the bond agreement and board resolution can be executed. Following the instructions on the SALT website. Complete three original agreement documents, insert the board resolution, and submit all to SALT. The initial State Aid Payment Request (SAPR) is submitted to State Aid indicating all funding sources for the project. If there is Regular State Aid funding on the project, entries for the receivable can be made. Bond funds are not paid out until work has been certified, so no entries will be made or payments received as a result of the SAPR if the project is funded entirely by bonds. However, if the county chooses to track the bond grant as an asset, an entry can be made at this time to record the bond grant. These entries will be covered after this section as OPTIONAL ENTRY METHOD. The county can determine the method to be used. WORK BEGINS ON THE PROJECT Work progresses and bond eligible items are certified. Payments are made to the contractor less retained funds in the same manner as a regular construction project. The following entries will need to be made to recognize the construction expense, contract payable, and the disbursement to the contractor. Example A, # 2A, & 2B Recognize expense for work certified and record payable (const exp) State Bond Expense (liability) Contracts Payable Record disbursement to contractor (liability) Contracts Payable (asset) Cash PARTIAL REIMBURSEMENT IS REQUESTED Once the county has incurred and paid certified work, reimbursement can be requested using a SAPR and revenue can be recognized. Example A, # 3A and #3B Recognize state bond revenue for work certified (asset) State Bond - Receivable (revenue) State Bond Revenue Record receipt of state bond funds (asset) Cash (asset) State Bond - Receivable NOTE: According to Minn. Stat , the public contracting agency may retain up to 5% from any progress payment. Typically the public contracting agency withholds 5% retainage until final; however, it s not required. If the public contracting agency retains 5%, State Aid would not pay the last 5% until the final payment is made to the contractor. State Aid will release actual bond funds paid, up to 100% of the bond, through reimbursement. 49

72 CHAPTER 5 SPECIAL CONSTRUCTION ACCOUNTS Special exceptions: for bond funds expiring in the current year, 100% bond funds may be paid if the public contracting agency requests or agrees, but the public contracting agency has to retain 5% of other funding. For out-of-state contractors review Minn. Stat SURETY DEPOSITS REQUIRED FOR CONSTRUCTION CONTRACTS. If a portion of the retainage is released before the project is final, a request for this portion may be made. Revenue for these funds would be booked at the time it becomes certain and determinable, when work is certified. CAUTION: State bond revenue can only be recognized up to the grant amount. In cases where the bond eligible items over run the grant amount, they become county expense and no revenue can be recognized. In special cases it may be possible to request and receive additional grant funds, and then revenue could be increased. PROJECT IS FINALIZED Numerous partial payments may be made to the contractor and SAPRs completed following the same process as in the steps above. The final SAPR must indicate that the project is final and request any remaining unpaid bond funds equal to the value of eligible work certified or the bond grant whichever is less. Upon final three main situations can occur relating to the bond funds. These are: Project is completed exactly as estimated Project overruns the original estimate Project underruns the original estimate Project is Completed Exactly as Estimated The remaining unpaid bond funds are released to the county upon the receipt of the executed SAPR. Example A, # 6A and #6B Record receipt of state bond funds (asset) Cash (asset) State Bond - Receivable Project Overruns Original Estimate The remaining bond funds up to the original grant amount are released to the county upon the receipt of the executed SAPR. The county is responsible to absorb the amount of the bond eligible costs over the bond grant. The State will not reimburse the county for overruns out of the State Bond Account, unless the county specifically applies for and is granted additional State Bond funds. These expenditures will be recognized as county expense at the time they are incurred. Example B, # 6A and #6B Recognize expense greater than bond grant (expense) Construction Expense (liability) Contracts Payable Record receipt of state bond funds (asset) Cash (asset) State Bond - Receivable 50

73 Project Underruns Original Estimate CHAPTER 5 SPECIAL CONSTRUCTION ACCOUNTS The remaining bond funds (up to an amount equal to the value of eligible work certified) are released to the county upon the receipt of the executed SAPR; if no further bond eligible costs remain, any retained funds will be released to the county. Example C, # 6A, and #6B Record receipt of state bond funds (asset) Cash (asset) State Bond - Receivable NOTE: NOTE: As soon as it becomes evident that all of a bond grant will not be spent, State Aid should be notified so those funds can be allocated to another project. This will not reduce the original bond eligibility should the costs increase later. In cases when an adjustment to bond eligible contract expenditures is made after the county has received payment, the county may be required to repay those funds. FINAL PAYMENT TO CONTRACTOR When the project is final and all the required documentation is received from the contractor, the county will release the retained funds to the contractor. Example C, # 6A, and #6B Record disbursement to contractor (liability) Contracts Payable (asset) Cash 51

74 EXAMPLES Example A CHAPTER 5 SPECIAL CONSTRUCTION ACCOUNTS 52

75 Example B CHAPTER 5 SPECIAL CONSTRUCTION ACCOUNTS 53

76 Example C CHAPTER 5 SPECIAL CONSTRUCTION ACCOUNTS 54

77 STATE PARK CONSTRUCTION ACCOUNT NARRATIVE CHAPTER 5 SPECIAL CONSTRUCTION ACCOUNTS A portion of the Highway User Tax Distribution (HUTD) is set aside to fund public accesses to outdoor recreation areas within a county. These projects must be applied for and final projects are determined through the Department of Natural Resources. When a project is let a State Aid Payment Request can be submitted for 95% of the state park eligible work. The remaining 5% is encumbered and will be paid when the project is complete and all costs are verified. Upon final any unspent funds will need to be returned to State Aid. Since this is a special allocation and not an annual allocation this cannot be applied to another project and you will be billed for this overpayment. Any unspent funds that remain encumbered will be released back to the State Park Fund. ACCOUNTS NEEDED (const exp) (revenue) - STATE PARK CONSTRUCTION EXPENSES (there will be numerous construction accounts) - STATE PARK CONSTRUCTION - REVENUE (asset) (asset) (liability) (liability) - CASH - STATE PARK CONSTRUCTION - RECEIVABLE - CONTRACTS PAYABLE - STATE PARK CONSTRUCTION - UNEARNED REVENUE SEQUENCE OF EVENTS PROJECT IS AWARDED Once a State Park project is approved an encumbrance will be set up for the estimated project cost. After the project is let the county can set up State Park Construction Receivable and State Park Unearned Revenue Accounts. Example A, # 1 Record State Park Receivable for awarded contract amount (asset) State Park - Receivable (liability) State Park - Unearned Revenue 95% PAYMENT IS RECEIVED FOR THE PROJECT After the initial SAPR has been approved you will receive the requested percentage payment, up to 95% for the project. State Aid advances 95% of the total State Park Construction Obligation and the remaining 5% remains encumbered. Example A 55

78 CHAPTER 5 SPECIAL CONSTRUCTION ACCOUNTS To keep contract costs clear it is a good idea to make two entries if you are being paid for engineering, force account work and/or Right of Way (ROW). # 2A & 2B for a graphic display of the following entries. Record receipt of State Park contract funds (asset) Cash (asset) State Park - Receivable Record receipt of State Park engineering, force account and ROW funds (asset) Cash (revenue) State Park Construction - Revenue WORK BEGINS ON THE PROJECT Work progresses and bond eligible items are certified. Payments are made to the contractor less retained funds in the same manner as a regular construction project. 7The following entries will need to be made to recognize the construction expense, earned State Park revenue, and the disbursement to the contractor. Example A, # 3A, 3B & 3C Recognize expense for work certified (expense) State Park Construction Expense (liability) Contracts Payable Recognize State Park revenue for work certified (liability) State Park - Unearned Revenue (revenue) State Park Construction - Revenue Record contractor disbursement (liability) Contract Payable (asset) Cash 56

79 CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS NARRATIVE Federal Aid Construction projects are projects that are funded in part with federal funds. The matching funds can be from many sources including State Aid Regular or Municipal funds, State Transportation Bond for Locals Funds (which includes Bridge Bonding, LRIP, and Disaster Bonds), County local funds, or those of townships, cities or private enterprises within the county who are participating in the funding of the project. The two types of Federal Aid construction projects are Delegated Contract Process (County let projects) and Traditional Contracts (MnDOT let projects). An important difference between the Delegated Contract Process and Traditional Contracts is the way the funds are handled. DELEGATED CONTRACT PROCESS (COUNTY ADMINISTERS CONTRACT) The county lets the project, makes payments to the contractor and collects the necessary funds. The county must submit a DCP payment request to MnDOT for the Federal Funds after contract payments are made. Contact your DSAE to determine if they want to be copied on partial payments. When a county submits a DCP final payment to MnDOT, the DSAE must be copied. Federal Funds are on a reimbursement basis only; they cannot be advanced at the beginning of the project. State Aid Funds can be advanced to the county at the beginning of the project similar to non-federal projects. The county pays any local share (county, township, individuals, etc.) as the contract payments are made. Since the accounts used and the entries to record transactions are different for the two processes, the following pages are broken into 2 sections; DELEGATED CONTRACT PROCESS (County let projects) and TRADITIONAL PROJECTS (MnDOT let projects). In both cases the state will encumber 5% of the total State Aid share. This amount is removed from the Counties available State Aid balance. With TRADITIONAL PROJECTS (MnDOT let projects) the 5% is held in an account identified as Anticipated Federal Transfers. This account is similar to the Receivable Account used for County let projects. However, since the county does not receive the funds it is not a receivable. Similar to the Receivable Account, the Anticipated Federal Transfers Account is set up to record the encumbered portion of the State Aid funds until the project is final. The DCP Payment Request Guide may be found on the State Aid Finance website, along with the DCP Checklist and the DCP Final Payment sample packet. TRADITIONAL PROJECTS (MnDOT ADMINISTERS CONTRACT) MnDOT, as an agent for the county, administers the contract for the county. MnDOT lets the project, makes the payments to the contractor and collects Federal, State Aid or local reimbursement. Federal Funds are collected and deposited into the Federal County Road & Bridge Account with MnDOT. The matching State Funds ARE NOT disbursed to the county. State Aid Finance transfers the funds directly into the Agency Account from the county s appropriate State Aid Account. A copy of the TRANSFER NOTICE can be found on State Aid Finance s website in the SAAS Reports State Aid County and Municipality Reports SAAS Payment Document Construction. Enter the SP # and click View Report to 57

80 CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS make the appropriate entries to your records. Local funds (county, township, individuals, etc.) are billed to the county up front before the project can be awarded. DELEGATED CONTRACT PROCESS (COUNTY ADMINISTERS CONTRACT) Using the Delegated Contract Process, the County lets the project, makes payments to the contractor and collects the necessary funds. Federal and State Transportation Bond for Locals Funds are paid on a reimbursement basis only; they cannot be advanced at the beginning of the project. State Aid funds can be advanced to the County at the beginning of the project similar to non-federal projects. The county pays any local share (county, township, individuals, etc.) as the contract payments are made. The county may submit a DCP payment request for the Federal and State Transportation Bond for Locals Funds once the expenses have been incurred provided they have an approved payment process assuring the contractor is paid promptly upon receiving reimbursement of the Federal share. SHARED FEDERAL REVENUE When more than one local government has a project as part of a DCP it is the administering government that recognizes all federal revenue from the DCP. The administering government does not capitalize the projects for the other governments. State Aid funds that are forwarded to the administering government from the other participating governments are to be recognized as reimbursements, these funds may be posted to revenues, and they are not required to be netted to expenditure accounts. ADVANCE OF STATE AID FUNDS FOR FEDERAL PROJECTS If the county has funds available in their State Aid Construction Accounts they may use these funds in lieu of Federal funds on a DCP. The state aid payments are recognized in the following examples: For State Aid Construction funds that are received in lieu of federal funds: for amount of payment (asset) Cash (liability) Due to State Aid Federal Funds (liability) State Aid - Unearned Revenue (Reg. or Muni. Const.) (asset) State Aid - Allotment (Reg. or Muni. Const.) If Federal funds become available, SAF will transfer the amount of the Federal reimbursement back to the county s State Aid construction account and the following entries will be required. This transfer may occur within the same year or in future years. 58

81 CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS For transfer of Federal funds to State Aid construction account to reimburse State Aid funds and recognize federal revenue. for amount of Federal transfer notice (liability) Due to State Aid Federal Funds (revenue) Federal Construction - Revenue (asset) State Aid - Allotment (Reg. or Muni. Const.) (liability) State Aid - Unearned Revenue (Reg. or Muni. Const.) If the county does not have funds available in their State Aid Construction Account they may advance State Aid funds. The entries for recognizing State Aid revenues for Federal funds would be the same as those discussed above. The discussion below describes the entries required to recognize the State Aid Advance of funds. ADVANCE RESOLUTION If the county needs to borrow State Aid Funds in excess of their account balance it is mandatory for the county board to pass a resolution. A copy of the resolution must be sent to the SAF. The county engineer will be notified upon receipt of the resolution. A resolution is not required when using State Aid funds in lieu of federal funds if there are sufficient funds available in the State Aid Account. STATE AID FUNDING ON DELEGATED CONTRACT PROCESS ACCOUNTS NEEDED (const exp) - REGULAR CONSTRUCTION - EXPENSE (const exp) - MUNICIPAL CONSTRUCTION - EXPENSE (const exp) - FEDERAL CONSTRUCTION - EXPENSE (const exp) - STATE BOND CONSTRUCTION - EXPENSE (revenue) (revenue) (revenue) (revenue) (asset) (asset) (asset) (asset) (asset) (asset) (asset) (liability) (liability) (liability) (liability) - REGULAR CONSTRUCTION - REVENUE - MUNICIPAL CONSTRUCTION - REVENUE - FEDERAL CONSTRUCTION - REVENUE - STATE BOND CONSTRUCTION - REVENUE - CASH - REGULAR CONSTRUCTION - RECEIVABLE - MUNICIPAL CONSTRUCTION - RECEIVABLE - FEDERAL - RECEIVABLE - STATE BOND - RECEIVABLE - REGULAR CONSTRUCTION - ALLOTMENT - MUNICIPAL CONSTRUCTION - ALLOTMENT - CONTRACTS PAYABLE - DUE TO STATE AID - OVERPAYMENTS - REGULAR CONSTRUCTION - UNEARNED REVENUE - MUNICIPAL CONSTRUCTION - UNEARNED REVENUE 59

82 CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS SEQUENCE OF EVENTS PROJECT IS APPROVED State Aid Allotments are reduced throughout the year as construction contracts are let and sent in for State Aid funding approval. At the time State Aid funding is approved by the State Aid Office you will need to recognize the State Aid Receivable. Example A, # 1 For State Aid Regular and/or Municipal Construction Obligation for amount of State Aid obligation only (asset) State Aid Receivable (Reg. or Muni. Const.) (asset) State Aid Allotment (Reg. or Muni. Const.) ADVANCE PAYMENT FOR STATE AID FUNDS RECEIVED FOR THE PROJECT After the State Aid Funding has been approved, you will receive the actual payment for the project. The State advances 95% of the total State Aid Construction Obligation. The remaining 5% is encumbered and will be paid to you when the project is complete and all costs are verified. Example A, # 2A recognize the receipt of the State Aid payment (asset) Cash (asset) State Aid Receivable (Reg. or Muni. Const.) PROJECT DEVELOPMENT, RIGHT OF WAY REIMBURSEMENT, ETC. The process for reimbursement of Project Development, Right of Way, etc. is the same whether a project is a Traditional or Delegated Project. Refer to page 62 of this chapter for details. WORK BEGINS ON THE PROJECT After State Aid approval, work actually begins on the contract. Your county inspectors verify that the work is done according to specifications, and a partial payment is paid to the contractor. The amount of Work Certified (total actual work performed) MINUS retainage (funds withheld from contractor) EQUALS cash paid to the Contractor (actual disbursement). The following entries will need to be made to recognize the Construction Expense, the earned State Aid, Federal and/or State Bond Revenue, and the Disbursement to the Contractor. Example A, # 3 A, 3B, 4, 5A and 5B Recognize the construction expense. as work is certified on contract (const exp) Construction Expenses (Regular, Municipal, Federal, State Bond, & Local) (liability) Contracts Payable Recognize Revenue earned For the State Aid Allotment that can now be considered Current Year s Earned Revenue. recognize State Aid Revenue (amount of work certified) (liability) State Aid Unearned Revenue (Reg or Muni. Const.) (revenue) State Aid Construction Revenue (Reg. or Muni. Const.) 60

83 CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS For the Federal Funds as reported on DCP Payment Request recognize Federal and/or State Bond Revenue (asset) Federal Receivable (revenue) Federal Construction Revenue (asset) State Bond Receivable (revenue) State Bond Construction Revenue Recognize the disbursement to the contractor. recognize payment to contractor (liability) Contracts Payable (asset) Cash REIMBURSEMENT OF FEDERAL AND STATE BOND FUNDS Once expenses have been incurred and paid, the County can submit invoices to MNDOT TO OBTAIN REIMBURSEMENT FOR THE Federal and/or State Bond portion of the project. The DCP payment request can be found at the State Aid Finance website, by selecting SAAS Reports. After logging in, select Delegated Contract Process (DCP) Payment Request. The instructions for making a DCP Payment Request can be found at DCP Process. The following entries need to be made. Example A, # 6 A and 6B recognize receipt of Federal and/or State Transportation Bond for Locals Funds (asset) Cash (asset) Federal Receivable (asset) Cash (asset) State Bond Receivable FINAL PAYMENT TO CONTRACTOR When the project is final, the county will pay the retainage to the contractor. Example A, # 8 recognize payment to contractor (liability) Contracts Payable (asset) Cash PROJECT IS FINALIZED Numerous partial payments may be made to the contractor following the same sequence as in the steps described above. When the contract is completed a Report of Final Estimate must be submitted to the State for final approval of the State Aid funds. Once approved, you will either receive an EFT (if there is an amount due) or a State Aid Overpayment will be processed which will be applied to your next State Aid Project. A DCP Final Payment Request will also need to be submitted to the state for any final Federal and/or State Bond funds that are due. 61

84 CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS Four different situations can occur when the project is Final. They are described below: Project is completed as estimated Project overruns original estimate Project underruns original estimate without a State Aid Overpayment Project underruns original estimate with a State Aid Overpayment PROJECT IS COMPLETED AS ESTIMATED You will also need to submit a DCP Final Payment Request to the State for any additional Federal and /or State Bond funds that are due; copying the DSAE. This must be submitted even if there are no additional funds due to you. When the cash is received you will need to record the cash receipt. Example A, # 9A, 9B, 10A, and 10B recognize invoice for Federal and/or State Bond Funds (asset) Federal Receivable (revenue) Federal Construction Revenue (asset) State Bond Receivable (revenue) State Bond Construction Revenue recognize receipt of Federal and/or State Bond Funds (asset) Cash (asset) Federal Receivable (asset) Cash (asset) State Bond Receivable The State will send the original encumbered amount to the county which has already been recorded as a State Aid Receivable. Example A, # 11 recognize receipt of encumbered amount (asset) Cash (asset) State Aid Receivable (Reg. or Muni. Const.) PROJECT OVERRUNS ORIGINAL ESTIMATE The State will send the original encumbered amount to the County as well as any additional State Aid Allotment Funds that are due and available in the allotment. The Final Notice will inform you of the total final project costs. Remember costs that were not previously recorded against your allotment must be recorded at this time. Example B, # 7A, 7B, 7C, and 8 reduce the State Aid Allotment Account to recognize the amount of the State Aid overrun. (asset) State Aid Receivable (Reg. or Muni. Const.) (asset) State Aid Allotment (Reg. or Muni. Const.) 62

85 CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS recognize remaining State Aid Construction Revenue, total revenue will equal State Aid Obligation for the project. (liability) State Aid Unearned Revenue (Reg. or Muni. Const.) (revenue) State Aid Revenue (Reg. or Muni. Const.) recognize receipt of Final Payment for State Aid Obligation. (asset) Cash (asset) State Aid Receivable (Reg. or Muni. Const.) Under normal circumstances the Federal and/or State Bond entries are not affected by overruns since funds are requested on a reimbursable basis. You will also need to submit a DCP Final Payment Request to the State for any additional Federal and/or State Bond Funds that are due. This must be submitted even if there are no additional funds due to you. The entries would be identical to those described in Example A. PROJECT UNDERRUNS ORIGINAL ESTIMATE WITHOUT AN OVERPAYMENT This means that the State has encumbered too much and will only reimburse the portion of the encumbered amount that covers the total actual project amount. The Final Notice will inform you of the final project costs. Remember that the amount over-estimated which previously reduced your allotment must be restored to your allotment. Example C, # 7A, 7B, 7C, and 8 for amount of underrun (asset) State Aid Allotment (Reg. or Muni. Const.) (asset) State Aid Receivable (Reg. or Muni. Const.) for amount of State Aid receipt (asset) Cash (asset) State Aid Receivable (Reg. or Muni. Const.) Under normal circumstances the Federal and/or State Bond entries are not affected by overruns since funds are requested on a reimbursable basis. You will also need to submit a final invoice (Form DCP 14) to the State for any additional Federal and/or State Bond Funds that are due. The entries would be identical to those described in Example A. PROJECT UNDERRUNS ORIGINAL ESTIMATE WITH AN OVERPAYMENT This means that the State has encumbered too much and also advanced too much cash to the county. As a result, the county owes the State a refund. The State usually does not request this money back. It is usually recorded as an overpayment and applied against the next construction project you submit for State Aid funding. This money should be posted to a Liability Account (Due to State Aid - Overpayments) until you are notified of its use on another project. Example D, # 7A, 7B, 7C, and 7D Recognize the overpayment. for amount of overpayment (asset) State Aid Allotment (liability) Due to State Aid - Overpayments 63

86 CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS Reduce the receivable and increase the allotment for the original encumbered amount. for amount of State Aid encumbered (asset) State Aid Allotment (asset) State Aid Receivable Under normal circumstances the Federal and/or State Bond entries are not affected by an underrun since funds are requested on a reimbursable basis. A DCP Final Payment Request needs to be submitted to the State for the final contract costs. In the case an overpayment has occurred for Federal and/or State Bond Funds an invoice will be received by the local agency for the overpayment amount. Recognize the Federal and/or State Bond overpayment. recognize payment to State for amount of Federal overpayment (revenue) Federal Construction - Revenue (asset) Cash recognize payment to State for amount of State Bond overpayment (revenue) State Bond - Revenue (asset) Cash 64

87 EXAMPLES CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS Example A 65

88 Example B CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS 66

89 Example C CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS 67

90 Example D CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS 68

91 CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS TRADITIONAL PROJECTS (MNDOT ADMINISTERS CONTRACT) ACCOUNTS NEEDED (const exp) - REGULAR CONSTRUCTION - EXPENSE (const exp) - MUNICIPAL CONSTRUCTION - EXPENSE (const exp) - FEDERAL CONSTRUCTION - EXPENSE (const exp) - STATE TRANSPORTATION BOND CONSTRUCTION - EXPENSE (revenue) (revenue) (revenue) (revenue) (asset) (asset) (asset) (asset) (asset) (asset) (asset) (asset) (liability) (liability) - REGULAR CONSTRUCTION - REVENUE - MUNICIPAL CONSTRUCTION - REVENUE - FEDERAL CONSTRUCTION - REVENUE - STATE TRANSPORTATION BOND CONSTRUCTION - REVENUE - REGULAR CONSTRUCTION - ANTICIPATED FEDERAL TRANSFERS - MUNICIPAL CONSTRUCTION - ANTICIPATED FEDERAL TRANSFERS - REGULAR CONSTRUCTION - ANTICIPATED EXPENSE - MUNICIPAL CONSTRUCTION - ANTICIPATED EXPENSE - PREPAID FEDERAL - CONSTRUCTION EXPENSE - CASH - REGULAR CONSTRUCTION - ALLOTMENT - MUNICIPAL CONSTRUCTION - ALLOTMENT - REGULAR CONSTRUCTION - UNEARNED REVENUE - MUNICIPAL CONSTRUCTION - UNEARNED REVENUE SEQUENCE OF EVENTS LOCAL OBLIGATION If the project is funded in part with local funds, the county will be required to submit 100% of the local contribution to MnDOT before the project can be awarded. The following entry would be used to record this transaction. Example A, # 1 Recognize Prepaid Federal Construction Expense (asset) Prepaid Federal Construction Expense (asset) Cash STATE AID TRANSFER NOTICE When a Federal Aid construction project is let and a portion of the funding is from State Aid funds, the county will receive a PARTIAL STATE AID TRANSFER NOTICE when the funds have been transferred from their account. Under the current procedures, these dollars now represent Grant Revenue and Construction Expenses. The accounting entries associated with the initial Partial State Aid Transfer Notice are below. 69

