HomeMy Public PortalAbout13) 9A GASB 54DATE: May 15, 2012
AGENDA
ITEM 9.A.
ADMINISTRATIVE SERVICES DEPARTMENT
TO: The Honorable City Council
MEMORANDUM
FROM: Jose E. Pulido, City Manager 6!r
By: Tracey L. Hause, Administrative Services Director
SUBJECT: GASB 54 FUND BALANCE POLICY
RECOMMENDATION:
The City Council is requested to:
Adopt the attached Policy (Attachment "A") to classify current fund balance categories to
be in accordance with the fund balance classifications contained in the reporting
requirements of Statement 54 of the Government Accounting Standards Board (GASB)
effective June 15, 2010.
BACKGROUND:
1. In February 2009, the Government Accounting Standards Board issued Statement No.
54, "Fund Balance Reporting and Government Fund type Definitions" (GASB 54). The
Statement required governmental entities, like the City, to adhere to the reporting
requirements and adopt a policy implementing GASB 54 if they were to receive a
qualified or "clean" audit opinion.
2. On March 8, 2012, a Special Meeting was held in which among other items, a Budget
Reserve Policy was presented by staff. Budget reserve options were provided for
Council's consideration containing minimum and maximum targets for reserve funds
and identifying how such funds should be classified for GASB 54 reporting purposes.
The City Council was requested to provide direction regarding funding amounts for
each category and classification. Council concurred to refer this item to the Budget Ad
Hoc Committee (Mayor Yu and Council member Blum) to meet with staff and return to
the City Council with a recommendation.
3. On April 6, 2012, staff met with the Budget Ad Hoc Committee (i.e., Mayor Yu and
Council member Blum) and discussed the elements for General Fund Reserves.
There were also a number of occasions between March 8t" and May 1St that individual,
informal discussions occurred with both Mayor Yu and Council member Blum
regarding minimum and maximum ranges. For ease of administration and for
accounting and reporting purposes of this reserve policy, it was suggested by staff, and
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May 15, 2012
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the Budget Ad Hoc Committee members concurred, that one reserve level or dollar
amount be brought forward for approval by the City Council.
4. On April 17, 2012, the City Council received and filed the Comprehensive Annual
Financial Report (CAFR) at June 30, 2011, and Fund Balances were reported and
classified in accordance with GASB 54, as a formal policy had yet to be adopted by the
City.
5. On May 1, 2012, the City Attorney and Administrative Services Director recommended
to the City Manager, that for ease of clarity, the adoption of the GASB 54 Fund Balance
Policy and the Budget Reserve Fund Balance requirements to be adopted by
Ordinance (as recommended by the Budget Ad Hoc Committee), should be considered
separately as each proposed action has a different objective. The GASB 54 is a fund
balance classification and financial reporting mandate only and is recommended to be
adopted by policy only. The Budget Reserve Fund Balance requirements address how
General Fund Reserves can and cannot be spent and the requirements for the
Reserves should be adopted by Ordinance. Further the proposed Budget Reserve
Fund Balance Requirements is intended for the General Fund only and GASB 54 must
address all funds.
6. On May 4, 2012, staff met with the Budget Ad Hoc Committee (i.e., Mayor Yu and
Council member Blum) to discuss the merits of separating the GASB 54 Fund Balance
Policy and the Budget Reserve Fund Balance requirements. The City Council Budget
Ad Hoc Committee concurred with staffs recommendation.
ANALYSIS;
In order to provide clarity and transparency to all accounting and budgeting policies,
after careful consideration by staff and the City Council Budget Ad Hoc Committee on
May 4, 2012, it is recommended that the City Council consider the GASB 54 Policy and
the Budget Reserve Fund Balance requirements separately. This staff report is only
recommending adoption of the City of Temple City's GASB 54 Policy. The Budget
Reserve Policy will come forward under a separate action.
In order to be in compliance with the Government Accounting Standards Board (GASB),
the City Council is requested to adopt the provisions of GASB 54 by Policy. As outlined
in the Policy, the definition of Fund Balances and the categories are:
Fund Balance - All financial assets less liabilities normally expected to be liquidated with
current financial resources.
