Its All About Trust: The GASBs New Guidance on Fiduciary FundsMay 21, 2017, Denver, Colorado

Its All About Trust: The GASBs New Guidance on Fiduciary Funds

Michelle Kirby

SUNDAY MAY 21, 2017 3:50-4:40 PM

Controller, City of Portland, ORDavid A. Vaudt Chairman, Governmental Accounting Standards BoardChristopher J. Telli, CPAPartner, BKD, LLP

MODERATOR

SPEAKERS

#GFOA2017

Diane B. Allison, CPA, CGFODirector of Business Services, Ascension Parish School Board, Donaldsonville, LA

Its All About Trust: The GASBs New Guidance on Fiduciary Funds

Michelle Kirby

SUNDAY MAY 21, 2017

3:50-4:40 PM

Controller, City of Portland, OR

David A. Vaudt

Chairman, Governmental Accounting Standards Board

Christopher J. Telli, CPA

Partner, BKD, LLP

MODERATOR

SPEAKERS

#GFOA2017

Diane B. Allison, CPA, CGFO

Director of Business Services, Ascension Parish School Board, Donaldsonville, LA

Fiduciary Activitieso Statement No. 14, The Financial Reporting Entity, Paragraph 19

o Include if the primary government has a fiduciary responsibility for them

o Statement No. 61, The Financial Reporting Entity: Omnibuso Fiduciary activities broader than reporting entity considerations

so not addressedo Exisiting standards

o Fiduciary responsibilities not definedo Inconsistent applicationo Business-type activities

o Governmental Accounting Standards Advisory Council (GASAC)o High priority to address fiduciary activities

Project Timelineo April 2010 added to Pre-Agenda Research

o Review current practiceso Conduct survey of users

o August 2013 added project to Current Technical Agendao November 2014 issued Preliminary Views

o 36 Responseso 3 Public hearings 18 organizations and individuals testifiedo Field tests conducted

o December 2015 issued Exposure Drafto 37 Responseso Public hearing 13 organizations and individuals testified

o October 2016 conducted webinar on tentative revisionso January 2017 issued Statement No. 84

Statement No. 84o Improve guidance regarding the identification of fiduciary activities for

accounting and financial reportingo Focus is on:

o (1) whether a government is controlling the assets, ando (2) the beneficiaries with whom the relationship exists

o Separate criteria for fiduciary component units and postemployment benefit arrangements that are fiduciary activities

o 4 fiduciary funds that should be reported:o Postemployment trust fundso Investment trust fundso Private-purpose trust fundso Custodial funds

o Effective for fiscal years beginning after December 15, 2018 o Earlier application is encouraged

Objective and Scope

oObjective: Improve consistency and comparability of fiduciary

activities reporting Increase usefulness of fiduciary activity

information for assessing a governments accountability in its role as a fiduciary

oApplies to all state and local governments

Effects

oDefines and clarifies fiduciary activities

o Introduces custodial funds, eliminates agency funds

Identifying Fiduciary Activities

oPrimary governments (PG) and/or component units (CU) may have fiduciary activities

oStandard gives specific guidance to determine if an activity is a fiduciary activity Paragraphs 6-9: Component units (fiduciary

component units) Paragraphs 10-11: Other activities

Component Units

oStill look to criteria of GASB 14, as amended, for CU determination Legal or assumed obligation to make contributions

to legally separate pension and OPEB plans is considered a financial burden

Control of CU assets by PG is not a consideration when determining if CU is fiduciary component unit

Fiduciary Component Units

oFiduciary activity if any one of the following: Pension plan administered through a trust that

meets criteria of para. 3 of GASB 67 OPEB plan administered through a trust that

meets criteria of para. 3 of GASB 74 Assets from entities outside reporting entity

accumulated for pensions (para. 116 of GASB 73) Assets from entities outside reporting entity

accumulated for OPEB (para. 59 of GASB 74)

Fiduciary Component Unitso If CU but not pension/OPEB arrangement as

previously described, CU is fiduciary activity if related assets are any one of following: 1) a) administered through a trust agreement and the

government is not a beneficiary, b) dedicated to providing benefits as per benefit terms, AND c) legally protected from creditors of the government; or

2) for the benefit of individuals and no administrative involvement or direct financial involvement by government and assets are not from the government providing goods or services; or

Fiduciary Component Unitso If CU but not pension/OPEB arrangement, CU

is fiduciary activity if related assets are any one of following (continued):

3) for the benefit of organizations or other governments outside the reporting entity and assets are not derived from the government providing goods or services to those organizations

Control of Assets

oGovernment controls the assets of an activity if that government: Holds the assets Has the ability to direct the use, exchange or

employment of the assets

oRestrictions do not negate a governments control

Pension/OPEB-Non CUso If not CU, pension and OPEB arrangements are

fiduciary activities if the government controls: Pension plan administered through a trust that

meets criteria of para. 3 of GASB 67 OPEB plan administered through a trust that

meets criteria of para. 3 of GASB 74 Assets from entities outside of reporting entity

accumulated for pensions (para. 116 of GASB 73) Assets from entities outside of reporting entity

accumulated for OPEB (para. 59 of GASB 74)

Other Fiduciary ActivitiesoOther activities are considered fiduciary

activities if ALL of the following are met:1. Government controls the assets; and2. Assets of the activity are not:

derived solely from the governments own-source revenue, or

from government-mandated nonexchange or voluntary nonexchange transactions, EXCEPT for pass-through grants for which there is no administrative or direct financial involvement from the government; and

Other Fiduciary Activities (continued)3. The assets associated with the activity have one or more

of the following characteristics: (a) are administered through a trust agreement and the

government is not a beneficiary, AND (b) are dedicated to providing benefits to recipients as per benefit terms, AND (c) are legally protected from creditors of the government; or

are for the benefit of individuals and the government does not have administrative involvement or direct financial involvement with the assets and the assets are not derived from the government providing goods or services.