92 CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS NOTE: This example has both State Aid and State Transportation Bond for Locals Funds on the project. Unlike the State Aid Funds, State Transportation Bond for Locals Funds CAN NOT be transferred until actual expenditures have been incurred and paid. For this reason, partial transfers may be processed periodically or not until the end of the project. Example A, # 2A and 2B For State Aid Obligation reduce the State Aid Allotment by the State Aid obligation (asset) Anticipated State Aid Transfers (Reg. or Muni. Const.) (asset) State Aid - Allotment (Reg. or Muni. Const.) Recognize Partial State Aid Transfer 95% of State Aid obligation to Federal Project (asset) Anticipated State Aid Construction - Expense (asset) Anticipated State Aid Transfers (Reg. or Muni. Const.) PROJECT DEVELOPMENT, RIGHT OF WAY REIMBURSEMENT, ETC. The process to receive reimbursement for Project Development, Right of Way, Utility Relocation, etc. is different if part of the costs are funded with Federal Funds or if no Federal Funds are involved (strictly State Aid Funds). If Federal Funds are involved, an agreement must be written and the funds must be approved with the Federal Highway Administration. The matching funds are generally local or Fund 29, but it is possible to have State Aid. Invoices are submitted to MnDOT for reimbursement once costs have been incurred and paid by the county. The county absorbs the local funds as the costs are incurred. If Federal Funds are not involved, the process is easier. The county submits the request for reimbursement on the Report of State Aid Contract. The entries below reflect the different types of entries required for the different types of requests. A) COSTS WITH FEDERAL AID FUNDS When the county submits an invoice to MnDOT, the county records a receivable and the revenue earned for the amount of the invoice. The cash receipt is recorded when the county receives the money. Example A, # 3 A1 and 3A2 Record Receivable (for invoice amount) State Transportation Bond Grant (if any) (asset) State Transportation Bond Grant - Receivable (revenue) State Transportation Bond Construction - Revenue Federal Funds (asset) Federal - Receivable (revenue) Federal Construction Revenue 70

93 Record cash receipt CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS State Transportation Bond Grant (if any) (asset) Cash (asset) State Transportation Bond Grant - Receivable Federal funds (asset) Cash (asset) Federal - Receivable COSTS WITHOUT FEDERAL AID FUNDS (STATE AID FUND) Example A, # 3 B1 and 3B2 Recognize receipt of Project Development, Construction Engineering, Utility Relocation and Right of Way. (asset) Cash (asset) State Aid - Allotment (Reg. or Muni. Const.) Recognize Revenue (for the amount of State Aid Receipt) (liability) State Aid - Unearned Revenue (Reg. or Muni. Const.) (revenue) State Aid - Revenue (Reg. or Muni. Const.) YEAR END ADJUSTMENTS Run the FCRB Ledger By Card Summary from SAAS Reports for all your SP projects to view the deposits, federal reimbursements, and contract and engineering payments. Also run the FCRB Payment Summary report. The Total row represents project payments that have been processed on behalf of the county. According to CAFR, COFARS and the MN State Auditor, the current year funds must be declared as revenue and expenses for each type of funding for the project. (You must deduct any revenues and expenses declared in prior years from the totals in this section.) 71

94 CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS The following entries should be made for EACH FCRB PROJECT SUMMARY. Example A, # 4A, 4B, 4C, 4D, and 4E Recognize Federal Construction Expense and Revenue (deduct prior years expenses and revenues). (const exp) Federal Construction - Expense (revenue) Federal Construction - Revenue Recognize State Transportation for Locals Bond Construction Expense and Revenue (deduct prior years expenses and revenues). (const exp) State Transportation Bond Construction - Expense (revenue) State Transportation Bond Construction - Revenue 72

95 CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS Recognize State Aid Construction Expense and Revenue (deduct prior years expenses and revenues) (const exp) State Aid Construction - Expense (Reg. or Muni. Const.) (asset) Anticipated Expense (Reg. or Muni. Const.) (liability) State Aid - Unearned Revenue (Reg. or Muni. Const.) (revenue) State Aid - Revenue (Reg. or Muni. Const.) NOTE: The Anticipated Expense accounts may carry a credit balance if construction expenses exceed the original 95% transfer. This will be corrected by future transfers on the project. Recognize local construction expense (deduct prior years expenses) (const exp) Federal Construction - Expense (asset) Prepaid Federal Construction - Expense PROJECT IS FINAL Unless more State Aid funds are transferred for the federal project (in which case the entries would be identical to those described in State Aid Transfer Notice). The county will generally not receive any notices from State Aid until the project is final. Once the project has been final by MnDOT, the county will receive a Final State Aid Transfer Notice. This notice indicates the final amount of State Aid Funds transferred for the federal project. The situations that could occur at this point are: Project is completed as estimated Project is completed with an OVERRUN Project is completed with an UNDERRUN where the initial State Aid transfer is LESS THAN final contract amount Project is completed with an UNDERRUN where the initial State Aid transfer is MORE THAN final contract amount PROJECT IS COMPLETED AS ESTIMATED Example A, # 5A, 5B, 5C, 5D, 5E and 5F Recognize remaining State Aid Construction Expense. (const exp) State Aid Construction - Expense (Reg. or Muni. Const.) (asset) Anticipated Expense (Reg. or Muni. Const.) Recognize remaining State Aid Revenue. (liability) State Aid - Unearned Revenue (Reg. or Muni. Const.) (revenue) State Aid - Revenue (Reg. or Muni. Const.) 73

96 CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS Recognize final transfer of State Aid Funds. (asset) Anticipated Expense (Reg. or Muni. Const.) (asset) Anticipated State Aid Transfers (Reg. or Muni. Const.) NOTE: Previous entries have recognized State Aid Construction Expenses, the Anticipated Expense account will have a credit balance since expenses will exceed the original 95% transfer. The final transfer will net the balance of the Anticipated Expense and Anticipated State Aid Transfer accounts to zero. PROJECT OVERRUNS ORIGINAL ESTIMATE Example B, # 5A - 5G Reduce the State Aid Allotment (for the amount of the State Aid OVERRUN - the difference between the transfer and the encumbered amount). (asset) Anticipated Federal Transfers (Reg. or Muni. Const.) (asset) State Aid - Allotment (Reg. or Muni. Const.) Recognize remaining Construction Expense. (const exp) State Aid Construction - Expense (Reg. or Muni. Const.) (asset) Anticipated Expense (Reg. or Muni. Const.) Recognize remaining Revenue. (liability) State Aid - Unearned Revenue (Reg. or Muni. Const.) (revenue) State Aid - Revenue (Reg. or Muni. Const.) Recognize final transfer of State Aid Funds. (asset) Anticipated Expense (Reg. or Muni. Constr.) (asset) Anticipated State Aid Transfers (Reg. or Muni. Constr.) NOTE: Previous entries have recognized State Aid Construction Expenses. The Anticipated Expense account will have a credit balance since expenses will exceed the original 95% transfer. The final transfer will net the balance of the Anticipated Expense and Anticipated State Aid Transfer accounts to zero. UNDERRUN INITIAL TRANSFER IS LESS THAN FINAL CONTRACT AMOUNT Example C, # 5A 5G Increase the State Aid Allotment (for the amount of the State Aid UNDERRUN - the difference between the transfer and the encumbered amount). (asset) State Aid - Allotment (Reg. or Muni. Constr.) 74

97 CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS (asset) Anticipated State Aid Transfers (Reg. or Muni. Const.) Recognize remaining Construction Expense. (const exp) State Aid Construction - Expense (Reg. or Muni. Const.) (asset) Anticipated Expense (Reg. or Muni. Const.) Recognize remaining Revenue. (liability) State Aid - Unearned Revenue (Reg. or Muni. Const.) (revenue) State Aid - Revenue (Reg. or Muni. Const.) Recognize final transfer of State Aid Funds. (asset) Anticipated Expense (Reg. or Muni. Constr.) (asset) Anticipated State Aid Transfers (Reg. or Muni. Constr.) NOTE: Previous entries have recognized State Aid Construction Expenses. The Anticipated Expense account will have a credit balance since expenses will exceed the original 95% transfer. The final transfer will net the balance of the Anticipated Expense and Anticipated State Aid Transfer accounts to zero. Recognize refund of remaining Local Funds (if any). (asset) Cash (asset) Prepaid Federal Construction Expense D) UNDERRUN INITIAL TRANSFER IS MORE THAN FINAL CONTRACT AMOUNT Example D, # 5 A - 5G Increase the State Aid Allotment (for the amount of the State Aid UNDERRUN - the difference between the transfer and the encumbered amount). (asset) State Aid - Allotment (Reg. or Muni. Const.) (asset) Anticipated State Aid Transfers (Reg. or Muni. Const.) Recognize remaining Construction Expense. (const exp) State Aid Construction - Expense (Reg. or Muni. Const.) (asset) Anticipated Expense (Reg. or Muni. Const.) Recognize remaining Revenue. (liability) State Aid - Unearned Revenue (Reg. or Muni. Const.) (revenue) State Aid - Revenue (Reg. or Muni. Const.) 75

98 CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS Recognize the difference between actual expenses and the initial transfer amount, decrease the Anticipated Expense Account. (asset) Anticipated State Aid Transfers (Reg. or Muni. Const.) (asset) Anticipated Expense (Reg. or Muni. Const.) NOTE: The difference between the actual expenses and the initial transfer amount will net the balance of the Anticipated Expense and Anticipated State Aid Transfer accounts to zero. Recognize refund of remaining Local Funds (if any). (asset) Cash (asset) Prepaid Federal Construction Expense 76

99 EXAMPLES Example A CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS 77

100 Example B CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS 78

101 Example C CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS 79

102 Example D CHAPTER 6 FEDERAL AID DELEGATED AND TRADITIONAL CONTRACT PROCESS 80

103 CHAPTER 7 LOCAL AGENCY BONDS AND LOCAL TRANSPORTATION REVOLVING LOAN FUND LOCAL AGENCY BONDS NARRATIVE Periodically, due to a cash flow need, the county may sell debt (bonds) with the assistance of financial advisers to finance one or more projects. The State of Minnesota is not a party to any bond issue made by a local government agency, but the annual State Aid Allotments can sometimes be used for repayment of the debt. It is important to understand that there are accounting guidelines to be followed to accurately record the bond proceeds, bond expenditures, and any revenue that may be earned from interest. There are tax implications to be tracked, public reporting that may be requested showing bond uses, and of course the need for the Highway Department to accurately record the value added to their road system. Each county will have their own unique set of procedures. Prior to bond issue it is important that each department understand its responsibility in the process to avoid duplication as well as omission of important steps. This chapter will address two types of bonds often used by counties. The difference between the two is the pledge for the source of repayment. Determining the type of bond to be issued looks at the use of the funds and the sources available for repayment. In both cases, once the county determines that it will issue bonds a financial advisor is contacted and the bond issue process begins following similar steps up through the point of sale. General Obligation (G.O.) Bonds are backed by a pledge of the full faith and credit of the county and thus, generally repaid with property tax levies. These bonds can be used for very broad purposes depending on the county s financial plan and structure. Accounting for G.O. bonds will be an internal function and no reporting or compliance will be required by State Aid. They are included here as a part of the Highway Department s possible accounting entries throughout the bond s life. Local Agency Bonds (L.A.) are Revenue Bonds for which the county has pledged repayment with the county s available annual construction and maintenance allotments. These bonds must be used for the purposes stated in MN Statute ; establishing, locating, relocating, constructing, reconstructing and improving county state aid highways and constructing buildings and other facilities for maintaining county state aid highways. This statute, along with MN State Aid Rule Subp. 11, also establish a limit on the bond principal amount that can be considered for issue. State Aid requires a repayment schedule of principal and interest be provided within 30 days of the bond issue. This schedule is used to verify and set aside annual payments that will be released to the county for their repayment of the bond principal and interest. Sometimes in order to secure a lower interest rate, a County will issue G.O. Revenue Bonds, which pledge the allotments for the repayment of the bonds, but includes a secondary pledge of the county s taxing authority. 81

104 CHAPTER 7 LOCAL AGENCY BONDS AND LOCAL TRANSPORTATION REVOLVING LOAN FUND ACCOUNTS NEEDED (expenditure) - BOND INTEREST EXPENDITURES (expenditure) - BOND ISSUANCE COSTS (expenditure) - BOND PRINCIPAL RETIREMENT (revenue) (revenue) (revenue) (asset) (asset) (asset) (asset) (unearned inflow) (unearned inflow) (equity) (equity) (equity) - APPROPRIATE CONSTRUCTION REVENUE - APPROPRIATE MAINTENANCE REVENUE - INVESTMENT INTEREST REVENUE - CASH - APPROPRIATE CONSTRUCTION ALLOTMENT - APPROPRIATE MAINTENANCE ALLOTMENT - INVESTED BOND FUNDS - APPROPRIATE CONSTRUCTION UNAVAILABLE REVENUE - APPROPRIATE MAINTENANCE UNAVAILABLE REVENUE - ASSIGNED FUND BALANCE - RESTRICTED FOR CONSTRUCTION - RESTRICTED FOR DEBT SERVICE (other sources/uses) - OTHER FINANCING USES TRANSFERS OUT - OTHER FINANCING SOURCES TRANSFERS IN - OTHER FINANCING SOURCES BONDS ISSUED - OTHER FINANCING USES DISCOUNT ON BONDS ISSUED - OTHER FINANCING SOURCES PREMIUM ON BONDS ISSUED SEQUENCE OF EVENTS Entries are the same for both general obligation and local agency bonds from the bond issue through the bond expenditure. The differences lie in the annual bond repayment accounting. Entries here are provided for the Highway Department Accounts only and are provided as guidance; actual account titles will vary. BOND ISSUE If the bond funds are receipted in the Auditor s Office for the bond issuance, no entries are made at the Highway Department at this time. When bonds are sold and the cash is received by the Highway Department it is considered an Other Financing Source, not operating revenue. The bond issuance costs may or may not be a part of the Highway Department entry. If the funds are transferred from another fund, the expense may have been recorded there and should not be duplicated. Record the issue of bonds and the related issue costs (asset) Cash (expense) Bond Issue Costs (non-operating) Other Financing Sources Bonds Issued Bonds issued in a favorable market can create a premium meaning they sold for more than the face value of the bonds, providing additional funds for the county. If the market is unfavorable the bond may 82

105 CHAPTER 7 LOCAL AGENCY BONDS AND LOCAL TRANSPORTATION REVOLVING LOAN FUND sell at a discount, or for less than the face value of the issue. In both cases this would be recorded with an additional line to the journal entry above for Other Financing Sources Bonds Issued as a credit for a premium issue or a debit in the case of a discounted issue. It is required to break this amount out in the accounting record for tracking. The funds received from a bond issue are often recorded into a Construction Account within the Highway Fund that tracks revenues and expenditures impacting the bond proceeds used for construction. If the Highway Department receipted the face value of the bond funds (above) this entry would be made to establish a Construction Account. Record the issue of bonds and the related issue costs (equity) Assigned Fund Balance (equity) Restricted for Construction INVESTED FUNDS If invested funds that are not recorded by the Highway Department no entries would be made. It is not uncommon for bond funds to be invested immediately to earn interest revenue until they are expended. In the case of general obligation bonds all revenue earned is generally returned to the Debt Service Fund to be used for future payments. This is not the case for local agency bonds as long as their future payments are satisfactorily secured by the annual allotments. Record the investment of bond proceeds (asset) Invested Bond Funds (asset) Cash When investments earn interest income that is booked in the Highway Department s Debt Service Fund/Accounts. Record the investment revenue (asset) Cash (revenue) Investment Interest Revenue Record the investment revenue (asset) Cash (revenue) Investment Interest Revenue Transfer interest income to the Debt Service fund (Non-Operating) Other Financing Uses Transfers (equity) Restricted Debt Service Fund 83

106 CHAPTER 7 LOCAL AGENCY BONDS AND LOCAL TRANSPORTATION REVOLVING LOAN FUND CONTRACT PAYMENTS ARE PROCESSED The Highway Department processes all the normal entries for contract expenditures through the project. (see Chapters 3 and 4). When the bond funds are held in a fund at the Auditor s Office, it is likely that a request to transfer funds will need to be made to reimburse the funds that the Highway Department has paid out to the contractor or has certified. Recognize funds transferred into the Highway Department to cover construction expenditures (asset) Cash (Non-Operating) Other Financing Sources Transfers In When the bond funds are held in the Highway Department, no additional entries are required. ANNUAL PRINCIPAL AND INTEREST PAYMENTS GENERAL OBLIGATION BONDS (G.O.) During the year, funds from a predetermined repayment source will be deposited into the Debt Service Fund in anticipation of the payment of principal and interest due that year. There are numerous revenue sources and variations on where and when they are recorded. If the Debt Service Fund is recorded in the Auditor s Office, the Highway Department will not make any entries for the accrual of revenue throughout the year or the annual payment of interest or principal on the bond. These accounts will be tracked in another fund. If revenues are collected in another fund and transferred to a Debt Service Fund in the Highway Department, it is likely that a request to transfer funds will need to be made to initiate the transfer. Recognize funds transferred into the Highway Department to cover the annual principal and interest (asset) Cash (Non-Operating) Other Financing Sources Transfers In When the Debt Service Fund is recorded in the Highway Department, the current portion of the bond principal and interest will need to be paid to the bond company. Accounting Entry Record payment of the current portion of bond principal (expense) Bond Principal Retirement (asset) Cash Record payment of the current portion of bond interest (expense) Bond Interest (asset) Cash 84

107 CHAPTER 7 LOCAL AGENCY BONDS AND LOCAL TRANSPORTATION REVOLVING LOAN FUND LOCAL AGENCY BONDS (L.A.) In compliance with Minnesota Statute , the county can use its appropriate annual construction allotment to make bond principal payments and its appropriate annual maintenance allotment to make the bond interest payments. At year end the amount paid for interest will be separated from maintenance expenditures on the Annual Summary of Highway Maintenance Expenditures. ALLOTMENT SET ASIDE The amount of principal and interest due annually are set aside by State Aid Finance each January when the new allotments are issued. Any advance of construction funds from the previous year is repaid first. From the remaining balance, if there is any, the bond principal due in the current year (March next February) is set aside from the available allotment balance and held until it is needed. If there are insufficient funds to make the bond principal payment, funds will not be automatically advanced from the future year s allotment. If an advance is needed, an Advance Resolution must be submitted. The interest payments cannot me advanced so they will be paid short if there are insufficient funds in the maintenance allotment. The county should book the bond set aside when it occurs in January so that it will balance monthly to the allotment accounts. Record the reduction of the construction allotment for the bond principal due in the current year (unearned inflow) Appropriate Construction Unavailable Revenue (asset) Appropriate Construction Allotment Record the reduction of the construction allotment for the bond interest due in the current year (unearned inflow) Appropriate Maintenance Unavailable Revenue (asset) Appropriate Maintenance Allotment STATE AID RELEASES BOND PRINCIPAL AND INTEREST State Aid Finance will hold the set aside bond funds until the county submits the Affidavit to Request Bond Payment. Once that form is received the payment is released to the county. The Affidavit must be submitted about 30 days prior to each payment release, generally twice a year per bond. 85

108 CHAPTER 7 LOCAL AGENCY BONDS AND LOCAL TRANSPORTATION REVOLVING LOAN FUND In many counties the payments from State Aid are receipted at the Auditor s Office and deposited into the Highway Fund. If the Auditor will be issuing the bond payments, the funds can be deposited directly into the fund the payments will be made from, avoiding the need for an additional transfer. The Highway Department would then recognize the appropriate revenue, but the interest expense and the Debt Service Fund would be recorded in the other fund. Record revenue earned for bond principal payment (non-operating) Other Financing Uses Transfers (revenue) Appropriate Construction Revenue Record revenue earned for bond principal interest (non-operating) Other Financing Uses Transfers (revenue) Appropriate Maintenance Revenue If the Highway Department is recording the Debt Service activity and will be issuing the bond payments, the revenue, debt service and interest expense entries will be made on the Highway Department books. Record cash received and corresponding revenue for the bond principal (asset) Cash (revenue) Appropriate Construction Revenue Record cash received and corresponding revenue for the bond interest (asset) Cash (revenue) Appropriate Maintenance Revenue COUNTY MAKES BOND PRINCIPAL AND INTEREST PAYMENT Record the payment of the bond principal and interest to the bonding company (expense) Bond Principal (expense) Bond Interest (asset) Cash APPLYING BOND FUNDS In the State Aid Accounting System (SAAS) there are two balances tracked for a single bond principal. The first is the Outstanding Bond Principal that will be reduced annually with the bond principal payments and reflects the remaining debt to be paid by the county. The second is the Unapplied Bond Principal that is reduced when the county submits a State Aid Payment Request and states that bond funds have been applied to eligible project costs. State Aid must insure that the funds paid annually for bond principal and interest from State Aid Allotments are being spent for the legal purposes defined in MN statute In the SAAS Reports Menu, there is a report listing the projects and amounts that the county has paid using bond funds rather than State Aid Funds. If a county has more than one unapplied bond, funds are applied to the oldest bond first. The bond is not considered completely satisfied until both the Outstanding Bond Principal and the Unapplied Bond Principal reach zero. 86

109 CHAPTER 7 LOCAL AGENCY BONDS AND LOCAL TRANSPORTATION REVOLVING LOAN FUND REFUNDING BONDS During the life of a bond the county may refund or refinance the bond for a better interest rate or to restructure debt. In this process, the unpaid bond principal is in essence paid in full with the issue of the new bond. This is not done without a fee, and the bond issue fee is often added to the existing bond principal. If the bond issue fees will be paid from State Aid Allotments, the county must be aware that there is additional principal to be Applied. State Aid considers a bond refund to be the same as a new bond issue and requires the same information to be submitted YEAR END REPORTING On the Annual Summary of Maintenance Costs for the county, bond interest should be reported separately in such a way that it is not added into the calculation for the county's average cost per mile figure for road maintenance. The inclusion of these figures would inflate the county s average maintenance costs per mile. TRANSPORTATION REVOLVING LOAN FUND NARRATIVE The Transportation Revolving Loan Fund (TRLF) is authorized in MN Statute and was created to finance one or more construction projects in advance of when the county s funds would have allowed them to do so. TRLF loans follow all the general rules of bonds as discussed in the previous section. These loans are not sold publicly as a bond issue is, and the debt accrues as the funding is spent so annual payments may vary. The loan funds are generally kept in the Highway Department fund because they are disbursed out quickly. Additional governing over the TRLF is provided in Minnesota Rule Subp. 11a. The principal and interest on the TRLF loans are generally recouped annually from the county s State Aid Allotments, the same as local agency bonds, according to a payment schedule. 87

110 CHAPTER 7 LOCAL AGENCY BONDS AND LOCAL TRANSPORTATION REVOLVING LOAN FUND ACCOUNTS NEEDED (expenditure) (expenditure) - LOAN INTEREST EXPENDITURE - LOAN PRINCIPAL EXPENDITURE (revenue) (revenue) (asset) (asset) (asset) (unearned inflow) (unearned inflow) (equity) (equity) (non-operating) (non-operating) - APPROPRIATE CONSTRUCTION REVENUE - APPROPRIATE MAINTENANCE REVENUE - CASH - APPROPRIATE CONSTRUCTION ALLOTMENT - APPROPRIATE MAINTENANCE ALLOTMENT - APPROPRIATE CONSTRUCTION UNAVAILABLE REVENUE - APPROPRIATE MAINTENANCE UNAVAILABLE REVENUE - ASSIGNED FUND BALANCE - RESTRICTED FOR CONSTRUCTION - OTHER FINANCING USES - TRANSFERS OUT - OTHER FINANCING SOURCES TRANSFERS IN - OTHER FINANCING SOURCES LOANS ISSUED SEQUENCE OF EVENTS The sequence of events below describes the procedures to record the payback of a TRLF loan. PRINCIPAL AND INTEREST PAYMENTS FROM STATE AID The first year (and every year), approximately 2 months prior to the payment due date, MnDOT TRLF LOAN PROCEEDS ARE RECEIVED TRLF loan proceeds are distributed to the county as funds are requested through the program. Record for amount of TRLF loan Proceeds (asset) Cash (non-operating) Other Financing Sources Transfers In Record for amount of TRLF loan Proceeds (equity) Assigned Fund Balance (equity) Restricted for Construction If the loan funds are invested and interest is earned, entries similar to the bond investment entries would be made. The Highway Department processes all normal entries for contract expenditures through the project. (See Chapter 3 and Chapter 4) 88

111 CHAPTER 7 LOCAL AGENCY BONDS AND LOCAL TRANSPORTATION REVOLVING LOAN FUND STATE AID FUNDS RECEIVED The allotment is not automatically reduced in January as it is for bond payments, so the payment entry will be made when the funds are paid out to the county (about a month prior to the loan due date). The principal and interest amounts received should match the amortization schedule provided by the Public Facilities Authority (PFA). Generally, a payment schedule is established and provided to the county by the PFA. This schedule may change since the amount borrowed may increase. It is important to verify that the PFA furnished an updated schedule to State Aid Finance each time a distribution of loan funds has occurred. LOAN PAYMENT MADE Record the reduction of the construction allotment for the loan principal (liability) Appropriate Construction Unavailable Revenue (asset) Appropriate Construction Allotment Record the reduction of the construction allotment for the loan interest (liability) Appropriate Maintenance Unavailable Revenue (asset) Appropriate Maintenance Allotment Record cash received from the appropriate construction allotment for current loan principal payment due (asset) Cash (revenue) Appropriate Construction Revenue Record cash received from the appropriate maintenance allotment for current loan interest payment due (asset) Cash (revenue) Appropriate Maintenance Revenue Record the annual payment made to the PFA for loan principal (expense) Loan Principal Retired (asset) Cash Record the annual payment made to the PFA for loan interest (expense) Loan Interest (asset) Cash 89

