GASB 54 Fund Balance Reporting and Governmental Fund Type Definitions Marcie Handy, CPA December 9, 2010

Overview Division of Finance – Financial Reporting GASB Statement 54 GASB Statement 54and GASB 54 – Specific Issues Addressed by the State

Division of Finance Organization Department of Administrative Services Division of Finance Payroll Financial Information Systems Disbursements Administrative Financial Reporting

Financial Reporting Section Financial Reporting Group Financial Transactions Group

Financial Reporting Specific Duties/Areas of Expertise Fixed Assets Accounts Receivables/Revenues Federal Single Audit Cash Monitoring Loan Servicing Budgeting Debt/Bond Servicing

Financial Reporting Maintain Approximately 490 Funds General Fund and Accounts – 124 Special Revenue Funds - 94 Debt Service/Capital Project Funds – 35 Permanent Trust Fund/Accounts - 12 PLUS Enterprise Funds - 50 Internal Service Funds - 25 Trust and Agency Funds Component Units – 19 Administrative Funds - 14

Financial Reporting Comprehensive Annual Financial Report (CAFR) Team Approach Team Approach –Internal –Agencies –Auditors –External

Financial Reporting Comprehensive Annual Financial Report (CAFR) GFOA Certificate -25 Years GFOA Certificate -25 Years –Highest standards in government accounting and financial reporting –Only 4 states have received more awards 3 rd Fastest State – Completion of the CAFR 3 rd Fastest State – Completion of the CAFR –146 Days –Behind State of NY, District of Columbia

Financial Reporting Implementing GASB Statement 54 Implementing GASB Statement 54 –Formed a team – internal to our section –Began to analyze funds early –Legislation was passed to change some funds –Decided to early implement –Informed the State Auditors

GASB 54 - Scope 1. Changes how fund balance is presented ( for governmental funds) Reserved now Restricted Unreserved now Unassigned Designated now Committed 2. Clarifies use of certain governmental fund types

GASB 54 – Fund Balance Fund Balance Classification – Focus Constraints on the USE of resources (Inflows) SOURCE of constraint Nonspendable Nonspendable Restricted Restricted Unrestricted Unrestricted –Committed –Assigned –Unassigned

GASB 54 – Fund Balance Pre GASB 54

GASB 54 – Fund Balance

GASB 54 – Fund Balance Nonspendable Not in a spendable form Cannot ever be spent or Cannot ever be spent or –(nonspendable form) –(legally required to be maintained intact) Cannot currently be spent Cannot currently be spentExamples

GASB 54 – Fund Balance Nonspendable

GASB 54 – Fund Balance Restricted Externally enforceable legal restrictions (creditors, debt covenants, grantors, other governments) Imposed by law – Constitutional or enabling legislation (compelled by external party to use resources specified by legislation)

GASB 54 – Fund Balance Restricted Enabling Legislation Enabling Legislation –Resources from external resource providers –Compelled to use resources for purpose specified by legislation

GASB 54 – Fund Balance Restricted Which of the following is an example of restricted fund balance? a. Bond proceeds b. Federal funds c. Required state match for federal funds d. Donations e. Income taxes constitutionally restricted for education f. All of the above

GASB 54 – Fund Balance Committed Constraint Formally Imposed at Highest Level - Legislature Action or Constraint – Must be taken by the end of the reporting period

GASB 54 – Fund Balance Committed State Examples State Examples Rainy Day Fund Rainy Day Fund Most resources sitting in sub-accounts of the General Fund Most resources sitting in sub-accounts of the General Fund Most Appropriations Most Appropriations

GASB 54 – Fund Balance Assigned Authority May be Designated/less Formal Authority May be Designated/less Formal Action May be Taken After Reporting Date

GASB 54 – Fund Balance Assigned State Examples Termination Pools Termination Pools Monies set aside for FY2011 – “Left on the table” Monies set aside for FY2011 – “Left on the table” Very little assigned fund balance Very little assigned fund balance

GASB 54 – Fund Balance Unassigned Residual Classification - General Fund Residual Classification - General Fund Positive fund balance ONLY in the General Fund May have negative Unassigned Fund Balance in other funds –If expenditures exceed restricted, committed, or assigned fund balances

