Preparing your Financial Picture

Transcription

1 Preparing your Financial Picture Kristi Krafft-Bellsky, CPA Lansing, MI March 6, 2019 OFFICES THROUGHOUT MICHIGAN yeoandyeo.com 1 Objectives To understand the basics of governmental reporting and GASB34 To understand what to include in your MD&A To become familiar with the government-wide basis of accounting To know the different fund definitions, examples of each, and their basis of accounting 2 1

2 Objectives To understand the basic financial statements and the relation to the chart of accounts To provide tips on how to prepare for your auditor To provide review tips when looking at your draft audit report 3 Understanding GASB34 OFFICES THROUGHOUT MICHIGAN yeoandyeo.com 4 2

3 GASB34 Financial Statements Management discussion & analysis (MD&A) Government-wide financial statements Statement of net position Statement of activities Fund financial statements Notes to the financial statements Required supplementary information Budgetary comparison schedules 5 GASB34 Financial Statements 6 3

4 GASB34 Financial Statements 7 GASB34 Method to the Madness Assess the finances of the government in its entirety, including the year's operating results Determine whether the government's overall financial position improved or deteriorated Evaluate whether the government's currentyear revenues were sufficient to pay for current-year services See the cost of providing services to its citizenry 8 4

5 GASB34 Method to the Madness See how the government finances its programs through user fees and other program revenues versus general tax revenues Understand the extent to which the government has invested in capital assets, including roads, bridges, and other infrastructure assets Make better comparisons between governments 9 GASB34 MD&A Financial managers asked to share their insights in a required management's discussion and analysis (referred to as MD&A) Gives readers an objective and easily readable analysis of the government's financial performance for the year Provide users with the information they need to help them assess whether the financial position has improved or deteriorated as a result of the year's operations 10 5

6 GASB34 Government-wide Statements Prepared using accrual accounting for all of the government's activities Most governmental utilities and private-sector companies use accrual accounting Measures not just current assets and liabilities but also long-term assets and liabilities capital assets and general obligation debt Reports all revenues and all costs of providing services each year, not just those received or paid in the current year or soon after year-end 11 GASB34 Purpose of Fund Statements To measure and report the "operating results" of many funds by measuring cash on hand and other assets that can easily be converted to cash Statements show the performance in the short term of individual funds using the same measures that many governments use when financing their current operations 12 6

7 GASB34 Budgetary Comparison General and special revenue funds require budgets to be presented Must be presented at a minimum as required supplementary information (RSI) by major fund 13 Management s Discussion and Analysis OFFICES THROUGHOUT MICHIGAN yeoandyeo.com 14 7

8 MD&A Unaudited Focus on current year activities compared to the prior year Meant to be in basic terminology for the general public to understand Describes the accompanying financial statements in summary form and how they relate to each other. 15 MD&A Requirements include: Total assets, distinguished between capital and other Total liabilities, distinguished between long-term liabilities and other Total net assets distinguished between: Amounts invested in capital assets, net of related debt Restricted amounts Unrestricted amounts 16 8

9 MD&A Requirements include: Program revenues, by major source General revenues, by major source Total revenues Excess (deficiency before contributions to endowments, special and extraordinary items and transfers Contributions Special/Extraordinary items Transfers Change in net assets Ending net assets 17 MD&A Additional information: Describe to the reader of the financial statements any known situations that would have an impact on future operations Any additional information deemed valuable 18 9

10 District-Wide Statements OFFICES THROUGHOUT MICHIGAN yeoandyeo.com 19 District-Wide Financials Statement of net position Statement of activities Total economic resources measurement focus Accrual basis Governmental funds have to be adjusted to reflect full accrual rather than modified accrual Reconciliation of fund balances governmental funds Reconciliation of changes in fund balances governmental funds 20 10

11 Statement of Net Position 21 Statement of Net Position 22 11

12 Statement of Activities 23 Reconciliation of Statements Because of the different basis of accounting, a summary reconciliation is required to explain the differences Data reported in the governmental fund statements is reconciled to data reported in the governmental activities of the districtwide statements 24 12