112 CHAPTER 8 ADVANCED ENCUMBRANCE STATE AID ADVANCE NARRATIVE Periodically, the county may exceed their State Aid Allotments, if this occurs the county may get a State Aid Advance for the funding source that is short of funds. The County Board must pass a resolution and it must be on file with State Aid before any advance may occur. Advances on the next year s allotment cannot be recognized as revenue, revenues must be reduced on projects that have incurred an advance. ACCOUNTS NEEDED (const exp) - REGULAR CONSTRUCTION EXPENSES (there will be numerous of these) (const exp) - MUNICIPAL CONSTRUCTION EXPENSES (there will be numerous of these) (const exp) - TOWN BRIDGE EXPENSES (there will be numerous of these) (revenue) - REGULAR CONSTRUCTION REVENUE (revenue) - MUNICIPAL CONSTRUCTION REVENUE (revenue) - TOWN BRIDGE REVENUE (asset) - CASH (asset) - REGULAR CONSTRUCTION RECEIVABLE (asset) - MUNICIPAL CONSTRUCTION RECEIVABLE (asset) - TOWN BRIDGE RECEIVABLE (asset) - REGULAR CONSTRUCTION ALLOTMENT (asset) - MUNICIPAL CONSTRUCTION ALLOTMENT (asset) - TOWN BRIDGE ALLOTMENT (asset) - REGULAR CONSTRUCTION ADVANCE (asset) - MUNICIPAL CONSTRUCTION ADVANCE (asset) - TOWN BRIDGE ADVANCE (liability) - REGULAR CONSTRUCTION ADVANCE PAYABLE (liability) - MUNICIPAL CONSTRUCTION ADVANCE PAYABLE (liability) - TOWN BRIDGE ADVANCE PAYABLE (liability) - REGULAR CONSTRUCTION UNEARNED REVENUE (liability) - MUNICIPAL CONSTRUCTION UNEARNED REVENUE (liability) - TOWN BRIDGE UNEARNED REVENUE 90

113 SEQUENCE OF EVENTS RESOLUTION ON FILE CHAPTER 8 ADVANCED ENCUMBRANCE It is mandatory for the county board to pass a resolution to advance funds. A copy of the resolution must be sent to the State Aid Finance Office. The county engineer will be notified upon receipt of the resolution. Resolution to Advance Funds PROJECT IS APPROVED Your allotments are reduced throughout the year as construction contracts are let and payment requests are sent in for State Aid Funding Approval. When State Aid approves the funding, the State Aid Receivable will need to be recognized. Example A, # 1A for amount of State Aid Construction Obligation ONLY (asset) State Aid Receivable (asset) State Aid Allotment NOTE: The allotment will have a credit balance when the amount requested on a project exceeds the remaining balance of the allotment. FUNDS ARE ADVANCED The amount requested exceeds the amount of the remaining allotment and an advance occurs. The amount of the advance will appear on the Project Payment Notice (Project Payment Notice Example.) 95% PAYMENT IS RECEIVED FOR THE PROJECT After the State Aid Partial Payment Request has been approved you will receive the actual payment for the project. 95% of the total State Aid Construction Obligation is disbursed. The remaining 5% is NOT encumbered; State Aid does not advance funds for the encumbrance amount. Example A, # 1B for 95% of State Aid obligation only (asset) Cash (asset) State Aid Receivable NOTE: The Encumbrance Balance on the Status Report will not include any projects that have been paid to the county with a State Aid Advance. The State Aid Receivable on your system will differ by the amount of the projects that have not been encumbered. The Balance Available on the Status Report must have the projects that have not been encumbered deducted in order to reconcile to the State Aid Allotment on the county costing system. WORK BEGINS ON THE PROJECT Your county inspectors verify that the work is indeed done according to specifications and a partial payment is paid to the contractor. There are two things to be aware of: minus: equals: Amount of Work Certified ($ amount of work actually performed) Any retainage ($ withheld as an insurance factor) Cash paid to Contractor ($ amount of actual disbursement) The following entries will need to be made to recognize the construction expense, the earned State Aid revenue and the disbursement to the contractor. Example A, # 2A 91

114 CHAPTER 8 ADVANCED ENCUMBRANCE NOTE: Excess revenues from State Aid Advances will be backed out at year end. Recognize the construction expense. recognize expenses as work is certified on contract. (const exp) Construction Expenses (liability) Contracts Payable Recognize Earned Revenue. Example A, # 2B recognize revenue for amount of work certified. (liability) State Aid Unearned Revenue (revenue) State Aid Construction Revenue Recognize the disbursement to the contractor. Example A, # 2C for amount of contractor disbursement. (liability) Contracts Payable (asset) Cash PROJECT IS FINALIZED Numerous partial payments may be made to the contractor following the same sequence as in the process above. When the contract is completed, and final notification is sent into the State, the State will process the Final State Aid Payment Notice. In this example the project is completed for the contract bid. Recognize the construction expense. Example A, # 3A recognize expenses as work is certified on contract. (const exp) Construction Expenses (liability) Contracts Payable Recognize Earned Revenue for the current year. Example A, # 3B recognize revenue for amount of work certified. (liability) State Aid Unearned Revenue (revenue) State Aid Construction Revenue Recognize the disbursement to the contractor. Example A, # 3C for amount of contractor disbursement. (liability) Contracts Payable (asset) Cash 92

115 FUNDS ARE TRANSFERRED FROM MAINTENANCE CHAPTER 8 ADVANCED ENCUMBRANCE Advances may be reduced by transfers from Regular and Municipal Maintenance when final maintenance is posted to the SAAS System. The maintenance final from the county is received and a transfer occurs for the remaining maintenance balance. Example A, # 4A for amount of Maintenance Transfer (asset) State Aid Allotment (liability) State Aid Unearned Revenue FUNDS ARE ADVANCED FOR FINAL PAYMENT The final payment to the county exceeds the allotment and a State Aid Advance occurs. The amount of the advance will appear on the Project Payment Notice. Example Final Payment Notice FINAL PAYMENT IS RECEIVED The final payment is received by the county. Example A, # 5A for remaining 5% (asset) Cash (asset) State Aid Receivable ANOTHER PROJECT IS FINAL WITH AN OVERRUN Recognize the construction expense. Example A, # 7A recognize expenses as work is certified on contract. (const exp) Construction Expenses (liability) Contracts Payable Recognize Earned Revenue for the current year. Example A, # 7B recognize revenue for amount of work certified. (liability) State Aid Unearned Revenue (revenue) State Aid Construction Revenue Recognize the disbursement to the contractor. Example A, # 7C for amount of contractor disbursement. (liability) Contracts Payable (asset) Cash Recognize the Final State Aid Payment Request. Example A, # 7D for amount of Final State Aid Payment Request. (asset) State Aid Receivable (asset) State Aid Allotment 93

116 CHAPTER 8 ADVANCED ENCUMBRANCE YEAR END REVENUE REDUCTION FOR STATE AID ADVANCES The State Aid Advances that have occurred for the year must be recognized at year end. The Available Balance from the State Aid Accounting System Status Report as of 12/31/XX is the net amount of all State Aid Advances that have occurred for that funding type. Example A, # 7A Recognize State Aid Advance (asset) State Aid Advance (liability) State Aid Advance Payable The current year revenues must be reduced by the amount of the Unearned Revenue Balance. Example A, #7B Reduce revenues for the amount of the State Aid Advances (revenues) State Aid Construction Revenue (liability) State Aid Unearned Revenue BEGIN NEW YEAR ALLOTMENT AND REVERSING ENTRIES The new year allotment is received; entries are made to the appropriate allotment and unearned revenue accounts. Example A, # 8A New Year Allotments (asset) State Aid Allotments (liability) State Aid Unearned Revenues Reverse total of State Aid Advances. Example A, # 8B Reverse prior year State Aid Advances (liability) State Aid Advance Payable (asset) State Aid Advance Recognize remaining earned revenue, the amount of the previous year STATE AID Advance. Example A, # 8C Revenue not recognized in previous year due to State Aid Advance. (liability) State Aid Unearned Revenue (revenue) State Aid Construction Revenue 94

117 EXAMPLES Example A CHAPTER 8 ADVANCED ENCUMBRANCE 95

118 Example B CHAPTER 8 ADVANCED ENCUMBRANCE 96

119 Example C CHAPTER 8 ADVANCED ENCUMBRANCE 97

120 CHAPTER 9 RECONCILING STATE AID ACCOUNTS RECONCILING ACCOUNTS TO STATE AID STATUS REPORTS NARRATIVE The State Aid Status Report is available on the Web at the SAAS Reports Website. Select Status Report from the menu presented on this screen. This report details the status of the State Aid Accounts. It is suggested that the county books are reconciled to this report monthly. The State Aid Accounts included in the State Aid Status Report are: ACCT # Multiple DESCRIPTION 70 CSAH Regular Construction 71 CSAH Municipal Construction 72 County Turnback 73 State Park Construction 75 Special Town Bridge Construction 76 Town Bridge Construction 77 Town Road 80 CSAH Regular Maintenance 81 CSAH Municipal Maintenance 89 County Disaster State Transportation Bonds for Locals (Bridge, LRIP and Disaster) (State Aid Status Report Sample) The following pages discuss the items on the report and offer some guidelines to reconciling accounts with this report. If the proper accounting procedures are being followed (as detailed in the previous sections of this manual), the State Aid Accounts from your accounting system should reconcile directly to the figures on this reports. The best way to track down a discrepancy is to walk through the State Aid Payment/Transfer documents for the current year and post the entries on paper (using T-Accounts). Follow the rules and procedures as outlined in the previous sections of this manual for the various situations. Start by posting the beginning balances as of the beginning of the year (or from the last time the accounts were balanced to the State Aid Report) onto T-Accounts, for all the possible affected accounts. Then, as each payment/transfer document is gone through, make all entries to the appropriate T-Accounts on the projects which had activity since the accounts were last balanced with State Aid. Balance to the State Aid Status Report in this manual fashion, first. Then, trace the entries that were actually made to your accounting system, until the ones are found that don't agree with the T-Account entries which were made manually. If the discrepancy cannot be found in this manner, call the MnDOT State Aid Finance Office. 98

121 CSAH REGULAR CONSTRUCTION CHAPTER 9 RECONCILING STATE AID ACCOUNTS Disbursements should always equal the cash received and transfers processed during the year as reported on the State Aid Payment Documents. Encumbrances represent funds the State has not yet released to the county for outstanding projects. An itemized listing may be obtained when the Status Report is reviewed online. The amount here should be equal to the balances in the Regular Construction - Receivable Account (asset). Advances are not encumbered on the State Report, the balance of the receivable will be greater by those amounts not encumbered. Balance Available represents funds available in the Allotment Account but not yet requested or processed. The amount here should be equal to the balance in the Regular Construction - Allotment (asset) Account. If the county is advancing funds from a future year, the Balance Available will not include encumbrance for those advanced projects, the balance of the Allotment Account will be further negative by those amounts that have not been encumbered. CSAH MUNICIPAL CONSTRUCTION Follow the same guidelines as for CSAH Regular Construction. COUNTY TURNBACK Disbursements should always equal the cash received during the year as reported on the State Aid Payment Documents Encumbrances represent funds the state has not yet released to the country for outstanding projects. An itemized listing may be obtained when the Status Report is reviewed online. The amount here should be equal to the balance in the County Turnback Receivable Account (asset). This is the only account that is reconciled to the State Report. STATE PARK CONSTRUCTION Disbursements should always equal the cash received during the year as reported on the State Aid Payment Documents. Encumbrances represent funds the State has not yet released to the county for outstanding projects. An itemized listing may be obtained when the Status Report is reviewed online. The amount here should be equal to the balances in the State Park - Receivable Account (asset). This is the only account that is reconciled to the State Report. SPECIAL TOWN BRIDGE CONSTRUCTION Follow the same guidelines as for CSAH Regular Construction. TOWN BRIDGE CONSTRUCTION Follow the same guidelines as for CSAH Regular Construction. TOWN ROAD This should be zero because it is paid out. 99

122 CSAH REGULAR MAINTENANCE CHAPTER 9 RECONCILING STATE AID ACCOUNTS If there is any unused Maintenance Allotment from the previous year, it is transferred to the Regular Construction Account. Disbursements should always equal the cash received this year as reported on the State Aid Payment Documents. Unexpended Balance and Balance Available are equal. The amounts shown here should equal the balance in the Regular Maintenance Allotment (asset) Account, provided the Annual Summary of Highway Information, for the previous years, has been processed by State Aid Finance. If the Annual Summary of Highway Information has not been processed, the Beginning Balance must be deducted from the Balance Available. Encumbrances are always zero. Balance available before July is usually 50% of the current year's allotment and 10% or $0.00 after July, depending on the state payment plan (50%, 40% and 10% or 50% / 50%). If the county has a Local Agency Bond, the payments are calculated after reducing the allotment by the bond interest paid that year. CSAH MUNICIPAL MAINTENANCE If there is any unused Maintenance Allotment from the previous year, it is transferred to the Municipal Construction Account. Disbursements should always be equal to the cash received during the year as reported on the State Aid Payment sheets. Unexpended Balance and Balance available are equal. The amount shown here should equal the balance in the Municipal Maintenance Allotment (asset) Account, provided the Annual Summary of Highway Information, for the previous years, has been processed by State Aid Finance. If the Annual Summary of Highway Information has not been processed, the Beginning Balance must be deducted from the Balance Available. Encumbrances are always zero. Balance available will be a percentage of the current year's allotment, each county may request a different percentage of Municipal Maintenance to be paid them during the year. COUNTY DISASTER Disbursements should always be equal to the cash received during the year as reported on the State Aid Payment sheets. Encumbrances represent funds the State has not yet released to the county for outstanding projects. An itemized listing may be obtained when the Status Report is reviewed online. The amount here should be equal to the balances in the County Disaster - Receivable Account (asset). This is the only account that is reconciled to the State Report. 100

123 RECONCILING THE UNEARNED REVENUE ACCOUNTS NARRATIVE CHAPTER 9 RECONCILING STATE AID ACCOUNTS The county will be able to reconcile its Unearned Revenue Accounts to the Allocation Amount (Regular and Municipal Maintenance) or the Balance Available (Regular, Municipal and Town Bridge Construction) on the State Aid Status Report. The following explanations should hold true for the Unearned Revenue Accounts if the correct Grant Accounting entries have been made throughout the year. Review the following to proof the Unearned Revenue Account Balances at year end. REGULAR MAINTENANCE Prior to completing the year-end sequence, making the necessary adjustments to recognize the amount of Regular Maintenance expenditures, and closing the year, the Regular Maintenance Unearned Revenue Account balance should be the same figure as the Regular Maintenance Allocation amount on the Status Report. NOTE: However, this figure will not be the same figure in the Regular Maintenance Allotment Account at this time since this account is reduced by State Aid Payments during the year. MUNICIPAL MAINTENANCE Prior to completing the year-end sequence, making the necessary adjustments to recognize the amount of Municipal Maintenance expenditures, and closing the year, the Municipal Maintenance Unearned Revenue Account balance should be the same figure as the Municipal Maintenance Allocation amount on the Status Report. NOTE: However, this figure will not be the same figure in the Municipal Maintenance Allotment Account at this time since this account is reduced by State Aid Payments during the year. REGULAR, MUNICIPAL, SPECIAL TOWN BRIDGE AND TOWN BRIDGE CONSTRUCTION Both State Aid Construction Unearned Revenue Account balances should NEVER BE LESS THAN their corresponding Allotment Account balances UNLESS a project has overrun by a large amount and the overrun hasn't been released. Most often however, the Unearned Revenue Account balance WILL BE GREATER THAN the Allotment Account balance. The Unearned Revenue Account balance (either Regular, Municipal or Town Bridge) can be calculated via the following formula: ADD: PLUS: MINUS: EQUAL: Current Allotment Account Balance (after reconciliation with State Aid) Total Uncompleted Work on State Aid Projects (All years and State Aid Obligation ONLY) Any State Aid Project Overruns that have NOT be requested. Balance in State Aid Unearned Revenue NOTE: Unearned Revenue Accounts are normally Credit Balance Accounts. 101

124 STATE AID STATUS REPORT (NEW EXAMPLE) CHAPTER 9 RECONCILING STATE AID ACCOUNTS 102

125 103 CHAPTER 9 RECONCILING STATE AID ACCOUNTS

126 CHAPTER 10 UNALLOCATED COST DISTRIBUTION NARRATIVE Costs that cannot be directly related to a specific road, construction/engineering project, or unit of equipment are considered unallocated costs. Every effort should be made to charge costs directly to the appropriate cost area before using the unallocated accounts. Unallocated costs are divided between two categories highway related and non-highway related. The highway related unallocated costs are divided into categories for administration, maintenance, construction/engineering and equipment. All engineering and administrative personnel time should be supported by timesheets to justify highway and non-highway related costs. ADMINISTRATIVE COSTS Administrative costs are expenses which are not directly attributable to a specific operation. These costs include expenses which benefit all roads currently and in the future. Any unapplied administrative costs will be included with the maintenance reporting by road system as unallocated. Examples of administrative costs are: Administrative Salaries 1 Engineering Computer Prog/Serv Contract Fringe Benefits 2 Minor Office Furniture/Equipment Office Supplies and Expenses Offsetting Fringe Benefits applied to direct labor 2 Railroad Inspection Road Studies Training and Education Travel & Lodging Utilities 1 A portion of the Engineer's salary may be moved to the construction area based on a fair estimate of the Engineer's time. You should have documentation on file as to how you determined this estimate. 2 Fringe Benefits should have an offsetting account to record the credit for fringe benefits applied to direct labor. This offsetting credit is based on the fringe benefit rate calculation schedule included in this section. 104

127 CHAPTER 10 UNALLOCATED COST DISTRIBUTION FRINGE BENEFIT RATE CALCULATION The following steps should be followed to determine the fringe benefit rate calculation. Refer to the example below. Isolate and identify all benefits for full time employees that are part of the County s employment package. Do not include any items that are not payroll related. Identify the total labor dollars worked for full time employees. Exclude any wages for temporary or parttime employees that do not receive the County s normal benefit package. Calculate the fringe benefit rate by dividing the fringe benefits by the total labor dollars for full time employees. Apply this rate factor to all direct labor dollars costed for the County Highway operations with an offsetting credit to the fringe application account in the Unallocated Administrative area. EXAMPLE 20XX Fringe Benefits Disability Insurance 4, Health Benefits 40, Group Life Benefits 1, Accidental Death 0.00 P.E.R.A 45, Social Security 46, Unemployment Tax 4, Workers Comp. Taxes 24, Liability Insurance Salary adjustments, premium time, shift differential 41, Leave time vacation, sick, jury, and military 59, Total Fringe Benefit Costs $268, Total Labor Dollars $815, Labor dollars should exclude temporary or part-time employees that do not receive a benefit package. In addition, labor dollars should not include vacation, sick leave, military leave, and jury duty that are included within fringe benefits. Fringe Benefit Rate = $268,508.52/$815, = Education and training costs related to the county engineering staff are not allowed to be prorated to construction projects or individual roads. These costs should be included in the administrative unallocated dollar amount on the maintenance report by road system. 105

128 CHAPTER 10 UNALLOCATED COST DISTRIBUTION CONSTRUCTION COSTS Unallocated construction costs are expenses relating to construction operations that cannot be identified to a particular construction project. The costs in these accounts should be prorated to engineering based on total costs of the projects at year-end. If the County chooses, they may seek reimbursement of these engineering costs using their State Aid allocation. Examples of unallocated construction costs include: Alignment Surveys Cross Section Stock Piles Drafting Supplies Engineering Expense Engineering Field Work Field Engineering Supplies General Permits Road Studies Wetlands Bank/Mitigation Education and training costs related to the county engineering staff are not allowed to be prorated to construction projects or individual roads. These costs should be included in the administrative unallocated dollar amount on the maintenance report by road system. MAINTENANCE COSTS Unallocated maintenance costs are maintenance expenses that are difficult to associate with a particular road. All efforts should be made to charge to the individual roads before using unallocated maintenance accounts. Maintenance costing accounts are listed in Chapter 14. After costs have been accumulated in each unallocated account they may be spread to the individual roads in the appropriate maintenance account. Unallocated maintenance costs may be distributed to the roads based on total mileage, system mileage, surface mileage, labor, or number of intersections, curves and hills. The formula used to distribute unallocated costs will be determined by the type of unallocated cost. Examples of unallocated maintenance costs include: Annual Bridge Inspections & Report Bridge Inspections Not related to a project Building Barricades Gravel (stockpiled, crushing, prospecting) Maintenance Supplies for specific maintenance accounts (brooms for minor surface maintenance sweeping) Salt and Sand, materials and mixing costs Sign Materials Straightening Sign Posts Traffic Studies/Counts Weight Restrictions Weight Scale Calibration Most unallocated costs will be distributed by mileage, there are some costs that will be distributed based on special distribution formulas. 106

129 CHAPTER 10 UNALLOCATED COST DISTRIBUTION Each county should develop a method of allocating materials they choose to spread that works best for them. Salt and sand is a good example of a special distribution formula. It is usually applied to bituminous or concrete surfaces only at intersections, curves and hills. A survey of all road systems should be done to determine the number of intersections, curves and hills on bituminous or concrete roads. Example: CSAH Regular: 120 intersections, 55 curves, 30 hills = 205 CSAH Municipal: 110 intersections, 20 curves, 3 hills = 133 County Roads: 30 intersections, 5 curves, 10 hills = 45 Based on this example, the percentage of salt and sand distributed to CSAH Regular would be 54%, CSAH Municipal would be 35% and county roads would be 11%. The salt and sand would be distributed to each road program based on the calculated percentages to bituminous or concrete surfaces only. Using this formula will place more costs on the CSAH Municipal roads since the number of CSAH Municipal miles are usually the least of the county s road systems. Education and training costs related to the county engineering staff are not allowed to be prorated to construction projects or individual roads. These costs should be included in the Administrative Unallocated dollar amount on the maintenance report by road system. SHOP AND EQUIPMENT COSTS Unallocated shop and equipment costs are expenses relating to shop and equipment operations that cannot be identified to a particular unit. Examples of unallocated equipment costs include: Shop Overhead (Utilities) Shop Supplies & Small Tools Miscellaneous Repair Parts Building & Grounds Maintenance Inventory Adjustments for Fuel Inventory Adjustments for Parts and Replacements Inventory adjustment should be held to a minimum through the use of good inventory control and management. Inventory adjustments should become part of cost added to equipment and prorated back to the units in developing a rate or ultimately become an entry into adjustment to equalize depreciation. 107

130 CHAPTER 10 UNALLOCATED COST DISTRIBUTION NON-HIGHWAY RELATED COSTS Non-highway costs should be accumulated in the area for county dollars or authorized work for others. Non-highway related activities must not be included in the unallocated costs which are distributed to the road system. Non-highway costs may include costs associated with: Capital Outlay Ditch Fund for Flood Control Agricultural Inspection Work for Others Other Non-Highway Related Costs 911 Signing 108

131 CHAPTER 11 FIXED ASSETS NARRATIVE Fixed assets are tangible and intangible property capable of being owned or controlled to produce value to the owner. They also represent an economic value of ownership that could be converted to cash. In the case of the Highway Department, the primary function of recording assets is to accumulate cost information on maintenance and construction work through the year. Eligible costs are then reported to State Aid to be reimbursed from available allotment funds. The County Highway Department Fund is classified as a special revenue fund by COFARS. The purpose of a special revenue fund is to track current operating revenues and expenditures, and to report on available spendable resources that can finance the operations of the fund in the current operating period. Since fixed assets represent long-term holdings, the Governmental Modified Accrual Basis of Accounting (explained in the GAAFR and COFARS manuals) requires the removal of fixed assets from the balance sheet of special revenue fund types. Accounting for fixed assets at the highway fund level consists of recording the cash value on an ongoing asset master listing, establishing and maintaining rental rates for cost accumulation, and depreciating those costs over time to reflect wear and establish the need for replacement. In 2013, the State Aid Task Force updated and re-established basic guidelines for asset valuation previously determined in These are considered accepted practices to be followed but are not legally required. This chapter includes: The cash value of an asset to be recorded at purchase remains consistent with GAAP. Reaffirmed that straight line depreciation to a zero salvage value is the standard practice. Accounting for betterments and changes in depreciation remain consistent with GAAP. The goal of established rental rates continues to attempt to reflect actual costs as closely as possible. Treatment of equipment rental, leases and lease buy backs are clarified. An equipment list showing groups of like equipment with a useful life range. See list at the end of the chapter. Minor equipment expensing guideline. 109

