Policy Example, GASB 54 Note Disclosure

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Thanks to Anne Isbell for this policy example

Board Policy Descriptor Code: DGA

Fund Balance

The Board of Education recognizes that the maintenance of a fund balance is essential to the preservation of the financial integrity of the District and is fiscally advantageous for both the District and its taxpayers. This policy establishes goals and provides guidance concerning the desired level of fund balance maintained by the District to mitigate financial risk that can occur from unforeseen revenue fluctuations, unanticipated expenditures, and similar circumstances. The School District also seeks to maintain the highest possible credit ratings which are dependent, in part, on the School District’s maintenance of an adequate fund balance.

Fund balance is a measurement of available financial resources and is the difference between total assets and total liabilities in each fund.

Beginning with the most restrictive constraints, fund balance amounts will be reported in the following categories:

1) Nonspendable fund balance – amounts that are not in a spendable form (e.g., inventory, prepaid items) or are legally or contractually required to be maintained intact (e.g., permanent fund principal).

2) Restricted fund balance – amounts that can be spent only for the specific purposes stipulated by external parties either constitutionally or through enabling legislation (e.g., grants or donations).

3) Committed fund balance – amounts that can be used only for the specific purposes determined by a formal action of the Board of Education. Commitments may be changed or lifted only by referring to the formal action that imposed the constraint originally (e.g., the Board’s commitment in connection with future construction projects).

4) Assigned fund balance – amounts intended to be used by the government for specific purposes. Intent can be expressed by the Board of Education or by a designee to whom the Board of Education delegates the authority. In governmental funds other than the general fund, assigned fund balance represents the amount that is not restricted or committed. This indicates that resources in other governmental funds are, at a minimum, intended to be used for the purpose of that fund.

5) Unassigned fund balance – includes all amounts not contained in other classifications and is the residual classification of the general fund only. Unassigned amounts are available for any legal purpose.

The Board deems that the fund balance of School Activity Accounts (i.e. governmental funds) maintained at the local schools be classified for financial statement purposes as “Committed Fund Balances”, as those funds are raised at the school level and the principal of each school has authority to manage and approve expenditures of those funds.
The responsibility for designating funds to specific classifications shall be as follows:

Committed Fund Balance – The Board of Education is the District’s highest level of decision-making authority, and the formal action that is required to be taken to establish, modify, or rescind a fund balance commitment is a resolution approved by the Board.

Assigned Fund Balance – The Board of Education has authorized the Superintendent and the Director of Finance as officials authorized to assign fund balance to a specific purpose as approved by this fund balance policy.

It is the goal of the District to achieve and maintain an unassigned fund balance in the general fund at fiscal year end of not less than _____% of ______________ revenues [or expenditures], , not to exceed 15% of the total budget of the subsequent fiscal year, net of any Committed Reserve Balance for capital expenditures, in compliance with O.C.G.A. 20-2-167(a)5. If the unassigned fund balance at fiscal year end falls below the goal, the District shall develop a restoration plan to achieve and maintain the minimum fund balance.

• This amount provides adequate funding to cover approximately xxx (X) months or X% of operating expenses.
• This amount provides the liquidity necessary to accommodate the District’s uneven cash flow, which is inherent in its periodic tax collection schedule.
• This amount provides the liquidity to respond to contingent liabilities.
• This amount may provide additional resources for other funds.

When multiple categories of fund balance are available for expenditure (e.g., a project is being funded partly by a grant, funds set aside by the Board, and unassigned fund balance), the District will start with the most restricted category and spend those funds first before moving down to the next category with available funds.

Blank School District Date: June 2011