Financial Reporting Various Chancellor’s Office Presenters April 22, 2015

Learning Objective To provide participants with an overview of the CSU’s reporting processes, inclusive of: State legal-basis reporting GAAP-basis reporting State GAAP-basis reporting April 2015Year-End New Employee Training2

Overview of Financial Reporting Reporting cycle begins with closure of the June 30 legal–basis accounts on or about July 15 Three phases of financial reporting: State legal-basis reporting – campus submission date to SCO generally July 31 GAAP consolidated reporting for external users of financial information (e.g. bond holders) – audited financial statements issue date generally October 15 State GAAP reporting – submission of selected consolidated financial data to SCO generally November 1 April 2015Year-End New Employee Training3

Presenters State Legal-Basis Reporting/State GAAP Reporting Roberta McNiel, CPA Senior Manager, Financial Systems/Statutory Reporting GAAP-Basis Reporting Sheralin Klinthong, CPA Associate Director, Financial Reporting and Review Alice Kim, CPA Senior Manager, CO Financial Services, Accounting April 2015Year-End New Employee Training4

State Legal-Basis Reporting What is legal-basis reporting? April 2015Year-End New Employee Training5

State Legal-Basis Reporting (cont.) A method of accounting and reporting unique to governmental agencies. Allows the state legislature to measure a state agency’s performance against the budgets it enacts. NOT GAAP April 2015Year-End New Employee Training6

State Legal-Basis Reporting (cont.) Modified accrual basis of accounting Revenues are recognized in the accounting period in which they become available and measurable. (Note: full accrual basis of accounting – GAAP – requires recognition when revenue is earned.) Expenditures are recognized in the accounting period in which the fund liability is incurred, measurable, and expected to be paid within twelve months. (Note: full accrual basis of accounting – GAAP – requires recognition of expenses when they are incurred.) Modified accrual basis of accounting is not the same as cash- basis accounting. April 2015Year-End New Employee Training7

State Legal-Basis Reporting (cont.) In which chapter of the CSU Legal and Reporting Manual can you find more information about CSU’s reporting structure? April 2015Year-End New Employee Training8

State Legal-Basis Reporting (cont.) Chapter 1, General Information April 2015Year-End New Employee Training9

State Legal-Basis Reporting (cont.) As an agency of the State of California, the CSU is obligated to comply with the state’s reporting requirements as set forth in the State Administrative Manual (SAM) §7951. Obligation met through submission of prescribed reports to the State Controller’s Office (SCO) prepared on the legal-basis of reporting. April 2015Year-End New Employee Training10

State Legal-Basis Reporting (cont.) Reporting is accomplished through a combination of an electronic transmission of data and submission of hard copy reports. Electronic file is referred to as the SAM 99 file. Satisfies data needs of certain key required reports for governmental funds (primarily the General Fund and general obligation bond capital outlay funds). Specified hard copy reports are prepared by each campus for governmental funds and are mailed to the SCO, usually by July 31. April 2015Year-End New Employee Training11

State Legal-Basis Reporting (cont.) In which chapter of the CSU Legal and Reporting Manual can you find more information about state legal-basis reporting? April 2015Year-End New Employee Training12

State Legal-Basis Reporting (cont.) Chapter 5, SCO Reporting Specifically see Section for instructions on the submission of SAM 99. April 2015Year-End New Employee Training13

State Legal-Basis Reporting (cont.) Key hard copy reports include: Report 14, Report of Accounts Outside the State Treasury Report 22, Statement of contingent Liabilities Explanations of Abnormal Balances Due To/From Other Funds/Other Appropriations Supplemental Form Material Variance Explanation Form April 2015Year-End New Employee Training14

State Legal-Basis Reporting (cont.) Report 14, Report of Accounts Outside the State Treasury Purpose: To report state money held by financial institutions outside the state treasury system. Appendix 14 of the CSU Legal Accounting & Reporting Manual provides the template and completion instructions. Things to know: Identify at the top of the form all tax identification numbers under which accounts were OR could be established. List zero balance account held at Wells Fargo and the pooled investment account (SWIFT) held at U.S. Bank. April 2015Year-End New Employee Training15

