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Government Finance Officers Association

Basics in Project AccountingJuly 30, 2020

Speakerso Mike Mucha Director, Research and Consulting Deputy Executive Director

o Rob Roque Technology Solutions Manager

o Craig Lesner Senior Manager Former CFO

o Michele Mark Levine Director, Technical Services Center

S2

Agendao What is a project?o Components of a projecto Projects and Your Financial Systemo Financial Reporting Considerationso Examples

S3

What is a project?

S4

What is a project?o A project is a group of related activities

with a defined purpose/outcome that occur over a defined period of time. A project is assumed to have a “beginning”

and an “end”.o “Projects” can be used to track many

different types of activities your ERP/Financial System Projects are flexible. They can track activities

across funds, organizations, accounts, and fiscal years.

S5

Financial Systems Use Project Ledger

o Most (if not all) modern systems utilize a project ledger for tracking projects

o Project ledger allows for tracking additional detail outside of the chart of accounts Allows for user defined segments specific to

each project/use

Chart of Account Components

o Fund (General Fund)o Organizational unit (Police Department)o Program/activity (Patrol)o Account classification (Salary) Expense Revenue Balance Sheet

o Project

Fund Organizational Unit

Program / Activity Project Object /

Account

Use of project ledger allows for detailS8

Fund Organizational Unit

Program / Activity Project Object /

Account Phase Task SubTask Activity

1. Detailed sub-ledger components roll up to chart of accounts2. Values within each segment can be set project by project3. Extensive detail does not require expansion of chart

Use of project accounting “module” provides additional functionality

S9

Fund Organizational Unit

Program / Activity Project Object /

Account Phase Task SubTask Activity

1. Ability to link to multiple funding sources (e.g. capital and non-capital)

2. Ability to link multiple projects together under a “master” project

3. Identify project budget and control expenses against budget

4. Build and develop project budget before funding sources are confirmed

5. Identify and manage constraints6. Time can be entered against phases, tasks, and

activities (useful for FEMA events)

What do governments track as projects?

o Capital projectso Grantso Operating projects with defined start and end

dates (grants)o Events (Disaster clean-up)o Activities / Events that require high levels of

detail o Unique department by department tracking

needs (project segment can typically be set differently project by project).

S11

COVID-19o Governments have a need to track all

expenses related to COVID-19 responseo Costs could occur throughout the

organization

o Establish COVID-19 as a “master” project Allows for other projects to be associated with

COVID-19 Allows any associated department or program

costs to be tracked as COVID-19

S12

Characteristics of Projectso Require detailed tracking of expenseso Can occur over multiple yearso Can occur with multiple departments or

fundso Can have multiple funding sourceso Costs are either tracked for

reimbursement, capitalization, or analysis

S14

Grants are tracked as projectso Tracking expenses for a grant is easily

tracked as a “project”

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Fund Organizational Unit

Program / Activity Project Object /

Account Phase Task SubTask Activity

1. Examples of sub-ledger details• Phases of a grant / years of funding• Eligible for reimbursement/ not eligible • Specific expenditure categories

Projects in a system replace need for excel shadow systems

o Many organizations will use excel to track projects and grants Redundant data entry Risk of data that is inconsistent / not reconciled Detail not in financial system – no single version of

truth Limited reporting features Difficulty in tracking reimbursements (no AR) Delay in getting timely information Need to develop complicated excel spreadsheets

S16

Components of a Project

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Considerations for setting up a project

o Project Budgeto Project Accountingo Integration (e.g., Capital Asset)o Project Management

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The project budget should identifyo Total project costso Cost by period (year)o Cost by phase / activity on the project o Funding sources Any restrictions on use of funding

S19

Building the Budgeto Understand the difference between

“construction” budget and “project” budget Land acquisition Site preparation Design Project management costs Technology and communications Financing costs Furniture, fixtures, and equipment Moving costs Contingency costs

S20

Project Accountingo How you track expenses on the project

will depend on several factors: Information needs of your organization Need to monitor different phases of the

budget Restrictions on funding from external funding

sources Reporting needs of external funding sources

S21

Project Managemento Project management is a team effort

S22

FinanceBudget

Vendor

Department Staff

Project Manager

Tracking Project Expenseso Microsoft Excel

o Stand Along CIP / Capital Project Software

o Integrated ERP Module

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Projects and Your Financial System

S25

Setting Up a Project

o Identify types of information to track as Phase, Task, SubTask, Activity

o Determine values for each “segment” Identify any eligibility rules for expenses

• Budget for funding sources• Eligibility dates• Overhead / Indirect costs

o Create structure within your financial systemo Using logic in number (?)

