ACCT 350 - NFP & Gov’t Accounting
City Financial Statement Project
The purpose of this assignment is to review the financial statements of a city government and understand the
fiscal policies and sources/uses of funds. The written report is worth 80 points (equivalent to four regular
assignments) and is due no later than mid-night on Tuesday, May 10.
Selecting a City/Obtaining the CAFR: The city you select cannot be too small. Check with me to determine if
your city will work. The larger the city, the easier this assignment will be. The city should be in the U.S.
Obtaining the CAFR: You will need to obtain the Comprehensive Annual Financial Report (CAFR) for the city
of your choice. Nearly all cities publish their CAFRs on their websites (e.g. you’ll find it by searching the city
name plus CAFR, e.g. “City of Portland CAFR”). The CAFR should be for the most recent fiscal period
available. Make sure to acquire the CAFR, not the general-purpose financial statements, summary financial
statements, or budget.
Written Report
The information needed to complete this assignment should be found in the CAFR, although you may have to
search diligently in the CAFT to find it. In some cases, you may not be able to find the information no matter
how hard you look. If such is the case, you should explain that the CAFR did not contain the information and go
on to the next question. But make sure you look carefully, because your instructor has an uncanny ability to find
information that you didn’t think was there.
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Tell about your city. The introduction and the Statistical Section in the back of the CAFR usually have
tidbits of interesting info. At a minimum, you should answer the following questions: (A) Have you
been to this city? If so, what did you think of it? (B) What are some unique things about this city (e.g.
attractions, tourist or historical sites, etc.)? (C) What is the latest population and what is its population
growth rate over the last year? (D) When was it incorporated? (E) How many employees does the city
government have and in what capacity (brief description of their function – firemen, etc.)? (F) What is
the square mileage? (G) Who are the major employers? (H) What is the total assessed value of all
taxable property in the city?
In the Introductory Section, there should be a Letter of Transmittal (sometimes called Letter to Mayor or
Budget Letter). Summarize in bullet form the main issues discussed in the letter.
In the Introductory Section, there might be a Certificate of Achievement for Excellence in Financial
Reporting. This is an award given by the Government Finance Officers Association for annual reports
that are well done and conform to all of the standards. Did your city receive such an award? If so, for
what year(s)?
In the Introductory Section, there should be a list of principal officials and an organizational chart. From
this and other information, answer the following questions: (A) How many city council members are
there? Does it appear that the city council adequately has different racial and gender representation? (B)
Are there both a city manager and a mayor? If so, is the mayor on a full-time salary? [Note: the mayor’s
FTE is also often discussed in the budget, which is a separate document from the CAFR] (C) Which
individuals/functions/departments report directly to the mayor or city manager?
In the Financial Section, locate the auditor’s report. (A) Who were the city’s auditors? Were they
CPAs? (B) Did the auditors feel that the financial statements were fairly stated? (C) When was the audit
report dated? (D) How long (in months/days) after fiscal year-end did it take them to finish the audit?
In the Financial Section, find the Management Discussion and Analysis. In bullet form, summarize the
major points addressed. How does management see the current financial position and future prospects of
the city?
In the Financial Section, find the Gov’t-Wide Financial Statements. Use the tables, charting and graphing
tools of a spreadsheet to complete the following steps.
A. Prepare a summary dollar and common-size balance sheet (in which items are shown as percent of
total assets). See example below. Note that you might have to use your judgment in order to divide
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current from non-current assets and liabilities. Also note that for cities that have adopted the recent
new accounting rules on pensions, you will need to include “deferred outflows of resources” as longterm assets, and “deferred inflows of resources” as long-term liabilities -- otherwise, your balance
sheet will not balance.
B. Comment on how the composition of the Governmental Activities compares to Business-Type
Activities. [Note: some unusual cities contract out all business-type activities (utilities, garbage, etc.)
so in rare cases, no business-type activities might exist.]
