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Governmental Exam 2

Terms in this set (80)

Enterprise funds- what is it?
proprietary fund

1)An activity is financed with debt that is secured solely by a pledge of the revenues from fees and charges of an activity
2)laws or regulations require that the activity's cost of providing services be recovered with fees and charges, rather than with taxes or similar revenues
common types of enterprise funds
Water and sewer
Gas and electric utilities
Transportation systems
Airports
Ports
Toll Roads and Bridges
Parking garages and lots
Golf Courses
Hospitals
Liquor Stores
internal service funds - what is it?
proprietary fund

Used when authorized by legislative approval to account for activities in which goods and services are provided to departments of the same government on a cost reimbursement basis → providing services to itself

improves management of common resources by placing them under centralized management and control
common types of internal service funds
motor pools
central purchasing
storage
issuance of supplies
self-insurance pools
central data processing
printing
how are proprietary funds reported in fund financial statements
Statement of Net Assets
-Major enterprise funds
-total ISF

Statement of Revenue, Expenses, and Changes in Fund Net Asset Proprietary Funds
-major enterprise funds
-total isf

Statement of Cash Flows Proprietary Funds
-major enterprise funds
-total ISF
where are proprietary funds reported in government wide financial statements
enterprise fund → reported in the business-type activities column of the gov't-wide F/S

Internal service fund → reported in governmental activities column of the government-wide F/S
the financial statements which are required to be presented for proprietary funds.
similar to those for a for-profit entity

Statement of Net Assets (Position) - balance sheet
Statement of Revenues, Expenses, and Changes in Net Assets - income statement
Statement of Cash Flows
three categories of net assets are used for proprietary fund financial statements and understand when you would reclassify net assets from one net asset category to another.
1)Unrestricted
2)Restricted → for payment of debt service
3)Invested in Capital Assets, Net of Related Debt → Net investment in Capital Assets
differences are between a Statement of Cash Flows prepared under FASB standards and a Statement of Cash Flows prepared under GASB standards.
-GASB divides financing activities into noncapital and capital and related financing activities
-Acquisition of capital assets is financing activity (rather than investing)
-Interest expense on LT debt is a capital and related financing activity (rather than operating)
-CF from operating activities are shows with Direct method
Customer advances for construction
-current liabilities
-up-front deposits required to be made by builders to provide all or part of the cost of connecting new structures to utility lines.
- not required to be refunded, but can be
Customer deposits
-liabilities Payable from Restricted Assets
-even if not refundable until service is terminated - AICPA defines as a current liability
Understand how costs associated with municipal solid waste landfills (MSWLFs) are estimated and recorded.
pay third party to monitor for the next 30 years
expensed every year - proportionate to what percentage is filled

expensed to accrued liability

reevaluate it every year
private purpose trust funds
fiduciary fund

-expendable or nonexpendable trust fund in which the allowable amounts can only be expended for "private purposes" specified by the donor


example: money given to the boy's and girl's club
agency funds - what is it and three types
fiduciary fund

-account for assets held by a governmental unit acting as an agent for one or more other governmental units, individuals, or private organizations

tax agency funds
special assessment agency funds
pass through agency funds
tax agency funds
type of agency fund

government agency that collects tax money for itself and surrounding areas and divides it up to other funds (for a collection %)
special assessment agency funds
type of agency fund

example: sidewalks for a particular neighborhood

when benefited taxpayers (not the governmental unit) are obligated to pay interest and principal on the debt (bonds are taxed to citizens to payback)
pass-through agency funds
type of agency fund

used only if the intermediate (pass through) government has NO administrative involvement or direct financial involvement in the grant

government must simply be acting as a conduit before an agency fund is used


Example: Fed Government Grant → State of MO → divided to cities/entities
Pension Trust Funds - types
fiduciary fund

defined contribution plan
defined benefit plan
defined contribution plan
pension trust fund

-specifies the amount or rate of contribution the employer and employees must make to the plan
-calculated as a percent of salary
defined benefit plan
pension trust fund

-provides a specified amount of benefits based on an actuarial formula
-based on age, salary progression and years of employment.
-due to reliance on actuarial estimates, accounting for defined benefit plans is more complex
Investment Trust Funds
fiduciary fund

used to account for the balance sheet and operating statement transaction affecting the external participants of a centrally managed investment pool
financial statements and other schedules which are required to be prepared and presented for each of the different types of fiduciary funds.
Private-Purpose Trust, and Investment Trust
-Statement of Fiduciary Net Position (balance sheet)
-Statement of Changes in Fiduciary Net Position (income statement)

Agency Funds
-Statement of Fiduciary Net Position

Pension Trust funds
-Statement of Fiduciary Net Position (balance sheet)
-Statement of Changes in Fiduciary Net Position (income statement)
-Schedule of Funding Progress (RSI)
-Schedule of Employer Contributions (RSI)
what the financial reporting entity consists of.
-Primary government
-all component units for which the primary government is financially accountable
what a component unit is, and know what criteria are used to determine whether an organization/entity is considered a component unit of a primary government.
a primary government is financially accountable for another organization if (a component unit is):
** must have one AND (two or three)
1) it appoints a voting majority of the organization's governing board AND