132 ACCOUNTS NEEDED (unallocated exp) - EOY-ADJUST TO EQUAL COST VS RENTAL CHAPTER 11 FIXED ASSETS (equipment exp) - EOY-ADJUST TO EQUAL COST VS RENTAL (county exp) - CAPITAL OUTLAY - EQUIPMENT PURCHASES (county exp) - CAPITAL OUTLAY - LAND PURCHASES (county exp) - CAPITAL OUTLAY - BUILDING PURCHASES (county exp) - CAPITAL OUTLAY - OTHER FIXED ASSET PURCHASES (county exp) - CAPITAL IMPROVEMENTS - EQUIPMENT (county exp) - CAPITAL IMPROVEMENTS - LAND (county exp) - CAPITAL IMPROVEMENTS - BUILDINGS (county exp) - CAPITAL IMPROVEMENTS - OTHER FIXED ASSETS (revenue) - REVENUE FROM SALE OF EQUIPMENT (revenue) - REVENUE FROM SALE OF LAND (revenue) - REVENUE FROM SALE OF BUILDINGS (revenue) - REVENUE FROM SALE OF OTHER FIXED ASSETS (asset) - CASH (asset) - ACCOUNTS RECEIVABLE (liability) - ACCOUNTS PAYABLE ASSET LISTING The listing of assets and their useful lives in this chapter is intended to be a guideline for counties, it is not required. The estimated useful lives stated by each piece of equipment or equipment type are based on the varied experience of counties, manufacturer s recommendations, and other standard tables of asset lives. That said, if a county knows they replace a plow truck every eight years, the useful life is eight years regardless of the life stated on the asset listing. MINOR EQUIPMENT Counties will have several assets that have values below the county s threshold for depreciation, and even values below what is cost effective to depreciate. Assets that fall into this category can be expensed in the year purchased. However, if the asset is used in an activity that can be submitted to State Aid for reimbursement, the asset should be listed on the master asset listing and a rental rate assigned. The master asset listing can include every asset purchased by the department whether expensed or depreciated, or it can include only those assets that the department needs for accumulating costs. This master asset listing is NOT the insurance asset listing, that listing should be a more complete list of assets with the intent to document the existence in the event of a loss. It is important to understand the difference. It is important to determine who maintains both lists. 110

133 CHAPTER 11 FIXED ASSETS PURCHASES According to GAAP, equipment acquisition costs for accounting purposes include the full cost required to put the asset into service. All cash or trade discounts allowed at purchase would be deducted from the booked value of the unit. If there is a remaining book value, this should be added to the new unit. Also, any costs to get the unit ready for service may be added to the unit cost. The formula for calculating equipment value for depreciation purposes is: Gross unit price including delivery, etc. PLUS: MINUS: PLUS: EQUALS: Cost to get the unit ready for service Discounts, interest and trade in value Remaining book value of unit traded Value of the new unit EXAMPLE 1: NEW UNIT PURCHASED WITH A DISCOUNT DELIVERED SERVICE READY Unit Selling Price including delivery, etc.: $ 140, Vendor Discount: ($ 20,000.00) Net Booked Unit Cost: $120, The accounting entries would be: DR Fixed Assets (New Unit): 120, CR Accounts Payable/Cash: 120, EXAMPLE 2: NEW UNIT PURCHASED WITH TRADE-IN GAIN $5, LABOR & EQUIPMENT BEFORE SERVICE READY Unit Selling Price including delivery, etc.: $ 140, Cost to get ready for service: $ 5, Vendor Trade Allowance for old unit: ($ 50,000.00) Remaining book value of old unit: $ 20, Net Booked Unit Cost: $ 115, The accounting entries would be: DR Fixed Assets (New Unit): 115, CR Accounts Payable/Cash: 90, CR Salaries & Cash Purchases: 5, CR Fixed Assets (Old Unit): 20,

134 EXAMPLE 3: NEW UNIT PURCHASED WITH TRADE-IN LOSS $5, LABOR & EQUIPMENT BEFORE SERVICE READY CHAPTER 11 FIXED ASSETS Unit Selling Price including delivery, etc.: $ 140, Cost to get ready for service: $ 5, Vendor Trade Allowance for old unit: ($ 50,000.00) Remaining book value of old unit: $ 60, Net Booked Unit Cost: $ 155, The accounting entries would be: DR Fixed Assets (New Unit): 155, CR Accounts Payable/Cash: 90, CR Salaries & Cash Purchases: 5, CR Fixed Assets (Old Unit): 60, State Aid Finance has a worksheet to assist in fixed asset calculations, click on the link below: State Aid Finance Fixed Asset Calculation Worksheet Sales Tax: Be aware that sales and use tax may apply to all purchases. The tax applied to the initial unit selling price, or after the allowance for any discount or trade in, should be consistent with current tax laws. Be sure to consult the Minnesota Sales and Use Tax webpage for current information. DEPRECIATION The straight line depreciation method using the equipment s useful life with zero salvage value is generally used to provide consistency in equipment costing on a statewide basis. The calculation uses the booked value of the new unit. BETTERMENTS Equipment betterments are defined as any modification or extraordinary major repair which changes or alters a unit's original function and/or extends the life of the unit. In both situations, the costs should be capitalized and depreciated over the unit's remaining life. These costs should be identified as a county expense and should not be included in the costs added for the current year. Major repairs which occur early and do not extend the unit's life shall be included as part of cost added and be expensed in the year of occurrence. Betterment costs are compiled and added to the remaining book value. Depreciation is recalculated based on the new book value and remaining life using the initial formula. Book value before betterment: $ 150, Value of betterment: $ 20, Book value after betterment: $ 170, Remaining years of life: Original life plus any increase: 8 New Annual Depreciation 170,000 / 8: $ 21,

135 CHAPTER 11 FIXED ASSETS RENTAL RATES Equipment used to maintain or construct the roads should be recorded on the asset master listing and assigned a Rental Rate. Rental rates are assigned to each unit based on a formula that considers the annual depreciation and all the costs added (parts, fuels, oils, labor, etc.) during the year compared to the total rental revenue earned by that unit or similar units. The goal is to estimate a rental rate that will come as close to the actual cost as possible. These rates should be reviewed and changed as needed, at least annually, to maintain records that accurately reflect the costs being charged to the roads. The rates are used as the unit's cost basis whenever used through the year and measured either by the hour or mile depending on the county s preference or equipment type. Some counties choose to calculate the best or average rate for a group of like items, like tandem trucks, and apply that rate to all tandems rather than a different rate per truck. Rental Rate Calculation: Cost Added + Depreciation Expense Current New X Rental = Rental Rental Earned Rate Rate The costs that have been accumulated on the roads through rental rates over the year need to be adjusted to reflect the actual costs to operate the units. Most counties have a computerized accounting program that computes and posts this adjustment. Essentially, if rental rates are too high the costs charged to the roads must be reduced, if rental rates are too low the costs charged are increased. This is referred to as the Adjustment to Equalize Depreciation and should not impact your balance sheet. Equipment rental rates must be as close to actual costs as possible for road system reporting purposes and State Aid maintenance reimbursement. The goal is to reduce the Adjustment to Equalize Depreciation at year end as much as possible. In times when major costs are fluctuating widely, it may be better to adjust your rental rates more often than once a year. When a county does work for others a different billing rate may be applied, either higher or lower than the county rental rate used for its road systems. That billing rate should be documented and can include the operator's wages and fringes, equipment cost rate and appropriate county overhead. EQUIPMENT RENTAL, LEASE & LEASE BACK Counties often need a piece of equipment but do not have the capital available to purchase it, or only need the equipment for a limited time so purchasing is not cost effective. In these cases it may rent or lease the equipment. These units have some special considerations. If the lease is a long term lease to own, the unit will be entered into the fixed asset system as if it were purchased and the lease payments accounted for as if the unit was purchased on installment. (See section on capital leases) If the equipment is rented, or a short term lease, charging use and costs to the unit should be considered. The unit can be given a number on the asset listing to allow charges to the unit as well as usage. The unit should not be given a value because it is not truly an owned asset. 113

136 CHAPTER 11 FIXED ASSETS The usage cost of the unit can be challenging. In cases where the unit is being used for a specific purpose or project, it may be practical to allocate the cost of the monthly rent or lease payment to that purpose or project and not to an asset number. In cases where this is not determinable, a rental rate can be established and charged for the usage. This will allow costs to be charged to the correct areas. In this case, the year-end adjustment to equalize depreciation will reduce the rental earned because there will be no depreciation to offset the revenue. The result will be that final maintenance costs reported to State Aid will be correctly reduced, but the costs throughout the year will reflect the usage costs for the unit. Vendors sometimes offer leases at rates far below the market rate for various reasons, these are called deep discount leases. Accounting for this type of lease can be done in the same way as a regular lease. Again at year end, the adjustment to equalize depreciation will provide the correct maintenance cost for the year, and the costs throughout the year will reflect the set rental rate. If the county rents equipment often, it may be beneficial to set up a single unit number for all the units titled rental equipment to which consumables may be charged. The unit would not have a rental rate because you are paying a rental fee, but the time it s used can still be charged to provide a tracking of where it is used. EQUIPMENT RENTALS Rental is generally used when there is no long term need for the equipment. It may be needed for a season or a project and then sit idle. In a rental agreement, the assumption of ownership remains with the rental company as do any major repairs or malfunctions. The county is usually only responsible for the consumables required to operate the unit such as fuels. Depending on the equipment and the county s policy, its liability insurance may need to be notified. The rental fee is an expense on the highway books and consumables are charged out to the rental unit, project, or road. Record monthly rental rate ($1,000 monthly rent) (expense) Equipment Rental Expense (asset) Cash EQUIPMENT LEASES When a county needs equipment for a long period or permanently, it may lease rather than purchase. Leasing allows the county to try equipment to see if it is what s needed, and it allows capital to be retained and used for other things. Liability / property loss insurance, regardless of the lease option, should be verified. Leases can have one of three outcomes and each will be accounted for differently. Operating Lease (Straight Lease) The county leases a unit for a defined period of time then is returned. Capital Lease (Lease to own) The county knows when the lease is signed that it will own the unit when the last payment is made. Lease with Option The lease is essentially an operating lease, but there is a clause allowing the county to purchase the unit at or near the end of the lease (generally at a discounted amount). 114

137 OPERATING LEASE (STRAIGHT LEASE) CHAPTER 11 FIXED ASSETS An operating lease is very similar to a rental agreement but is generally longer in term, less flexible, and the parties to the agreement are committed for the entire term of the lease. No long term liability is booked. Even though the county is obligated to pay, the lease payment would be expensed through the life of the lease. The unit is not owned by the county, but it may be listed on the fixed asset listing. Record monthly lease ($5,000 monthly rent) (expense) Equipment Rental Expense (asset) Cash CAPITAL LEASE (LEASE TO OWN) Lease to own is very similar to actually financing an equipment unit, the ownership essentially transfers when the lease is signed. The unit should be added to the fixed asset listing at the value of the unit as calculated earlier in this chapter and a rental rate established. Record asset and long term liability as book value ($150,000) (asset) Fixed Assets New Unit (liability) Long Term Lease Payable Interest paid on annual lease payments are NOT considered part of the purchase price, but is considered the cost of retaining the capital that would have been paid at full purchase and is expensed annually. The annual lease payments would decrease the long term liability. Lease Principal: $ 150, Lease Term: 5 years Annual Lease Principal Payment: $ 30, Interest Due Year 1 (varies annually): $ 4, Record current liability equal to the annual lease amount (liability) Long Term Lease Payable (liability) Current Lease Payable Record payment of current liability (liability) Current Lease Payable (expense) Interest Expense (asset) Cash LEASE WITH OPTION A lease with an Option to Buy must meet certain criteria at the beginning of the lease to determine the accounting of the asset and the lease liability. The first criteria is ownership. If ownership transfers upon execution of the lease, move on to the next criteria; if not, it is an operating lease. 115

138 CHAPTER 11 FIXED ASSETS The second criteria is how the option is presented. If the option is contingent upon something at the end of the lease, it is treated as if the option does not exist and is an operating lease. If the option to buy is certain and determinable, it becomes the final payment of the capital lease, but only if it meets one or both of the following points. If you have a capital lease based on the criteria thus far, determination must be made if one or both of the following are true. If so, the lease is a capital lease. If neither are true, it is an operating lease regardless. 1. The term of the lease is greater than or equal to 75% of the unit s average life. AND/OR 2. The present value of the lease payments, calculated using the county s borrowing rate, and including the purchase option, is greater than or equal to 90% of the book value of the unit. The following flow chart helps to determine the lease type. Capital VS. Operating Lease Test: LEASE CONSIDERATIONS Often leases contain executor costs about maintenance costs, taxes, or insurance fees charged to the unit. When these are included as a part of the regular payment, the payment should be reduced by this amount and the executor costs should be expensed. Tax implications always apply to leases in some way. Verify your sales tax liability on the annual principal lease payment. The unit should be depreciated through the term of a capital lease in the same manner other equipment is depreciated. Use caution not to depreciate the book value to a value less than the liability value remaining on the books. BUY BACKS In a buy back situation, an option is available for the county to sell the equipment back to the vendor at the end of a certain period for a specified sum. 116

139 CHAPTER 11 FIXED ASSETS EXAMPLE 1: BUY BACK WITH TRADE-IN GAIN Book value of new asset: Unit Selling Price including delivery, etc.: $ 140, Trade-in Amount: $ 50, Useful Life: 10 years Buy Back in 5 Years: $ 80, Remaining Book Value: $ 20, Unit Selling Price including delivery, etc.: $ 140, Remaining book value of old unit: $ 20, Vendor Trade Allowance for old unit: ($ 50,000.00) Net Booked Unit Cost: $ 110, Depreciation Calculation: (First 5 Years): Net Booked Unit Cost: $ 110, Buy Back Value in 5 Years: $ 80, $ 30, Annual Depreciation for First 5 years: $ 6, Depreciation Calculation: (Last 5 Years Asset NOT sold back after 5 years): Net Booked Unit Cost Year 6: $ 80, Divide by remaining life: 5 Annual Depreciation for 5 years: $ 16, PRESENTATION IN ANNUAL REPORT The equipment account presentation in the annual report should include a summary of activity or changes in the account value during the year. The summary should identify: BEGINNING BALANCE BETTERMENTS AND MAJOR REPAIRS NEW ACQUISITIONS SALES, TRADES, ETC. SCRAPPED ENDING VALUE OF CAPITAL ASSETS 117

140 CHAPTER 11 FIXED ASSETS USEFUL LIFE RECOMMENDED GUIDELINES SUMMARY This listing, a condensed version of the more specific schedule, reflects a range of estimated life used by several counties for depreciation purposes. It is not intended to be an all-inclusive list of specific equipment. Your county's schedule should reflect not only the purchase price but also consideration of the rental hours and costs added for these particular types of equipment so that expenses of such are recouped within the depreciation time period. The determination of estimated life is based upon these tables and the County's own experience and professional opinion. Equipment Types Estimated Life (Years) Attachments Mounted and Pulled 5 15 ATVs All Classes 5 8 Autos Vans 5 8 * Bituminous Maintenance Equipment 5 10 Compressors 7 10 * Concrete Maintenance Equipment 5 10 Conveyors Stackers 5 10 Forklifts Skidsteers 5 10 Generators Engines 5 10 Heavy Equipment (Includes specialized equipment for specific road maintenance procedures) Hoist / Lift not attached to building or unit 5 10 Pickups 5 8 Plant Crushing, Screening, Washing Salt Brine Systems 8 10 Small Maintenance Tools 3 5 (Saws, Jack Hammers, etc. often holding a number just to allow cost recovery) Steamers 5 8 Tractors Trailers, large 8 15 Trailers Pup, Belly Dump, Flatbeds 7 12 Trailers, small 5 10 Trucks 7 12 (Tandems and single axle trucks over 1 Ton) * Turf Establishment & Maintenance Equipment 5 10 Water Tanks 6 8 Wood Chippers 8 10 * Includes specialized equipment not large enough to be considered Heavy Equipment Many small equipment items that do not meet the capitalization threshold for a county are listed on the asset list for the purpose of recouping maintenance funds. These items can be expensed in the year purchased. Broad categories have been used in the list to allow the list flexibility and longevity. The county can use the categories and life spans that best fit their situation. 118

141 CHAPTER 12 INFRASTRUCTURE CAPITALIZATION (GASB 34) The following section includes excerpts from Governmental Accounting Standards Series, Publication No. 171-A, Statement No. 34 of the Government Accounting Standards Board (GASB 34). REPORTING CAPITAL ASSETS Capital assets should be reported at historical cost. The cost of a capital asset should include capitalized charges necessary to place the asset into its intended location and condition for use. Ancillary charges include costs that are directly attributable to asset acquisition such as freight and transportation charges, site preparation costs, and professional fees. Donated capital assets should be reported at their estimated fair value at the time of acquisition plus ancillary charges, if any. The term Capital Assets includes land, improvements to land, easements, buildings, building improvements, vehicles, machinery, equipment, works of art and historical treasures, infrastructure, and all other tangible or intangible assets that are used in operations and that have initial useful lives extending beyond a single reporting period. Infrastructure Assets are long-lived capital assets that normally are stationary in nature and normally can be preserved for a significantly greater number of years than most capital assets. Examples of infrastructure assets include roads, bridges, tunnels, drainage systems, water and sewer systems, dams, and lighting systems. Buildings, except those that are an ancillary part of a network of infrastructure assets, should not be considered infrastructure assets. Capital assets that are being or have been depreciated should be reported net of accumulated depreciation in the statement of net assets. (Accumulated depreciation may be reported on the face of the statement or disclosed in the notes.) Capital assets that are not being depreciated, such as land or infrastructure assets reported using the modified approach, should be reported separately if the government has a significant amount of these assets. Capital assets also may be reported in greater detail, such as by major class of asset (for example, infrastructure, buildings and improvements, vehicles, machinery and equipment). Capital assets should be depreciated over their estimated useful lives unless they are either inexhaustible or are infrastructure assets reported using the modified approach. Inexhaustible capital assets such as land and land improvements should not be depreciated. Depreciation expense should be measured by allocating the net cost of depreciable assets (historical cost less estimated salvage value) over their estimated useful lives in a systematic and rational manner. It may be calculated for (a) a class of assets, (b) a network of assets, (c) a subsystem of a network, or (d) individual assets. (Composite methods may be used to calculate depreciation expense.) REPORTING GENERAL INFRASTRUCTURE ASSETS AT TRANSITION Prospective reporting of general infrastructure assets in the statement of net assets is required beginning at the effective date of this Statement (GASB 34). Retroactive reporting of all major general infrastructure assets is encouraged at that date. Phase 1 governments (total annual revenues of $100 million or more) should retroactively report all major general infrastructure assets for the fiscal years beginning after June 15, Phase 2 governments (total annual revenues of $10 million or more but less than $100 million) should retroactively report all major general infrastructure assets for the fiscal years beginning after June 119

142 CHAPTER 12 INFRASTRUCTURE CAPITALIZATION (GASB 34) 15, Phase 3 governments (total annual revenues of less than $10 million) are encouraged but are not required to report major general infrastructure assets retroactively. If determining the actual historical cost of general infrastructure assets is not practical because of inadequate records, governments should report the estimated historical cost for major general infrastructure assets that were acquired or significantly reconstructed, or that received significant improvements, in fiscal years ending after June 30, If during the transition period, information is not available for all networks of infrastructure assets, those networks for which information is available may be reported. INITIAL CAPITALIZATION OF GENERAL INFRASTRUCTURE ASSETS Determining Major General Infrastructure Assets At the applicable general infrastructure transition date, phase 1 and 2 governments are required to capitalize and report general infrastructure assets that were acquired (purchased, constructed, or donated) in fiscal years ending after June 30, 1980, or that received major renovations, restorations, or improvements during that period. The determination of major general infrastructure assets should be at the network or subsystem level and should be based on these criteria: The cost or estimated cost of the subsystem is expected to be at least 5 percent of the total cost of all general capital assets reported in the first fiscal year ending after June 15, 1999, or; The cost or estimated cost of the network is expected to be at least 10 percent of the total cost of all general capital assets reported in the first fiscal year ending after June 15, Reporting of non-major networks is encouraged but not required. Establishing Capitalization at Transition The initial capitalization amount should be based on historical cost. If determining historical cost is not practical because of inadequate records, estimated historical cost may be used. Estimated Historical Cost Current Replacement Cost A government may estimate the historical cost of general infrastructure assets by calculating the current replacement cost of a similar asset and deflating this cost through the use of price-level indexes to the acquisition year (or estimated acquisition year if the actual year is unknown). There are a number of pricelevel indexes that may be used, both private- and public-sector, to remove the effects of price-level changes from current prices. Accumulated depreciation would be calculated based on the deflated amount, except for general infrastructure assets reported according to the modified approach. 120

143 CHAPTER 12 INFRASTRUCTURE CAPITALIZATION (GASB 34) Example: Estimated Historical Cost Current Replacement Cost In 1998, a government has sixty-five lane-miles of roads in a secondary road system, and the current construction cost of similar roads is $1 million per lane-mile. The estimated total current replacement cost of the secondary road subsystem of a highway network; therefore, is $65 million ($1 million * 65). The roads have an estimated weighted-average age of fifteen years; therefore, 1983 is considered to be the acquisition year. Based on the U.S. department of Transportation, Federal Highway Administration s Price Trend Information for Federal-Aid Highway Construction (publication number FHWA-IF ) for 1983 and 1998, 1983 construction costs were 69.03% of 1998 costs. The estimated historical cost of the subsystem, therefore, is $44,869,500 ($65 million * ). In 1998, the government would have reported the subsystem in its financial statements at an estimated historical cost of $44,869,500 less accumulated depreciation for fifteen years based on that deflated amount. Estimated Historical Cost Existing Information Other information may provide sufficient support for establishing initial capitalization. This information includes bond documents used to obtain financing for construction or acquisition of infrastructure assets, expenditures reported in capital project funds or capital outlays in governmental funds, and engineering documents. Example: Estimated Historical Cost Existing Information Methods of Calculating Depreciation Governments may use any established depreciation method. Depreciation may be based on the estimated useful life of a class of assets, a network of assets, a subsystem of a network, or individual assets. For estimated useful lives, governments can use (a) general guidelines obtained from professional of industry organizations, (b) information for comparable assets of other governments, or (c) internal information. In determining estimated useful life, a government also should consider an asset s present condition and how long it is expected to meet service demands. Example: Calculating Depreciation Assuming that, in 1998, the road subsystem had a total estimated useful life of twenty-five years from 1983 (with an estimated value of $44,869,500) and therefore has an estimated remaining useful life of ten years. Assuming no residual value at the end of that time, straight-line depreciation expense would be $1,794,780 per year ($44,869,500/25), and accumulated depreciation in 1998 would be $26,921,700 ($1,794,780*15). Composite Methods Governments may also use composite methods to calculate depreciation expense. Composite methods refer to depreciating a grouping of similar assets (for example, interstate highways in a state) or dissimilar assets of the same class (for example, all the roads and bridges of a state) using the same depreciation rate. Initially, a depreciation rate for the composite is determined. Annually, the determined rate is multiplied by the cost of the grouping of assets to calculate depreciation expense. A composite depreciation rate can be calculated in different ways. The rate could be calculated based on a weighted average or on an unweighted average estimate of useful lives of assets in the composite. For 121

144 CHAPTER 12 INFRASTRUCTURE CAPITALIZATION (GASB 34) example, the composite depreciation rate of three interstate highways with estimated remaining useful lives of sixteen, twenty, and twenty-four years could be calculated using an unweighted average estimate as follows: 1 ( )/3 = 5% annual depreciation rate A composite depreciation rate may also be calculated based on an assessment of the useful lives of the grouping of assets. This assessment could be based on condition of assessments or experience with the useful lives of the grouping of assets. For example, based on experience, engineers may determine that interstate highways generally have estimated remaining lives of approximately twenty years. In this case, the annual depreciation rate would be 5%. The composite depreciation rate is generally used throughout the life of the grouping of assets. However, it should be recalculated if the composition of the assets or the estimate of average useful lives changes significantly. The average useful lives of assets may change as assets are capitalized or taken out of service. The annual depreciation expense is calculated by multiplying the annual depreciation rate by the cost of the assets. For example, if the interstate highway subsystem cost $100 million and the annual depreciation rate was 10%, then the annual depreciation would be $10 million. Accumulated depreciation should not exceed the reported cost of the assets. MODIFIED APPROACH FOR REPORTING INFRASTRUCTURE Infrastructure assets that are part of a network or subsystem of a network (hereafter, eligible infrastructure assets) are not required to be depreciated as long as two requirements are met. First, the government manages the eligible infrastructure assets using an asset management system that has the characteristics set forth below; second, the government documents that the eligible infrastructure assets are being preserved approximately at (or above) a condition level established and disclosed by the government. To meet the first requirement, the asset management system should: Have an up-to-date inventory of eligible infrastructure assets. Perform condition assessments of the eligible infrastructure assets and summarize the results using a measurement scale. Estimate each year the annual amount to maintain and preserve the eligible infrastructure assets at the condition level established and disclosed by the government. 122

