GOVERNMENTAL ACCOUNTING: THE SPECIAL-PURPOSE FUNDS AND SPECIAL GENERAL LEDGER

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CHAPTER 25

• GOVERNMENTAL ACCOUNTING THE SPECIAL-PURPOSE
  FUNDS AND SPECIAL GENERAL LEDGER

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FOCUS OF CHAPTER 25

• The Remaining Governmental Funds
• The GCA-GLTL General Ledger
• The Proprietary Funds
• The Fiduciary Funds
• Financial Reporting to the Public
  General-Purpose Financial Statements

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THE GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS
(2 of 5)

• Purpose To account for the proceeds of specific
  revenue sources that are legally restricted to
  expenditure for specific purposesexcluding
  inflows for
• Capital projects and Expendable trusts.
• Inflows Usually from specific taxes or nontax
  sources not directly related to services
  provided.
• A General Fund clonesame structure.

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THE GOVERNMENTAL FUNDS CAPITAL PROJECTS FUNDS
(3 of 5)

• Purpose To account for the proceeds of financial
  resources that are to be used for the acquisition
  or construction of MAJOR CAPITAL FACILITIESother
  than
• Those financed by
• Proprietary Funds and
• Trust Funds

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THE GOVERNMENTAL FUNDS CAPITAL PROJECTS FUNDS
(3 of 5)

• A temporary fundat completion of the project
• The fund is closed and
• The facility s cost is recorded as a capital
  asset in the GCA-GLTL g/l.
• Costs incurred during construction are charged to
  expenditures (outflows).
• Inflows Bond sales and transfers from the
  General Fund.

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THE GOVERNMENTAL FUNDSDEBT SERVICE FUNDS (4 of
5)

• Purpose To account for the servicing of debt
  initially recorded as a liability in the GCA-GLTL
  g/l.
• Servicing of Debt defined The payment of (1)
  interest and (2) debt principal at maturity.
• Unusual Features
• Interest is not accrued until the due date.
• Principal payments are not recorded as
  liabilities until the due date.

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SPECIAL ASSESSMENTS

• Special Assessments Assessments made against
  properties that directly benefit from
  improvements
• Examples Sidewalks, street lighting.
• Special Assessment Bonds are usually issued to
  pay for the improvements.
• All construction activity takes place in a
  Capital Projects Fund.

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SPECIAL ASSESSMENTS

• Bond Repayment Assessees pay taxes over several
  years to pay off the bond issue.
• Special Assessment Debt may or may nothave the
  backing of the governmental unit in the event of
  default.
• Special Assessment Debt (SAD) Categories
• SADs With Government Commitment. (This is the
  usual situation.)
• SADs Without Government Commitment.

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SPECIAL ASSESSMENTS

• SADs With Government Commitment
• A Debt Service Fund is used to account for
• All collections from assessees.
• All payments to bondholders.
• The bond liability is recorded in the GCA-GLTL
  g/l.
• Unique Item The entire tax assessment is
  recorded as Property Tax Receivablesthe
  noncurrent portion is Deferred Revenues.

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SPECIAL ASSESSMENTS

• SADs Without Government Commitment
• An Agency Fund is used to account for
• All collections of property taxes from
  assessees.
• All payments to bond holders.
• No liability is recorded in the GLTDAG.
• The governmental unit is viewed merely as an
  agent for the assessees and the bondholders.

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THE GCA-GLTL GENERAL LEDGER

• Purpose Accounts for capital assets (at
  historical cost) and debt not accounted for in
• Enterprise Funds, Internal Service Funds, or
  Trust Funds.
• Not a fundit has no cash for paying liabilities.
• A self-balancing set of accounts.

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GENERAL CAPITAL ASSETS

• Categories of Assets
• Land
• Buildings
• Improvements other than buildings
• Equipment
• Construction work in progress (being performed by
  Capital Projects Funds)
• Infrastructure assets (see next slide)

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GENERAL CAPITAL ASSETS Infrastructure Assets

• Capitalization is mandatory for public domain or
  infrastructure capital assets such as
• Streets and roads
• Sidewalks
• Bridges and tunnels
• Water sewer systems
• Lighting systems

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GENERAL CAPITAL ASSETS Infrastructure Assets

• Infrastructure Assets
• Long-lived capital assets that normally are
• Stationary in nature
• Normally can be preserved for a significantly
  greater number of years than most capital assets.

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GENERAL CAPITAL ASSETS Postcapitalization Periods

• Depreciation is mandatoryexcept for certain
  infrastructure assets
• Depreciation Expense is never reported in the
  operating statement of governmental funds.
• It is reported only in the two government-wide
  statements.
• Sales of Assets Record proceeds as OTHER
  FINANCING SOURCES in General Fund.

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INFRASTRUCTURE ASSETS Depreciation

• Noneligible Infrastructure Assets
• Must be depreciated.
• (See following slide regarding eligibleinfrastruc
  ture assets.)

