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Slide 1: Institutions of Higher Education Audit Guidance – FY 2008 Executive Summary This guide is meant to complement the Government Accounting Standards Board (GASB) Statement 35 Implementation Guide issued in 2002, which is documented in various other policies and procedures, including, but not limited to, fixed assets guidance. This guide is being issued with regard to the Commonwealth’s issuance of its Comprehensive Annual Financial Report (CAFR) for FY 2008. The audit must be performed in accordance with Governmental Accounting Standards. New for FY 2008: 1) Worksheets must be completed for FY08 audits and submitted on a timely schedule (guidance is separate from this Guide). 2) There are inquiries on treatment of expenditures incurred by the higher education institutions to update real estate properties owned by the institution’s foundations. We have explained the accounting treatment in the Other Financial Reporting Guidance section. 3) The Summary of Significant Accounting Policies - note to the financial statements need to clearly indicate that your institution is “an agency (or department) of the Commonwealth of Massachusetts”. Sample language is as follows: The financial statements herein presents the financial position, results of operations, changes in net assets, and cash flows of the xxxxx (name of your institution), an agency of the Commonwealth of Massachusetts. 4) Guidance on GASB45 disclosure 5) Beginning this year, you do not need to submit your Lease and Fixed Asset Information in early September. However, please include all proper disclosures in your notes to the basic financial statements. Considerations The Office of the Comptroller prepares a CAFR annually. Reporting standards require that all Higher Education Institutions’ financial statements be included as part of the Higher Education discrete presentation. Due to the tight timetable of completing the CAFR and the large number of Higher Education Institutions, we are requesting that each audited Institution read the Audit Guidance and complete the financial statement package. Statement 39 requires that private foundations related to Institutions of Higher Education and other related entities (hereafter referred to as “Component Units”) of the Institutions of Higher Education be reported in the audited financial statements 1
Slide 2: of the Institutions. To facilitate this reporting, these entities’ audited financial statements are recommended to be submitted on a timely basis to the Institution, (typically one month prior to October 15, the due date for the Institution’s completed audited financial statements to be received at the Office of the Comptroller). Completed audits are defined as audits in final form, represented to the Office of the Comptroller as ready for acceptance by or accepted by the Board of Trustees of the Institution. Various reporting changes and footnote disclosures are necessary for proper reporting. GASB 45 GUIDANCE The Commonwealth will implement GASB 45 this year. As institutions participate in Group Insurance Commission (GIC), no accrual is needed unless: 1. The institution has not paid all fringe charges for FY2008. 2. The institution has employees that do not participate in GIC but are eligible for post employment benefits other than pensions funded by the institutions. 3. The institution directly pays the GIC based on FASB 106 rules (certain UMass Medical employees ONLY). The following is suggested language to be put into the notes to the basic financial statements of the institution: SUGGESTED NOTE DISCLOSURE FOR GASB 45 Fringe Benefits for Current Employees and Post Employment Obligations – Pension and Non-Pension The College / University participates in the Commonwealth’s Fringe Benefit programs, including active employee and post – employment health insurance, unemployment, pension, and workers’ compensation benefits. Health insurance and pension costs for active employees and retirees are paid through a fringe benefit rate charged to the College / University by the Commonwealth and currently the liability is borne by the Commonwealth. Post Employment Other than Pensions In addition to providing pension benefits, under Chapter 32A of the Massachusetts General Laws, the Commonwealth is required to provide certain health care and life insurance benefits for retired employees of the Commonwealth, housing authorities, redevelopment authorities, and certain other governmental agencies. Substantially all of the Commonwealth’s employees may become eligible for these benefits if they reach retirement age while working for the Commonwealth. Eligible retirees are required to contribute a specified percentage of the health care benefit costs which is comparable to contributions required from employees. The Commonwealth is reimbursed for the cost of benefits to retirees of the eligible authorities and non-state agencies. The Commonwealth’s Group Insurance Commission (GIC) was established by the Legislature in 1955 to provide and administer health insurance and other benefits to the Commonwealth's employees and retirees, and their dependents and survivors. The GIC also covers housing and redevelopment authorities' personnel, certain authorities and other offline agencies, retired municipal teachers from 2
