Question

Auditor General, Frank Mautino published the audit report. In his speech “The state’s the net position of governmental activities for the fiscal year 2019 eroded by $4 billion, pushing the deficit up to a negative $193.1 billion from $189.1 billion, according to the audit of the state’s comprehensive annual financial results for the fiscal year ending June 30, 2019. The fiscal year 2019 CAFR reveals continuing underlying financial weaknesses which significantly impact the state’s overall fiscal health in regards to deferred liabilities, ongoing operational concerns related to cash management and long-term concerns related to pension and other post-employment obligations,”-the CAFR reads.

Required:

a) What does it mean by CAFR? What are the objectives of preparing CAFR? Explain the process of preparing CAFR.

b) Download any one CAFR of your choice and write a detailed report on the main sections of the CAFR. Also, explain the detailed funds maintained by the entity and combining statements. Give proper referencing

Answer 1

A)   CAFR

CAFR stands for Comprehensive Annual Financial Report . A CAFR is a set of financial statements for a state, municipality or other governmental entity that comply with the accounting requirements established by the Governmental Accounting Standards Board (GASB). It must be audited by an independent auditor using generally accepted government auditing standards.

The CAFR consists of three sections: Introductory, Financial and Statistical.

The Introductory section orients and guides the reader through the report. The Financial section presents the entity’s basic financial statements as well as notes to the statements and the independent auditors’ report. The Statistical section provides additional financial and statistical data, including data about financial trends that may better inform the reader about the government’s activities.The Comprehensive Annual Financial Report (CAFR) is a thorough and detailed presentation of the state's financial condition. It reports on the state's activities and balances for each fiscal year.

The CAFR is presented in three sections:

1. Introductory section - includes transmittal letter.
2. Financial section - includes the independent auditor's report and contains management's discussion and analysis, government-wide financial statements, fund financial statements, notes to the financial statements, required supplementary information, combining financial statements, and schedules.
3. Statistical section - includes additional financial, economic, and demographic information.

The purpose of the Comprehensive Annual Financial Report (CAFR) is to provide accurate and meaningful information concerning the City’s financial condition and performance. Independent auditors have verified that the City has fairly presented its financial position, in all material respects, in accordance with accounting principles generally accepted in the United States of America.

objective of preparing CAFR

•You hold the public trust, and in these economically challenging times, you need to demonstrate your school system is effectively and prudently managing funds.

•Credibility. Validate your commitment to fiscal integrity and demonstrate your school system’s high quality financial reporting to your community.

•Transparency. Share financial information above and beyond what GAAP requires.

•Recognition. Celebrate your achievement with your superintendent, school board, and community.

•Improvement. CAFRs are reviewed by professionals from governmental accounting and auditing in the fields of consulting, certified public accounting, and school system financial management. You will be provided with actionable feedback to ensure the continuous improvement of your CAFR.

• Facilitation of bond rating and continuing disclosure process. Facilitate the bond rating and continuing bond disclosure processes by including in your CAFR what is requested for credit evaluations and continuing disclosure. The certificate has gained the distinction of being a prestigious national award and is recognized as such by:

– Bond counsel

– Underwriters

– Securities analysts

– Bond rating agencies

PROCESS FOR PREPARATION OF A COMPRENSIVE ANNUAL FINANCIAL REPORT (CAFR) INVOLVE?

Introductory Section-Contents

1. Letter of Transmittal
2. Certificate of Achievement for Excellence in
Financial Reporting-Prior Year
3. List of Principal Officials
4. Organizational Chart

• Of all the sections of the CAFR, the introductory section (of
which the transmittal letter is a key component) is the
section with the least stringent constraints placed on content
• This means that you can put virtually anything in the
transmittal letter that you feel is important to the reader
(including information that may not fit within the more
restricted reporting protocols established for the other
sections of the CAFR)
•To emphasize financial matters about your local government
on which you think the reader should be focused

• For its CAFR Award Program, GFOA recommends (but does not
require) that the transmittal letter include the following
information:
* Profile of the local government
* Local economy
* Any long-term financial goals (reserve targets, etc.)
* Relevant financial policies (for example, a requirement that changes in
appropriations identify the funding source, etc.)
*Major initiatives (upcoming plans to expand certain department
operations, acquire significant capital facilities, etc.).
• Consider inserting appropriate photographs into the transmittal
letter (to illustrate the major activities and projects described in
the transmittal letter)
• Consider using hyperlinks in the transmittal letter to the other
locations in the CAFR that provide additional detailed
information

Letter of Transmittal-Other Details
• Minimum-Signed by CFO
• Dated on the date the CAFR is first made
available to the public (AFTER the auditor’s
report)
• NOT audited
• Should be on letterhead
• Should be addressed to the citizens
• Concise with charts and graphs

Finance Section-Contents
1. Independent Auditor’s Report
2. Management Discussion and Analysis
(MD&A)
3. Basic Financial Statements
4. Required Supplementary Information (Other
than MD&A)
5. Combining and Individual Fund Presentations
& Supplementary Info

B)

CAFR WITH EXAMPLE

CAFR Checklist

• A checklist is available on the ASBO International website to guide you through what needs to be included in each section of the CAFR

• Mandatory to complete for first year applicants

• http://www.asbointl.org/asbo/media/docume nts/learning/Awards/COE/COE-Checklist.pdf

CAFR’s contain 3 sections:

1. INTRODUCTORY SECTION*

2. FINANCIAL SECTION • MD&A • Basic financial statements – Government wide statements – Fund statements – Notes • Budget to actual schedules • Combining statements and schedules*

3. STATISTICAL SECTION*

* ADDITIONAL REQUIREMENTS RELATED TO CAFR

Introductory Section

Furnishes general information on the government’s structure, services, and environment.

