GFOA Executive Board Approves Recommended Practices
On October 19, the GFOA’s Executive Board approved 12 recommended practices (RPs) that were developed by the GFOA’s standing committees. The GFOA’s RPs are intended to identify issues important to GFOA members and provide information about effective strategies for state and local governments to follow in the areas of accounting, auditing, and financial reporting; budgeting and fiscal policy; cash management; debt management; economic development and capital planning; and retirement and benefits administration. Currently, there are more than 120 RPs available to GFOA members and the public on our Web site.
The RPs recently approved by the board include new topics, such as OPEB, capital projects, and shared services, as well as revisions to cash management recommended practices and recommendations for choosing between competitive and negotiated methods of bond sales. Brief descriptions of the RPs are below, and the full text of all the RPs may be found on the GFOA’s Web site.
- Statement on Auditing Standards No. 112, Communicating Internal Control Related Matters Identified in an Audit, will require auditors for the first time to report certain commonly encountered situations as significant deficiencies. One such situation is management’s reliance upon the auditors to assist in one or another aspect of financial statement preparation because management itself is not qualified to do so. Some have suggested that governments attempt to avoid this “deficiency” by engaging the services of a second accounting firm to assist in financial statement preparation. The GFOA argues, however, that “it is by no means assured that the benefits of engaging a second firm would outweigh the costs.” Accordingly, the GFOA “does not recommend that governments engage the services of a second accounting firm to assist in preparing its financial statements solely to avoid having a significant deficiency or material weakness reported.” The balance of the new recommended practice, Mitigating the Negative Effects of Statement of Auditing Standards No. 112, offers concrete suggestions for minimizing the potential negative impact of SAS 112.
- The new RP Ensuring the Sustainability of Other Post Employment Benefits (OPEB), developed by the committees on Retirement and Benefits Adminis-tration and on Governmental Budgeting and Fiscal Policy, recognizes that the real issue created by GASB Statement No. 45 is not the new accounting for OPEB, but rather the underlying budgetary and funding challenge that those accounting standards highlight. Meeting this challenge requires governments to ensure that any OPEB they offer is sustainable over the long term. Accordingly, the new RP recommends that governments develop a deliberative process to ensure the sustainability of any OPEB they offer to their employees and sets forth several steps that may be followed.
The RP recommends that these steps begin with governments developing principles and priorities to guide decision making for OPEB that consider benefit design, funding approaches, and the needs of stakeholders. With regard to benefit design, the RP urges governments to carefully evaluate and design benefits to ensure they are sustainable and offers some design ideas that may help in achieving that goal. Once a government is satisfied that its OPEB plan design is sustainable, the RP recommends that it consider and select an appropriate funding mechanism. The RP reviews several possible funding approaches, including the creation of a trust fund to advance fund benefits. It also reminds governments to exercise caution before issuing debt to fund their OPEB liability. Finally, the RP discusses the importance of communicating and educating stakeholders on the impact of decisions made regarding OPEB.
- In the update to the 1994 RP, Selecting and Managing the Method of Sale of State and Local Government Bonds, the board approved changes that recommend governments use the method of sale—competitive or negotiated—that is most likely to achieve the lowest borrowing costs, while taking into account both short-term and long-term implications for taxpayers and ratepayers. The RP presents factors that merit the use of both types of sale, yet stresses the importance of a competitive process when selecting finance professionals. Understanding each parties’ “fiduciary responsibility” is also important, as a financial advisor has a relationship of “trust and confidence” with an issuer while the relationship with the underwriter is one of common purpose, but also competing objectives especially at the time of bond pricing.
The most significant change made to this RP is the recommendation that governments do not allow a firm acting as a financial advisor to the transaction to resign and serve as underwriter, due to an inherent conflict of interest. Governments are also advised to enact a policy as to whether it will permit a single firm to serve as an underwriter in one transaction and a financial advisor in another.
- The Committee on Accounting, Auditing, and Financial Reporting developed the new RP Encouraging and Facilitating the Reporting of Fraud and Questionable Accounting and Auditing Practices. In most cases, potential instances of fraud or abuse and questionable accounting or auditing practices come to the attention of responsible parties thanks to employees or citizens who become aware of such practices. This recommended practice advises governments on the practical steps they can and should take to encourage and facilitate such reporting.
- In the economic development and capital planning arena, two new RPs were approved. The first, Capital Project Monitoring and Reporting, takes a comprehensive look at the process of establishing a monitoring and reporting process for capital projects. Given the substantial commitment of organizational time and resources, the RP recommends that government entities should establish effective monitoring and reporting policies and procedures in order to mitigate the potential risks. By doing so, finance officers can proactively improve financial accountability, enhance operational effectiveness, and promote citizens’ confidence in their government.