13 Assets Includes all assets from district s fund balance sheet Plus adjustments for reconciling items, such as Capital assets Possible other assets Due from other funds (such as lunch fund) is not reported Due from agency funds is reported, when applicable 25 Deferred outflows of resources Definition-A deferred outflow of resources is a consumption of net assets by the government that is applicable to a future reporting period Example related to schools Deferred amount on bond refunding-when refunding resulted in an asset Deferred amounts relating to net pension or OPEB liabilities Items to watch on refunding bond reporting deferral on refunding should not be netted with the unamortized premium/discount on bond deferral on refunding is not part of the other long-term obligations footnote 26 13

14 Liabilities Includes all liabilities from district s fund balance sheet Plus adjustments for reconciling items, such as Accrued interest Long-term liabilities -compensated absences, retirement incentives, payables (bonds, notes, capital leases), school bond loan payable Accrued interest should be reported separately if material in the footnotes Due to other funds (such as lunch fund) is not reported Due to agency funds is reported, when applicable 27 Deferred inflows of resources Definition-A deferred inflow of resources is an acquisition of net assets by the government that is applicable to a future reporting period Examples related to schools Deferred amount on debt refunding-when refunding resulted in a liability Deferred amounts relating to net pension or OPEB liabilities Does not include deferred inflows of resources from the district s fund balance sheet 28 14

15 Deferred inflows of resources For schools, deferred inflows are the district s unavailable revenue, or revenue they have earned, but not collected within 60 days of year-end Such as-state shared revenue, special assessments, grants received, or property taxes Unavailable revenue is reported on the fund statements as A/R & deferred inflows, on the district wide statement there is a reconciling adjustment, so the amount is only reported as A/R Deferred inflows are not unearned revenue which is reported in the liabilities section of both statements 29 Net Position There are three components to net position 1. Net investment in capital assets 2. Restricted Broken out between major categories 3. Unrestricted 30 15

16 Net Investment in Capital Assets Calculation of net investment in capital assets Capital assets, net of accumulated depreciation Plus deferred outflows related to capital assets Less outstanding balances on debt related to capital assets Less deferred inflows related to capital assets Plus unspent debt proceeds (which needs to exclude issuance costs and any reserved funds) 31 Net Position-Restricted and Unrestricted The restricted balance needs to be calculated for any funds with a specific purpose Examples - Food service, debt service, capital projects, and any others Restricted amounts needs to include the TOTAL fund balance on the district s fund balance sheet, not just the amount on the restricted balance line Capital projects if the entire fund balance is unspent bond proceeds these are not treated as restricted The unrestricted balance represents what's left after the amounts for net investment in capital assets and restricted balances are calculated It can be negative and likely is 32 16

17 Fund Statements OFFICES THROUGHOUT MICHIGAN yeoandyeo.com 33 Fund Statements Definition of a fund A self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein Segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations 34 17

18 Governmental Funds General Special revenue Debt service Capital projects Permanent 35 Governmental Fund Statements Balance sheet Statement of revenues, expenditures, and changes in fund balances Current financial resources measurement focus Modified accrual basis 36 18

19 Government Fund Statements Increases and decreases in financial resources only to the extent they reflect near-term inflows or outflows Revenue recognition earned and collectible within the period or soon enough to pay liabilities for the current period (typically 60 days) Liability recognition in general, long-term liabilities (including current portion of longterm) are recorded when due; short-term liabilities are recorded when incurred 37 Balance Sheet 38 19

