May 18, 2000 - Meeting Highlights - Virginia APA



GASB 34 FOCUS GROUP

May 18, 2000 Meeting Highlights

Members Present

Terry Adams, Hanover County John Kroll, County of Rockingham Bill Johnson, City of Colonial Heights

Rob Churchman, KPMG Peat Marwick Walter Kucharski, APA John Kroll, County of Rockingham

Sammy Cohen, VA Beach City Public Schools Mary Lechner, City of Norfolk Walter Kucharski, APA

J. P. D'Amato, Dept. of Education Doreen Quane, City of Chesapeake Doreen Quane, City of Chesapeake Mary Lechner, City of Norfolk

Ellen Davenport, VACO J. P. D'Amato, Dept. of Education Anne Seward, Isle of Wight County

Jeff Franklin, Chesterfield County Ellen Davenport, VACO Laura Triggs, City of Alexandria

Phil Grant, Town of Vienna Jeff Franklin, Chesterfield County Kim Via, APA

Staci Henshaw, APA Phil Grant, Town of Vienna Greg Whirley, VDOT

Bill Johnson, City of Colonial Heights Staci Henshaw, APA Nannette Williams, APA

Comparative Cost Report (CCR) (Walter Kucharski)

□ The CCR format will not change. However, the reconciliation between the financial statements and the CCR will change due to the implementation of GASB 34. The reconciliation will probably occur at the major fund level since the entity-wide level would be difficult. If CCR reporting is based on fund statements, depreciation will not be booked except for enterprise funds.

□ The CCR does not currently capture capital assets. Since CCR reporting is based on fund statements, capital assets will continue to be excluded. Therefore, infrastructure assets will not have to be reported in the CCR. However, the cost of construction of infrastructure assets will continue to be captured.

□ The CCR is not a financial reporting mechanism. It is a means of capturing data for comparison. The Uniform Financial Reporting Manual (UFRM) is a guide to provide accurate reporting in the CCR. The UFRM is not GAAP.

□ The APA cannot grant waivers or extend deadlines for the CCR because the deadlines are established by law.

□ The APA is currently updating the Uniform Financial Reporting Manual.

City of Alexandria (Laura Triggs)

□ Alexandria has decided to early implement GASB 34 in fiscal year 2000. In order to prepare for early implementation, Alexandria prepared a Statement of Net Assets and Statement of Activities for fiscal year 1999, which they included as statistical tables in their CAFR. In addition, they included some of the information required for MD&A in their transmittal letter. The City's CAFR is available on their website. ()

□ Laura's main message was that “it can be done”. GASB 34 is basically “a new presentation for familiar information”. She recommends working with your auditors, your budget staff, your programmers, and other “stakeholders” when implementing GASB 34.

□ Laura recommends preparing the information for the CCR along with the Statement of Activities. The CCR format assists in classifying revenue and expenditures on the Statement of Activities.

□ The budget comparison information came from information their Budget Office already had.

□ Alexandria had a difficult time determining whether revenue items were taxes or fees and would like some uniform guidance in this area. It was the general consensus of the group that more guidance in this area would be welcome.

□ Alexandria is NOT going to allocate indirect costs nor are they using the modified approach for infrastructure.

▪ they have cost records in the form of audited general ledgers dating back to 1982, they will use budget documents for 1980 and 1981

▪ they also implemented an asset management system 4 years ago that captures depreciation

▪ they depreciate to zero - no salvage value is used

▪ estimated useful lives were already established by the City Council and were in the budget books

□ For roads, if the city maintains the road (if an item went through their operating budget for that road, they consider themselves maintaining it), then they capitalized it.

□ Alexandria City Schools: The schools report the assets and Alexandria reports the debt.

Infrastructure

ROADS:

□ VDOT (Greg Whirley) will share information with localities to assist them in determining road ownership. VDOT may have documentation detailing what roads the cities own and what roads the state owns.

□ VDOT will share its methodology for estimating historical cost of infrastructure with the localities. VDOT is in the process of forming committees to address infrastructure at the state level. They do not have 20 years worth of historical cost information. Therefore, they plan to estimate historical cost by region by determining what it costs to build a lane-mile of road. VDOT will then deflate the present day cost to the estimated cost when the road was constructed.

□ The localities asked for assistance in determining appropriate useful lives. VDOT and APA will work together to determine appropriate useful lives for infrastructure assets and provide this information to the localities.

□ Counties:

▪ In general, the state owns the roads in all the counties except for Arlington and Henrico. However, the counties may own subdivision roads for a period of time before they are turned over to the state.

▪ In instances where counties contribute funds to VDOT for road maintenance, the state will still report the roads on their financial statements.

□ The Cities should look to their Public Works Department for information.

▪ Determine whether Public Works have a comprehensive map of the locality and information concerning what they are responsible for maintaining.

Other Capital Asset Issues

Suggestions for Reporting Capital Assets (Including Infrastructure)

□ Start Now!

▪ You need to systematically go through what you have and decide what assets you need to capture.

□ Where to Get Information

▪ General Ledger

▪ Budget Documents

▪ City Council / Board Minutes

▪ Public Works Department

▪ Schools

□ Review Your Capitalization Criteria

▪ You may want to have different capitalization criteria for each class of capital assets. Also, you need to re-examine your classes of assets.

▪ Your capitalization policy may be the key! Down the road, it makes deciding what is maintenance very easy.

□ Identify All Infrastructure Assets

▪ You may find you have substantial assets not on the books.

▪ Infrastructure includes right-of-ways and easements.

▪ Sub-surface infrastructure (water & sewer, drainage, etc.) needs to be captured, as well.