- The second RP, Capital Maintenance and Replacement, provides guidance to help governments support the continued quality and utilization of the capital assets. Capital assets include facilities, infrastructure, equipment, and networks that enable governments to effectively deliver public sector services. This RP recommends that governments establish a system for planning, budgeting, and conducting periodic assessments of their capital maintenance and replacement needs to encourage and maintain adequate capital spending levels. The RP also recommends actions that address the continuing investment necessary to proactively maintain capital assets.
- The Governmental Budgeting and Fiscal Policy Committee authored a RP on Alternative Service Delivery: Shared Services that represents the importance of intergovernmental cooperation at the local level as a method of meeting particular problems. This recommended practice highlights some important considerations in developing an effective intergovernmental agreement.
Two new and three revised cash management RPs also have been adopted.
- Revenue Control and Management Policy is a new RP that recommends governments develop a policy to assure that proper controls exist over all receipts and receivables. Governments should consider the following factors when developing this policy: internal controls, accounting practices, billing practices, depositing of received funds, collection, returned checks, and bad debt.
- Revenue Control and Management Policy: Accounts Receivable Controls has been updated to coincide with the overarching Revenue Control and Management Policy and recommends that governments consider the following factors when developing an accounts receivable policy: internal controls, billing practices, deposits, returned checks, accounts receivable management, and bad debt expense.
- Revenue Control and Management Policy: Cash Receipts Controls also has been updated to reflect the other two RPs in this category and suggests that governments consider the following factors when developing this policy: internal controls, deposits, returned checks, escrowed funds, and budgetary review of actual revenue collections.
- Payment Consolidation Services provides information for governments when they consider using a payment consolidation service to improve the efficiency of their collection process. When customers make payments using an online bill payment service, these services usually do not send the payment to the government electronically. Instead, these services mail paper checks with remitter information printed on the check stub or as a separate paper list. This can greatly increase governments’ manual processing costs. A payment consolidation service is a financial institution that consolidates payments and sends them to the government in an electronic format.
- Collateralization of Public Deposits has been modified to recognize the need for monitoring of collateral and stress the risks inherent in accepting surety bonds as collateral. When accepting surety bonds, government investors should ensure that they only accept these only from the highest rated insurance companies. As well, state programs for pooling collateral are considered.
Registration Still Open for GAAP Update
Seats are still available at 142 downlink sites across the United States for the GFOA’s 12th Annual Governmental GAAP Update satellite teleconference, Thursday, November 8, 2007, from 1 p.m. - 5 p.m. (EST).
Visit the GFOA's Web site to see a tentative agenda and to sign up for the site nearest you. Earn 4 CPE credits for participating in this valuable training opportunity.
Please e-mail the GFOA at satellite@gfoa.org with any questions you may have on the November 8 teleconference.
GFOA Releases New Capital Planning and Evaluation Publication
Capital Project Planning and Evaluation: Expanding the Role of the Finance Officer, just released by the GFOA as volume 8 of the association's Budget Series, focuses on the finance officer's role in common capital projects—such as public safety facilities, libraries, schools, and more—beyond the budget annual budget process. A well-prepared capital budget is a critical part of planning, funding, and implementing capital projects, but the process of recognizing capital needs and the creation of a capital plan occurs long before the annual budget is developed. By participating in the complete capital investment cycle, finance officers have an opportunity to contribute valuable insight at all stages, to help assure that local governments make capital project investments that align with long-term service and financial goals, objectives, and strategies.
This new publication takes a practical approach to capital project planning. Focusing on the needs of small and mid-sized local governments, the book presents the basic steps involved in all capital projects and includes 12 chapters on specific types of capital projects. The volume provides finance officers information to become not just educated consumers of capital projects but to enable them to become active participants in the capital planning and evaluation process, including needs assessment, project planning, implementation, and evaluation.
To order your copy of this publication, the entire Budget Series, or the Budget Suite, visit the GFOA's e-store.
2008 AGFI Applications Being Accepted
GFOA members are encouraged to apply for the GFOA’s 2008 Advanced Government Finance Institute, to be held in Madison, Wisconsin, July 28 – August 2. The week-long leadership training program allows 50 selected GFOA members the opportunity to immerse themselves in a unique program on the University of Wisconsin’s campus. Seminars addressing organizational leadership, strategic planning, media relations, time management, team leadership, and organizational leadership are part of the program. There is also ample opportunity to meet and learn from your colleagues through group projects, extensive classroom interaction, and social activities throughout the week.
Thirty CPE credits are available and the $1,850 fee includes lodging, meals, tuition, materials, and sponsored activities. Attendees are chosen through an application process.
