Avoiding the Pitfalls: Common Financial Reporting Deficiencies … · 2018-02-14 · MD&A Deficiency: Missing an analysis for all major funds to disclose the reasons for significant

CommonReportingDeficiencies

Avoiding the Pitfalls: Common Financial Reporting Deficiencies and the Latest GASB Implementation Guidance

WEDNESDAY ■MAY 24, 20178:30–10:10 AM

Ember Strange Assistant Finance Director, City of Little Rock, ARDennis Kauffman, CPA/CPFOFinance Operations Manager, City of Sacramento, CA

MODERATOR

SPEAKERS

#GFOA2017

Krista EdoffPartner, Cherry Bekaert LLPPaul Niedermuller, CPAPrincipal, CliftonLarsonAllen LLP

MD&A

Deficiency: Missing an analysis for all major funds to disclose the reasons for significant changes in fund balances

[GASB 34, Paragraph 11d] - An analysis of balances and transactions of individual funds. The analysis should address the reasons for significant changes in fund balances or fund net position and whether restrictions, commitments, or other limitations significantly affect the availability of fund resources for future use.

MD&ADeficiency: Missing an analysis of significant

variations between original and final budget

amounts, and between final budget amounts and

actual budget results for the general fund

[GASB 34, Paragraph 11e] - An analysis of significant variations between original and

final budget amounts, and between final budget amounts and actual budget results for

the general fund (or its equivalent). The analysis should include any currently known

reasons for those variations that are expected to have a significant effect on future

services or liquidity.

MD&ADeficiency: Combining deferred inflows and deferred outflows with assets and liabilities in the condensed financial statements

[GASB 63, Paragraph 7] - Amounts that are required to be reported as deferred outflows of resources should be reported in a statement of financial position in a separate section following assets. Similarly, amounts that are required to be reported as deferred inflows of resources should be reported in a separate section following liabilities.

MD&A

StatementofNetPositionNetInvestmentinCapitalAssetscalculationDeficiency: Incorrect calculation of the net investment in capital assets due to some of the following:• Not including deferred amounts from refundings in the

calculation;• Not including all the capital assets like land and construction in

progress; or• Not including retainage payable in the calculation

[GASB 34, Paragraph 33] -This component of net position consists of capital assets, including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets.

StatementofNetPositionNetInvestmentinCapitalAssetscalculationDeficiency: Incorrect calculation of the net investment in capital assets due to some of the following:

• Including debt that has unspent proceeds in the calculation;

• Also, the liability related to the unspent portion of a debt issuance is not included in the same component of net position as the asset relating to the unspent proceeds. It’s included either in the calculation of the net investment in capital assets or in the calculation of unrestricted net position.

[GASB 34, Paragraph 33] - If there are significant unspent related debt proceeds at year-end, the portion of the debt attributable to the unspent proceeds should not be included in the calculation of net investment in capital assets. Rather, that portion of the debt should be included in the same net assets component as the unspent proceeds—for example, restricted for capital projects.

StatementofNetPositionDeficiency: Not reporting a deferred amount for a refunding in the current year

[GASB 65, Paragraph 6] - For current refundings and advance refundings resulting in defeasance of debt reported by governmental activities, business-type activities, and proprietary funds, the difference between the reacquisition price and the net carrying amount of the old debt should be reported as a deferred outflow of resources or a deferred inflow of resources.

StatementofNetPositionDeficiency:•Not differentiating between unearned revenues

and deferred inflows. For example, reporting unearned revenues (liabilities) as deferred inflows•Reporting deferred outflows/inflows as part of

assets/liabilities•Using the reference as unavailable

StatementofNetPosition

StatisticalSectionDeficiency:• The amounts presented in the debt capacity schedules

should be the same amounts reported in the basic financial statements. Premiums and discounts are not being included in the amounts in the statistical section. • Not including all of the governmental activities debt for

the direct debt in the direct and overlapping debt statistical table.

StatisticalSectionDeficiency:• The ratio of debt service as a percentage of noncapital

expenditures is not calculated correctly. Use the capital outlay amount from the reconciliation of the statement of revenues, expenditures and changes in fund balances to the statement of activities. In other instances, not including debt service expenditures in the noncapital expenditures.• Amounts do not trace to the basic financial statements

StatisticalSectionDeficiency: Missing narratives to describe atypical changes and anomalous data

[GASB 44, Paragraph 42d] - …may result from infrequent incidents, changes in underlying assumptions or accounting methods, organizational restructuring, major policy changes, or other events.