145 CHAPTER 12 INFRASTRUCTURE CAPITALIZATION (GASB 34) Determining what constitutes adequate documentary evidence to meet the second requirement for using the modified approach requires professional judgment because of variations among governments asset management systems and condition assessment methods. These factors also may vary within governments for different eligible infrastructure assets. However, governments should document that: Complete condition assessments of eligible infrastructure assets are performed in a consistent manner at least every three years. The results of the three most recent complete condition assessments provide reasonable assurance that the eligible infrastructure assets are being preserved approximately at (or above) the condition level established and disclosed by the government. Governments may begin to use the modified approach for reporting eligible infrastructure assets as long as at least one complete condition assessment is available and the government documents that the eligible infrastructure assets are being preserved approximately at (or above) the condition level the government has established and disclosed. If eligible infrastructure assets meet the requirements as stated above and are not depreciated, all expenditures made for those assets (except for additions and improvements) should be expensed in the period incurred. Additions and improvements to eligible infrastructure assets should be capitalized. Additions or improvements increase the capacity or efficiency of infrastructure assets rather than preserve the useful life of the assets. If the above requirements are no longer met, the depreciation requirements should be applied for subsequent reporting periods. Governments should present the following schedules, derived from asset management systems, as RSI (Required Supplementary Information) for all eligible infrastructure assets that are reported using the modified approach: The assessed condition, performed at least every three years, for at least the three most recent complete condition assessments, indicating the dates of the assessments. The estimated annual amount calculated at the beginning of the fiscal year to maintain and preserve at (or above) the condition level established and disclosed by the government compared with the amounts actually expensed for each of the past five reporting periods. The three most recent complete condition assessments and the estimated and actual amounts to maintain and preserve the infrastructure assets for the previous five reporting periods may not be available initially. In these cases, the information required should be presented for as many complete condition assessments and years of estimated and actual expenses as are available. The following disclosures should accompany the schedules required by the statement above: The basis for the condition measurement and the measurement scale used to assess and report condition. For example, a basis for condition measurement could be distresses found in pavement surfaces. A scale used to assess and report condition could range from zero for a failed pavement to 100 for a pavement in perfect condition. The condition level at which the government intends to preserve it eligible infrastructure assets reported using the modified approach. 123

146 CHAPTER 12 INFRASTRUCTURE CAPITALIZATION (GASB 34) Factors that significantly affect trends in the information reported in the required schedules, including any changes in the measurement scale, the basis for the condition measurement, or the condition assessment methods used during the periods covered by the schedules. If there is a change in the condition level at which the government intends to preserve eligible infrastructure assets, an estimate of the effect on the change on the estimated annual amount to maintain and preserve those assets for the current period also should be disclosed. ANNUAL INFRASTRUCTURE REPORTING Each year the county must recognize changes to the county infrastructure. The most common source of this information comes from the Statement of Construction Costs which is a part of the County Highway Annual Report. The county may elect to add road segments to infrastructure as work progresses or when all construction is complete and the segment is placed into service. Costs that must be added to infrastructure: Right of Way: Roads: Bridges: This would include permanent easements and deeded property acquired for highway purposes. Right of way costs generally include the purchase price from the landowner, attorney fees in court cases, relocation fees, deed tax and reimbursement of pre-paid real estate taxes to the former landowner. Appraisal fees and title opinions are not considered right of way costs and should be expensed. Right of way is not to be depreciated. This would include construction labor, construction equipment time, materials, signs, lighting, sewers, landscaping, bike paths overhead, etc. This would include certified costs of major construction projects, and overlays that increase the efficiency or extend the useful life of the road segment. A maintenance overlay which gets the road segment to the end of its useful life will not be considered an infrastructure addition and will be expensed in the year it occurred. If a road segment is resurfaced or reconstructed before it is fully depreciated, the remaining value is written off in the year the new construction is finalized. This would include all bridges on county roads as defined by the Minnesota Department of Transportation. Bridge costs include construction contracts for bridge work, approach work, guardrails, sidewalks, signage and lighting. Bridge culverts will capitalize labor, equipment, materials and overhead costs related to the installation of the bridge or culvert. Deck overlay and deck rehabilitation that represent a major increase in efficiency or extend the useful life of the bridge will be capitalized, if not these costs will be expensed in the year they occurred. 124

147 CHAPTER 13 INVENTORY MANAGEMENT NARRATIVE The average Highway Department spends several thousand dollars a year on inventory items. These purchases are often made in varying amounts through the year so the overall value may not appear as evident as the construction project costing thousands of dollars in a single payment. In any case, safeguarding this asset, which may be spread all across the county, is a very important aspect of financial control. Much of the ordering, handling and storing of the inventory items are beyond the scope of the average highway accounting position. However, verification of delivery, vendor charges, inventory system records and the annual reconciliation of physical to inventory system counts are very much a part of it. Each county has a different method of tracking inventory, setting up the inventory in its system, deciding what to keep on hand and what to buy as needed. It is not the function of an accounting manual to weigh in on these items. This chapter will provide a few points of consideration for your system and possible financial implications for your department, outline the accepted valuation methods as well as the typical methods of expensing your inventory items, and finally discussion on the annual physical to calculated inventory adjustments. ACCOUNTS NEEDED (asset) - CASH (asset) - INVENTORY ITEM ACCOUNT (liability) - ACCOUNTS PAYABLE (expense) - EXPENSE ACCOUNTS (ROAD, PROJECT, SHOP, EQUIPMENT) (equity) - FUND BALANCE NON-SPENDABLE FOR INVENTORY (equity) - FUND BALANCE - ASSIGNED INVENTORY STRUCTURE Keeping in mind that everything has a cost in either time, money or both, and that information is only as valuable as it is accurate, the detail of your inventory should be assessed. Consider the bin of screws in the shop. Is the value of knowing how many screws there are on hand at year end greater than the cost of a mechanic standing for 2 days counting each one? The point here is that although there is a substantial cost that goes into replenishing screws each year, it is a consumable you will not charge to a unit as a repair part. Or at least it would not be a suggested practice. The cost of inventorying these types of items would cost more than the benefit. Time spent tracking inventory items that add cost to road system or to the operation of equipment has a true financial value. Materials placed on State Aid roads become part of the annual maintenance expense and are reimbursed through a maintenance allotment. Repair parts and fuels add to the calculation of equipment rates which also become a part of the reimbursable costs submitted for maintenance and sometimes construction. Also remember that grouping together like items is acceptable, but if the unit prices vary, this may create more work than anticipated. 125

148 CHAPTER 13 INVENTORY MANAGEMENT It is a good idea to meet with the people who actually handle the inventory items and discuss the practicality of including items as inventory or if some are better expensed as purchased. Discussion about how to best track the use of items is also worthy. These are the people who are keeping record, if the process is too cumbersome, it may be easier to skip it, or do it later when there is more time. You can see how this could easily make or offset the annual reconciliation. Simply consider the cost to track and the value of the information to organize in determining the level of detail which will most efficiently and effectively allow the county to manage inventory. Changes made to an existing system are best done when starting a new year for consistency and to document what is done to explain any large changes in the value from one year to another. INVENTORY CONTAINMENT Storage of inventory items is an important consideration. The storage space should be secure from the public or those not having access to county property. This reduces loss due to theft and the possibility of lawsuit due to injury. Insurance value should be considered as well. Although it is evident that inventory should be secured and kept safe from damage, it is not always fool proof. Ensure that the county highway has insurance to cover items and in the event of a loss that the insured value would cover the average inventory value on hand. If the insurance coverage is not monitored by the accounting position, it may be a good idea to meet with the person who is responsible confirm values are up to date and all items or storage areas are correct. INVENTORY CONTROL This generally addresses the way inventory is withdrawn. Every county has a variation of how this is done, and these vary widely in complexity and degree of control. A large county may have an employee who controls inventory withdrawals and does the ordering, etc. Other smaller counties may have a simple handwritten sign-up sheet. If the physical count is close to the system count each year, you are probably doing a good job of control and the system is working for you. The main idea is that the county needs to establish controls that will assure, with a reasonable amount of accuracy, that there is accurate feedback concerning the movement of inventory. Keep in mind that there will always be inventory adjustments when a physical count is taken. There are too many variables and human error is always present. INVENTORY VALUATION METHODS Since many inventory items can change their values rapidly, there are various methods for assigning the values to inventory items when they are costed out in a cost accounting system. The three most common methods of valuing inventory items for costing purposes are FIFO, LIFO, and Averaging. The Highway Department can use any of these accepted methods, but once a method is adopted it should be used consistently. 126

149 FIFO CHAPTER 13 INVENTORY MANAGEMENT This simply stands for First In First Out and means that the first item purchased (oldest on the shelf) will be the first item used and will be cost at the rate at which it was actually purchased. Thus, it is crucial under this system that an item by item history log is kept, showing exactly when items were purchased and what their values are. Each item could be on file with a completely different rate and must be cost at the appropriate rate whenever it is used. LIFO This simply stands for Last In First Out and means that the last item purchased (newest on the shelf) will be the first item used and will be cost at the rate at which it was actually purchased. Thus, similar to the FIFO method, it is crucial under this system that an item by item history log is kept, showing exactly when items were purchased and what their values are. Each item could be on file with a completely different rate and must be cost at the appropriate rate whenever it is used. AVERAGING This is a simpler form of costing inventory, which simply costs all items out according to the current average value of all inventory items (of that type) on-hand at the current time (or over a designated time period). The calculation, for average unit values, is as follows: Value of All Items on Hand (Adding all purchase prices together to come up with a lump sum value) EQUALS: Average Unit Rate of All Items On Hand at the Current Time Although the Averaging method may not provide the exact unit price, the method is easier to use over time and may actually end up being more accurate than either FIFO or LIFO. INVENTORY EXPENSES VERSUS EXPENDITURES The terms expenditure and expense carry different meanings in highway costing systems. Accepted practice is that expenditures occur when the inventory is purchased, but the actual expense occurs when the inventory item is used or charged out. Essentially, the expenditure increases the inventory asset value and is not reflected in the operating costs. The expense reflects operating costs in the period. The inventory method that applies to this activity is referred to as the Consumption Method. 127

150 CHAPTER 13 INVENTORY MANAGEMENT SEQUENCE OF EVENTS During the year inventory items are purchased to be kept in inventory until needed and expenditures occur. Most accounting systems perform the following entries behind the scenes as purchase orders are entered and paid. Accounting Entry Accounting Entry Record the purchase of inventory (asset) Inventory Item Account (liability) Accounts Payable Pay the vendor for the purchase (liability) Accounts Payable (asset) Cash Inventory items are used during the year creating an expense in the accounting records. They are charged out on timesheets and inventory withdrawal reports depending on the county procedure and entered into the accounting system. Accounting Entry Record the use of inventory (expense) Expense Account (Road, Project, Shop, Equipment) (asset) Inventory Item Account During the year, usually near year end, a physical count of all items recorded in inventory is done. A physical count is required annually to insure integrity in inventory controls. If the count is done in the fall, adjustments for purchases and expenses can be made up to year end, or the count can be made at year end. The physical count is the actual quantity of inventory you have on hand, regardless of the accounting system information. If large discrepancies occur, it may be good to recount those items to insure a counting error is not the cause. Determine the correct unit price and adjust the inventory quantity and value in the accounting system to match the physical count. At year end the fund balance will need to be adjusted for the ending inventory value. See Chapter 17 Year End Adjustments. 128

151 CHAPTER 14 MAINTENANCE COSTING ROUTINE MAINTENANCE DEFINITION: Maintains the status quo even though deteriorated. To keep at original condition or use. NOTE: All items include labor and material. Ma 1. Ma 2. Ma 3. Ma 4. Ma 5. Smoothing Surface - Strictly Gravel Roads Blading or dragging earth or gravel roads Scarifying for purpose of mixing gravel with binder and removing washouts on surface Minor Surface Maintenance - Hard Surface Roads Bituminous patching, crack filling Repairing concrete pavement and crack filling Patch sealing Repairing sand pockets Blading shoulders - no material added Sweeping or cleaning surfaces Roadside and Drainage Cleaning culverts (thawing culverts) Minor ditch cleaning, except for brush Repair to tile lines on right of way Marking ends of culverts Picking up debris off roadside and roadbed including animal removal Checking driveway and utility permits Beaver dam removal Locating tile lines Brush and Weed Control Mowing of grass and weeds on roadsides and around guard rail, and bridge ends Spraying of weeds and brush All clearing and grubbing not in connection with construction work, (Where clearing and grubbing is done in advance of a grading project, this work should be given a project number and charged to construction) Snow and Ice Control Erecting, removing, repairing snow fence, including cost of new fence, posts, and tie wires Snow plowing and winging Sanding and application of salt and calcium chloride for ice control Cleaning snow from bridges and around guard rails Fixing mail boxes 129

152 CHAPTER 14 MAINTENANCE COSTING Ma 6. Traffic Services Erecting and repairing signs and markers, including cost of signs and posts Erecting and removing signs for road restrictions Traffic signals, maintenance and repair work, (Installation of new traffic signals and railroad grade crossing signals should be a construction item) Traffic guide lines, center line striping, retracing not on new construction Road inspection, looking for washouts, etc. Road patrol for load restrictions Putting up barricades NOTE: Charge any of the following costs to the activity or operation being performed: Flagmen, Sweeping, Prospecting for gravel, Construction project, Maintenance unallocated REPAIRS AND REPLACEMENTS DEFINITION: To restore to original condition. To make the surface as it was before, even though material used is better. Original condition or use is the key. NOTE: All items include labor and materials. Mb 1. Reshaping Mb 2. Resurfacing Cutting shoulders and shoulder slopes, reshaping roadbed, backsloping, where no appreciable amount of material is added to the roadbed, and the ditch bottoms are not changed or deepened appreciably. All re-gravelling of gravel roads, whether spot groveling or a continuous coat. (Gravel for newly graded roads shall be charged to construction; this may be applied in two coats in succeeding years, but should be charged to construction.) Addition of clay or binder to the surface (This also can be an item under construction) Water, rolling, spreading if gravel is stabilized. (This work may be included in some construction projects) Aggregate shouldering Any overlay of less than 1 1/2" in thickness Mb 3. Culverts, Bridges & Guard Rails Replacement of deteriorated or damaged culverts by one of like diameter. (If a culvert is replaced with one of a larger diameter, this should be charged as a betterment under Mc 1) Replacing, lowering or raising of same size culverts All bridge repairs and painting Repair of guard rail Drainage ditch repair assessments Storm sewer repair assessments Mb 4. Washouts = Erosion Damage Storm Related 130

153 CHAPTER 14 MAINTENANCE COSTING All washouts on shoulders, ditches, backslopes and roadbeds. If a culvert is washed out and a new culvert is installed, all labor, materials and backfilling costs shall be included. (Any increased size culvert should be costed to Mc 1) Mb 5. Subgrade Repair BETTERMENTS DEFINITION: Mud Jacking, frost boils including sub-grade excavation, sand and gravel backfill Any improvement over original condition or design. The first time something is done to the roadway, it is a betterment. NOTE: All items include labor and materials. Mc 1. Mc 2. Mc 3. Mc 4. Mc 5. New Culverts, Guard Rails and New Tiling New installations and delivery where not previously in place Replacement of existing with a larger diameter or longer length Rip Rap Erosion control structures Drainage ditch improvement and storm sewer assessments, including new or expanded sizes Installation of new approaches and driveways Cuts and Fills Reshaping work where the road grade, backslope and ditch bottoms are changed beyond original design Correction of sight distances Shoulder widening Sodding and Seeding Tree planting Bituminous Treatment Spot retreatments, complete retreatments and seal coating not on and approved State Aid construction project Railroad crossing replacements Overlays Bituminous or concrete over 1 1/2" thickness that is not an approved State Aid construction project 131

154 CHAPTER 14 MAINTENANCE COSTING SPECIAL WORK DEFINITION: Any maintenance work not clearly appropriate for the previous areas. NOTE: All items include labor and materials. Md 1. Dust Treatments *Md 2. *Md 3. Calcium chloride or other applications to settle dust *Md 4. Construction of Bike Lanes (if not an approved State Aid construction project) *Md 5. Construction of Turn Lanes (if not an approved State Aid construction project) *Md 6. Special Agreements Agreements with other entities that covers more than one activity * These items were deliberately left blank to allow for employee reorientation and previous costing to be cleared. In the future, other items may be included here to fill these gaps. It is acceptable to combine Routine Maintenance with repairs and replacements within the costing system. Betterments must be recorded separate in the costing system because of FHWA requirements on the FHWA Form

155 CHAPTER 15 CONSTRUCTION COSTING The Construction Costs are broken down by Road System: Highways Examples: Grading and shouldering Base and surface job Hard surfacing or resurfacing (including aggregate shouldering) Aggregate surfacing Newly graded roads only, may be applied in succeeding years Any approved construction overlays Bridges and Culverts Any project with 50 square feet or more of open waterway Any span exceeding 10 feet or more Special Work May include bituminous salvage, railroad crossings and signals Right of Way Includes any cost associated with R/W whether or not it's recoverable. This would include permanent or temporary easements, utility relocation, tree removal, fencing, and appraisal fees, etc. Engineering (All including preliminary and construction) Engineering salaries should include the fringe benefit rate. The cutoff between preliminary and construction engineering is defined as the letting date for State Aid purposes even though federal and state cutoff is at the submission of the plans, specifications and estimate (P.S. & E.) package. The cutoff point for construction engineering (CE) versus preliminary engineering (PE) is the bid opening date of the contract. Any further breakdown or reporting will be at the county's option. State Aid reimbursement does not require separate reporting of CE and PE expenses, it is reported as a combined total referred to as Project Development (PD). These construction project costs are to be reported based on the primary portion of the project. Any projects that cross more than one category with substantial dollars should be split. Right of way and engineering will always be reported separately. The construction summary should include all dollars expended on the three road systems (CSAH- Regular, CSAH-Municipal, and County Roads) separately for the calendar year of the Annual Report. All federal aid and bridge bonding dollars should be identified as separate dollars. 133

156 CHAPTER 16 OTHER ACCOUNTING ISSUES CONSTRUCTION OF MAINTENANCE FACILITIES Maintenance Facilities are eligible for State Aid funds when approved by the District State Aid Engineer (DSAE) and the State Aid for Local Transportation (SALT) Engineer. A county resolution is required. The preferred method of accounting for the Maintenance Facilities is by setting it up as a construction project using construction allotment. Maintenance funds may be used for a small project provided the county does not anticipate using all of the maintenance allotment for road maintenance. Facilities may be financed with Local Agency Bonds per MN Statute , Subd. 1. Annual depreciation for this facility (as with any other facility) should not be charged to the CSAH Regular system. Approval Process A request for approval must be sent to the DSAE and include the following: Information regarding the use of the facility Total estimated cost of the facility Indicate whether the pay requests will be made from a construction account (preferred) or a maintenance account. What percent of the cost of the facility is attributable to State Aid? This can be justified by: - Percent of CSAH Regular mileage to total mileage, or by - Percent of CSAH Regular expenditures to total cost (use total CSAH Regular and Municipal Maintenance costs and divide it into the total maintenance cost from the Annual Summary of Highway Information report to calculate the percentage.) Lump sum payment requests may be approved. If a lump sum payment is preferred, it must be equal to or less than the amount approved based on either % method above. Identify payment as a "lump sum" on the request. DSAE reviews request, makes recommendation for payment and forwards to SALT Engineer for review and final approval. SALT Engineer notifies county of the approved percent or lump sum and forwards copy of county request and approval letter to State Aid Finance (SAF). Partial Payment Process Using Construction Funds (Preferred Method) 1. County obtains State Aid Project number from SALT. 2. County submits State Aid Payment Request identifying the costs as Maintenance Facility in the "Other Costs" section of the form, for up to 95% of the approved estimated cost of the facility. The amount requested should use the same percentage of total cost or lump sum amount as approved by SALT. Follow the State Aid Payment Request process by sending the partial State Aid Payment Request to the DSAE, then the DSAE will send to John.E.Fox@state.mn.us 3. If the facility is being funded with Local Agency Bonds. 134

157 CHAPTER 16 OTHER ACCOUNTING ISSUES The county must submit a bond repayment schedule to SAF. A State Aid Payment Request is required to be applied against the bond. If the final cost is less than bond principal, the bond principal payments (in the SAAS) will be reduced to reflect the actual facility cost, and the remaining principal is paid from local funds. Final Payment Process Once the facility has been constructed, a final payment request must be submitted to SALT. Follow the State Aid Payment Request process by sending the partial State Aid Payment Request to the DSAE, then the DSAE will send to John.E.Fox@state.mn.us If total cost exceeds 20% of the original approved amount, SAF will forward to the SALT Engineer for approval. Payment Process Using Maintenance Funds The final costs of the Maintenance Facility must be added to the Annual Summary of Highway Information as a separate line item for Maintenance Facilities listed between Local Agency Bond Interest and Maintenance Cost. The total of these three will equal the county s total maintenance cost. DISASTER ISSUES Refer to the Disaster Guidelines for Highway Accountants document: This guide is intended to provide an overview of issues the highway accountant may be exposed to or be responsible for when dealing with a disaster event. FEMA/Disaster Receipts after Maintenance Costs have been reported In the event of a disaster, the county should isolate the costs related to the recovery. Recovery costs that are not reimbursed by disaster or FEMA funds may be included in the Annual Highway Information Report. If FEMA/Disaster reimbursements are receipted after the maintenance costs have been reported and the reimbursement causes an overpayment of maintenance funds, the amount is most likely insignificant and does not have to be reported. record receipt of FEMA funds (asset) Cash (revenue) FEMA Revenue This does not cover State Aid Disaster Funding refer to STATE PARK CONSTRUCTION ACCOUNT. 135

158 DISASTER ASSISTANCE CONTINGENCY ACCOUNT CHAPTER 16 OTHER ACCOUNTING ISSUES The state Disaster Assistance Contingency Account provides the full non-federal share in a major disaster declaration and provides funds for counties not eligible for federal assistance. Through the Presidential Disaster Declaration, the state must have a least $7.3 million in damage and counties must meet individual county thresholds (county population times $3.50). Through the State Disaster Declaration, the county must incur eligible damages that equal or exceed 50% of countywide per capita impact indicator. When the Governor declares a state disaster (State Disaster Declaration), the state will assist eligible applicants (counties, cities, and townships) with costs to repair and replace uninsured public infrastructure damaged in the disaster. DISTRIBUTION: A Disaster Assistance Contingency Account is created in the Special Revenue Fund in the state treasury (Minn, Laws 2014 c 312 art 7 s 4). Money in this account is appropriated to the Commissioner of Public Safety to provide cost-share of federal assistance and state public disaster assistance to eligible applicants. The amount appropriated for cost-share for federal assistance is 100 % of any nonfederal share for state agencies and local governments which may be used to pay all or a portion of the nonfederal share for publicly owned capital improvement projects. The amount appropriated to state public disaster assistance to eligible applicants is the amount required to fully pay all eligible claims. Funds appropriated or transferred to the Disaster Assistance Contingency Account do not lapse but remain in the account until appropriated. Funds appropriated from the Disaster Assistance Contingency Account do not lapse and are available until expended. PROCESS: 1. The County Board requests a formal state disaster declaration from the Minnesota Department of Public Safety Division of Homeland Security and Emergency Management (HSEM). 2. County obtains a preliminary damage assessment. HSEM officials meet with local officials to identify facilities impacted, damage, impacts to the communities and their demographics. Damages must meet the following criteria: Damage and costs are the direct result of the disaster; Federal assistance is not available; and Applicant incurred eligible damages that meet the damage threshold. 136

159 CHAPTER 16 OTHER ACCOUNTING ISSUES 3. Applicants apply to HSEM for reimbursement of eligible costs. Eligible costs are the same as under a federal declaration. Applicants assume responsibility for 25% of total eligible costs. This can be in-kind match of volunteer hours, donation of equipment, etc. Funds became available July 1, If the $3 million fund is depleted, applicants must wait until the legislature appropriates additional funds. Check HSEM s website for updates on this funding. record receipt of State Disaster Assistance Contingency funds (asset) Cash (revenue) State Disaster Assistance Revenue NON STATE AID BONDS General Obligation Bonds issued by the county are usually accounted for in the debt service fund. In some instances the bonds are accounted for in the county highway fund. This section illustrates both instances. Bonds Accounted for in Debt Service Fund Funds from a general obligation bond are transferred to the highway fund: Date: Explanation: Amount: to post Bond Proceeds MM/DD/YYYY Proceeds from Debt Service General Obligation Bonds (asset) Cash (revenue) Proceeds from Sale of Bonds Amount of transfer Bonds Accounted for in Highway Fund Funds from the sale of general obligation bonds are receipted to the highway fund, as reported on the bond settlement statement: Date: Explanation: Amount: to post sale of general obligation bonds MM/DD/YYYY Sale of General Obligation Bonds (asset) Cash (revenue) Proceeds from Bonds Issued Amount of bond proceeds Funds from interest earned receipted to the highway fund, as reported on the bond settlement statement: Date: Explanation: Amount: to post interest earned on bond funds MM/DD/YYYY Interest earned on general obligation bonds (asset) Cash (revenue) Interest earned Amount of bond interest 137

160 CHAPTER 16 OTHER ACCOUNTING ISSUES Funds for premium on general obligation bond receipted to the highway fund, as reported on the bond settlement statement: Date: Explanation: Amount: to post premium on general obligation bonds MM/DD/YYYY Premium on general obligation bonds (asset) Cash (revenue) Premium on General Obligation Bonds Amount of bond premium Funds for discounts or issuance costs deducted from general obligation bonds, as reported on the bond settlement statement: Date: Explanation: Amount: to post discounts on general obligation bonds MM/DD/YYYY Discounts / charges to general obligation bonds (county exp) Disc/charges to general obligation bonds (asset) Cash Amount of discount or issuance charges If bond covenants restrict levy used to pay back bonds, a reserve for debt service must be setup. Date: Explanation: Amount: Reserve for debt service 01/01/YYYY Reserve for debt service (fund bal) Unreserved/Undesignated Fund Balance (fund bal) Reserve for debt service Amount of (bond principal + interest + charges) The County Highway Accountant should recognize (assuming an accrual basis of accounting) the liability due the bonding company. Book bond principal liability to bonding company for amount of Bond Principal Due (county exp) Bond Principal (liability) Accounts Payable Book bond interest expense and liability to bonding company for amount of Bond Interest Due (county exp) Bond Interest Expense (liability) Accounts Payable Book bond company service charge for amount of Bond Company Service Charge (county exp) Bond Service Charge (liability) Accounts Payable 138

