Advanced Government Accounting

Transcription

1 Advanced Government Accounting 2017 School of Government Finance Conference By Andrew Laflin, CPA Principal, CliftonLarsonAllen LLP Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor CliftonLarsonAllen LLP

2 Learning Objectives This session will provide answers to a series of questions that present complex and often overlooked accounting and financial reporting issues. Examples include the following: FEMA Reimbursements and Asset Impairment Capital Asset Transfer Between Funds Restricted Net Position & Fund Balance Major Fund Determination Software Purchases Revenue Recognition for Property Taxes 2

3 Question #1 FEMA Reimbursements Facilier County s residents accumulated a significant amount of debris resulting from Hurricane Irma. The County was able to contract with a debris hauler to start removing the excess yard waste resulting from the hurricane. The hauler began its services in mid-september and provided the County with an invoice on October 20, 2017 for $460,855. The County estimated that 40% of that invoice amount relates to services performed through 9/30/17. Since debris removal is considered eligible for reimbursement from FEMA, the County is contemplating recording a revenue and receivable for $184,342. Should the County also record this $184,342 in its SEFA for FYE 9/30/17? 3

4 Question #1 FEMA Reimbursements Also, Fecilier County s warehouse, which served as a storage facility for utility parts and supplies and several utility trucks, was damaged from the hurricane. The building was constructed and became operational on 4/1/04 at a total cost of $1,700,000, which included $200,000 cost to acquire the land. The building is being depreciated on a straight line basis over 40 years. The hurricane caused damage to the roof of the building, along with additional flood damage. Total restoration costs totaled $260, % of those costs were related to demolition and mold removal, and the remaining 80% were related to rebuilding walls and roof. How much, if any, impairment loss should the County recognize? 4

5 Answer #1 FEMA Reimbursements Compliance supplement for FEMA grants under CFDA : 5

6 Answer #1 FEMA Reimbursements To summarize SEFA treatment: The expenditures are recorded on the SEFA at the later of actual expenditure or project worksheet approval/obligation. If FEMA obligates/approves a PW in advance, FY 2017, and actual expenditures are not made until FY 2018, expenditures will be included in the FY 2018 SEFA. If the expenditure is made FY 2017 and the PW is approved/obligated in FY 2017, the expenditure is included in the SEFA in FY If the expenditure is made FY 2017 and the PW is not approved/obligated until FY 2018, the expenditure is included in the SEFA in FY18 with a note that the expenditure was incurred in FY17. If the expenditure is made FY 2018 and the PW is approved/obligated FY 2018, the expenditure is included in the SEFA in FY

7 Answer #1 FEMA Reimbursements Revenue Recognition: Eligible work is documented on a Project Worksheet (PW). The PW is used to record a detailed description, the scope of eligible work, estimated or actual cost, and special considerations associated with the project. FEMA then reviews, approves and obligates the entire federal share of that project. Once FEMA obligates a PW, the funds become immediately available to the state for disbursement to applicants. 7

8 Answer #1 FEMA Reimbursements Based on the project worksheet process a receivable for the FEMA funds should be recognized when the PW is approved/obligated. Prior to this amounts can be changed or PW can be denied. All obligated amounts should be monitored since the time between obligation and receipt can vary. If the receipt of fund exceeds 60 days past year end the amounts should be reclassified from revenue to deferred inflows on the fund financial statements. 8

9 Answer #1 Impairment Loss GASBS 42, Accounting and Financial Reporting for Impairment of Capital Assets and Insurance Recoveries Impairment Tests Magnitude Test Unexpected Nature Test Measuring Impairment Restoration Cost Approach Service Units Approach Deflated Depreciated Replacement Cost Approach Lower of Carrying Amount or Fair Value 9

10 Answer #1 Impairment Loss Calculating Building Impairment Loss Using the Restoration Cost Approach Historical Cost (4/1/04) $1,500,000 Less: A/D (thru 6/1/13) (503,125) Net Book Value 996,875 Total Repair Cost 260,000 Restoration Cost 208,000 Deflated Restoration Cost 158,432 Restoration Cost Ratio % (158,432 / 1,500,000) Impairment Loss 105,291 ( % * 996,875) Insurance Recovery $0 Net Loss $105,291 10