Letter of transmittal

• Executive Summary prepared by the school system

• Presented on school system letterhead and signed by chief financial officer at a minimum and/or chief executive officer

• Should direct readers to the MD&A

The letter of transmittal contains a profile of the school system

• The District’s mission statement is, Preparing Every Student for Success in College, Career and Life.

• The District provides a program of public education to high school students from 9 th through 12th grades. The District was organized on April 8, 1895 and comprises an area of approximately 220 square miles, over 79 percent of which lies within the city limits of the City of Phoenix. The District is one of 55 public school districts currently operating in the metropolitan area. The estimated population for the District is 808,745.

• Students are currently served through 11 comprehensive high schools, two alternative schools, two small specialty schools, and one school for the emotionally disabled, providing a wide range of programs including regular academic education, special education, vocational education and programs for gifted students.

• The Superintendent had his contract renewed in May 2010 and completed his fourth year with the District in 2011-12. In October 2011, President Barack Obama appointed him to serve on the White House Initiative on Educational Excellence for Hispanics, joining a select group of educational leaders nationwide to address the unique educational challenges faced by Hispanics.

The letter of transmittal contains information useful in assessing the economic condition of the school system

LOCAL ECONOMY

•The Arizona economy is locked into a slow recovery that is expected to continue into next year before faster growth materializes. From June 2012 to June 2013, job counts stood 2.4% higher with an expectation of 2% growth for the entire year, and claims for unemployment are down 15.7% from the previous year. In 2009, the State was 49th in job growth in the Nation which increased to 6th in the Nation in 2012. Over the last 12 months jobs have grown by 57,100. In June, the unemployment rate stood at a seasonally-adjusted 8.2%, with little improvement expected through the end of 2013. The Greater Phoenix unemployment rate stood at 7.5%. It is currently expected that the unemployment rate will not fall below 7% until the second half of 2015.

•Recent housing reports suggest that the healing process has begun as home prices have been moving higher, foreclosures are down sharply, and the inventory of unsold homes has dropped dramatically. But half of would-be traditional home-buyers can’t qualify for a mortgage even with rates at record lows, mortgage delinquencies remain high, and a large portion of recent demand is from investors and new real-estate investment funds that are acquiring properties. (http://azeconomy.eller.arizona.edu/AZE12Q3/more_on%20horizon.asp).

The letter of transmittal contains information useful in assessing the economic condition of the school system

LONG-TERM FINANCIAL PLANNING

•The state budget posed further challenges to public education in 2011-12 and 2012-13. Arizona’s education budget has been slashed by $1.6 billion, or 26% over the last three years. The voters’ approval of the one-cent sales tax in May 2010, Proposition 100, averted an immediate budget disaster for public education, but the financial challenges remain for schools across Arizona for fiscal year 2011-12, and beyond, as this proposition contains a clause automatically repealing the tax in May 2013. Proposition 204, which would have continued the one-cent sales tax to fund schools was voted down in the November 2012 election, thereby eliminating the tax and additional funding for Arizona School Districts. It is unknown at this time what the impact will be on the District’s 2013-14 expenditure budget.

•As a result, the District continues to review all of its current positions and develop staffing models and job descriptions to restructure and reduce its workforce without harming the educational needs of its students. In addition, the District reviews all of its current programs and long-term contracts to ensure efficiencies are being maintained.

Financial Section

Contains all basic financial statements and required supplementary information (RSI), as well as information on all individual funds and discretely presented component units not reported separately in the basic financial statements.

- For the most part, the components of the financial section are required whether an entity chooses to issue a CAFR or not.

- What are the additional requirements? The presentation of variouscombining financial statements and schedules.

Independent Auditor's Report

*Opinion expressed must be unmodified in order to be eligible for the COE award

Management’s Discussion and Analysis (MD&A)

(Required Supplementary Information)

Basic Financial Statements Overview

Government-wide Financial Statements

- Statement of Net Position

- Statement of Activities Government-wide Financial Statements

+Accrual basis of accounting

+Economic resources measurement focus

Fund Financial Statements

-Governmental funds

- Balance Sheet - Revenues, Expenditures, and Changes in Fund Balances

- Revenues, Expenditures and Changes in Fund Balances

– Budget to Actual for the General Fund and major special revenue funds (if not presented as RSI)

-Proprietary funds

- Statement of net position

- Statement of revenues, expenses and changes in fund net position

- Statement of cash flows

-Fiduciary funds

- Statement of fiduciary net position

- Statement of changes in fiduciary net position

- Reconciliation of the Balance Sheet to the Statement of Net Position

- Reconciliation of the Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities

Objective

– to reconcile the accrual government-wide financial statements to the modified accrual fund financial statements

Budgetary Comparisons

• May be presented as RSI after the notes to basic financial statements or as a part of the basic financial statements. • Budgetary comparisons should be presented for all major general and special revenue funds with legally adopted budgets. • Comparison should include the original and final budgets with a column presenting the variance between actual and final budget.

Statistical Section

Provides trend data and nonfinancial data useful in interpreting the basic financial statements and is especially important for evaluating economic condition.

• The Statistical Section is organized around the following five objectives:

– Provide information on financial trends

– Provide information on revenue capacity

– Provide information on debt capacity

– Provide demographic and economic information

– Provide operating information

Narrative Explanations

GASB Statement 44 directs that the schedules be accompanied by appropriate narrative explanations. Specific requirements for narrative explanations are as follows: Describe the objectives of the five different types of information contained in the statistical section.

Financial Trend Data

– Information about net position (10 years)

– Information about changes in net position (10 years) – Information about fund balances (10 years)

– Information about changes in fund balances (10 years)