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INFRASTRUCTURE ASSETS Depreciation

• Eligible Infrastructure Assets
• Need not be depreciated.
• Defined Assets being (1) managed using an asset
  management system having certain characteristics
  (described in GAS 34) and (2) preserved
  approximately at or above an established and
  disclosed condition level.
• Condition assessments must be performed at least
  every 3 years.

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GENERAL LONG-TERM LIABILITIES

• Long-term debt that is not properly shown in
  Proprietary Funds or Trust Funds. GLTL includes
• DEBT issuance liabilities having a maturity date
  of more than one year at the time of issuance
  (these are borrowings).
• NONDEBT issuance liabilities that would not
  normally be liquidated with expendable available
  financial resources (e.g., a lawsuit liability
  to be paid in 3 yrs.).

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GENERAL LONG-TERM LIABILITIES

• Examples of Debt Recorded in GCA-GLTL g/l
• General obligation bonds (usually issued to pay
  for capital projects).
• Claims and judgments.
• Compensated absences (vacation sick pay).
• Unfunded pension contributions.
• Capital leases payable.
• Special assessment debt having government
  commitment (explained earlier).

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GENERAL LONG-TERM DEBT LIABILITIES

• Consequences of Reporting Nondebt Issuance
  Liabilities in the GCA-GLTL g/l
• It enables governments to magically conceal
  whether they are living within theirmeans at the
  fund-based reporting level.
• It results in the fund-based operating
  statement being a Statement of ALL of the
  Revenues and SOME of the Costs Incurred This
  Period.

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GENERAL LONG-TERM DEBT LIABILITIES

• BAD NEWSMany governmental units have tons of
  nondebt issuance liabilities that will have to be
  paid by future generations (which may find it
  quite burdensome or impossible to pay).

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GENERAL LONG-TERM DEBT LIABILITIES

• GOOD NEWSGAS 34 (issued in 6/99)
  requiresgovernment-wide financial
  statementsthat measure the flow of economic
  resources on the accrual basis. Such statements
  reveal(1) the cost of providing services.(2)
  the change in the financial condition.

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GENERAL LONG-TERM DEBT LIABILITIES

• Liquidation of GLTL
• Debt Issuance Liabilities At the maturity date,
  the liability is transferred to a Debt Service
  Fund.
• Nondebt Issuance Liabilities At the payment
  date, the liability is transferred to the General
  Fund.

Note that GLTL is not removed from the GCA-GLTL
g/l when it becomes a current liability (due
within 12 months).
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THE GOVERNMENTAL FUNDS PERMANENT FUNDS (5 of 5)

• Permanent Funds
• Accounts for endowment-type situations in which
• Only the endowments earnings can be used for
  purposes that support the reporting governments
  programs.
• Benefits the reporting government or its
  citizenry.

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THE PROPRIETARY FUNDS INTERNAL SERVICE FUNDS

• Purpose To account for activities that provide
  services solely to other departments.
• Manner of accounting parallels that of commercial
  businesses (accrual basis measurement of flow
  of economic resources).
• Balance sheet reports Long-Term Debt.

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THE PROPRIETARY FUNDS ENTERPRISE FUNDS

• Purpose To account for activitiesthat provide
  services primarily to the public.
• Examples Gas, electric, water utilities.
• Manner of accounting parallels that of commercial
  businesses (accrual basis measurement of flow
  of economic resources).
• Balance sheet reports Long-Term Debt.

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THE FIDUCIARY FUNDS

• Two categories (four funds) exist
• Agency Funds.
• Trust Funds
• Pension (and other employee benefit) Trust Funds
• Investment Trust Funds
• Private-Purpose Trust Funds

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THE FIDUCIARY FUNDSAGENCY FUNDS

• Purpose To serve as conduits for the transfer of
  moneypurely custodial in nature.
• ASSETS ALWAYS EQUAL LIABILITIES.
• The following items do not exist
• A fund balance/equity
• An operating statement

A L
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THE FIDUCIARY FUNDSTRUST FUNDS

• Purpose To account for the investing and using
  of money in accordance with stipulated provisions
  of trust indenture agreements or statutes.
• Pension (and other employee benefit) Trust Funds.
• Investment Trust Funds (created by GAS 31).
• Private-Purpose Trust Funds.

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PRIVATE-PURPOSE TRUST FUNDS

• Accounts for property held under trust
  arrangements in which
• Both the principal and income benefit
• Individuals
• Private organizations
• Other governments

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FINANCIAL REPORTING TO THE PUBLIC The CAFR

• The Comprehensive Annual Financial Report (CAFR).
  Includes
• Government-wide statements (2)
• Fund-based statements (7)

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Government-Wide Statements

• Two major statements that
• Are presented on the accrual basis.
• Measure the flow of economic resources (same
  measurement flowas in commercial accounting).

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Government-Wide Statements

• These two statements are the
• Statement of Net Assets (includes all GCA and
  GLTL).
• Statement of Activities (includes depreciation
  expense).
• These two statements are presentedin addition to
  the Fund-Based Financial Statements (7 of them).

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Government-Wide Statements

• The two government-wide statements enable
  assessment of whether
• Current-year citizens paid for the services they
  received in the current year, or if the costs of
  services wereshifted to future-year citizens.