The following are categories of fund balance:
a. Nonspendable
Amounts that cannot be spent because they are either (a) not in a spendable form
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May 15, 2012
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or (b) legally or contractually required to be maintained intact. The "not in spendable
form" criterion includes items that are not expected to be converted into cash (e.g.,
inventories and prepaid amounts). This also includes long-term loans and notes
receivable and property held for resale. However, if the use of the proceeds from
the collection of those receivables or from the sale of those properties is Restricted,
Committed, or Assigned, then they should be included in the appropriate fund
balance classification (Restricted, Committed, or Assigned), rather than
Nonspendable Fund Balance. The corpus (or principal) of a permanent fund is an
example of an amount that is legally or contractually required to be maintained
intact
b. Restricted
Except as provided for in the Nonspendable Fund Balance definition, amounts that
are restricted to specific purposes should be reported as Restricted Fund Balance.
Fund balance should be reported as restricted when constraints placed on the use
of resources are either: (a) externally imposed by creditors, grantors, contributors,
or regulations of other governments; or (b) imposed by law through constitutional
provisions or enabling legislation.
c. Committed
Amounts that can only be used for the specific purposes pursuant to constraints
imposed by formal action of the adoption of a Resolution, the government's highest
level of decision-making authority should be reported as Committed Fund Balance.
Those Committed amounts cannot be used for any other purpose unless the
government removes or changes the specified use by adoption of a Resolution.
Committed Fund Balance also incorporates contractual obligations to the extent
that existing resources in the fund have been specifically committed for use in
satisfying those contractual requirements.
d. Assigned
Amounts that are constrained by the government's intent to be used for specific
purposes, but are neither Restricted nor Committed, should be reported as an
Assigned Fund Balance, except for stabilization arrangements which will be
reported as restricted or committed or unassigned. Intent can be expressed by (a)
the governing body itself or (b) a body (Ad Hoc Budget Committee) or official to
which the governing body has delegated the authority to assign amounts to be
used for specific purposes. By adoption of this Policy, it is recommended by the
Budget Ad Hoc Committee (Mayor Yu and Councilmember Blum) the City Council
delegates the authority to the City Manager to assign amounts to be used for
specific purposes. Both the Committed and Assigned Fund Balance classifications
include amounts that have been constrained to being used for specific purposes by
actions taken by the government itself. Assigned Fund Balance includes (a) all
remaining amounts (except for negative balances) that are reported in
governmental funds, other than the general fund, that are not classified as
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May 15, 2012
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Nonspendable and are neither Restricted nor Committed and (b) amounts in the
general fund that are intended to be used for a specific purpose.
A comparison of actions required to Commit or Assign Fund Balances is presented
for clarification and transparency:
Committed Assigned
A decision to use funds for a specific
purpose requires action of governing Yes No
body
Formal action of governing body is
necessary to impose, remove or modify
this constraint and formal action has Yes No
taken place before end of reporting
period
e. Unassigned
Unassigned fund balance is the residual classification for the general fund. This
classification represents fund balance that has not been assigned to other funds
and that has not been Restricted, Committed, or Assigned to specific purposes
within the general fund. The general fund should be the only fund that reports a
positive Unassigned Fund Balance amount. In other governmental funds, if
expenditures incurred for specific purposes exceeded the amounts Restricted,
Committed, or Assigned to those purposes, it may be necessary to report a
negative Unassigned Fund Balance
Additional considerations for policy include:
1. The authorization level for committing Fund Balance is established by the City
Council. Formal action of the City Council will be defined as an adoption of a
Resolution, taking place at a publicly noticed meeting;
2. The City Council delegates the authority of the City Manager to assign amounts to
be used for specific purposes; and
3. The City Council will undergo an annual reaffirmation process prior to the fiscal year-
end, to review the Restricted, Committed and Assigned amounts to be reported as a
result of previous actions in the fiscal year in accordance with the adopted Policy, to
ensure they accurately reflect the City Council's desired Fund Balance
classifications. As part of the reaffirmation process, the City Council will review all
levels of Fund Balance and determine what action, if any, is needed to modify the
existing Fund Balance levels or to leave them as is.
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May 15, 2012
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CONCLUSION:
In order to receive and unqualified or "clean" opinion on the City's Comprehensive Annual
Financial Report (CAFR) by the independent auditors (i.e., Vasquez and Company, LLP)
the City must be in compliance with the Government Accounting Standards Board issued
Statement No. 54, "Fund Balance Reporting and Government Fund type Definitions"
(GASB 54). As part of the compliance the City must adopt a policy implementing GASB
54. Adoption of the attached policy is recommended in order to ensure an unqualified
opinion.
FISCAL IMPACT:
This action does not have an impact on the Fiscal Year (FY) 2011-12 City Budget.