161 CHAPTER 16 OTHER ACCOUNTING ISSUES County pays the bonding company the amounts due for bond principal, interest and service charge. for amount of disbursement to the Bond Company (liability) Accounts Payable (asset) Cash Relieve the Reserve for Debt Service: Date: Explanation: Amount: Relieve reserve for debt service MM/DD/YYYY Relieve reserve for dbt service (fund bal) Reserve for Debt Service (fund bal) Unreserved/Undesignated Fund Balance Amount of (bond principal + interest + charges) SHARED FEDERAL REVENUE When more than one local government has a project as part of a DCP it is the administering government that recognizes all federal revenue from the DCP. The administering government does not capitalize the projects from the other governments. State Aid funds that are forwarded to the administering government from the other participating governments are to be recognized as reimbursements, these funds may be posted to revenues; they are not required to be netted to expenditure accounts. ADVANCE OF STATE AID FUNDS FOR FEDERAL PROJECTS If the county has funds available in their State Aid Construction Accounts they may use these funds in lieu of Federal funds on a DCP. The state aid payments are recognized in the following examples: For State Aid Construction funds that are received in lieu of federal funds: for amount of payment (asset) Cash (liability) Due to State Aid Federal Funds (liability) State Aid unearned revenue (Reg. or Muni. Const.) (asset) State Aid allotment (Reg. or Muni. Const.) If Federal funds become available, SAF will transfer the amount of the Federal reimbursement back to the county s State Aid construction account and the following entries will be required. This transfer may occur within the same year or in future years. For transfer of Federal funds to State Aid construction account to reimburse State Aid funds and recognize federal revenue. for amount of Federal transfer notice (liability) Due to State Aid Federal Funds (revenue) Federal Construction Revenue (asset) State Aid allotment (Reg. or Muni. Const.) (liability) State Aid unearned revenue (Reg. or Muni. Const.) 139

162 CHAPTER 16 OTHER ACCOUNTING ISSUES If the county does not have funds available in their State Aid Construction Account they may advance State Aid funds. The entries for recognizing State Aid revenues for Federal funds would be the same as those discussed above. The discussion below describes the entries required to recognize the State Aid Advance of funds. ADVANCE RESOLUTION If the county needs to borrow State Aid Funds in excess of their account balance it is mandatory for the county board to pass a resolution. A copy of the resolution must be sent to the SAF. The county engineer will be notified upon receipt of the resolution. A resolution is not required when using State Aid funds in lieu of federal funds if there are sufficient funds available in the State Aid Account. TRANSFER FOR HARDSHIP CONDITION OR OTHER LOCAL USE Hardship When the county board desires to use a part of its State Aid allocation off an approved State Aid system, it shall certify by resolution that it is experiencing a hardship condition in regard to financing its local roads while holding its current road and bridge levy or budget equal to or greater than the levy or budget for previous years. Approval may be granted only if the county board demonstrates that the request is made for good cause (flooding, disaster, etc.). If the hardship condition is approved, without requiring progress reports and within 30 days, an immediate payment of at least 50 percent of the total amount authorized will be made, with the balance to be paid within 90 days, or an immediate payment of the entire amount authorized will be made upon determining that sufficient funds are available. State Aid funds received for hardship condition: for amount of State Aid payment (asset) Cash (asset) State Aid Construction Allotment recognize revenue for amount State Aid payment (liability) State Aid Unearned Revenue (revenue) State Aid Construction Revenue (Click for increasing or decreasing maintenance allotments) Other Local Use When the county board desires to use a part of its State Aid allocation on local roads not on an approved State Aid system, it shall certify by resolution that its State Aid routes are improved to State Aid standards or are in adequate condition that does not have needs other than additional surfacing or shouldering needs identified in its State Aid Needs report. The portion of the county apportionment attributable to needs may not be used on the local system. 140

163 CHAPTER 16 OTHER ACCOUNTING ISSUES A construction project for a local road not on an approved State Aid system and not designed to State Aid standards will not be given approval by the State Aid for Local Transportation Division unless the plan is accompanied by a resolution from the respective county board that indemnifies, saves, and holds harmless the state of Minnesota and its agents and employees from claims, demands, actions, or causes of actions arising out of or by reason of a matter related to constructing the local road and agree to defend at the sole cost of the county any claim arising as a result of constructing the local road. Payments for Other Local Use must be requested on the State Aid Payment Request Form, the accounting entries are the same as those made for Regular and Municipal State Aid Construction. See REGULAR AND MUNICIPAL CONSTRUCTION ACCOUNTS for further discussion. REVISION OF COUNTY MAINTENANCE APPORTIONMENTS The commissioner may, upon recommendation of the screening board or upon receipt of a resolution from a county board and for good cause shown, increase or decrease the proportion to be used for maintenance for a requested year. Maintenance proportion is increased: recognize increase to Maintenance (asset) Maintenance Allotment (liability) Maintenance Unearned Revenue recognize reduction to Construction (liability) Construction Unearned Revenue (asset) Construction Allotment Maintenance proportion is decreased: recognize decrease to Maintenance (liability) Maintenance Unearned Revenue (asset) Maintenance Allotment recognize increase to Construction (asset) Construction Allotment (liability) Construction Unearned Revenue FEDERAL FUND EXCHANGE PRGRAM (FUND SWAPS) The Federal Fund Exchange Program is a voluntary program which allows counties who have been selected to receive federal funds to trade them with other counties for state aid funds. This process de-federalizes the project donating the federal funds and brings the other project (the recipient) up closer to allowable federal participation levels. The result is not only a decrease in the total number of federal projects that need to be processed each year but also a decrease in review queues for the remaining federal project. The fund swap program is not intended to circumvent the Area Transportation Partnership (ATP) process but simply to consolidate federal funds and streamline plan processing for all projects. 141

164 CHAPTER 16 OTHER ACCOUNTING ISSUES Eligible Participants Any county that has been selected to receive federal funds for a project eligible for state aid funding may opt to exchange the federal funds from one or more county s state aid construction funds; exchanges may occur over multiple years as well. Eligible Funds Federal Funds eligible to be donated are Surface Transportation Program (STP) and Highway Bridge Program (BR). Enhancement funds (TE) may be swapped if the donor s project is eligible for state aid funds. Exchange Rate The exchange rate for the program is currently 1:1. The fund exchange must occur between like funding accounts (regular construction to regular construction or county municipal construction to county municipal construction). Exchange Approval Process Counties who wish to be considered for a fund exchange need to fill out a fund exchange application. DSAE and SALT review and approve fund exchange. DSAE prepares STIP modification. STIP modification is approved. Agreement is prepared by SALT to designate fund exchange amounts and timing. Download the Federal Fund Exchange Application from the State Aid Finance Website: Forms and Resolutions Agreement is executed by local agencies and SALT. State Aid Finance transfers State Aid funds from Recipient County to the Donor County s State Aid Account. Recipient County completes federal process to receive funds for the project (plan approval, permits etc.). Recipient County receives federal funds when the project is authorized and payment requests are submitted. Rules Both projects must be eligible for state aid funds. Both projects must be in STIP but do not need to be in the same fiscal year. Projects involved in the swap should be constructed in the year they were programmed in the STIP. Federal funds donated cannot exceed federal participation rules for the project. Cautions Projects constructed with state funds may still be federalized if an Army Corps of Engineers (COE) permit is required. Accurate cost estimates are extremely important. Once an agreement is executed and funds are transferred, there will be no further adjustments. CSAH Regular funds cannot be spent on MSAS or TH routes. 142

165 CHAPTER 16 OTHER ACCOUNTING ISSUES If the county is the Recipient (receives the federal funds): Post the entry to transfer the State Aid funds to the Donor County (donates the federal funds): Transfer of State Aid Funds to Donor County (liability) SA Regular Construction - Unearned Revenue (asset) SA Regular Construction - Allotment If the county is the Donor (donates the federal funds): Post the entry to transfer the State Aid funds from the Recipient County (receives the federal funds): Transfer of State Aid Funds from Recipient County (asset) SA Regular Construction - Allotment (liability) SA Regular Construction - Unearned Revenue No other special entries are required, the standard construction entries apply as defined in previous chapters. FLEXIBLE HIGHWAY ACCOUNT (FLEX) EXCESS SUM FUNDS ACCOUNTS Flexible Highway Account (Flex) is created in the state treasury and derives funds from the 5% of Highway User Tax Distribution Fund (HUTDF). Flex account funds are divided equally, to the extent feasible, between the seven Metropolitan Area Counties (Metro) and the Greater Minnesota Counties (GM). Funds in the flex account are defined in two parts. Base funds are those derived from the pre-2008 HUTDF revenue formula. Excess sum funds are those derived from the difference of base and total revenue, the delta of old formula and current formula. For budgeting and appropriation purposes, GM excess sum funds are added to its 50% of the Flex Account base. Metro s excess sum is divided among the seven metropolitan counties by population excluding cities of the first class in the calculation, and deposited in separate accounts for each county. The remainder of flex account funds, GM base plus excess, Metro base, are appropriated by the state legislature biennially. County Turnback Account (72GM, 72DM), Municipal Turnback Account (91GM, 91DM), and Trunk Highway Fund are the three eligible recipients of Flex funds. Appropriations are to the three recipients in whole, distribution to sub accounts is accomplished by the annual commissioner s order. First priority use of these funds are for turnbacks per MS For Metro counties without County Turnback Account (CTB) project obligations, excess sum funds may be used for safety improvements to local roads or routes of regional significance. The procedure for metro county flex-excess sum projects for turnback, safety improvement and routes of regional significance projects is as follows: 1. County requests use of funds by letter to District State Aid Engineer (DSAE) including category, estimated amount and schedule. 2. DSAE responds affirming eligible use and availability of funds, with copy to State Aid Finance. 3. Follow standard state aid project approval procedures. 4. District SA office issues project approval letter including payment request instructions (SEE 5). 143

166 CHAPTER 16 OTHER ACCOUNTING ISSUES 5. County submits a State Aid Pay Request indicating the amount and the category type on the Turnback / Flex line of the request form; 95% may be advanced with 5% retained until receipt of the final project acceptance and final cost determination by the county or city engineer, and upon concurrence of project acceptance by the district state aid engineer. On the specify line enter your FLEX-EXCESS SUM Account Number and indicate whether it is for Turnback, Safety Improvement, or Routes of Regional Significance. 6. A copy of the DSAE approval letter must accompany the State Aid Pay Request. (See No. 2 above) 7. SA Finance will process the payments using the specified category type. Payments cannot be processed without this information. Refer to the "Regular and Municipal Construction" entries in chapter 3. ACCOUNTS NEEDED (const exp) CONSTRUCTION EXPENSE (there will be numerous of these) (revenue) (asset) (asset) (asset) (liability) (liability) (liability) FLEX EXCESS SUM CONSTRUCTION REVENUE CASH FLEX EXCESS SUM CONSTRUCTION RECEIVABLE FLEX EXCESS SUM CONSTRUCTION ALLOTMENT CONTRACTS PAYABLE DUE TO STATE AID FLEX EXCESS SUM OVERPAYMENT FLEX EXCESS SUM CONSTRUCTION UNEARNED REVENUE 144

167 CHAPTER 17 YEAR END ADJUSTMENTS NARRATIVE Adjustment entries may be required at year-end to various balance sheet accounts, these accounts may include: Inventory (this would also include inventory items) Current and Delinquent Taxes Receivable Salaries and Wages Payable Benefits Payable Vacation Payable Vested Sick Leave Payable Comp Time Payable Non-spendable for Inventory Restricted Funds for CSAH Contracts Committed Funds for County Contracts Assigned Funds Fund Balance Unassigned Fund Balance SEQUENCE OF EVENTS INVENTORY ADJUSTMENTS The inventory on your accounting system may differ from the physical inventory taken at year-end. Inventory variance adjustments are required to bring the inventory quantities and dollar values in balance with the physical inventory. If variances exist, entries to the following unallocated areas will be required: End-of-year Inventory Adjustments for Field Supplies End-of-year Inventory Adjustments for Administrative Supplies End-of-year Inventory Adjustments for Shop and Equipment Supplies Take the following steps to determine your inventory variances: 1. Take a physical count of all inventory items. 2. Calculate the dollar value for each item; physical count multiplied by unit price. 3. Compare the calculated dollar values and quantities to the amounts on the accounting system. 4. Make adjustments to any items that differ. The offset for these differences will be in the unallocated sections described above. NOTE: In the case of specific inventory items such as road sand or salt, the variance for those items should be charged to the respective cost center (snow and ice control). CURRENT AND DELINQUENT TAXES RECEIVABLE Current and Delinquent Taxes Receivable represent the Highway Department's portion of property taxes owed the county for the current and past years. This balance is calculated by the County Auditor/Treasurers Office and needs to be posted to your accounting system. The amount from the prior year may need to be reversed and the current year posted. Any amounts not collected within the first 60 days subsequent to the year-end should be unearned. reverse prior year Current and Delinquent Taxes Receivable (revenue) County Tax Revenue (asset) Current Taxes Receivable (liability) Delinquent Tax Unearned Revenue (asset) Delinquent Taxes Receivable current year Current and Delinquent Taxes Receivable 145

168 CHAPTER 17 YEAR END ADJUSTMENTS (asset) Current Taxes Receivable (revenue) County Tax Revenue (asset) Delinquent Taxes Receivable (liability) Delinquent tax Unearned Revenue SALARIES AND WAGES PAYABLE Salaries and Wages Payable represent the amount owed to Highway Department employees for work performed in the current year and paid in subsequent years. This liability may need to be adjusted to match the payable amount provided by the County Auditor/Treasurers Office at year-end. Salaries and Wages Payable is too high (liability) Salaries and Wages Payable (expense) Unallocated (EOY Salaries/Wages Adjustment Account) Salaries and Wages Payable is too low (expense) Unallocated (EOY Salaries/Wages Adjustment Account) (liability) Salaries and Wages Payable BENEFITS PAYABLE Benefits Payable represent the Highway Department s portion of the accrued County expense for FICA, Medicare and PERA. These accruals are based on the Salaries and Wages Payable balance. This balance is calculated by the County Auditor/Treasurers Office, and needs to be posted to your accounting system. The amount from the prior year may need to be reversed and the current year posted. reverse prior year Benefits Payable (liability) Benefits Payable (expense) Unallocated (FICA, Medicare, PERA) current year Benefits Payable (expense) Unallocated (FICA, Medicare, PERA) (liability) Benefits Payable LONG TERM COMPENSATED ABSENCES PAYABLE Long Term Liabilities (Vacation, Vested Sick Leave, and Comp Time Payables) are not required to be reported at the fund level. They are reported on the county wide financials. It is beneficial to report here since the information is accumulated by each fund for the county wide report. VACATION PAYABLE Vacation Payable represents the amount owed to Highway Department employees for their vacation hours accrued as of year-end. This balance may be determined by county policy or union contracts and is calculated by the County Highway Department or County Auditor/Treasurers Office. The amount from the prior year may need to be reversed and the current year posted. 146

169 CHAPTER 17 YEAR END ADJUSTMENTS reverse prior year Vacation Payable (liability) Vacation Payable (expense) Unallocated (Vacation Expense) current year Vacation Payable (expense) Unallocated (Vacation Expense) (liability) Vacation Payable VESTED SICK LEAVE PAYABLE Vested Sick Leave Payable represents the amount of sick leave compensation owed to each Highway Department employee if job termination were to occur prior to year-end. This balance may be determined by county policy or union contracts and is calculated by the County Highway Department or County Auditor/Treasurers Office. The amount from the prior year may need to be reversed and the current year posted. reverse prior year Vested Sick Leave Payable (liability) Vested Sick Leave Payable (expense) Unallocated (Sick Leave Expense) current year Vested Sick Leave Payable (expense) Unallocated (Sick Leave Expense) (liability) Vested Sick Leave Payable COMP TIME PAYABLE Comp Time Payable represents the amount owed to Highway Department employees for their remaining comp time hours accrued as of year-end. This balance may be determined by county policy or union contracts and is calculated by the County Highway Department or County Auditor/Treasurers Office. If your accounting system has been posting transactions to this account during the year, one of the following adjustments may be required. Comp Time Payable is too high (liability) Comp Time Payable (expense) Unallocated (EOY Comp Time Adjustment Account) Comp Time Payable is too low (expense) Unallocated (EOY Comp Time Adjustment Account) (liability) Comp Time Payable FUND BALANCE NON-SPENDABLE FOR INVENTORY The Non-spendable for Inventory is based on the year-end inventory value. Some accounting systems make this entry automatically. The adjustment to the Non-spendable for Inventory is calculated with the following formula: Current balance of the Non-spendable for Inventory MINUS: EQUALS: Current year-end Inventory Value Adjustment to Non-spendable for Inventory 147

170 If the adjustment amount is POSITIVE: CHAPTER 17 YEAR END ADJUSTMENTS Adjustment to Non-spendable for Inventory (fund equity) Non-spendable for Inventory (county expense) EOY Adjustment to Non-spendable for Inventory If the adjustment amount is NEGATIVE: Adjustment to Non-spendable for Inventory (county expense) EOY Adjustment to Non-spendable for Inventory (fund equity) Non-spendable for Inventory The following entries are recommended but not required due to the differences in accounting practices between the highway department and the county wide financial system. Year-end reporting of restricted, committed, assigned, and residual fund balances is required for the county wide financials. RESTRICTED FUNDS FOR STATE AID PROJECTS Restricted Funds for State Aid Projects (CSAH Regular, CSAH Municipal, and Town Bridge Projects) may be combined as one total or may be reported separately as illustrated below. FUND BALANCE RESTRICTED FOR CSAH REGULAR PROJECTS The Restricted Funds for CSAH Regular Projects is the remainder of the CSAH Regular funds paid to the county for each CSAH Regular project minus the certified work for the CSAH Regular portion of the project. reverse prior year Fund Balance Restricted for CSAH Regular Projects (fund equity) Fund Balance Restricted for CSAH Regular Projects (fund equity) Unassigned (Assigned) Fund Balance current year Fund Balance Restricted for CSAH Regular Projects (fund equity) Unassigned (Assigned) Fund Balance (fund equity) Fund Balance Restricted for CSAH Regular Projects FUND BALANCE RESTRICTED FOR CSAH MUNICIPAL PROJECTS The Restricted Funds for CSAH Municipal Projects is the remainder of the CSAH Municipal funds paid to the county for each CSAH Municipal project minus the certified work for the CSAH Municipal portion of the project. reverse prior year Fund Balance Restricted for CSAH Municipal Projects (fund equity) Fund Balance Restricted for CSAH Municipal Projects (fund equity) Unassigned (Assigned) Fund Balance current year Fund Balance Restricted for CSAH Municipal Projects (fund equity) Unassigned (Assigned) Fund Balance (fund equity) Fund Balance Restricted Funds CSAH Municipal Projects 148

171 CHAPTER 17 YEAR END ADJUSTMENTS FUND BALANCE RESTRICTED FUNDS TOWN BRIDGE PROJECTS The Restricted Funds for Town Bridge Projects is the remainder of the Town Bridge funds paid to the county for each Town Bridge project minus the certified work for the Town Bridge portion of the project. reverse prior year Fund Balance Restricted for Town Bridge Projects (fund equity) Fund Balance Restricted for Town Bridge Projects (fund equity) Unassigned (Assigned) Fund Balance current year Fund Balance Restricted for Town Bridge Projects (fund equity) Unassigned (Assigned) Fund Balance (fund equity) Fund Balance Restricted for Town Bridge Projects FUND BALANCE RESTRICTED FUNDS FOR BOND PRINCIPAL AND INTEREST If funds are received from State Aid for principal and interest for a State Aid Bond prior to year-end but are not paid to the bond service company until the new-year the amount should be reported in the Restricted Funds for Bond Principal and Interest. reverse prior year Fund Balance Restricted for Bond Principal and Interest (fund equity) Fund Balance Restricted for Bond Principal and Interest (fund equity) Unassigned (Assigned) Fund Balance current year Fund Balance Restricted for Bond Principal and Interest (fund equity) Unassigned (Assigned) Fund Balance (fund equity) Fund Balance Restricted for Bond Principal and Interest FUND BALANCE COMMITTED FOR COUNTY PROJECTS/PURPOSES The Fund Balance Committed for County Projects/Purposes is the county portion of projects or other specific purpose that the County Board has identified. Any committed funds must be placed in reserve by the county board by resolution prior to year-end, but the amount may be adjusted after year-end. reverse prior year Fund Balance Committed for County Projects/Purposes (fund equity) Fund Balance Committed for County Projects/Purposes (fund equity) Unassigned (Assigned) Fund Balance current year Fund Balance Committed for County Projects/Purposes (fund equity) Unassigned (Assigned) Fund Balance (fund equity) Fund Balance Committed for County Projects/Purposes 149

172 ASSIGNED FUND BALANCE CHAPTER 17 YEAR END ADJUSTMENTS All resources of the Road and Bridge Fund are considered assigned for road and bridge purposes. For this discussion, this fund balance is labeled unassigned. The County can also assign fund balance for more specific purposes. Assigned Fund Balances are balance accounts that may be assigned at or after year-end. The County Board may grant authority to the County Administrator, County Auditor, County Engineer, or Financial Officer to assign these balances. Examples of Assigned Fund Balances are: Assigned for County Maintenance Projects Assigned for County Highway Improvements Assigned for County Roads and Bridges These Fund Balances are assigned after Non-spendable, Restricted and Committed Funds have been deducted from the Fund Balance. If the remaining Fund Balance is negative after these deductions, no funds may be assigned in these fund balance accounts; they will remain in the residual account called Assigned for Road and Bridge Fund Balance. The Assigned Fund Balance Accounts are transferred back to Unassigned (Assigned) Fund Balance as of the beginning of the new-year. current year Assigned for County Highway Example (fund equity) Unassigned (Assigned) Fund Balance (fund equity) Assigned for County Highway Example for new-year Assigned for County Highway Example For the amount of the Assigned for County Highway Example balance at year-end. (fund equity) Assigned for County Highway Example (fund equity) Unassigned (Assigned) Fund Balance RESIDUAL FUND BALANCE If the Unassigned (Assigned) Fund Balance is negative after the deductions for Non-spendable, Restricted and Committed Funds, the negative balance will remain in Unassigned Fund Balance and no additional entries are required. Any positive residual balance after deductions for Non-spendable, Restricted, Committed, or other Assigned amounts should be classified Assigned to Roads and Bridges. 150

