The Annual Financial Report for 2019
January 23, 2020
by
Toni Nelson
Category:
Financial Reporting
On March 26, the governor issued Proclamation 20-34 temporarily suspending the 150-day annual financial reporting deadline (May 29 this year). However, the proclamation does not provide an alternate deadline and it expires at midnight on April 25, which means the May 29 deadline would be reinstated unless the order is extended. We have reached out to the state for clarity on this issue.
It is the beginning of a new year and a new decade, for that matter. Since joining MRSC almost six years ago, it has become my annual habit to review and advise of the changes to financial reporting requirements that have been prescribed by the State Auditor’s Office (SAO) for ‘cash-basis’ accounting and reporting entities. Not to minimize the importance of GAAP-reporting entities, but the majority of Washington local government reports ‘cash basis’. If you happen to be a GAAP-reporting entity I would encourage you to attend one of the GFOA's live training classes or academies.
Over the past several years the Governmental Accounting Standards Board (GASB) has added several new statements, and this trend adds to the complexity of completing the annual financial report for local governments filing under GAAP/GASB requirements. As GASB pronouncements have increased there has also been an increase in GAAP entities changing to ‘cash-basis’ reporting. Coincidentally, there is also an expansion of the reporting requirements for cash-basis entities that is driven by these same GASB requirements.
This blog post will speak to the most significant of the new reporting requirements. While not a GASB issue, the statute that requires financial reporting within Washington State provides 150 days from the end of the fiscal period to file your report. It is important to remember that this year is a leap year, which means that the deadline for filing the report is one day earlier, or Friday, May 29.
Filing deadline for 2019 Annual Financial Report: May 29, 2020
Along with our leap into the 2020s are some significant changes for accounting and reporting for cash-basis local government. Last week SAO released its annual notice of alerts and changes to the BARS manuals. The Overview of Significant Changes is retroactively applicable to the accounting and reporting requirements for the 2019 annual financial reporting period.
While I will be recapping the highlights from the “overview” I would encourage each of you to carefully review the SAO summary to help you evaluate what areas may impact your financial report preparation. Your entity type will determine which of the supplemental schedules and notes to financials will need your attention.
Changes to: Chart of Accounts
Changes to the BARS codes (Chart of Accounts) can have significant impacts on your annual report preparation. These codes are used to record the financial transactions of your entity and will subsequently flow to Schedule 01 – Revenues/Expenditures, which is the heart of the online filing system for the SAO. Accuracy here is critical, and BARS manual section #4.8.1.20, reporting for Schedule 01, requires that local government update the incorrect financial data. Here are some important changes:
- 3952000 Compensation for Loss/Impairment of Capital Assets: Expands and modifies the use of this code. Careful review is needed prior to using it.
- 3821000 and 5821000 Refundable Deposits: Includes new BARS code to be used for ‘refundable deposits’ other than retainage deposits.
- 3822200 and 5822000 Retainage Deposits: Includes New BARS code to be used for receipt of retainage in accordance with RCW 39.08.010 for public works projects or other types of contracts.
- Elimination of Object code 50, Intergovernmental Services & Payments: Beginning report year 2019, this object must be replaced or it will cause a red flag during the online upload of Schedule 1. Red flags ‘must’ be corrected before submitting the report. Use of this object code should be recoded to the appropriate object code of 30 or 40.
- Use of BARS codes within a Fiduciary fund: Will be rejected during the SAO online filling upload of Schedule 01. Fiduciary funds will only allow for the use of 36X (if applicable) and BARS accounts codes 389/589.
Tip: Upload your draft Schedule 01 to the SAO online reporting portal to see which (if any) BARS codes are being red-flagged and address these items prior to continuing with your financial report.
Changes to: Notes to Financial Statements (Cash)
Each year there are changes that effect the notes to financials. As an integral component of the financial report, the notes provide information about your entity as well as an explanation of accounting methods used, fund structure, and the conditions that may impact the financial health of your entity. A complete review of the SAO notes template each year is strongly encouraged.
The 2019 report changes are as follows:
- Note 1 – Summary of Significant Accounting Policies: Requires a link for the newly created Component Unit(s), Joint Ventures, and Related parties note in Note X (if applicable)
- Note X – Component Units and Joint Ventures: Creates a separate note disclosure instead of being included within the “other disclosures” note.
- Note X – Debt Service Requirements: Adds clarifying instructions for preparer
- Note X – Deposits and Investments: Rewrites the note template and adds investment pool requirements.
- Note X – External Investment Pool: Creates a new note for counties — for disclosing external investment pools.
- Note X – OPEB Plans: Adds note disclosure guidance for OPEB liability and instructions. Sample language has been provided by the SAO for PEBB, LEOFF1, and Retirees Life Insurance, and provides links to the Office of the State Actuary's OPEB tools to calculate your OPEB liability for Schedule 09 (Schedule of Liabilities).
- Note X – Pension Plans: Adds guidance for defined contribution pension plans — for those entities that make contributions to the plan.