Own-Source Revenues

oGenerated by a government itselfo Includes:

Exchange and exchange-like revenues Investment earnings Derived tax revenues Imposed nonexchange revenues

Fiduciary Funds-Type

oFour fiduciary fund types Pension (and other employee benefit; OPEB) trust funds

Pensions/OPEB administered through trusts that meet the criteria of para. 3 of GASB 67 or GASB 74

Other employee benefit plans for which resources are held in a trust that meets the criteria of para. 11c(1) and (2) of GASB 84 and the contributions and related earnings are irrevocable

Investment trust funds External portion of investment pools and individual investment

accounts are held in a trust that meets the criteria of para. 11c(1)

Fiduciary Funds-TypeoFour fiduciary fund types (continued)

Private purpose trust funds Activities that are not required to be held in a pension/OPEB

trust but are held in a trust that meets the criteria of para. 11c(1)

Custodial funds Not required to be reported in any of the other 3 types of trust

funds External portion of investment pools not held in trust, report in

separate column under custodial funds classification Some flexibility in reporting given to business-type activities Eliminates existing agency fund type

Will require examination of current agency funds

Fiduciary Financial StatementsoStatement of Fiduciary Net Position

Report liabilities if compelled to disburse resources Pension/OPEB plans follow GASB 67/74

oStatement of Changes in Fiduciary Net Position Disaggregate additions Includes custodial funds

Can aggregate addition/deductions if expected to hold for 3 months or less

Pension/OPEB plans follow GASB 67/74

Transition

oEffective for reporting periods beginning after December 15, 2018 Early application encouraged

oRetroactive application Restate financial statements for all prior periods Cumulative effect of applying statement by

restating beginning net position/fund balance Disclosure requirements in first year of adoption

Lets Do This!

Major Changes

o Agency funds are renamed custodial fundso For custodial funds, Statement of Changes in Fiduciary

Net Position replaces Statement of Changes in Assets and Liabilities and moves from Supplementary Information to Basic Financial Statements

o List additions and deductions by nature of resource flowso Clarifies to record a liability when the government is

compelled to disburse fiduciary resources

Custodial Funds

o NOT pension, OPEB, investment, or private-purpose trust funds

o For fiduciary activities NOT held in a trust or equivalent arrangement

o The receipt, temporary investment, and remittance of fiduciary resources

o For example, tax collections, student activities, escrowed funds, payroll clearing, inmate funds

Reporting Custodial Funds Pre GASB 84

Statement of Fiduciary Net Position in Basic Financial Statements

Statement of Changes in Assets and Liabilitiesin Supplementary Information

Reporting Custodial FundsPost GASB 84

Statement of Changes in Assets and Liabilities in Supplementary Information goes away

Custodial funds are now reported on the Statement of Changes in Fiduciary Net Position in their own fiduciary fund type column

Statement of Changes in Fiduciary Net Position New for Custodial Funds

Now required to report additions and deductions by nature of resource flowso Can aggregate if, at time of receipt, normally expect

to hold assets for 3 months or less, for example: Taxes collected for / paid to other governments Receipts collected for / distributions for student activities

(inmates, garnishments, etc.)

o Report administrative costs separately

Business-type Activities

o If, at time of receipt, the government expects to hold the assets for 3 months or less, then can report the assets in the Statement of Net Position of the business-type activity (and list in Operating section of Statement of Cash Flows)

oOtherwise, will report in a custodial fund

External Investment Pools

If administered through a trust (or equivalent arrangement), then an Investment Trust Fund

Otherwise, a custodial fund but in a separate column from other custodial funds

Record a Liability to Beneficiaries When . . .

An event has occurred that compels the government to disburse fiduciary resources

Such as, when a tax collecting government collects the taxes

Record all other liabilities using economic resources measurement focus

Fiduciary Component Units

Include the combined information of its own component units

Then aggregate with the primary governments fiduciary funds by fund type

Developing an Implementation Plan

1. Identify potential fiduciary activities2. Identify fiduciary component units3. Determine if a trust or equivalent arrangement exists4. Determine the type of fiduciary fund5. For custodial funds, ascertain the nature of the resource

flows (for all years presented)6. List administrative costs separately7. Determine when to recognize a fiduciary fund liability8. Apply retroactively and prepare the disclosure

David A. Vaudt, CPA, Chairman, Governmental Accounting Standards Board, Norwalk, CT; DAVaudt@gasb.org

Christopher J. Telli, CPA, Partner, BKD, LLP, Colorado Springs, CO; ctelli@bkd.com

Diane B. Allison, CPA, CGMA, Director of Business Services, Ascension Parish School Board, Donaldsonville, LA; diane.allison@apsb.org

Its All About Trust: The GASBs New Guidance on Fiduciary FundsFiduciary ActivitiesProject TimelineStatement No. 84Slide Number 5Objective and ScopeEffectsIdentifying Fiduciary ActivitiesComponent UnitsFiduciary Component UnitsFiduciary Component UnitsFiduciary Component UnitsControl of AssetsPension/OPEB-Non CUsOther Fiduciary ActivitiesOther Fiduciary Activities (continued)Own-Source RevenuesFiduciary Funds-TypeFiduciary Funds-TypeFiduciary Financial StatementsTransitionLets Do This!Major ChangesCustodial FundsReporting Custodial Funds Pre GASB 84Reporting Custodial FundsPost GASB 84Statement of Changes in Fiduciary Net Position New for Custodial FundsBusiness-type ActivitiesExternal Investment PoolsRecord a Liability to Beneficiaries When . . .Fiduciary Component UnitsDeveloping an Implementation PlanSlide Number 33