2) it can either impose its will on that organization (forcing them to do what they want them to do) OR
3) provide potential financial benefits to or impose financial burdens on the organization

if no voting majority:
-organization is fiscally dependent on the primary government OR
-the organization holds resources for the PG, PG is entitled to or has access to these resources and the resources being held are significant to the PG
discrete presentation
-separate columns
-most common method
blending presentation
-same columns as the primary government
-only used if financial activities of component unit are, in substance, the same as those for the PG
three sections of CAFR (comprehensive annual financial report)
introductory section
financial section
statistical section
Introductory Section
first part of CAFR

1)Table of Contents
2)Letter of Transmittal
3) Other information as deemed appropriate by management
Examples: GFOA Certificate, Organizational Chart, List of Government Officials
letter of transmittal
introductory section - first part of CAFR

1)written by CFO or CEO
2)cite legal and policy requirements for the report
3)may include subjective information, such as forecasts and expectations
examples of Other information as deemed appropriate by management
Introductory section - first part of CAFR

GFOA Certificate, Organizational Chart, List of Government Officials
financial section of CAFR
second part of CAFR

management's discussion and analysis
basic financial statements
Required Supplementary information other than MD&A
-auditor's report (optional)
-Combining the Individual Fund financial statements (optional)
MD&A
financial section - second part of CAFR

1)must be presented before basic financial statements
2)part of required supplementary information
3)limited to the specific topics required by GASB 34
4)objective information based on currently known facts
basic financial statements
financial section - second part of CAFR

government wide financial statements
fund financial statements
notes to financial statements
government wide financial statements
financial section - second part of CAFR

full accrual, economic resources measurement focus

long term focus on operational accountability
statements

Statement of Net Position
Statement of Activities
fund financial statements - only accrual method and measurement focus
financial section - second part of CAFR

governmental funds:
modified accrual, current financial resources measurement focus

proprietary funds & fiduciary funds
full accrual, economic resources measurement focus

short term focus on fiscal accountability
statistical section - five categories to present information
-tables and charts showing various data
>including multiple year-end trends in financial and socioeconomic information

should include data for the last 10 fiscal years in order to be considered useful

GASB 44 recommends present information in 5 categories
financial trends information
revenue capacity information
debt capacity information - schedule of legal debt margin
demographic and economic information
operating information
major fund determination
fund's total revenues, expenditures/expenses, assets, or liabilities must be 10% or more of the corresponding total revenues, expenditures/expenses, assets or liabilities for all governmental funds OR all enterprise funds

AND

fund's total revenues, expenditures/expenses, assets, or liabilities must be 5% or more of the corresponding total revenues, expenditures/expenses, assets or liabilities for all governmental funds AND all enterprise funds combined.
Understand why it is important to evaluate a governmental entity's financial condition.
"early warning" system of impending financial difficulty can serve to prevent disruption in critical government services

taxpayers now, more than ever, demand better performance by governmental officials

technological developments make it easier to track governmental financial performance
Financial position definition
focuses on current financial resources and ability to pay obligations in the short-run (liquidity)
financial condition definition
refers to the ability of the government to provide services at the desired level indefinitely into the future (solvency)

closely related to interperiod equity - extent to which revenues are adequate to cover the cost of services
economic condition
GASB's term that captures a composite of the (1)government's financial health and (2)its ability and willingness to meet its financial obligations and (3)its commitments to provide services

1) financial position
2) fiscal capacity
3) service capacity
three groups of factors used in the ICMA's Financial Trend Monitoring System that affect the financial condition
environmental
organizational
financial
environmental factors
ICMA's Financial Trend Monitoring System.

-causative factors affect financial condition
>community needs and resources (income, wealth, poverty, employment)
>external economic conditions (regional and national)
>intergovernmental constraints (grants, mandates, etc)
>disaster risk (natural disasters - earthquakes, floods, tornadoes, fire, etc. and manmade disasters - chemical spills, labor strikes, etc)
>political culture (attitudes, party dominance, etc)
Organizational factors
these factors shape or influence how environmental factors affect the outcome of financial factors

most important are management practices and legislative policies
financial factors
are the result of other factors-

not the cause of other factors include
1)revenues (sources of resources)
2)expenditures (uses of resources)
3)operating position (operating results and fund balances)
4)debt structure (short and long term debt burden)
unfunded liabilities (pensions and post-employment benefits)
5)condition of the plan (including deferred maintenance)
how financial analysis may be performed for governmental entities.
examine multiple-year trends in financial factors, as well as those for one year or a single point in time

financial, environmental, and organizational factors need to be examined together.
-there is no generally accepted method of evaluation; experts do not agree on how much weight should be placed on various factors
-evaluation is as much subjective as objective
signs of fiscal distress
decline in revenues relative to expenditures
declining property values
declining economic activity
erosion of capital plant
increasing levels of unfunded obligations
inadequate capital expenditures
Unrestricted Net Position
financial position ratio

measures adequacy of the amount of gov's total UNP/total rev
General Fund Budget Fund Bal
financial position ratio