□ You only have to report capital assets back to 1980 (which is 25 years back from the phase 1 implementation date)

▪ You can use appraisal companies to estimate historical cost for capital assets when records that document actual historical cost are not available. The appraisal process may add a lot of assets to the books very quickly.

▪ Localities could join together to seek discounts on appraisal services. VML and VACO may be able to assist the localities in procuring these services.

□ Work with Component Units

▪ Re-examine who has ownership of the property. Determine who has clean title to the asset.

▪ Schools: Determine whether the locality or the school will record baseball fields, soccer fields, lighting for sports fields, and other infrastructure assets.

▪ Tidewater Area Localities: Work with the Hampton Roads Sanitation District and determine what the sanitation district owns and what the localities own

▪ Capital Asset Debt:

➢ Some of the debt currently reported by the primary government may belong to the component unit (schools). (ex. Literary Fund and Virginia Public School Authority Loans)

➢ In order to determine where the asset and debt should be reported you should consider whether the debt was specifically allocated for the schools, who pays the debt service, who is ultimately liable for the debt, and who has the title for the asset. Also, determine how the debt service payments are budgeted.

➢ Before changing the current presentation you should consult with your auditor, legal council, and elected officials.

➢ Under the current model, this does not negatively impact the localities because the debt is reported in the GLTDAG. However, under GASB 34 this may negatively impact the localities net asset position since it will not have the assets to offset the liabilities.

➢ General Obligation Bond debt cannot be reported by the school unless they have taxing authority.

□ Prepare a mock Statement of Net Assets to determine your net asset position

▪ Be prepared to explain the reason for negative numbers.

▪ You may have a lot of business questions that you did not have before GASB 34.

□ Retroactive reporting of infrastructure assets is not required until four years after the applicable effective date of GASB 34. Prospective reporting of infrastructure assets is required beginning at the effective dates of GASB 34. All other Capital Assets are required to be reported (retroactively and prospectively) at the effective date of GASB 34. Depreciation will have to reported on these assets, as well. Therefore, you need to have an asset management system in place prior to your required implementation date.

□ There will be more work required for the localities that do not currently report general fixed assets.

Revenue Classifications

□ The localities asked for assistance in classifying revenue items as general or program. The APA agreed to provide guidance concerning how revenue items should be classified. The APA requested that localities submit information to them concerning the type of revenue collected. The APA will also provide guidance concerning the classification of intergovernmental revenues.

□ Revenue items discussed

▪ State sales tax revenue that is distributed to the locality to be used for education. The classification depends on how the funds are included in the localities’ budget. Also, when should the locality accrue sales tax revenue?

▪ Fines and costs

▪ Interest that is restricted for use

▪ Intergovernmental revenue (Compensation Board and Jail Reimbursements)

▪ Lottery proceeds distributed to the localities and held in escrow

▪ E911 Revenue (State and Local)

□ Suggestions for Classifying Revenue Items

▪ Review how revenue items are accounted for in the legally adopted budget. Work with budget department to determine how items should be classified on the Statement of Activities.

▪ Just because an item is currently reported as Special Revenue does not automatically mean it will be program revenue.

▪ Some revenue items may be classified as a fee when they are in fact a tax and vice versa. Consider reclassifying revenue items to better reflect the nature of the item. This decision will have to be made at a higher level than just financial reporting.

▪ When classifying program revenue remember that the current GASB interpretation is that revenue should be attributed to the function that generates the revenue, not the function that uses the revenue.

▪ Legal restrictions or designations can assist in determining which function to apply program revenue.

Component Units

□ Per GASB 14, schools must be discretely presented. Most of the school boards in Virginia are elected and control their own budget once the funds are received from the locality.

□ The APA recommends that schools be reported separately from other component units on the localities government-wide statements. The APA recommends using 2 columns for component units on the entity-wide presentation: 1 for the schools and 1 for all other component units.

Major Fund Classification

□ You are statutorily required to have certain funds, and these, at a minimum, must be considered in determining major funds.

Historical Treasures

□ It may be difficult to determine the value. The state does not plan to report historical treasures on its financial statements.

□ Library books are capital assets.

Management's Discussion & Analysis (MD&A)

□ MD&A will create problems. Boards and city councils will have to be involved in determining what information will be presented in the MD&A. This will be a bigger problem for smaller localities whose CPA firms currently prepare everything.

□ Management has to sign-off on MD&A. Auditors and localities need to determine who has to sign-off on MD&A. (i.e. City Manager, Mayor, Board of Supervisors, City Council, School Board Superintendent, etc.)

□ The Finance Department needs to communicate with elected officials (or whoever they determine needs to sign-off on MD&A) to be sure they are informed of the MD&A requirements and prepared to provide the required information.

□ MD&A is only currently known facts.

Other Issues

□ Phase 1 localities should start thinking about accruals as they close the 2001 books. Don't wait until 2002.

□ When contracting for audit services the localities need to consider when they are required to implement GASB 34. It may be difficult to break in a new auditor in the year when you are required to implement GASB 34.

□ Budgets

▪ By law, localities cannot spend money without an appropriation.

▪ The legally adopted budget is required to be reported as RSI under GASB 34

▪ Localities need to determine what is their legally adopted budget.

▪ In general, there is no basis in law for a capital outlay fund. The appropriation for capital outlay is in the general fund, not a capital outlay fund.

Future Meeting Dates

□ We will continue to meet on Thursdays.

□ We plan to meet at six-week intervals.

□ Next meeting will be held on June 22, 2000, from 9:30 a.m. to 2:30 p.m. The location will be announced at a later date.

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