safeguarding your fund balance for future liability march 7, 2012

Safeguarding Your Fund Balance for Future Liability

March 7, 20121

Presentation Overview

        • Overview of GASB 54- new fund balance

definitions and classifications.

• Fund balance policy

• Suggested commitments and assignments.

• Financial Statement Review

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GASB #54

Background and Summary

• Enhance the usefulness of fund balance information.• Clearer fund balance

classifications that can be more consistently applied.

• Clarifying existing governmental fund type definitions.

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GASB #54

Only applies to the five governmental funds.

1) General Fund2) Special Revenue Funds3) Capital Project Funds4) Debt Service Funds and5) Permanent Funds.

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GASB #54

Hierarchy of Fund Balance

Nonspendable Restricted Committed Assigned Unassigned

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GASB #54

Nonspendable Fund Balance

Not in spendable formInventoriesPrepaid Long-term notes receivable

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GASB #54

Committed Fund Balance

Constraints on use are imposed by formal action of the School Board.

Constraints can only be removed or changed by taking the same type of action.

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GASB #54

Committed Fund Balance

o The formal action to commit fund balance should occur prior to the end of the reporting year.

o Amount, subject to constraint, may be determined in the subsequent period

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GASB #54

Assigned Fund Balance

• Not required to be the School Board.

• May be someone or group per persons designated by the School Board.

• Nature of the action to remove or modify assignments are not as strict. 9

GASB #54

Unassigned• General fund, amounts not

classified as nonspendable, restricted, committed or assigned

• Other governmental funds amount expended in excess of resources that are nonspendable, restricted, committed or assigned.

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Fund Balance Policy

Suggested content:

• Purpose• Definitions• Guidelines• Delegation of Responsibility

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Fund Balance Policy

Purpose

The maintenance of a fund balance is essential to thepreservation of the financial

integrity of the school district fiscally advantageous for both the

district and the taxpayer.

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Fund Balance Policy

Definitions

• Fund balance is the difference between total assets and total liabilities in each fund.

• Restricted - amounts limited by external parties, or legislation.

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Fund Balance Policy

Definitions

• Committed - amounts limited by Board policy or Board action.

• Assigned - amounts that are intended for a particular purpose.

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Fund Balance Policy

Definitions

• Unassigned - amounts available for consumption or not restricted in any manner.

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Fund Balance Policy

Guidelines• Board of Education acts as the

district’s highest level of decision making.

• Official Board resolution must be passed in order to• establish,• modify• or rescind a commitment of fund

balance. 16

Fund Balance Policy

Guidelines

• This policy may be amended from time to time according to the wishes of the Board of Education.

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Fund Balance Policy

Guidelines

The school district will strive to maintain an unassigned general fund balance of• not less than five percent (5%)

and• not more than eight percent (8%) of the budgeted expenditures for that fiscal year.

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Fund Balance Policy

Guidelines

• The total fund balance, consisting of several portions including restricted, committed, assigned and unassigned, may exceed eight percent (8%).

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Fund Balance Policy

GuidelinesIf the unassigned portion of the fund balance falls below the threshold of five percent (5%) of budgeted expenditures, the Board will pursue options

• for increasing revenues and decreasing expenditures, or a combination of both until five percent(5%) is attained.

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Fund Balance Policy

If the unassigned portion of the fund balance exceeds eight percent (8%) of budgeted expenditures for that fiscal year

• the Board may utilize a portion of the fund balance by appropriating excess funds for expenditures.

• The goal is to use any excess fund balance for nonrecurring expenditures and not for normal operating costs. 21

Fund Balance Policy

Use Of Fund Balance

• Restricted fund balance will be reduced to the extent that the underlying reason for the restriction has been eliminated.

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Fund Balance Policy

Use of Fund BalanceShould the district experience an excess of expenditures over revenues for a given fiscal year, fund balance will be consumed in the following order:

1. Restricted fund balance to the extent that expenditures related to the restriction contributed to the excess of expenditures over revenues. 23

Fund Balance Policy

2. Committed fund balance to the extent that expenditures related to the commitment contributed to the excess of expenditures over revenues. If a plan for periodic use of committed fund balance is reviewed and approved by the School Board, committed fund balance will not be reduced by more than the amount designated in the plan.

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Fund Balance Policy

3 .Assigned fund balance to the extent that expenditures related to the assignment contributed to the excess of expenditures over revenues.

4.Unassigned fund balance for any remaining excess of expenditures over revenues.

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Fund Balance Policy

Delegation of Responsibility• The Business Administrator or

designee may assign fund balance for items deemed appropriate at any time prior to the issuance of the audited financial statements for a given year.

• The Business Administrator or designee shall be responsibility for the enforcement of this policy.

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Examples

Committed or Assigned:

• Budgeted use of fund balance• Future PSERS increases• Increase in Healthcare costs• Future Assessment Appeals• Other Post Employment Benefits• Future Charter School Liability

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Examples

Committed or Assigned:

• Early Retirement Incentives• Future Debt Service Expenditures• Variable rate Stabilization• Future High School Expansion• Payment of Overpaid EIT Funds• Phasing in of Millage increases

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Financial Statement Review

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1705 Oregon Pike, Lancaster, PA 17601Phone 717-569-2900 | Toll Free 800-448-1384 | Fax 717-569-0141

www.troutcpa.com

CONTACT INFORMAT ION:

Jill Gilbert, CPA/PartnerDirect line: 717-358-9152

Email: jgilbert@troutcpa.com

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