In the introductory section, there was clear information and details about the financial services, the organization chart, principal officers, and the certificate of excellence in the process of financial reporting. The items were presented well. The organization chart was able to show the outline of the key managerial positions and their responsibilities in the organization. The certificate of excellence in financial reporting was keen on explaining how the city of Salisbury was able to meet the accounting standards and accurately present the financial information. Therefore, the CAFR letter and initial sections were detailed well to understand the premise of the overall financial management of the city government.
The letter on CAFR is addressed to the Mayor. The letter was presented after the date of the auditor reports and signed by the Chief Executive Officer. The letter spells the management of the responsibility as to present accurate data with complete fairness. The reporting entity was clearly defined as City of Salisbury that was considered the primary government. The definition was appropriate.
B. Economic Condition and Outlook.
The description of the local economy was provided. Some of the key industries influencing the local economy included financial, educational medical and governmental activities. The city also served as key trading and distribution location for the county. The government had positive economic prospect about the local economy as stable and strong.
C. Major Initiatives
The letter discusses the current year and future projects including the launch of the fiber-to-the-home systems, and future programs to improve safety in the city through creation of a police Interdiction team. Some of the service efforts and achievements identified include the organizational and development and partnership economic programs that helped to revitalize economic activities in the city. The city was also able to push for elimination of water pollution through the regulation of the storm water sources.
D. Financial Information
The letter says the government’s internal control structure and budgetary controls were effective in improving resource allocations. It indicated that the internal control evaluations should be done and implemented to protect the assets. The city was deemed responsible for the setting of good internal control structures. The proprietary and fiduciary operations were explained in detail, which is effective in shaping reasonable assurance for the control process. Proper control actions were advised to improve cash management, risk management, and debt administration (Burlaud, & Niculescu, 2016). The figures reported in the financial and statistical sections do not align due to errors and major deviations such as the total revenues.
Independent Auditor’s Report
An unqualified type of report presented meant that the auditor was satisfied that the government’s financial statements were prepared based on the accounting principles generally accepted in the U.S. The auditor’s opinion includes governmental and business-type activities, major funds, and aggregate funds. The auditor said that the management was responsible for the preparation and presentation of the financial statements. The audit was performed based on the government auditing standards and the statements were fair. The report was presented for review to the city in 19th November, the year 2013.
Combined Balance Sheet
The columns were captioned using generic fund types that are used in the classification of the local government transactions. In the financial section, the columns were arranged in same order as different generic fund type subunits.
The government has refrained from the reporting of non-assets on its balance sheet. It reported all items under the assets and liabilities sections. The fund balance of the debt service funds agree with the finances available for the debt service in the General Account. The amount was $177,679,857 in 2013. The fixed assets were reported based on their fair values after deduction of the potential depreciation expenses. The interfund balances were recorded to be $413,474 moved from the General Fund to the Mass Transit Fund to finance the operational expenses of the mass transit fund within the City.
The projected notes payables were properly categorized. The long-term liabilities were reported during the date the long-term liabilities are given to the organization. When the organization receives the liabilities, they will be immediately reported in the balance sheet. The funds should be accounted for effective to understand the general situation of the long-term debt.
Combined Statement of Revenues, Expenditures and Changes in Fund Balances
The general fund and special revenue funds clearly spelled out the actual and budgeted data. The other funds did not have proper legal support and provisions to guide their programs. Both the budget and actual data were presented on a budgetary basis of assessing and accounting for the organization’s performance and productivity. In most occasions, the government has been able to stay within its budgets. However, at times, the government was able to keep the budget targets. For example, the special revenue funds show that in 2013, the government was unable to match its budgeted revenues. The variance was ($458,693). However, the expenditures were lower than the projected expenditures for the year 2013 by $361,354. The general fund also recorded a negative variance of the projected total revenues for 2013 by ($857,570).
Notes to the Financial Statements:
Accrual basis of accounting and measurement of the government funds was applied. The GAAP guidelines are relevant in assessing the aspects of financial statements and effective financial reporting. The government-wide statements are critical in shaping the accountability and reporting the key financial transactions of the organization. The note defined the modified accrual basis aligned with the authoritative literature as the revenues that were documented had been earned and expenses documented during the time the liabilities are incurred. For example, the non-exchange transactions would give value without offering equal values such as donations, grants, and property taxes.
