Category: Accounting and Financial Reporting (page 1 of 2)

What Fun Awaits?


The Governmental Accounting Standards Board (GASB) apparently never slows down!  The past several years have seen an explosion of activity that includes significant changes to governmental financial reporting – and there is MUCH more to come!  A future blog post will focus on the most recently approved pronouncement – GASB Statement No. 87, Leases, which provides guidance for lease contracts for nonfinancial assets, and is consistent with private-sector lease requirements recently approved by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). This blog post, however, is a quick peek into the current GASB agenda and the expected timelines for those projects.

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Introducing the 2017-2018 Finance Calendar of Duties

The UNC School of Government has just posted its most recent Local Finance Bulletin, the 2017-2018 Finance Calendar of Duties for City and County Officials, prepared by Gregory S. Allison.  This annual publication is a monthly guide for finance and budgeting officials on all statutory and regulatory reporting and administrative responsibilities.  The finance calendar has been a publication of the School of Government for decades and is an online, free resource for finance officers, budget officers, clerks, and other administrative officials.

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North Carolina’s County and Municipal Fiscal Analysis Tool: Research Review

Have you ever used the County and Municipal Fiscal Analysis tool that is housed on Treasurer’s website?  It allows municipalities and counties in the state to see how they are doing with regard to financial condition and compare their performance to peers.  It has recently become the focus of new research coming from colleagues at the University of South Dakota and Indiana University.  Ed Gerrish and Luke Spreen presented their research on our benchmarking tool earlier this month at the Public Management Research Conference and it is forthcoming at the Journal of Public Administration Research and Theory.  In this Research Review I am going to discuss their research and pull a few findings that are especially notable for those of you that work in budgeting and finance.

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You Are Doing WHAT to the Governmental Funds?? – Part 3, The Long-Term Approach

Yogi Berra said it best.  “It’s déjà vu all over again.”  That is what should come to everyone’s mind upon reviewing the third measurement focus and basis of accounting proposal from the Governmental Accounting Standards Board’s (GASB) recent Invitation to Comment (ITC), Financial Reporting Model Improvements – Governmental FundsAs was noted in the previous blog post You Are Doing WHAT to the Governmental Funds?? –  Part 2, the Short-Term Approach, each proposal is moving further and further away from the current financial resource measurement focus and the modified accrual basis of accounting currently used in the governmental funds.  Well, this is an all-out retreat!!  In fact, it is also being referred to as the total financial resources approach.

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You Are Doing WHAT to the Governmental Funds?? – Part 2, The Short-Term Approach

In our last chapter, You Are Doing WHAT to the Governmental Funds?? – Part 1, The Near-Term Approach, we explored one of the three new measurement focus and basis of accounting (MFBA) options being considered for the governmental funds.  These approaches are presented in the Governmental Accounting Standards Board’s recent Invitation to Comment (ITC), Financial Reporting Model Improvements – Governmental Funds.  And you thought it was a scary chapter!?? The suspense continues with the second MFBA proposal – the short-term (or working capital) approach.  One spoiler alert (but it is for your own good) – each approach goes further away from the current resource measurement focus and modified accrual basis of accounting currently used by the governmental funds.  (Just wait until you read Part 3….)

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You Are Doing WHAT to the Governmental Funds?? – Part 1, The Near-Term Approach

In my previous post, Invitation to Comment – or Invitation to Disaster?? The Long Slog to a New Financial Reporting Model Begins!, I provided a fascinating overview of the Governmental Accounting Standards Board’s (GASB) new financial reporting model project.  As was noted, the actual Invitation to Comment (ITC), Financial Reporting Model Improvements – Governmental Funds is a first step in the long due process of developing a new GAAP standard.  As is the case here, an ITC usually provides an opportunity for the GASB to solicit feedback on various proposal considerations.  A significant aspect of the reporting model project is the reconsideration of the unique measurement focus used in the governmental funds (current financial resources).  The ITC details three new measurement focus approaches to consider – the near-term approach, the short-term approach, and the long-term approach.  This post, focusing on the near-term approach, is the first in a series that will provide (hopefully) a clearer insight into the plotting that is occurring in Norwalk.