S26

Fund Organizational Unit

Program / Activity Project Object /

Account Phase Task SubTask Activity

Make project consistent with WBSo WBS = Work Breakdown Structureo Used in project management to identify

groupings of tasks that occur on a project Allow for rolling up detailed tasks to higher

level categorieso Often tracked in MS Project or other

project management tool

S27

Communicating Project Accountso Project accounting in your financial

system requires that staff use project codes during initial transactions Purchase requisitions Invoices Time entry Contracts

o Need to ensure that all staff have necessary security permissions to access project Staff from multiple departments

S28

Communicating Project Accountso Staff need to understand financial impact

of project accounting design Projects can track capital and non-capital

costs related to capital projects Projects are usually “closed” or “accepted”

before being converted to a capital asset

S29

Basic ERP Modules

HR/Payroll

Budget

Finance

Applicant Tracking

Forecasting

Fixed Assets

Utility Billing

Property

Budget Prep

Business Intelligence

Contracts

Bids

Grant ManagementProjects

Accounts Payable

Accounts Receivable

General Ledger

P-Cards

Purchasing

Employee Records

Risk Management

Position ControlTime EntryPension Admin

Payroll

Self ServiceCashiering

Work Orders

BenefitsPerformance Evals

Employee Relations

Training / Learning

Business License

Special Assessments

Property Tax

CRM

Permitting

Performance Management

Student

RecordsScheduling

Projects are part of integrated ERP

HR/Payroll

Budget

Finance

Applicant Tracking

Forecasting

Fixed Assets

Utility Billing

Property

Budget Prep

Business Intelligence

Contracts

Bids

Grant ManagementProjects

Accounts Payable

Accounts Receivable

General Ledger

P-Cards

Purchasing

Employee Records

Risk Management

Position ControlTime EntryPension Admin

Payroll

Self ServiceCashiering

Work Orders

BenefitsPerformance Evals

Employee Relations

Training / Learning

Business License

Special Assessments

Property Tax

CRM

Permitting

Performance Management

Student

RecordsScheduling

Considerations for Purchasing Transactions

o Purchase requisitions need to pre-encumber funds Approval from project managers?

o Consistent use of RFPs / Bidso Integration to contractsMilestones Contract retainage Vendor contracts / terms Alignment with any constraints from funding

source

S32

Considerations for Costing Labor

o Labor costing requires integration to time entry / payroll Direct charges vs. allocation of total pay Premium pay? (OT) Indirect costs Overhead

o How can employees indicate time worked on a project?

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Financial Reporting Considerations

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Grant Type & MFBA Determine Accounting

o Expenditure-driven grantsMust incur qualifying expenditures to “obtain

claim to resources” (i.e., to earn and recognize revenue)Often require matching funds or other actions

by grantee, referred to as a “contingencies”Most federal grants

o Purpose-restricted grants Includes entitlements, shared revenues,

endowment and other restricted donations Do not need to incur eligible expenditures

before recognizing revenue

S36

Governmental Funds – Expenditure-driven

o Expenditure-driven Recognize revenue when all of the following

are true:1. Eligible expenditures have been incurred,2. All contingencies have been met,3. Grant money is available (received during the

fiscal year or shortly thereafter); Recognize receivable and deferred inflow of

resources if 1. and 2. are true, but money is not yet available; or Recognize liability if cash is received before 1.

and 2. are true.

S37

Governmental Funds – Purpose-restricted

o Purpose-restricted grants Recognize revenue when both of the following

are true: 1. All eligibility requirements – including time

requirements – have been met,2. Grant money is available;

Recognize receivable and deferred inflow of revenues if all eligibility requirements are met but money is not yet available; or Recognize liability if cash is received before

all eligibility requirements are met.

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Gov. Funds – Purpose-restricted (cont.)

o Purpose-restricted grants (cont.) Purpose restrictions are not eligibility

requirements; • Recognize revenue and• Unspent amounts are reported as restricted

fund balance. Time requirements specify either:

• The time period during which grant money may be used, or

• A date before which grant money may not be used.

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Economic Resources/Full Accrual MFBA

o Expenditure-driven grants Recognize receivable and revenue when

both:1. Eligible expenditures have been incurred, and2. All contingencies have been met; or

Recognize liability if cash is received before 1. and 2. are true.

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Economic Resources/Full Accrual MFBA (cont.)

o Purpose-restricted Recognize revenue when all eligibility

requirements – including time requirements –have been met, or Recognize liability if cash is received before

all eligibility requirements are met.

S41

Disallowanceso If either of the following becomes known

(generally, in a period after the period in which grant revenue has been recognized): Expenditures are determined not to have been

eligible, or Purpose restrictions will not be met;

o Then Grantee recognizes expenditure/expense and

decrease in receivable from, or increase in liability to, grantor; and Grantor recognizes revenue and decrease in

liability to, or increase in receivable from, grantee.

S42

Program v. General Revenue

o In government-wide statement of activities grant revenue is recognized either: As program revenue of the program to which

its use is restricted:• As a capital grant if restricted to use for (or is

contribution of) a capital asset, or• As an operating grant if use is restricted to

operations or if may be used either for operating or capital purpose (regardless of how actually used); or

As general revenue if funds are unrestricted (such as general-purpose revenue sharing).