The notes also identify the primary revenue sources that could be treated as susceptible to the accrual-based approach on the modified accrual approach of accounting. The revenues from the property taxes and revenues from the grants and donations were susceptible to accrual approach in the modified accrual approach of accounting. Based on this note, the revenues are only recognized after the revenues are earned irrespective when the cash flow of the revenues is recorded in the organization (Bernick, et al., 2014). The government recorded the property tax revenues for the taxes levied within the fiscal year. The duration for recognizing the revenues made it possible to document the appropriate level of revenue recognition. The government only accrues the specific portion of its long-term sales contracts, notes and leases receivable that are available and measurable. The special assessment levies were reported and recognized after proper assessment and amounts were determined. The organization recognized the need to review the values of the special assessment levies.
Cash and Investments
Interest rate risk, credit risk, and the custodial credit risks were key problems facing the investment portfolio. The organization should come up with effective ways of managing and controlling such risks. The types of investments authorized by the contractual and legal restrictions include the trust cash portfolio and real estate investments. As at the end of June, 2013, the bank balances of cash deposits was $12,621,036. Among the bank balances, $1,742,736 was fully covered by the FDI and the remaining amounts were covered by the collateral property designed by the pooling approach. As of the balance sheet date, the investment in NC capital management trust had a total carrying amount and market value of $13,198,408.
Property taxes receivable were discussed in the disclosure notes. The property taxes receivable as the date of accrual and documented for a fiscal year in the balance sheet. For example, the ad valorem taxes on property were usually due on 1st September, lien date. The interest could not accurate until the next January 6th. The taxes were evaluated based on the values recorded in January 1, 2012.
The government accounted for the infrastructure fixed assets through the historical cost approach through the usage of the deflated replacement cost. The estimated useful lives for the key classes of the depreciable fixed were clearly specified. For example, the estimate useful life for the improvements, vehicles, and furniture was 40, 5, and 10 years respectively. The straight-line approach was critical in evaluating the level of depreciation. The donation assets were documented based on their fair value estimates (Clark, 2015). On the other hand, the purchase fixed assets were recorded at cost and at their estimated historical costs. The government seems to have refrained from the use of phrase such as estimated values without quoting whether they are historical cost or the market value appraisals. The main classes of the fixed assets were fully disclosed including the infrastructure, buildings and enterprise systems, and improvements. The changes in the value of the fixed assets were also reported comprehensively in the notes.
There were amounts of excesses of expenditures above the legal limit of budgetary for individual funds. The report identified such funds because of the potential variations within the current year operations. The amounts disclosure were part of the deficit fund balances of the existing individual funds. Material violations of the financial-associated legal provisions were determined. The account titles were consistent. The account titles for the combined statements were also sequenced consistently. The totals and subtotals were also organized in a consistent way. The report presentation made it possible to trace the amounts physically from the individual fund statements to combined statements by the type of funds.
The statistical tables include the net position, governmental fund and demographic and economic statistics, among others (Mohr, 2015). Some of the figures reported in the statistical tables agree while others do not agree with the associated amounts in the introductory and financial sections. For example, the total revenues of the local authority are the recorded in the statistics was different from the amounts recorded in the financial section. In page 42, the total revenues recorded in 2013 were $36,501,682, while in the statistical section in page 129, the recorded revenues is $36,863,051. The discrepancy is large as the statistical recorded revenues have inflated by more than $300,000. Page 42 the actual total expenditures are recorded to be $33,392,845. In page 129, the statistical section recorded the total expenditures to be $33,754, 199, which is an overstatement of the outcomes.
In summary, the CAFR is useful in reporting the financial information about the performance of the City of Salisbury. CAFR letter and initial sections were detailed well to understand the premise of the overall financial management of the city government. the disclosure notes identified the primary revenue sources that could be treated as susceptible to the accrual-based approach on the modified accrual approach of accounting. The revenues from the property taxes and revenues from the grants and donations were susceptible to accrual approach in the modified accrual approach of accounting.
Moreover, the ability to measure and access the value of the long-term sales contracts and receivables is necessary before accruing them in the financial statements. Property taxes receivable were discussed in the disclosure notes. Material violations of the financial-associated legal provisions were determined. The account titles were consistent.
Bernick, E. L., Birds, J. M., Brekken, K., Gourrier, A. G., & Kellogg, L. D. (2014). Explaining county government fiscal transparency in an age of e-government. State and Local Government Review, 46(3), 173-183.
Burlaud, A., & Niculescu, M. (2016). Accounting standards that appeal to the professional. The Audit Financiar Journal, 14(144).
Clark, B. Y. (2015). Evaluating the validity and reliability of the financial condition index for local governments. Public Budgeting & Finance, 35(2), 66-88.
Mohr, Z. T. (2015). An analysis of the purposes of cost accounting in large US cities. Public Budgeting & Finance, 35(1), 95-115.
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