State Legal-Basis Reporting (cont.) Report 14, Report of Accounts Outside the State Treasury (cont.) Things to know (cont..) List any other account(s) opened by the campus (e.g. escrow). Indicate the specific statutory authority for establishing the account. The Wells Fargo and U.S. Bank accounts are authorized under the Education Code § If there is no specific statutory authority, cite the Department of Finance approval and date approval received, attaching a copy of the approval letter. April 2015Year-End New Employee Training16

State Legal-Basis Reporting (cont.) Report 14, Report of Accounts Outside the State Treasury (cont.) Things to know (cont..): Report book balance, not the balance on the bank statement. Report for each account if the balance requires collateralization or if collateralization is not required. Collateralization is not required for the zero balance account (Wells Fargo), the pooled investment account (U.S. Bank) and escrow accounts. Report cash held on behalf of an auxiliary. April 2015Year-End New Employee Training17

State Legal-Basis Reporting (cont.) Report 14, Report of Accounts Outside the State Treasury (cont.) Things to know (cont..): Do not report cash-on-hand balances, amounts on deposit with non-financial institutions (e.g. Pitney Bowes) or accounts closed in prior years. Must be signed by the Vice President of Administration and Finance or a higher official. April 2015Year-End New Employee Training18

State Legal-Basis Reporting (cont.) Report 14, Report of Accounts Outside the State Treasury (cont.) Distribution: Original to State Treasurer’s Office Hard copy to SCO Electronic copy to SCO April 2015Year-End New Employee Training19

State Legal-Basis Reporting (cont.) Report 22, Statement of contingent Liabilities Purpose: To disclose estimated liabilities exceeding $300 million, such as pending litigation. Prepared only for a state fund for which such liabilities are identified. Appendix 16 of the CSU Legal Accounting and Reporting Manual provides the template and completion instructions. Things to know: The liabilities subject to disclosure are not recorded in the campus books. Include a campus-assigned reference for each listed contingent liability. April 2015Year-End New Employee Training20

State Legal-Basis Reporting (cont.) Report 22, Statement of contingent Liabilities (cont.) Things to know (cont.): Review by CSU general counsel not needed. Distribution: Hard copy to SCO for each governmental fund to which it pertains. April 2015Year-End New Employee Training21

State Legal-Basis Reporting (cont.) Explanations of Abnormal Balances Purpose: To provide written explanations for abnormal general ledger account balances. Appendix 22 of the CSU Legal Accounting & Reporting Manual provides an optional template and the completion instructions. Things to know: Draft explanations in clear, concise language. Distribution: Hard copy to SCO for each governmental fund to which it pertains. April 2015Year-End New Employee Training22

State Legal-Basis Reporting (cont.) Due To/From Other Funds/Other Appropriations Supplemental Form Purpose: To provide the SCO with the organization code associated with transactions reported in state general ledger account numbers 1410XXXX, Due from Other Funds, 3114XXXX, Due to Other Funds (where XXXX is the state fund from which monies are being paid or to which the funds are being sent). Appendix 17 of the CSU Legal Accounting & Reporting Manual provides the template and the completion instructions. April 2015Year-End New Employee Training23

State Legal-Basis Reporting (cont.) Due To/From Other Funds/Other Appropriations Supplemental Form (cont.) Things to know: Required for every governmental fund included in the SAM 99 where due to/from transactions have been recorded. Form is required even though the transactions net to zero within the CSU or campus. Where the transaction is between state funds at the campus, report the organizational code of the campus. April 2015Year-End New Employee Training24

State Legal-Basis Reporting (cont.) Due To/From Other Funds/Other Appropriations Supplemental Form (cont.) Things to know: Where the transaction is between campuses, report the organizational code of the campus to which or from which an amount is due. Distribution: Hard copy to SCO Electronic copy to SCO April 2015Year-End New Employee Training25

State Legal-Basis Reporting (cont.) Material Variance Explanation Form Purpose: To explain reason(s) for variances in the balances of (1) expenditures, (2) revenue, (3) transfers in and (4) transfers out between the prior and current years which are $1 million or more and are 10% or more. Appendix 21 of the CSU Legal Accounting & Reporting Manual provides the template and the completion instructions. April 2015Year-End New Employee Training26

