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 6 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 10 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? 11 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 13 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 17 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 23 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 24 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 26
© Copyright 2024 Paperzz