11 Answer #1 Impairment Loss 11

12 Answer #1 Impairment Loss 12

13 Question #2 Capital Asset Transfer Ursula County is transferring vehicles and equipment out of one fund and into another. The assets have an original cost of $340,265 and accumulated depreciation of $166,244. What would be the entries to record this transfer from One enterprise fund to another enterprise fund? An internal service fund to an enterprise fund? A governmental fund to an enterprise fund? 13

14 Answer #2 Capital Asset Transfer Q How should the reassignment of a capital asset between an enterprise fund and governmental activities be reported? A If the assets reassigned from governmental activities to an enterprise fund are capital assets, the transaction is not interfund because it involves only one fund; consequently, the enterprise fund would report the receipt of the capital assets as a capital contribution from governmental activities (in the last section of the statement of revenues, expenses, and changes in net position). In the reverse situation, in which a capital asset is reassigned from an enterprise fund to governmental activities, the disposal of the capital asset would be reported by the enterprise fund as a nonoperating expense. In either case, governmental funds would not report the event because there has been no flow of current financial resources. In the statement of activities, the reassignment of the capital asset between governmental and businesstype activities would be reported as a transfer, requiring a reconciling item in the governmental funds' reconciliation because a difference is created between the change in fund balances and the change in total net position. 14

15 Answer #2 Capital Asset Transfer Water & Sewer Fund to Solid Waste Fund: Transfer In (Solid Waste Fund) and Transfer Out (Water & Sewer Fund) for $174,021, offset by capital assets ($340,265) and A/D ($166,244) Water & Sewer Fund to General Fund: Debit non-operating expense in Water & Sewer Fund for $174,021, offset by credit to capital assets ($340,265) and debit to A/D ($166,244); no entry in General Fund General Fund to Water & Sewer Fund: Credit non-operating revenue (capital contribution) in Water & Sewer Fund for $174,021, offset by debit to capital assets ($340,265) and credit to A/D ($166,244); no entry in General Fund 15

16 Answer #2 Capital Asset Transfer Water & Sewer Fund to Governmental Activities: Transfer In (Governmental Activities) and Transfer Out (Water & Sewer Fund) for $174,021, offset by capital assets ($340,265) and A/D ($166,244) 16

17 Question #3 Restricted Fund Balance/Net Position The City of Maleficent has a General Capital Projects Fund that contains restricted fund balance at September 30, No other governmental funds contain restricted fund balance. Fund has non-spendable fund balance for certain prepaid items. Restricted fund balance for capital improvement projects, primarily funded by a half cent sales tax, federal grants, and debt proceeds. Committed fund balance resulting from $740k transfer in from general fund based on City Council resolution to dedicate funding to a park improvement project, funded by property taxes This fund had unspent bond proceeds totaling $132,365. There are no salaries & benefits allocated to this fund. 17

18 Question #3 Restricted Fund Balance/Net Position Here are the balances of the General Capital Projects Fund within the balance sheet: Cash & investments = $2,543,297 (includes unspent bond proceeds of $132,365 and $740,000 transferred in from General Fund for park improvement project and no amounts spent on that project as of 9/30/16) Prepaid items = $66,585 Accounts payable = $134,598 Retainage payable and construction A/P = $177,496 Deferred inflows of resources = $165,438 (relates to grant revenue in awarded in FY 16, collected in January 2017; City s availability criterion is within 60 days after year end, and spent in FY 17 & FY 18; eligibility criteria have been met) 18

19 Question #3 Restricted Fund Balance/Net Position Fund Balance Type: Nonspendable Restricted Committed Cash & investments $1,803,297 $740,000 Prepaid Items $66,585 Accounts Payable ($134,598) Retainage payable and construction A/P ($177,496) Deferred inflows of resources ($165,438) Total fund balance $66,585 $1,325,765 $740,000 19

20 Question #3 Restricted Fund Balance/Net Position Capital assets, net of accumulated depreciation, relating to this fund, totaled $12,545,679 as of 9/30/16 Bonds and notes payable, both current and longterm portion, relating to this fund totaled $8,332,580 as of 9/30/16 What are the components of net position governmental activities relating to this General Capital Projects Fund 20

