INTRO

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INTRO
GOVERNMENTAL ACCOUNTING Part I
Daniel J. OKeefe, CPA, MBA William Blend, CPA
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Who, What, Why
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Local Governments in U.S.
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The Players

• Governmental reporting nationwide
• GASB
• GFOA
• AICPA
• GOA
• OMB
• Issues unique to Florida
• Florida Statutes
• Uniform chart of accounts
• Rules of the Auditor General
• Florida Single Audit Act

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Governmental Environment

• Politics
• Press
• Regulators
• Public

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Internal Controls
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Internal Controls

• The integration of the activities, plans,
  attitudes, policies, systems, resources and
  efforts of the people of an organization to
  achieve its objectives and mission
• Internal controls are focused on the mission of
  the organization, and this mission must be kept
  in mind when evaluating the appropriateness of
  specific internal control practices

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What Internal Controls Do

• Promote orderly, economical, efficient and
  effective operations
• Safeguard resources against loss due to waste,
  abuse, mismanagement, errors and fraud
• Promote adherence to laws, regulations, contracts
  and management directives
• Develop and maintain reliable financial and
  management data, and accurately present that data
  in timely reports

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How Internal Controls Succeed

• By affecting every aspect of an organization
  people, processes and infrastructure
• Becoming a basic element of an organization, not
  a feature or something that has to be done
• Incorporate the qualities of good management
• Most effective when all of the people and the
  surrounding environment work together

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Control Redundancy

• More is not better
• Never acceptable to have inoperative controls
• Major challenge to a favorable control environment

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Inherent Limitationsof Controls

• Cost/benefit considerations
• Seek cost-effective alternatives
• Potential for management override
• Communications issue
• Audit committee
• Risk of collusion

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Policies and Procedures
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Categories of Policies and Procedures

• Authorization
• Properly designed records
• Security of assets and records
• Segregation of incompatible duties

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Categories of Policies and Procedures (cont.)

• Periodic reconciliations
• Periodic verifications
• Analytical review

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Authorization

• Require advance approval
• Require written documentation of approval
• Proper authorization levels
• Compliance with entities approved policies
• Compliance with other legal restrictions
• Credits

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Proper Documentation

• Invoice, PO, receiving documents
• Sequential numbering of internal documents
• Automatic duplicates cash receipts
• Payroll
• Bids

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Security ofAssets and Records

• Control access to both
• Access on an as-needed basis only
• Separate confidential or sensitive material
• Assign responsibility for both
• Backup and disaster recovery plans
• Computer controls

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Segregation of Duties

• An individual should not be able to commit and
  conceal an irregularity
• Separate incompatible functions
• Authorization
• Record keeping
• Custody
• Level of segregation/alternatives

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Periodic Reconciliations

• Bank statement and books
• General ledger and subsidiary ledgers

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Periodic Verifications

• Physical inventory of fixed assets
• Receivables confirmations
• Payables confirmations

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Analytical Review

• Financial data
• Compared to other financial data
• Compared to nonfinancial data
• Only practical assurance regarding completeness

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Jargon
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Jargon

• Fund Accounting
• Expenses / Expenditures
• Revenues
• Fund Balance / Net Assets
• Due To / From Other Governments
• General Obligation / Revenue Bonds
• Refunding Bonds
• OPEB
• Pooled Cash
• Modified Accrual Basis
• Special Assessments
• Interfund Transactions
• Exchange and Non-exchange Transactions

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Fund Accounting

• A system organized and operated on a fund basis
• A fund is a fiscal and accounting entity with a
  self-balancing set of accounts recording all
  financial resources (assets), together with all
  related liabilities and residual equities or
  balances, and changes (net revenue and
  expense/expenditures)

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Expenses/Expenditures

• Expenses Recorded when a liability is incurred
• Expenditures Recorded under the current
  financial resources measurement focus basis.
• Note - The most significant differences relate to
  debt service payments, compensated absences and
  claims and judgments, which are recorded only
  when paid

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Revenues

• Revenues All increases in fund net assets,
  except those arising from interfund
  reimbursements, interfund operating and residual
  equity transfers, or long-term debt issues

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Fund Balance

• Fund Balance/Net Assets Difference between
  assets and liabilities reported in a governmental
  fund

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Due To/From Other Governments

• Due from Other Governments Amounts due to the
  reporting entity from other governmental
  reporting entities
• Due to Other Governments A liability account
  set up to record amounts due to other
  governmental entities from the reporting entity

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General Obligation/ Revenue Bond

• General Obligation Bond Bonds backed by the
  credit and taxing power of the issuing
  jurisdiction, rather than the revenue from a
  given project
• Revenue Bond Bond distinguished by their
  guarantee of repayment solely from revenues
  generated by a specified revenue-generating
  entity associated with the purpose of the bonds

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Refunding Bond

• Refunding Bond A refunding bond issue is one
  whose proceeds are used to retire outstanding
  debt of a prior bond issue

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OPEB

• OPEB (Other Post-employment Benefits)
  Post-employment benefits other than pension
  benefits. OPEB include post-employment healthcare
  benefits, regardless of the type of plan that
  provides them, and all post-employment benefits
  provided separately from a pension plan,
  excluding benefits defined as termination offers
  and benefits

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Pooled Cash

• Pooled Cash Fund and/or accounts set up to
  receive and disburse monies for other funds. They
  are not true funds in the sense of being an
  accounting entity and would not appear separately
  in the financial statements. Any assets or
  liabilities remaining in a clearing account at
  the balance sheet date will be reported on the
  financial statements of the fund serviced by the
  clearing fund (general, special revenue, etc.)

