GASB 34 Implementation and Other Financial

Reporting Issues

August 23, 2002Ren E. Wiles

Preeta Nayak

GASB 34

FYE 6/30/2002, 28 BOEs will be using the new financial reporting model.

88 BOEs to implement GASB 34 in the 2002-2003 fiscal year.

BOEs implementing this year

ALAMANCE-BURLINGTON SCHOOL SYSTEM JOHNSTON COUNTY SCHOOLSBUNCOMBE COUNTY SCHOOLS NASH COUNTY/ROCKY MOUNT CITY SCHOOLSCABARRUS COUNTY SCHOOLS NEW HANOVER COUNTY SCHOOLSCATAWBA COUNTY SCHOOLS ONSLOW COUNTY SCHOOLSCHARLOTTE/MECKLENBURG CO. SCHOOLS PITT COUNTY SCHOOLSCUMBERLAND COUNTY SCHOOLS ROBESON COUNTY SCHOOLSDAVIDSON COUNTY SCHOOLS ROCKINGHAM COUNTY SCHOOLSDURHAM PUBLIC SCHOOLS ROWAN COUNTY/SALISBURY CITY SCHOOLSGASTON COUNTY SCHOOLS UNION COUNTY SCHOOLSGUILFORD COUNTY SCHOOLS WAKE COUNTY SCHOOLSHARNETT COUNTY SCHOOLS WAYNE COUNTY SCHOOLSIREDELL COUNTY/STATESVILLE CITY SCHOOLS WINSTON-SALEM/FORSYTH COUNTY SCHOOLS

Boards of Education in North Carolinaby Implementation Phase for GASB 34

Phase 1

What is GASB 34 and what does it mean to me?

Measuring what it costs to run the entire school operation, rather than “What resources do I have for the next fiscal year?”

To those of you in Phase 1…

What have you learned that you wish someone had told you before you got into this?

Overview of Changes

Financial statements under GASB 34 will apply full accrual accounting to governmental funds. Infrastructure will be recognized. GFAAG & GLTDAG will be gone. Depreciation will be taken as an

expense on all depreciable assets.

Continued

The cost of services/programs will be disclosed. Program expenses will be shown on

the Statement of Activities. Revenues directly related to the

program will be matched. Unmatched revenues will be reported

as General Revenues.

What to expect this first year.We expect that… This has not had/will not have a

tremendous impact on your day-to-day accounting.

PREPARING to present on GASB 34 basis has been/will be a time consuming processes.

Phase 2 Boards, make friends with the Phase 1 BOE most like your own.

How will this affect NC Boards of Education?

What level of expenses will you show? GASB Statement 34, paragraphs 39 & 40 Detail should match what is shown on

statement of revenues, expenditures & changes in fund balance.

Should at least be by Function. Show more detail is it improves

usefulness.

The “A” word.

Stands for Allocation Certain expenses should be

matched to the function they support. Employee Benefits Depreciation Capital Outlay

Employee Benefits

Allocate the expenses in the 5900 and 6900 purpose codes.

5910 & 5920 sub-purpose codes should be allocated to the appropriate function. Look to your information technology staff.

Can they extract the information you need?

Same applies to 6910 & 6920.

continued,

5930 & 6930 for staff development may be reported as “Other Instructional (Support) Programs.”

Accumulated annual leave should be allocated also.

Phase 1 Boards

Phase 1 boards, talk early with your auditor about the materiality level of the government-wide statements.

Because local, federal & state $$ will be together in the government-wide statements, the materiality level should be higher than what we are used to.

Phase 2 Board

Make friends with a Phase 1 board that is similar to your own.