Krista Edoff, CPA

[email protected]

Meet the Speaker

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Governmental Fund Statements

Not reporting a major fund when it meets the criteria for this fiscal year to be reported as a major fund. Remember to include deferred inflows and deferred outflows when calculating major funds.

[GASB 65, Paragraph 32,33] - Paragraph 76 of Statement 34 establishes the criteria for major fund determination. Assets should be combined with deferred outflows and liabilities with deferred inflows, for purposes of determining major funds.

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Not including a budgetary comparison for a major special revenue fund when the government legally adopts an annual budget for this fund. (Note: This is more common in initial submissions.)

[GASB 34, Paragraph 130] - Budgetary comparison schedules should be presented as RSI (may elect to report in basic financial statements) for the general fund and for each major special revenue fund that has a legally adopted annual budget.

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Reporting a nonspendable fund balance for a loan or notes receivable in other governmental funds.

[GASB 54, Paragraph 6] – …If the use of the proceeds from the collection of those receivables is restricted, committed or assigned, then they should be included in those fund balance classifications, rather than nonspendable fund balance.

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Proprietary Fund Statements

Capital contributions are reported as nonoperating revenues on the statement of revenues, expenses and changes in net position, however they are correctly reported as capital grants and contributions on the statement of activities.

[GASB 34, Paragraph 100] – Capital contributions should be reported separately, after nonoperating revenues and expenses.

Operating revenues $XXXOperating expenses XXX

Operating income (loss) XXXNonoperating revenues and expenses XXX

Income before capital contributions and transfers XXXCapital contributions XXXTransfers XXX

Change in net position $XXX

Proprietary Fund Statements - Illustration

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Required Supplementary Information

Disclose the budgetary basis in the notes to the RSI when

general and major special revenue funds budgetary

comparisons are reported as RSI.

[NCGA-I6:5; GAAFR, page 580] – When budgetary comparisons are presented

as RSI, they must be accompanied by notes to RSI that describe the basis of

budgeting, and any excess budgetary expenditures over appropriations not

visible on the face of the budgetary comparison.

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Other Supplementary Information

Not including budgetary comparisons for nonmajor special revenue funds, debt service funds and capital projects funds that have legally adopted annual budgets.

[NCGA-S1:76,139,155; GAAFR, page 607] – Governments that prepare a CAFR must provide a supplementary budgetary comparison for each governmental fund with a legally adopted annual budget, regardless of fund type.

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Not including budgetary comparison reporting at the legal level of budgetary control.

[NCGA-S1:9c; NCGA-I10:14; GAAFR, page 599] - The legal level of budgetary control is the lowest level at which a government's management may not reallocate resources without special approval.

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“A separate budgetary report may be issued to demonstrate compliance at the legal level of budgetary control, provided the CAFR contains a reference to the existence of this separately issued report. This reference to a separately issued budgetary report, however, does not eliminate the need to present budgetary comparisons within the CAFR for all individual governmental funds with legally adopted annual budgets. Rather, the level of detail needed for the individual fund budgetary comparisons need not exceed the level associated with the basic financial statements (that is, expenditures by function).”

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Disclosures – Component Units

Not including the full criteria in GASB Statement 61 as to why a component unit is blended or discretely presented.

[GASB 61, Paragraph 11a] - The notes should include a brief description of the component units and their relationships to the primary government. This disclosure should include a discussion of the rationale for including each component unit, and whether it is discretely presented, blended, or included in the fiduciary fund financial statements.

Disclosures – Component Unit - flowchart



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Disclosures – Component UnitFinancial Accountability

Fiscal dependence + Financial burden or benefit relationship = Financial accountability

Board appointment + Financial burden or benefit relationship = Financial accountability

Board appointment + Ability to impose will = Financial accountability

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Disclosures – Other

The note disclosure should indicate that donated capital assets are reported at acquisition value. Many governments disclose that donated capital assets are reported at fair value.

[GASB 72, Paragraph 79a] – The following assets should be measured at acquisition value: donated capital assets.

Disclosures – Donated Capital Assets - example

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Not including the pledged revenue disclosures from paragraph 21 in GASB 48.

[GASB 48, Paragraph 21] – For each period in which secured debt remains outstanding, pledging governments should disclose, in the notes to financial statements, information about specific revenues pledged.