GF budgetary fund balance at measurement date
Capital Asset Condition
financial position ratio

extent to which total depreciable cap assets are reaching the end of useful their lives and may need replacement
Pension Plan Funding
financial position ratio

funding status of a single employer or agent pension plan
Debt to Assets
financial position ratio

measure of the degree to which the government's total assets have been funded with debt as of the measurement date
current ratio
financial position ratio

a measure of the government's ability to pay its short-term obligations as they become du
quick ratio
financial position ratio

a more conservative measure of the government's liquidity that focuses on unrestricted cash and cash equivalents
change in net position
financial performance ratio

change in overall financial condition of gov & bus-type (not fid)
interperiod equity
financial performance ratio

a measure of whether the government has lived within its means for the year
Sales Tax Growth
financial performance ratio

measure of the state & local economy
BTA Self-Sufficiency
financial performance ratio

measure of extent to which the gov's business activities are funded with current year service revenues
Debt Service Coverage
financial performance ratio

extent to which gov met its service debt req on rev bonds
Revenue Dispersion
financial capability

exposure to potential financial difficulties from reliance on rev sources beyond direct control of gov
Debt Service Load
financial capability

extent gov's noncapital expenditure are comprised of pmts of principal & in on LT debt
Bonded Debt Per Capita
financial capability

gov's bonded debt burden on taxpayers
Available Legal Debt Limit
financial capability

measure of gov's capacity to issue general bonded debt
property Taxes per Capita
financial capability

gov's prop tax burden on taxpayers
Sales Tax Rate
financial capability

measure of gov's capacity to raise additional sales tax if needed
main differences between the generally accepted auditing standards (GAAS) and the generally accepted government auditing standards (GAGAS).

reporting bodies
what do they govern
standards
GAAS= AICPA.
-Financial audits only.
-10 standards. - general, fieldwork, reporting

GAGAS= GAO.
-Financial audit, attestation, performance audits.
-Aka yellow book.
-greater emphasis on compliance
-required for audits of orgs that spend more than $500,000/yr in fed grants
three categories of generally accepted auditing standards (you do NOT have to know any of the specific standards under the three categories).
General, Field Work, Reporting
four types of audit reports
unqualified (clean) opinion - FS present fairly in conformity with GAAP. explanatory language may be added.

qualified opinion - except for matter noted, FS present fairly in conformity with GAAP.

adverse opinion - FS do not present fairly in conformity with GAAP

disclaimer of opinion - an opinion is not given, often due to inability to obtain records or non-existence of records.
four parts to standard auditors report
-Opening Paragraph (id's stmts)
-Scope (nature of audit)
-Opinion (fairness of f/s)
-Explanatory (for gov audits)
financial audits
performed to give an opinion as to whether f/s are presented fairly in conformity with GAAP
Attestation Engagements
examinations or procedures that lead to a report & assertion about subject matter that is the responsibility of another party

-audit for non financial statement stuff
Performance Audits
determination of whether managers are using resources efficiently and effectively in accomplishing organizational goals
Single Audit
-performed in relation to federal grants that have been provided to state and local governments
-intended to improve the efficiency and effectiveness of the governmental audit effort
-all federal awarding agencies are required to accept the single audit reports as satisfying their program's audit requirements
-must be performed for all SALT governmental entities as well as all not for profit organizations, expending $500,000 or more in federal awards
-a risk-based approach is used to place grater audit coverage on high risk programs
-OMB Circular A-133 and the related compliance supplement provide implementing guidance for conducting a single audit
what the single audit reporting package consists of
-FS & schedule of expenditures of federal awards
-summary schedule of prior audit findings
-auditors reports
-corrective action plan
single auditors report (within audit report package)
-opinion on f/s & schedule of expenditures of federal awards
-report on IC
-Report & opinion on compliance w/ law, reg, contract agreements
-Schedule of Findings & Questioned Costs
Audit Findings - definition
Schedule of Findings and questions costs

IC weaknesses, instances of non-compliance, questioned costs, mat mis
Reportable conditions - definition
schedule of findings and questioned costs

internal control weaknesses

significant IC deficiencies that could adversely affect compliance
Material Weaknesses
schedule of findings and questioned costs

internal control weaknesses

severe reportable conditions that render IC ineffective in reducing the risk of non-compliance to an acceptably low level
Questioned Costs
instances of non-compliance where the costs are either not allowable, unreasonable, or not supported by adequate documentation.
- > 10,000 must be reported in Schedule of Findings & Questioned Costs!!!
selection of programs for single audit
minimium - all high risk type A programs and either:
1) half of high risk Type B programs OR
2) one high-risk Type B program of each low-risk Type A program

enough major programs must be audited to ensure at least 50% total federal award expenditures were audited (50% coverage rule)
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