173 CHAPTER 18 ANNUAL REPORT - SAMPLE COVER PAGE 151

174 LETTER OF TRANSMITTAL CHAPTER 18 ANNUAL REPORT - SAMPLE 152

175 INDEX OF ANNUAL REPORT CHAPTER 18 ANNUAL REPORT - SAMPLE 153

176 SUMMARY OF COUNTY HIGHWAY INFORMATION CHAPTER 18 ANNUAL REPORT - SAMPLE 154

177 BRIEF OF ACTIVITIES, COMMENTS AND RECOMMENDATIONS CHAPTER 18 ANNUAL REPORT - SAMPLE 155

178 FINANCIAL STATEMENT CHAPTER 18 ANNUAL REPORT - SAMPLE 156

179 RECEIVABLES CHAPTER 18 ANNUAL REPORT - SAMPLE 157

180 RECEIVABLES ADDENDUM CHAPTER 18 ANNUAL REPORT - SAMPLE 158

181 TOWN ROAD ALLOTMENT CHAPTER 18 ANNUAL REPORT - SAMPLE 159

182 INVENTORY OF MATERIALS AND SUPPLIES CHAPTER 18 ANNUAL REPORT - SAMPLE 160

183 LIABILITIES AND FUND BALANCE RESERVES CHAPTER 18 ANNUAL REPORT - SAMPLE 161

184 CHAPTER 18 ANNUAL REPORT - SAMPLE LIABILITIES AND FUND BALANCE RESERVES ADDENDUM (OPTIONAL PAGE) 162

185 FIXED ASSETS CHAPTER 18 ANNUAL REPORT - SAMPLE 163

186 FIXED ASSET BETTERMENTS CHAPTER 18 ANNUAL REPORT - SAMPLE 164

187 LAND AND BUILDINGS CHAPTER 18 ANNUAL REPORT - SAMPLE 165

188 STATEMENT OF REVENUES AND EXPENDITURES CHAPTER 18 ANNUAL REPORT - SAMPLE 166

189 167 CHAPTER 18 ANNUAL REPORT - SAMPLE

190 168 CHAPTER 18 ANNUAL REPORT - SAMPLE

191 SUMMARY OF EXPENDITURES CHAPTER 18 ANNUAL REPORT - SAMPLE 169

192 SUMMARY OF MAINTENANCE COSTS BY FUNDS CHAPTER 18 ANNUAL REPORT - SAMPLE 170

193 DETAILED MAINTENANCE COSTS BY FUNDS CHAPTER 18 ANNUAL REPORT - SAMPLE 171

194 CHAPTER 18 ANNUAL REPORT - SAMPLE SUMMARY OF MAINTENANCE COSTS BY ROADS CSAH REGULAR 172

195 CHAPTER 18 ANNUAL REPORT - SAMPLE DETAILED ROUTINE MAINTENANCE COSTS BY ROADS CSAH REGULAR 173

196 CHAPTER 18 ANNUAL REPORT - SAMPLE SUMMARY OF MAINTENANCE COSTS BY ROADS CSAH MUNICIPAL 174

197 CHAPTER 18 ANNUAL REPORT - SAMPLE DETAILED ROUTINE MAINTENANCE COSTS BY ROADS CSAH MUNICIPAL 175

198 CHAPTER 18 ANNUAL REPORT - SAMPLE SUMMARY OF MAINTENANCE COSTS BY ROADS COUNTY ROADS 176

199 CHAPTER 18 ANNUAL REPORT - SAMPLE DETAILED ROUTINE MAINTENANCE COSTS BY ROADS COUNTY ROADS 177

200 SUMMARY OF CONSTRUCTION COSTS CSAH REGULAR CHAPTER 18 ANNUAL REPORT - SAMPLE 178

201 STATEMENT OF CONSTRUCTION COSTS CSAH REGULAR CHAPTER 18 ANNUAL REPORT - SAMPLE 179

202 180 CHAPTER 18 ANNUAL REPORT - SAMPLE

203 181 CHAPTER 18 ANNUAL REPORT - SAMPLE

204 CHAPTER 18 ANNUAL REPORT - SAMPLE SUMMARY OF CONSTRUCTION COSTS CSAH MUNICIPAL 182

205 STATEMENT OF CONSTRUCTION COSTS CSAH MUNICIPAL CHAPTER 18 ANNUAL REPORT - SAMPLE 183

206 184 CHAPTER 18 ANNUAL REPORT - SAMPLE

207 SUMMARY OF CONSTRUCTION COSTS COUNTY ROADS CHAPTER 18 ANNUAL REPORT - SAMPLE 185

208 STATEMENT OF CONSTRUCTION COSTS COUNTY ROADS CHAPTER 18 ANNUAL REPORT - SAMPLE 186

209 187 CHAPTER 18 ANNUAL REPORT - SAMPLE

210 188 CHAPTER 18 ANNUAL REPORT - SAMPLE

211 LOCAL AGENCY BONDS CHAPTER 18 ANNUAL REPORT - SAMPLE 189

212 ESTIMATED BUDGET CHAPTER 18 ANNUAL REPORT - SAMPLE 190

213 CHAPTER 18 ANNUAL REPORT - SAMPLE INSTRUCTIONS The Annual Report is not required to be submitted to State Aid Finance, see Chapter 19 Annual Summary of Highway Information for State Aid Finance reporting requirements. The Annual Report is used to report county highway activities for the year to other commissions and committees within the county. It may be used as a source of information to the State Auditor s Office in the preparation of the county wide financial report. LETTER OF TRANSMITTAL The letter of transmittal included with the annual report formally presents the report to the board of county commissioners. The letter of transmittal should meet the following criteria: The letter should be typed on letterhead paper. The letter should be dated as of the date of completion of the report. The letter should be addressed to the board of county commissioners. The letter should be signed by the county engineer. The body of the letter should be similar to the sample letter of transmittal. Although the contents of the letter is left to the discretion of the engineer, it should not include specific information regarding the activities of the county for either the current or upcoming year. Information of this nature should be included in the Brief of Activities, Comments and Recommendations. SUMMARY OF COUNTY HIGHWAY INFORMATION The Summary of County Highway Information page summarizes the current year's maintenance costs and corresponding mileage amounts, and construction costs by funding sources. Construction costs include all costs from federal projects (SPs) and non-federal (SAPs) projects, costs should exclude Federal Funds, Bridge Bonding Funds and Special Account Funds (Town Bridge, State Park, Turnback, etc.). Total costs should not be reduced by any reimbursements received from other sources if the reimbursement is for work associated to the CSAH Regular or CSAH Municipal road. If work is associated with other road systems, those costs or reimbursements should not be included at all. The construction and maintenance costs should match the amounts shown on the Summary of Construction Cost and the Summary of Maintenance Cost pages, respectively. The mileage amounts should correspond to the mileage amounts in the State Aid Apportionment Data report. BRIEF OF ACTIVITIES, COMMENTS AND RECOMMENDATIONS The Brief of Activities, Comments and Recommendations page summarizes the major accomplishments and activities of the highway department during the year. This page may also include recommendations and/or proposals for the upcoming year. The format of the page is left to the discretion of the county; 191

214 192 CHAPTER 18 ANNUAL REPORT - SAMPLE however, the State Aid Office prefers that the majority of the data be summarized quantitatively rather than narratively, as shown in the sample annual report. FINANCIAL STATEMENT The Financial Statement summarizes the financial position of the highway department on 12/31/X0 by disclosing the assets, liabilities and fund balance on that date. Some of the asset, liability and fund balance accounts are briefly described below. ASSETS Cash and Pooled Investments Cash and Pooled Investments is the amount of cash the highway department has on hand, including pooled investments. This amount should correspond to the ending cash balance shown on the Statement of Revenues and Expenditures. Petty Cash and Change Funds A Petty Cash and Change Fund is a small amount of cash the highway department has on hand to pay for such items as office supplies and postage. This amount should always equal the full petty cash amount designated by the county board. Taxes Receivable Taxes Receivable is composed of two accounts Non-apportioned Taxes and Delinquent Taxes. Non-apportioned Taxes Non-apportioned taxes is the amount of taxes collected at the close of the current year that will not be receipted into the Road and Bridge fund until the upcoming year. Delinquent Taxes Delinquent Taxes is the amount of outstanding delinquent taxes from the current year and the past six years (If the actual amount is not known, it should be estimated). Delinquent taxes that have been outstanding for over six years should be written off the records by debiting Bad Debt Expense and crediting Accounts Receivable. Accounts Receivable Accounts receivable is the amount due from non-governmental entities resulting from various transactions such as the sale of goods and/or services. This account encompasses all receivables not classified within one of the other receivable accounts (e.g., receivables from individuals and businesses). Accrued Interest Receivable Accrued Interest Receivable is the amount of interest that has been earned on investments which has not yet been collected. This amount should match the amount on the Receivables page. Due From Other Funds Due from Other Funds is the total amount due from the county's other funds resulting from various transactions such as the sale of goods and/or services. This amount should match the amount on the Receivables page.

215 193 CHAPTER 18 ANNUAL REPORT - SAMPLE Due From Other Governments Due from Other Governments is the total amount due from other governmental entities. The accounts may include Due from Townships, Due from Municipalities, Due from Counties and State Aid Maintenance and Construction Receivables. Due From Townships/Municipalities Due from townships/municipalities is the amount due from townships/municipalities resulting from various transactions such as the sale of goods and/or services. Due From Counties Due from counties is the amount due from other counties resulting from various transactions such as the sale of goods and/or services. State Aid Regular and Municipal Maintenance Receivable The State Aid Maintenance Receivable amounts indicate the portion of the maintenance allotment that has been spent, but not yet reimbursed from the State Aid Office. Generally, this amount is 10% of the Regular Maintenance Allotment, unless the county has spent less than their allotment, and 100% of the Municipal Maintenance Allotment, unless the county has spent less than their allotment or a portion of their allotment has previously been advanced. State Aid Regular, Municipal and Town Bridge Construction Receivables The State Aid Regular, Municipal and Town Bridge Construction Receivable amounts indicate the funds encumbered on open regular, municipal and town bridge construction projects (typically 5% of the estimated costs of the projects). These amounts should match the allotment encumbrances shown on the Status of State Aid Accounts (status report) as of 12/31/XX. If the amounts do not match, you will need to reconcile the differences on the Receivables Addendum page. Bridge Bonding Construction Receivable The Bridge Bonding Construction Receivable amount indicates the funds encumbered on open bridge bonding construction projects. Typically, 100% of the grant amount is encumbered until the project has been finalized. State Aid Allotments State Aid Allotments is the total balance available in the State Aid Allotment accounts. The accounts may include Regular Maintenance, Regular Construction, Municipal Maintenance, Municipal Construction, and Town Bridge Construction. The amounts for each of the accounts should match the balances available shown on the Status of State Aid Accounts (status report) as of 12/31/XX. Inventories Inventories is the total value of materials and supplies the highway department has on hand. (For information regarding inventory costing methods, see the Inventory Management section in the State Aid Accounting Manual). LIABILITIES Accounts Payable

216 CHAPTER 18 ANNUAL REPORT - SAMPLE Accounts payable is the total amount owed to non-governmental entities resulting from various transactions such as the purchase of goods and/or services. This account encompasses all payables not classified within one of the other payable accounts (e.g., payables to vendors, individuals, etc.). Salaries Payable Salaries Payable is the amount owed to employees for services rendered. Contracts Payable Contracts Payable is the amount owed to contractors resulting from various transactions, such as the purchase of goods and/or services. Due To Other Funds Due to Other Funds is the total amount owed to the county's other funds resulting from various transactions such as the purchase of goods and/or services. Due To Other Governments Due to Other Governments is the total amount owed to other governmental entities resulting from various transactions, such as the purchase of goods and/or services. The accounts may include Due to Townships, Due to Municipalities, Due to Counties and Due to State Aid - Overpayments. Due To Townships/Municipalities Due to townships/municipalities is the amount due to townships/municipalities resulting from various transactions such as the purchase of goods and/or services. Due To Counties Due to counties is the amount due from other counties resulting from various transactions such as the purchase of goods and/or services. Due To State Aid - Overpayments Due to State Aid - Overpayments is the amount of State Aid funds that were overpaid to the highway department. This usually occurs if a construction project underran its original estimate, or annual maintenance expenditures were less than the portion of the maintenance allotment advanced for that year. Unearned Revenue Unearned Revenue represents future income contracted for and/or collected in advance which has not yet been earned. Unearned revenue accounts may include State Aid Allotments, Delinquent Taxes and Prepaid Taxes. State Aid Allotments State Aid Allotments is the amount of State Aid Allotment funds which have not yet been earned (i.e., the balance available in the account plus the uncertified portions of contracts). Delinquent Taxes 194

217 CHAPTER 18 ANNUAL REPORT - SAMPLE Delinquent taxes is the amount of outstanding delinquent taxes from the current year and the past six years that is estimated will not be collected within the first 60 days of the upcoming year. Prepaid Taxes Prepaid taxes is the amount of taxes that have been receipted into the Road and Bridge Fund which have not yet been earned. Compensated Absences Compensated absences is the amount of vested vacation and sick leave that will become payable within 60 days of the close of the year. Compensated absences are only recorded as a liability in cases where it is known that employees who have vested vacation or sick leave will be resigning within the first 60 days of the upcoming year. Vested benefits are benefits earned by employees that are not contingent on remaining in the service of the employer (i.e., the employees will receive benefits based on service to date, even if they terminate employment). FUND BALANCE Reserved Reserved fund balance is the portion of the fund balance that has been earmarked for specific purposes for which the highway department has a legal obligation. A legal obligation occurs when a purchase order has been approved, a contract has been awarded or an expenditure has been approved per board motion. Unreserved Designated Designated fund balance is the portion of the unreserved fund balance that has been earmarked for specific purposes for which the county has no legal obligation (i.e., the funds are not legally obligated to be used for the proposed purposes). NOTE: Designated funds are not recognized by the State Auditor's Office as reducing the fund balance. Undesignated Undesignated fund balance is the portion of the unreserved fund balance that has not been designated for any purpose (i.e. available funds). RECEIVABLES The Receivables page summarizes the activity of the receivable accounts for the year. The format of the page typically includes four columns. The first column is the balance at the beginning of the year. The second column adds charges billed during the year. The third column subtracts payments received during the year. The fourth column shows the resulting year-end balance. The final column - the ending balance - is the only column that is required to be shown; however, if this is done, records should be kept to verify these amounts. 195

218 CHAPTER 18 ANNUAL REPORT - SAMPLE The "charges billed" amounts should correspond to the "modified accrual balance" amounts on the Statement of Revenues and Expenditures page. The "payments received" amounts should correspond to the "cash receipts" amount on the Statement of Revenues and Expenditures page. The "ending balance" amounts should match the amounts shown on the Financial Statement. The receivable accounts are briefly described below. The amounts referred to in the descriptions are the ending balances (balances as of 12/31/X0). Taxes Receivable Taxes Receivable is composed of two accounts non-apportioned Taxes and Delinquent Taxes. Non-apportioned Taxes Non-apportioned taxes is the amount of taxes collected at the close of the current year that will not be receipted into the Road and Bridge fund until the upcoming year. Delinquent Taxes Delinquent taxes is the amount of outstanding delinquent taxes from the current year and the past six years. Delinquent taxes that have been outstanding for over six years should be written off the records by debiting Bad Debt Expense and crediting Accounts Receivable. Accounts Receivable Accounts receivable is the amount due from non-governmental entities resulting from various transactions such as the sale of goods and/or services. This account encompasses all receivables not classified within one of the other receivable accounts (e.g., receivables from individuals and businesses). Accrued interest Receivable Accrued Interest Receivable is the amount of interest that has been earned on investments which has not yet been collected. Due From Other Funds Due from Other Funds is the total amount due from the county's other funds resulting from various transactions such as the sale of goods and/or services. Due From Other Governments Due from Other Governments is the total amount due from other governmental units. The accounts may include Due from Townships, Due from Municipalities, Due from Counties and State Aid Maintenance and Construction Receivables. Due From Townships/Municipalities Due from townships/municipalities is the amount due from townships/municipalities resulting from various transactions such as the sale of goods and/or services. Due From Counties Due from counties is the amount due from other counties resulting from various transactions such as the sale of goods and/or services. 196

219 CHAPTER 18 ANNUAL REPORT - SAMPLE State Aid Regular and Municipal Maintenance Receivables These amounts indicate the portion of the maintenance allotment that has been spent, but not yet reimbursed from the State Aid Office. Generally, this amount is 10% of the Regular Maintenance Allotment, unless the county has spent less than their allotment, and 100% of the Municipal Maintenance Allotment, unless the county has spent less than their allotment or a portion of their allotment has previously been advanced. State Aid Regular, Municipal and Town Bridge Construction Receivables These amounts indicate the funds encumbered on open construction projects (typically 5% of the estimated costs of the projects). These amounts should match the allotment encumbrances shown on the Status of State Aid Accounts (status report) as of 12/31/XX. If the amounts do not match, you will need to reconcile the differences on the Receivables Addendum page. Bridge Bonding Construction Receivable The Bridge Bonding Construction Receivable amount indicates the funds encumbered on open construction projects. Typically, 100% of the grant amount is encumbered until the project has been finalized. RECEIVABLES ADDENDUM The Receivables Addendum page is only required if the ending balance of a state aid account on the receivables page does not coincide with the allotment encumbrances on the Status of State Aid Accounts (status report) as of 12/31/XX. This usually occurs if State Aid funds were overpaid to the county for some reason (e.g., a project underrun). If this is the case, the differing amounts should be reconciled on this page. Individual accounts should be reconciled separately. The overpayment(s) should be subtracted from the allotment encumbrances (funds encumbered for open construction projects) to arrive at an adjusted receivable amount. This adjusted amount should then match the amount on the Receivables page. TOWN ROAD ALLOTMENT The Town Road Allotment page shows the distribution of the current year's town road allotment. All townships within the county and their respective distribution amounts should be listed. The total should match the town road allotment shown on the Notice of Annual Apportionment, which is sent out in January. It should be noted who administered the funds (e.g., Highway Department, Auditor, etc.). 197

220 CHAPTER 18 ANNUAL REPORT - SAMPLE INVENTORY OF MATERIALS AND SUPPLIES The Inventory of Materials and Supplies page itemizes the values of the materials and supplies on hand as of 12/31/XX. (For information regarding inventory costing methods, see the Inventory Management section in the State Aid Accounting Manual). The inventory items should be divided into three main categories: 1. Parts and Replacements - This includes such items as batteries, belts, cutting edges, filters, etc. 2. Motor Fuels, Lubricants and Fluids - This includes such items as gasoline, grease, transmission fluid, anti-freeze, etc. 3. Field Materials and Supplies - This includes such items as calcium chloride and salt, crack filler, signs and posts, etc. The total should correspond to the amount shown on the Financial Statement. A change in the inventory costing method from the previous year should be footnoted. LIABILITIES AND FUND BALANCE RESERVES The Liabilities and Fund Balance Reserves page shows the breakdown of the liability and fund balance reserve accounts. The amounts on the Liabilities and Fund Balance Reserves page should correspond to the amounts shown on the Financial Statement. The Accounts Payable, Salaries Payable, Due to Other Funds and Due to Other Governments liability accounts are divided into five categories - maintenance, construction, equipment maintenance and shops, administration and other. The breakdown of these accounts are shown on a separate page - the Liabilities and Fund Balance Reserves Addendum page. The totals for each of these accounts should be combined and shown on the Liabilities and Fund Balance Reserves page as Accounts Payable/Other Liabilities. Some of the liability and fund balance accounts are briefly described below. LIABILITIES Accounts Payable/Other Liabilities Accounts Payable Accounts payable is the amount owed to non-governmental entities resulting from various transactions such as the purchase of goods and/or services. This account encompasses all payables not classified within one of the other payable accounts (e.g., payables to vendors, individuals, etc.). Salaries Payable Salaries Payable is the amount owed to employees for services rendered. Due to Other Funds Due to Other Funds is the total amount owed to the county's other funds resulting from various transactions such as the purchase of goods and/or services. 198

221 CHAPTER 18 ANNUAL REPORT - SAMPLE Due to Other Governments (Goods and Services) Due to Other Governments is the total amount owed to other governmental units resulting from various transactions, such as the purchase of goods and/or services. Other governmental units may include townships, municipalities and counties. Contracts Payable Contracts Payable is the amount owed to contractors resulting from various transactions, such as the purchase of goods and/or services. This amount does not include amounts owed to contractors for federal aid projects, since the State Aid Finance Office pays them directly. Due to Other Governments (Other) Due to State Aid - Overpayments Due to State Aid - Overpayments is the amount of State Aid funds that were overpaid to the highway department. This usually occurs if a construction project underran its original estimate, or annual maintenance expenditures were less than the portion of the maintenance allotment advanced for that year. Unearned Revenue Some of the accounts Unearned Revenue may consist of include State Aid Allotments, Delinquent Taxes and Prepaid Taxes. State Aid Allotments State Aid Allotments is the amount of State Aid Allotment funds which have not yet been earned. (i.e., the balance available in the account plus the uncertified portions of contracts). Delinquent Taxes Delinquent taxes is the amount of outstanding delinquent taxes from the current year and the past six years that is estimated will not be collected within the first 60 days of the upcoming year. Prepaid Taxes Prepaid taxes is the amount of taxes that have been receipted into the Road and Bridge Fund which have not yet been earned. Compensated Absences Compensated absences is the amount of vested vacation and sick leave that will become payable within 60 days of the close of the year. Compensated absences are only recorded as a liability in cases where it is known that employees who have vested vacation or sick leave will be resigning within the first 60 days of the upcoming year. Vested benefits are benefits earned by employees that are not contingent on remaining in the service of the employer (i.e., the employees will receive benefits based on service to date, even if they terminate employment). 199

222 FUND BALANCE CHAPTER 18 ANNUAL REPORT - SAMPLE Reserved Reserved fund balance is the portion of the fund balance that has been earmarked for specific purposes for which the highway department has a legal obligation. A legal obligation occurs when a purchase order has been approved, a contract has been awarded or an expenditure has been approved per board motion. Unreserved Designated Designated fund balance is the unreserved portion of the fund balance that has been earmarked for specific purposes for which the county has no legal obligation (i.e., the funds are not legally obligated to be used for the proposed purposes). NOTE: Designated funds are not recognized by the State Auditor's Office as reducing the fund balance. Undesignated Undesignated fund balance is the unreserved portion of the fund balance that has not been designated for any purpose (i.e. available funds). LIABILITIES AND FUND BALANCE RESERVES ADDENDUM (OPTIONAL PAGE) The Liabilities and Fund Balance Reserves Addendum page shows the detailed breakdown of the Accounts Payable, Salaries Payable, Due to Other Funds and Due to Other Governments liability accounts. The liabilities are divided into five types - maintenance, construction, equipment maintenance and shops, administration and other. The totals for each of the accounts should be combined and specified as Accounts Payable/Other Liabilities on the Liabilities and Fund Balance Reserves page. FIXED ASSETS The Fixed Assets page itemizes the fixed assets as of 12/31/XX. Fixed assets are not reported on the Financial Statement under the governmental modified accrual basis of accounting. The Fixed Assets page should include twelve columns, as shown in the sample annual report. Fixed assets are divided into two categories - major equipment and minor equipment. Minor equipment is further divided into four subcategories - maintenance, construction, equipment maintenance and shops and administration. (For information regarding the classification of fixed assets as major or minor equipment, see the Fixed Assets section in the State Aid Accounting Manual). The twelve column headings are briefly described below. Equipment Number This is the identification number that has been assigned to the piece of equipment by the highway department. 200

223 CHAPTER 18 ANNUAL REPORT - SAMPLE Equipment Description This is a brief description of the piece of equipment. Date Acquired This is the date the piece of equipment was originally purchased (i.e., the date of delivery of the equipment). Original Cost This is the cash outlay or its equivalent that is necessary to acquire the piece of equipment and put it in operating condition. The amount is determined when the equipment is originally purchased, and remains constant from year to year. Original cost typically equals: Invoice price Less cash discounts and other discounts available, if any Plus freight-in Plus assembly Plus installation charges Plus testing costs Plus sales and federal excise taxes However, the interpretation of the meaning of the term "original cost" is left to the discretion of the county; therefore, it should be noted as to what this number actually represents. Estimated Life This is a measure of the number of years of service expected from the asset before its disposal. (Refer to the Fixed Assets section in the State Aid Accounting Manual for a listing of the estimated years of life of most types of equipment). The estimated life may increase if a betterment is made to the piece of equipment. Status Code This indicates any change in condition of the piece of equipment during the year (e.g., new, improved, traded, and scrapped). Beginning Net Book Value This amount is the equipment's remaining depreciable value at the beginning of the year. For existing equipment, this amount is the same as the previous year's ending net book value. For new equipment, the amount is the same as the original cost. Current Year Costs This amount includes any costs incurred during the year to maintain the piece of equipment (e.g., routine repairs, major overhauls, gas, oil, etc.). Current year costs do not include betterments made to the unit. 201

224 CHAPTER 18 ANNUAL REPORT - SAMPLE Current Year Rental Earned This amount is the current year's rental earned for the piece of equipment. Rental earned is the total amount that was charged to various roads for the use of a specific unit during the year. (For information regarding rental rates, see the Fixed Assets section in the State Aid Accounting Manual). Adjustment To Equalize Depreciation This is the amount needed to adjust the current year's rental earned so that it reflects the actual costs of maintaining the piece of equipment, and not the estimated amount obtained using the equipment's rental rate. To calculate this amount, first determine the equipment's actual total costs for the year (current year's costs plus depreciation expenses). Next, subtract the amount of rental earned for the year from the actual total costs for the year. The difference is the adjustment to equalize depreciation. This will be a negative number if the rental earned was greater than the actual costs and a positive number if the rental earned was less than the actual costs. This number should be as close to zero as possible. If it is not, the need to modify the equipment's rental rate should be considered. (For more information regarding the modification of rental rates, see the Fixed Assets section in the State Aid Accounting Manual). Current Year Depreciation This amount is the current year's depreciation expense for the piece of equipment. The annual depreciation expense for the piece of equipment should be determined at the time the equipment is acquired using the straight line method. Since the straight-line method provides for equal periodic charges to expense over the estimated life of the asset, the annual depreciation expense will remain constant, unless a betterment is made to the unit. Ending Net Book Value This amount is the equipment's remaining depreciable value at the end of the year. This amount is calculated by taking the equipment's beginning net book value plus betterments during the year (if any) less the current year's depreciation expense. FIXED ASSETS BETTERMENTS The Fixed Asset Betterments page discloses the betterments made to fixed assets during the year. The information required for each betterment includes the equipment number and description of the fixed asset; date, cost and type of betterment; and the number of years the betterment extended the life of the fixed asset. All betterments should be recorded, regardless of the source of funding. Betterments are defined as modifications that altar the original function/design which improve the quantity or quality of the unit, or major repairs which extend the life of the unit. (For more information regarding betterments, see the Fixed Assets section in the State Aid Accounting Manual). 202