State Legal-Basis Reporting (cont.) Material Variance Explanation Form (cont.) Things to know: Required for every governmental fund included in the SAM 99 electronic file and state funds 0890 and 0942 (but only if the campus uses these two funds). Required to be completed in its entirety, even if the variances do not meet the required thresholds for explanation. Leave explanation sections blank if the thresholds not reached. April 2015Year-End New Employee Training27

State Legal-Basis Reporting (cont.) Material Variance Explanation Form (cont.) Distribution: Hard copy to SCO. April 2015Year-End New Employee Training28

State Legal-Basis Reporting (cont.) Certifications Purpose: To provide assurance to the SCO that the data provided in both the SAM 99 electronic file and the hard copy reports are accurate. Certifications are signed by the campus Vice President, Administration & Finance, under the penalty of perjury. Appendix 7 of the CSU Legal Accounting & Reporting Manual provides the templates, one for governmental funds and one for non-governmental funds, and the completion instructions. April 2015Year-End New Employee Training29

State Legal-Basis Reporting (cont.) Certifications (cont.) Things to know: Must include a complete list of hard copy reports that could be filed with an indication of whether they are enclosed or not applicable. Reports 18 and 19 (on General Fund certification only) must be listed with the comment “Not required per CSA [California State Auditor] and SCO”. Since Report 14 is not fund specific, assurance concerning its contents is provided on the General Fund certification. April 2015Year-End New Employee Training30

State Legal-Basis Reporting (cont.) Certifications (cont.) Things to know: Certification must include: o Campus name and organization code o Fund name and number o contact name, phone number and address o Name and address of the campus President and Vice President, Administration & Finance. This information is required no matter who signs the certification. April 2015Year-End New Employee Training31

State Legal-Basis Reporting (cont.) Certifications (cont.) Distribution: Signed hard copy to SCO for each state fund included in SAM 99 and for which hard copy reports are being provided. April 2015Year-End New Employee Training32

State Legal-Basis Reporting (cont.) We have covered the reporting requirements for governmental funds. What are the requirements for non-governmental funds? April 2015Year-End New Employee Training33

State Legal-Basis Reporting (cont.) Actually, the reporting requirements for non- governmental funds are exactly the same as for governmental, except that the reports are prepared on a consolidated basis. The CO, not the campus, prepares and submits to the SCO the reports for non-governmental funds based on data campuses have uploaded to FIRMS. April 2015Year-End New Employee Training34

State Legal-Basis Reporting (cont.) In addition to the data the CO extracts from FIRMS to prepare the consolidated non-governmental funds reports, what are the 3 supporting schedules the CO requires from campuses to complete those reports? April 2015Year-End New Employee Training35

State Legal-Basis Reporting (cont.) Non-governmental Fixed Assets Template (Appendix 11) Report 22, Statement of contingent Liabilities (Appendix 16) Due To/From Other Funds/Appropriations Supplemental Form (Appendix 17) These 3 forms, prepared for non-governmental funds, are submitted to the CO, not the SCO. April 2015Year-End New Employee Training36

State Legal-Basis Reporting (cont.) Non-governmental Fixed Assets Template Data provided used to fulfill the SCO’s requirement to associate fixed assets with the original funds that financed the acquisitions. Template requires provision of cost and accumulated depreciation for tangible and intangible assets by specified non-governmental fund. April 2015Year-End New Employee Training37

State Legal-Basis Reporting (cont.) Report 22, Statement of contingent Liabilities Same form as discussed at slides 21 – 22. Required for each non-governmental fund to which it pertains For purposes of this submission, there is no reporting threshold. April 2015Year-End New Employee Training38

State Legal-Basis Reporting (cont.) Due To/From Other Funds/Appropriations Supplemental Form Same form as discussed at slides 24 – 26 for interagency transactions recorded by the campus as of June 30; separate template at Appendix 17 for unrecorded interagency transactions. Frequently pertains to state fund 0948 and includes transactions not only within the CSU, but between the CSU and other state agencies. Regarding unrecorded transactions in non-governmental funds: o CO will report the transactions to the SCO. o CO will solicit interagency transaction information from the Department of Justice (DOJ) and will report the accrual to the SCO. Campuses should not record the accrual as of June 30. April 2015Year-End New Employee Training39