Governmental
Activities
$
Percent
Current Assets
Non-Current Assets
Total Assets
Current Liabilities
Non-Current Liabilities
Total Liabilities
Net Assets
Total Liab. & Net Assets
Business-Type
Activities
$
Percent
Total
$
Percent
100%
100%
100%
100%
100%
100%
C. For Governmental Activities, prepare a table/graph/chart comparing total expenses (direct & indirect)
with total program revenues, program by program (e.g. double bar graph for general government,
another one for judicial, public safety, etc.). If your city includes a graph, you may copy/paste into
your report. Discuss which programs appear to be self-supporting and which rely mostly on general
tax revenues. Here’s an example:
D. For Business-Type Activities, prepare a table/graph/chart comparing total expenses (direct & indirect)
with total program revenues, program by program (e.g. double bar graph for electricity, water,
wastewater, parking, etc.) Identify which programs appear to be operating most profitably and least
profitably. This table/graph/chart will be similar to the one in letter C above. [Note: some unusual
cities contract out all business-type activities (utilities, garbage, etc.) so in rare cases, no businesstype activities might exist.]
E. Prepare a table/graph/chart that shows how total revenues are broken down for Governmental
Activities. Revenues would include both program revenues and general revenues. Categories might
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include charges for services, operating grants & contributions, capital grants & contributions,
property taxes, sales taxes, etc. .). If your city includes a graph, you may copy/paste into your report.
Below is an example. Note that if the information is available, you should split city taxes into its
various types (property tax, sales tax, etc.)
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F. Prepare a table/graph/chart that shows how total revenues are broken down for Business-Type
Activities. Revenues would include both program revenues and general revenues. Categories might
include charges for services, operating grants & contributions, capital grants & contributions,
investment earnings, etc. This table/graph/chart will be similar to the one in letter E above.
G. Compare D & E above. Do Business-Type Activities usually depend more or less on tax monies than
Governmental Activities? If someone implemented a user-fee approach to government finance, how
would this impact the information D & E?
Refer to the Fund Financial Statement section. What are the largest three reconciling items (in dollars)
included on the reconciliation between the net change in fund balances of governmental funds (modified
accrual basis) and the change in net assets of governmental activities (full accrual)?
Prepare a narrative/chart/graph/table that summarizes the most significant budget variances for the
governmental funds for the most recent fiscal year. In other words, how would you briefly describe to
somebody how actual results differed from the budget for the governmental activities of the city? Note
that not all government funds prepare a budget --sometimes only the general fund has a budget. The
budget information is often located in the Required Supplementary Information section.
(A) What is the property tax mill levy for your city? (B) How much property tax did the city levy
against a home assessed at $100,000? Is this more or less than the City of College Place in 2016? [Note:
we are referring to the city’s portion of property taxes only, not the county, state, school district, etc. This
information should be located in the supplementary information at the end of the CAFR. For College
Place, you can find the exact number in Assignment 3c.] (C) Have property tax rates been increasing or
decreasing in the city over the last few years?
The next few questions have answers that can usually be found in the notes to the financial statements
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Describe the budget process/calendar of the city (i.e. When is the executive branch supposed to submit the
budget to the legislative branch? When should the legislative branch approve it? Etc.) Where in this
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process is the city at this moment? [Note: if not in the CAFR, the budget calendar should be located in the
city budget, a separate document from the CAFR that should also be available on the city’s website.]
(A) What accounting basis/measurement focus does the city use? (B) When does the city record its
revenues? (C) Expenditures?
(A) What, if any, component units are included with the primary gov’t? (B) What is the rationale for
them to be included with the primary gov’t? (C) Are they blended or discrete?
(A) Does the city use encumbrances? (B) Do the encumbrances lapse at year-end? (C) What is the
balance of total outstanding encumbrances at year-end, if any?
(A) Describe the types of investments the city holds. (B) Judging from the investment policy and the
types of investments held, is the city a risk-taker or is it risk-adverse? Explain. (C) Does the city have
any repos, reverse-repos, or security lending arrangements? If so, describe. (D) Does the city use any
internal or external investment pools? If so, describe.
Describe any major interfund receivables and transfers (in terms of dollars and funds involved).
(A) What is the amount of inventories, if any? (B) Why would a city have inventory? (C) Does the city
use the purchase or consumption inventory method in the governmental funds?
(A) What is the policy of the city towards capitalization of infrastructure assets? Is the modified
approach used? (B) What is the city’s capitalization cut-off policy amount (i.e. under which dollar
amount does the city automatically not capitalize)? (C) What depreciation methods are used, if any (e.g.
straight-line, etc.)? (D) Prepare two tables/charts/graphs showing the types of capital assets and the
grand total (land, buildings, equipment, etc.) -- one table/chart/graph for Governmental and another for
Business-type Activities.
