SACS Forum Meeting Minutes, November 2021

Meeting held via webinar at the California Department of Education (CDE), Sacramento

Meeting Agenda

Announcements and Information

• 2020–21 Unaudited Actuals (UA) Data Submissions — CDE Review
  
  
• Staff Updates

Accounting Updates

• Validation Table Update
  
  
• Child Care Programs Transition to Department of Social Services (DSS)
  
  
• Every Student Succeeds Act Maintenance of Effort (ESMOE)
  
  
• GASB 87, Leases — Reminder
  
  
• GASB 96, Subscription-Based Information Technology Arrangements

SACS Software Update

• Criteria and Standards, Facilities Maintenance — RRMA Exclusions
  
  
• SACS Replacement System Update

Other Updates

• SACS Reporting Calendars
  
  
• Every Student Succeeds Act (ESSA) Per–Pupil Expenditure Reporting Update
  
  
• Next Meeting

Meeting Minutes

Announcements and Information

2020–21 Unaudited Actuals (UA) Data Submissions — CDE Reviews

In November CDE will begin the process of reviewing the 2020–21 unaudited actuals data submissions.

A focus of the review will be LEA indirect cost rate calculations, which will provide the rates to be used in 2022–23. The review is to ensure the rates calculated are in accordance with the CDE’s delegation agreement with the U.S. Department of Education (ED). In addition, the CDE wants to ensure the financial data is accurate, consistent, and reliable.

CDE staff may contact LEA staff with questions regarding the indirect cost rate calculation or any other financial reporting questions. CDE appreciates LEA staff timely assistance with these questions in order to ensure the statewide financial data will be published in a timely manner.

Staff Updates

CDE announced that John Miles has replaced Jonathan Feagle as the Administrator of the Fiscal Oversight and Support Office.

Accounting Updates

Validation Table Update

CDE provided the following list of new resource codes established since September 24, 2021.

U=subject to unearned revenue

F=subject to ending fund balance

Child Care Programs Transition to Department of Social Services (DSS)

The Early Childhood Development Act of 2020, Senate Bill (SB) 98 (Chapter 24, Statutes of 2020), authorized the transfer of many child care and development programs from CDE to DSS. Please refer to the May 2021 SACS Forum Recap for a list of programs that transferred to DSS.

Existing resource codes will remain the same for programs that transferred from CDE to DSS until further notice. CDE is in the process of updating the contact information in SACS Query for programs that transferred to DSS. For additional information, please refer to the DSS Child Care and Development Transition web page .

Effective 2021–22, CDE established two new resource codes, 5160, Child Care and Development Programs Administered by CA Department of Social Services (Federal Funds) and 6160, Child Care and Development Programs Administered by CA Department of Social Services (State Funds), for LEAs to account for any new childcare and development programs administered by DSS. These resource codes are to be used only for new programs/funding administered by DSS beginning fiscal year 2021–22. LEAs may use the following locally defined resource code ranges to further track the funding in their local system:

• Federally funded resource range 5160–5199: Must roll up to Resource 5160 when reporting data to CDE
• State funded resource range 6160–6199: Must roll up to Resource 6160 when reporting data to CDE

CDE is requesting feedback from LEAs on whether they prefer to keep existing resource codes for programs that transferred to DSS, or close out existing resource codes and use the locally defined codes to be consistent with all DSS administered programs, which is CDE’s preference. Please send feedback to SACSINFO@cde.ca.gov

CDE has established a new resource code 6129, Center-Based Reserve Account, for DSS. This reserve account is set up for the Center-Based Programs, administered by DSS, which includes the General Center-Based (CCTR), CA Migrant Program (CMIG), and Special Needs Children (CHAN).

Following are the existing reserve accounts:

• Resource 6130: Center-Based Reserve Account including CA State Preschool Program (CSPP) (administered by CDE)
• Resource 6131: Resource & Referral Reserve Account (transitioned to DSS)
• Resource 6132: Alternative Payment Reserve Account (transitioned to DSS)

Every Student Succeeds Act Maintenance of Effort (ESMOE)

• 2019–20 Waiver Process
  The U.S. Department of Education (ED) is currently accepting waiver applications for LEAs that failed in 2019–20.

• 2020–21 Waiver Process
  The CDE verifies information submitted by the LEAs prior to making a final determination and notifying failing LEAs in July of 2022.
  
  LEAs may then apply to the ED for a waiver. Information regarding the waiver process and instructions are included in their notification letter. LEAs are requested not to begin the waiver process until after receiving formal instructions from the CDE.