Slide 3: certain cities and towns and a small amount of municipalities as an agent multiple employer program, accounted for as an agency fund activity of the Commonwealth, not the College / University. The GIC administers a plan not administered as a trust or an equivalent arrangement. Any assets accumulated in excess of liabilities to pay premiums or benefits or administrative expenses are returned to the Commonwealth’s General Fund. The GIC’s administrative costs are financed through Commonwealth appropriations and employee investment returns. The Legislature determines employees’ and retirees’ contribution ratios. The GIC is a quasi-independent state agency governed by an eleven-member body (the Commission) appointed by the Governor. The GIC is located administratively within the Executive Office of Administration and Finance, and is responsible for providing health insurance and other benefits to the Commonwealth’s employees and retirees and their survivors and dependents. During the fiscal year that ended on June 30, 200x, the GIC provided health insurance for its members through indemnity, PPO, and HMO plans. The GIC also administered carve-outs for the pharmacy benefit and mental health and substance abuse benefits for certain of its health plans. In addition to health insurance, the GIC sponsors life insurance, longterm disability insurance (for active employees only), dental and vision coverage for employees not covered by collective bargaining, a retiree discount vision plan and retiree dental plan, and finally, a pre-tax health care spending account and dependent care assistance program (for active employees only). As of June 30, 200X, the College / University had (had not) paid for all amounts charged to it through the Commonwealth’s fringe benefit recovery program. OTHER FY 2008 GUIDANCE Reporting Requirements Reporting requirements require entities that receive federal funding must be audited in accordance with generally accepted governmental auditing standards. The audit opinion of these entities should read, “audited in accordance with Governmental Auditing Standards.” The Commonwealth is scheduled to issue its audited CAFR no later than December 31st, annually. As the Institution’s audited financial statements will be included as part of the Commonwealth’s, the Institution’s copy of the financial statements must be submitted to the Office of the Comptroller by the due date of October 15 annually. The financial statements of the Institution must be received by the Office of the Comptroller in a form ready for acceptance by the Board of Trustees or audited and have received an unqualified audit opinion. The Commonwealth’s financial statements are at risk of being qualified by our auditors if you do not meet the above requirements. 3
Slide 4: Independence Letter The Institution’s audited financial statements must be transmitted to the Office of the State Comptroller with an Independence Letter (Attachment A). It is necessary for your auditors to confirm to our auditors, (currently KPMG) their independence with regard to your financial statements. This requirement is mandatory and any lack of response may result in a qualification of the Commonwealth’s CAFR audit opinion. As the component units of the Institution are also audited, these component units must also transmit their audits to the Institution’s auditor containing a similar letter. The letter that the Institution needs to transmit to the Commonwealth’s auditors and the component unit(s) need(s) to transmit to the Institution can be found at the end of this document. In the case of a letter from the Institution’s auditor to the Commonwealth, the addressee would change if addressed from the component unit of the Institution to the Institution’s auditor. Relevant GASB Standards The financial statements must be prepared in accordance with Generally Accepted Accounting Principles (GAAP) as promulgated by the Governmental Accounting Standards Board (GASB). All relevant standards must be followed. Standardized Financial Reporting Items For Institutions receiving federal funding: Reporting requirements require entities that receive federal funding need to be audited in accordance with generally accepted governmental auditing standards. The audit opinion of these entities should read, “audited in accordance with Governmental Auditing Standards.” For pensions, as departments of the Commonwealth, no separate reporting is required from higher education as all information is reported at the Commonwealth level. Specific Implementation Guidance GASB Statement 39 GASB Statement 39 brings the concept of component units to Institutions of Higher Education. Typically these component units will include, but are not limited to, private foundations that support the Institutions’ activities. In no way is the legally separate status of the foundation being called into question. Reformatting of Component Unit Financial Statements In all likelihood, the financial statements of the component unit are presented in accordance with Financial Accounting Standards Board (FASB) Statements 116 and 117. Reformatting is sometimes necessary to be presented in accordance with GASB standards. Do not change the underlying basis of accounting for the Component Unit from FASB to GASB. These entries will largely consist of geographical moves of 4