21 Answer #3 Restricted Fund Balance/Net Position GASBS 54 para 8: Except as provided for in paragraph 7, amounts that are restricted to specific purposes, pursuant to the definition of restricted in paragraph 34 of Statement 34, as amended by Statement No. 46, Net Assets Restricted by Enabling Legislation, should be reported as restricted fund balance. Fund balance should be reported as restricted when constraints placed on the use of resources are either: a. Externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments; or b. Imposed by law through constitutional provisions or enabling legislation. 21

22 Answer #3 Restricted Fund Balance/Net Position Z Q Should the amount reported in governmental funds as restricted fund balance equal the amount reported as restricted net position for governmental activities in the government-wide statement of net position? A There are three reasons why those amounts will generally be different. First, the principal amount of a permanent fund is classified as nonspendable fund balance in the governmental fund financial statements but is included in restricted net position in the government-wide statement of net position. Second, reconciling items that represent basis of accounting differences may cause the amounts to be different. And, finally, internal service fund net position are generally included with governmental activities. 22

23 Answer #3 Restricted Fund Balance/Net Position Net Position Type: Cash & investments restricted and unrestricted Net Investment in Capital Assets Restricted Unrestricted $132,365 $1,670,932 $740,000 Prepaid Items $66,585 Capital Assets, net $12,545,679 Accounts Payable ($134,598) Retainage payable and construction A/P ($177,496) Bonds & notes payable ($8,332,580) Total Net Position $4,167,968 $1,602,919 $740,000 23

24 Answer #3 Restricted Fund Balance/Net Position Total Fund Balance: $2,132,350 Capital Assets, Net: $12,545,679 Bonds & Notes Payable: ($8,332,580) DIR - Unavailable Revenue: $165,438 Total Net Position: $6,510,887 24

25 Answer #3 Restricted Fund Balance/Net Position Restricted Fund Balance: $1,325,765 Capital Assets, Net: N/A Bonds & Notes Payable: N/A Prepaid Items $66,585 DIR Unavailable Revenue: $165,438 Unspent Debt Proceeds: ($132,365) Retainage Payable & Construction A/P: $177,496 Restricted Net Position: $1,292,253 25

26 Question #4 Major Fund Determination The Accounting Manager at the City of Jafar prepared the major fund determination calculation for the City s enterprise funds, and she had a number of questions along the way: QUESTION #1: How do deferred inflows/outflows of resources get incorporated into the calculation? 26

27 Answer #4 Major Fund Determination GASB 34, para 76 (as amended by GASB 37, para 15 and GASB 65, para 33): Total assets plus deferred outflows of resources, liabilities plus deferred inflows of resources, revenues, or expenditures/expenses of that individual governmental or enterprise fund are at least 10% of the corresponding element total (assets plus deferred outflows of resources, liabilities plus deferred inflows of resources, etc.) for all funds of that category or type (that is, total governmental or total enterprise funds). The same element that met the 10% criterion above is at least 5% of the corresponding element total for all governmental and enterprise funds combined 27

28 Question #4 Major Fund Determination QUESTION #2: How do I handle operating versus non-operating revenues for enterprise funds and other financing sources and uses for governmental funds? 28

29 Answer #4 Major Fund Determination Q&A : Major fund determination is based on total fund revenues and expenses, which include both operating and non-operating categories. Q&A : Gains, losses, capital contributions, additions to permanent endowments and special items should be included in the analysis of revenues and expenses. Q&A : Revenues do not include other financing sources, and expenditures do not include other financing uses 29

30 Question #4 Major Fund Determination QUESTION #3: What about interfund balances? Due to/from, interfund advances, transfers in, and transfers out? 30

31 Answer #4 Major Fund Determination Q&A : Interfund balances should not be eliminated, but if there are significant interfund receivables and payables, governments may adopt a policy (and use it consistently from year to year) to use a single net amount for each fund. Those changes would carry over to the respective total columns so that the governmental and enterprise fund totals would include the combined net amounts from the individual funds. In the fund operating statements, transfers in and transfers out are not included in the major fund calculation (revenues and expenditures/expenses) and do not affect the major funds determination because they are reported as other financing sources (uses). Interfund services provided and used are not distinguished from other revenues or expenditures/expenses 31

32 Question #4 Major Fund Determination QUESTION #4: If our Marina Fund meets the initial 10% criterion for one element (total assets plus deferred outflows of resources, liabilities plus deferred inflows of resources, revenues, or expenses/expenditures), and meets the 5% benchmark for a different element, do I present the Marina Fund as major? 32

