The Annual Financial Report for 2018 (Part 2)

Today I will wrap up the review of the changes to the 2018 Annual Financial Report process. In Part 2 we will discuss changes in the Notes to Financials and in the Supplemental Schedules. You can read Part 1 here, where I discussed changes to the Chart of Accounts.

Changes to: Notes to Financial Statements (Cash)

Each year there are changes that effect the notes to financials. 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 notes each year is strongly encouraged.

The 2018 changes to the notes are as follows:

• Note 1 – Summary of Significant Accounting Policies
  • A – Fund Accounting: This section has been completely rewritten.
  • C – Budget: This has been removed from Note 1 and will now be reported as a separate note disclosure (numbering will depend on your entity’s system of disclosing).
  • Renumbering the subsections: This will be required when removing Note 1c.
• Note X –Budget: This replaces the previous note 1c disclosure. The content of the note remains the same.  
• Note X – Fiduciary Activities: This applies only to counties and is intended to disclose new reporting requirements to include resources collected and held for special purpose districts. Notice was released by the SAO late in the reporting season last year for disclosure in 2017 annual report. If you have included this note and the activities in your 2017 report, it will not be required to be disclosed again. This is a one-time note disclosure.
• Note X – OPEB Plans: This is a separate note disclosure for OPEB. Sample language has been provided by the SAO for PEBB, LEOFF1, and Retirees Life Insurance.

Changes to: Supplemental Schedules

Schedule 06 – Schedule Summary of Bank Reconciliation - Cash Cities and Counties only. This schedule was introduced for the first time last year 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 (Schedule of financial transactions), including those accounts holding funds in a fiduciary capacity. This schedule continues to be an option for report year 2018. Keep in mind that if you complete Schedule 06 you do not have to complete Schedules 07 and 11 or vice a versa.

Schedule 07 and 11 – Disbursement and Cash Activity Schedules: Cash-basis cities, towns, and counties may still use these schedules. They were to be replaced by Schedule 06: however, this has been postponed for report year 2018.

Schedule 09 – Liabilities: There are no significant changes for this supplemental schedule for report year 2018: however, the accurate completion of this schedule is critical.

Schedule 09 is a schedule of both short-term 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 debt types (registered warrants and lines of credit), so you should be sure to develop a system for annual review of your ID numbers, along with reporting the beginning, addition, reduction, and ending balances for your various liabilities. Here is some additional information.

• Pension Liability: Note that 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: The SAO will not be requiring cash-basis entities to calculate and report OPEB liability on Schedule 09 for report year 2018 (Refer to Cash Basis BARS Manual, Item 3.4.16.30).

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 for 2018 has been modified in such a way that all local government entities (GAAP or cash-basis) are required to complete and include this schedule. 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 during the 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 then you will need to complete the claims activity section of this schedule.

Schedule 22 – Assessment Questionnaire: The expanded scope of completing Schedule 22 was implemented last year. With so many special purpose districts (SPD) in Washington State, we thought it would be important to repeat this information. 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

Last but not least is the reporting deadline. RCW 43.09.230 states:

Such reports shall be prepared, certified, and filed with the state auditor within one hundred fifty days after the close of each fiscal year….

The filing deadline for the 2018 fiscal year is May 30 and there are “no” exceptions for this filing deadline. Whether you file online or file by mail, be sure that it’s completed by May 30. The State Auditor’s Office About Filing Online wepbage provides excellent materials on the filing of your annual report using their online filing system, with links to their filing support group.

Additional Resources

The MRSC website provides financial report checklists to assist with the report completion as well as a checklist for an internal review of your completed financial report to meet the internal control requirements of SAS 115.

Last but not least, start now! You should start working on the preparation of the annual report as soon as you have your yearend financial transactions recorded and bank reconciliations completed.

We are offering Annual Financial Report Workshops for cash-basis entities in Spokane, West Richland, DuPont, and Stanwood if you want an in-depth review on how to prepare the 2018 annual financial report for your local government.

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.