State Legal-Basis Reporting (cont.) Due To/From Other Funds/Appropriations Supplemental Form Regarding unrecorded transactions in non-governmental funds (cont.): o For interagency transactions with all other state agencies, complete the Unrecorded Transactions tab at Appendix 17. Include:  Name and organization code of other state agency  contact information for other state agency  Amount due to or due from the other state agency  State fund in which the other state agency is recording the transaction. April 2015Year-End New Employee Training40

State Legal-Basis Reporting (cont.) Confused???!!!???!!! Appendix 13, Legal Reports Submission Checklist, in the CSU Legal Accounting & Reporting Manual provides a summary of required reports and where they go. Also provides addresses of recipient agencies. April 2015Year-End New Employee Training41

State Legal-Basis Reporting (cont.) Questions??? April 2015Year-End New Employee Training42

GAAP Reporting What is GAAP reporting? April 2015Year-End New Employee Training43

GAAP Reporting The legal basis of accounting (modified-accrual basis) required by the State of California is not consistent with the U.S. generally accepted accounting principles (GAAP) which is full-accrual basis. GASB Statement No. 34 Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments, and GASB Statement No. 35, Basic Financial Statements – and Management Discussion and Analysis – for Public Colleges and Universities, redefined the accounting and reporting requirements for public universities like the CSU. April 2015Year-End New Employee Training44

GAAP Reporting (cont.) Government Code Section (c) eliminated the requirement for campus stand-alone financial statements beginning fiscal year As a public university, the CSU has been directed to follow the reporting guidance for special-purpose governments engaged only in business-type activities. The basic financial statements and required supplementary information consists of the following: a.Management's Discussion and Analysis (MD&A) b.Basic Financial Statements  Statement of Net Position (balance sheet)  Statement of Revenues, Expenses, and Changes in Net Position (income statement)  Statement of Cash Flows  Notes to the Financial Statements c.Supplementary Information (financial statements of the 23 campuses) April 2015Year-End New Employee Training45

GAAP Reporting (cont.) The basic financial statements include the 23 campuses and the Office of the Chancellor reported under the “University” column and 92 discretely presented component units (University-related recognized auxiliary organizations) reported under “Discretely Presented Component Units” column. In order to prepare financial statements in accordance with GAAP, a conversion process from legal-basis to GAAP-basis is necessary. The CSU GAAP Accounting and Reporting Manual is designed to take the user through this process. Here is the link to the Manual: The audited financial statements are posted on the SFSR webpage, here is the link: April 2015Year-End New Employee Training46

GAAP Reporting (cont.) April 2015Year-End New Employee Training47 What is CSU’s tool to provide guidance in the conversion of legal basis to GAAP reporting?

GAAP Reporting (cont.) GAAP Manual Structure: April 2015Year-End New Employee Training48 Legal to GAAP Conversion 1 – Overview 2 – Before You Begin 3 – Mapping 4 – GAAP Adjustments 5 – Passdown 6 – SCF 7 – YES (TM1) 10 & 11 – Checklists 13 – Capital Assets Guide Preparation for Audits 9 – Financial Statements Audit 11 – Single Audit 16 – SRB Audit 17 – IT Audit Others 8 – Discretely Presented Component Units 12 – NCAA AUP Reporting 14 – GASB Updates 18 – SCO GAAP Submission

GAAP Reporting (cont.) Master Timeline April 2015Year-End New Employee Training49

GAAP Reporting (cont.) Preparation Timeline (from campus perspective) April 2015Year-End New Employee Training50 Review/ Update PY’s audit issues Reverse GAAP adjustment Jan –May Preparation Fix issues (Legal/GAAP mapping) June - July GAAP Derivation Leadsheet Footnotes GAAP adjustment s July 15-Aug 15 Prepare PBC List TM 1 Submit PBCs on the SharePoint August 23- Sep 5 Update TM1