Additional information and an application are available on the GFOA’s Web site.
House Approves Internet Tax Freedom Legislation
By a wide majority, the House of Representatives approved a four-year extension to the current Internet tax moratorium, which is set to expire November 1. The legislation, H.R. 3678, the Internet Tax Freedom Act Amendments Act of 2007, amends the current law in several ways. First, the legislation extends the moratorium for four years, rather than making it permanent. State and local government groups strongly advocated for a more limited moratorium to ensure that Congress has the opportunity to revisit the moratorium in a few years to be sure its continuation is not presenting any unintended consequences for state and local governments, consumers, or industry.
Second, the bill modernizes the definition of Internet access to make clear that just because a product or service is delivered using the Internet does not mean it becomes tax free. This change is necessary and significant in order to protect state and local governments from losing billions of dollars as traditionally taxed goods and services migrate to the Internet.
Third, the bill protects essential state and local revenue by continuing long-standing grandfather provisions enacted prior to 1998 as part of the original moratorium legislation that permit taxation of the Internet in some states, as well as maintaining certain general business taxes (gross receipt taxes, in particular) that were not intended to be part of the moratorium.
The Senate Commerce Committee is expected to consider companion legislation, S. 1453, in the next two weeks. The GFOA and its state and local partners sent a letter to Commerce Committee Chair Senator Daniel Inouye (D-Hawaii) expressing support for S. 1453 and urging committee approval.
House Delays Government Withholding Law Implementation
On October 10, the U.S. House of Representatives passed H.R. 3056, the Tax Collection and Responsibility Act of 2007, which contains language to delay by one year—until January 1, 2012—implementation of Section 511 in the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222). The law mandates states and local governments that spend more than 100 million dollars a year on goods and services, withhold 3 percent of all vendor payments and remit that 3 percent to the federal government. The GFOA and other state and local government organizations endorsed the one-year delay. The Senate has yet to consider the one-year extension, and Senator Charles Grassley (R-Iowa), the ranking minority member of the Finance Committee and original author of the withholding provision, has deemed it "dead on arrival."
Despite Senator Grassley's comments, legislation is pending to repeal the entire withholding provision, H.R. 1023 and S. 777, and has garnered considerable support in the House of Representatives, with 225 co-sponsors. The GFOA and other organizations, including the National Association of Counties, the National League of Cities, and the National Association of State Auditors, Comptrollers and Treasurers, are advocating for full repeal of the provision, in addition to interim steps, such as H.R. 3056.
Senate Approves Spending Measure with More Money for COPS Program
The Senate approved a $56 billion fiscal 2008 Commerce-Justice-Science spending measure in mid-October. Of significance to state and local governments is the bill's $660 million allocated to the Community-Oriented Policing Services (COPS) Program, which provides law enforcement grants to local governments. The amount allocated in the Senate legislation to the COPS program is $628 million more than in President Bush's FY08 budget request.
The House approved its fiscal 2008 Commerce-Justice-Science spending measure in late July with $725 million for COPS. Once the House and Senate are able to work out their differences, final legislation will be sent to the President for his signature. However, the administration has issued several recent statements suggesting a possible presidential veto of any final spending measure that exceeds amounts requested in the President's FY 2008 budget.
Moody's Publishes Swaps Report
Moody's Investors Service has released a report, Evaluating the Use of Interest Rate Swaps by U.S. Public Finance Issuers, which provides users with a description of the criteria and quantitative analysis Moody's uses when rating entities that participate in swaps transactions. A copy of the report is available on the GFOA's Web site.
Enclosures:
Training Opportunities
Calendar
Upcoming Training in October
Chicago, Illinois
| October 29 |
Evaluating Internal Controls |
| October 30 |
Preparing a CAFR |
| October 31 |
Accounting for Capital Assets |
| November 1 |
GASB Pronouncements: A Comprehensive Survey |
Upcoming Training in November
Satellite Videoconference
Upcoming Training in December
Austin, Texas
| December 3 |
Accounting for Pensions and Other Postemployment Benefits (OPEB) |
| December 3-4 |
Advanced Governmental Budgeting |
| December 3-4 |
Financial and ERP Systems Acquisition and Implementation |
| December 4 |
GASB Pronouncements: A Comprehensive Survey |
| December 5-6 |
Advanced Performance Measurement |
| December 5-7 |
Advanced Governmental Accounting |
Internet Training
State and Regional
Calendar
November 5-7: Alaska GFOA.
Fairbanks, AK. Contact: http://www.agfoa.com.
November 13-16: Colorado GFOA.
Snowmass, CO. Contact: http://www.cgfoa.org.
November 29-30: Wisconsin GFOA.
Manitowoc, WI. Contact: http://www.wgfoa.org.
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