SACS Forum Meeting Minutes, October 2019
Standardized Account Code Structure (SACS) October 8, 2019 meeting minutes.Meeting held via webinar at the California Department of Education (CDE), Sacramento
Meeting Agenda
Announcements and Information
Accounting Update
- Indirect Cost Calculation – Excluding Food Costs
- Senate Bill (SB) 90: Public Employee Retirement System (PERS)/State Teachers Retirement System (STRS) On-Behalf Contribution Update
- Governmental Accounting Standards Board (GASB) 84: Fiduciary Activities Update
- GASB 87: Leases
- Every Student Succeeds Act (ESSA) Per-Pupil Reporting Update
SACS Software Update
Other Updates
Meeting Minutes
Announcements and Information
- 2018–19 Unaudited Actuals (UA) Data Submissions - CDE review
The Financial Accountability and Information Services (FAIS) staff are in the process of reviewing the 2018–19 unaudited actuals data submissions. Again this year, a focus of the review is the indirect cost rate calculation to ensure the rates calculated are in accordance with the CDE’s delegation agreement with the U.S. Department of Education (ED). In addition, because the UA data is available to the public and is used for several state and federal reports, the CDE wants to ensure that reported financial data is reliable, accurate, and prepared in accordance with generally accepted accounting principles.
FAIS staff may be contacting local education agency (LEA) staff with questions regarding the indirect cost rate calculation or any other financial reporting questions.
The CDE appreciates LEA staff assistance with these questions. The deadline to finalize the review is mid-December, which facilitates prompt publishing of the financial data and completion of other time-sensitive tasks, e.g., SACS financial reporting software development and county office of education First Interim reviews.
- Staff Updates
It was announced that Arturo Ambriz has joined FAIS as a fiscal consultant, and Lisa Constancio has replaced Caryn Moore, who recently retired, as the Director of the School Fiscal Services Division.
Accounting Updates
The CDE negotiated its latest indirect cost rate agreement with the ED in 2017. The new agreement addressed a few changes to be made to the indirect cost calculation, including excluding food costs from the base of the calculation. The ED considers food costs distorting in nature. In addition, the treatment of food costs from food service activities has been the cause of some confusion since U.S. Department of Agriculture issued their indirect cost guidance back in 2011. This guidance indicates that food costs are included in the category of excluded costs that are considered distorting in nature or require minimal general administrative support compared with the amount of dollars spent.
Therefore, because the CDE had previously agreed with ED that food costs will be excluded from the base indirect cost rate calculation, CDE is planning to exclude food costs (Object 4700) from the SACS Indirect Cost Rate Worksheet (Form ICR) for rates calculated based on 2019–20 financial data, to be used in 2021–22. Note that food costs are not excluded from the pool of program costs on which indirect costs are calculated and charged until the fiscal year the affected rate is used, i.e., 2021–22. Also note that there will continue to be a capped statewide indirect cost rate applicable to the food service program, which is the maximum indirect cost rate that can be used, i.e., the greater of the capped rate or an LEA’s approved rate.
The CDE will work on making the change to the 2019–20 second interim Form ICR, which will allow LEAs to review and analyze the effect of the change on their indirect cost rates prior to 2019–20 unaudited actuals. A revised Form ICR template file will be posted to the SACS2019ALL Software: Known Problems/Fixes web page and an email sent to LEAs when the file is available.
- Senate Bill (SB) 90: Public Employee Retirement System (PERS)/State Teachers Retirement System (STRS) On-Behalf Contribution Update
SB 90 (Chapter 33, Statutes of 2019), which was signed into law on June 27, appropriated $2.246 billion and $904 million to the California State Teachers’ Retirement System (STRS) and the California Public Employees’ Retirement System (PERS), respectively. Since the State appropriated and accrued the on-behalf contributions on its 2018–19 financial statements, to conform to generally accepted accounting principles (GAAP), LEAs are required to record these contributions on their 2018–19 financial statements.
LEAs that reported these contributions in their financial systems prior to year-end closing should have used Resource 7690, On-Behalf Pension Contributions, in conjunction with revenue Object 8590, All Other State Revenue, and the applicable expenditure objects – 3101/3102, State Teachers' Retirement System, and 3201/3202, Public Employees' Retirement System, as applicable. Note that the title of Resource 7690 has been changed to more broadly identify pension on-behalf contributions, and not only the STRS on-behalf contributions. LEAs that finished closing before the SB 90 contributions could be recorded should work with their auditors to ensure these amounts are included in the audited financial statements.