Slide 5: information within the statement of net assets. The independent auditor of the Institution will take responsibility for these changes in disclosure. Communication between the auditor of the Institution and the auditor of the component unit is absolutely vital for an unqualified opinion for the Institution. Audit Opinion The opinion for all years will reference the work of the auditor of the agency (department) and the level of reliance on that work. Finally, the audit opinion must reference Government Auditing Standards. Footnote Disclosures from Your Component Units Statement 34 and Statement 14 (as amended by Statement 39) require that an overview of the Institution should distinguish between the Institution and the Component Unit(s). For each major component unit, the nature and amount of significant transactions with the Institution should be disclosed, along with any other transactions between Component Units. Other Financial Reporting Guidance The financial statements should include all of the Institution's activities, which is to say it should include all appropriated and non-appropriated activity as measured and reported in conformity with GAAP, including any component unit(s) of the Institution. Reference: Following reference is available from the GASB codification: .122 Capital lease arrangements between the primary government and public authorities reported as discretely presented component units (or between those component units) should be treated in the same manner as any other lease agreement of a state or local government. These agreements, therefore, should be considered long-term contracts for accounting and financial reporting purposes and afforded capital lease treatment if they meet the criteria of this section and FASB Statement 13. However, related receivables and payables should not be combined with other amounts due to/from component units or with capital lease receivables and payables with organizations outside the reporting entity. [NCGAS 5, ¶24, as amended by GASBS 34, ¶61; GASBS 14, ¶58] Conclusion: Based on the reference above: If it is a capital lease, the expenditures, if material, should be treated as capital expenditures and depreciated accordingly over the term of lease or life of the improvement, which ever is shorter. If it is an operating lease, the costs should be expensed. Also, for reporting of the lease arrangement between the primary government ( the Institution) and its CU (the foundation): The capital lease payable amount has to be reported separately from other lease payables to outside parties(GASB Q&A 4.37.1). Additional Guidance for reporting The following items should be excluded from the Institution’s financial statements: 5
Slide 6: • For State Colleges, the State College Building Authority should be excluded from an individual Institution's financial statements. These authorities are included in the Commonwealth’s CAFR as blended component units. However, individual State College financial statements should reflect payments to the State College Building Authority in the appropriate expenditure category. In some cases, this may be reported in auxiliary enterprises. Please review this with your auditor. Employee deferred compensation plan assets will be carried by the Commonwealth as an Expendable Trust fund item. Individual Institutions should not carry the assets on their Financial Statements. • The following items must be included in the Institution’s financial statements: • • • • Accounts Payable - The portion of this liability to be paid from state appropriations should be offset by an asset labeled "Cash held by The State Treasurer". Compensated Absences - Institutions must accrue the vacation and sick leave buyback liability related to all employees, i.e., employees paid from appropriated and non-appropriated funds without regard to the future funding mechanism. This liability should be calculated in accordance with GASB Statement No. 16, Accounting for Compensated Absences, and displayed consistent with the guidance in GASB Technical Bulletin 92-1, Display of Governmental College and University Compensated Absences Liabilities. The HR/CMS statewide system includes all Institutions of Higher Education and is the official books and records of the Commonwealth with regard to payroll. Compensated Absences are reported from this system on the report HMBEN008 on view direct. Fringe benefit expenditures - Institutions must record expenditures for the cost of fringe benefits. For employees paid from non-appropriated funds, fringe benefits have already been charged against these funds at the approved fringe benefit rate. Liability for Workers’ Compensation - Institutions must record this information derived from reports prepared from information available from the Human Resources Division. This information is disseminated to Institutions in early September. Applicable GASB Standards The following standards have been issued as of the date of posting and will be implemented in the following fiscal years: Statemen t 45 Description Accounting and Financial Reporting by Employers for Postemployment Benefits other than Pensions Implementation FY 2008 (See attached draft footnote as a reference for your note presentation) 2008 2009 48 49 Sales and Pledges of Receivables and Future Revenues and Intra-equity Transfers of Assets and Future Revenues Accounting and Financial Reporting for Pollution Remediation Obligations 6