33 Answer #4 Major Fund Determination Q&A : No. An individual governmental or enterprise fund is required to be reported as a major fund if it passes both the 10 percent and 5 percent tests for the same element 33

34 Question #4 Major Fund Determination The Accounting Manager prepared the following unadjusted balances for its enterprise funds for FYE 9/30/16 (prior to receiving FRS info for FY 16): Fund Type Assets Deferred Outflows of Resources Water & Sewer Solid Waste Liabiliites Deferred Inflows of Resources Revenues Expenses 12,520,045 1,173,568 5,305, ,232 8,350,638 8,235,173 4,402, ,562 2,162, ,578 3,025,527 2,586,702 Marina 953, , ,299 87, , ,212 Total 17,875,999 2,223,599 8,174, ,360 12,044,435 11,374,087 Gov t Funds 14,936,076 0 $1,924,134 $265,799 16,993,549 17,278,853 34

35 Answer #4 Major Fund Determination Fund Type Assets & Deferred Outflows of Resources Liabilities & Deferred Outflows of Resources Revenues Expenses Marina 1,128, , , ,212 10% of Total Enterprise 5% of Total Enterprise & Gov t Funds 2,009, ,707 1,204,444 1,137,409 1,751, ,850 1,451,899 1,432,647 Greater than 10% and 5%? NO NO NO NO 35

36 Question #4 Major Fund Determination The FRS/HIS pension information later became available and caused the following changes to the liabilities and deferred inflows of resources balances: Fund Type Assets Deferred Outflows of Resources Water & Sewer Solid Waste Liabiliites Deferred Inflows of Resources Revenues Expenses 12,520,045 1,173,568 5,816, ,535 8,350,638 8,235,173 4,402, ,562 2,293, ,710 3,025,527 2,586,702 Marina 953, , , , , ,212 Total 17,875,999 2,223,599 9,105,381 1,097,899 12,044,435 11,374,087 Gov t Funds 14,936,076 0 $1,924,134 $265,799 16,993,549 17,278,853 36

37 Answer #4 Major Fund Determination Fund Type Assets & Deferred Outflows of Resources Liabilities & Deferred Outflows of Resources Revenues Expenses Marina 1,128,690 1,118, , ,212 10% of Total Enterprise 5% of Total Enterprise & Gov t Funds 2,009,960 1,020,328 1,204,444 1,137,409 1,751, ,661 1,451,899 1,432,647 Greater than 10% and 5%? NO YES NO NO 37

38 Answer #4 Major Fund Determination Q Should the major fund test be done before or after yearend adjustments have been made? A Major funds should be determined based on the balances that are reported in the fund financial statements after yearend adjustments have been made. However, as a preliminary determination, it may be useful to apply the major fund criteria before adjustments so that the funds that are likely to be deemed major are identified as soon as possible in the financial reporting process. 38

39 Question #5 Software Purchase The City of Shere Khan is implementing a new HR system. This is a commercially available software product that captures and stores all pertinent information pertaining to each employee and interfaces with the City s payroll system to update any relevant wage and benefit changes to each employee on a bi-weekly basis. There were no upfront costs associated with acquiring this product. Rather, the City entered into a 5 year licensing agreement with the software provider. 39

40 Question #5 Software Purchase Over the 5 year agreement, the software company invoices the City on a quarterly basis. Details of each quarterly invoice include the following: Right to use = $22,500 Training and support services = $4,000 Ongoing system maintenance and upgrades = $5,700 The City is expensing the full amount when paid each quarter. Is this correct? If not, how should the City record the acquisition of the HR system and subsequent quarterly payments? 40

41 Question #5 Software Purchase What if this software product was in the cloud and the City pays for an annual subscription based on the number of users? Assume a $7,500 annual licensing fee, plus $500 per user annually (assume 12 employees have individual user accounts). How should the City account for these annual payments (due by 7/1 each year)? 41

42 Answer #5 5 Year Agreement Upon acquisition: DR: Computer software $450,000 CR: Liability $450,000 (Amortize over useful life of software) Upon invoice payment: DR: Liability $22,500 DR: Expense (training & support) $4,000 DR: Expense (maintenance) $5,700 CR: Cash $32,200 42

