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GFOAz May 17, 2012 Quarterly Training Tom Duensing. Specialized Governmental Accounting Topics and Policies. City of maricopa. Incorporated in 2003 (88 th Municipality) 2010 Population = 43,482 ( 4,081% growth) Average Household Income = $75,000 61% Residents – Degree 214 FTS

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Specialized Governmental Accounting Topics and Policies

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    1. GFOAz May 17, 2012 Quarterly Training Tom Duensing Specialized Governmental Accounting Topics and Policies

    2. City of maricopa

    3. Incorporated in 2003 (88th Municipality) • 2010 Population = 43,482 (4,081% growth) • Average Household Income = $75,000 • 61% Residents – Degree • 214 FTS • General Fund Budget = $29.8 million • Explosive Growth = Explosive Construction City of maricopa

    4. What a ride

    5. Capital Asset Accounting Long-Term Debt Accounting Pension Accounting (OPEB) Grant Accounting Financial Policies Overview

    6. Describes the Events Reported in the Operating Statement • Governmental Funds – Transactions Affect the Current Financial Resources – What are the transactions that affect the resources available for spending? • GW Statements & Propriety Funds – Transactions Affect the Economic Resources Measurement Focus

    7. Governmental Funds vs. GW/Proprietary Funds – Affect on Fund Balance vs. Net Assets Measurement Focus

    8. Governmental Funds vs. Proprietary Funds – Affect on Fund Balance vs. Net Assets Basis of Accounting

    9. Acquiring Capital Assets • Capital Projects Funds • Acquisition or Construction of Major of Major Capital Facilities • Non-Capital Projects Governmental Funds • Proprietary Funds Capital Asset Accounting

    10. Assets Benefitting More Than a Single Period • Classes - Land, Buildings, Improvements, Equipment, Infrastructure, Construction in Progress • Typically Ownership is Evidenced by Title • Sometimes Ownership is Unclear • Who manages or maintains the asset may determine ownership What are capital assets?

    11. Governmental (Current Financial Resources) Dr. Expenditure – Capital Outlay$XXX Cr. Cash $XXX • GW/Proprietary (Economic Resource) Dr. Asset $XXX Cr. Cash $XXX Dr. Depreciation Expense $XXX Cr. Accumulated Depreciation $XXX Capital asset accounting

    12. Reported at Historical Cost • Estimated Historical Cost May be Used • Even if Moved from One Fund to Another • Donations - Fair Value on the Date Donated • Historical Cost Should Include • Ancillary Charges to Place in the Intended Location (e.g. freight) • Ancillary Charges to Place in the Intended Condition (e.g. installation, site prep) • Subsequent Additions or Improvements (extend life or enhance functionality) Capital Asset Valuation

    13. Based on a Dollar Value GFOA Recommends Thresholds be > $5,000 (Federal = $5,000) Thresholds are Not Related to Control Over Assets Governments Should Strive for an appropriate balance between ensuring all material assets are capitalized & the cost of recordkeeping. Capitalization Thresholds

    14. How are most governmental capital assets depreciated? Why? • Composite Depreciation Methods • Similar or dissimilar assets in the same asset class (infrastructure, buildings, etc.) • Weighted average or unweighted average Capital Asset depreciation

    15. Unweighted-average Composite depreciation

    16. Weighted Average Composite depreciation

    17. Fully Depreciated Assets • Normally, not appropriate to report • Reduce depreciation expense when useful life is longer than expected • Composite Depreciation • Can report fully depreciated assets • Should not be material Capital Asset depreciation

    18. Which items should be capitalized? • Expenditures over $5,000 & greater than 1 Yr. • Donations • What asset classifications should be used? • Which items should be depreciated/amortized and how? • Individual or classes of assets • Depreciation methods • Tagging, Disposal, Physical Inventories Capital asset – policy considerations

    19. Examples • Bonds/Notes Payable • Other Postemployment Benefits (typically Retiree Healthcare) • Compensated Absences • Capital Leases • Claims & Judgments Long term debt

    20. Governmental Funds • Inflow of Resources • Proprietary Funds • No Affect • Liability is Offset by an Asset Long term debt accounting

    21. Debt Issuance – Governmental Fund (Increases Fund Balance) Dr. Cash $XXX Cr. Other Financing Source $XXX • Debt Issuance – Proprietary Fund (No Impact on Net Assets) Dr. Cash $XXX Cr. Bonds Payable $XXX Long term debt accounting