GASB 87, Leases – Reminder

GASB 87, Leases, is effective 2021–22 (the effective year was delayed for one year due to GASB 95, Postponement of The Effective Dates of Certain Authoritative Guidance). GASB 87 defines a lease as a contract that conveys control of the right to use another entity’s nonfinancial asset (the underlying asset) as specified in the contract for a period of time in an exchange or exchange-like transaction.

The four key elements of a lease and items excluded from the scope of GASB 87 were discussed at the October 2019 SACS Forum. Please refer to the October 2019 SACS Forum minutes for details. Note that subscription-based information technology arrangements are excluded from GASB 87 because they are covered under GASB 96, which is effective 2022–23.

The CDE provided additional information regarding two of the key lease elements – control and lease term.

• Control

To meet the definition of a lease, the government is not required to have uninterrupted control of the right to use the underlying asset (GASB Implementation Guide [GASBIG] 2019–3, questions 4.2 and 4.3).

The substantive right of substitution does not affect the evaluation of whether the contract conveys control of the right to use the asset (GASBIG 2019–3, question 4.9; GASBIG 2020–1, question 4.7). The right–to–use asset relates to the service capacity associated with an underlying asset, rather than the underlying asset itself.

• Lease Term
  
  The definition of lease term can be found in GASB 87 (PDF), paragraph 12. Note that cancelable periods are excluded from lease term. “Cancelable periods” are the periods for which both the lessee and lessor have an option to terminate without permission from the other party (or if both parties have to agree to extend).
  
  When calculating lease term, a fiscal funding or cancellation clause is generally ignored unless it is reasonably certain that the clause will be exercised. A fiscal funding or cancellation clause allows governmental lessees to end a lease, typically on an annual basis, if the government does not appropriate funds for the lease payments.
  
  Example: An agreement contains a fiscal funding clause until the end of the current fiscal period but the government warrants that it intends to make payments in each fiscal period from now until the end of the agreement. In this example, the fiscal funding clause (common in governmental leases) should not affect the lease term since the government warrants it will make all payments and appropriate funds.

CDE discussed the three types of leases:

• Short-term Leases
  
  Refer to the October 2019 and February 2020 SACS Forum minutes for previous short-term lease information and accounting guidance.
  
  A few additional examples of short–term leases were provided:
  • A government enters into a 12–month noncancelable lease in which the lessee has options to renew for 12 months at a time, up to 49 times. This agreement is not a short-term lease (GASBIG 2019–3, question 4.17).
    
  • A government enters into a 12–month lease contract that states the lessee may renew. If the lessee decides to renew, the government and the lessee will enter into a separate lease contract at a later date for the subsequent 12–month period. The existing 12–month lease is a short-term lease because the maximum possible term under the existing contract is 12 months (GASBIG 2020–1, question 4.10).
    
  • A government enters into a three–year lease contract. Both the lessee and lessor have a right to cancel at any time with 60 days’ advance notice. This contract is a short–term lease because there is no noncancelable period other than the notice period therefore the maximum possible term is 60 days (GASBIG 2020–1, question 4.9).
    
  • A government enters into a three-year contract for the right to use a piece of equipment. Based on the contract, the government has control of the right to use the equipment three months (January through March) each year and does not have an option to extend the right t use the equipment. This contract is a short-term lease because the maximum possible term is nine months (GASBIG 2021–1, question 4.7).
    
    
• Contracts that Transfer Ownership
  
  Refer to the February 2020 SACS Forum minutes for previous information and accounting guidance regarding contracts that transfer ownership.
  
  
• All Other Leases
  
  All other leases are leases other than short-term leases and contracts that transfer ownership.

As a reminder, CDE established the following new object codes and changed existing lease–related object code titles to allow LEAs to account for leases. They were issued in the April 2021 SACS validation tables update.

* For propriety and fiduciary funds only

• Expenditures – Capital Outlay (Objects 6000–6999)
  
  
  • New Object 6600, Lease Assets
  • New Object 6910, Amortization Expense–Lease Assets*
    
    
• All Other Financing Sources (Objects 8930–8979)
  
  
  • Revise the title of Object 8972 to “Proceeds from Leases”
    
    
• Assets (Objects 9100–9489)
  
  
  • New Object 9380, Lease Receivables
  • New Object 9460, Lease Assets*
  • New Object 9465, Accumulated Amortization–Lease Assets*
    
    
• Long-Term Liabilities (Objects 9660–9669)
  
  
  • Revise the title of Object 9667 to “Leases Payable”*

CDE discussed the following lease accounting example:

A photocopy machine used in the accounting department is leased for a five–year period, which is also the useful life of the equipment. The lease is signed on June 30, 2022, and beginning on this date, five annual payment of $50,000 will be made.

