Annual Financial Reporting Options for Washington Local Governments

This blog article, the first of a series of four, will describe the basis and rationale for annual financial reporting options available to local governments here in Washington State. The second article will discuss how local governments can accomplish these annual reporting requirements using the first option, Generally Accepted Accounting Principles (GAAP). A third article in this series, to be written by Toni Nelson, will describe the second option available to local governments for annual financial reports — Cash Basis (Other Comprehensive Basis of Accounting). Lastly, Toni and I will collaborate on a fourth article discussing the considerations a local government might weigh in choosing which approach is best for them.

Our focus will be to discuss these issues at a summary/policy level. There are many resources available from the MRSC, Washington Finance Officers Association, Government Finance Officers Association and others to help understand the detailed steps and requirements. Our purpose here is to help inform the policy-level discussion that might be occurring in your local government concerning the available options and to offer some considerations to help you make an informed choice among these.

In addition, this series will not discuss the similarities found in the two options, but rather, will analyze the differences. These two options share many similarities. For example, each:

• provides meaningful financial information to the public;
• requires timely annual financial reports;
• uses accounting funds;
• requires use of BARS codes for a common chart of accounts;
• requires use of supplemental schedules, largely to accommodate state mandated reporting needs; and
• has many requirements for budgets.

Authority for Options

The Office of the Washington State Auditor (SAO) is created by the Washington State Constitution (Article 3, Section 20), which provides for “such powers and perform such duties in connection therewith as may be prescribed by law.” Those powers with respect to local governments are largely found in RCW 43.09.200 through 43.09.2856.

RCW 43.09.230 calls for the SAO to:

require from every local government financial reports covering the full period of each fiscal year, in accordance with forms and methods prescribed by the state auditor...

The SAO provides this guidance to local governments through its Budgeting, Accounting and Reporting Systems (BARS) manuals — one for GAAP-compliant reporting and another for a cash-basis option. Recently, the SAO has made many changes that make it easier for local governments to use the BARS manuals. In addition, many improvements have been made in the reporting process that allows local governments to provide annual financial reports to the auditor’s office via an online portal.

To assist the SAO in this work, a Local Government Advisory Committee (LGAC) was created and consists of a cross section of local government representatives. The committee exists partly in response to RCW 35.33.041, which calls for the SAO to consult with various local government organizations in creating the account classifications. (The other rationale for the committee is to maintain the long-standing partnership between the SAO and these organizations.) This LGAC meets approximately twice a year to review and advise the SAO on proposed changes to accounting and reporting impacted by either change in state law or in the GAAP.

Audits of the Annual Financial Reports

In Washington State, the SAO also conducts all the audits of local governments, consistent with RCW 43.09.245. Across the country, other state auditor offices play various roles with respect to this aspect of local government finance. However, here in Washington the SAO establishes the requirements and guidelines (as discussed above) and then SAO staff (almost always) conducts the audits.

Later in this series, we will discuss how best to work with your local audit team and keep them aware of any major changes you might be considering in the way you manage and report the financial activities within your local government. Good resources on this aspect of the work can also be found on the SAO's About Local Government Audits webpage.

Conclusion

This blog clarified that Washington local governments have two options for preparing the required annual financial report, and it discussed the role of the Washington State Auditor in this work. The next blog will review the approach and basic requirements for developing your annual financial report using Generally Accepted Accounting Principles (GAAP).