GASB 54 Fund Balance Reporting and Governmental Fund Type Definitions

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1 GASB 54 Fund Balance Reporting and Governmental Fund Type Definitions September 13, 2010 Scott C. McIntire Melanson Heath & Company, P.C.

2 Outline Overview Fund Balance - Current Standard Fund Balance under GASB 54 Disclosures and Fund Balance Policies Government Fund Type Definitions Note Disclosures

3 Overview Title: Fund Balance Reporting and Governmental Fund Type Definitions Scope Changes how fund balance is presented Clarified use of governmental fund types Effective Date Periods beginning after June 15, 2010 Fiscal Years ending June 30, 2011 Calendar years ending December 31, 2011 CAFR Stat Section Retroactive is encouraged, but not required

4 Fund Balance - Current Standard What is fund balance? Difference between fund assets and liabilities How is fund balance allocated? Reserved Unreserved Designated Undesignated

5 Fund Balance - Current Standard Fund Balance Allocation Objective To isolate that portion of fund balance that is not available for the following period s s budget Factors that make resources unavailable for appropriation By their very nature can never be spent (e.g., prepaid rent, inventories of supplies) Because of their timing of cash flows, cannot yet be spent (e.g., long-term loans receivable) Can be spent but not at the government s s discretion because externally restricted to a use narrower than the purpose of the fund

6 Fund Balance - Current Standard Why is there a need for change? Terms are not intuitive and frequently misunderstood Categories are often applied inconsistently

7 Fund Balance under GASB 54 Under GASB 54, fund balance should be reported in classifications that: comprise a hierarchy based primarily on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent

8 Fund Balance under GASB 54 Five categories Nonspendable Restricted Committed Assigned Unassigned Not all will always be present

9 New Fund Balance Classifications Essentially what is now reserved Essentially what is now unreserved Nonspendable Restricted Committed Assigned Unassigned Essentially what is now designated (intent)

10 Fund Balance under GASB 54 Nonspendable Fund Balance Not in spendable form Cannot ever be spent Cannot currently be spent Legally or contractually required to be maintained intact

11 Fund Balance under GASB 54 Restricted Fund Balance Amounts subject to externally enforceable legal restrictions Externally imposed by creditors, grantors, contributors, or laws or regulations of other governments Imposed by law through constitutional provisions or enabling legislation

12 Fund Balance under GASB 54 Committed Fund Balance Amounts whose use is constrained by limitations that the government imposes upon itself Imposed at the government s s highest level of decision making Binding unless removed in the same manner Action taken no later than the close of the reporting period Actual amount can be determined after close

13 Fund Balance under GASB 54 Assigned Fund Balance Intended use of resources Established by the governing body itself, or Established by a body or an official delegated by the governing body Residual amounts in governmental funds other than GF are assigned

14 Committed vs. Assigned Level at which action must be taken Committed fund balance requires action by the highest level of decision making authority, assigned allows that authority to be delegated Type of action necessary Formal action needed to impose, remove or modify committed, less formal action for assigned

15 Fund Balance under GASB 54 Unassigned Fund Balance Excess of total fund balance over nonspendable + restricted + committed + assigned components Available for any purpose Reported only in the general fund, except in cases of negative fund balance Negative fund balances in other funds are reported as unassigned Positive balance possible only in general fund

16 Fund Balance under GASB 54 Encumbrances Only indirectly affect the classification of fund balance If liquidation expected from restricted or committed resources, constraint already reflected in those amounts Otherwise assigned fund balance

17 Summary Nonspendable - Not in spendable format or required to maintain intact Restricted External i.e. outside parties or enabling legislation Committed Self imposed with formal action Assigned Self imposed with less formal action Unassigned Residual

18 Fund Balance under GASB 54 Encumbrances If you have encumbrance accounting, encumbrances will be reported either as: Committed (if encumbrances are approved by action of the highest decision making authority) Board votes to allocate $250,000 of fund balance for a new fire truck Assigned - Encumbrances resulting from the issuance of purchase orders as a result of normal purchasing activity approved by appropriate officials This will be the most common classification of encumbrances

19 Fund Balance under GASB 54 Stabilization Arrangements Restricted Committed Unassigned Never classified as assigned Note disclosures

20 Disclosures and Fund Balance Policies Elements of a Comprehensive Fund Balance Policy Fund balance policy should apply to: Unrestricted fund balances Committed Assigned Unassigned Generally applies to the General Fund

21 Fund Balance Example Nonspendable Fund Balance Includes Prepaids Inventory Land held for sale (no constraint)

22 Fund Balance Example Restricted Fund Balance Include: Land held for sale (use of proceeds constrained) Grants Encumbrances Stabilization

23 Fund Balance Example Committed Fund Balance Include: Action taken before end of period May include Stabilization Encumbrances Exclude: Action taken after end of period

24 Fund Balance Example Assigned Fund Balance Include: Action taken after end of period Encumbrances (not payable from restricted resources) Appropriated fund balance Exclude: Stabilization arrangement

25 Fund Balance Example Unassigned Fund Balance Total Fund Balance Less: Nonspendable fund balance Restricted fund balance Committed fund balance Assigned fund balance

26 Governmental Fund Type Definitions Special Revenue Fund Current definition To account for the proceeds of specific revenue sources (other than trusts for individuals, private organizations, or other governments or for major capital projects) that are legally restricted to expenditures for specified purposes.

27 Governmental Fund Type Definitions Special Revenue Fund GASB 54 Definition Used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. The term proceeds for specific revenue sources establishes that one or more restricted or committed revenues should be the foundation for a special revenue fund.

28 Note Disclosures Nonspendable Amounts not in a spendable form vs. amounts that are legally or contractually must be maintained intact

29 Note Disclosures Committed Highest level of decision making authority and the formal action needed to impose, remove or modify a constraint

30 Note Disclosures Assigned The body or official authorized to make the assignment

31 Note Disclosures Stabilization agreements Authority for establishing Requirements for additions Conditions for spending Balance (if not separately displayed)

32 Note Disclosures Minimum Fund Balance Policy Description of the policy established by the government that sets the minimum amounts

GASB 54. January 15, 2010 Jennifer Younce, CPA Karen Lenk, CPA. Schowalter & Jabouri, PC

GASB 54. January 15, 2010 Jennifer Younce, CPA Karen Lenk, CPA. Schowalter & Jabouri, PC GASB 54 January 15, 2010 Jennifer Younce, CPA Karen Lenk, CPA Schowalter & Jabouri, PC Outline Overview Fund Balance Current Standard Fund Balance under GASB 54 Disclosures and Fund Balance Policies Government