Slide 7: GASB 48 Guidance Though this may not apply to institutions, should institutions sell receivables or transfer revenues current or future, the following guidance needs implementation should the institution have these transfers: GASB Statement No. 48 – Sales and Pledges of Future Revenues and IntraEntity – Transfers of Assets and Future Revenues 1. Is your entity a recipient of a sale or a pledge of a stream of future revenues that secure your authority’s debts from either the Commonwealth or any other entity? If yes, then disclose the following: The Commonwealth has pledged, as security for bonds issued by the (NAME OF AUTHORITY), a portion of the state’s XXXX (TYPE OF TAX) that is restricted for (TYPE OF PURPOSE). The bonds, issued by the Authority in 20XX in the amount of $X.X (million / billion) to provide financing for various (TYPES OF PROJECTS / USES), are payable through 20XX. The Commonwealth has committed to appropriate each year, from the (XXXX TYPE OF TAX), amounts sufficient to cover the principal and interest requirements on the Authority’s debt. The Authority has pledged, as the (sole / partial) security for the bonds, the annual appropriations from the Commonwealth. (IF THERE ARE OTHER PLEDGES INSERT HERE). Total principal and interest remaining on the secured debt is $X.XXX (million / billion) with annual requirements ranging from $XX.X million in 200X to $XX.X million in the final year. (XXXX TYPE OF TAX), from which the appropriations will be made, have averaged $XXX.X million per year over the last XX years (INSERT AS LONG AS THE PLEDGE HAS BEEN EFFECTIVE OR AT LEAST 10 YEARS). For the current year, principal and interest paid by the authority and the (XXXX TYPE OF TAX) revenue recognized by the state were $XX.X million and $XXX.X million, respectively. 2. Determination if it is a sale or a pledge: a. A sale occurs if the authority’s continuing involvement with those receivables is effectively terminated. Continuing involvement is considered to be effectively terminated if all the following criteria are met: i. The transferee’s ability to subsequently sell or pledge the receivables is not significantly limited by constraints imposed by the transferor government, either in the transfer agreement or through other means, for example, organizational or structural restrictions. ii. The transferor does not have the option or ability to unilaterally substitute for or reacquire specific accounts from among the receivables transferred. However, the ability or obligation to substitute for defective accounts, at the option of the transferee, would not violate this criterion. For example, accounts that do not possess the characteristics stipulated in a 7
Slide 8: transfer agreement may be replaced with ones that do possess those traits. In addition, insignificant "clean-up" calls (by which the transferor may reacquire the remaining uncollected accounts when the outstanding secured debt reaches a specified minimum balance) would likewise not violate this criterion. iii. The sale agreement is not cancelable by either party, including cancellation through payment of a lump sum or transfer of other assets or rights. iv. The receivables and the cash resulting from their collection have been isolated from the transferor government. b. Isolation occurs when: i. The transferee should have legal standing separate from the transferor. Legal separation should be assessed in a manner consistent with the approach for determining whether an organization is a legally separate entity in paragraph 15 of Statement No. 14, The Financial Reporting Entity, as amended. ii. Generally, banking arrangements should eliminate access by the transferor and its component units (other than the transferee) to the cash generated by collecting the receivables. Access is eliminated when payments on individual accounts are made directly to a custodial account maintained for the benefit of the transferee. However, if the transferor continues to service the accounts or if obligors misdirect their payments on transferred accounts to the transferor: (1) The payments to the transferee should be made only from the resources generated by the specific receivables rather than from the transferor’s own resources. The transferor should have no obligation to advance amounts to the transferee before it collects equivalent amounts from the underlying accounts. (2) Cash