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431 Prater Way Sparks, NV United States
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Sparks City Council Meeting 10/24/2011 2:00:00 PM
Monday, October 24, 2011 2:00 PMLegislative Building, 745 4th Street, Sparks, NV 89431
Consent Items: 5.7
Title: Consideration and possible approval of a revision of accounting policies to comply with Governmental Accounting Standards Board Statement No. 54 (GASB 54).
Petitioner/Presenter: Jeff Cronk, CPA, Financial Services Director/Jeff Cronk, CPA, Financial Services Director
Recommendation: That Council approves changing the flow of funds accounting policy to comply with the Governmental Accounting Standards Board Statement No. 54 as recommended by staff.
Financial Impact: None.
Business Impact (Per NRS 237):
A Business Impact Statement is not required because this is not a rule.
A Business Impact Statement is not required because this is not a rule.
Agenda Item Brief: The Financial Services Department is currently closing the books for the 2010-2011 fiscal year and are working with the external auditors to complete the audit and preparation of the Comprehensive Annual Financial Report (CAFR). Fiscal year 2010-2011 is the initial year of implementation of the Governmental Accounting Standards Board Statement No. 54 (GASB 54). During the year-end close and audit process, the Financial Services Department and external auditors have come to the conclusion that the City's current flow of funds policy should be reversed due to practical financial management and presentation purposes.
Background: GASB 54 must be implemented by the City beginning with fiscal year 2010-2011. Part of that implementation includes establishing a set of accounting and fiscal policies that are in compliance with GASB 54. On June 27, 2011, the City Council was presented with and approved accounting and fiscal policies regarding the following four aspects of compliance with GASB 54: 1. Order of Fund Balance category spending priority from: a. Restricted and Unrestricted Fund Balances; and b. Unrestricted Fund Balance Categories including Committed, Assigned, and Unassigned Fund Balances 2. Determination of level of authority and actions leading to the creation of Committed and Assigned Fund Balance categories 3. Stabilization Arrangements a. Policy surrounding the funding and use of the Stabilization Fund 4. General Fund Minimum Fund Balance Now that these policies are being implemented and evaluated during the fiscal year-end closing process, and we’ve had the opportunity to discuss the practicalities of implementing these policies both with the external auditors and GASB technical staff, the Financial Services Department is bringing policy #1 listed above back to the Council for a recommended change. When first approved on June 27, 2011, the policy establishing the order of fund balance category spending priority was approved by Council to be in the following order: 1. Unrestricted Funds followed by 2. Restricted Funds; and 3. From within Unrestricted Funds a secondary order of spending priority was established as follows: a. Unassigned Funds followed by b. Assigned Funds followed by c. Committed Funds Essentially, this policy meant that Fund balance resources would be spent in the priority of least restrictive funds to most restrictive funds. However, now that we are putting this into practice, staff has realized a previously unforeseen practical difficulty of this order of spending priority resulting in certain restricted funds becoming unavailable for expenditure since less restrictive funds must be spent first. In other words, as long as lesser restrictive funds are still available for expenditure, we are finding that more restrictive funds become unavailable for expenditure and results in an inability to access needed resources. Thus, in order to maximize the City’s flexibility to utilize the various sources of funds as they are intended to be used, the Financial Services Department is recommending that the fund balance category of spending priority be reversed so that the flow of funds will generally flow first from the more restrictive fund balance categories first followed by the lesser restrictive fund balance categories as follows: 1. Restricted Funds; 2. Unrestricted Funds; 3. And then from amounts within Unrestricted fund balance categories in the following order: a. Committed; b. Assigned; c. Unassigned Upon Council approval, this policy revision will be implemented beginning with the previous fiscal year 2010-2011.
Analysis: Upon further research and conversations with GASB technical staff, GASB recommends agencies adopt a flow of funds policy that is consistent with the policy change being presented today. Either way would be considered compliant with GASB 54; however, it is now recognized and encouraged by GASB to implement a flow of funds policy in the order of most restrictive to least restrictive. This allows for greater flexibility and access to restricted fund balance resources than the alternative which was originally proposed by staff and approved by Council on June 27, 2011.
Alternatives: Council may choose not to change the policy that was originally approved on June 27, 2011 and still remain in compliance with GASB 54.
Recommended Motion: I move to approve the flow of funds policy change as recommended and presented by staff to comply with the Governmental Accounting Standards Board Statement No. 54.