S43

Capital Assetso Assets used in operations and having an

initial useful life of more than one year (many governments impose additional $ and/or longer life thresholds)

o May be tangible or intangibleo Not reported in governmental funds –

report capital outlays as expenditures

S44

Capital Assets (cont.)o In funds other than governmental funds, and in

government-wide statements: Report depreciable/amortizable and non-

depreciable/non-amortizable capital assets separately. Non-depreciable (non-amortizable) assets:

• Unlimited useful life (e.g., land, permanent rights-of-way),• Construction work-in-progress, and• Certain infrastructure assets (next slide).

Depreciable (amortizable) assets• Report as construction work-in-progress, not depreciated

until ready to be placed in service, and• Governments generally use straight-line

depreciation/amortization.

S45

Infrastructure Assetso Long-lived capital assets that are

generally both: Stationary, and Preserved for longer than most capital assets.

o Optional alternative method to report infrastructure (not widely used): Commit to maintain infrastructure assets at

least at predetermined condition level, Monitor and disclose actual v. target condition, Expense all costs to maintain indefinitely, and Do not depreciate so long as minimum

condition is maintained.

S46

Capitalizable Costso Capitalize (report as part of asset value and

depreciate or amortize, rather than expense when incurred) the following types of costs: To purchase, construct, or develop assets, including:

• Project management• Architecture and design• Contractor billings and/or labor, materials, etc.• Indirect costs allocable (only) to capitalizable projects –

usually exclude general administrative, overhead; or If donated – amount the government would have paid

to acquire at time of donation (acquisition value); and “Ancillary charges necessary to place asset in its

intended location and condition for use”• Transportation, installation, inspection, testing.

S47

Non-Capitalizable Costso Do Not Capitalize: Preliminary, scoping, feasibility, siting,

environmental impact, etc., Training costs; Interest (recent GASB guidance, not fully

implemented and not retroactive) and other financing transaction costs; or IT:

• Technical/technological feasibility• Data conversion (in most cases)• Before funding commitment.

S48

Capital Asset Disclosureso Disclosures of cost, accumulated depreciation by type

assetS49

Federal Funding – Uniform Guidanceo Uniform Guidance - Code of Federal Regulations

(CFR), Chapter 2, Section 200, Uniform Administrative Requirements, Cost Principals, and Audit Requirements for Federal Awards Subpart E – Cost Principles Cost allocation plans and indirect cost

proposals [2 CFR § 200 Appendix V]

Costs incurred by states and local governments [2 CFR § 200.416]

And many, many more…

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Federal Funding – Audit Requirements

o Uniform Guidance Subpart F – Audit Requirements

o Single Audit Act Amendments of 1996 –governments that expend $750,000 or more of federal awards in a fiscal year

o Government Auditing Standards (a.k.a. “Yellow Book”) 2018 Revision

o Annual Compliance Supplement [2 CFR §200 Appendix XI]

S51

Federal Funding of Capital Assetso Limitations on purchasing assetsGenerally need prior written approvalWhen allowed, must inventory and track

assets with cost of $5,000 or more Rules governing on-going use and disposal

o Contingency Provisions (in budgets for large construction or IT development projects) [2 CFR § 200.433]

o Depreciation [2 CFR § 200.436]

o Equipment and Other Capital Expenditures [2 CFR § 200.439]

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Example Projects

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Example 1: Capital ProjectS54

o New Fire Stationo Major Activities on Project Preliminary Approvals Bond IssuanceGrant Applications Purchase Land Design Construction Furniture, Equipment, Supplies Implementation / Occupancy

How to Set Up the Project?o What are the appropriate project phases?

o How would you establish controls for project expenses?

o What are end results of the project?

S55

Example 2: COVIDo Tracking All Expenses Related to COVID-19o The CARES Act requires that the payments from the Coronavirus

Relief Fund only be used to cover expenses that—1. are necessary expenditures incurred due to the public health emergency with respect to the Coronavirus Disease 2019 (COVID–19);2. were not accounted for in the budget most recently approved as of March 27, 2020 (the date of enactment of the CARES Act) for the State or government; and3. were incurred during the period that begins on March 1, 2020, and ends on December 30, 2020.

S56

Example Expenseso Example expenses: Expenses for disinfection of public areas and other facilities, e.g.,

nursing homes, in response to the COVID-19 public health emergency. Expenses for public safety measures undertaken in response to COVID-

19. Expenses for quarantining individuals Payroll expenses for public safety, public health, health care, human

services, and similar employees whose services are substantially dedicated to mitigating or responding to the COVID19 public health emergency.

Expenses to facilitate distance learning, including technological improvements, in connection with school closings to enable compliance with COVID-19 precautions.

Expenses to improve telework capabilities for public employees to enable compliance with COVID-19 public health precautions.

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How to Set Up the Project?o What are the appropriate project phases?

o How would you establish controls for project expenses?

o How would you ensure that information is captured?

o What are end results of the project?

S58

Questions

S59