GAAP Reporting (cont.) PBC (Prepared by Client) List can be found in the SFSR website April 2015Year-End New Employee Training51

GAAP Reporting (cont.) April 2015Year-End New Employee Training52

GAAP Reporting (cont.) GAAP Adjustments and Reclassification Resources: GAAP manual Chapter 4-GAAP adjustments and reclassification Permanent adjustments Required to reflect for GAAP reporting purposes accounting activity that is always recorded differently, not at all, or only under the legal basis of accounting. Such adjustments may result in a change to net position. An example of a permanent adjustment is depreciation. Examples: Reclassifications and Eliminations April 2015Year-End New Employee Training53

GAAP Reporting (cont.) GAAP Adjustments and Reclassification Timing Adjustments (set as reversal) Required for accounting activity that is recorded under the legal basis of accounting as well as under GAAP basis, but at different times. Such adjustments typically result in the creation of an accrued asset and/or liability and probably a change in net position. Their effect must be reversed next year in the process of deriving legal activity to GAAP basis activity Examples: Accounts Payable Accrual entries April 2015Year-End New Employee Training54

GAAP Reporting (cont.) Required ChartFields for GAAP entries Resource: CSU GAAP manual chapter “MAPPING LEGAL BASIS ACCOUNTS TO GAAP REPORTING MODEL” April 2015Year-End New Employee Training 55 AccountFundProgramClass RULEGAAP Account Net Position Category Program Code CSU Fund Example

GAAP Reporting (cont.) April 2015Year-End New Employee Training 56

GAAP Reporting (cont.) April 2015Year-End New Employee Training 57

GAAP Reporting (cont.) April 2015Year-End New Employee Training 58

GAAP Reporting (cont.) Create GAAP Adjustment Journal entries (Chancellor Office’s model) Business Unit: COGAP Journal ID: assigned CYxxxx Date: 6/30/20CY Long Description: Preparer Initial – Journal Description Source: GPA Journal Class: ADJ Period: Adjusting Period 998 Reversal (if reversing): Adjustment Period with 7/1/FY date April 2015Year-End New Employee Training59

GAAP Reporting (cont.) April 2015Year-End New Employee Training60 Example of GAAP entries

GAAP Reporting (cont.) April 2015Year-End New Employee Training61 What is program code of Cash and Cash Equivalent GAAP account (711101)?

GAAP Reporting (cont.) Create PBC 46 Cash Leadsheet utilizing CFS data warehouse FIRMS-GAAP→ FIRMS Summary (3 Columns) Report Filters: Fiscal Year 2013 Period: 12 FOC: & (which includes both cash and cash equivalents, current and non-current) April 2015Year-End New Employee Training62

April 2015Year-End New Employee Training63 PBC 46 Cash Leadsheet – Legal Balance

FIRMS-GAAP→ GAAP Actuals Report Filters: Fiscal Year 2013 Period: Acct: & (which includes both cash and cash equivalents, current and non-current) April 2015Year-End New Employee Training64 PBC 46 Cash Leadsheet – GAAP ADJ

April 2015Year-End New Employee Training65 PBC 46 Cash Leadsheet – GAAP ADJ

Populate data results(Legal balance and GAAP ADJs) on Cash Leadsheet to be submitted to KPMG as PBC 46 But FIRST! Tie it out… Lead Sheet Summary (Report CSUFS167) April 2015Year-End New Employee Training66 PBC 46 Cash Leadsheet – GAAP ADJ

April 2015Year-End New Employee Training67 PBC 46 Cash Leadsheet

GAAP Reporting (cont.) Passdown Journal Entries / Information The entries or information provided relate to transactions managed centrally by the CO that are either not in the campus’ legal-basis accounting records or have been recorded by the campus on a legal basis, but which need to be reclassified for GAAP basis reporting. Below is a list of passdown schedules available to campuses: a.SRB related journal entries b.Investment Held by CO c.Capital Outlay Allocation d.State Appropriation Revenue, Non-Capital e.CSU Forward Purchases f.Transaction with Related Parties g.Investment Pool h.Other Post –Employment Benefits i.Pension Obligation April 2015Year-End New Employee Training68

