Enterprise Funds
Mark D. Abrahams, CPA
President, The Abrahams Group
April 2014
Enterprise Fund Agenda
1.
History and Overview
2.
Budgeting
3.
Indirect Costs
4.
Financial Reporting
5.
Certified Retained Earnings
6.
User Fees
2
Objectives of Governmental Accounting
 Demonstrate compliance with legally related financial
matters
— Budget
— Contracts and leases
— Other
 Demonstrate compliance with Generally Accepted
Accounting Principles (GAAP) to present fairly
— The financial position – balance sheet
— The results of operations – income statement
Enterprise Funds – GAAP Definition
 Any activity that charges a fee MAY be reported as an
enterprise fund
 You MUST report an activity as an enterprise fund if
— User charge receipts are pledged for related debt
— Adopts a statute requiring costs to be recovered
through fees
— Management intends to recover total direct costs
including capital costs (depreciation or debt service)
through rates and charges
Enterprise Funds - Massachusetts
 General Fund, Special Revenue Fund, and Special Acts
 NCGA Statement 1 (1980)
 Uniform Municipal Accounting System Manual (1981)
 MGL 40:39K (Ch 306, Acts of 1988)
 MGL 44:53F ½ (1996)
 GASBS No. 34 (1999 – 2004, 2008)
 Uniform Massachusetts Accounting System Manual
(2003, 2007, 2011 - 2013)
 BOA Enterprise Fund Guidance
— Latest April 2008 IGR
What is an Enterprise Fund
 Separate accounting and financial reporting mechanism
 Revenues and expenses are segregated into a fund with
financial statements separate from all other
governmental activities
 Massachusetts
— Account on a cash basis
— Report to DOR: UMAS modified accrual basis
— GAAP: accrual reporting
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Why Adopt and Enterprise Fund
 Identifies a total service cost and related revenues for an
activity or service
 Provides management information
 Retains and maintains investment income and surplus
7
Eligible Services
 Public Utilities – water, sewer, trash disposal
 Health Care – ambulance, nursing homes
 Recreation – skating rinks, pools, golf courses
 Transportation – airports, docks, marinas
8
Massachusetts Enterprise Funds - 2010
 Water
 Airport

 Harbor




179
Sewer
167
Electric
38
Landfill
39
Hospital
2
Health Care
3
 Golf Course
 Recreation
 Other
TOTAL
— 2010 Schedule A
9
8
12
24
19
71
561
In Addition, Special Revenue Funds
 Water
50
 Sewer
41
 MWPAT
29
 Title V
TOTAL
103
223
— 2007 Schedule A
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Massachusetts Enterprise Funds
 How many enterprise funds were reported on the FY10
Schedule A?
 Which activity has the most enterprise funds?
 What was the ending retained earnings statewide in FY
2010?
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Enterprise Funds – Big Picture
Moved that $1,425,251 be appropriated to the Water Enterprise Fund
and that $132,882 be appropriated in the General Fund and be
allocated to the Water Enterprise Fund
Description
Salaries and Wages
Expenses
Capital
Debt Service
Total Enterprise
Indirect
Total
$
$
$
$
$
$
$
Amount
296,693
399,400
225,000
504,158
1,425,251
132,882
1,558,133
And that $1,558,133 be raised as follows:
Department Receipts
Retained Earnings
Total Revenue
$
$
$
1,458,133
100,000
1,558,133
Basis of Accounting
 Accounting
— Cash basis
 Reporting
— UMAS modified accrual (Effective 7/2013)
• Not cash
• Not modified accrual
• Not accrual
• UMAS modified accrual
— Accrual for GAAP statements
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Massachusetts’ Reporting



Budgeting (Town Meeting Article, Schedule A-2 Recap Sheet)

