HomeMy WebLinkAboutMinutes - March 27, 2007 SSCITY OF LODI
INFORMAL INFORMATIONAL MEETING
"SHIRTSLEEVE" SESSION
CARNEGIE FORUM, 305 WEST PINE STREET
TUESDAY, MARCH 27, 2007
An Informal Informational Meeting ("Shirtsleeve" Session) of the Lodi City Council was held Tuesday, March
27, 2007, commencing at 7:02 a.m.
A. ROLL CALL
Present: Council Members — Hitchcock, Katzakian, Mounce, and Mayor Johnson
Absent: Council Members — Hansen
Also Present: City Manager King, City Attorney Schwabauer, and City Clerk Johl
B. TOPIC(S)
B-1 "Overview of Governmental Accounting Standards and Practices"
City Manager King briefly introduced the subject matter.
Deputy City Manager Krueger provided a PowerPoint presentation (filed) regarding
governmental accounting. Specific topics of discussion included accounting overview,
definition of accounting, vocabulary, accounting process -recording, accounting process -
classifying, accounting processing -reporting, cash and accrual basis reconciliation, audit
process, and miscellaneous accounting topics including cash pooling basics, budget
basics, interfund transactions, and accounting software and hardware.
In response to Council Member Hitchcock, Mr. Krueger stated one of the definitions of
accounting came from a textbook he prefers and that there are several definitions in various
textbooks and across the Internet.
City Manager King commented on the budget cycles, auditor processes, qualified versus
unqualified opinions, standards for accounting and public dissemination of information, and
certificate for compliance with standards.
In response to Council Member Hitchcock, Mr. King stated the opinion reflects the
truthfulness of reporting regardless of what the organization's financial standing is and the
opinion does not speak to whether management decisions are good decisions.
In response to Mayor Pro Tempore Mounce, Mr. Krueger stated the auditor does see the
accrual basis accounting. He stated the City's practices are consistent with those of other
communities and governmental accounting standards require accrual basis accounting. Mr.
Krueger also stated that typically budget and mid -year reviews are not audited, but the
numbers contained in the mid -year review are the same as those previously audited.
In response to Mayor Pro Tempore Mounce, Mr. Krueger stated auditor opinions are
typically unqualified. He stated auditors rarely provide qualifications or refuse to issue an
opinion unless there is a situation where an agency has difficulty closing its books.
In response to Council Member Hitchcock, Mr. Krueger stated that agencies had to make
some adjustments that may have accounted for some accounting differences when
Governmental Accounting Standards Board (GASB) 34 was adopted. Mr. Krueger provided
a brief overview of GASB 34 implementation. City Manager King stated there was a great
debate at the time GASB 34 was adopted regarding what methodology will better inform the
public.
Continued March 27, 2007
In response to Mayor Johnson, Mr. Krueger stated there was a focus on information
services in the recent audit because there is ai integral relationship between accounting
records and information services. Mr. Krueger stated that because review of every
transaction is highly cumbersome, there is a statistical method, which includes an internal
control that auditors use to review certain transactions and compliance with requirements
set forth in the Sarbane-Oxley Act.
In response to Mayor Johnson, Mr. Krueger stated the tax collector receives and processes
payments throughout the year and disburses to local agencies as required, but not
necessarily twice a year when payments are due. City Manager King stated many
communities have a dry period and one benefit of reserves is to have cash available for
those time periods. Mr. Krueger provided an overview of the pooling and portfolio investment
process that many agencies use to operate on a year-round basis.
In response to Council Member Hitchcock, Mr. Krueger stated examples of temporary
accounts include property taxes, sales revenue, and in lieu fees from the Department of
Motor Vehicles. He stated the funding is seen on an annual basis, closed at the end of the
year, and the difference transfers into the ending fund balance.
Discussion ensued between Mayor Pro Tempore Mounce, City Manager King, and Deputy
City Manager Krueger regarding consistency and governmental accounting practices, the
ability to stay on either a cash or accrual basis for both the Comprehensive Annual
Financial Report (CAFR) and budget, case study regarding electric power contracts, ability
to show liabilities and assets accurately in the budget, and similar practices used in
Roseville.