    22. Debt Payments- Governmental Fund (Decreases Fund Balance) Dr. Principal Exp $XXX Dr. Interest Exp $XXX Cr. Cash $XXX • Debt Payments – Proprietary Fund (No Impact on Net Assets for Principal Portion) Dr. Bonds Payable $XXX Dr. Interest Exp $XXX Cr. Cash $XXX Long term debt accounting

    23. Required Footnote Disclosure • Separate by class • Separate by Governmental Activities vs. Business-Type Activities • Reports Changes in Long-Term Liabilities Long term debt accounting

    24. Changes in Long Term Liabilities Long term debt footnote

    25. State Administered Pension System • ASRS & PSPRS • State Holds the Asset • Actuarially Determined Rates • Contributions are Expensed as Paid • City Administered Pension System • COPERS & TSRS • Phoenix & Tucson Retirement Trust Funds • Employer Reports Pension Trust Fund Only if it Holds Resources in a Trust for that Purpose Pension accounting

    26. Currently, do most Arizona governments have a pension liability? • That may change…… • Postemployment Benefit Accounting and Financial Reporting • Currently being deliberated • Unfunded liability • Is this a good thing? Pension accounting

    27. Similar to Pensions • What is it? • Recorded as a Long Term Liability • Assets • Administered By Cities • Fiduciary Fund – If assets are set aside in a trust • Is this a good thing? OPEB

    28. Federal Requirements • OMB Circulars • Financial Reporting • Federal Agencies • Governmental Financial Statements • GASB 33 – Non-Exchange Transaction Grant accounting

    29. Revenue Recognition • Expenditure Driven Grants - Revenues are Recognized When the Expenditure Occurs • TYPICALLY, When Amounts Are Expended • When is revenue deferred? • Grant award is received in advance of expenditure • When is revenue accrued? • Amount is measurable (expenditure has been incurred) • Amount is available – Typically can be considered available beyond 60 days but no more than one year Grant accounting

    30. GFOA Encourages Establishment of Financial Policies* • Why do we need financial policies? • Helps frame the resource allocation decision • What does that mean? • Guides the creation, maintenance and use of resources for financial stabilization purposes • e.g. guides decision making * GFOA Best Practice “Adoption of Financial Policies Financial policies

    31. NACSLB – Recommended Budget Practices • Document Provides a Framework for State & Local Budgeting • What is one of the most important things governments do? Allocate Resources for Programs and Services • The Budget is the Plan • The guidance recommends governments, at a minimum, “adopt financial policies” Financial policies

    32. Areas of Financial Policy Development • Financial Planning Policies • Revenue Policies • Expenditure Policies • Policies Should be Continually Reviewed Financial policies

    33. Balanced Budget • Should define “balanced budget” & encourage adherence • Long-Range Planning Process • Impact of proposed operating & capital budgets • Forecast • Asset Inventory • Inventory & assess all major capital assets. A. Financial planning policies

    34. Revenue Diversification • Handle fluctuations in individual revenues • Fees & Charges • Addresses how fees & charges are they set • To what extent do they cover costs • Use of One-Time Revenues • Discourage use for ongoing expenditures • Use of Unpredictable Revenues (Constr. Sales Tax) • How will these revenues be used? b. revenue policies

    35. Debt Capacity, Issuance & Management • Appropriate Use of Debt (Capital Only) • Maximum Amount of Debt/Debt Service • Reserve/Stabilization Accounts • Protects against revenue/expenditure fluctuations • Operating/Capital Expenditure Accountability • Periodic (e.g. quarterly) B to A comparisons to make decisions early on c. Expenditure policies

    36. Mandatory for Governments Applying for GFOA Distinguished Budget Presentation Award • One Size Does not Fit All • Property Tax Policies • Financial Reporting Policies (GFOA Awards) Financial policies

    37. The City shall maintain a General Fund Unreserved Fund Balance of at least 10% of current year revenues. • 50% of one-time revenues will be used to fund capital expenditures. • Use life of capital projects will exceed the life of the financing bonds. • Current year revenue will be sufficient to support current year operating expenditures. • Capital assets will be maintained to minimize future operating costs. Policy examples

    38. Questions?