collected by the transferor on behalf of the transferee should be remitted to the transferee without significant delay. In addition, earnings on invested collections should be passed on to the transferee. (3) The transferor should consider proceeds received from the transferee as satisfaction of individual accounts. The transferor should indicate in its records which accounts have been transferred and which collections pertain to those accounts. For example, in a transaction involving delinquent taxes, the proceeds from the transferee should be accepted by the taxing body as satisfaction of the delinquent taxes owed by the individual property owners. Accordingly, the tax rolls should indicate that those taxes have been paid (or sold, or otherwise settled) and are no longer delinquent. iii. Provisions in the transfer agreement (or provided elsewhere in statutes, charters, or other governing documents or agreements) should protect the transferee from the claims of the transferor’s creditors. 8
Slide 9: Accounting for Transactions That Do Not Qualify as Sales If the criteria required for sale reporting in are not met, a transaction should be reported as a collateralized borrowing as follows: • The receivables or future revenues should be considered for financial statement purposes as pledged rather than sold. • Proceeds received by the pledging authority should be reported as a liability in its statements of net assets and as an other financing source in its governmental funds statement of revenues, expenditures, and changes in fund balance, if governmental funds receive the proceeds. • Similarly, a transferee government should recognize a receivable for the amounts paid to the pledging government. • Pledged receivables should continue to be recognized as assets in the pledging government’s balance sheet or statements of net assets. • Pledged revenues should continue to be reported as revenue by the pledging government in accordance with recognition and measurement criteria appropriate to the specific type of revenue pledged. • Collections of the pledged revenues or receivables that are subsequently paid to the transferee reduce the liability in the pledging government’s statements of net assets. Those payments also should be reported as expenditures, rather than reductions of revenue, in the pledging government’s governmental funds statement of revenues, expenditures, and changes in fund balance, if governmental funds are used to report the transaction. • Payments received from the pledging government reduce the governmental transferee’s receivable. • Pledged receivables collected and paid to the transferee after the liability has been liquidated should be reported as expenditures/expenses (by the pledging government) and revenues (by the governmental transferee) when the pledging government becomes obligated to make the payments. Accounting for Transactions That Meet the Criteria to Be Reported as Sales If the criteria for sale reporting are met, a transaction should be reported as a sale. In a sale of receivables: • The transferor government should no longer recognize as assets the receivables sold, removing the individual accounts at their carrying values. • Except for reporting in governmental funds, the difference between the proceeds (exclusive of amounts that may be refundable) and the carrying value of the receivables sold should be recognized as a gain or loss in the period of the sale. • In governmental funds, the difference between the proceeds received and the receivables sold (net of allowances and deferred revenues) should be recognized as revenue. If the transferee is a government outside of the transferor government’s financial reporting entity, the transferee government should recognize the receivables acquired at the purchase price. Recognition by transferees that are both component units of the Commonwealth (e.g. the MBTA to the Turnpike Authority – see below): In a sale of future revenues, the transferor government should: • Report the proceeds as deferred revenue or revenue, in both the governmentwide and fund financial statements. 9
Slide 10: • • • • Generally, revenue should be deferred and recognized over the duration of the sale agreement; however, there may be instances wherein recognition in the period of the sale is appropriate. For transactions with parties outside the financial reporting entity, deferral is required if the future revenue sold was not recognized previously because the event that would have resulted in revenue recognition had not yet occurred Revenue should be recognized at the time of the sale only if the revenue sold was not recognized previously because of uncertainty of realization or the inability to reliably measure the revenue. If the transferee is a government outside of the transferor government’s financial reporting entity, the transferee government should recognize the acquisition at cost and amortize the balance over the life of the transfer agreement. The transferee government, as owner of the future revenues, should recognize receivables and revenue when the recognition criteria appropriate to the specific