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ØSpecific revenue pledged and approximate amountØIdentification and purpose of the debt secured by pledged

revenueØTerm of the commitmentØRelationship of pledged amount to total revenue streamØComparison of pledged revenues recognized during the

period to the principal and interest requirements for the debt collateralized by those revenues

Disclosures – Pledged Revenue - example

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The notes should disclose significant encumbrances by major funds and nonmajor funds, in conjunction with required disclosures about other commitments.

[GASB 54, Paragraph 24] - Verbatim

Disclosures - Other - example

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The notes should disclose the purpose of interfund balances and transfers. These disclosures should be specific to the government, rather than generic.

[GASB 38, Paragraphs 14b, 15b; GAAFR, pages 381, 384] - Verbatim

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Disclosures – Other - example

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2017-1 Implementation Guide – GASB 72, GASB 79

Accounting and Financial Reporting for Certain Investments and for External Investment Pools

Q4.36 – How should an investment position in an external investment pool be categorized within the fair value hierarchy?

– If amortized cost under Paragraph 4 of GASB 79, not categorized within the fair value hierarchy under GASB 72

- If fair value under Paragraph 5 of GASB 79, also not required to be categorized within the fair value hierarchy under GASB 72

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2017-1 Implementation Guide – GASB 77

Tax Abatement Disclosures

Q4.39, Q4.40 – Provide examples of agreements that qualify as tax abatement. Look at substance of the agreement and determine does the government ultimately forgo tax revenues.

Q4.41 – Provides example of multi-government agreement and who should disclose. Look at which government will ultimately forgo tax revenues.

Paul Niedermuller, CPA

Principal303.466.8822

[email protected]

MeettheSpeaker

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WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING

LearningObjectives• Pension Reporting Statement of Net Position and Activities – GASB 68

• Pension Note Disclosures

• Required Supplementary Information (RSI) - Pensions

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PensionReportingStatementofNetPosition

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GOVERNMENT

STATEMENTOFNETPOSITION

December31,2016

ASSETS

Cashandinvestments $1,000,000

Capitalassets,notbeingdepreciated 10,000,000

Capitalassets,beingdepreciated(net) 125,000,000

Totalassets 136,000,000

DEFERRED OUTFLOWSOFRESOURCES:

Differencesbetweenexpectedandactualexperience 250,000

Changesofassumptions 500,000

Differencebetweenprojectedandactualearnings 1,250,000

Contributionssubsequenttomeasurementdate 1,000,000

Totaldeferredoutflowsofresources 3,000,000

LIABILITIES

Accruedliabilities 2,000,000

Long-termliabilities:

Dueinlessthanoneyear 5,000,000

Duewithinmorethanoneyear 100,000,000

Netpensionliability 25,000,000

Totalliabilities 132,000,000

DEFERREDINFLOWSOFRESOURCES:

Differencesbetweenexpectedandactualexperience 150,000

Changesofassumptions 250,000

Totaldeferredinflowsofresources 400,000

NETPOSITION

Netinvestmentincapitalassets 30,000,000

Unrestricted (23,400,000)

Totalnetposition $6,600,000

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PensionReportingStatementofNetPosition• 5.142.3. Q Should balances of deferred outflows of resources and deferred

inflows of resources arising from a single source—that is, from differences between expected and actual experience with regard to economic or demographic factors, changes of assumptions, or differences between projected and actual earnings on pension plan investments—in different periods be reported as separate amounts or net of each other?

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• A—Consistent with the requirements of paragraph 33a of Statement 68, balances of deferred outflows of resources and deferred inflows of resources arising from differences between expected and actual experience in different periods should not be reported net. Similarly, balances of deferred outflows of resources and deferred inflows of resources arising from changes of assumptions in different periods should not be reported net. In contrast, paragraph 33b of Statement 68 requires that deferred outflows of resources and deferred inflows of resources arising from differences between projected and actual earnings on pension plan investments in different periods be netted, and reported as deferred outflows of resources related to pensions if the net balance is a debit, or reported as deferred inflows of resources related to pensions if the net balance is a credit.

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• 5.132.2. Q—Should a net pension liability (or aggregation of net pension

liabilities) be displayed on a separate line on the face of the financial

statements?