43 Answer #5 Annual Subscription Record an expense for each annual renewal for $13,500. Potentially record accrual or prepaid if billing cycle is not 10/1 9/30. GASB Cod. Sec b: expenditures by governmental funds for insurance or similar services that extend over more than one reporting period are not required to be allocated, but may be accounted for as expenditures in the period paid If the interperiod allocation method is used, a prepaid expenditure is reported in the asset section of the governmental fund balance sheet. 43

44 Answer #5 Software Research Z Q A government enters into a licensing agreement for computer software that will be considered internally generated. The payments made by the government to the vendor under the agreement are for multiple components, including the use of the software, development of modifications to meet the government s requirements prior to being put into operation, training for users of the software, routine systems maintenance, and rights to future upgrades and modifications. How should this agreement be accounted for? A In this circumstance, the outlays associated with the agreement should be allocated among all of the individual elements, and those elements should be accounted for based on the applicable guidance in Statement 51. For example, the outlays associated with the use of the software generally should be capitalized as part of the application development stage, and outlays associated with the training for users of the software and routine systems maintenance should be expensed as part of the postimplementation/operation stage of development. 44

45 Answer #5 Software Research Z Q Should commercially available computer software that is purchased or licensed by the government and placed into operation without modification requiring more than minimal incremental effort (that is, the computer software is not considered internally generated) be considered an intangible asset as described in Statement 51? A Yes. Commercially available computer software that is not considered internally generated computer software, whether purchased or licensed, generally will meet the description of an intangible asset in paragraph 2 of Statement

46 Answer #5 Software Research Z Q A government acquires commercially available computer software through a five year licensing agreement. Under the terms of the agreement, the government is required to make annual installment payments to the software vendor for the right to use the software over the life of the agreement. How should this transaction be reported? A As discussed in Question Z.51.1, in such circumstances, the government should report the licensed software as an intangible asset. A long-term liability representing the government s obligation to make the annual payments over the life of the contract also should be reported. The provisions of Statement 62, paragraphs , as amended, should not be applied to determine the financial reporting for such a licensing agreement, even if the agreement is referred to as a lease, because the provisions of Statement 62 do not apply to licensing agreements. 46

47 Question #6 Property Tax Revenues Cruella de Vil County taxpayers may choose to pay their taxes through a quarterly Installment Payment Plan. To qualify for the plan, the taxpayer must be current on their taxes and their prior year taxes must exceed $ Taxpayers must complete and return the Installment Payment Plan Application no later than May 1. 47

48 Question #6 Property Tax Revenues The first and second installments are based on ¼ of the previous year s taxes. The third and four installments are ½ of the remaining actual tax liability for the current year. 1st Installment ¼ of the total estimated taxes discounted at 6%. Payment due June 30. 2nd Installment ¼ of the total estimated taxes discounted at 4.5%. Payment due September 30. 3rd Installment ¼ of the total estimated taxes plus ½ of the adjustment for actual tax liability discounted at 3%. Payment due December 31st. 4th Installment ¼ of the total estimated taxes plus ½ of the adjustment for actual tax liability. Payment due March 31st. 48

49 Question #6 Property Tax Revenues Cruella de Vil County Tax Collector remitted $431,250 to the City of Gaston on 11/10/16 relating to June 2016 and September 2016 installment payments. What if TC remitted this amount to City of Gaston by September 30, 2016? Also, Cruella de Vil County Tax Collector distributed excess fees to the City totaling $162,558 on 11/25/16. How should these transactions be accounted for? 49

50 Answer #6 Property Tax Revenues GASB 33: Revenue Recognition - Imposed nonexchange transactions Report as revenue when resources are required to be used or first period that use is permitted Report deferred inflows of resources for resources received or reported as a receivable before such period Under modified accrual basis of accounting, report deferred inflows of resources for resources that do not meet the availability criteria 50

51 Answer #6 Property Tax Revenues Tax Collector commissions are expenses rather than adjustments to revenues. Excess fee distributions represent adjustments to those commission expenses. 51

52 QUESTIONS? I hope you enjoyed another rendition of Advanced Government Accounting for the FGFOA School of Government Finance 52

53 Andrew Laflin, CPA Principal CLAconnect.com linkedin.com/company/ cliftonlarsonallen facebook.com/ cliftonlarsonallen twitter.com/claconnect 53