Steps to Follow for the Assignment:
- Choose an American city, county or state
- Look them up on the internet to find their Comprehensive Annual Financial Report (CAFR) for the most recent year.
- Download a copy of their CAFR.
- Write a report. Write a descriptive professionally prepared report in paragraph form that analyzes the contents of the CAFR obtained by considering questions adapted from the GFOA Reviewer’s Checklist. Yes/no answers to the questions are not sufficient. Similarly, merely beginning the question with Yes or No and rephrasing the question is insufficient. You must provide examples and reference specific pages on which the information can be found.
The City of XYZ lists 10 Reserved Fund Balance Accounts and three Designated Unreserved Fund Balance Accounts (See page 10). In addition to those discussed in class, the City of XYZ has reserved fund balance accounts for-a-Justice Information System amounting to $579,184 and equipment acquisitions for$8,996,347.
If a particular fund type is not used by your city, just indicate that this is the case. In other cases, specific circumstances may not apply to your city.
Your assignment is to perform a “mini assessment” of a CAFR using the questions based on the SRC Review Guide for General Purpose Governments.
NOTE: The following is a list of some of the points you might wish to consider in your analysis. I am NOT expecting you to cover all of these questions in detail but they might offer a starting place for some points to consider in your evaluation of the CAFR you chose:
CAFR – INTRODUCTORY SECTION.
The Introductory Section may contain a letter from the Director of Financial Services; a list of Principal Officers; an Organization Chart; and the Certificate of Excellence in Financial Reporting. Review your CAFR to determine whether or not each item is presented. Provide a one or two paragraph summary of the nature of these items.
- To whom is the letter of transmittal addressed?
- Is the letter presented on letterhead stationery- of-the- government, dated- on or-
after the date of the auditor’s report, and signed by the chief financial officer?
- Does the letter address management’s responsibility for the financial information?
- How is the reporting entity defined? Is the definition used appropriate?
- Economic Condition and Outlook.
- Is a summary of the local economy provided?
- What are the major industries affecting the local economy?
- How would you describe the government’s future economic outlook?
- Major Initiatives.
- What current-year and future year projects are discussed?
- What service efforts and accomplishments are mentioned?
- Financial information.
- What does the letter say about the government’s internal control structure and budgetary controls?
- What Proprietary and Fiduciary Operations are discussed?
- What does the letter say about debt administration, cash management, and risk management?
- What does the letter have to say about total general governmental revenues and expenditures; net direct bonded debt; total fund balance; and net operating income available for debt service?
- Do the amounts reported agree with amounts in the financial and statistical sections? Trace them and explain how you know they do or do not agree.
- Independent Auditor’s Report
Read the Independent Auditor’s Report. Summarize the nature of the audit report by including answers to the following questions:
- What type of auditor’s report has been issued?
- Which financial statements/schedules are covered by the auditor’s opinion?
- Who do the auditor’s say is responsible for the financial statements.
- How has the audit been performed (in accordance to what)?
- How does the auditor’s report say the financial statements are presented?
- What is the date of the auditor’s report?
- Combined Balance Sheet – All Fund Types, Account Groups and Component Units.
- How are the columns captioned (i.e., with generic fund types, account groups, and if applicable discrete presentation titles)?
- Are columns sequenced in the same order as the separate generic fund type subsections in the financial section?
- Has the government refrained from reporting non-asset “other debits” on the balance sheet except in the General Long Term Debt Account Group
- Does the year-end -fund balance of -the-Debt Service Fund agree with the “amount available” for debt service in the General Long Term Debt Account Group? What is this amount? If the amounts do not agree, what is the difference? Can you determine to what the difference is attributed?
- How are fixed assets reported?
- Do interfund receivable equal interfund payables? What is the amount?
If these amounts do not balance, then review the restricted asset/liability sections for interfund receivables/payables. If the amounts still do not agree, then review the required note disclosures to determine the explanation for the differences.
- Are anticipation notes payable (tax, revenue, etc.) properly classified on the balance sheet?
A common reporting error occurs when governments report these notes in the general long-term debt account group because the notes have long-term maturity dates or are expected to be refinanced on a long-term basis.
- How are long term liabilities reported?
- What type of long-term liabilities are reported in the General Long-Term Debt Account Group?
