MONTANA UNIVERSITY SYSTEM
Office of the Commissioner of Higher Education
2500
Broadway� �� PO Box 203101� �� Helena, Montana 59620-3101� �� (406)444-6570� �� FAX (406)444-1469
Memorandum
To:����������� Board of regents
From:���� Laurie Neils
Date:����� 6/22/00
Re:����������� GASB 34-35
The Governmental Accounting Standards Board
(GASB) issued Statement No. 34 in June 1999.�
According to GASB, when implemented, Statement No. 34 will �create new
information and will restructure much of the information that governments have
presented in the past.� We developed
these new requirements to make annual reports more comprehensive and easier to
understand and use.�� GASB Statement No.
35, issued in November 1999, is an amendment of GASB Statement No. 34 that
incorporates colleges and universities into the basic financial documents
mandated by GASB Statement No. 34.
I recently attended a National Association of
College and University Business Officers (NACUBO) class on implementing the
Governmental Accounting Standards Board�s Statement No. 35.� GASB 35 will have a significant impact on
colleges and universities specifically while GASB 34 affects governmental
reporting entities in general.� Through
this memo I am trying to update you on what I believe to be the most critical
or resource sensitive components.� We in
the Montana University System are just beginning to plan for implementation and
we do not fully comprehend the cost in terms of financial and human resources.� An administrator for the State of Montana
Accounting Division told me that they had submitted an EPP (Executive Planning
Process) Budget Request for $200,000 to implement GASB 34 but thought the costs
would be higher.� We (the MUS) did not
submit an EPP item related to GASB No. 35, but when we have a better idea of
the costs involved, we probably should try to piggyback with the state.
Implementation
Date
The Montana University System must implement
when the State of Montana is required to implement, for fiscal year 2002.� Even if we were not a component unit of a
primary government, based on total annual revenues, our universities would be
required to implement by FY2002.
Government-Wide
Financial Statements
Prior to GASB 35, the Montana University
System campuses presented their financial statements in the aggregate by fund type, such as Current Funds broken down by
�General Operating,� �Designated,� �Auxiliary Enterprises,� �Restricted,� and
the other funds of �Student Loan Funds,� �Endowment Funds,� �Plant Funds,� and
�Agency Funds�.� GASB 35 collapses these
into one column for the primary reporting entity.� Major segments would be reported separately, but GASB has defined
those as bonded activity.� Fund group
reporting as we now know it disappears.�
According to GASB, the government-wide financial statements will help
users:
�
Assess the finances of the government in its
entirety, including the year�s operating results;
�
Determine whether the government�s overall
financial position improved or deteriorated;
�
Evaluate whether the government�s
current-year revenues were sufficient to pay for current-year services;
�
See the cost of providing services to its
citizenry;
�
See how the government finances its
programs�through user fees and other program revenues versus general tax
revenues;
�
Understand the extent to which the government
has invested in capital assets, including roads, bridges, and other
infrastructure assets;
�
Make better comparisons between governments.
Under GASB 34, the public colleges and
universities would roll into the state�s Comprehensive Annual Financial Report
(CAFR) as a Business Type Activity (BTA) along with all of the state�s other
enterprise type funds like the liquor warehouse and the state lottery.� Under GASB 35, colleges and universities
will most likely report all activity in one column.�� The University System will have to work closely with the state
to determine under which category of special-purpose government we fall.� In addition to the BTA category there are
other choices with further reporting requirements.
Reporting
Capital Assets
GASB 34 requires significant changes
regarding capital assets.� The two
changes that will probably affect us the most are the inventory of our
infrastructure assets and the calculation of depreciation.�
Infrastructure assets are defined as
long-lived capital assets that are part of a network of assets that can have
service potential for an extended period and that are normally stationary.� Some examples of infrastructure assets are
streets, curbs, sidewalks, street signs, lights, and fiber optic cables.� GASB 34 requires us to value these assets at
historical cost and to depreciate them.�
The difficulty is both in identifying these assets and in valuing them.� We have the option in lieu of depreciation
to report preservation costs as an annual expense.� This, however, requires that we obtain a condition analysis every
3 years and provide funding to maintain the assets at optimal conditions.� The latter alternative approach also
requires an immediate implementation.
