HomeMy WebLinkAboutDocumentation_Regular_Tab 07_08/11/2011 VILLAGE OF TEQUESTA
AGENDA ITEM TRANSMITTAL FORM
1. VILLAGE COUNCIL MEETING:
Meeting Date: Meeting Type: Regular Ordinance #: Click here tea �nt�r text.
Aug 11, 2011
Consent Agenda: Yes Resolution #: 13-11
Originating Department: Finance
2. AGENDA ITEM TITLE: (Wording form the SUBJECT line of your staff report)
Adopt Fund Balance Policy for Governmental Funds in Accordance with GASB Statement No. 54
3. BUDGET / FINANCIAL IMPACT:
Account No; N/A Amount of this item N/A
Current Budgeted Amount Available: Amount Remaining after item:
0 N/A
Budget Transfer Required: No Appropriate Fund Balance: Choc��� �r� itert�.
N/A
4. EXECUTIVE SUMMARY OF MAJOR ISSUES: (This is a snap shot description of the agenda item)
Adopt Fund Balance Policy and Implement GASB No 54.
5. APPROVALS:
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Dept. Head�" �'�-�-�-� Finance Director:
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Attorney: (for I� al sufficiency) Yes ❑ No ❑
Village Manager:
• SUBMIT FOR COUNCIL DISCUSSION: �
• APPROVE ITEM: ❑
• DENY ITEM: �
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DATE: AUGUST 2, 2011
TO: MICHAEL R. COUZZO, VILLAGE MANAGER
FROM: JOANN FORSYTHE, FINANCE DIRECTOR
RE: ADOPT FUND BALANCE POLICY FOR GOVERNMENTAL FUNDS IN ACCORDANCE WITH
GA56 STATEMENT NO. 54
Fiscal Implications:
There is no direct fiscal impact of implementing GASB No. 54. The amounts reported as the total fund balance in
any given fund are not altered. Only the reporting of the individual components that make up total fund balance
will change. These new classifications are required to be sued on external formal financial reporting documents,
such as the Comprehensive Annual Financial report (CAFR).
TefminOlogV: 'The New Fund Balance'; by Stephen J.Gauthier:
Fund= a tool that accountants use to segregate resources related to specific activities. Comparative to a business
that operates multiple lines of business providing segment disclosures. Additionally, governmental funds are
designed to focus on near-term liquidity.
Fund ea/ance=the difference between the assets and liabilities reported in a governmental fund. It is important to
note that this is more a measure of liquidity than net worth. As an approximate measure of liquidity, fund balance is
similar to the working capital of a private-sector business.
Background:
Local Governments are required to implement the new Governmental Accounting Standards Board (GASB)
Statement No. 54 — Fund Balance Reporting and governmental Fund type Definitions (GASB 54) by the end of Fiscal
Year 2010-2011. This item is being brought before the Village Council to formally adopt the Village's definitions of
reported fund balances, and to update the Village's Financial Policies, as necessary. This new standard does not
change the total amount of given fund balance, but substantially alters the categories and terminology used to
describe the components that make up a fund balance.
8/2/114:13 PM
VILLAGE OF TEQUESTA, FLORIDA
FUND BALANCE POLICY
EXHIBIT A
A. PURPOSE
The Village hereby establishes and will maintain Fund Balance, as defined herein,
in accardance with Governmental Accounting and Financial Standards Board
Statement No. 54, Fund Balance Reporting and Governmental Fund Type
Definitions. Fund Balance shall be composed of non-spendable, restricted,
committed, assigned and unassigned amounts.
A Fund Balance Policy is adopted in order to secure and maintain investment-
grade credit ratings, meet seasonal shortfalls in cash flow, and reduce
susceptibility to emergency or unanticipated expenditures and/or revenue
shortfalls. Fund balance information is used to identify the available resources to
repay long-term debt, reduce property taxes, add new governmental programs,
expand existing ones, or enhance the financial position of the City, in accordance
with policies established by the Village Council.
This Fund Balance Policy establishes:
a) Fund balance policy for the general fund;
b) Reservations of fund balance for the general fund;
c) The method of budgeting the amount of estimated unrestricted fund
balance (also known as estimated beginning fund balance) available for
appropriation during the annual budget adoption process (prior to the
actual, audited fund balance being known) and what actions may need to
be taken if the actual fund balance is significantly different than the
budgeted fund balance; and
d) Establish the spending order of fund balances.
