Grant Cash-flow
60 Day Rule
Discussion
FPP Advisory Committee Meeting
Agenda Item VI. b.
February 11, 2011
1
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.
2
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.
3
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.
4
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.
5
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.
6
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.
7
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.
8
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.
9
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.
10
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.
11
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.
12
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.
13
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.
14
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?
15
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.
16
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.
17
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.
18
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.
19
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.
20
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?
21
Further
Discussions?
22