The lease agreement contains the following amortization schedule (applies to lessor and lessee):

Lessee accounting:

1. Record the lease at inception on 6/30/2022. This is the date that the lessor makes the underlying asset available for use by the lessee.

2. Record the first lease payment on 6/30/2022.

3. Record the second lease payment on 6/30/2023.

Note: If the government provides payment in full at the commencement of the lease term, there is no lease liability on which to base interest expenditures. (See IG 2021–1, question 4.9)

Lessor accounting:

1. Record the lease at inception on 6/30/2022.

2. Receive the first lease payment on 6/30/2022.

Note: Lease receivable would be decreased as payments are received.

3. Receive the second lease payment on 6/30/2023.

Note: Recognize the deferred inflow of resources as revenue over the lease term in a systematic and rational manner. In this example, management believes that a straight-line recognition over the five–year lease term is the most appropriate method ($208,493 divided by 5 years).

Additional lease recognition considerations:

• A refundable security deposit is not a lease payment.
  
  
• Lease may have lease and non–lease components:
  
  
  • Lease principle and interest
  • Maintenance
  • Utilities
  • Insurance and taxes
  • Consumables and similar
  • If practicable, separate and estimate the costs; if not practicable, included in the lease liability
  • See IG 2019–3, questions 4.59 and 4.60; IG 2021–1, question 4.11
    
    
• Capitalization threshold applied to lease liabilities
  
  
  • Lease liabilities that are significant, either individually or in the aggregate, should be recognized (see IG 2019–3, question 4.23)
  • Be aware that the question on capitalization policy applied on individual assets versus aggregate has been updated (see IG 2021–1, question 5.1, which will be effective 2023–24)
    
    
• At the initial implementation date, leases should be recognized and measured using the facts and circumstances that existed at the beginning of the period of implementation:
  
  
  • Leases were reported as operating leases prior to GASB 87 (see IG 2019–3, question 4.76)
  • A capital lease was reported prior to GASB 87 (see IG 2019–3, question 4.77)
  • A lease started 1/1/2019 and will end 12/31/2021. The lease does not contain any options to extend. With the implementation of GASB 87 on 7/1/2021, should the lease be considered a short-term lease? (see IG 2021–1, question 4.22)

GASB 96 – Subscription-Based Information Technology Arrangements (SBITAs)

A SBITA is a contract that conveys control of the right to use another party’s (a SBITA vendor’s) information technology (IT) software, alone or in combination with tangible capital assets (the underlying IT assets), as specified in the contract for a period of time in an exchange or exchange–like transaction.

The provisions of GASB 96 are similar to GASB 87, Leases, in regards to the subscription term and definition of short term SBITAs.

SBITAs exclude contracts that solely provide IT support services, but include contracts that contain both a right–to–use IT asset component and an IT support services component.

GASB 96 is effective 2022–23.

The following are not within the scope of GASB 96:

• Contracts that convey control of the right of use another party’s combination of IT software and tangible capital assets that meets the definition of a lease in GASB 87, in which the software component is insignificant when compared to the cost of the underlying tangible capital asset. For example, a computer with operating software, or a smart copier that is connected to an IT system.
• Governments that provide the right to use their IT software and associated tangible capital assets to other entities through SBITAs, i.e., governments are software vendors.
• Contracts that meet the definition of a public-private and public–public partnership. These are subject to GASB 94, Public–Private and Public–Public Partnerships and Availability Payment Arrangements.
• Licensing arrangements that provide a perpetual license to governments to use a vendor’s computer software. These are subject to GASB 51, Accounting and Financial Reporting for Intangible Assets.

Costs for activities associated with a SBITA should be grouped into the three stages:

1. Preliminary Project Stage

• Expensed as incurred
  
• Examples: conceptual formulation and evaluation of alternatives, determination of existence of needed technology, final selection of alternatives for the SBITA

2. Initial Implementation Stage
   

• Capitalized as part of the subscription asset
  
• For short–term SBITA, should be expensed as incurred because there is no subscription asset

3. Operation and Additional Implementation Stage

• Expensed as incurred

Accounting for SBITAs

Accounting for short-term SBITAs is similar to short–term leases.

• Recognize short–term subscription payments as outflows of resources, i.e., expenditures.
• Outflows of resources should not be recognized when the SBITA vendor grants the right to use the underlying IT assets to the government free of charge. For example, one or more months free.