GAAP Reporting (cont.) YES (TM1) Reporting Package The YES reporting package is a comprehensive financial statements template using TM1 application database for data collection. It consists primarily of input sheets for the basic financial statements and underlying footnotes for both campuses and discretely presented component units. Refer to Chapter 7 of the GAAP manual for the accessibility, input sheets, reporting package generation, and standard practices. These are consolidated to generate the SW financial statements. This is also submitted to KPMG as PBC001. April 2015Year-End New Employee Training69

GAAP Reporting (cont.) Submission of PBCs in SharePoint This is the centralized repository of all Prepared By Client (PBC) schedules for purposes of the SW F/S audit, Single Audit, and SRB Audit. Below is the link to past training presentation discussing the access and navigation of the SharePoint site. No confidential information should be uploaded to this site. April 2015Year-End New Employee Training70

GAAP Reporting (cont.) April 2015Year-End New Employee Training71 Where is the centralized location for PBC schedules?

GAAP Reporting (cont.) The Systemwide Financial Standards and Review (GAAP) at the CO oversees the GAAP reporting process and external audits (i.e. financial statements and single audits). Webpage: SFSR GAAP Team contact List: April 2015Year-End New Employee Training72 Sedong JohnDirector Sheralin KlinthongAssociate Director Evajoy TitoManager Criselle EspirituFinancial Reporting Analyst Su ChenFinancial Reporting Analyst

SCO GAAP Reporting Like the CSU, the state issues its form of GAAP-based financial statements, referred to as the Comprehensive Annual Financial Report or CAFR. The CSU and the State of California employ entirely different GAAP reporting models. The CSU uses the business-type activities (or BTA) model, which consolidates all fund activities; the state uses a reporting model that distinguishes between governmental and business-type activities, requiring the CSU to provide them with financial data at the state fund level. The state uses the CSU’s audited consolidated financial statements in its preparation of the CAFR, but requires certain elements of those statements to be broken down by state fund. April 2015Year-End New Employee Training73

SCO GAAP Reporting (cont.) Where does the guidance regarding SCO GAAP reporting reside? April 2015Year-End New Employee Training74

SCO GAAP Reporting (cont.) In Chapter 18 of the GAAP Manual. The chapter details the purpose of the various templates used to collect the fund data required by the state and includes the actual templates. April 2015Year-End New Employee Training75

SCO GAAP Reporting (cont.) Can you name some of the 8 templates campuses are required to submit to the CO? April 2015Year-End New Employee Training76

SCO GAAP Reporting (cont.) They are: Legal to GAAP Reconciliation (for governmental funds) Reconciliation of Due To/From Accounts Reconciliation of Transfers Capital Assets and Accumulated Depreciation Worksheet/Depreciation Expense Schedule Pollution Remediation Obligations Detail Breakdown of Statement of Cash Flows Calculation of Net Investment in Capital Assets Other Liabilities Detail April 2015Year-End New Employee Training77

SCO GAAP Reporting (cont.) The first 5 schedules listed on the previous slide are in Excel format and are submitted to the CO at the State Reporting SharePoint site. The last 3 schedules listed on the previous slide reside in TM1 and are completed by campuses in that application. April 2015Year-End New Employee Training78

SCO GAAP Reporting (cont.) Each template is accompanied by a set of detailed instructions. Instructions for the TM1 schedules can be found in Chapter 18. The instructions for each template indicate what the data must tie to (generally numbers reported in FIRMS and TM1). April 2015Year-End New Employee Training79

SCO GAAP Reporting (cont.) What does the CO do with all this data? It is consolidated, reconciled to the audited financial statements and submitted to the state for incorporation into the CAFR. April 2015Year-End New Employee Training80

SCO GAAP Reporting (cont.) Questions???? April 2015Year-End New Employee Training81

Financial Reporting Sheralin, Alice and I thank you for attending this session and hope you found it valuable. Don’t hesitate to contact us if you have questions after returning to your campus. Sheralin Klinthong, Alice Kim, Roberta McNiel, April 2015Year-End New Employee Training82

April 2015Year-End New Employee Training83