There were a few potential implications for LEAs as a result of the SB 90 payments, given the timing and large dollar amounts involved. LEAs’ 2018–19 required routine restricted maintenance account (RRMA) contributions had already been finalized by the time the SB 90 appropriations were made, and additional LEA contributions needed because of the increased general fund expenditures could have been burdensome. However, clean-up language was later implemented in education trailer bill SB 114 (Chapter 413, Statutes of 2019), Section 16, allowing LEAs to exclude the SB 90 expenditures from the RRMA contribution calculation. Note that this language did not exempt the annual on-going STRS on-behalf expenditures from an LEA’s RRMA contribution.
In addition, these one-time on-behalf expenditures may negatively impact LEAs’ ability to meet 2019–20 special education maintenance of effort (MOE). After discussing with the CDE Special Education program staff, they agreed to evaluate LEA MOE reports on a case by case basis for adjustments if LEAs can demonstrate that the only reason for not meeting MOE is due to the SB 90 on-behalf contribution expenditures.
An optional spreadsheet for preparing PERS on-behalf journal entries (similar to the existing STRS spreadsheet provided by CDE) was distributed to all county offices of education, as well as auditors, in August. The journal entries are used for allocation of the on-behalf contributions proportionally across all LEA activities. Please note that the use of these spreadsheets is optional.
For charter schools that use the not-for-profit, full-accrual basis accounting model, the authoritative source of GAAP is the Financial Accounting Standards Board (FASB). Please consult the charter schools’ auditors to determine the applicable FASB guidance for the on-behalf contribution accounting.
Please refer to the Summary - SACS Forum Discussion on GASB Statement 84 (Attachment A) (DOCX) for a recap of GASB 84 information and guidance that was discussed in the previous SACS Forum sessions. CDE briefly addressed some of the key points of those previous discussions.
CDE clarified that it is clearly stated in the GASB Implementation Guide 2019–2, Fiduciary Activities, question 4.1, that pension and other postemployment benefits (OPEB) plans that are administered through qualifying trusts are considered legally separate entities for component unit evaluation. However, the pension and OPEB plans that are administered through equivalent arrangements that meet the criteria in paragraph 3 of GASB 67 and in paragraph 4 of GASB 74, respectively, might not be considered legally separate entities for component unit evaluation (Implementation Guide 2019–2, question 4.3).
CDE further discussed GASB 84 implementation issues surrounding associated student body (ASB) activities. CDE advised LEAs to read the Implementation Guide, questions 4.17 through 4.26, which provide very clear examples that will assist with determining if they have administrative involvement with the ASB activities.
CDE discussed at the May SACS Forum whether a special revenue fund should be established for reporting ASB activities that are determined to be governmental rather than fiduciary. Since that meeting, CDE has determined that a special revenue fund should be established and is proposing to create Fund 08 for this purpose.
With regards to the proposed Fund 08, Student Activity Fund (Attachment A, page 9), the following issues require further consideration:
- Required or optional use (other option is general fund)
- Potential impact on indirect cost rate calculation, i.e., include expenditures in the base of the calculation?
- For charter schools reporting as part of the authorizing LEA in Fund 01, Fund 09 or Fund 62, how should charter schools report their non-fiduciary ASB activities?
- Which goal code should be used for these non-fiduciary ASB expenditures?
There should be no impact on the RRMA calculation when reporting non-fiduciary ASB activities in Fund 08 since the RRMA calculation is based on general fund expenditures only.
GASB 87, Leases, was issued in June 2017 and will be effective fiscal year 2020–21. It supersedes previous leases guidance, primarily GASB 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncement, paragraphs 211 through 271. Under previous guidance, leases could be presented as either capital leases or operating leases. Under GASB 87, there is only one single model for lease accounting because the new statement is built upon the foundational principle that all leases are financings of the right to use an underlying asset.
GASB 87 introduces a new definition of 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:
- Control – Control is defined as the right to use the underlying asset when the entity has both of the followings:
- The right to obtain the present service capacity from use of the underlying asset as specified in the contract; and
- The right to determine the nature and manner of use of the underlying asset as specified in the contract.
- Period of time or lease term
- Exchange or exchange-like transaction – It means each party is essentially giving up or receiving something in equal value.
- Nonfinancial asset – Nonfinancial asset is an asset that is not a financial asset as defined in GASB 72, Fair Value Measurement and Application. Examples are land, buildings, vehicles, and equipment.
Example: A government obtains the right to use the land, which has a market rent of $100,000 per year, for $1 per year. This is not an exchange or exchange-like transaction (Implementation Guide 2019–3, question 4.1).
The following are outside the scope of GASB 87:
- Leases of intangible assets, including licensing contracts for computer software. Licensing contracts for computer software will be covered under another proposed statement, Subscription-Based Information Technology Arrangements (SBITAs), that addresses accounting and financial reporting for SBITAs. The comment period was closed in August 2019.
- Leases of biological assets, including timer, living plants, and living animals.
- Contracts that meet the definition of a service concession arrangement, which can be found in GASB 60, Accounting and Financial Reporting for Service Concession Arrangements, paragraph 4.