Question 108, Implementation Guide

Should depreciation be charged to specific functions or programs in the government-wide statements? A—Depreciation expense for the following types of capital assets is required to be included in

the direct expenses of functions or programs: · Capital assets that can be specifically identified with a function or program · “Shared” capital assets (for example, a facility that houses the police department, the building

inspection office, and the water utility office). Depreciation expense for capital assets that essentially serve all functions, such as a city hall or

a state administrative office building, may be: · Included in an indirect expense allocation (optional) to the various functions or programs

(Appendix 3, Exhibit 2) · Reported as a separate line in the statement of activities; however, the account title should make

the reader aware that it does not include all depreciation (for example, “unallocated depreciation”) (Appendix 2, Exhibits 21 and 33)

· Reported as part of the “general government” (or its counterpart) function (Appendix 2, Exhibit 2).

Depreciation expense for infrastructure assets associated with governmental activities should be reported as either:

· A direct expense of the function (for example, public works or transportation) that is normally used for capital outlays for and maintenance of infrastructure assets (Appendix 2, Exhibit 2)

· A separate line in the statement of activities (again noting the extent of the depreciation expense presented) (Appendix 2, Exhibits 21 and 33).

Expected Allocation

School bus depreciation should be accounted for in purpose code 6500, Business Support Services.

Computers used only in classrooms should be accounted for in purpose code 5100, Regular Instruction Program

Unallocated Depreciation*

Because some assets may serve multiple functions, the depreciation may be presented as a separate line item.

* Disclose on the face of the statement of activities that this amount does not include direct depreciation.

Depreciation continued.

Note disclosure should contain full depreciation information. I.E., what was allocated as a direct expense and what was not.

Capital Outlay

Not a program on the government-wide statements.

Majority of the expenditures will be capitalized & depreciated.

Items not capitalized should be matched with the specific purpose/function.

Category 1, not capitalized

Likely these assets are for maintenance & repair work.

These should be allocated to the 6500 purpose code, Business Support Services, because physical plant maintenance would go to the 6580 purpose code.

Category 2, not capitalized

Remember, as much as possible should be allocated to the specific function/purpose that it serves.

For those expenditures which can’t be allocated, purpose code 6500 again appears to be the best allocation.

Category 3, not capitalized

Items here are related to transportation, purpose code 6550.

Therefore, items not capitalized nor allocated to a specific program/function, should be allocated to purpose code 6500, Business Support Services.

Indirect Costs.

Because the government-wide statements will combine several funds, indirect cost allocations should be eliminated. Revenue Code 4880, indirect cost

revenue in Local Current Exp. and expenditure in purpose code 8000 should be eliminated.

See Memo #973 for further details.

But what about Revenues?

Revenues must be classified as: Charges for service, Operating Grants and Contributions, Capital Grants and Contributions, or General Revenues

Appendix B to Memo #973 will classify the majority of school revenues.

Single Audit issues

By change in State law, the staff of the LGC now assembles, approves and distributes the Compliance Supplements. Formerly the State Auditors responsibility.

Single Audit issues, 2

State Public School Building Bond Fund and State Public School Building Capital Fund are grants to the counties.

Schools report revenues & expenditures, if they are performing the transactions.

Should appear on the school’s Schedule of Expenditures of State & Federal Awards

Single Audit issues, 3

GAGAS findings and Single Audit findings should all have corrective action plans.

A contact person and anticipated completion date should be included.

Single Audit issues, 4

“Cluster of Programs” should be treated as one program.

Summer School Lunch program (10.559) is part of the Child Nutrition Cluster. This program should be included in the cluster audit.

Single Audit issues, 5

Medicaid Reimbursement NC Information Highway

Appeared on several Schedule of Expenditure of Fed. & St. Awards last year.

Our understanding is that these are not financial assistance. They should not be on the Schedule.

Questions on the Preceding?

Contact Mr. Jim Burke, 919-807-2383.

Or, Ms. Jean Slaughter, 919-807-2391.

Major changes to the audit manual

Technical adjustments to: Valuation of investments Risk management note

Show contribution of school buses Adjust forfeited vehicle note. Include contingent liability note for

pending litigation.

Charter Schools

All NC charter schools should be Phase 3 implementation, 2003-04 fy.

Area of concern, related party transactions. Make sure that conflict of interest policy

is adopted. Make sure that policy is followed. Disclose related party transactions.