B. FUND BALANCE CLASSIFICATIONS
Fund Balance - As defined by the Governmental Accounting, Auditing and
Financial Reporting of the Government Finance Officers Association, fund
balance is "The difference between assets and liabilities reported in a
governmental fund." The following are the GASB 54 Classifications of Fund
Balance.
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NON-SPENDABLE FUND BALANCE
Non-Spendable Fund Balance — Amounts that are (a) not in spendable form or
(b) legally or contractually required to be maintained intact.
Non-spendable fund balance is established to report items that are not expected to
be converted to cash such as inventory and prepaid items; items not currently in
cash form such as the long-term amount of loans and notes receivable as well as
property acquired for resale; and, items legally or contractually required to be
maintained intact such as the corpus (or principal) of a permanent fund.
RESTRICTED FUND BALANCE
Restricted Fund Balance — Amounts that can be spent only for specific purposes
stipulated by (a) external resource providers such as creditors (by debt covenants),
grantors, contributors, or laws or regulations of other governments; or (b)
imposed by law through constitutional provisions or enabling legislation.
Restricted fund balance includes amounts constrained for a specific purpose
changed only with consent of the outside party and legally enforceable. Such
restrictions typically are imposed by parties altogether outside the government
such as;
a. Creditors (e.g., through debt covenants);
b. Grantors;
c. Contributors; and
d. Other governments (e.g., through laws and regulations)
COMMITTED FUND BALANCE
Committed Fund Balance — Represents resources whose use is constrained by
limitations that the government imposes upon itself at its highest level of decision
making and that remain binding unless removed in the same manner. The
underlying action that imposed the limitation would need to occur no later than
the close of the reporting period.
Commitment of fund balance may be made for such purposes including, but not
limited to, a) major maintenance and repair projects; b) meeting future obligations
resulting from a natural disaster; c) accumulating resources pursuant to
stabilization arrangements; d) establishing reserves for disasters; and/or e) for
setting aside amounts for specific projects.
Commitment of fund balance may be made from time-to time by formal action of
the Village Council limiting use of resources for only the specified purposes
stipulated in the action. Commitments may be changed or lifted only by the
Village Council taking the same formal action that imposed the constraint. The
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formal action must occur prior to the end of the reporting period. The amount
which will be subject to the constraint may be determined in the subsequent
period.
The Village Council hereby establishes the following committed fund balance
reserves in the General Fund:
a) Disaster Reserve — The disaster reserve fund balance is committed by the
Village Council as set forth in the annual budget (and any amendments
thereto) to ensure the maintenance of services to the public during disaster
situations such as, but not limited to, hurricanes.
b) Insurance Deductible Reserve — The insurance deductible reserve fund
balance is committed by the Village Council as set forth in the annual budget (and
any amendments thereto) to ensure coverage of the City's insurance deductible on
its insured properties and equipment.
ASSIGNED FUND BALANCE
Assigned Fund Balance — Comprised of amounts intended to be used for specific
purposes that are neither restricted not committed. Intent can be expressed by the
Village Council or delegate(s).
The term assigned fund balance is used to describe the portion of fund balance
that reflects a government's intended use of resources. Such intent has to be
established by either the Village Council or by a body or official(s) to which the
Village Council delegates the authority. For this purposes the Village Council
delegates this authority to the Village Manager and/or the Finance Director.
Assigned fund balance can be used to eliminate a projected budgetary deficit in
the subsequent year's budget, not to exceed the excess of expected expenditures
over expected revenues. Since a government cannot assign resources that it does
not have, the amount reported as assigned fund balance should not exceed total
fund balance less its non-spendable, restricted, and committed components.
The Village hereby establishes the following assigned fund balance reserves in
the General Fund:
a) Assignment to Subsequent Year's Budget — The subsequent year's budget
fund balance reserve is assigned by Village management as set forth in the annual
budget (and any amendments thereto) to appropriate a portion of existing
unassigned fund balance to eliminate a projected deficit in the subsequent year's
budget in an amount no greater than the projected excess of expected expenditures
over expected revenues.