- Fund Equity.
- Which funds have reported “fund balances?”
- Which funds have reported “retained earnings” or contributed capital?”
- What type of reserves or designations of fund equity are reported in the Combined Balance sheet?
- Where is the nature and purpose of all reserves or designations
described (either on the statement or in the notes to the financial statements)?
- Are encumbrances being reported?
(1) What do the notes say about the accounting and financial reporting treatment applied to encumbrances?
- Combined Statement of Revenues, Expenditures and Changes in Fund Balances – All Governmental Fund Types, Expendable Trust Funds, and Discretely Presented Component Units.
- Revenues and Other Sources:
- How are revenues being classified? Give examples to support your answer.
- How are the proceeds of long-term debt issues presented?
Review the note disclosure pertaining to changes in general long-term debt to determine if any additions to GLTDAG have occurred. A common reporting deficiency occurs when a government fails to report the proceeds of debt appropriately when the proceeds of the debt are given to another government entity.
- Expenditures and Other Uses:
- How are expenditures classified. Provide examples to justify your answer.
- Are current expenditures further classified by function and/or program? Give examples.
- If your entity has entered into capital lease agreements, how are-they being reported?
Review the notes to the financial statements (changes in long-term debt) to determine whether any capital leases were entered into during the current year.
- How are operating interfund transfers being reported?
- Combined Statement of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual.
- For which funds are budget and actual data shown?
- For which funds do the notes say annual budgets are legally adopted?
- If annual budget is legally adopted for some but not all funds, is this fact explained?
- Are both budget and actual data presented on the budgetary basis?
- If the budgetary basis is different from GAAP (basis, timing, perspective or entity differences), where is the nature and the amount of the adjustments necessary to convert the actual GAAP data to the budgetary basis disclosed? Briefly explain.
- To what extent has the government stayed within its budget, i.e., by what amount have the actual “Excess of revenues and other sources over (under) expenditures and other uses” varied from the budget?
5.What do the notes disclose about the legal level of control i.e., the level at which expenditures may not legally exceed appropriations for each budget for which data are presented?
- Combined Statement of Revenues, Expenses and Changes in Retained Earning (or Equity) – All Proprietary Fund Types (and Similar Trust Funds and Discretely Presented Component Units.
- Are revenue and expense classifications sufficiently detailed to be meaningful? Describe some of them.
- If fixed assets are reported in the proprietary and similar trust fund type columns of the balance sheet, is depreciation expense separately reported on the operating statements for the Enterprise funds, Internal service funds, and similar fiduciary funds?
- Where does this section appear?
- What is the nature of some of the items presented?
- Are operating transfers in or out reported in a separate classification after the reported “income or loss before operating transfers?” What is the extent of the operating transfers?
- Has any depreciation on assets acquired or constructed through capital grants closed to contributed capital?
- Is the gross amount of depreciation presented as: a) an expense, with b) the “add back” portion of depreciation closed to contributed capital reported after net income but before changes in fund equity?
- What type of special assessment levies, if any, have been used to construct or purchase a fixed asset? Are they reported as contributed capital?
- Do the changes in proprietary fund equity include a reconciliation of contributed capital if not disclosed separately in the notes?
- Which format is used to present the Changes in Retained Earnings? If increases or decreases to reserve accounts are indicated, describe some of them.
- For which funds did retained earnings or fund balance increase at yearend?
- Combined Statement of Cash Flows – All Proprietary Fund Types (and Nonexpendable Trust Funds and Discretely Presented Component Units):
- Has the statement been presented using the Indirect or Direct method of reporting?
- Into what categories does the statement classify gross cash receipts and payments?
- For which funds, did net cash increase or decrease? List amounts.
- What were some of the major factors that caused cash to increase or decrease during the year?
- Notes to the Financial Statements:
1.Summary of Significant Accounting Policies.
- What do the notes say about the basis of accounting and measurement focus for the governmental funds and expendable trust funds?
- Do the notes define the modified accrual basis in a manner that is consistent with the authoritative literature?
- Do the notes clearly indicate which primary revenue sources have been treated as “susceptible to accrual” under the modified accrual basis?
- According to this note, when are revenues recognized?
- Has the government reported as property tax revenue only those taxes
levied for and due within the fiscal year, and collected within at most sixty days after the fiscal year ended?