- Leases in which the underlying asset is financing with outstanding conduit debt (GASB 91, Conduit Debt Obligations) unless both the asset and conduit debt are reported by the lessor.
- Supply contracts, such as power purchase agreements which do not convey control of the right to use the underlying power generating facility.
- Contracts that transfer ownership at the end of the contract without termination options. In this case, the transaction is reported as a financed purchase by the lessee and a sale by the lessor.
- Leases of inventory.
- Short-term leases.
In GASB 87, paragraph 16, a short-term lease is defined as a lease that, at the commencement of the lease term, has a “maximum possible term” under the lease contract of 12 months (or less), including any options to extend, regardless of their probability of being exercised. For a lease that is cancelable by either the lessee or the lessor, such as a rolling month-to-month lease or a year-to-year lease, the maximum possible term is the noncancelable period. Periods for which both the lessee and the lessor have an option to terminate the lease without permission from the other party (or if both parties have to agree to extend) are cancelable periods and are excluded from the lease term.
Example: A lease with a 6-month noncancelable period and with an option to extend for another 12 months after the noncancelable period. This is not a short-term period because the maximum possible term is 18 months (Implementation Guide 2019–3, Leases, question 4.18).
Example: A lessee enters into a lease with a lessor for 16 months. The lessee can cancel the lease at any time after 6 months. The lessor does not have the option to cancel the lease. This is not a short-term term because the maximum possible term is 16 months (Implementation Guide 2019–3, question 4.19).
To prepare for GASB 87 implementation, LEAs should consider the following:
- Apply GASB 87 to new leases going forward, but also retroactively to existing agreements.
- Create an inventory of existing leases and other contracts and agreements for review.
- Determine which leases, contracts, or agreements meet the definition of a lease and which can be excluded.
- Separate contracts into lease and nonlease components.
- Don’t assume the agreement or contract is not a lease because the word “lease” is not in the agreement or contract. Review it using the definition of a lease under GASB 87 (substance over form).
- Once identify the leases in accordance with GASB 87, determine the key elements – lease term, extensions, termination provisions, payment provisions, and etc.
One participant asked if a lease-leaseback transaction is within the scope of GASB 87. It is included; additional information can be found in GASB 87, paragraph 87, and Implementation Guide 2019–3, questions 4.73 and 4.74.
The CDE developed an application to collect 2018–19 unaudited actual data for the ESSA per-pupil expenditure (PPE) requirement. The CDE anticipates for data collection to begin in the middle of November through February 2020. The information from the data collection will eventually be included in the State Accountability Report Card (STARC) and the Local Education Agency Accountability Report Card (LARC).
An introductory letter, which will contain a unique access code and link to the applications web page, will be emailed each LEA superintendent listed within the California School Directory. Additionally, each administrator of a direct-funded charter school will also receive the introductory email. To help ensure superintendents and administrators receive the introductory letter, the email address of essappe@cde.ca.gov should be added to the recipient’s safe senders list.
The application allows for two school-level data entry options. The first option allows users to hand-key school-level data in a data entry screen. Users will enter four data elements for each school:
- Federal school-level expenditures per pupil
- State school-level expenditures per pupil
- Federal school share of central expenditures per pupil
- State school share of central expenditures per pupil
The second option allows users to import the school-level PPE data using an Excel spreadsheet. The application provides a downloadable spreadsheet providing each school for which an LEA is required to provide PPE data. That spreadsheet may be used as a template for your completed data file. Specific instructions regarding the file import functionality are provided within the application.
Each school’s enrollment data is pre-populated and cannot be modified. LEA-level federal and state/local PPE and total excluded expenditures must be hand-keyed within the application. The LEA data cannot be included in the import file along with the school data.
Once all school and LEA data entry is completed, data is certified and submitted. All school and LEA data must be completed, i.e., all school and LEAs must have total PPE expenditures greater than zero, before data can be certified and submitted.
CDE reminded participants that the data is required to be submitted for all LEAs and applicable schools, including charter schools, regardless of whether the LEA receives Title I funding. The requirement is driven by California's receipt of Title I funding.
Further questions regarding the ESSA per-pupil expenditure reporting requirement can be sent to essappe@cde.ca.gov.
SACS Software Update
Development of the SACS web-based financial system is moving along well and on schedule. Anticipated release is April 2021, in time for 2021–22 budget reporting.
User outreach will begin in November at numerous school business-related conferences and meetings throughout the state, continuing until the system goes live. CDE and FCMAT staff will provide an overview of the functionality and improvements in the new system, and do a demonstration of relevant components that have been developed to date.
Other Updates
The next SACS Forum is tentatively scheduled for Tuesday, February 4, 2020. CDE is again planning on offering the forum via webinar only.