- Note X – Other Disclosures: Expands the guidance for disclosure to Pollution Remediation and Retirement of Certain Assets (Adds new section to BARS manual, Liabilities 3.4.18 )
Changes to: Supplemental Schedules
Schedule 06 – Schedule Summary of Bank Reconciliation - Cash reporting Cities and Counties: The most significant change this year is that the schedule is no longer optional but mandatory for all cash-basis reporting cities and towns. This schedule was introduced a couple of years ago and was intended to replace Schedules 07 and 11 (Disbursements and Cash Activity). The purpose of Schedule 06 is to summarize the bank reconciliation process of all bank account balances with the Schedule 01 (a schedule of financial transactions), including those accounts holding funds in a fiduciary capacity. While this schedule will continue to be an option for counties in report year 2019, it will be mandatory for report year 2020. Anticipating and preparing for this requirement will be essential to a successful audit.
Schedule 07 and 11 – Disbursement and Cash Activity Schedules: Counties may continue to file their report with Schedules 07 and 11 in lieu of Schedule 06 for report year 2019, however, as indicated above, Schedule 06 will replace both of these schedules in report year 2020. SAO will continue to work on the reconciliation components associated with fiduciary funds and investment pools for counties and will provide further guidance.
Schedule 09 – Liabilities: The most significant change to this schedule is the incorporation of OPEB liabilities. The Office of the State Actuary provides online tools to make this calculation for those entities with PEBB health insurance coverage with less than 100 total members (including retirees) and will additionally have the LEOFF 1 Alternative Measurement Method available starting in February.
Schedule 09 is a schedule of both short- and long-term liabilities. It is used to evaluate the overall fiscal health of your entity and is a key component of the audit. The SAO has added two new ID numbers for OPEB and Environmental liabilities. It will be important to include a system for annual review of your ID numbers, along with reporting the beginning, addition, reduction, and ending balances for your debt and liabilities being reported. Here is some additional information.
- Pension Liability: SAO has included a new validation check for net pension liabilities. If you have reportable pension liability according to the DRS PEFI, there should be pension liability (ID No. 264.30) reported on your Schedule 09.
- OPEB Liabilities: These are required to be reported starting with report year 2019 for cash-basis entities. If you have disclosed OPEB in your notes to financials in 2018 it is expected that an OPEB liability will be reported on Schedule 09 for report year 2019.
Schedule 16 – Expenditures of Federal Awards: The supplemental schedule for reporting federal awards has not changed its format, though there have been several revisions within the guidance provided by the SAO in the completion of this schedule. Schedule 16 forms the basis for a federal single audit, and its completion is key to the outcome of the audit. A few of the programs noted by the SAO are the EPA Drinking Water, Clean Water and the USDA interim financing award programs.
Schedule 21 – Risk Management: Schedule 21 is not a new requirement, but the supplemental schedule is mandatory for all local government entities (GAAP or cash basis). The online filing system asks five questions that will either lead to a conclusion that the entity does not have a risk exposure and the schedule is complete or that they must continue on to page 2 to report claims activity for the report year.
“Reimbursable” agreements with the Employment Security Department (ESD) are a typical example of ‘self-insurance’. If you are one of many local government entities that are on a “reimbursable” basis with ESD for unemployment insurance you will need to complete the claims activity section of this schedule.
Schedule 22 – Assessment Questionnaire: The expanded scope of completing Schedule 22 occurred in 2017; However, with so many special purpose districts (SPD) in Washington State and the potential for legislation to add weight to this requirement, we thought it would be important to repeat which entities must complete this schedule. If you are one of the SPD’s listed below or your combined revenues are "usually less than $300,000,” you are required to complete and file this SAO schedule.
- Fire district
- Conservation district
- Transportation benefit (TBD) district
- Economic and industrial development corporation
- Cemetery district
- Diking/drainage district
- Mosquito/pest/weed district
- TV reception district
- Local/regional EMS and trauma care councils
- Water conservancy board
This is an extensive audit schedule that provides information about the internal control procedures and practices within your district. Schedule 22 can only be accessed using the SAO online filing tool.
Filing the Annual Financial Report
As stated above, RCW 43.09.230 requires that all reports shall be prepared, certified, and filed with the state auditor within 150 days after the close of each fiscal year. Since this is a leap year the filing deadline for the 2019 annual report is May 29. There are “no” exceptions. Whether you file online or file by mail, be sure that it’s completed by May 29. SAO’s About Filing Online webpage provides excellent materials on filing reports using their online filing system, with links to their filing support group.
Additional Resources and Training
The MRSC website provides financial report checklists to assist with the report completion and a checklist for the required internal review of your financial report to meet the requirements of SAS 115, as well as information on elected officials responsibility for fiscal review and oversight.
If you have questions, please feel free to contact Toni Nelson, MRSC Financial Consultant via email: tnelson@mrsc.org or phone: 206-625-0916 x 109.
MRSC is a private nonprofit organization serving local governments in Washington State. Eligible government agencies in Washington State may use our free, one-on-one Ask MRSC service to get answers to legal, policy, or financial questions.