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• A—The net pension liability is not required to be displayed separately on the face of the financial statements. However, for some governments, it will be a significant balance, which may be displayed separately on the face of the financial statements. Liabilities for net pension liabilities associated with different pension plans may be aggregated for display, and pension assets for net pension assets associated with different plans may be aggregated for display. However, aggregated pension assets and aggregated pension liabilities should be separately displayed.

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PensionNoteDisclosures• Type of Plan - single-employer, agent multiple-employer, or cost-sharing multiple-

employer defined benefit plan

• Where to get the plan information if issues a separate report.• Amounts for the components of the total pension liabilities (agreeing to the

statement of net position)– Deferred outflows of resources

– Deferred inflows of resources

– Pension expense

– Pension liabilities/assets

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Pension Note Disclosures

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Deferred Outflows Deferred inflows

of Resources of Resources

Differences between expected and actual

experience in the measurement of the TPL 250,000$ 150,000$

Changes of assumptions 500,000 250,000

Net difference between projected and actual

earnings on pension plan invesments 1,250,000 -

Contribution to pension plan after measurement date 1,000,000 -

Total 3,000,000$ 400,000$

$1,000,000 reported as deferred outflows of resources related to pensions resulting from Government

contributions subsequent to the measurement date will be recognized as a reduction of the net pension

liability in the year ended December 31, 2017. Other amounts reported as deferred outflows of resources

related to pensions will be recognized in pension expense as follows.

Year ended December 31:

2017 387,500$

2018 387,500

2019 387,500

2020 437,500

2021 -

1,600,000$

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PensionNoteDisclosures• Disclosure for each plan

• Separate discretely presented component unit from primary government

disclosures

• Actuarial assumptions and other inputs, including dates of the experience studies

and source of mortality assumptions.

• Still including GASB Statement 27 disclosures, annual pension cost, funded status,

and progress from recent actuarial valuations.

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RequiredSupplementaryInformation• Employer contributions data must be for the employer’s most recent fiscal year-

end, not measurement date.

• Covered payroll in the schedule of employer contributions as of the most recent fiscal year-end, not measurement date.

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Required Supplementary Information

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2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

Statutorily Required Contribution 206,988$ 205,397$ 197,882$ 187,358$ 202,677$ 209,505$ 193,393$ 175,692$ 151,558$ 133,175$

Contributions in Relation to theStatutorily Required Contribution 206,988 205,397 197,882 187,358 202,677 209,505 193,393 175,692 151,558 133,175

Contribution Deficiency (Excess) -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

District's Covered Payroll 1,632,395$ 1,619,847$ 1,560,580$ 1,475,332$ 1,598,396$ 1,652,250$ 1,525,178$ 1,491,443$ 1,390,741$ 1,334,415$

Contributions as a Percentage of Covered Payroll 12.68% 12.68% 12.68% 12.68% 12.68% 12.68% 12.68% 11.78% 10.90% 9.98%

REQUIRED SUPPLEMENTARY INFORMATIONSchedule of Pension Contributions

2007 - 2016

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OtherOPEBandPensionItemsfrom2017-1ImplementationGuide

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• Cash flow statements for proprietary funds-How are changes in

pension/OPEB related liabilities to be presented? 4.1

• If a government reports a liability to employees for defined benefit

pensions or defined benefit OPEB, how is the “amount due within one

year” determined? 5.31

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Answers from 2017-1

• 4.1 ….. “The changes in each of the following should be presented

separately in the schedule that provides the reconciliation of operating

income to net cash flows from operating activities: (a) the employer’s

liability to employees for defined benefit pensions or defined benefit

OPEB, (b) the employer’s deferred outflows of resources related to

pensions or OPEB, and (c) the employer’s deferred inflows of resources

related to pensions or OPEB.”

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Answers from 2017-1• A-If the pension or OPEB plan is administered by a Trust and the Trust has

enough assets to pay the benefit payment, none of the amounts would be shown as due within one year. For a pension liability to employees reported under Statement 73 or an OPEB liability to employees for benefits provided through an OPEB plan that is not administered through a trust that meets the criteria in paragraph 4 of Statement 75, there is no pension or OPEB plan fiduciary net position; therefore, the amount “due within one year” would be the full amount of benefit payments expected to be paid within one year.

Documents

Avoiding the Pitfalls: Common Financial Reporting Deficiencies … · 2018-02-14 · MD&A Deficiency: Missing an analysis for all major funds to disclose the reasons for significant