225 CHAPTER 18 ANNUAL REPORT - SAMPLE LAND AND BUILDINGS The Land and Buildings page itemizes the highway department's land and buildings as of 12/31/XX. Land and buildings, like fixed assets, are not reported on the Financial Statement under the governmental modified accrual basis of accounting. The Land and Buildings page should include seven columns, as shown in the sample annual report. The column headings are briefly described below. Land and Building Description This is a brief description of the land/building. Date Acquired This is the date the land/building was originally purchased (i.e., the date the transaction was closed). Original Cost This is the cash outlay or its equivalent that is necessary to acquire the land/building and put it in operating condition. The amount is determined when the land/building is originally purchased, and remains constant from year to year. If land and a building are acquired for a single lump-sum purchase price, the purchase price should be allocated to the individual assets based on their relative fair market values. The cost of land generally includes: Purchase price Costs of closing the transaction and obtaining title, including commissions, options, legal fees, title search, insurance, and past due mortgage payments and taxes. The cost of a building generally includes: Contract price Costs of excavation for the specific building Architectural costs and the costs of building permits Capitalized interest costs in certain instances Unanticipated costs resulting from the condition of the land (e.g. blasting rock or channeling an underground stream) Beginning Accumulated Value This is the accumulated value of the land/building at the beginning of the year. Accumulated value is the land/building's original cost plus the cost of all betterments made to the property. For existing property, the beginning accumulated value is the same as the previous year's ending accumulated value. For new property, the beginning accumulated value is the same as the original cost. Current Year Betterment This is the cost of a betterment made to the land/building during the year, if any. 203

226 The costs of betterments to land generally include: The costs of surveys CHAPTER 18 ANNUAL REPORT - SAMPLE The costs of preparing the land for its particular use such as clearing, grading and razing old buildings (net of any proceeds from salvage) when such improvements have an indefinite life The costs of betterments to buildings generally include: The costs of remodeling and reconditioning Architect's fees Type Of Betterment This is a brief description of the betterment made to the land/building during the year, if any. Ending Accumulated Value This is the accumulated value of the land/building at the end of the year. This amount is calculated by taking the land/building's beginning accumulated value plus betterments during the year (if any). STATEMENT OF REVENUES AND EXPENDITURES The Statement of Revenues and Expenditures page summarizes the results of the highway department's operations for the year. The format of the page typically includes five columns. The first column lists the Cash Receipts/Disbursements during the year. The second column reverses (subtracts) previous years' receivables/payables that were received/paid in the current year. The third column records (adds) current year receivables/payables that were not received/paid in the current year. The fourth column adds/subtracts any transfers or adjustments that were made in the current year. The fifth column shows the resulting modified accrual balance figures. The final column - the modified accrual balance - is the only column that is required to be shown; however, if this is done, records should be kept to verify these amounts. The "cash receipts" and "modified accrual balance" amounts should correspond to the "payments received" and "charges billed" amounts, respectively, on the Receivables page, if applicable. Depreciation expense is not reported on the Statement of Revenues and Expenditures page because depreciation is not an allowable expenditure under the governmental modified accrual basis of accounting. Following the revenues and expenditures, the beginning and ending year cash and fund balance amounts should be reconciled to verify that the figures on the Statement of Revenues and Expenditures are correct. The main categories for revenue and expenditures are briefly described below. REVENUES Taxes Current and delinquent taxes may be lumped into one figure on the Statement of Revenues and Expenditures page. 204

227 CHAPTER 18 ANNUAL REPORT - SAMPLE Previous Year Accruals The amount of previous year accruals should include the previous year's non-apportioned taxes (taxes collected at the close of the previous year that were receipted into the Road and Bridge Fund in the current year), and the portion of previous years' delinquent taxes that were collected within the first 60 days of the current year. Current Year Accruals The amount of current year accruals should include the current year's non-apportioned taxes (taxes collected at the close of the current year that will not be receipted into the Road and Bridge Fund until the upcoming year), and the portion of the current year's delinquent taxes that is estimated will be collected within the first 60 days of the upcoming year. Intergovernmental Revenue Intergovernmental revenues are revenues from other governments in the form of operating grants, entitlements, shared revenues or payments in lieu of taxes. This includes the Real Estate Haca Credit, Mobile Home Haca Credit, and Disparity Reduction Aid. State Aid Regular Maintenance The cash receipts amount for Regular Maintenance should include 90% of the current year's allotment and 10% or less of the previous year's allotment, unless the county has a bond. The amount received in the current year from previous years' allotments should be recorded in the second column as a reversal. The receivable amount for the current year should be recorded as an accrual in the third column. The receivable amount should match the amounts shown on the Financial Statement page and the Receivables page. State Aid Municipal Maintenance The cash receipts amount for municipal maintenance generally includes the previous year's municipal maintenance expenses up to the previous year's allotment amount, unless a portion of the allotment was previously advanced. The previous year accruals generally includes the amount received in the current year for previous years' receivables. The current year accruals should include amounts not yet received for current year expenses, up to the current year's allotment amount. State Aid Regular Construction The cash receipts amount includes cash received for regular construction projects, including engineering, right of way, utility costs, and bond principal. The amount of the current year's revenue earned for regular construction projects is equal to the amount of work certified during the year. Previous year accruals should include amounts received in the current year for work not yet certified or for work certified in previous years. Current year accruals should include amounts not yet received or received in previous years for work certified in the current year. 205

228 206 CHAPTER 18 ANNUAL REPORT - SAMPLE State Aid Transfers (State Aid portion of funding for a federal construction project) The county never receives State Aid funds for federal projects because the State Aid Office acts as an agent for the county and disburses the funds directly to the contractor. Therefore, there is never any cash receipts or previous year accruals. The current year's accrual is the amount transferred from the State Aid Account(s) to the Agency Fund. This amount is obtained from the State Transfer Notice sent by the State Aid Finance Office shortly after the transfer has been made, and can be verified from copies of the ledger sheets sent by the State Aid Finance Office in January of the following year. State Aid Municipal Construction The same guidelines are followed for Municipal Construction as Regular Construction. Town Bridge Construction The same guidelines are followed for Town Bridge Construction as Regular Construction. Bridge Bonding Construction The same guidelines are followed for Bridge Bonding Construction as for Regular and Municipal Construction, except that revenue earned cannot exceed the bridge bonding grant amount (i.e. the ending modified accrual balance should be less than or equal to the grant amount). Federal Aid Construction The county never receives Federal Aid funds for federal aid construction projects because the State Aid Office disburses the funds directly to the contractor. Therefore, there is never any cash receipts or previous year accruals. The current year's accrual is obtained from copies of the ledger sheets sent by the State Aid Finance Office in January of the upcoming year. Town Road Allotment If the highway department administers the town road allotment funds, the cash receipts amount is the same as the town road allotment amount. Since there are no previous year or current year accruals, the cash received is also the modified accrual balance amount. If the highway department does not administer the town road allotment funds, the town road allotment is not shown on the Statement of Revenues and Expenditures. Charges For Materials And Services Charges for materials and services is revenue earned from the sale of goods and/or services to other departments, other governmental units, individuals and businesses. Miscellaneous Revenue Miscellaneous Revenues are revenues not classified within one of the other categories. Examples of various accounts which may classify as miscellaneous revenue include interest on investments, sales of supplies and materials and sale of used equipment. Other Financing Sources Other financing sources include governmental fund general long-term debt proceeds, amounts equal to the present value of minimum lease payments arising from capital leases, proceeds from the sale of general fixed assets and operating transfers in.

229 EXPENDITURES CHAPTER 18 ANNUAL REPORT - SAMPLE Expenditures is divided into four main categories - administration, maintenance, construction and equipment maintenance and shop. Other categories may include material and services for resale, unallocated expenditures, intergovernmental expenditures and debt service and other financing uses. The categories are further divided into three subcategories - personal services, services and supplies and capital outlay. The maintenance category may have an additional subcategory - contracts. The construction category may have two additional subcategories - contracts and federal aid. Unallocated Expenditures Unallocated Expenditures include all costs that cannot be classified within one of the other categories. Intergovernmental Expenditures Intergovernmental expenditures are expenditures made by one level or unit of government to another government in support of government activities administered by the recipient unit. Debt Service Debt Service includes interest and principal payments on general long-term debt. Other Financing Uses Other Financing Uses includes governmental fund operating transfers out (e.g. town road allotment) and the amount of refunding bond proceeds deposited with the escrow agent. Personal Services Personal service expenditures pertain to employee salaries and/or wages and fringe benefits. Services and Supplies Services and Supplies expenditures pertain to the purchase of services and supplies. Capital Outlay Counties may classify equipment purchases as capital outlay or services and supplies. This may be dependent on the dollar value of the equipment or if the equipment will be depreciated. Betterments to fixed assets may be considered a capital outlay expense. YEAR-END CASH RECONCILIATION The beginning cash balance is the previous year's ending cash balance. The cash receipts amount is the total from the "cash receipts" column under the revenues section. The cash disbursements amount is the total from the "cash disbursements" column under the revenues section. The resulting ending cash balance should equal the cash and pooled investments amount shown on the Financial Statement. YEAR-END FUND BALANCE RECONCILIATION The beginning fund balance is the previous year's ending fund balance. The revenues amount is the total from the "modified accrual" column under the revenues section. The expenditures amount is the total from the "modified accrual" column under the expenditures section. The resulting ending fund balance should equal the total fund balance amount shown on the Financial Statement. 207

230 CHAPTER 18 ANNUAL REPORT - SAMPLE SUMMARY OF EXPENDITURES The Summary of Expenditures page summarizes some of the highway department's expenditures for the year. The following types of expenditures should be included in this summary: SNOW AND ICE CONTROL Snow and ice control includes expenditures for snow removal, sanding and salting, and erection and removal of snow fences. Snow and ice control expenditures should equal the total of the snow and ice control costs for each funding source on the Detailed Maintenance Costs by Funds page. RIGHT OF WAY Right of way includes expenditures for land purchases, improvements, easements, and moving and relocating buildings and persons. (Utility relocation is not included). Right of way expenditures should equal the total of the right-of-way costs from the Summary of Construction Costs pages. ENGINEERING Engineering includes expenditures for field engineering, surveys, material testing, borings, preparation of plans and related traffic studies. Engineering expenditures should equal the total of the engineering costs from the Summary of Construction Costs pages. CONSTRUCTION Construction includes expenditures for construction, reconstruction, additions and betterments. Construction expenditures should equal the total of the construction costs from the Summary of Construction Costs pages. BUILDING AND EQUIPMENT (CAPITAL OUTLAY) Building and equipment expenditures should equal the total of the capital outlay costs from the modified accrual balance column on the Statement of Revenues and Expenditures pages. NOTE: The expenditure amounts include all costs, including federal funds, unallocated expenses and equipment rental charges, where applicable. 208

231 CHAPTER 18 ANNUAL REPORT - SAMPLE SUMMARY OF MAINTENANCE COSTS BY FUNDS The Summary of Maintenance Costs by Funds page summarizes the current year's maintenance costs by funding sources. The funding sources include CSAH Regular - Regular, CSAH - Municipal and County Roads. The costs are split into the four primary maintenance types - routine, repairs and replacements, betterments and special work. (For more information regarding the classification of maintenance costs, see the Maintenance Costing section in the State Aid Accounting Manual). The cost per mile is calculated by dividing the specific maintenance cost by the total number of miles. Unallocated expenses and adjustments to equalize depreciation are added to the maintenance costs to arrive at a sub-total. Bond expenses and bond interest expenses, if any, are then added to the sub-total to obtain a grand total. The total mileage and mileage proration percent are also reported for each funding source. To calculate the proration percent for each funding source: 1. First, determine the total mileage for all funding sources by adding the total mileage amounts of the separate funding sources. 2. Next, divide the total mileage of the specific funding source by the total mileage for all funding sources (as calculated above). The result is the proration percent for that specific funding source. The total proration percent for all funding sources should equal 100%. The sub-total for all funding sources should correspond to the grand total for CSAH Regular - Regular funds on the Detailed Maintenance Costs by Funds page. The grand total for all funding sources should correspond to the sub-total for CSAH Regular - Regular funds on the Summary of Maintenance Costs by Funds page. The Regular Maintenance and Municipal Maintenance costs should be identical to the amounts shown on the Annual Maintenance Expenditure Report. (An Annual Maintenance Expenditure Report form is shown in the State Aid Operations Manual). DETAILED MAINTENANCE COSTS BY FUNDS The Detailed Maintenance Costs by Fund page details the current year's maintenance costs by funding sources. The funding sources include CSAH - Regular, CSAH - Municipal and County Roads. The costs are split into subdivisions of the four primary maintenance types: routine, repairs and replacements, betterments and special work. (For more information regarding the classification of maintenance costs, see the Maintenance Costing section in the State Aid Accounting Manual). SUMMARY OF MAINTENANCE COSTS BY ROADS - CSAH REGULAR The Summary of Maintenance Costs by Roads page summarizes the current year's regular maintenance costs by roads. The maintenance costs are split into the four primary maintenance types - routine, repairs and replacements, betterments and special work. The maintenance costs are added together to arrive at a sub-total. The prorated costs are then added to the sub-total to obtain a grand total. The sub-total for all maintenance types should correspond to the grand total for CSAH - Regular funds on the Detailed Maintenance Costs by Funds page. The grand total for all maintenance types should correspond to the sub-total for CSAH - Regular funds on the Summary of Maintenance Costs by Funds page. 209

232 CHAPTER 18 ANNUAL REPORT - SAMPLE DETAILED ROUTINE MAINTENANCE COSTS BY ROADS - CSAH REGULAR (OPTIONAL PAGE) The Detailed Routine Maintenance Costs by Roads page details the current year's routine regular maintenance costs by roads. The costs are divided into the specific types of routine maintenance - smoothing surface, minor surface maintenance, roadside and drainage, brush and weed control, snow and ice control and traffic services. The total costs for all maintenance types should correspond to the total routine maintenance costs on the Summary of Maintenance Costs by Roads page for CSAH - Regular funds. SUMMARY OF MAINTENANCE COSTS BY ROADS - CSAH MUNICIPAL The Summary of Maintenance Costs by Roads page summarizes the current year's municipal maintenance costs by roads. The maintenance costs are split into the four primary maintenance types - routine, repairs and replacements, betterments and special work. The maintenance costs are added together to arrive at a sub-total. The prorated costs are then added to the sub-total to obtain a grand total. The sub-total for all maintenance types should correspond to the grand total for CSAH Regular - Municipal funds on the Detailed Maintenance Costs by Funds page. The grand total for all maintenance types should correspond to the sub-total for CSAH Regular - Municipal funds on the Summary of Maintenance Costs by Funds page. DETAILED ROUTINE MAINTENANCE COSTS BY ROADS - CSAH MUNICIPAL (OPTIONAL PAGE) The Detailed Routine Maintenance Costs by Roads page details the current year's routine municipal maintenance costs by roads. The costs are divided into the specific types of routine maintenance - smoothing surface, minor surface maintenance, roadside and drainage, brush and weed control, snow and ice control and traffic services. The total costs for all maintenance types should correspond to the total routine maintenance costs on the Summary of Maintenance Costs by Roads page for CSAH Regular - Municipal funds. SUMMARY OF MAINTENANCE COSTS BY ROADS - COUNTY ROADS The Summary of Maintenance Costs by Roads page summarizes the current year's county road costs by roads. The maintenance costs are split into the four primary maintenance types - routine, repairs and replacements, betterments and special work. The maintenance costs are added together to arrive at a sub-total. The prorated costs are then added to the sub-total to obtain a grand total. The sub-total for all maintenance types should correspond to the grand total for County Road funds on the Detailed Maintenance Costs by Funds page. The grand total for all maintenance types should correspond to the sub-total for County Road funds on the Summary of Maintenance Costs by Funds page. 210

233 CHAPTER 18 ANNUAL REPORT - SAMPLE DETAILED ROUTINE MAINTENANCE COSTS BY ROADS - COUNTY ROADS (OPTIONAL PAGE) The Detailed Routine Maintenance Costs by Roads page details the current year's routine county maintenance costs by roads. The costs are divided into the specific types of routine maintenance - smoothing surface, minor surface maintenance, roadside and drainage, brush and weed control, snow and ice control and traffic services. The total costs for all maintenance types should correspond to the total routine maintenance costs on the Summary of Maintenance Costs by Roads page for County Road funds. SUMMARY OF CONSTRUCTION COSTS - CSAH REGULAR The Summary of Construction Costs page summarizes the current year's regular construction costs by projects. The costs are divided into three types - construction, right-of-way and engineering. (Construction costs may be further split into contract costs and county force costs, if preferred). Each project's costs should match the current year's costs shown on the corresponding Statement of Construction Costs page. The construction costs include federal funds, bridge bonding funds, and other funding sources (e.g., reimbursements from other governmental agencies, businesses, etc.). Federal and bridge bonding amounts included in a project's costs should be subtracted from the total to arrive at a revised total. This revised total should then match the amount on the Summary of County Highway Information page. Both federal projects and non-federal projects should be included on this page. STATEMENT OF CONSTRUCTION COSTS - CSAH REGULAR The Statement of Construction Costs page summarizes the total costs and projected funding of a regular construction project as of 12/31/XX. A separate page should be included for each project that was open as of 12/31/XX or that was finalized during the year. A brief description of the project should be specified at the top of the page, including the project number, CSAH Regular number, location, length of construction, type of construction and percentage of completion. The project's costs are divided into three types of costs - construction, right-of-way, and engineering. (Further breakdown is optional). The costs are also categorized as previous years' costs and current year's costs. All costs are reported, including unallocated expenses and equipment rental charges, if applicable. The current year's total costs should correspond to the amount shown on the Summary of Construction Costs page. The project's costs are also divided into the projected funding sources. The costs are again categorized as previous years' costs and current year's costs. All funding sources are reported, including federal funds, bridge bonding funds, and reimbursements from other governmental agencies, businesses, etc. 211

234 CHAPTER 18 ANNUAL REPORT - SAMPLE SUMMARY OF CONSTRUCTION COSTS - CSAH MUNICIPAL The Summary of Construction Costs page summarizes the current year's municipal construction costs by projects. The costs are divided into three types - construction, right-of-way and engineering. (Construction costs may be further split into contract costs and county force costs, if preferred). Each project's costs should match the current year's costs shown on the corresponding Statement of Construction Costs page. Construction costs include federal funds, bridge bonding funds, and other funding sources (e.g., reimbursements from other governmental agencies, businesses, etc.). Federal and bridge bonding amounts included in a project's costs should be subtracted from the total to arrive at a revised total. This revised total should then match the amount on the Summary of County Highway Information page. Both federal projects and non-federal projects should be included on this page. STATEMENT OF CONSTRUCTION COSTS - CSAH MUNICIPAL The Statement of Construction Costs page summarizes the total costs of a municipal construction project and projected funding as of 12/31/XX. A separate page should be included for each project that was open as of 12/31/XX or that was finalized during the year. A brief description of the project should be specified at the top of the page, including project number, CSAH Regular number, location, length of construction, type of construction and percentage of completion. The project's costs are divided into three types of costs - construction, right-of-way, and engineering. (Further breakdown is optional). The costs are also categorized as previous years' costs and current year's costs. All costs are reported, including unallocated expenses and equipment rental charges, if applicable. The current year's total costs should correspond to the amount shown on the Summary of Construction Costs page. The project's costs are also divided into the projected funding sources. The costs are again categorized as previous years' costs and current year's costs. All funding sources are reported, including federal funds, bridge bonding funds, and reimbursements from other governmental agencies, businesses, etc. SUMMARY OF CONSTRUCTION COSTS - COUNTY ROADS The Summary of Construction Costs page summarizes the current year's county roads construction costs by projects. The costs are divided into three types - construction, right-of-way and engineering. (Construction costs may be further split into contract costs and county force costs, if preferred). Each project's costs should match the current year's costs shown on the corresponding Statement of Construction Costs page. Construction costs include federal funds, bridge bonding funds, and other funding sources (e.g., reimbursements from other governmental agencies, businesses, etc.). Federal and bridge bonding amounts included in a project's costs should be subtracted from the total to arrive at a revised total. This revised total should then match the amount on the Summary of County Highway Information page. Both federal projects and non-federal projects should be included on this page. 212

235 CHAPTER 18 ANNUAL REPORT - SAMPLE STATEMENT OF CONSTRUCTION COSTS - COUNTY ROADS The Statement of Construction Costs page summarizes the total costs and projected funding of a county construction project as of 12/31/XX. A separate page should be included for each project that was open as of 12/31/XX or that was finalized during the year. A brief description of the project should be specified at the top of the page, including project number, CSAH number, location, length of construction, type of construction and percentage of completion. The project's costs are divided into three types of costs - construction, right-of-way, and engineering (further breakdown is optional). The costs are also categorized as previous years' costs and current year's costs. All costs are reported, including unallocated expenses and equipment rental charges, if applicable. The current year's total costs should correspond to the amount shown on the Summary of Construction Costs page. The project's costs are also divided into the projected funding sources. The costs are again categorized as previous years' costs and current year's costs. All funding sources are reported, including federal funds, bridge bonding funds, and reimbursements from other governmental agencies, businesses, etc. STATE AID BONDS The State Aid Bonds page summarizes the status of a State Aid bond as of 12/31/XX by disclosing the projects that have been applied toward the bond as of that date. A separate page should be included for each bond that has a balance greater than zero. If the highway department does not have any bonds, it should be stated as such on the page. The bond's issue amount and issue date should be specified at the top of the page. Following this, there are typically five columns, which contain project information and a running bond fund balance. The information required for each project includes the project number, whether the project has been finalized, the date the costs were applied toward the bond, and the amount of the costs applied toward the bond. The information provided on this page should correspond to the bond information in the State Aid System. ESTIMATED BUDGET The Estimated Budget page shows the estimated revenues and expenditures passed by the county board for the upcoming year. Although the format of this page is left to the discretion of the county, the format shown in the sample annual report is the one most prevalently used by counties. 213

236 CHAPTER 19 CHAPTER 19 ANNUAL SUMMARY OF HIGHWAY INFORMATION ANNUAL SUMMARY OF HIGHWAY INFORMATION SAMPLE 214

237 CHAPTER 19 ANNUAL SUMMARY OF HIGHWAY INFORMATION INSTRUCTIONS One copy of the Annual Summary of Highway Information is due in the State Aid Finance Office by August 1st of the following year, the District State Aid Engineer (D.S.A.E), must approve this form so remember to allow time for processing. When the report is received, State Aid Finance will final the county s maintenance accounts and distribute remaining funds due (if any) or transfer unused funds to the appropriate construction account. The Annual Summary of Highway Information includes the construction and maintenance costs incurred during the calendar year for the CSAH Regular, CSAH Municipal and County Highway Systems. The County Engineer and the District State Aid Engineer must approve this report. Amounts are totaled and reported by construction, maintenance, unallocated, and adjustment to equalize depreciation. The Needs Manager will contact the County Engineer if the Signal Optimization applies to your county. The County Engineer and DSAE, both must sign Signal Optimization Certification section. Enter the total mileage for each road system, CSAH Regular, CSAH Municipal and County. TOTAL MILEAGE Enter the total mileage for each road system, CSAH Regular, CSAH Municipal, and County. CONSTRUCTION Allocation Enter the State Allocation for the reporting year for CSAH Regular and CSAH Municipal Construction. State Bond Interest Enter the amount paid to the county for Bond Interest paid from Regular Maintenance. Total Cost Enter the total costs for federal (SP) projects, non-federal (SAP) projects and county (CP) projects for each road system. Costs should include construction, engineering, ROW, FA and other misc. costs associated with each project. Federal Funds, State Bonding Funds and Special Account Funds (Town Bridge, LRIP, State Park, Turnback, Disaster, etc.) should be subtracted from the total cost reported. Total cost should not be reduced by any reimbursements received from other sources. MAINTENANCE Allocation Enter the State Allocation for the reporting year for CSAH Regular and CSAH Municipal Maintenance. Total Cost Enter the maintenance costs for CSAH Regular, CSAH Municipal and County Road Systems. These amounts should include all costs, unallocated and adjustment to equalize depreciation. UNALLOCATED COSTS Costs are distributed to their appropriate cost centers during the year-end process, (see Chapter 10). The remaining Unallocated Costs are distributed to the county road systems by mileage. The amounts spread to the CSAH Regular, CSAH Municipal and County Systems are included in the Annual Summary of Highway Information. 215

238 ADJUSTMENT TO EQUALIZE DEPRECIATION CHAPTER 19 ANNUAL SUMMARY OF HIGHWAY INFORMATION This is obtained from the Fixed Asset Report. minus equal Total Rental Earned (Total Equipment Depreciation + Total Equipment Costs) Adjustment to Equalize Depreciation A negative amount in the Adjustment to Equalize indicates Total Rental Earned was less than the actual costs for the equipment during the year. Rental rates may need to be increased to better reflect the cost during the year. Maintenance costs will be increased by this amount to equalize the cost for a rate that was too low. A positive amount in the Adjustment to Equalize indicates the Total Rental Earned was greater than the actual costs for the equipment during the year. Rental rates may need to be decreased to better reflect the cost during the year. Maintenance costs will be decreased by this amount to equalize the cost for a rate that was too high. The Adjustment to Equalize Depreciation is distributed to the county road systems by mileage. The amount for the CSAH Regular, CSAH Municipal and County Systems are included in the Annual Summary of Highway Information. 216

239 APPENDIX NOTICE OF ANNUAL APPORTIONMENT APPENDIX A

240 AGENCY FUND LEDGER FEDERAL AID PROJECTS APPENDIX B

241 AGENCY FUND LEDGER (CONTINUED) APPENDIX C