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Grant Cash-flow 60 Day Rule Discussion

FPP Advisory Committee MeetingAgenda Item VI. b.February 11, 2011

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The Issue• The Department had to turn off the “grants

recognized revenue must equal allowable expenditures” edit for some school districts

• Due to their auditor treating grants accounts receivable revenues being receipted by the school district beyond its “period of available” as deferred revenue.

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The Issue (cont)• The booking of the deferred revenue is

causing recognized revenues to be less than the allowable expenditures for such grant.

• This is leading to a negative fund balance for that grant and the Designated Purpose Grants Fund as a whole.

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The Issue (cont)• A deficit fund balance is leading to a

statutory violation under C.R.S. Section 22-44-105 (1.5)(a).

• A budget adopted pursuant to this article shall not provide for expenditures, interfund transfers, or reserves, in excess of available revenues and beginning fund balances. If the budget includes the use of a beginning fund balance, the school district board of education shall adopt a resolution specifically authorizing the use of a portion of the beginning fund balance in the school district’s budget.

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The Issue (cont)• A deficit fund balance is leading to a

statutory violation under C.R.S. Section 22-44-105 (1.5)(a). (continued)

• The resolution, at a minimum, shall specify the amount of the beginning fund balance to be spent under the school district budget, state the purpose for which the expenditure is needed, and state the school district’s plan to ensure that the use of the beginning fund balance will not lead to an ongoing deficit.

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GASB Codification Section N50• Government-mandated nonexchange

transactions and voluntary nonexchange transactions are discussed under paragraph .127d.

• Recipients should recognize revenues in the period when all applicable eligibility requirements have been met and the resources are available.

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GASB Codification Section 1600• Paragraph .106 provides the following

discussion for Revenue Recognition.

• Revenues and other governmental fund financial resource increments (for example, bond issue proceeds) are recognized in the accounting period in which they become susceptible to accrual – that is, when they become both measurable and available to finance expenditures of the fiscal period.

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GASB Cod. Section 1600 (cont)• “Available” means collectible within the

current period or soon enough thereafter to be used to pay liabilities of the current period.

• Application of the “susceptibility to accrual” criterion requires judgment, consideration of the materiality of the item in question, and due regard for the practicality of accrual, as well as consistency in application.

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GASB Cod. Section 1600 (cont)

• The length of time used to define available for purposes of revenue recognition in the governmental fund financial statements should be disclosed in the summary of significant accounting policies.

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FPP Handbook• The definition for measurable and

available as used in the FPP Handbook is the same as stated in GASB Codification 1600.106.

• The discussion of revenue recognition under Section C – Accounting and Reporting E. (page C-2) uses the 60 day rule with regard to property tax assessments.

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FPP Handbook (cont)• However, the discussion provides for the

following:

• If, because of unusual circumstances, the facts justify a period greater than 60 days, the government unit should disclose the period being used and the facts that justify it.

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Revenue Recognition Policy

• The Department has noted that the policy for revenue recognition has been changed between the FY2008-09 audit and the FY2009-10 audit for some of the school districts that are now being held to a tighter timeline.

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Adams 14 Policy

• FY2008-09 policy – the District considers revenues to be available if they are collected within sixty (60) days after the end of the current fiscal year, except grant revenues, which are recorded when eligible expenditures are incurred.

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Adams 14 Policy (cont)

• FY2009-10 policy – the District now considers revenues to be available when they are collected within the current period or soon enough thereafter to pay liabilities within sixty (60) days after the end of the current fiscal year, except grant revenues, which are considered to be available when they are collected within ninety (90) days.

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Adams 14 Policy (cont)• Question – did the school district take

formal action to modify its revenue recognition policy in FY2009-10, or was this change in policy imposed on them by their auditor?

• Follow-up Question – How much flexibility does a school district have in defining its revenue recognition policy for external reporting purposes?

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State of Colorado Policy• Per the FY2009-10 CAFR

• Under the modified accrual basis of accounting, revenues are recognized when they are measurable and available.

• The State defines revenues as available if they are expected to be collected within one year.

• However, the State of Colorado does not collect property taxes.

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Jefferson County Policy• Per the FY2009-10 CAFR

• Property tax revenues are considered to be available if collected within 60 days after year-end.

• All other revenues are considered to be available if collected within 120 days after year end.

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Additional Consideration• Section 22-44-113 (1) C.R.S. addresses

borrowing from funds by school districts.• A board of education may borrow

unencumbered moneys from any one fund, except the bond redemption fund, for the use of another fund at any time. All moneys borrowed from a fund pursuant to this subsection shall be repaid to said fund when needed to meet the obligations of said fund, and all revenues credited to the borrowing fund shall be used first to repay the loan.

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Additional Consideration (cont)• Section 22-44-113 (1) C.R.S. (continued)• Any such loan shall be repaid not later than

three months after the beginning of the following budget year. In the event moneys are not forthcoming from designated sources, an amount equal to the outstanding liability shall be expended from the General Fund and used to repay the loan. Such amount from the General Fund shall be recorded as revenue in the receiving fund.

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Additional Consideration (cont)• In theory, this may have school districts use all

revenues credited to the borrowing fund to repay the loan first and that this may cause the school district to re-lend additional moneys to the borrowing fund for current obligations.

• In practice, the school district may not actually make the entries to reflect this repayment and additional borrowing process.

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Additional Questions• Why the change in treatment now?

• How are other school districts handling the revenue recognition for grants?

• Would or should the specific grant’s “period of availability” impact the treatment?

• Other issues or concerns?

• Next steps?

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Further Discussions?