type of revenue acquired are met. Intra-Entity Transfers of Assets and Future Revenues When accounting for the transfer of capital and financial assets and future revenues within the same financial reporting entity: The transferee should recognize the assets or future revenues received at the carrying value of the transferor. GASB 49 – FY2009 Statement No. 49 - Accounting and Financial Reporting for Pollution Remediation Obligations GASB 49 is effective for 2009. However, information is needed as of 7/1/08 not 6/30/09 that is why the following in included. The Statement addresses accounting and financial reporting standards for pollution (including contamination) and remediation obligations, which are obligations to address the current or potential detrimental effects of existing pollution by participating in pollution remediation activities such as site assessments and cleanups. The scope of the document excludes pollution prevention or control obligations with respect to current operations, and future pollution remediation activities that are required upon retirement of an asset, such as landfill closure and post-closure care and nuclear power plant decommissioning. Most pollution remediation outlays do not qualify for capitalization and should be accrued as a liability (subject to modified accrual provisions in governmental funds) and expense when a range of expected outlays is reasonably estimable or as an expenditure upon receipt of goods and services. If a government cannot reasonably estimate the range of all components of the liability, it should recognize the liability as the range of each component (legal services, site investigation, and required post-remediation monitoring) becomes reasonably estimate. In government-wide and proprietary fund financial statements, the liability should be recorded at the current value of the costs the government expects to incur to perform the work. 10
Slide 11: OTHER GUIDANCE Reconciliation of the Institution’s Financial Statements to the MMARS appropriated fund activity In order to prepare the Institutions of Higher Education audited financial statements, the Institutions must combine internal activity (non-appropriated) with the activity posted to MMARS (appropriated) and controlled by the State Comptroller. The Comptroller’s Office then compiles all audited financial statements for the CAFR. An important part of this process is to have the same activity reported consistently between Institutions. The footnotes refer to the fact “no right to offset exists under State statute” and therefore no “offsetting” is done. The authoritative literature referencing “offsetting” relates only to balance sheet items where two entities owe each other money. In addition, the Institutions of Higher Education are not separate legal entities (Component Units) but are presented as business – type activities on an aggregate basis by system in the Commonwealth’s CAFR. An example is attached as Attachment B. The Commonwealth will present Institution State Appropriations as follows: Expenditures from appropriations, total tuition receipts and other state appropriated revenue will be reclassified to transfers out of the governmental funds and will be shown as a mandatory transfer in/out to the College and University fund. Institution financial statements should present Tuition Revenue and state appropriations in total. Note 1: For the fiscal year, review the BQ89 and 82 screens on MMARS, which list your schools’ expenditures and revenues, respectively on MMARS (see example at Exhibit #5). We need you to cross reference our data with your on campus data and you should trace the revenue/expenditures into your accounting records. We need you to tell us where these revenues and expenditures are recorded. Does our data match your data? Note 2: All Colleges should include this information as a footnote disclosure so the Commonwealth can make the necessary adjustments on its financial statements. Fixed Assets on MMARS (NOTE THAT THIS DOES NOT AFFECT FUND 900 / 901 ACTIVITY) Guidance was released in February 2004 on whether or not schools qualify for removal of fixed asset information from MMARS. In general, Institutions of Higher Education 11
Slide 12: that issue separate, independent audits completed and filed with the Office of the Comptroller on or before October 15th annually, may choose not to record fixed assets on MMARS. These eligible Institutions must have an auditable fixed assets system available for inspection by the State Auditor’s Office and / or the Office of the State Comptroller. At a minimum, the system must be capable of tracking additions, betterments, changes, disposals, with gains and loses thereon. Institutions must follow other guidance related to fixed assets issued by the Office of the Comptroller with regard to, but not limited to: • • • • • • • Acquisition Recording Accounting and Management Reporting Software Infrastructure (if applicable) Depreciation and Useful Lives Via their independent audits and their footnote disclosure, Institutions are representing that they comply with these practices. Non – Compliance If an