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There are two sides to every coin: Or is there Common Sense about Cost Accounting in Government?

In the 1990s there was a wave of euphoria about cost accounting and particularly Activity Based Costing (ABC).  One book in particular stands out in my mind as particularly euphoric: Common Cents: The ABC Performance Breakthrough by Stephen Turney.  While it had a clever title, few people remember this book now, but many people remember ABC.  Many finance and budget managers do not recall ABC with fondness.  In fact, when government budget and finance managers are asked about the use of ABC in their organizations now, most will say that they are not using it.  However, when asked if they are doing some form of cost accounting, the measure is much higher.  In this post, I explore why budget and finance managers are willing to say that they are doing cost accounting and not ABC.  I further explore (and mix) the metaphor of common sense/cents about cost accounting by thinking of its uses as two sides of the same coin.

Some background on cost accounting…

Cost accounting is the measurement and use of both direct and indirect cost information for an organizational purpose like rate setting, grant overhead recovery, performance measurement or cost management. For private businesses, cost accounting is essential for pricing goods and services.  In government, cost accounting has many uses as well.  It can be used to price goods as businesses do, to collect overhead for grants, and to improve performance measurement systems.  These are all beneficial uses that are broadly supported by most organizations. The other side of the coin is that cost accounting can be used for intensive cost management purposes, but these uses may generate resistance in organizations. Intensive cost management such as contracting out services and service cutbacks or eliminations can generate resistance from employees.  It is important for managers and budget officers that are looking to use cost accounting for the first time, or more intensively, to consider both sides of the coin and plan accordingly.

The easy side of the cost accounting coin

– Collecting grant overhead

– Accurately price goods or services

– Improve performance management systems

In my research and as described in my forthcoming edited book, cost accounting has many acknowledged uses in government.  The oldest use of cost accounting was to collect grant overhead costs from the federal government as described in the A-87 circular.  The benefit of A-87 cost accounting is that when local governments provide federal services that they should be able to charge indirect costs like HR, IT, and Accounting costs to the grant so that the local government does not have to subsidize services that are most appropriately paid for by the federal government.

Cost accounting also has an important place in accurately pricing goods and services that government “sells” to consumers.  Like federal grants, services that are sold to private consumers need to have indirect costs added into them so that the general tax is not unintentionally subsidizing the service.  Finally, cost accounting is important for performance management systems.  The work of the North Carolina Benchmarking Program most directly speaks to this issue.  Without cost accounting, we cannot be sure if performance differences come from differences in processes that we can learn from or whether they come from simple differences in resources.  Generally, few people inside an organization object to these purposes and may readily assist if they believe that it can be used to generate new revenues for their programs.

The difficult side of the cost accounting coin

– Contracting out services

– Service cutbacks and eliminations

– Overhead cost management


Cost accounting also has some more difficult uses.  I suggest that these are difficult only because they are difficult for people in the organization.  Analysts and managers have told me that people believe that when the government starts collecting data on the “full” cost of services they think that sweet Ms. Betty in Animal Licenses is going to lose her job.  They believe this because cost accounting allows governments to more accurately estimate the benefit associated with contracting or eliminating services.  If we only look at the budgeted costs of a services like animal licensing, we leave out important indirect costs or the budgeted cost is aggregated at such a level that it obscures the individual cost of services.  So, cost accounting can be used to both combine direct and indirect costs and track expenses at a more granular level, which becomes very beneficial for contracting and service analysis.

Cost accounting also often shows that building space, which is an often untracked overhead expense in the budget, is an important cost of services.  If the cost of building space is added into the cost estimate, the service managers often have to justify the high cost of the space for things like storage.  This is something that managers do not want to have to justify and defend.

The improved ability to evaluate contracting, service elimination, and overhead cost management are all important and appropriate uses of cost accounting from the budget officer’s perspective. However, this side of the coin may appear negative from the employee and service manager’s perspective, and organizational resistance may ensue.  Often this resistance is seen in the form of service managers focusing on the excessive time and data requirements of cost accounting.