In response to Council Member Hitchcock, Mr. Krueger stated Electric Utility and Public
Works are the main situations for which a cash basis for budget more accurately reflects
the current financial condition.
In response to Council Member Hitchcock, Mr. Krueger stated that a portion of the budget
does reflect total balances of the Certificates of Participation, which are also shown in the
CAFR.
In response to Mayor Johnson, Mr. Krueger stated the first time he was able to trace the
current practice of showing cash basis on the budget was 1994 and there is the inference of
cash basis accounting prior to that.
In response to Mayor Johnson, Mr. Krueger stated it is not difficult to alternate between
cash and accrual basis accounting. Mayor Johnson suggested staying the current
practices and procedures.
Council Member Hitchcock stated cash basis accounting is helpful for the budget
accurately reflecting the current picture and suggested staying with the same.
Mayor Pro Tempore Mounce stated a single methodology of either cash basis or accrual
accounting is best to reflect the accuracy of the financial condition.
Mr. Krueger stated transparency is important and the budget document could use
improvement. He stated they will remove a reference to "accrual to cash basis adjustment"
as the numbers for the same are referenced more clearly elsewhere in the document.
In response to Council Member Hitchcock, Mr. Krueger stated there are a variety of classes
available on GASB 34 and 45 offered by finance officers' associations and the League of
California Cities. City Manager King stated he believes presenting the budget on an accrual
basis would not be reflecting an accurate picture of the current financial condition.
2
Continued March 27, 2007
In response to Mayor Johnson, Mr. Krueger stated the million dollar amount references only
the software and the hardware will be approximately an additional $100,000. He stated both
the software and hardware will need to be replaced at the same time.
In response to Council Member Hitchcock, Mr. Krueger stated the green striped paper is no
longer available due to printing costs, but the information is available at any given time both
on the Internet and Intranet. He stated they can do a better job on the summaries, which is
connected to the software.
Public Works Director Prima stated accrual basis accounting is not preferred from an
operating standpoint.
C. COMMENTS BY THE PUBLIC ON NON -AGENDA ITEMS
None
D. ADJOURNMENT
No action was taken by the City Council. The meeting was adjourned at 8:31 a.m.
ATTEST:
Randi Johl
City Clerk
CITY OF LoDI
COUNCIL COMMUNICATION
TM
AGENDA TITLE: Overview of Governmental Accounting Standards and practices
MEETING DATE: March 27, 2007
PREPARED BY: Deputy City Manager
RECOMMENDED ACTION: Receive presentation on Governmental Accounting
Standards and practices.
BACKGROUND INFORMATION: These have been several changes in the way that
municipal governments are required to prepare
financial information. One of the most comprehensive
changes, Governmental Accounting Standards Board Statement Number 34 (GASB 34),
requires that cities account for all of their activities on a basis that is comparable to business
enterprises. In accordance with standards and practices that have been used by businesses for
decades, the results of operations (profit and loss) and financial condition (balance sheets) are
now accounted for on a full accrual basis for municipal governments as well.
Although the City of Lodi and all other municipal governments have complied with all of the
elements required in GASB 34, the change has not been incorporated in many of the internal
reports that are used by cities. It is a common practice in business to have several different
methods of reporting financial information. The methods and the reporting formats used depend
primarily on the requirements of the oversight body to which the financial reports are being sent.
With the implementation of GASB 34, municipal governments now face the same dilemma that
businesses face related to having multiple oversight agencies and reporting requirements. The
measurement focus, which relates to the recording of revenues and expenditures on either a
cash basis or an accrual basis, is the substantive difference in the way internal reports (including
the annual budget) are prepared in comparison to the CAFR.
Staff will make a presentation at the Shirtsleeve meeting that gives an overview of governmental
accounting, a discussion of cash and accrual basis accounting and other practices used to
prepare City financial reports.
J es R. Krueger, Deputy City Manager
APPROVED:
King, City Manager