ATTACHMENT:
A. City of Temple City GASB 54 Policy
CITY OF TEMPLE CITY
FUND BALANCE POLICY
PURPOSE:
Attachment "A"
The purpose of this policy is to classify current fund balance categories to be
accordance with the fund balance classifications contained in the reporting
requirements of Statement 54 of the Government Accounting Standards Board (GASB)
effective June 15, 2010.
The elements of the policy are created by the City of Temple City for its own purposes
and may, therefore, be revised by the City as needed in the future.
STATEMENT OF POLICY:
The following classifications of Fund Balance are established in conformance with
GASB 54.
a. Nonspendable fund balance
b. Restricted fund balance
c. Committed fund balance
d. Assigned fund balance
e. Unassigned fund balance
The authorization level for committing is established by the City Council. Formal action
of the City Council will be defined as an adoption of a Resolution taken at a publicly
noticed meeting.
The City Council will undergo an annual reaffirmation process prior to the fiscal year-
end, to review the Restricted, Committed and Assigned amounts to be reported as a
result of previous actions in the fiscal year in accordance with the adopted Policy, to
ensure they accurately reflect the City Council's desired Fund Balance classifications.
As part of the reaffirmation process, the City Council will review all levels of Fund
Balance and determine what action—if any—is needed to modify the existing Fund
Balance levels or to leave them as is.
DEFINITIONS AND REPORTING:
Fund Balance is defined as all financial assets less liabilities normally expected to be
liquidated with current financial resources.
The following are categories of fund balance:
a. Nonspendable
The Nonspendable Fund Balance classification includes amounts that cannot be
spent because they are either (a) not in a spendable form or (b) legally or
contractually required to be maintained intact. The "not in spendable form"
criterion includes items that are not expected to be converted into cash (e.g.,
inventories and prepaid amounts). This also includes long-term loans and notes
receivable and property held for resale. However, if the use of the proceeds from
the collection of those receivables or from the sale of those properties is
Restricted, Committed, or Assigned, then they should be included in the
appropriate fund balance classification (Restricted, Committed, or Assigned),
rather than Nonspendable Fund Balance. The corpus (or principal) of a
permanent fund is an example of an amount that is legally or contractually
required to be maintained intact
b. Restricted
Except as provided for in the Nonspendable Fund Balance definition, amounts
that are restricted to specific purposes, should be reported as Restricted Fund
Balance. Fund balance should be reported as restricted when constraints placed
on the use of resources are either: (a) externally imposed by creditors, grantors,
contributors, or regulations of other governments or (b) imposed by law through
constitutional provisions or enabling legislation.
c. Committed
Amounts that can only be used for the specific purposes pursuant to constraints
imposed by formal action of the adoption of a Resolution, the government's
highest level of decision-making authority should be reported as Committed Fund
Balance. Those Committed amounts cannot be used for any other purpose
unless the government removes or changes the specified use by adoption of a
Resolution. Committed Fund Balance also incorporates contractual obligations to
the extent that existing resources in the fund have been specifically committed
for use in satisfying those contractual requirements.
d. Assigned
Amounts that are constrained by the government's intent to be used for specific
purposes, but are neither Restricted nor Committed, should be reported as an
Assigned Fund Balance, except for stabilization arrangements which will be
reported as restricted or committed or unassigned. Intent can be expressed by
2
(a) the governing body itself or (b) a body ( Ad Hoc Budget Committee) or official
to which the governing body has delegated the authority to assign amounts to be
used for specific purposes. By adoption of this Policy, the City Council delegates
the authority to the City Manager to assign amounts to be used for specific
purposes. Both the Committed and Assigned Fund Balance classifications
include amounts that have been constrained to being used for specific purposes
by actions taken by the government itself. Assigned Fund Balance includes (a)
all remaining amounts (except for negative balances) that are reported in
governmental funds, other than the general fund, that are not classified as
Nonspendable and are neither Restricted nor Committed and (b) amounts in the
general fund that are intended to be used for a specific purpose.
Comparison: Committed vs. Assigned
Committed Assigned
A decision to use funds for a specific
purpose requires action of governing Yes No
body
Formal action of governing body is
necessary to impose, remove or modify
this constraint and formal action has Yes No
taken place before end of reporting
period
e. Unassigned
Unassigned fund balance is the residual classification for the general fund. This
classification represents fund balance that has not been assigned to other funds
and that has not been Restricted, Committed, or Assigned to specific purposes
within the general fund. The general fund should be the only fund that reports a
positive Unassigned Fund Balance amount. In other governmental funds, if
expenditures incurred for specific purposes exceeded the amounts Restricted,
Committed, or Assigned to those purposes, it may be necessary to report a
negative Unassigned Fund Balance