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Government-Wide Statements

• A governments financial position has improved or
  deteriorated as a result of the years operations.

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Government-Wide Statements

• Each of the two government-wide statements must
  distinguish between
• Governmental activities and business-type
  activities of the primary government.
• The total primary government and its discretely
  presented component units by reporting each in
  separate columns.

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2
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Government-Wide Statements

• Fiduciary activities are
• Excluded from the government-wide statements if
  their resources are NOT available to finance the
  governments programs.

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Government-Wide Statements

• IMPORTANT FEATURES of the government-wide
  Statement of Net Assets
• Reports all general capital assetsincluding
  infrastructure.
• Reports all debtincluding GLTL.

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2
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Government-Wide Statements

• IMPORTANT FEATURES of the government-wide
  Statement of Net Assets (cont.)
• Reports net assets in 3 categories
• Invested in capital assets, net ofrelated debt
• Restricted
• Unrestricted

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1
2
3
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Government-Wide Statements

• IMPORTANT FEATURES of the government-wide
  Statement of Net Assets (cont.)
• In general, interfund balances (loans, advances,
  and due to and due from accounts) are eliminated.

4
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Government-Wide Statements

• IMPORTANT FEATURES of the government-wide
  Statement of Activities
• Presented in at least the same level of detail
  provided in the governmental fund statements
  (generally, expenses and program revenues by
  functione.g., public safety, public health, and
  recreation).

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Government-Wide Statements

• IMPORTANT FEATURES of the government-wide
  Statement of Activities
• Format must report expenses reduced by program
  revenuesresults in a measurement of net
  (expense) revenue for each of the governments
  functions.

2
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Government-Wide Statements

• IMPORTANT FEATURES of the government-wide
  Statement of Activities (cont.)
• Program expenses include all direct expenses.
• Depreciation expense that can specifically be
  identified with a function is reported as a
  direct expense.
• Allocated overhead and other indirect expenses to
  individual programs arepresented in a separate
  column.

3
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Government-Wide Statements

• IMPORTANT FEATURES of the government-wide
  Statement of Activities (cont.)
• Reports extraordinary items (items beyond control
  of mgt.) separately.
• Reports special items (items within the control
  of mgt.) separately.

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5
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Government-Wide Statements

• IMPORTANT FEATURES of the government-wide
  Statement of Activities (cont.)
• In general, interfund activity is eliminated
• Interfund services provided and used.
• Interfund transfers.
• Other interfund activity.

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Fund-Based Statements

• Purpose of fund-based statements
• These statements show the short-term performance
  of individual funds using the same measures that
  governments use to manage their money.

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Fund-Based Statements

• A SHARPENED FOCUS
• Must report information about the most important
  fundsthe major funds (including the General
  Fund).

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Fund-Based Statements

• Major funds are those whose revenues,
  expenditures/expenses, assets, or liabilities are
  at least
• 10 of the total for their fund category or type
  (governmental or enterprise) and
• 5 of the aggregate amount for all governmental
  and enterprise funds.

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Fund-Based Statements

• Nonmajor funds are
• Aggregated and
• Reported in a separate column (labeled all other
  funds).

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Fund-Based Statements

• IMPORTANT FEATURES of the fund-based statements
• Must present two summary reconciliations that
  show the interplay between the two types of
  statements.
• Both types of statements together constitute an
  integrated set of statements.

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Fund-Based Statements

• IMPORTANT FEATURES of the fund-based statements
  (cont.)
• In general, interfund activity will be reported
  separately
• Interfund services provided and used.
• Interfund transfers.
• Other interfund activity
• Interfund open balances.

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Fund-Based Statements

• IMPORTANT FEATURES of the fund-based statements
  (cont.)
• Internal Service Funds are aggregated and
  presented in a separate column on the proprietary
  fund statements.

3
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Fund-Based Statements

• IMPORTANT FEATURES of the fund-based statements
  (cont.)
• Proprietary Funds
• Statement of Net Assets (or Balance Sheet)
• Displays net assets using the same categories
  used in government-wide statements.
• Distinguishes between restricted and unrestricted
  assets.

4
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Fund-Based Statements

• IMPORTANT FEATURES of the fund-based statements
  (cont.)
• Proprietary Funds (cont.)
• Statement of Revenues, Expenses, and Changes in
  Fund Net Assets (or Equity)
• Must distinguish between operating and
  nonoperating revenues and expenses.

4
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Fund-Based Statements

• IMPORTANT FEATURES of the fund-based statements
  (cont.)
• Proprietary Funds (cont.)
• The all-inclusive change in fund net assets
  includes (1) capital contributions (2)
  contributions to term and permanent endowments,
  (3) special items, (4) extraordinary items, and
  (5) transfers.
• Cash flow statement must use the direct method
  (interest expense is financingnot operations as
  in private sector).

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Required Supplementary Information (RSI)

• RSI includes
• Budgetary comparison statements for the General
  Fund and each major Special Revenue Fund.
• Use both original budget and
• Any amended budget.
• Managements discussion and analysis (the MDA).

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End of Chapter 25

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