GASB 54 – Fund Balance Unassigned Negative Unassigned Fund Balance Situation: Situation: –Cash = $200 –Inventories = $110 –Payable = $275 –Fund Balance = $35 Classification: Classification: –Nonspendable = $110 –Unassigned fund balance = ($75)

GASB 54 – Fund Balance

GASB 54 – Fund Balance Spending Order Composition of ending fund balance Composition of ending fund balance –Determine nonspendable first –Applying entities' accounting policies –No negative restricted, committed, assigned fund balances –If no established policy Restricted Restricted Committed Committed Assigned Assigned Unassigned Unassigned

GASB 54 – Fund Balance Spending Order

GASB 54 – Fund Types Further Clarified/Defined: General Fund Capital Project Funds Debt Service Funds Permanent Funds Special Revenue Funds Stabilization Accounts

GASB 54 – Fund Types General Fund Account/report all financial resources not accounted for in another fund Account/report all financial resources not accounted for in another fund Can have all fund balance classifications Can have all fund balance classifications

GASB 54 – Fund Types Capital Project Funds Account/report financial resources used for capital outlay/capital projects Account/report financial resources used for capital outlay/capital projects Excludes outflows financed by proprietary funds or assets held in trust Excludes outflows financed by proprietary funds or assets held in trust Fund balance is committed, restricted, assigned Fund balance is committed, restricted, assigned

GASB 54 – Fund Types Capital Project Funds Question Expenditures has been made from resources advanced from the general fund in anticipation of restricted bond proceeds. Can this fund report a negative restricted fund balance?

GASB 54 – Fund Types Capital Project Funds Question What if the capital projects fund also includes resources that are “committed” and “assigned” to other purposes?

GASB 54 – Fund Types Debt Service Funds Account/report financial resources used for principal and interest Account/report financial resources used for principal and interest A Debt Service Fund must be used if resources are legally mandated A Debt Service Fund must be used if resources are legally mandated Fund balance is committed, restricted, assigned Fund balance is committed, restricted, assigned

GASB 54 – Fund Types Permanent Funds Account/report financial resources where only interest, not principal, may be used Account/report financial resources where only interest, not principal, may be used Cannot use to report private-purpose trust activity. Cannot use to report private-purpose trust activity. Fund balance (principal) is nonspendable Fund balance (principal) is nonspendable

GASB 54 – Fund Types Special Revenue Funds Specific Revenue Source - Restricted or Committed Specific Revenue Source - Restricted or Committed Must be substantial portion of inflows Must be substantial portion of inflows –May have “assigned” inflows –“Transfers” are not revenues

GASB 54 – Fund Types Special Revenue Funds Corporate and Individual Income Taxes Education Fund - Revenues (Public & Higher Education) Uniform School Fund - Expenditures (Public Education) General Fund - Expenditures (Higher Education) transfers

GASB 54 – Fund Types Special Revenue Funds Corporate and Individual Income Taxes Education & Uniform School Fund - Revenues Uniform School Fund Expenditures (Public & Higher Education) General Fund - Expenditures (Higher Education) transfers

GASB 54 – Fund Types Stabilization Accounts Limits on the circumstances of spending (not purpose) Limits on the circumstances of spending (not purpose) –Restricted or committed fund balance Circumstances must be sufficiently specific Circumstances must be sufficiently specific Circumstances must be nonroutine Circumstances must be nonroutine –Otherwise unassigned fund balance Never assigned fund balance Never assigned fund balance

GASB 54 – Fund Types Stabilization Accounts State has 3 possible stabilization accounts State has 3 possible stabilization accounts –General Fund – Rainy Day Fund –Education Budget Reserve Account –Disaster Recovery Account (within General Fund)

GASB 54 – Fund Types Stabilization Accounts Question Question Texas has a constitutional stabilization account Texas has a constitutional stabilization account May be use to eliminate temporary cash deficiencies May be use to eliminate temporary cash deficiencies –Certification that appropriations (spending) exceeds available revenue Or for any purpose with 2/3 vote of legislature Or for any purpose with 2/3 vote of legislature Any fund balance should be classified as ?

GASB 54 Questions?