20 Balance Sheet 39 Reconciliation BS to STNP 40 20

21 Statement of Rev, Exp, and Change in FB 41 Statement of Rev, Exp, and Change in FB 42 21

22 Reconciliation STRECFB to STA 43 Fund Balance in the Governmental Funds 5 categories to fund balance 1. Non-spendable-assets that are not available in a spendable form -Inventory, pre-paid expenses 2. Restricted-amounts required by external parties to be used for a specific purpose -debt funds, lunch funds, capital projects funds 3. Committed-amounts constrained on use imposed by the district -school board resolution to move a set percentage from one fund to another 4. Assigned-amounts intended to be used for specific purpose -future year budgeted deficit, capital project- specific future purpose, replace football field 5. Unassigned-remaining balance after above are removed 44 22

23 Deferred Inflows/Outflows of Resources Deferred outflows of resources Consumption of net assets by the government that is applicable to a future reporting period Deferred inflows of resources Acquisition of net assets by the government that is applicable to a future reporting period 45 Other Types of Funds Proprietary Funds Internal service Fiduciary Funds Private-purpose trust Agency 46 23

24 Internal Service Fund Full accrual Often used for insurance and compensated absences Monitor the Net Position- it should not get too high. This would be an indication that programs are overcharged for services run through the ISF 47 Fiduciary Fund Statements Statement of fiduciary net position Statement of changes in fiduciary net position Total economic resources measurement focus Accrual basis Similar to for-profit 48 24

25 Fiduciary Fund Statements 49 Major Funds Major fund Separate column on the basic financial statements We report on each individual major fund Governmental funds > 10% assets, liabilities, revenue, expenditures for all governmental funds Enterprise funds > 10% assets, liabilities, revenue, expenditures for all enterprise funds 50 25

26 Chart of Accounts OFFICES THROUGHOUT MICHIGAN yeoandyeo.com 51 Chart of Accounts Mandated state chart of accounts summarized into financial statement lines Assets and Liabilities General fund presented separately Non-major funds summarized in one column Revenues summarized by source Local, state, federal, and inter-district Expenses summarized by function Education, capital outlay, debt service Other financing sources and uses 52 26

27 Notes to the Financial Statements OFFICES THROUGHOUT MICHIGAN yeoandyeo.com 53 Disclosures Many required disclosures Read through last year s notes Are there any changes Do you know where each number comes from? ASBO has a checklist that can be utilized: ng/awards/coe/coe-checklist.pdf 54 27

28 Required Supplementary Information OFFICES THROUGHOUT MICHIGAN yeoandyeo.com 55 RSI Budget to actual results for major funds required to have a budget Information relating to Net Pension Liability Information relating to OPEB liability 56 28

29 RSI 57 RSI 58 29

30 RSI 59 RSI 60 30

31 RSI 61 RSI 62 31

32 What s in it for you? OFFICES THROUGHOUT MICHIGAN yeoandyeo.com 63 Benefits to You! Client focus is fund basis Books kept on the fund basis Many Districts request help from auditors to develop the District Wide statements HOWEVER 64 32

33 Benefits to You! Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. 65 Benefits to You! Long-term strategic planning tool Full picture of the financial position of the district Comparability to for-profit entities and users who are more familiar with accrual accounting 66 33

34 Tips for reviewing a draft audit report OFFICES THROUGHOUT MICHIGAN yeoandyeo.com 67 How to review Start with the Fund level financial statements Do they agree to your general ledger Ask for a grouping schedule does anything look miscoded Look for any potential FID issues Look at your original and final budget compared to the RSI Does it balance? 68 34

35 How to review Look at the reconciliation statements Do you know where each number came from Do they agree to your records 69 How to review Look at the District Wide Statements Do you know where those amounts came from? Do they agree to your disclosures Do they agree to your MD&A 70 35

36 How to review Look at RSI schedules Do they look reasonable compared to known district information Did you help calculate the figures, or did that auditors assist based on information provided? 71 How to review Look at Notes to the Financial Statements Do you know where each of those figures came from? Do they agree to the financial statements? Are there any subsequent events to disclose? 72 36

37 Questions??? Kristi Krafft-Bellsky, CPA Principal OFFICES THROUGHOUT MICHIGAN yeoandyeo.com 73 37