LGC Update

1
LGC Update

• February 5, 2007
• Sara Shippee

2
LGC Staff Changes

• Fiscal Management
• Jones Norris joined staff as Senior Accountant
• Currently at full staff
• Debt Management
• Markisha Baker new debt analyst
• Ronda Byrd left for another State agency

3
LGC Contacts for Cash Investments

• Samantha Carter [phone]
• Cash investment questions
• LGC 203 review and processing
• Sara Shippee [phone]
• Cash investment questions
• New developments cash investments

4
LGC 203 Reporting

• Electronic filing
• Many more units are filing via email
• Please put the unit name in the subject line of
  your email
• Signature pages ARE NOT REQUIRED when forms are
  sent via email
• Provide supporting documents, e.g. confirms of
  collateral, or portfolio listings

5
Cash Investment Reminders

• Review of 203s shows greater use of regional
  banks across all sizes of local governments
• Brokers cannot hold securities must use a bank
  trust department
• Farmers Mac (Federal Agriculture Mortgage
  Corporation) is not an allowable investment

6
Cash Investment Reminders (continued)

• Question about collateral for trust deposits
  arose out of Wachovias sale of trust services to
  US Bank (Sale 12/2005)
• Conversion effective 9/11/2006
• Auditor questioned US Bank not being authorized
  as a pooling bank
• FDIC not applicable in a trust department
  pooling bank status is irrelevant

7
Cash Investment Reminders (continued)

• Cash held in the Trust Departments must be
  collateralized under GS 159-31
• BBT
• First Citizens
• Bank of New York
• US Bank (Institutional trust for Wachovia)
• Exception for cash that is within 60 days of a
  debt service payment when the bank/trust dept is
  fiscal agent for the payment

Confirmed
8
GASB 40 Disclosures

• Notes must say clearly if no formal policy
• Including custodial credit risk for deposits
• No policy statement implies Board approval
• A statement is only required if the risk exists
• Avoid negative disclosures
• e.g. If no custodial credit risk at the category
  C(3) level then no need to include a discussion
  on your policy of using third party safekeeping
• Concentration of credit risk be sure to include
  when applicable

9
Other Reporting Problems

• Restricted cash should be shown for unspent debt
  proceeds
• Invested in capital assets net of related debt
  (ICAND) calculation is still confusing
• Capital contributions should not be part of
  non-operating revenues for proprietary funds
• Interfund loans must be in the non-capital
  financing section of the cash flow statement

10
Other Reporting Problems (continued)

• County requirement to collect DMV 3 interest and
  remit to State under HB 1779
• Note disclosure or schedule was accepted for
  6/30/06
• Must be in an agency fund for 2006-2007
• Objective is to avoid audits by DOT
• Powell bill expenditures in a special revenue
  fund must be consolidated with the General Fund
  for reporting purposes

11
Other Reporting Problems (continued)

• LEO Separation Allowance note
• Confusion about which wording to use
• Pay as you go illustrated in City of Dogwood
• Pension Trust Fund illustrated Carolina County
• Computing/recording net pension obligation (NPO)
• Unfunded accrued actuarial liability (UAAL)
• Required Supplementary Information (RSI)
• Flood insurance statement within risk note
• Stewardship note should include action plan

12
Other Reporting Problems (continued)

• Fund balance appropriated - improperly used
• Enterprise funds fund balance over appropriated
• Cash investments
• Payables
• Deferred revenue from cash receipts
• Reserve for encumbrances
• Fund balance available for appropriation
• Fund balance cannot be appropriated in a capital
  project / project ordinance
• Stewardship note for fund balance misuse

Same formula as Gen. Fund
Less
13
Other Reporting Problems (continued)

• Please review your draft financials before the
  auditor sends copies to us
• Units are receiving unnecessary unit letters
• Over expenditures due to missing budget
  amendments
• Improper consolidation of Water Sewer (WS)
  capital projects
• Debt being reported in the WS operating fund
  when the capital project was omitted

14
Emerging Financial Issues

• Lottery proceeds
• Memo 1063
• May use lottery funds for
• School construction
• Debt service for debt issued prior to 1/1/2003
• May not use proceeds for school technology
• Use conservative estimates for new construction
  revenue

15
Emerging Financial Issues (continued)

• Lottery proceeds
• If using for debt service, must have commitment
  from the unit on a secondary revenue source to
  fund the debt payments
• New revenue source, uncertain amounts
• Portion of final allocations based in part on
  effective tax rates, revenue could vary

16
Emerging Financial Issues (continued)

• Video Service Competition Act
• House Bill 2047 (SL 2006-151) establishes State
  as sole authority for franchising of video
  services
• Eliminates authority for locals to assess and
  collect cable franchise fees
• Cities counties will receive revenues from 3
  state sales taxes to replace franchise fees

17
Emerging Financial Issues (continued)

• Video Service Competition Act
• Locals will receive sales tax collections
• 7.23 of telecommunications
• 22.61 of cable services
• 37 of home satellite television services
• Locals must report their franchise fee revenue
  from 7/1/06 to 1/1/2007 to the Secretary of
  Revenue by March 15, 2007

18
Emerging Financial Issues (continued)

• Video Service Competition Act
• If not reported by 3/15, the unit will not
  receive a distribution until the 1st quarter
  after they remit the required information
• Units that didnt impose a cable franchise fee
  prior to 7/1/2006 will receive a distribution
  2.00 x most recent population
• These revenues are local revenue and are not
  subject to the governors appropriation

19
Emerging Financial Issues (continued)

• Payroll issues on W2 vs. 1099 reporting
• LGC Memo coming soon
• IRS has been focusing on NC local governments
  for the last 2 years
• Several units have been audited
• Ready now to move to governments and non-profits
  with payrolls greater than 40 million
• Guidance will be coming from us as well as from
  the League and Association

20
Emerging Financial Issues (continued)

• Payroll Issues continued
• IRS no longer uses 20 question list to determine
  the employer/employee-contractor relationship
• Now uses three broad categories
• Behavioral control
• Financial control
• Relationship of the parties
• Primary test is there a right to direct or
  control how the person performs their duties

21
Emerging Financial Issues (continued)

• Payroll Issues continued
• Some units are going to all W-2s no 1099s
• Others still use 1099s on a limited basis
• Some have not changed their practices
• Volunteer firemen that are paid a stipend should
  receive a W-2
• Has been ruled as such 3 times in NC by IRS
• Board members should be paid on a W-2
• LEO Separation Allowance payments go on W-2

22
OPEB The Continuing Saga

• Statement 43 for Phase I governments implements
  at June 30, 2007
• Irrevocable trust established for the plan or an
  agency fund holding the plan assets
• Most governments are waiting to set up plan with
  the implementation of St. 45
• Statement 45 implements for Phase I at June 30,
  2008

23
OPEB The Continuing Saga

• Most of the Phase I governments have gotten their
  actuarial valuations completed
• Decisions are being made regarding funding since
  it is budgetary factor for 2008
• LGC working to clarify steps for creating an
  irrevocable trust
• Illustrated note disclosures this summer

24
Odds and Ends

• Treasurers conference is in April this year
• April 25th New Bern Convention Center
• April 27th Hickory Convention Center
• Watch for Brochure coming soon
• Wrapping up audit season
• Still have around 100 reports outstanding
• Growing list of small governments on the watch
  list with low fund balance available, weak WS
  operations, or poor internal control

New site
25
Odds and Ends

• Projects for the Spring
• New SAS procedures and their impact
• OPEB
• New GASB memo on Statements
• 42, 47, 48 49
• Emphasis on Policy Manual updates
• Unit assistance