Institution decides not to comply with these practices, they must use MMARS as the record repository for their fixed asset information. Choosing Not to Use MMARS for Fixed Asset Reporting The vast majority of institutions have confirmed to us that they will not use MMARS for their fixed asset recordkeeping. Instructions for Facilities to be Constructed by, or in conjunction with, the Division of Capital Asset Management (DCAM) Because long – term construction in process (CIP) will still be audited at the Commonwealth, slightly different reporting, accounting and MMARS set-up will need to occur based on the anticipated project spending. The two scenarios are below. Institution Projects less than $1 Million where DCAM delegates Authority If an Institution is delegated by DCAM to construct a project that is less than $1 million, DCAM and the Executive Office for Administration and Finance (ANF) will create a major program and appropriations on MMARS for this construction for the purpose of controlling allotments and spending. However, the setup of this program will not create a fixed asset in MMARS. It is up to the Institution to record this construction in process activity as it is spending these funds. The audit of this activity will also be done at the Institution level. Projects greater than $1 Million If an Institution is approved for a project that is GREATER than $1 million, DCAM and ANF will create a major program in MMARS, again not resulting in a fixed asset. 12
Slide 13: DCAM will also be responsible with ANF to create spending accounts and work with OSC to record revenue that is contributed by Institutions to help facilitate the project. If a betterment project is constructed on an asset that was removed from MMARS, DCAM will assign the old statewide fixed asset number for its internal tracking purposes. Annually, on or about August 31st, DCAM will certify to each Institution the amount of construction in process by project to help facilitate the audit of CIP. Upon completion of the project, DCAM will send a final certification to the Institution detailing the following: 1. 2. 3. The required asset identification number that is needed for DCAM purposes for the project. The cost of the project. The date of the memo – which will serve as the “in service date” for depreciation purposes. It will be on this certification date that the construction in process is intended to be transferred from MMARS. Impairment of Fixed or Other Assets and Insurance Recoveries Summary The Government Accounting Standards Board (GASB) released Statement No. 42 Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries, applicable starting in FY06. The Commonwealth is required to evaluate prominent events or changes in circumstances affecting fixed or other assets, such as cash, to determine whether impairment has occurred. In the case of theft, fire, flood, obsolescence or other event regarding the usefulness of an asset, be it fixed or non-fixed such as cash, departments need to evaluate the usefulness or availability of that asset in the future. This may require outside assistance from an appraiser and or the Office of the Comptroller (CTR) to determine significance and applicability. Impairment must be conspicuous – e.g. known to the Commonwealth that a material event has occurred. These events may be known by management or the media. Policy All impaired assets if significant (greater than $100,000 in value) need to be reported to the CTR Financial Reporting and Analysis Bureau within 7 days of event occurrence. For all unaccounted for variances, losses, shortages or thefts of funds or property, the rules established under Chapter 647 of the Acts of 1989 apply. The CTR Financial Reporting and Analysis Bureau will work with you to determine if impairment exists and if there is an event that needs to occur in MMARS. Other Footnote Disclosure Requirements of a Higher Education Institution Please be reminded that the financial statements must, at a minimum, include the following footnote disclosures: 13
Slide 14: • Summary of Significant Accounting Policies With respect to the Component Unit, the Summary of Significant Accounting Policies should include: • • • A description of the Component Unit The relationship between the Component Unit and the Institution The criteria for inclusion of the Component Unit in the financial statements of the Institution • How the separately audited financial statements may be obtained. This is a general reference to the Chief Financial Officer of the Institution. If there are different fiscal year ends for the Component Unit and the Institution, a reconciliation of significant transactions between the Component Unit and the Institution needs to be included for the period between the Component Unit’s year-end and June 30th. Other GASB note disclosures for the Component Unit are generally NOT required. If there are significant items that are found in the Component Unit’s footnotes, they would translate up to the Institution’s footnotes in their applicable sections. If they are presented, do NOT reformat their footnote from FASB to GASB