Accounting for SBITAs other than short–term SBITAs, for financial statements prepared using the current financial resources measurement focus)

• Initial recognition and measurement:
  
  
  • Report an expenditure and other financing source in the period the subscription asset is initially recognized.
  • The expenditure and other financing source should be measured according to GASB 96 paragraphs 16–18.
    
    
• Subsequent recognition and measurement:
  
  
  • Subsequent subscription should be accounted for consistent with principles for debt service payments on long–term debt.

Proposed SBITA SACS Object Codes

With the new subscription asset and liability reporting requirements, the following object codes are proposed to allow LEAs to report SBITAs separately from other capital assets:

*For proprietary and fiduciary funds only

• Expenditures – Capital Outlay (Objects 6000–6999)
  
  
  • Object 6700, Subscription Assets
  • Object 6920, Amortization Expense—Subscription Assets*
    
    
• All Other Financing Sources (Objects 8930–8979)
  
  
  • Object 8974, Proceeds from Subscription Asset
    
    
• Capital Assets (Objects 9400 – 9489)
  
  
  • Object 9470, Subscription Assets*
  • Object 9475, Accumulated Amortization—Subscription Assets*
    
    
• Long-Term Liabilities (Objects 9660 – 9669)
  
  
  • Object 9660, Subscription Liability*

SACS Software Update

Criteria and Standards, Facilities Maintenance — RRMA Exclusions

The following resource codes will automatically be excluded from the RRMA calculation: 3210, 3215, 3220, 5316, 7027, 7420, and 7690.

Section 119 of Assembly Bill (AB) 130 (Chapter 44, Statutes of 2021), provides additional exclusions that were not programmed in SACS2021 which was released in May 2021 prior to the passage of AB 130. Therefore, for 1^st and 2^nd interim, districts will need to manually exclude the following resource codes from the “Required Minimum Contribution” calculation: 3212, 3213, 3214, 3216, 3218, and 3219.

Note: In Criterion 7, Line 1, districts can override the “Required Minimum Contribution” cell to manually exclude these resource codes.

Current statute does NOT exclude the following resource codes from the RRMA calculation: 3217, 7422, 7425, and 7426.

SACS Replacement System Update

The CDE is developing a web–based system to replace the almost 25–year–old desktop financial reporting software and related components. Note that this web–based system should not be confused with the Principal Apportionment data collection system.

The SACS Web System is scheduled to go live in April 2022 for 2022–23 budget period reporting functionality. Subsequent reporting periods are anticipated to be released as follows:

• October 2022: 2022–23 interim period reporting
• Spring 2023: 2022–23 unaudited actuals period reporting

2021–22 unaudited actuals will be prepared using the SACS desktop software.

The CDE will offer outreach sessions at the end of the year. Formal system training is being planned for February or March 2022.

While the new web–based system will have new components and functionality, most of the components of the existing desktop software will remain the same, including:

• SACS code structure – no new, revised, or removed fields
• Data file structure – import and export file specifications remain the same
• Forms (fund, supplemental, government-wide reports, special education maintenance of effort reports) – same content and overall functionality

New components and functionality include:

• User roles and security
• Modeled workflow – datasets have “states” and are “promoted”
• Dataset drafts versus submissions
• Multiuser functionality
• Dataset versioning

Other Updates

SACS Reporting Calendars

2021 Financial Reporting Calendars have been updated for passage of AB 130 and AB 167 (for 2021–22 fiscal year only). Following are notable changes:

• 2020-21 audit report filing date is extended from December 15, 2021 to January 31, 2022.
• LEA review of their 2020–21 annual audit and corrective action is extended from January 31, 2022 to February 28, 2022.
• LEA deadline to provide corrective action to their COE for the 2020–21 audit is extended from March 15, 2022 to April 15, 2022.
• COE deadline for the annual certification for 2020–21 audits to State Controller's Office and CDE is extended from May 15, 2022 to June 15, 2022.
  
  

Every Student Succeeds Act (ESSA) Per-Pupil Expenditure Reporting Update

The ESSA PPE Reporting Application will be opened in the middle of November. Emails containing the LEA’s unique access codes will be sent to the Superintendents, Charter School Administrators, and Chief Business Officers that are found on the California School Directory.

To receive updates and webinar notifications, you can subscribe to the listserv by sending a blank message to subscribe-essa-ppe@mlist.cde.ca.gov.

Additional resources are available on the CDE ESSA PPE Reporting web page.

Next Meeting

The next SACS Forum meeting is tentatively scheduled for February 8, 2022. CDE is again planning on offering the forum via webinar only. Meeting information can be found on the SACS Forum Upcoming Meetings web page.