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UNASSIGNED FUND BALANCE
Unassigned Fund Balance — Unassigned fund balance is the residual fund
balance classification for the general fund after deducting non-spendable,
restricted, committed and assigned fund balance.
If, after the annual audit, priar committed or assigned fund balance causes the
unassigned fund balance to fall below an amount equal to two months of
operating expenditures, the Village Manager and/or the Finance Director will so
advise Village Council in order for the necessary action to be taken to restore the
unassigned fund balance to an amount equal to two months of General Fund
operating expenditures.
The Village Manager and/or the Finance Director will prepare and submit a plan
for committed and/or assigned fund balance reduction, expenditure reductions
and/or revenue increases to Village Council. The Village shall take action
necessary to restore the unassigned fund balance to acceptable levels within three
years.
C. BUDGETING
APPROPRIATION OF UNRESTRICTED FUND BALANCE
The actual amount of unrestricted fund balance (total of committed fund balance,
assigned fund balance and unassigned fund balance) is not known until the
completion of the annual audit which takes place between three to six months
after the end of the fiscal year being audited. However, an estimate of
unrestricted fund balance (also called estimated beginning fund balance) must be
made during the annual budget adoption process �July through September) which
is prior to the end of the fiscal year, September 30 .
ESTIMATED BEGINNING FUND BALANCE.
In order to achieve the most accurate estimate possible, the Village Manager or
Finance Director shall project both Sources of Funds (revenues, prior years
unrestricted fund balances carried forward and other financing sources) and Uses
of Funds (operating and non-operating expenditures), including accruals, through
September 30 of the then current fiscal year. These projections will be shown in
a separate column entitled "Estimated Actual". The difference between the
estimated actual sources of funds and estimated actual uses of funds is the
calculated estimated beginning fund balance for the subsequent fiscal year
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ESTIMATED ENDING FUND BALANCE
For the year being budgeted, a calculation of estimated ending fund balance shall
also be made. This calculation shall be the difference between the budgeted
sources of funds and the budgeted uses of funds as described above.
If, after the annual audit, the actual general fund unassigned fund balance is
greater than two months of operating expenditures in the general fund, the excess
may be used in one or a combination of the following ways:
a) Left in the general fund to earn interest and roll forward into the
subsequent year's beginning fund balance;
b) Appropriated by resolution of Village Council for a one-time expenditure
or opportunity that does not increase recurring operating costs;
c) Committed to establish or increase a formal stabilization arrangement or
reserve (including but not limited to economic stabilization, contingency
reserves or disaster reserves); or
d) Appropriated for start-up expenditures of new programs undertaken at
mid-year.
D. SPENDING ORDER OF FUND BALANCES
This policy considers restricted amounts to be spent before unrestricted fund
balance when an expenditure is incurred for purposes for which both restricted
and unrestricted (committed, assigned and unassigned) amounts are available.
Similarly, within unrestricted fund balance, committed, assigned then unassigned
amounts, in that order, will be spent when an expenditure is incurred for a purpose
for which amounts in any of those unrestricted fund balance classifications could
be used.
E. ANNUAL REVIEW AND DETERMINATION OF FUND BALANCE
POLICY
Compliance with the provisions of this policy shall be reviewed as a part of the
annual budget adoption process, and the amounts of restricted, committed,
assigned, non-spendable and the minimum level of unassigned fund balance shall
be determined during this process.
F. CLASSIFICATION OF FUND BALANCES AND ADDITIONAL
INFORMATION, REQUIREMENTS/RESPONSIBILITIES
The Finance Director is authorized to evaluate existing fund balance
classifications (designations, reserves and unreserved/undesignated) and
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reclassify them in accordance with GASB Statement 54, for implementation
effective the fiscal year ending September 30, 2011.
It will be the responsibility of the Finance Director to keep this policy current.
G. EFFECTIVE DATE
This Policy shall take effect immediately upon adoption and will be applied
beginning with the preparation of the Village's September 30, 2011
Comprehensive Annual Financial Report and adoption of the Village's Fiscal
Year 2011-12 Budget.
Original Issue Date:
Approved:
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