format. Instead, present a separate subsection within the footnote clearly labeled “discretely presented component unit(s).” Other footnotes for the Institution should be: • • • • • • • • • Disclosures for Cash Deposits and Investments Receivables Fixed Assets Advance Refunding and Short and Long Term Debt Leases MMARS Reconciliation (see above) Related Party Disclosures Subsequent Events Commitments and Contingencies This should include lawsuits pending against the Institution and a disclosure of the lawsuits possibility of success categorized as probable or reasonably possible. Suits categorized as remote can be ignored. The estimated costs of lawsuits deemed probable must be accrued as a liability. If an attorney other than a special assistant attorney general represents the Institution, note this in a transmittal to the Comptroller. Note that other attorneys have no authority to represent the Commonwealth. o HEFA Agreements The agreements within Massachusetts Health and Educational Facilities Authority will be treated as a lease purchase of fixed assets. In other words, the asset and the liability for the payment should be recorded as a fixed asset and a capital lease payable. Fees pledged to support principal and interest payments should also be recorded. • SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 14
Slide 15: As required by the Single Audit Act of 1996, the Comptroller will prepare the Schedule of Expenditures of Federal Awards (SEFA) for the year. The SEFA includes all federal assistance provided, in the form of either grants or loans, directly to Institutions of Higher Education and recorded in any of their non-appropriated Fund Groups. As part of SEFA, which is required by the Federal Government, you must complete schedules with SEFA information about Federally Funded Student Loan, and The Federal Family Education Loan and Federal Direct Loan Programs respectively (formerly the Guaranteed Student Loans). Off MMARS information will be required to complete the schedules. FEDERAL STUDENT LOANS Institutions of Higher Education currently participate in at least two major federal student loan programs: Perkins Loan Program and Nursing Student Loans. This information is recorded in MMARS Fund 901 - Campus-Managed Cash. Statutory basis reporting on MMARS for these programs differs from the GAAP basis, as follows: Statutory Basis Loan Reporting: The procedures will result in a statutory basis fund balance equal to MMARS revenues (cash receipts); less MMARS expenditures (cash disbursements). This fund balance will approximate the net cash on hand. Because of the revolving nature of these loan programs, material year-end balances are not anticipated. In the SBFR, reserved fund balance will be reported. Federal and state contributions are recorded as revenues when cash is received. For federal contributions, including additional contributions made for loan cancellations allowed under the programs. Loans made to students are also recorded on MMARS and should use an object code “Loans to Other Than Political Subdivisions and Other Governmental Entities of the Commonwealth.” (MMARS Object Code T02 – NewMMARS Commodity Code 84101700.) Loan payments received from students must be segregated between principal and interest revenue source codes. The Federal Student Loan Schedule will report information for both programs on one schedule. Only information that needs to be reported to the federal government for the Schedule of Federal Financial Assistance (SFFA) should be reported on the schedule. The following information should ONLY be reported on this schedule: • • • • • • • • • • Loans outstanding at June 30 of the previous year Loans canceled (written off) during the fiscal year Cash receipts Federal Government receipts Perkins Student Loan Program revenue Nursing Student Loan Program revenue Loan Principal Repaid during the fiscal year Cash Disbursements Loans disbursed to students Loans outstanding at June 30 of the current year 15
Slide 16: Federal Family Education Loans (FFEL) and Direct Student Loans The Federal Family Education Loans (FFEL) and Direct Student Loans consist of the Federal Family Education Loan Program (CFDA #84.032); and the William D. Ford Federal Direct Loan Program (CFDA #84.268). Each program includes Stafford Loans, PLUS (Parent) Loans and the Supplemental Loans for Students (SLS). Institutions may require the assistance of their Financial Aid Office Personnel in determining the appropriate figures to be reported in these two programs. REPORTING OF STUDENT LOAN SEFA ACTIVITY Refer to the worksheet preparation instructions for guidance. Internal Controls Under construction. Information Sources • • Related Procedure – None Legal Authority – M.G.L. C.7A, M.G.L. C. 29; U.S. General Accounting Office Standards; Government Accounting Standards Board Statements; Audit Standards Board Statements of Auditing Standards; AICPA State and Local Audit Guide • Attachments – A: Audit Independence Letter B: Management Accounting and Reporting System • • • Links – Electronic Instructions Contacts – MMARS Helpline 617-973-2468. MMARS CTR Web Portal Homepage 16