- Has the government accrued as revenue only that portion of long-term
sales contracts, notes and leases receivable which is measurable and available?
- When are special assessment levies reported?
- Are proprietary funds, nonexpendable trust funds and pension trust funds reported on the accrual basis of accounting and “economic resources” measurement focus?
2.Cash and Investments.
- What is the credit and market risk for deposits and investments?
- What types of investments are authorized by legal or contractual provisions?
- What are the bank balances of deposits at the balance sheet date and to
what extent are they insured or collateralized with securities held by the government or its agent in the government’s name?
- What is the carrying amount and market value of investments as of the balance sheet date by investment type and in total?
- Are property taxes receivable discussed in the notes?
- As of what date is the property tax receivable recorded?
- What do the notes disclose about the property tax calendar, lien dates, levy (assessment) dates, due dates and collection dates?
- If not disclosed on the balance sheet, do the notes include a description of the stated basis for inventories- (i.e., are governmental fund inventories, not held for resale, reported at cost)?
- Do the notes specify methods (e.g. FIFO, LIFO, average cost) for stating any material inventories?
- Do the notes indicate the accounting treatment (i.e., consumption/purchase method) applied to governmental fund type inventories?
- How does the government account for infrastructure fixed assets?
- Are the estimated useful lives for the major classes of depreciable fixed assets specified? Give an example.
- What depreciation method is used for the major classes of depreciable fixed assets specified?
- How are donated fixed assets are reported?
- At what basis are purchased fixed assets stated?
- Has the government refrained from using terms like “appraised values” or “estimated values” without indicating whether they involve historical cost, replacement cost or market value appraisals or estimates?
- Where are the major classes of fixed assets disclosed?
- Where are changes in fixed assets reported?
- If a debt service fund is not in use, what do the notes indicate about which individual funds or revenue sources are used to repay which long-term debt amounts?
- What debt service requirements to maturity for outstanding debt are disclosed?
- Are changes in all general long-term liabilities disclosed in the general long-term debt account group included?
- What commitments under capital leases are included?
- What minimum future lease payments including a deduction for imputed interest to arrive at net present value have been included?
- If the government is obligated in some manner for outstanding special assessment debt, do the notes disclose the nature of the government’s obligation?
- If the government is not obligated in any manner for outstanding special assessment debt, do the notes disclose the amount of debt outstanding and the fact that the government is acting in an agent capacity for the property owners?
- Are amounts of any excesses of expenditures over appropriations at the legal level of budgetary control in individual funds disclosed and explained? If not, should they have been?
- What amounts are disclosed and rationale is provided if any deficit fund balances/retained earnings of individual funds exist? Describe.
- Have any material violations of finance-related legal and contractual provisions been identified? If so, describe.
- Is the government involved with landfill operations?
- If so, what is the liability the government has accrued for a portion of
the total current cost of closure and post closure care of the solid waste landfill?
- What is the liability for closure and post-closure care at the balance sheet date?
- What is the percentage of landfill capacity used to date and estimated remaining landfill life in years?
- Briefly summarize the note disclosure regarding the nature and source of post-closure care requirements.
- STATISTICAL SECTION
- What statistical tables that have been included in the CAFR?
- Do the amounts reported in the statistical tables agree with related amounts in the financial and introductory sections?
- Provide two examples of amounts that agree, included page numbers.
- If you discover amounts that do not agree, discuss the nature of the discrepancy.
Note: Information on certain tables often do not trace to the financial statements and schedules or the letter of transmittal. Amounts should be traced on a test basis. The GFOA uses a cross-referencing table to complete this part of the review.
Create a conclusion for your report.
- Your papers must be a minimum of four pages
- Use 12 point Times New Roman Font
- Use double-spacing
- Your papers may utilize MLA, APA or Turabian formatting guidelines
- Do not use contractions
- Your paper must have your name, name of the entity you chose, the period of the financial statement
- Your essays must contain a Works Cited page
Key Components of Your Essay
- Make sure you have an introductory paragraph.
- Make sure that each of your body paragraphs utilize specific CAFR content to help augment/support the analysis that you are providing.
- Avoid absolutes (stay away from words like “always”, “never”, “everyone”, “no one”).