The MUS does not currently record depreciation.� Under GASB 35, we must.� We also have to go back to June 1980 to
inventory our capital assets and determine the amount of depreciation that
should have been recorded over that time period.�� Capital assets are valued at historical cost, and the salvage
value and useful life of assets must be determined.� This change in accounting for capital assets and infrastructure
must be carefully reviewed as to the potential impact it may have on the
Facilities and Administration Rate (previously defined as indirect costs.)�
Tuition
Discounting
Private colleges and universities were
required to change their accounting for scholarship allowances for years ending
after December 1996.� GASB 35 now
requires public higher education institutions to change their accounting for
waivers and scholarship allowances.�
Revenues from exchange transactions (exchange of services for fees) must
be reported net of discounts.� Since
amounts paid by students for educational and institutional services are
exchange transactions, we must record them net of scholarships.� Currently we record total tuition revenues
(including fee waivers and tuition paid by scholarships) and total expenses
(including fee waivers and financial aid expense).
With the implementation of GASB 35, the MUS must
change the way we record fee waivers and scholarships awarded by the
institutions to offset tuition and fees.�
Scholarships include PELL grants and SEOG.� With GASB 35 we show the fee waivers and scholarships net of
tuition revenue (with parenthetical disclosure of the scholarship allowances)
or at gross with the related discounts and allowances reduced directly
below.� This will reduce both student
financial aid expense and tuition and fee revenues.� Only the financial aid amounts that are in excess of tuition and
fees and institutional housing and meals should be treated as expense.�
Fee waivers and scholarships that are applied
to auxiliary enterprises (room and board) must be netted as well. The MUS will
have to develop an allocation algorithm or a hierarchical refund policy so that
the discounts are applied consistently throughout the system.�
Statement
of Cash Flows
The Montana University System does not
currently produce a statement of cash flows as part of our financial
statements.� GASB 35 requires this
statement.� In order to produce the cash
flow statement the MUS campuses will have to spend considerable resources
analyzing our current financial records to determine a mechanism to distinguish
cash from non-cash transactions.�
Extensive human resource and system enhancements will be required in
order to produce cash flow statements.
Segment
Reporting
According to GASB 34, a segment is defined as
�an identifiable activity reported as or within an enterprise fund to which one
or more revenue bonds or other revenue backed instruments are
outstanding.�� This requirement will
also cause the MUS to spend considerable hours analyzing our bond indentures to
determine what activities should be reported as segments.�� Segments require separate reporting in the
new financial statements.
Management�s
Discussion and Analysis (MD&A)
This goal of GASB with the MD&A
requirements is to �provide objective and easily readable analysis of
government�s financial activities based on currently known facts, decisions, or
conditions.�� Both positive and negative
results should be discussed.� GASB�s
goal is that this information be presented in a format that is easy to read and
understand.� Although it is not
required, the use of graphs, charts, and tables is encouraged.� GASB views this as an opportunity for the
financial managers to present their views and insights concerning the financial
status of their institutions.� According
to GASB, �This analysis should provide users with the information they need to
help them assess whether the government�s financial position has improved or
deteriorated as a result of the year�s operation.�
I have provided you a summary of the most
critical issues that I know of today.�
When we get into this process more deeply, other issues will certainly
arise.� The timing of this effort is
unfortunate.� The same people who have
been relied on for extra time and efforts on the successful Banner financial
implementation will again be called on to implement GASB 34-35.� SCT is also just beginning to look at
systematic changes as a result of GASB�s requirements.� The costs of terms of the morale and working
conditions for our valued employees and the financial burden to our campuses
may be significant���