(A) Describe any bond or note issues outstanding. (B) Do most of the bonds appear to be serial or term
bonds? General obligation or revenue bonds? (C) Did any bond refundings, TANs, BANS, or RANs
exist at year-end? If so, describe. [Hint: search CAFR for the word “anticipation”].
What is the funded status of any defined benefit pension plans? [A separate pension may exist for police,
fire, general workers, etc.]. Note that some cities have switched to defined contribution plans
administered through the state. These plans are funded “as you go” so a funding status is 100%.
Give an example of claims, judgments, lawsuits, or contingencies disclosed.
For the next 6 questions, refer to the Required Supplementary Information. Measure size by total assets.
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List the five largest special revenue funds (major & non-major) and explain their purpose. [Note: major
funds are listed in separate columns in the fund financial statements. Non-major funds should be listed
later in the CAFR.]
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List the five largest debt service funds (major & non-major) and explain their purpose.
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List the five largest capital projects funds (major & non-major) and explain their purpose.
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List the five largest internal service funds (major & non-major) and explain their purpose.
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(A) List the five largest major enterprise funds (major & non-major) and explain their purposes. (B)
What criteria does the city use to distinguish between major and non-major funds?
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Give a specific example at your city of each of the following, if applicable: (A) pension trust fund, (B)
permanent fund, (C) private-purpose fund, (D) agency fund.
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How well do the parts of the CAFR compare to the CAFR outline in Ch. 5 of your text? Explain.
What particular financial challenges or opportunities do you see your city facing in the near future?
Would you rate your city’s overall financial health as strong, medium, or weak? Provide an explanatory
paragraph or two (as if you were writing an article for your local newspaper about your city’s health).
This question is worth points so avoid a weak answer. The following factors may be relevant to your
answer:
A. Look at demographic factors, such as population trends, age of population, property value trends, poverty
rate, and unemployment rate. Obviously, a healthy city will be growing city in terms of people and
wealth. If your city does not disclose sufficient demographic data on its website or in its CAFR, the
Census Bureau might be helpful -- see http://factfinder2.census.gov/faces/nav/jsf/pages/index.xhtml .
B. Consider the trends in general fund unassigned (or unreserved) fund balance. Do the same for
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C.
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unrestricted net assets of business-type funds (enterprise) funds.
Note: A positive balance in unassigned (unreserved) fund balance or unrestricted net assets provides a
cushion for revenue shortfalls or expenditure overruns. Continuous reductions in fund balance may
indicate poorly structured budgets that could lead to future budgetary problems, even if the current fund
balance is positive. Even more significant is a fund balance that is negative, or what is known as a deficit
fund balance. This situation could seriously affect the ability to continue to provide services at current
levels. Deficits in major funds in excess of 1.5 percent of fund expenditures or $50,000 (whichever is
greater) are generally causes for concern.
Consider the trends in general fund operating surpluses or deficits.
Note: The annual operating surplus or deficit is the difference between the revenues and expenditures
for a fiscal year. If expenditures exceed revenues, the local government or school district has an
operating deficit; if revenues exceed expenditures, the local government or school district has an
operating surplus. One way to measure this is to subtract gross expenditures from gross revenues and
divide the result by gross expenditures. This ratio depicts how large or small the surplus or deficit is in
relation to each fund’s operations for the year. Over time, operating deficits in individual years may
offset operating surpluses from other years. Because several successive years of operating deficits could
cause financial hardship for a local government, reviewers should consider the results over several years
of operation. The fund balance is the total accumulation of all operating surpluses and deficits since the
beginning of a local government’s existence. Each year’s operating surplus or deficit is added to or
subtracted from the prior fund balance. A local government that relies on surplus fund balance to finance
current operations may eventually experience fiscal problems.
Consider the trend in total liabilities as a percent of total assets. Clearly, too much debt threatens the
viability and long-term solvency of the government.
If the city is large enough, it may have a separate bond rating disclosed in its CAFR or on the city’s
website. Because the bond rating agency studies the finances of the city carefully, a comparison of bond
ratings can be a meaningful way to judge the future health of a city.
Consider the unfunded status of any defined benefit pension plans, which will impact cash flows for years
to come. In the past, cities have pacified their employee unions by promising better pension benefits, as
opposed to raising current wages. Consequently, pensions often present the single biggest financial threat
to a city’s continued existence (e.g. Detroit, MI).
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