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Modified Accrual Basis

• Modified Accrual Basis of Accounting Basis of
  accounting used in conjunction with the current
  financial resources measurement focus that
  modifies the accrual basis of accounting in two
  important ways
• Revenues are not recognized until they are
  measurable and available, and
• Expenditures are recognized in the period in
  which the government in general normally
  liquidates the related liability rather than when
  that liability is first incurred

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Special Assessments

• Special Assessments Compulsory levy made
  against certain properties to defray all or part
  of the cost of a specific capital improvement or
  service deemed to benefit primarily those
  properties

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Interfund Transactions

• Interfund Transactions Activity between funds
  of the primary government, including blended
  component units. Two general types
• Reciprocal Interfund loans and inter-fund
  services provided and used
• Non-reciprocal Interfund transfers and
  interfund reimbursements

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Exchange Transactions

• Exchange Transactions Give something to get
  something (utility charges, recreation fees)

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Non-exchange Transactions

• Non-exchange Transactions A government gives or
  receives value or benefit without directly
  receiving equal value in exchange. Four types
• Derived (personal income tax, sales tax, fuel
  tax)
• Imposed (taxes, fines, penalties)
• Mandated (funds for school lunch program,
  national speed limits to be set to receive
  federal funding)
• Voluntary (grants, donations)

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Accounts
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Reporting Classifications

• Funds
• Functions
• General government
• Public safety
• Transportation
• Physical environment
• Economic environment
• Human services
• Culture/recreation
• Court-related
• Departments within functions
• Objects within departments
• Personal services
• Operating
• Capital outlay

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Accounts - Assets

• 001-00-00-101-50-00 CASH IN
  BANK/UNAPPLIED CASH ACCOUNT
• Incorporated Area
• Object/Sub-object
• Transaction Code
• Division
• Department
• Fund
• 00100001151500 ACCOUNTS RECEIVABLE
• 00100001332000 DUE FROM OTHER GOVT UNITS
• 00100001619000 LAND

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Accounts - Liabilities

• 001-00-00-202-00-00
  LIABILITIES/ ACCOUNTS
  PAYABLE
• Incorporated Area
• Object/Sub-object
• Transaction Code
• Division
• Department
• Fund
• 00100002081000 DUE TO OTHER GOVT UNITS
• 00100002160000 ACCRUED WAGES PAYABLE
• 00100002301000 BONDS PAYABLE-CURRENT

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Accounts - Equity

• 001-00-00-245-01-00 RESERVED
  FOR ENCUMBRANCES
• Incorporated Area
• Object/Sub-object
• Transaction Code
• Division
• Department
• Fund
• 00100002710000 EQUITY/ FUND BALANCE/
  UNRESERVED

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Accounts - Revenues

• 001-00-00-311-00-00 TAXES/ AD
  VALOREM TAXES
• Incorporated Area
• Object/Sub-object
• Transaction Code
• Division
• Department
• Fund
• 00100003312004 PUBLIC SAFETY GRANTS
• 00100003412000 GENERAL GOVT/ ZONING FEES
• 00100003810100 INTERFUND TRANSFER/ TRS FROM

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Accounts - Expenditures

• 001-01-10-511-12-01 REGULAR
  SALARIES
• Incorporated Area
• Object/Sub-object
• Transaction Code
• Division
• Department
• Fund
• 00101305135100 FINANCIAL ADMIN/ OFFICE
  SUPPLIES
• 00107205416721 MACHINERY EQUIPMENT /
  VEHICLES
• 00101105810000 INTERFUND TRANSFER/ TRS TO

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Reporting LiabilitiesUnder Modified Accrual
Basis of Accounting
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GASB Interpretation 6

• Liabilities normally paid in a timely manner
  should be recognized when incurred
• Unmatured long-term liabilities should not be
  reported as fund liabilities
• Compensated absences
• Claims and judgments
• Long-Term Debt Except in Proprietary Funds

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GASB Interpretation 6 (cont.)

• Clarifies early in the following year for
  unmatured debt service recognitionnot more than
  a month. Usually several days
• Effective with Statement 34

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Resources
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Resources

• FGFOA - http//www.fgfoa.org/Default.aspx
• GFOA - http//www.gfoa.org/
• AICPA - http//gaqc.aicpa.org/
• Auditor General - http//www.myflorida.com/audgen/
  pages/localgovt.htm
• Florida Single Audit Act - https//apps.fldfs.com/
  fsaa/

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Resources (cont.)

• CDFA - http//12.46.245.173/cfda/cfda.html
• GAO - http//www.gao.gov/
• State Chart of Accounts - http//www.fldfs.com/loc
  algov/UASManual/UASManFinal2005.pdf