Balanced, Revenues = Expenditures

Surplus, Revenues > Expenditures

Subsidy, Revenues < Expenditures
Balance Sheet

Combined Balance Sheet

Certified Retained Earnings
Income Statement

Statement of Revenues, Expenditures and Changes in Fund Balance
Income Statement
FUND 600-WATER
REVENUES:
USER CHARGES
WATER LIENS
WATER SERVICE APPL
PENALTIES AND INTEREST-FEES
RENTALS
OTHER DEPARTMENTAL REVENUE
REAL ESTATE TRANSFER & Misc
TOTAL REVENUES
EXPENDITURES:
SALARIES AND WAGES
EXPENSES-OPERATING
-INDIRECT COSTS
DEBT SERVICE-Principal
DEBT SERVICE-Interest
TOTAL EXPENDIUTRES
BUDGET
ACTUAL
1,681,811
109,174
1,790,985
1,545,848
23,025
3,850
24,159
36,288
39,078
1,672,247
(135,963)
23,025
3,850
24,159
36,288
(109,174)
39,078
(118,738)
434,983
789,172
261,516
221,500
57,230
366,101
609,521
261,516
447,500
94,386
68,882
179,651
(226,000)
(37,156)
1,764,401
1,779,025
(14,624)
-
VARIANCE
Balance Sheet
FY 2009
Assets
Cash and Cash Equivalents
Account Receivable
User Charges
Fixed Assets, Net of Depreciation
Total Assets
Liabilities and Fund Equity
Liabilities
Deferred Revenue
Bonds Payable
Total Liabilities
$
769,077
$
$
$
313,234
6,781,744
7,864,055
$
$
$
313,234
3,984,360
4,297,594
Fund Equity
Contributed Capital
Retained Earnings
Reserved for Appropriation Deficits
Unreserved Retained Earnings
Total Fund Equity
$
2,979,740
$
$
$
(14,624)
601,345
3,566,461
Total Liabilities and Fund Equity
$
7,864,055
Indirect Costs
 Costs incurred by the general fund on behalf of the enterprise fund,
typically
— Benefits/insurances
— Central services
— Departmental
 Establish a written internal policy regarding indirect cost allocation,
review annually
 Should be reasonable, calculated in a fair and consistent way
 Director may reject any indirect cost methodology as unreasonable for
tax setting purposes
 Cannot appropriate the indirect costs in the enterprise fund
 The enterprise fund periodically reimburses the general fund during the
year for indirect costs
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Indirect Costs
Benefits/Insurances
 Pension
 Life Insurance
 Health Insurance
 Vehicle Insurance
 Property Insurance
 Unemployment
 Workers Comp
 Medicare
Central Services
 Legal
 Procurement
 B&G Maintenance
 Personnel
 Treasury
 Collections
 Data Processing
 Accounting
 Budget
 Assessing 18
Fire Department
19
Certified Retained Earnings
Retained Earnings Worksheet
 Cash
 Retained Earnings – Undesignated
 Fixed Assets
20
Certified Retained Earnings
RETAINED EARNINGS CALCULATION – ENTERPRISE FUND
PART I
CASH
$769,077
SUBTRACT:
CURRENT LIABILITIES, DESIGNATIONS OF FUND BALANCE
OTHER
Fixed Asset Variance
$182,356
TOTAL
$586,721
PART II
RETAINED EARNINGS – UNDESIGNATED
$601,345
SUBTRACT:
ACCOUNTS RECEIVABLE (NET)
Accounts Receivable – User Charges
Deferred Revenue
OTHER
Reserved for Appropriation Deficit
$313,234
($313,234)
$ 14,624
TOTAL
$586,721
PART III
FIXED ASSETS:
DEBITS
Fixed Assets, Net
$6,781,744
TOTAL
FIXED ASSET VARIANCE
$6,781,744
$(182,356)
CREDITS
Bonds Payable
Contributed Capital
$3,984,360
$2,979,740
$6,864,100
User Charges
22
User Fees – Emerson Criteria
1. The user fee must be in return for a particular governmental
service which benefits the party paying the fee in a manner not
shared by other members of the society
2. The fee must be paid by choice, in that the party paying the
fees has the option of not utilizing the governmental service
and thereby avoiding the charges
3. The fee must not be collected to raise revenues but to
compensate the governmental entity providing the services for
its expenses; relate to costs
4. The fee must be particularized to reimbursing the government
for the cost of providing the service and not go into the general
fund of the government – enterprise fund
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Summary
Enterprise Funds
 Segregates the revenues, costs and retained earnings from the general
fund
 Assists in the rate setting analysis by providing cost and revenue
analysis
 UMAS Modified Accrual Basis
— Cash basis accounting
— Accruals consistent with Director’s end-of-year letter
 GAAP
— Any activity that charges a fee may be reported as an enterprise fund
— Three criteria when you must report as an enterprise fund
 An accounting and reporting mechanism
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Next Enterprise Fund Class
 May 30, 2014
 Needham School Administration Building
 http://www.theabrahamsgroup.com/Courses_Enterprise.
htm
For More Information
Mark D. Abrahams, CPA
President
The Abrahams Group
52 Flanagan Drive
Framingham, MA 01701-3745
Phone: 508 788-9172
Fax:
508 788-6217
E Mail: [email protected]
Web:
www.theabrahamsgroup.com
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