My common sense suggestions about both sides of the cost accounting coin

The previous discussion of the “other” side of the coin that generates resistance in the organization has suggested why cost accounting (and ABC in particular) has been limited in government.  If the resistance hypothesis is correct, then the next question is what can be done about it? In my forthcoming edited book and in my dissertation (found here: see chapter 3 in particular), I note that the cost accounting used in practice by local governments is not completely an ABC cost accounting system, which may help this problem of resistance and minimize the time and data requirements.  I call this development “hybrid” cost accounting.  These hybrid cost accounting systems are neither very basic or exactly like ABC.  They have a mix of basic and specific cost drivers, the level of cost is passed down to some broad programs and some very specific activities, and that the “fullness” of the system is mixed.  In other words, the systems that are developed and used by cities over time are not purebred ABC systems.  The system is more basic in areas where it is not as important to have a specific activity cost and in areas that generate the most resistance.

Additionally, many cities have found that they have multiple cost accounting systems for different purposes like A-87 cost accounting plans for federal grants and then “full” cost accounting for purposes of setting rates and evaluating the cost of services.  All of this points to the new understanding that there needs to be multiple estimates of cost for the multiple purposes of government.

In conclusion, cost accounting has many significant benefits for government, but we have to use some common sense about our expectations for cost accounting and how it will be received by the organization.  In other words, we need to consider both sides of the coin and especially from the perspective of the service managers and employees. By using hybrid cost accounting systems and multiple cost systems, we may be able to minimize the resistance from the organization and maximize benefits.

Zach Mohr is an Assistant Professor at UNC Charlotte.  He has a forthcoming, edited book on cost accounting titled Cost Accounting in Government: Theory and Applications.  It will be published by Routledge in May 2017.  Links to actual local government cost accounting documents and other useful cost accounting resources can be found on his faculty website.

Invitation to Comment – Or Invitation to Disaster?? The Long Slog to a New Financial Reporting Model Begins!

Well, it was inevitable. While we all are still reeling from the fun that has been GASB Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments that was issued in June 1999, another chapter in the never-ending saga has begun. Yes, the Governmental Accounting Standards Board (GASB) recently added a new financial reporting model project to their official agenda. Now, the good news is that this type of project takes time – lots of time. The project that culminated in GASB Statement No. 34 was a 15-year process. The first implementers of GASB Statement No. 34 did so 15 years ago. So, one would hope that this is the beginning of another 15 year adventure and, at the end, most of us will be retired. Well, no such luck this time. While we do have time to possibly retire, the potential release of a new reporting model standard is currently slated for November 2021, with implementation certainly several years after that. However, we are not looking at a 15-year process.

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Whose Assets Are They Anyway?

The Governmental Accounting Standards Board (GASB) issued GASB Statement No. 84, Fiduciary Activities the last week in January 2017.  Obviously, this is breaking news – stop the presses!  The standard is the culmination of a long-term, wide-ranging project to address accounting and financial reporting for the following:

GASB Statement No. 68)

With GASB Statement No. 84, the GASB provides definitive guidance on how all fiduciary activities of a governmental entity should be reported. It is now definitive that assets that are associated with a fiduciary activity and are legally entrusted should be reported in one of three specific fiduciary fund types.  Those assets that are not legally entrusted but still meet the definition of a fiduciary activity are to be reported in a separate fiduciary fund type. This does clear some inconsistencies with fiduciary fund reporting currently where entrusted and non-entrusted assets may be reported in the same fund type (although many of us probably never lost much sleep over it).

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It is Going to Cost HOW Much to Retire It??

Everyone is well aware, or should be, that the cost of retiring is escalating almost by the minute.  There are financial advisors and estate planners who solely focus on enabling us to have a shot at a decent retirement, relatively free of financial concern.  Employers in both the public and private sectors are recognizing mammoth liabilities for the pension resources they are holding in trust for their employees.  But, are employees all that are going to retire from a state or local government?  Is that the only long-term cost that a governmental entity is going to be liable for (above and beyond normal indebtedness)?  The answer is obviously no or I would not be writing this post.

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